Fourth Edition
Cost Management
ACCOUNTING AND CONTROL
HANSEN & MOWEN
1-1
Task Force Clip Art
included in this electronic
presentation is used with
the permission of New
Vision Technology of
Nepean Ontario, Canada.
1-2
Introduction to
Cost Management
Prepared by
Douglas Cloud
Pepperdine University
1-3
Objectives
After studying this chapter, you should be able to:
1. List the similarities and differences between
financial accounting and cost management.
2. Identify the current factors affecting cost
management.
3. Discuss the importance of the accounting
system for internal and external reporting.
4. Explain the need for today’s cost accountant
to acquire cross-functional expertise.
1-4
Objectives
5. Describe how management accountants
function within an organization.
6. Understand the importance of ethical
behavior for management accounts.
7. Identify the thee forms of certification
available to internal accountants.
1-5
Financial Accounting Versus
Cost Management
 Financial accounting is devoted to providing
information for external users; these users
include investors, government agencies, and
banks.
 Cost management identifies, collects,
measures, classifies, and reports information
that is useful to managers in costing
(determining what something costs), planning,
controlling, and decision making.
1-6
Financial Accounting Versus
Cost Management
 Cost accounting attempts to satisfy costing
objectives for both financial and management
accounting.
 Management accounting is concerned
specifically with how cost information and
other financial and nonfinancial information
should be used for planning, controlling, and
decision making.
1-7
Current Factors Affecting
Cost Management
Global Competition
• The new competitive
environment has increased the
demand not only for more cost
information but also for more
accurate information.
• Vastly imported transportation
and communication has led to a
global market for many
manufacturing and service firms.
1-8
Current Factors Affecting Cost
Management
Growth of the Service Industry
 As the traditional industries has
declined in importance, the
service sector of the economy
has increased in importance.
 Deregulation of many services
has increased competition in the
service industry.
1-9
Current Factors Affecting Cost
Management
Advances in Information Technology
 Computers are used to monitor and
control operations, which allows for a
considerable amount of useful
information to be collected and
provided to management
instantaneously.
 The emergence of electronic
commerce which allows buyers and
sellers to come together electronically.
1-10
Current Factors Affecting Cost
Management
Advances in Management Environment
The theory of constraints is a method used to continuously
improve manufacturing activities and nonmanufacturing
activities.
Just-in-time manufacturing is a demand-pull system that
strives to produce a product only when it is needed and
only in the quantities demanded by customers.
Computer-integrated manufacturing is the automation of the
manufacturing environment.
1-11
Current Factors Affecting Cost
Management
Customer Orientation
 Firms are concentrating on the
delivery of value to the customer
with the objective of establishing a
competitive advantage.
 Companies must compete not only
in technological and manufacturing
terms but also in terms of the speed
of delivery and response.
1-12
Current Factors Affecting Cost
Management
New Product Development
 Management recognizes that a high
proportion of production costs are
committed during the development
and design stage of a new product.
 The requirement to control cost
encourages the use of target costing
and activity-based management.
1-13
Current Factors Affecting Cost
Management
Total Quality Management
 Continual improvement and elimination of waste are
the two foundation principles that govern a state of
manufacturing excellence.
 A philosophy of total quality management, in which
managers strive to create an environment that will
enable organizations to manufacture perfect products,
has replaced the acceptable quality attitudes of the
past.
1-14
Current Factors Affecting Cost
Management
Time as a Competitive Element
 Time is the crucial
element in all phases of
the value chain.
 Decreasing non-valueadded time appears to go
hand-in-hand with
increasing quality.
1-15
Current Factors Affecting Cost
Management
Efficiency
While quality and time are
important, improving these
dimensions without
corresponding improvements
in financial performance may
be futile, if not fatal.
.
1-16
Traditional Accounting System
Transactions
Journal Entries
Posting to
Accounts
Financial
Reports
1-17
Data-Based Relationship
Accounting System
Transactions
Custom
Report
Custom
Report
Custom
Report
Custom
Report
1-18
Line and Staff Positions
Line positions are positions
that have direct responsibility
for the basic objectives of an
organization.
Staff positions are positions
that are supportive in nature
and have only indirect
responsibility for an
organization’s basic objectives.
1-19
Partial Organization Chart,
Manufacturing Company
President
Line Function
Staff Function
Production
Vice-President
Financial VicePresident
Production
Supervisor
Machining
Foreman
Assembly
Foreman
Controller
Internal
Audit
Cost
Financial
Treasurer
Systems
Ta
x
1-20
Role of Controller and Treasurer
Controller
1.
2.
3.
4.
5.
6.
7.
Financial reports
SEC reporting
Tax planning and reporting
Performance reporting
Internal auditing
Budgeting
Accounting systems and
internal controls
1-21
Role of Controller and Treasurer
Treasurer
1. Collection of cash
2. Monitoring of cash
payments
3. Monitors cash availability
4. Short-term investments
5. Short and long-term
borrowing
6. Issuing of capital stock
1-22
The Management Process
Planning is the
detailed formulation
of future actions to
achieve a particular
end. Planning
requires setting
objectives and
identifying methods
to achieve those
objectives.
1-23
The Management Process
Controlling is the
managerial activity of
monitoring a plan’s
implementation and
taking corrective
action as needed.
Control
Feedback
is usually
is information
achieved
that
with
canthe
be use
usedoftofeedback.
evaluate
or correct the steps being taken to implement a plan.
1-24
The Management Process
Continuous
improvement is
required in a dynamic
environment if a firm is
to remain competitive
or to establish a
competitive advantage.
1-25
The Management Process
Decision making is
the process of
choosing among
competing
alternatives.
1-26
Standards of Ethical Conduct
for Management Accountants
Competence: Management accountants have a
responsibility to-1. Maintain an appropriate level of professional competence
by ongoing development of their knowledge and skills.
2. Perform their professional duties in accordance with
relevant laws, regulations, and technical standards.
3. Prepare complete and clear reports and recommendations
after appropriate analysis of relevant and reliable
information.
1-27
Standards of Ethical Conduct
for Management Accountants
Confidentiality: Management accountants have a responsibility
to-1. Refrain from disclosing confidential information acquired in the
course of their work except when authorized, unless legally
obligated to do so.
2. Inform subordinates as appropriate regarding the confidentiality
of information acquired in the course of their work and monitor
their activities to ensure the maintenance of that confidentiality.
3. Refrain from using or appearing to use confidential information
acquired in the course of their work for unethical or illegal
advantage either personally or through a third party.
1-28
Standards of Ethical Conduct
for Management Accountants
Integrity: Management accountants have a
responsibility to- Avoid actual or apparent conflicts of interest and advise all
appropriate parties of any potential conflict.
 Refrain from engaging in any activity that would prejudice
their ability to carry out their duties ethically.
 Refuse any gift, favor, or hospitality that would influence
their actions.
 Refrain from either actively or passively subverting the
attainment of the organization’s legitimate and ethical
objectives.
Continued
1-29
Standards of Ethical Conduct
for Management Accountants
Integrity: Management accountants have a
responsibility to-
Recognize and communicate professional limitations or
other constraints that would preclude responsible
judgment or successful performance of an activity.

Communicate unfavorable as well as favorable
information and professional judgments or opinions.

Refrain from engaging in or supporting any activity that
would discredit the profession.
1-30
Standards of Ethical Conduct
for Management Accountants
Objectivity: Management accountants have a
responsibility to-1) Communicate information fairly and objectively.
2) Disclose fully all relevant information that could
reasonably be expected to influence an intended user’s
understanding of the reports, comments, and
recommendations presented.
1-31
Professional Certifications
 CMA: One of the main purposes of the CMA was to
establish management accounting as a recognized,
professional discipline, separate from the profession
of public accounting.
 CPA: The responsibility of a CPA is to provide
assurance concerning the reliability of financial
statements.
 CIA: The focus of the CIA is to recognize
competency in internal auditing rather than external
auditing as with the CPA.
1-32
The CMA
Four areas emphasized on the exam:
1) Economics, finance, and management
2) Financial accounting and reporting
3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems
1-33
End of
Chapter
1-34
1-35