1. Cost Management A Strategic Emphasis 2nd edition by Edward J. Blocher
Kung H. Chen Thomas W. Lin 1 1

2. Cost Management An Overview1 1

3. The Uses of Cost Management Information
Information managers need to effectively manage an organization.
Financial information about costs and revenues.
Nonfinancial information about productivity and quality.

4. A Typical Organization Chart
Slide 1-3
A Typical Organization Chart
Chief Executive Officer
Chief Financial
Officer
Vice President
for Marketing
Vice President
for Operations
Controller
Treasurer
Chief Information Officer
Cost Management
Financial Systems
Financial Reporting
Other Reporting Obligations

5. Four Functions of Management
Strategic management
Planning and decision making
STRATEGIC
MANAGEMENT
IS THE MOST
IMPORTANT.
Management and operational control
Preparation of financial statements

6. Four Functions of Management
Strategic management
Planning and decision making
Identification and implementation of specific goals and objectives that provide a competitive advantage.
Management and operational control
Preparation of financial statements

7. Four Functions of Management
Strategic management
Planning and decision making
Budgeting and profit planning, cash flow management, lease or buy decisions, repair or replace decisions, product development decisions, and marketing decisions
Management and operational control
Preparation of financial statements

8. Four Functions of Management
Monitoring the activities at all levels to insure that goals and objectives are achieved.
Strategic management
Planning and decision making
Management and operational control
Preparation of financial statements

9. Four Functions of Management
Compliance with reporting requirements of groups such as the FASB, IRS, SEC.
Strategic management
Planning and decision making
Management and operational control
Preparation of financial statements

10. Strategic Management and Strategic Cost Management
Strategic management requires:
Anticipating changes.
Understanding the business and competitive environment.
Ability to make changes quickly.
Ability to identify and solve problems from a cross-functional view.
Strategic cost management is the development of cost management information to facilitate strategic management.

11. Types of Organizations
Manufacturers
Merchandisers
Service firms
Government and Not-for-profit
Wholesalers
Retailers

12. Contemporary Business Environment
Advances in manufacturing technologies
Increased global competition
Advances in information technologies
Social, political, and cultural changes
Focus on the customer
New forms of management organization

13. Contemporary Business Environment
Advances in manufacturing technologies
Better cost management information is needed to remain competitive.
Increased global competition
Advances in information technologies
Social, political, and cultural changes
Focus on the customer
New forms of management organization

14. Contemporary Business Environment
Advances in manufacturing technologies
Increased global competition
Advances in information technologies
Just-in-time inventory
Quality improvements
Flexible manufacturing
Increased facilities costs relative to costs of labor and material
Social, political, and cultural changes
Focus on the customer
New forms of management organization

15. Contemporary Business Environment
Advances in manufacturing technologies
Computerization
Specialized software
Internet
E-commerce
Telecommunications
Increased global competition
Advances in information technologies
Social, political, and cultural changes
Focus on the customer
New forms of management organization

16. Contemporary Business Environment
Advances in manufacturing technologies
Increased global competition
Advances in information technologies
Changing emphasis from low-cost production of large quantities to quality, service, timely delivery, response to customer requests for specific features.
Social, political, and cultural changes
Focus on the customer
New forms of management organization

17. Contemporary Business Environment
Advances in manufacturing technologies
Change from command-and-control organization to a flexible form that encourages teamwork and coordination across functions.
Increased global competition
Advances in information technologies
Social, political, and cultural changes
Focus on the customer
New forms of management organization

18. Contemporary Business Environment
Advances in manufacturing technologies
Increased global competition
Advances in information technologies
Ethnically and racially diverse workforce
Renewed sense of ethical responsibility
Government deregulation of business
Social, political, and cultural changes
Focus on the customer
New forms of management organization

19. Business Environment Comparison
Manufacturing

20. Business Environment Comparison
Prior Business Contemporary
Environment Business Environment
Basis of Economies of scale, Quality,
Competition standardization functionality,
customer satisfaction
Manufacturing High value, long Low volume, short
Process production runs, production run, focus
significant levels of on reducing inventory
in-process and levels and other non-
finished inventory value added activities
and costs

21. Business Environment Comparison
Prior Business Contemporary
Environment Business Environment
Manufacturing Assembly-line Robotics, flexible
Technology automation, isolated manufacturing
technology systems, integrated
applications technology applications
connected by network
Required Machine paced, Individual and team
Labor Skills low-level skills paced, high-level
skills

22. Business Environment Comparison
Prior Business Contemporary
Environment Business Environment
Emphasis on Acceptance of a Strive for zero
Quality normal or usual defects
amount of waste

23. Business Environment Comparison
Marketing

24. Business Environment Comparison
Prior Business Contemporary
Environment Business Environment
Products Relatively few Large number of
variations, long variations, short
product life cycles product life cycles
Markets Largely domestic Global

25. Business Environment Comparison Management Organization

26. Business Environment Comparison
Prior Business Contemporary
Environment Business Environment
Type of Almost exclusively Financial and
Information financial data operating data, the
Recorded and firm’s strategic
Reported success factors
Management Hierarchical, Network-based Organizational command and organization, teamwork
Structure control focus – employee has more responsibility and control, coaching rather than command and control

27. Business Environment Comparison
Prior Business Contemporary
Environment Business Environment
Management Emphasis on the Emphasis on the long Focus short term, short- term, focus on critical term performance success factors, measures and commitment
compensation, to the long-term
concern for success of the sustaining the firm, including adding
current stock price, shareholder value
short tenure and
high mobility of
top managers

28. Four Stages in the Development of Cost Management Systems
Basic transaction recording systems.
Focus on external reporting.
Track key operating data and develop more accurate and relevant cost information for decision making.
Strategically relevant cost management information is an integral part of the system.

29. a Benchmarking Identify an activity that needs to be improved.
Find an organization that is the most efficient at this activity.
Study its process, and utilize that process. a
Benchm
rking 21

30. Total Quality Management
Benchmarking
Where are we?
Where do we want to go?
Check
Plan
Act is
Do we need to change the plan?
How do we start? Do
Continuous Improvement
How are we doing?

31. Activity-Based Costing and Management
A product costing method that is useful in industries where overhead is high relative to other costs.
Activity-based costing assigns costs to products based on several different activities whereas traditional costing methods only assign costs to products on one or two different departments or allocation bases.
ABC

32. Activity-Based Costing and Management
A product costing method that is useful in industries where overhead is high relative to other costs.
ABC
Traditional
method
Allocation Bases
“cost drivers”
Products
Products

33. Reengineering A business process is diagrammed in detail.
Every step in the business process must be justified.
The process is redesigned to include only those steps that make our product more valuable.

34. Reengineering A business process is diagrammed in detail.
Anticipated results:
Process is simplified.
Process is completed in less time.
Costs are reduced.
Opportunities for errors are reduced.
Every step in the business process must be justified.
The process is redesigned to include only those steps that make our product more valuable.

35. Restrictions or barriers that impede progress toward an objective
Theory of Constraints
A sequential process of identifying and removing constraints in a system.
Restrictions or barriers that impede progress toward an objective

36. Mass Customization
Marketing and production processes are designed to meet each customer’s specific needs.

37. Target Costing Identify product opportunity.
Determine price that would make product competitive.
Determine if product can be made at cost sufficiently low to provide a desired profit.

38. Life-Cycle Costing
Identify and monitor costs throughout a product’s life cycle
Research and Development costs
Product design and testing costs
Manufacturing, inspecting, packaging and warehousing costs
Marketing, promotion, and distribution costs
Sales and service costs

39. The Balanced Scorecard
Management translates its strategy into performance measures that employees understand and accept.
Customer satisfaction
Financial
Performance measures
Innovation and learning
Internal business processes

40. The Balanced Scorecard
How do we look to the owners?
In which internal business processes must we excel?
How can we continually innovate and learn?
How do we look to customers?

41. The Balanced Scorecard
Learning improves business processes.
Improved business processes improve customer satisfaction.
Improving customer satisfaction improves financial results.

42. IMA Code of Ethics for Management Accountants
Competence
Confidentiality
Integrity
Objectivity

43. IMA Code of Ethics for Management Accountants
Follow applicable laws, regulations and standards.
Maintain professional competence.
Competence
Prepare complete and clear reports after appropriate analysis.

44. IMA Code of Ethics for Management Accountants
Do not disclose confidential information unless legally obligated to do so.
Do not use confidential information for personal advantage.
Confidentiality
Ensure that subordinates do not disclose confidential information.

45. IMA Code of Ethics for Management Accountants
Avoid conflicts of interest and advise others of potential conflicts.
Do not subvert organization’s legitimate objectives.
Integrity
Recognize and communicate personal and professional limitations.

46. IMA Code of Ethics for Management Accountants
Avoid activities that could affect your ability to perform duties.
Refrain from activities that could discredit the profession.
Refuse gifts or favors that might influence behavior.
Integrity
Communicate unfavorable as well as favorable information.

47. IMA Code of Ethics for Management Accountants
Communicate information fairly and objectively.
Objectivity
Disclose all information that might be useful to management.

48. End of Chapter 1