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Transcript of Cost Management 136
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Cost ManagementCost Management
Fourth Edition
ACCOUNTING AND CONTROLACCOUNTING AND CONTROL
HANSEN & MOWENHANSEN & MOWEN
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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.
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Introduction toIntroduction to
Cost ManagementCost Management
Prepared byDouglas Cloud
Pepperdine University
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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:
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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
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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.
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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
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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
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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.
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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.
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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.
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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.
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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 .
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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.
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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.
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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.
.
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Journal EntriesJournal Entries
Posting to
Accounts
Financial
Reports
TransactionsTransactions
TraditionalAccounting SystemTraditionalAccounting System
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TransactionsTransactions
DataData--Based RelationshipBased Relationship
Accounting SystemAccounting System
Custom
Report
CustomReport
Custom
Report
CustomReport
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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.
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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
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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
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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
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Planning is thedetailed formulationof future actions to
achieve a particular end. Planningrequires settingobjectives and
identifying methodsto achieve thoseobjectives.
The Management ProcessThe Management Process
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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.
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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.
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The Management ProcessThe Management Process
Decision making is
the process of choosing among
competing
alternatives.
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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.
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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.
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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
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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.
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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
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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
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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
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Chapter End of End of