1. Determine The Purpose And Motivation For Managerial Costing
Principles of Cost Analysis and Management

2. Would you go into battle without reconnaissance?

3. Terminal Learning Objective
Action: Determine the Purpose and Motivation for Managerial Costing
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion
Standard: With at least 80% accuracy (70% for international Learners) you must:
Demonstrate understanding and awareness of the purpose and motivations for Managerial Costing
Discuss the process of implementing managerial cost accounting
Apply the concept of managerial costing needs to a personal situation

4. Costing Systems Differ
Financial &
Regulatory
Managerial
Goals:
Consistency
Comparability
Equity
Users:
Shareholders
Congress
Regulators
Tax Authorities
Methodology:
Laws
Rules
GAAP
Goals:
Fit
Functionality
Relevance
Users:
Managers
Methodology:
Situation
Dependent
Externally Specified
Require-ments
Internally Specified
Require-ments

5. Managerial Cost Accounting
Seeks to understand true economic cost
Based on cause-effect relationships
Reflecting drivers of resource consumption
With reasonable, but not precise, accuracy
Enables cost based management for continuous improvement
Enables better decision making
Enables rational consumption behavior

6. Why Do Managerial Costing?
Enhance decision making
Provide reconnaissance necessary for Cost Based Management process
Influence resource consumption behavior

7. Cost Measurement’s Role in Decision Making
Which Metal is Best for Transmission?
Metal A
Metal B
Metal C
Conductivity

8. Cost Managed Organizations Need Cost Measurement
Cost managers must have cost measurement to fight Cost War
Cost measurement
Informs Cost Warriors of financial implications of management decisions
Provides a basis of accountability
Is prerequisite to cost reduction

9. Cost Measurement’s Influence on Consumption
The Demand Curve - Economics 101
Cost
Quantity Demanded

10. Not Knowing Cost Makes Everything Appear Free
Cost influences consumption
Quantity demanded rises as cost falls
Free goods have infinite demand
Things that aren’t free, but appear free, get overconsumed
Attempts to prevent overconsumption lead to rules, regulations, restrictions

11. LSA #1 Check on Learning Q1. How does demand for a good change
as cost decreases?
A1.
Q2. What is the logical result of not knowing
what something costs?
Q1. How does demand for a good change as cost decreases?
A1. As cost decreases, demand increases
Q2. What is the logical result of not knowing what something costs?
A2. Not knowing what something costs makes it seem free. The logical result is overconsumption
A2.

12. LSA #1 Summary
During this block, we reviewed how internal and external reporting differ based on the organization. We also identified how cost reporting creates a cause and effect relationship.

13. What should we measure?
Complex Organizations Have Many Potential Views of Cost to Measure:
Organization Views
Process Views
Product/Service Views
Customer Views
Job Order Views
Budgetary Views

14. Where should we start?
Many cost accounting textbooks list “Define activities” as the first step
Activities are meaningless if organizations do not first define:
What are the outputs?
What decisions must be made?
How will the information be used?
What view of cost is useful to management?

15. What are the outputs? What is our mission?
What are the significant inputs?
What are the direct costs of the outputs?
What resources are consumed indirectly by the outputs?
What activities drive the consumption of indirect resources?

16. What decisions must be made?
Hiring?
Purchasing?
Choosing between alternatives?
Others?
What costs are relevant to the decisions?

17. How will the information be used?
Which cost measurement methodology best fits the use?
Which key elements of information are necessary?
Which elements of cost require detailed measurement?

18. What view of cost is useful to management?
What (or who) are the primary consumers of resources?
Which costs are most significant?
Which resources tend to be over-consumed?
What do managers need to know in order to make decisions?
How do decisions affect the consumption of resources?

19. LSA #2 Check on Learning Q1. Many cost accounting textbooks list
“______ ______” as the first step
A1.
Q2. How do you know if your organization is in a Cost War?
A2.
Q3. What is the role of cost information in winning the Cost War?
A3.
Q. Many cost accounting textbooks list “______ ______” as the first step.
A. Define Activities
Q. How do you know if your organization is in a Cost War?
A. If resources are continually being reduced, that is a good sign you are in a Cost War.
Q. What is the role of cost information in winning the Cost War?
A. Cost information is to the Cost War as reconnaissance is to the battlefield.

20. LSA #2 Summary
During this block, we discussed what questions must be answered when developing a cost report process. By answering all questions identified, the cost report should reflect only relevant cost without creating undesired behaviors to the organization.

21. TLO Summary
Action: Determine the Purpose and Motivation for Managerial Costing
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion
Standard: With at least 80% accuracy (70% for international Learners) you must:
Demonstrate understanding and awareness of the purpose and motivations for Managerial Costing
Discuss the process of implementing managerial cost accounting
Apply the concept of managerial costing needs to a personal situation