1. © 2014 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. CHAPTER 1 INTRODUCTION TO COST MANAGEMENT

2. © 2014 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. CHAPTER 1 OBJECTIVES 1.Describe cost management and explain how it differs from financial accounting 2.Identify the current factors affecting cost management 3.Describe how management accountants function within an organization 4.Understand the importance of ethical behavior for management accountants 5.Identify the three forms of certification available to internal accountants

3. © 2014 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. FINANCIAL ACCOUNTING VERSUS COST MANAGEMENT: A SYSTEMS FRAMEWORK Accounting Information System Consists interrelated manual and computer parts Uses processes such as collecting, recording, summarizing, analyzing, and managing data to transform inputs into information provided to users Two major systems The financial accounting information system The cost management accounting information system Major difference is the targeted user LO-1

4. © 2014 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. FINANCIAL ACCOUNTING VERSUS COST MANAGEMENT: A SYSTEMS FRAMEWORK Financial Accounting Information System Produces outputs for external users Follows rules and conventions set by the SEC and FASB Provides outputs such as financial statements LO-1

5. © 2014 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. FINANCIAL ACCOUNTING VERSUS COST MANAGEMENT: A SYSTEMS FRAMEWORK Cost Management Information System Produces outputs for internal users Provides information for three broad objectives Cost services, products, and other objects Planning and control Decision making Criteria and formats are set internally LO-1

6. © 2014 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. LO-1 FINANCIAL ACCOUNTING VERSUS COST MANAGEMENT: A SYSTEMS FRAMEWORK Cost Accounting Information System Assigns costs to individual products and services Assists external financial reporting Conforms to the rules and conventions set by the SEC and the FASB Operational Control Information System Provides accurate and timely feedback Improves profit by increasing customer value Different Systems for Different Purposes

7. © 2014 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. FACTORS AFFECTING COST MANAGEMENT Global Competition Improved transportation and communication has led to a global market Increased the demand for more accurate cost information Growth of the Service Industry Service sector of the economy has increased in importance Deregulation has increased competition LO-2

8. © 2014 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. FACTORS AFFECTING COST MANAGEMENT Advances in Information Technology Use of computers to monitor and control operations Integration of manufacturing with marketing and accounting data Enterprise resource planning (ERP) software provides an integrated system capability Emergence of e-commerce Internet trading Electronic data interchange Bar coding LO-2

9. © 2014 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. LO-2 FACTORS AFFECTING COST MANAGEMENT Advances in Manufacturing Environment Theory of constraints: method used to continuously improve manufacturing activities and nonmanufacturing activities Just-in-time manufacturing: strives to produce a product only when it is needed and only in the quantities demanded

10. © 2014 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. FACTORS AFFECTING COST MANAGEMENT Advances in Manufacturing Environment Lean manufacturing: a persistent pursuit and eliminates waste that simultaneously embodies respect for people Computer-integrated manufacturing: an automation of the manufacturing environment allowing firms to reduce inventory, increase productive capacity, improve quality and service, decrease processing time, and increase output LO-2

11. © 2014 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. FACTORS AFFECTING COST MANAGEMENT Customer Orientation Deliver value to the customer Value chain: the set of activities required to design, develop, produce, market, and deliver products and services to customers Satisfy internal customers LO-2

12. © 2014 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. FACTORS AFFECTING COST MANAGEMENT New Product Development High proportion of production costs are involved during the development and design stage of new products Cost management procedures Target costing: encourages managers to assess the overall cost impact of product designs over the product’s life cycle Activity-based management: identifies the activities produced at each stage of the development process and assesses their costs LO-2

13. © 2014 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. FACTORS AFFECTING COST MANAGEMENT Total Quality Management Continuous improvement and elimination of waste are the two foundation principles Objectives: producing products and services that actually perform according to specifications and with little waste LO-2

14. © 2014 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. LO-2 FACTORS AFFECTING COST MANAGEMENT Time as a Competitive Element Crucial element in all phases of the value chain Decrease in non-value-added time increases quality Efficiency Improving efficiency is a vital concern Cost is a critical measure of efficiency

15. © 2014 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. THE ROLE OF THE MANAGEMENT ACCOUNTANT Line and Staff Positions Line positions: positions that have direct responsibility for the basic objectives of an organization Staff positions: positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives LO-3

16. © 2014 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. THE ROLE OF THE MANAGEMENT ACCOUNTANT The Controller Supervises all accounting departments Participates in planning, controlling, and decision- making activities Responsible for both internal and external accounting requirements LO-3

17. © 2014 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. THE ROLE OF THE MANAGEMENT ACCOUNTANT The Treasurer Responsible for the finance function raises capital and manages cash, investments, and investor relations in charge of credit and collections as well as insurance LO-3

18. © 2014 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. EXHIBIT 1.1—PARTIAL ORGANIZATIONAL CHART: MANUFACTURING COMPANY LO-3

19. © 2014 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. THE ROLE OF MANAGEMENT ACCOUNTANT Information for Planning, Controlling, Continuous Improvement, and Decision Making Planning: a detailed formulation of future actions to achieve a particular end Requires setting objectives and identifying methods to achieve those objectives Controlling: a managerial activity of monitoring a plan’s implementation and taking corrective action Achieved with the use of feedback LO-3

20. © 2014 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. THE ROLE OF MANAGEMENT ACCOUNTANT Information for Planning, Controlling, Continuous Improvement, and Decision Making Continuous improvement: relentless pursuit of improvement in the delivery of value to customer Required to remain competitive or to establish a competitive advantage Decision making: process of choosing among competing alternatives LO-3

21. © 2014 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. ACCOUNTING AND ETHICAL CONDUCT Benefits of Ethical Behavior Creates customer and employee loyalty Avoids litigation costs LO-4

22. © 2014 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. ACCOUNTING AND ETHICAL CONDUCT Standards of Ethical Conduct for Management Accountants Competence Confidentiality Integrity Credibility Resolution of ethical conflict LO-4

23. © 2014 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. CERTIFICATION The Certificate in Management Accounting Establishes management accounting as a recognized and professional discipline The Certificate in Public Accounting Intended for those practicing public accounting The Certificate in Internal Auditing Recognizes competency in internal auditing LO-5

24. © 2014 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. END OF CHAPTER 1