1. 1 دانشگاه آزاد اسلامی واحد تهران مرکزی کارشناسی ارشد حسابداری Managerial Accounting Dr. AFSANEH TAVANGAR Reference: Cost Management ; A Strategic Emphasis Blocher. Chen. Lin

2. 2 Chapter 1 Cost Management

3. 3 An Overview  Strategic Management  Use of cost management information in each of 4 functions of management  Business environment  Contemporary management techniques  Critical Success Factors; Customer Oriented  Institute of Management Accountant  IMA Code of Ethics

4. 4 Strategic Management  A Strategy : is a set of goals and specific action plans that, if achieved, provide the desired competitive advantage.  W.Edward Deming and Peter Drrucker “ The importance of considering non financial and long term measures of operating performance if a firm is to compete successfully”

5. 5 Managerial accounting  Benjamin Disraeil: “The most successful man is the man who has the best information”  Managerial accountant as a member of strategic management team is full Professional and think competitively  Qualification of Managerial accounting information: Reliability : Relevance: Accuracy Usefulness Compliance Timeliness

6. 6 Strategic Cost Management  Strategic Thinking :  Anticipating changes :products and production process are designed to accommodate expected changes in customer demand  Flexibility:  The ability to make fast changes is critical as a result of the demand of the new management concept of e-commerce, Speed to market and Product life cycle  Integrity approach  The ability to identify and solve problems from a cross - functional view.

7. 7 Wal-Mart Company’s Strategy  Mission : Customer value  Strategy :External Use of Technology  Management Structure that Welcome Changes  A Constant Focus on Customer Service  Target : Value through Brand Recognition  Customer Service  Store Location  Differentiated Offering  Quality  Fashion  Price

8. 8 Types of Organizations Business firms, Governmental units and Not-for- profit organization Business firms: Merchandising, Manufacturing and Service Merchandising firms :Wholesaler, Retailer: Retailer: Sears, Wal –Mart, Amazon.com. Manufacturing : Automakers, Petrochemicals Services firms : Real estate agencies

9. 9 The Contemporary Business Environment  The Global Business Environment  Manufacturing Technologies  The New Economy : Use of Information Technology,the Internet and E-Commerce  Focus on the Customer  Management Organization  Social, Political, and Cultural Consideration

10. 10 A Strategic Focus of Cost Management Robert Kaplan’s classification of the phases of the development of cost management system : Stage 1 :Basic transaction reporting systems Stage 2 :External financial reporting, focus on reliable and usefulness financial reports. So cost management is limited. Stage 3 : Key operating data and develop more accuracy and relevant cost information for decision making.So cost management is developed. Stage 4 : Strategically relevant cost management information is an integral part of the system.

11. 11 Management accounting activities Trend ConceptConcentration Accounting for processes 1812-1920,Operation cost and process efficiency Cost accounting 1920-1950, Cost components and Management control Managerial accounting 1950-1980s, Providing Information for Planning and Management control Cost Management 1980s, Cost saving and salvage reduction, JIT,ABC,Quality, Target Costing, Investment Management and Life cycle Costing Value based Management 1990s, Value, Customer Expectations, Strategy, Balanced scorecard, Economic value added

12. 12 The four functions of Management  Strategic Management  The development of the sustainable competitive position in which the firm’s competitive advantage provides continued success.  Planning and Decision Making  Involves budgeting, profit planning, cash flow management and other decisions related to operations.  Operating Control  Mid-level managers monitor the activities of operating – level managers and employees  Management Control  The evaluation of Mid-level managers by upper –level managers

13. 13 Operating Control techniques a) Helping management control and Leadership b) Motivating the managers and workers c) Performance evaluation and segment reporting

14. 14 1- Helping management control and Leadership Activity Based Costing (ABC) Value Chain Analysis Target Costing Total Quality Management ( TQM) Quality Costing Kyzen Costing (KC),Continuous Improvement Re-engineering Theory of Constraints Life- Cycle Costing Mass Customization

15. 15 2- Motivating the managers and workers  Agency theory and Agency problem  Activity Based Management(ABM)  Activity Based Budgeting(ABA)  Economic Value Added (EVA) as performance evaluation index

16. 16 3- Performance evaluation  Economic Value Added (EVA)  Balanced Scorecard (BSC)  Responsibility accounting  Benchmarking

17. 17 Contemporary Management Techniques  Activity Based Costing (ABC)  Value Chain Analysis  Target Costing  Total Quality Management ( TQM)  Kyzen Costing, Continuous Improvement  Life Cycle Costing  Re-engineering  Mass Customization  Balanced Scorecard  Critical Success Factors  Benchmarking

18. 18 Activity Based Costing (ABC) Activity analysis is used to develop a detailed description of the specific activities performed in the firm’s operations. Emphasizes on the Value added and Non-value added cost Improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers.

19. 19 Value Chain Analysis Material, energy and other requirement s supply R&D Product Design Productio n Marketin g Distributio n channel Customer service Value chain of Supplie rs Value chain of Firm Value chain of Distribution channel Value chain of Customer Value Chain Analysis in manufacturing firms

20. 20 Target Costing Determines the desired cost for a product on the basis of a given competitive price so that the product will earn a desired profit. Cost Reduction Redesign the Product Re-Manufacturing Process Target cost =Market determined price -Desired profit

21. 21 TQM A technique by which management develops policies and practices to ensure that firm’s products and services exceed customers’ expectations. Increase product Functionality, Reliability, Durability and Serviceability Brand Loyalty Competitiveness quickly Cost /Benefit Analysis Just In Time ( JIT) and TQM

22. 22 Kyzen Costing, Continuous Improvement  A management technique by which managers and workers commit to a program of Continuous Improvement in quality and other Critical Success Factors.  Continuous Improvement is associated with benchmarking and TQM.

23. 23 Re-engineering A process for creating competitive advantage in which a firm reorganizes its operating and management functions, often with the result that jobs are modified, combined, or eliminated. “ Fundamental rethinking and Radical redesign of business to achieve Dramatic improvement in Critical measures of performance, such as cost, quality,service, and speed.

24. 24 Life Cycle Costing  A management technique used to identify and monitor the cost of a product throughout its life cycle : Upstream costs Manufacturing costs Downstream costs

25. 25 The Life Cycle  Upstream costs R&D and Product Design including Prototyping,Target costing and Testing  Manufacturing costs Production costs, Inspection, Inventory Management (warehousing),Packaging  Downstream costs Distribution channel :Marketing, Promotion,Distribution,Sales and Services

26. 26 Mass Customization: Indentifying and Monitoring the Costs  A management technique in which marketing and production processes are designed to handle the increased variety that results from delivering customized products and services to customers.  Competitive Strategies : Product Differentiation (is emphasized ) Focusing Confrontation

27. 27 Balanced Scorecard  An accounting report that includes the firm’s Critical Success Factors in 4 areas : Financial performance Customer satisfaction Internal Business process Innovation and learning

28. 28 Balanced Scorecard

29. 29 Balanced Scorecard and Critical Success Factors ; Customer Oriented

30. 30 Critical Success Factors  1) Financial Factors Profitability Liquidity Sales Market Value

31. 31 Critical Success Factors  2) Customer Factors Customer satisfaction Dealer and Distribution Marketing and Selling Timeliness of Delivering quality

32. 32 Critical Success Factors  3) Internal Business Process Quality Productivity Flexibility (e-commerce,Speed to market and Flexible manufacturing ) Equipment Readiness safety

33. 33 Critical Success Factors; Customer Oriented  4) Learning and Innovation Product Innovation Timeliness of new Product Skill Development Employee Morale Equipment Readiness Competence

34. 34 Benchmarking  A process by which a firm identifies its critical success factors, studies the best practices of other firms (or other units within the firm)fore achieving these critical factors, and then implements improvements in the firm’s processes to match or beat the performance of those competitors  Five Steps in Benchmarking Planning Data gathering Analysis and Integration Execution and Implementation Re- Calibration

35. 35 The Professional Organizations The Institute of Management Accountant (IMA) The American Institute of Certified Public Accountant (AICPA) The Federal Trade Commission (FTC) The Securitized and Exchange Commission (SEC) The Financial Accounting Standards Board (FASB) The Cost Accounting Standards Board (CASB)

36. 36 Professional Ethics and the IMA code of Ethics  Competence  Ongoing development of knowledge and skills  Confidentiality  Refrain from disclosing confidential information  Integrity  Conflict of interest  Creditability  Communicate information fairly and objectively

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