Cost Management 136

35
1-1 Cost Management Cost Management Fourth Edition ACCOUNTING AND CONTROL ACCOUNTING AND CONTROL HANSEN & MOWEN HANSEN & MOWEN

Transcript of Cost Management 136

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 1/35

1-1

Cost ManagementCost Management

Fourth Edition

ACCOUNTING AND CONTROLACCOUNTING AND CONTROL

HANSEN & MOWENHANSEN & MOWEN

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 2/35

1-2

Task Force Clip Art Task Force Clip Art 

included in this electronic included in this electronic 

presentation is used withpresentation is used withthe permission of Newthe permission of New

Vision Technology of Vision Technology of 

Nepean Ontario, Canada.Nepean Ontario, Canada.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 3/35

1-3

Introduction toIntroduction to

Cost ManagementCost Management

 

Prepared byDouglas Cloud

Pepperdine University

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 4/35

1-4

1. List the similarities and differences between

financial accounting and cost management.

2. Identify the current factors affecting costmanagement.

3. Discuss the importance of the accounting

system for internal and external reporting.

4. Explain the need for today¶s cost accountant

to acquire cross-functional expertise.

ObjectivesObjectives

 

 After studying this After studying this

chapter, you should chapter, you should 

be able to:be able to:

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 5/35

1-5

5. Describe how management accountants

function within an organization.

6. Understand the importance of ethical behavior for management accounts.

7. Identify the thee forms of certification

available to internal accountants.

ObjectivesObjectives

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 6/35

1-6

 Financial Accounting Versus

Cost Ma

nag

emen

t Financial accounting is devoted to providing

information for external users; these usersinclude investors, government agencies, and banks.

Cost management identifies, collects,measures, classifies, and reports information

that is useful to managers in costing(determining what something costs), planning,controlling, and decision making.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 7/35

1-7

Cost accounting attempts to satisfy costingobjectives for both financial and managementaccounting.

M anagement accounting is concernedspecifically with how cost information andother financial and nonfinancial information

should be used for planning, controlling, anddecision making.

 Financial Accounting Versus

Cost Ma

nag

emen

t

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 8/35

1-8

 Current Factors Aff ecting

Cost Ma

nag

emen

t

� The new competitive

environment has increased thedemand not only for more cost

information but also for more

accurate information.

� Vastly imported transportation

and communication has led to a

global market for many

manufacturing and service firms.

Global Competition

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 9/35

1-9

 Current Factors Aff ecting Cost

Man

agemen

tGrowth of the Service Industry

As the traditional industries has

declined in importance, theservice sector of the economy

has increased in importance.

Deregulation of many services

has increased competition in the

service industry.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 10/35

1-10

 Current Factors Aff ecting Cost

Man

agemen

t Advances in Information Technology

Computers are used to monitor and

control operations, which allows for aconsiderable amount of useful

information to be collected and

 provided to management

instantaneously.

The emergence of electronic

commerce which allows buyers and

sellers to come together electronically.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 11/35

1-11

 Current Factors Aff ecting Cost

Man

agemen

t Advances in  M anagement Environment 

The theory of constraints is a method used to continuously

improve manufacturing activities and nonmanufacturingactivities.

 Just-in-time manufacturing is a demand-pull system that

strives to produce a product only when it is needed and

only in the quantities demanded by customers.

Computer-integrated manufacturing is the automation of the

manufacturing environment.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 12/35

1-12

 Current Factors Aff ecting Cost

Man

agemen

tCustomer Orientation

Firms are concentrating on the

delivery of value to the customer with the objective of establishing a

competitive advantage.

Companies must compete not only

in technological and manufacturing

terms but also in terms of the speed

of delivery and response.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 13/35

1-13

 Current Factors Aff ecting Cost

Man

agemen

t N ew Product Development 

Management recognizes that a high

 proportion of production costs arecommitted during the development

and design stage of a new product.

The requirement to control costencourages the use of target costing 

and activity-based management  .

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 14/35

1-14

 Current Factors Aff ecting Cost

Man

agemen

tTotal Quality  M anagement 

Continual improvement and elimination of waste are

the two foundation principles that govern a state of manufacturing excellence.

A philosophy of total quality management, in which

managers strive to create an environment that will

enable organizations to manufacture perfect products,has replaced the acceptable quality attitudes of the

 past.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 15/35

1-15

 Current Factors Aff ecting Cost

Man

agemen

tTime as a Competitive Element 

Time is the crucial

element in all phases of the value chain.

Decreasing non-value-

added time appears to gohand-in-hand with

increasing quality.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 16/35

1-16

 Current Factors Aff ecting Cost

Man

agemen

t Efficiency

W

hile quality and time areimportant, improving these

dimensions without

corresponding improvements

in financial performance may be futile, if not fatal.

.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 17/35

1-17

Journal EntriesJournal Entries

Posting to

Accounts

Financial

Reports

TransactionsTransactions

 TraditionalAccounting SystemTraditionalAccounting System

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 18/35

1-18

TransactionsTransactions

 DataData--Based RelationshipBased Relationship

Accounting SystemAccounting System

Custom

Report

CustomReport

Custom

Report

CustomReport

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 19/35

1-19

 Line and Staff PositionsLine and Staff Positions

 Line positions are positions

that have direct responsibility

for the basic objectives of an

organization.

 Staff positions are positions

that are supportive in nature

and have only indirectresponsibility for an

organization¶s basic objectives.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 20/35

1-20

Partial Organization Chart,

Manufacturing Company

PresidentPresident

Line Function Staff Function

Financial ViceFinancial Vice--PresidentPresident

Controller Controller  Treasurer Treasurer 

InternalInternal

AuditAuditCostCost FinancialFinancial SystemsSystems

TaTa

xx

ProductionProductionViceVice--PresidentPresident

ProductionProduction

Supervisor Supervisor 

AssemblyAssembly

ForemanForeman

MachiningMachining

ForemanForeman

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 21/35

1-21

 Role of Controller and Treasurer Role of Controller and Treasurer 

1. Financial reports

2. SEC reporting3. Tax planning and reporting

4. Performance reporting

5. Internal auditing

6. Budgeting7. Accounting systems and

internal controls

Controller

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 22/35

1-22

Treasurer

1. Collection of cash

2. Monitoring of cash payments

3. Monitors cash availability

4. Short-term investments

5. Short and long-term borrowing

6. Issuing of capital stock 

 Role of Controller and Treasurer Role of Controller and Treasurer 

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 23/35

1-23

 Planning is thedetailed formulationof future actions to

achieve a particular end. Planningrequires settingobjectives and

identifying methodsto achieve thoseobjectives.

 The Management ProcessThe Management Process

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 24/35

1-24

 The Management ProcessThe Management Process

Controlling is the

managerial activity of 

monitoring a plan¶simplementation and

taking corrective

action as needed.

 Control is usually achieved with the use of Control is usually achieved with the use of  feedback. feedback. Feedback Feedback is information that can be used to evaluateis information that can be used to evaluate

or correct the steps being taken to implement a plan.or correct the steps being taken to implement a plan.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 25/35

1-25

 The Management ProcessThe Management Process

Continuous

improvement is

required in a dynamicenvironment if a firm is

to remain competitive

or to establish a

competitive advantage.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 26/35

1-26

 The Management ProcessThe Management Process

 Decision making is

the process of choosing among

competing

alternatives.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 27/35

1-27

 Standards of Ethical ConductStandards of Ethical Conduct

for ManagementA

ccountantsfor ManagementA

ccountantsCompetence:  M anagement accountants have a

responsibility to--

1. Maintain an appropriate level of professional competence

 by ongoing development of their knowledge and skills.

2. Perform their professional duties in accordance with

relevant laws, regulations, and technical standards.

3. Prepare complete and clear reports and recommendationsafter appropriate analysis of relevant and reliable

information.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 28/35

1-28

 Standards of Ethical ConductStandards of Ethical Conduct

for ManagementA

ccountantsfor ManagementA

ccountantsConfidentiality:  M anagement accountants have a responsibility

to--

1. Refrain from disclosing confidential information acquired in the

course of their work except when authorized, unless legallyobligated to do so.

2. Inform subordinates as appropriate regarding the confidentiality

of information acquired in the course of their work and monitor 

their activities to ensure the maintenance of that confidentiality.3. Refrain from using or appearing to use confidential information

acquired in the course of their work for unethical or illegal

advantage either personally or through a third party.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 29/35

1-29

 Standards of Ethical ConductStandards of Ethical Conduct

for ManagementA

ccountantsfor ManagementA

ccountants Integrity:  M anagement accountants have a

responsibility to--

Avoid actual or apparent conflicts of interest and advise all

appropriate parties of any potential conflict.

Refrain from engaging in any activity that would prejudice

their ability to carry out their duties ethically.

Refuse any gift, favor, or hospitality that would influence

their actions.

Refrain from either actively or passively subverting the

attainment of the organization¶s legitimate and ethical

objectives.ContinuedContinued

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 30/35

1-30

 Standards of Ethical ConductStandards of Ethical Conduct

for ManagementA

ccountantsfor ManagementA

ccountants Integrity:  M anagement accountants have a

responsibility to--

Recognize and communicate professional limitations or 

other constraints that would preclude responsible

 judgment or successful performance of an activity.

Communicate unfavorable as well as favorable

information and professional judgments or opinions.

Refrain from engaging in or supporting any activity that

would discredit the profession.

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 31/35

1-31

Objectivity:  M anagement accountants have a

responsibility to--

1) Communicate information fairly and objectively.

2) Disclose fully all relevant information that could

reasonably be expected to influence an intended user¶s

understanding of the reports, comments, and

recommendations presented.

 Standards of Ethical ConductStandards of Ethical Conduct

for ManagementA

ccountantsfor ManagementA

ccountants

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 32/35

1-32

C  M  A: One of the main purposes of the CMAwas to

establish management accounting as a recognized,

 professional discipline, separate from the profession

of public accounting.

CPA: The responsibility of a CPA is to provide

assurance concerning the reliability of financial

statements. CIA: The focus of the CIA is to recognize

competency in internal auditing rather than external

auditing as with the CPA.

 Prof essional Certif icationsProf essional Certif ications

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 33/35

1-33

 The

CMAThe

CMA

Four areas emphasized on the exam:

1) Economics, finance, and management2) Financial accounting and reporting

3) Management report, analysis, and behavioral

issues4) Decision analysis and information systems

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 34/35

1-34

Chapter End of End of 

8/6/2019 Cost Management 136

http://slidepdf.com/reader/full/cost-management-136 35/35

1-35