Post on 12-Jun-2018
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Kinney ● Raiborn
Cost Accounting: Foundations and Evolutions, 8e
Chapter 1:Introduction to Cost Accounting
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Learning Objectives
What are the relationships among financial, management, and cost accounting?
What are the the sources of authoritative pronouncements for the practice of cost accounting?
What are the sources of ethical standards for cost accountants? What is a mission statement, and why is it important to
organizational strategy? What must accountants understand about an organization’s
structure and business environment in order to perform effectively in that organization?
What is a value chain, and what are the major value chain functions?
How is a balanced scorecard used to implement an organization’s strategy?
Why is ethical behavior so important in organizations?
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Accountants Financial accountants provide information to
external parties Investors Creditors Regulators
Managerial accountants provide information to internal users Managers
Cost accountants provide information to both internal and external users Product cost information
Accounting is the language of business.
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Relationship of Financial, Management, and Cost Accounting
FINANCIALACCOUNTING
MANAGEMENTACCOUNTING
COSTACCOUNTIN
G
Product Costs
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Types of Accounting
Financial Meet external
information needs Comply with GAAP
Management Meet internal
information needs Does not have to
comply with GAAP
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Financial versus Managerial
Financial External focus Whole organization Historical Quantitative Monetary Verifiable GAAP Formal recordkeeping
Managerial Internal focus Segments or divisions Current/projected Quantitative/qualitative Monetary and nonmonetary Timely/reasonable estimate Benefits exceed costs Formal and informal
recordkeeping
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Product Cost Information
External parties—stockholders, creditors, and regulators For investment and credit decisions Complies with GAAP Enterprise focus
Internal parties Planning, controlling, and decision making Evaluating performance Includes upstream and downstream costs Disaggregated
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Accounting Bodies
Financial Public Company
Accounting Oversight Board (PCAOB)
Securities and Exchange Commission (SEC)
Financial Accounting Standards Board (FASB)
Management Institute of
Management Accountants (IMA)
Society of Management Accountants of Canada
Cost Accounting Standards Board (CASB)
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Management Accounting Organizations IMA
Statements on Management Accounting (not legally binding)
Society of Management Accountants of Canada Management Accounting Guidelines (not legally binding)
Cost Accounting Standards Board (CASB) Government contracting standards (legally binding)
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Professional Ethics
Earnings management—deliberate accounting adjustments to “hit” profit targets
Often adjustments involve cost accounting Product costs Inventory valuations
Stretching legitimate accounting techniques Outright fraud
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Ethics and Legislation
Sarbanes-Oxley Act—CEOs and CFOs personally accountable for the accuracy of their organization’s financial reporting
False Claims Act—whistle-blower protection and penalties for failure to blow the whistle (disclose known financial frauds)
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Ethics and Management Accounting
Standards of Ethical Conduct for Management Accountants Competence Confidentiality Integrity Credibility
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Organizational Strategy
1. Develop mission statement2. Implement strategy3. Deploy resources to create value for
customers and shareholders4. Recognize that each organization is unique
—thus unique strategies must be developed
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Organizational Strategy
1. Develop mission statement2. Implement strategy
Establish appropriate measures of
accomplishment
Develop, implement, and
monitor necessary
information systems
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Five Factors in Organizational Strategy Core competencies Organizational structure Management style and organizational culture Organizational constraints Environmental constraints
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Core competency—critical function or activity providing a competitive advantage
Cost leadership strategy—undercut competitor prices
Product differentiation strategy—superior quality products or unique services sold at a premium
Organizational Strategies
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Strategy Questions Who are your five most important
competitors? Is your firm more or less profitable
than these firms? Compare prices for equivalent
products/services. Are they higher or lower? Explain
the difference. Is it customers, costs, or profit requirements?
Are your costs higher or lower than those of main competitors? Where are the differences most pronounced?
What segment(s) of your business represents 80% profits?
For each business segment above, how large are you relative to the largest competitors? Are you gaining or losing relative market share?
What are your customers’ most important purchase criteria?
How do you and your competitors rate on these purchase criteria?
What are your main strengths and competencies? Are they appreciated by the market?
Which are your priority segments? Where is it most important that you
gain market share? What is your competitive advantage?
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Organizational Structure
Distribution of authority and responsibility in an organization Authority—right to use resources to accomplish a
task or achieve an objective Responsibility—obligation to accomplish a task or
achieve an objective Line manager works directly toward attaining
organizational goals Staff employees give assistance and advice to line
managers Treasurer and Controller
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Value Chain
Research and Development
Product Design Supply Production
Marketing Distribution Customer Service
Communicate strategy to all members of the value chain.
A set of value-adding functions and processes that converts inputs into products or services
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Components of the Value Chain
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Balanced Scorecard
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Balanced Scorecard Perspectives
Learning and Growth Use the organization’s intellectual capital to adapt to changing
customer needs or to influence new customers’ needs and expectations through product or service innovations
Internal Business Things to do well to meet customer needs and expectations
Customer Value How well the organization is doing relative to important
customer criteria Financial
Address stockholders/stakeholders concerns about profitability and organizational growth
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Balanced Scorecard Measures
Short-term and long-term Internal and external Financial and nonfinancial
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Ethics in Multinationals
Foreign Corrupt Practices Act—prohibits bribes to obtain/retain business
Organization of Economic Cooperation and Development Convention—crime to offer, promise, give bribes to obtain/retain internal business deals
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Questions
What is the relationship among financial, management, and cost accounting?
How is the balanced scorecard used to implement an organization’s strategy?
Where can an accountant find ethical standards for cost accounting?
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Potential Ethical Issues
Earnings management Low-cost production at any cost Whistle-blower retaliation Fixing prices Bribery and other corruption Hiding managerial acts