1. Chapter 1: Introduction to Cost Accounting
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. Learning Objectives
What are the relationships among financial, management, and cost accounting?
What are the the sources of authoritative pronouncements for the practice of cost accounting?
What are the sources of ethical standards for cost accountants?
What is a mission statement, and why is it important to organizational strategy?
What must accountants understand about an organization’s structure and business environment in order to perform effectively in that organization?
What is a value chain, and what are the major value chain functions?
How is a balanced scorecard used to implement an organization’s strategy?
Why is ethical behavior so important in organizations?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3. Accounting is the language of business.
Accountants
Financial accountants provide information to external parties
Investors
Creditors
Regulators
Managerial accountants provide information to internal users
Managers
Cost accountants provide information to both internal and external users
Product cost information
Accounting is the language of business.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4. Relationship of Financial, Management, and Cost Accounting
Product Costs
FINANCIAL
ACCOUNTING
COST
ACCOUNTING
MANAGEMENT
ACCOUNTING
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. Types of Accounting Financial Management
Meet external information needs
Comply with GAAP
Management
Meet internal information needs
Does not have to comply with GAAP
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6. Financial versus Managerial
External focus
Whole organization
Historical
Quantitative
Monetary
Verifiable
GAAP
Formal recordkeeping
Managerial
Internal focus
Segments or divisions
Current/projected
Quantitative/qualitative
Monetary and nonmonetary
Timely/reasonable estimate
Benefits exceed costs
Formal and informal recordkeeping
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7. Product Cost Information
External parties—stockholders, creditors, and regulators
For investment and credit decisions
Complies with GAAP
Enterprise focus
Internal parties
Planning, controlling, and decision making
Evaluating performance
Includes upstream and downstream costs
Disaggregated
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

8. Accounting Bodies Financial
Public Company Accounting Oversight Board (PCAOB)
Securities and Exchange Commission (SEC)
Financial Accounting Standards Board (FASB)
Management
Institute of Management Accountants (IMA)
Society of Management Accountants of Canada
Cost Accounting Standards Board (CASB)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9. Management Accounting Organizations
IMA
Statements on Management Accounting
(not legally binding)
Society of Management Accountants of Canada
Management Accounting Guidelines
Cost Accounting Standards Board (CASB)
Government contracting standards
(legally binding)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10. Professional Ethics
Earnings management—deliberate accounting adjustments to “hit” profit targets
Often adjustments involve cost accounting
Product costs
Inventory valuations
Stretching legitimate accounting techniques
Outright fraud
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11. Ethics and Legislation
Sarbanes-Oxley Act—CEOs and CFOs personally accountable for the accuracy of their organization’s financial reporting
False Claims Act—whistle-blower protection and penalties for failure to blow the whistle (disclose known financial frauds)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12. Ethics and Management Accounting
Standards of Ethical Conduct for Management Accountants
Competence
Confidentiality
Integrity
Credibility
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13. Organizational Strategy
Develop mission statement
Implement strategy
Deploy resources to create value for customers and shareholders
Recognize that each organization is unique—thus unique strategies must be developed
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14. Organizational Strategy
Develop mission statement
Implement strategy
Develop, implement, and monitor necessary information systems
Establish appropriate measures of accomplishment
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15. Five Factors in Organizational Strategy
Core competencies
Organizational structure
Management style and organizational culture
Organizational constraints
Environmental constraints
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16. Organizational Strategies
Core competency—critical function or activity providing a competitive advantage
Cost leadership strategy—undercut competitor prices
Product differentiation strategy—superior quality products or unique services sold at a premium
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

17. Strategy Questions
What are your customers’ most important purchase criteria?
How do you and your competitors rate on these purchase criteria?
What are your main strengths and competencies? Are they appreciated by the market?
Which are your priority segments?
Where is it most important that you gain market share?
What is your competitive advantage?
Who are your five most important competitors?
Is your firm more or less profitable than these firms?
Compare prices for equivalent products/services.
Are they higher or lower? Explain the difference. Is it customers, costs, or profit requirements?
Are your costs higher or lower than those of main competitors? Where are the differences most pronounced?
What segment(s) of your business represents 80% profits?
For each business segment above, how large are you relative to the largest competitors? Are you gaining or losing relative market share?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18. 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
Line manager works directly toward attaining organizational goals
Staff employees give assistance and advice to line managers
Treasurer and Controller
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19. Communicate strategy to all members of the value chain.
A set of value-adding functions and processes that converts inputs into products or services
Marketing
Distribution
Customer Service
Research and Development
Product Design
Supply
Production
Communicate strategy to all members of the value chain.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20. Components of the Value Chain
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21. Balanced Scorecard
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

22. Balanced Scorecard Perspectives
Learning and Growth
Use the organization’s intellectual capital to adapt to changing customer needs or to influence new customers’ needs and expectations through product or service innovations
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
Address stockholders/stakeholders concerns about profitability and organizational growth
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23. Balanced Scorecard Measures
Short-term and long-term
Internal and external
Financial and nonfinancial
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

24. Ethics in Multinationals
Foreign Corrupt Practices Act—prohibits bribes to obtain/retain business
Organization of Economic Cooperation and Development Convention—crime to offer, promise, give bribes to obtain/retain internal business deals
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

25. Questions
What is the relationship among financial, management, and cost accounting?
How is the balanced scorecard used to implement an organization’s strategy?
Where can an accountant find ethical standards for cost accounting?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

26. Potential Ethical Issues
Earnings management
Low-cost production at any cost
Whistle-blower retaliation
Fixing prices
Bribery and other corruption
Hiding managerial acts
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.