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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 organizations strategy
Explain why accountants must understand
the organizations 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
External focus Internal focus
Segments or divisions
Whole organization
Current/projected
Historical
Quantitative/qualitative
Quantitative Monetary and nonmonetary
Monetary Timely/reasonable estimate
Verifiable Benefits exceed costs
GAAP Formal and informal recordkeeping
Formal
recordkeeping
Relationship of Financial,
Management, and Cost
Accounting Product Costs

FINANCIAL COST MANAGEMENT


ACCOUNTING ACCOUNTING ACCOUNTING
Product Cost Information
External parties - stockholders, creditors,
regulators
For investment and credit decisions
Complies with GAAP
Enterprise focus
Internal parties
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
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
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
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
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 Internal
and Growth Business

Customer Financial
Value
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 organizations 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
Competence
Confidentiality Competence
Integrity Confidentiality
Integrity
Objectivity Objectivity
Accounting Bodies
Financial Management
Public Company IMA
Accounting Oversight Society of
Board (PCAOB)
Management
Securities and Exchange Accountants of
Commission (SEC) Canada
Financial Accounting
Cost Accounting
Standards Board
Standards Board
(FASB)
(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 organizations strategy?
Where can an accountant find ethical
standards for cost accountants?

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