1. The Islamic University of Gaza
Cost Accounting
CHAPTER 1
Introduction
Dr. Hisham Madi

2. Main references Supporting the Course
Horngren, HT., Datar, S.M. and Rajan, M (2012). Cost Accounting A Managerial Emphasis (14th) Prentic Hall.
Charles T. Horngren, George Foster, Alnoor Bhimani, and Srikant M. Datar, Management and Cost Accounting, 3rd ed., Prentice Hall, 2005.
Michael W. Maher, Madhav V. Rajan, and William N. Laner, Fundamentals of Cost Accounting, Mcgraw – Hill, 2006

3. Assessment Methods and Types
Assignment Marks
Attendance 5 Marks
Quiz Marks
Midterm Test 25 marks
Final Examination 50 Marks

4. Financial, Management and Cost Accounting
Accounting systems process economic events and transactions into information helpful to managers
Processing any economic transaction means collecting, categorizing, summarizing, and analyzing
Accounting systems provide information found in the financial statements as well as in internal performance reports.
Financial accounting—focuses on reporting to external users including investors, creditors, banks, suppliers, and governmental agencies. Financial statements must be based on GAAP

5. Management Accounting
Management accounting—measures, analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals.
Managers use management accounting information to
Develop, communicate, and implement strategies
Coordinate product design, production, and marketing decisions and evaluate a company’s performance

6. Cost Accounting
Cost accounting provides information for both management accounting and financial accounting professionals.
Cost accounting is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization

7. Cost Accounting For example,
Calculating the cost of a product is a cost accounting function that meets both the financial accountant’s inventory-valuation needs and the management accountant’s decision-making needs (such as deciding how to price products and choosing which products to promote

8. Major differences between management and financial accounting

9. Strategy and Management Accounting
Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace.
There are two broad strategies: cost leadership or product differentiation
Strategic cost management—describes cost management that specifically focuses on strategic issues.

10. Strategy and Management Accounting
Management accounting helps answer important questions such as:
Who are our most important customers, and how can we be competitive and deliver value to them?
What substitute products exist in the marketplace, and how do they differ from our own?
What is our most critical capability?
Will adequate cash be available to fund the strategy or will additional funds need to be raised?

11. Management Accounting and Value
Creating value is an important part of planning and implementing strategy.
Value is the usefulness a customer gains from a company’s product or service. The entire customer experience determines the value a customer derives from a product.

12. Management Accounting and Value
The Value chain is the sequence of business functions in which a product is made progressively more useful to customers.
The Value chain consists of:
Research & development (Generating and experimenting with ideas related to new products, services, or processes)
Design of Products and Processes (Detailed planning, engineering, and testing of products and processes)
Production
Marketing (Promoting and selling products or services to customers or prospective customers)
Distribution (Processing orders and shipping products or services to customers)
Customer service

13. Management Accounting and Value
Customer service (Providing after-sales service to customers)

14. Key Success Factors
Customers want companies to use the value chain and supply chain to deliver ever-improving levels of performance when it comes to several (or even all) of the following:
Cost and efficiency: Companies face continuous pressure to reduce the cost of the products they sell.
Quality: Customers expect high levels of quality. Total quality management (TQM) aims to improve operations throughout the value chain and to deliver products and services that exceed customer expectations
Time: New-product, Customer-response time
Innovation: A constant flow of innovative products or services is the basis for ongoing company success
Sustainability: the development and implementation of strategies to achieve long-term financial, social, and environmental performance.

15. A Five-Step Decision Making Process in Planning and Control
Identify the problem and uncertainties.
Obtain information; Gathering information before making a decision helps managers
Make predictions about the future.
Make decisions by choosing between alternatives; When making decisions, strategy is a vital guidepost; many individuals in different parts of the organization at different
times make decisions.
Implement the decision, evaluate performance, and learn.

16. Management Accounting Guidelines
Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies:
Cost–benefit approach:
benefits of an action/purchase generally must exceed costs as a basic decision rule.
Managers rely on management accounting information to quantify expected benefits and expected costs although all benefits and costs are not easy to quantify

17. Management Accounting Guidelines
Behavioral and technical considerations: people are involved in decisions, not just dollars and cents.
Different Costs for Different Purposes: Managers use alternative ways to compute costs in different decision-making situations

18. A Typical Organizational Structure and the Management Accountant