Cost Accounting Foundations and Evolutions

Kinney, Prather, Raiborn

Chapter 1 Introduction to Cost Accounting

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

Learning Objectives (2 of 2)
Explain why accountants must understand the organizations structure in order to perform effectively Identify the sources of ethical standards for cost accountants

Two Types of Accounting

Financial
Meet external information needs Comply with GAAP

Management
Meet internal information needs Does not have to comply with GAAP

Accounting Differences
Financial
External focus Whole organization Historical Quantitative Monetary Verifiable GAAP Formal recordkeeping

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

Relationship of Financial, Management, and Cost Accounting Product Costs

FINANCIAL ACCOUNTING

COST MANAGEMENT ACCOUNTING ACCOUNTING

Product Cost Information

External parties - stockholders, creditors, regulators
For investment and credit decisions Complies with GAAP Enterprise-wide focus

 External parties - stockholders, creditors, regulators

For investment and credit decisions Complies with GAAP Enterprise focus

Product Cost Information

Internal parties
Planning, controlling, decision making Evaluating performance Includes upstream and downstream costs Disaggregated

Cost Management Goals

Reduce costs Improve customer satisfaction

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 organizations strategy Modify over time

Organizational Strategy
1. Develop Mission Statement 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

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

Strategy Questions
Who are your five most important competitors? Is your firm more or less profitable than these firms? Compare prices for equivalent products/services. Explain the difference. Is it customers, costs, or profit requirements? What is your competitive advantage?

Organizational Strategy
1. Develop Mission Statement 2. Implement strategy

3. Measure and control the value chain and managers performance

Value Chain
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

Organizational Strategy
1. Develop Mission Statement 2. Implement strategy 3. Measure and control the value chain and managers performance

Ethics and Legislation

Sarbanes-Oxley Act CEOs and CFOs personally accountable for the accuracy of their organizations financial reporting Foreign Corrupt Practices Act prohibits bribes to obtain/retain business

Ethics & Management Accountants

Standards of Ethical Conduct for Management Accountants
Competence Confidentiality Integrity Objectivity
Competence Confidentiality Integrity Objectivity