Chapter 1 Introduction to Cost management Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives • Describe cost management and explain how it differs from financial accounting • Identify the current factors affecting cost management • Describe how management accountants function within an organization • Understand the importance of ethical behavior for management accountants • Identify the three forms of certification available to internal accountants Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Financial accounting versus cost management: a systems framework • Accounting information system o Consists of interrelated manual and computer parts o Uses processes such as collecting, recording, summarizing, analyzing, and managing data to transform inputs into information provided to users • Has two major systems with the targeted user being the major difference o Financial accounting information system o Cost management accounting information system Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Financial accounting information system • Produces outputs for external users • Uses well-specified economic events as inputs • Follows rules and conventions set by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) • Provides outputs such as financial statements • Used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost management information system • Produces outputs for internal users • Has three broad objectives that provide information for: o Costing out services, products, and other objects of interest to management o Planning and control o Decision making • Cost management is concerned with factors that drive costs o Cycle time o Quality o Process productivity Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost Accounting Information System • Assigns costs to individual products and services and other objects as specified by management • Assists external financial reporting o By assigning costs to products in order to value inventories and determine cost of sales • Conforms to the rules and conventions set by the SEC and the FASB Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Operational Control Information System • Provides accurate and timely feedback concerning the performance of managers and others relative to their planning and control of activities o Focuses on identifying opportunities for improvement and helping to find ways to improve • Improves profit by increasing customer value Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors affecting cost management • Global competition o Increased the demand for more accurate cost information • Growth of the service industry o Deregulation has increased competition • Led to the need to have accurate cost information for planning, controlling, continuous improvement, and decision making Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advances in information technology (1 of 3) • Use of computers to monitor and control operations o Results in the integration of manufacturing data with marketing and accounting data • Enterprise resource planning (ERP) software: Provides an integrated system capability • Use of tools such as personal computers (PCs), online analytic programs (OLAP), and decision-support systems (DSS) • Development of business analytics Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advances in information technology (2 of 3) o Key differences between the use of PCs, OLAP, and DSS and the use of business analytics • Expansion of business analytics to include external data sets and the integration of the analysis with an organization’s internal databases • Emergence of very large data sets • Emergence of electronic commerce (e-commerce) o Internet trading o Electronic data interchange o Bar coding Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advances in information technology (3 of 3) • Electronic data interchange (EDI): Exchange of documents between computers using telephone lines • Supply chain management: Management of products and services from the acquisition of raw materials through manufacturing, warehousing, distribution, wholesaling, and retailing Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advances in manufacturing environment • Theory of constraints: Method used to continuously improve manufacturing and nonmanufacturing activities • Just-in-time manufacturing: Produces a product only when it is needed and only in the quantities demanded o Focuses on continual improvement by reducing inventory costs and dealing with other economic problems Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Lean manufacturing and computer-integrated manufacturing • Lean manufacturing: Persistent pursuit and elimination of waste that simultaneously embodies respect for people • Computer-integrated manufacturing o Automation of the manufacturing environment allows firms to: • Reduce inventory • Increase productive capacity • Improve quality and service • Decrease processing time • Increase output Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Computer-integrated manufacturing • Computer-integrated manufacturing system (CIM) implies the following capabilities: o Products are designed through the use of a computer-assisted design (CAD) system o Computer-assisted engineering (CAE) system is used to test the design o Product is manufactured using a computer-assisted manufacturing (CAM) system o An information system connects the various automated components Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Customer Orientation • Firms establish competitive advantage by delivering value to the customer • Value chain: Set of activities required to design, develop, produce, market, and deliver products and services to customers • Customer driven accounting departments assess the value of cost reports o To ensure effective communication of significant information Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Product Development • High proportion of production costs is involved during the development and design stage of new products • Cost management procedures o Target costing: Encourages mangers to assess the overall cost impact of product designs over the product’s life cycle o Activity-based management: Identifies the activities produced at each stage of the development process and assesses their costs Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sustainable Development and Total Quality Management (1 of 2) • Sustainable development o Development that meets the needs of the present without compromising the ability of future generations to meet their own needs • Total quality management o Managers create an environment that will enable organizations to produce defect-free products and services o Has replaced the acceptable quality attitudes of the past Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sustainable Development and Total Quality Management (2 of 2) o Continuous improvement and elimination of waste are the two foundation principles o Objectives - Producing products and services that actually perform according to specifications and with little waste Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Time as a competitive element and Efficiency • Time as a competitive element o Crucial element in all phases of the value chain o Decrease in non-value-added time increases quality • Efficiency o Improving efficiency is a vital concern o Cost is a critical measure of efficiency Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The controller • • • • Chief accounting officer Supervises all accounting departments Participates in planning, controlling, and decision-making activities Responsible for both internal and external accounting requirements Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 1.1 - Partial organizational chart: manufacturing company (1 of 2) • President • Line Function o Production Vice President o Production Supervisor • Machining Foreman • Assembly Foreman • Staff Function o Financial Vice President • Controller • Treasurer o Internal Audit Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 1.1 - Partial organizational chart: manufacturing company (2 of 2) o Cost o Financial o Systems o Tax Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information for planning, controlling, continuous improvement, and decision making (1 of 2) • Planning: Detailed formulation of future actions to achieve a particular end o Requires setting objectives and identifying methods to achieve those objectives • Controlling: Managerial activity of monitoring a plan’s implementation and taking corrective action o Achieved with the use of feedback o Performance reports: Accounting reports that provide feedback by comparing planned data with actual data Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information for planning, controlling, continuous improvement, and decision making (2 of 2) • Continuous improvement: Relentless pursuit of improvement in the delivery of value to customers o Required to remain competitive or to establish a competitive advantage • Decision making: Process of choosing among competing alternatives Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Accounting and ethical conduct • Business ethics: Learning what is right or wrong in the work environment and choosing what is right • Benefits of ethical behavior o Creates customer and employee loyalty o Avoids litigation costs Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Standards of ethical conduct for management accountants • Institute of Management Accountants (IMA) has established ethical standards for management accountants • Major divisions of the code o Competence o Confidentiality o Integrity o Credibility o Resolution of ethical conflict Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Certification • Certificate in management accounting o Establishes management accounting as a recognized, professional discipline, separate from the profession of public accounting • Certificate in public accounting o Provides evidence of a minimal professional qualification for external auditors • Certificate in internal auditing o Recognizes competency in internal auditing Hansen/Mowen, Cornerstones of Cost Management, 4th Edition. © 2018 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
