1. INTRODUCTION OF COST ACCOUNTING

2. Management Accounting Information System
Collecting
Measuring
Storing
Analyzing
Reporting
Managing
Special Reports
Product Costs
Customer Costs
Budgets
Performance Reports
Personal Communication
Economic Events
Inputs
Processes
Outputs
Users

3. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Planning requires setting objectives and identifying methods to achieve those objectives.
Planning
Controlling
Decision Making

4. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Controlling is the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.
Planning
Controlling
Decision Making

5. Management Process
The Management Process is defined by the following activities:
Planning
Controlling
Decision Making
Control is usually achieved with the use of feedback.

6. Management Process
Feedback is information that can be used to evaluate or correct the steps being taken to implement a plan.

7. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Planning
Controlling
Decision Making
Decision making is the process of choosing among competing alternatives.

8. Differentiate Between Management Accounting and Financial Accounting

9. Management Accounting Financial Accounting
1. Internally focused
1. Externally focused

10. Targeted Users
Management accounting focuses on providing information for internal users.

11. Targeted Users
ABC Company Annual Report
Financial accounting focuses on provided information for external users.

12. Management Accounting Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules

13. Restrictions on Inputs and Processes
Financial accounting reporting must follow the accounting procedures set by the SEC and the FASB.
Management accounting is not subject to the requirements of generally accepted accounting principles.

14. Management Accounting Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information

15. Types of Information
For management accounting, the financial or nonfinancial information may be much more subjective in nature.
The restrictions imposed on financial accounting tend to produce objective and verifiable financial information.

16. Management Accounting Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future
4. Historical orientation

17. Time Orientation
Management accounting strongly emphasizes providing information about future events.

18. Time Orientation
Financial accounting records and reports events that have already happened.

19. Management Accounting Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future
4. Historical orientation
5. Internal evaluation and decisions based on very detail information
5. Information about the firm as a whole

20. Degree of Aggregation
Management accounting provides measures and internal reports used the evaluate performance of entities, product lines, departments, and managers.

21. Degree of Aggregation
Financial accounting focuses on overall firm performance.

22. Management Accounting Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future
4. Historical orientation
5. Internal evaluation and decisions based on very detail information
5. Information about the firm as a whole
6. Broad, multidisciplinary
6. More self-contained

23. Cost Assignment
A cost object is any item such as products, customers, departments, projects, activities, and so on, for which costs are measured and assigned.
Example: A bicycle is a cost object when you are determining the cost to produce a bicycle.
An activity is a basic unit of work performed within an organization.
Example: Setting up equipment, moving materials, maintaining equipment, designing products, etc.

24. Cost Assignment
Traceability is the ability to assign a cost to a cost object in an economically feasible way by means of a cause-and-effect relationship.
Direct costs are those costs that can be easily and accurately traced to a cost object.
Example: If a hospital is the cost object,
the cost of heating and
cooling the hospital is
a direct cost.

25. Cost Assignment
Indirect costs are those costs that cannot be easily and accurately traced to a cost object.
Example: The salary of a plant manager, where departments within the plant are defined as the cost objects.

26. Cost Assignment
Tracing is the actual assignment of costs to a cost object using an observable measure of the resources consumed by the cost object. Tracing costs to cost objects can occur in the following two ways:
Direct tracing is the process of identifying and assigning costs that are exclusively and physically associated with a cost object to that cost object.
Driver tracing is the use of drivers to assign costs to cost objects. Drivers are observable causal factors that measure a cost object’s resource consumption.

27. Fixed Costs
A cost that stays the same as output changes is a fixed cost.

28. Fixed Costs
Cutting machines are leased for $60,000 per year and have the capacity to produce up to 240,000 units a year.

29. Fixed Costs Lease of Machines Number of Units 60,000 60,000 $1.00
Total Fixed Cost Graph
Total Costs
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
Units Produced (000)
F = $60,000
Fixed Costs
Lease of Machines
Number of Units
$60,000 0 N/A
60,000 60,000 $1.00
60, ,
60, ,
60, ,
Units Cost

30. Fixed Costs Lease of Machines Number of Units 60,000 60,000 $1.00
Unit Fixed Cost Graph
Cost per Unit
$1.00
$0.50
$0.33
$0.25
Units Produced (000)
Fixed Costs
Lease of Machines
Number of Units
$60,000 0 N/A
60,000 60,000 $1.00
60, ,
60, ,
60, ,
Units Cost

31. A variable cost is a cost that, in total, varies in direct proportion to changes in output.

32. Variable Cost
As the cutting machines cut each unit, they use 0.1 kilowatt-hour at $2.00 per kilowatt hour. Thus, the cost of each unit is $0.20 ($2 x 0.1).

33. Variable Cost Cost of Power Number of Units 12,000 60,000 0.20
Total Variable Cost Graph
Total Costs
Units Produced (000)
$48,000
$36,000
$24,000
$12,000
Yv = .20x
Variable Cost
Cost of Power
Number of Units
$ $ 0
12,000 60,
24, ,
36, ,
48, ,
Units Cost

34. Variable Cost Cost of Power Number of Units 12,000 60,000 0.20
Unit Variable Cost Graph
Units Produced (000)
$0.40
$0.30
$0.20
$0.10
Cost per Unit
Variable Cost
Cost of Power
Number of Units
$ $ 0
12,000 60,
24, ,
36, ,
48, ,
Units Cost

35. Step-Fixed Costs Cost $150,000 100,000 50,000
Normal Operating Range (Relevant Range)
2, , ,500
Activity Usage