Chapter 1 Cost Accounting Basics

8/3/2019 Chapter 1 Cost Accounting Basics

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Chapter 1

Introduction to Cost Accounting

Cost Accounting

Foundations and Evolutions

Kinney, Prather, Raiborn


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Learning Objectives (1 of 2)

Describe the relationships among financial,

management, and cost accounting

Identify two common organizationalstrategies

Describe the value chain and the major

value chain functions


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Learning Objectives (2 of 2)

Explain why accountants must understand

the organizations structure in order to

perform effectively Identify the sources of ethical standards for

cost accountants


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Two 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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Accounting Differences

Financial

External focus

Whole organization

Historical

Quantitative

Monetary

Verifiable

GAAP

Formal

recordkeeping


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Accounting Differences

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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Relationship of Financial,

Management, and Cost

Accounting

FINANCIAL

ACCOUNTING MANAGEMENTACCOUNTINGCOSTACCOUNTING

Product Costs


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Product Cost Information External parties - stockholders, creditors,

regulators

For investment and credit decisions

Complies with GAAP

Enterprise-wide focus


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Product Cost Information External parties - stockholders, creditors,

regulators

For investment and credit decisions

Complies with GAAPEnterprise focus

Internal parties

Planning, controlling, decision making

Evaluating performance

Includes upstream and downstream costs

Disaggregated


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Cost Management Goals

Reduce costs

Improve customer satisfaction


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Organizational Strategy

1. Develop Mission Statement

What an organization wants to accomplish

How its products/services can meet customer

needs

Why the organization exists

Used to develop an organizations strategy Modify over time


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2. Implement strategy

Strategy - A plan to fulfill goals and

objectives by deploying resources to create

value for customers and shareholders

Organization strategy is supported by

business unit strategies


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Organizational Strategies

Cost leadership strategy - Undercut

competitor prices

Product differentiation strategy - Superiorquality products or unique services sold at a

premium

Core competencycritical function oractivity providing a competitive advantage


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Strategy Questions

Who are your five most importantcompetitors?

Is your firm more or less profitable thanthese firms?

Compare prices for equivalent

products/services. Explain the difference. Isit customers, costs, or profit requirements?

What is your competitive advantage?


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3. Measure and control the value chain andmanagers performance


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Value ChainSet of value-adding functions and processes that

convert inputs into products/services

Research and Development

Product Design Supply

Production

Marketing

Distribution

Customer Service

Communicate strategy to all members of the value chain


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Organizational Strategy1. Develop Mission Statement


3. Measure and control the value chain and

managers performance


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Ethics and Legislation

Sarbanes-Oxley ActCEOs and CFOs

personally accountable for the accuracy of

their organizations financial reporting Foreign Corrupt Practices Actprohibits

bribes to obtain/retain business


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Ethics & Management Accountants

Standards of Ethical Conduct for

Management Accountants

Competence

Confidentiality

Integrity

Objectivity

CompetenceConfidentialityIntegrityObjectivity

Chapter 1 Cost Accounting Basics

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