Transcript Chapter 1 Introduction to Cost Accounting Cost Accounting Foundations and Evolutions

Cost Accounting
Foundations and Evolutions
Kinney, Prather, Raiborn
Chapter 1
Introduction to Cost Accounting
Learning Objectives (1 of 3)
• Describe the relationships among financial,
management, and cost accounting
• Identify two common organizational
strategies
• Describe the value chain and the major
value chain functions
Learning Objectives (2 of 3)
• Explain how a balance scorecard is used to
implement an organization’s strategy
• Explain why accountants must understand
the organization’s structure in order to
perform effectively
Learning Objectives (3 of 3)
• Identify the sources of ethical standards for
cost accountants
• List the sources of authoritative
pronouncements for the practice of cost
accounting
Accountants
• Provide information to external parties
– Stockholders, creditors, regulators
• Estimate the cost of products produced and
services provided
• Provide information to internal decision
makers
– To plan, control, and evaluate performance
Accounting Differences
Financial
Managerial
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External focus
Whole organization
Historical
Quantitative
Monetary
Verifiable
GAAP
Formal
recordkeeping
Internal focus
Segments or divisions
Current/projected
Quantitative/qualitative
Monetary and nonmonetary
Timely/reasonable estimate
Benefits exceed costs
Formal and informal
recordkeeping
Relationship of Financial,
Management, and Cost
Accounting
Product Costs
FINANCIAL
ACCOUNTING
COST
MANAGEMENT
ACCOUNTING ACCOUNTING
Product Cost Information
• External parties - stockholders, creditors,
regulators
– For investment and credit decisions
– Complies with GAAP
– Enterprise focus
• Internal parties
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Planning, controlling, decision making
Evaluating performance
Includes upstream and downstream costs
Disaggregated
Organizational Strategy
1. Develop Mission Statement
2. Implement strategy
3. Measure and control the value chain and
managers’ performance
4. Set balance scorecard goals, objectives,
and targets
Organizational Strategy
1. Develop Mission Statement
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What an organization wants to accomplish
How its products/services can meet customer
needs
Why the organization exists
Used to develop an organization’s strategy
Modify over time
Organizational Strategy
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
Organizational Strategies
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Cost leadership strategy - Undercut
competitor prices
Product differentiation strategy - Superior
quality products or unique services sold at a
premium
Core competency – critical function or
activity providing a competitive advantage
Value Chain
3. Measure and control the value chain and
managers’ performance
Set of value-adding functions and processes
that convert inputs into products/services
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Research and Development
Product Design
Supply
Production
Marketing
Distribution
Customer Service
Communicate strategy to all members of the value chain
Balanced Scorecard
4. Set balance scorecard goals, objectives, and targets
Business outcomes are evaluated against performance targe
Learning
and Growth
Customer
Value
Internal
Business
Financial
Balance Scorecard
• Learning and Growth
• 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 Performance
– Stockholders/stakeholders concerns about
profitability and organizational growth
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
Ethics and Legislation
• Sarbanes-Oxley Act – CEOs and CFOs
personally accountable for the accuracy of
their organization’s financial reporting
• Foreign Corrupt Practices Act – prohibits
bribes to obtain/retain business
• False Claims Act – whistle-blower protection
• Organization of Economic Cooperation and
Development Convention – crime to offer,
promise, give bribes to obtain/retain internal
business deals
Ethics & Management Accountants
• Standards of Ethical Conduct for
Management Accountants
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Competence
Confidentiality
Integrity
Objectivity
Competence
Confidentiality
Integrity
Objectivity
Accounting Bodies
Financial
• Public Company
Accounting Oversight
Board (PCAOB)
• Securities and
Exchange
Commission (SEC)
• Financial Accounting
Standards Board
(FASB)
Management
• IMA
• Society of
Management
Accountants of
Canada
• Cost Accounting
Standards Board
(CASB)
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)
Questions
• What is the relationship among financial,
management, and cost accounting?
• How is the balance scorecard used to
implement an organization’s strategy?
• Where can an accountant find ethical
standards for cost accountants?