1. Chapter 1 Introduction to Cost Accounting Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn

2. Learning Objectives (1 of 3) Describe the relationships among financial, management, and cost accounting Identify two common organizational strategies Describe the value chain and the major value chain functions

3. Learning Objectives (2 of 3) Explain how a balance scorecard is used to implement an organization’s strategy Explain why accountants must understand the organization’s structure in order to perform effectively

4. Learning Objectives (3 of 3) Identify the sources of ethical standards for cost accountants List the sources of authoritative pronouncements for the practice of cost accounting

5. Accountants Provide information to external parties –Stockholders, creditors, regulators Estimate the cost of products produced and services provided Provide information to internal decision makers –To plan, control, and evaluate performance

6. Accounting Differences Financial 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

7. Relationship of Financial, Management, and Cost Accounting FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING COST ACCOUNTING Product Costs

8. Product Cost Information External parties - stockholders, creditors, regulators –For investment and credit decisions –Complies with GAAP –Enterprise focus Internal parties –Planning, controlling, decision making –Evaluating performance –Includes upstream and downstream costs –Disaggregated

9. Organizational Strategy 1.Develop Mission Statement 2.Implement strategy 3.Measure and control the value chain and managers’ performance 4.Set balance scorecard goals, objectives, and targets

10. Organizational Strategy 1.Develop Mission Statement –What an organization wants to accomplish –How its products/services can meet customer needs –Why the organization exists –Used to develop an organization’s strategy –Modify over time

11. Organizational Strategy 2.Implement strategy Strategy - A plan to fulfill goals and objectives by deploying resources to create value for customers and shareholders Organization strategy is supported by business unit strategies

12. Organizational Strategies Cost leadership strategy - Undercut competitor prices Product differentiation strategy - Superior quality products or unique services sold at a premium Core competency – critical function or activity providing a competitive advantage

13. Value Chain 3.Measure and control the value chain and managers’ performance Set of value-adding functions and processes that convert inputs into products/services –Research and Development –Product Design –Supply –Production –Marketing –Distribution –Customer Service Communicate strategy to all members of the value chain

14. Balanced Scorecard Financial Customer Value Internal Business Learning and Growth 4. Set balance scorecard goals, objectives, and targets Business outcomes are evaluated against performance targets

15. Balance Scorecard Learning and Growth 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 Performance –Stockholders/stakeholders concerns about profitability and organizational growth

16. 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

17. Ethics and Legislation Sarbanes-Oxley Act – CEOs and CFOs personally accountable for the accuracy of their organization’s financial reporting Foreign Corrupt Practices Act – prohibits bribes to obtain/retain business False Claims Act – whistle-blower protection Organization of Economic Cooperation and Development Convention – crime to offer, promise, give bribes to obtain/retain internal business deals

18. Ethics & Management Accountants Standards of Ethical Conduct for Management Accountants –Competence –Confidentiality –Integrity –Objectivity Competence Confidentiality Integrity Objectivity

19. Accounting Bodies Financial Public Company Accounting Oversight Board (PCAOB) Securities and Exchange Commission (SEC) Financial Accounting Standards Board (FASB) Management IMA Society of Management Accountants of Canada Cost Accounting Standards Board (CASB)

20. Management Accounting Organizations IMA Statements on Management Accounting (not legally binding) Society of Management Accountants of Canada Management Accounting Guidelines (not legally binding) Cost Accounting Standards Board (CASB) Government contracting standards (legally binding)

21. Questions What is the relationship among financial, management, and cost accounting? How is the balance scorecard used to implement an organization’s strategy? Where can an accountant find ethical standards for cost accountants?