Chapter 1:
Introduction to Cost
Accounting
Cost Accounting:
Foundations and Evolutions, 9e
Kinney ● Raiborn
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accessible website, in whole or in part.
Learning Objectives
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What are the relationships among financial, management, and cost
accounting?
What are the sources of authoritative pronouncements for the practice
of cost accounting?
What are the sources of ethical standards for cost accountants?
What is a mission statement, and why is it important to organizational
strategy?
What must accountants understand about an organization’s structure
and business environment in order to perform effectively in that
organization?
What is a value chain, and what are the major value chain functions?
How is a balanced scorecard used to implement an organization’s
strategy?
What are the sources of ethical standards for cost accountants?
Why is ethical behavior so important in organizations?
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accessible website, in whole or in part.
Accountants
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Financial accountants provide information to external
parties
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Managerial accountants provide information to internal
users
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Investors
Creditors
Regulators
Donors
Managers
Cost accountants provide information to both internal and
external users
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Product cost information
Accounting is the language of business.
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accessible website, in whole or in part.
Relationship of Financial,
Management, and Cost Accounting
Product
Costs
FINANCIAL
ACCOUNTING
COST
MANAGEMENT
ACCOUNTING ACCOUNTING
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accessible website, in whole or in part.
Types of Accounting
Financial
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Meet external
information needs
Comply with GAAP
Management
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Meet internal
information needs
Does not have to
comply with GAAP
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accessible website, in whole or in part.
Financial versus Managerial
Financial
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External focus
Whole organization
Historical
Quantitative
Monetary
Verifiable
GAAP
Formal recordkeeping
Managerial
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Internal focus
Segments or divisions
Current/projected
Quantitative/qualitative
Monetary and nonmonetary
Timely/reasonable estimate
Benefits exceed costs
Formal and informal
recordkeeping
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accessible website, in whole or in part.
Product Cost Information
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External parties—stockholders, creditors,
regulators, and donors
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For investment and credit decisions
Complies with GAAP
Enterprise focus
Internal parties
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Planning, controlling, and decision making
Evaluating performance
Includes upstream and downstream costs
Disaggregated
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accessible website, in whole or in part.
Accounting Bodies
Financial
 Public Company
Accounting Oversight
Board (PCAOB)
 Securities and
Exchange Commission
(SEC)
 Financial Accounting
Standards Board
(FASB)
Management
 Institute of
Management
Accountants (IMA)
 Society of Management
Accountants of Canada
 Cost Accounting
Standards Board
(CASB)
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accessible website, in whole or in part.
Management Accounting
Organizations
 IMA
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Statements on Management Accounting
(not legally binding)
 Society of Management Accountants of
Canada
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Management Accounting Guidelines
(not legally binding)
 Cost Accounting Standards Board (CASB)
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Government contracting standards
(legally binding)
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accessible website, in whole or in part.
Organizational Strategy
1. Develop mission statement
2. Implement strategy
3. Deploy resources to create value for
customers and shareholders
4. Recognize that each organization is
unique—thus unique strategies must be
developed
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accessible website, in whole or in part.
Organizational Strategy
1. Develop mission statement
2. Implement strategy
Establish
appropriate
measures of
accomplishment
Develop,
implement, and
monitor
necessary
information
systems
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accessible website, in whole or in part.
Five Factors in Organizational
Strategy
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Core competencies
Organizational structure
Management style and organizational culture
Organizational constraints
Environmental constraints
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accessible website, in whole or in part.
Organizational Strategies
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Core competency—critical function or
activity providing a competitive advantage
Cost leadership strategy—undercut
competitor prices
Product differentiation strategy—superior
quality products or unique services sold at
a premium
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accessible website, in whole or in part.
Strategy Questions
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What are the most important factors
in your organization’s operating
environment?
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Economy, population demographics,
competitors, suppliers, resource
availability, innovation, environment
What are your organization’s core
competencies?
Have you organization’s core
competencies become competitive
advantages?
What is your organizations current
position relative to your competitors?
What are your customers’ purchase
or selection criteria?
What is the organizational vision
identified by your management,
shareholders, and other internal and
external stakeholders?
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Does your organization have the
appropriate resources (financial,
personnel, and technological) to
fulfill its vision?
Have appropriate performance
measurements been established to
determine if progress is being made
towards your organization’s mission
and vision?
Are operating conditions
continuously monitored to detect
changes so that your organization
can adapt with flexibility and
sensitivity, especially to new trends
in technology?
Is the vision supported by identifiable goals
and objectives?
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accessible website, in whole or in part.
Organizational Structure
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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
Line manager works directly toward attaining
organizational goals
Staff employees give assistance and advice to line
managers
 Treasurer and Controller
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accessible website, in whole or in part.
Organizational Constraints
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Four common organizational constraints
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Monetary capital
Intellectual capital
Technology
Environmental constraints
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accessible website, in whole or in part.
Value Chain
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A set of value-adding functions and
processes that converts inputs into
products or services
Research and
Development
Product Design
Supply
Production
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Marketing
Distribution
Customer Service
Communicate strategy to all members of the value chain.
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accessible website, in whole or in part.
Components of the Value Chain
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accessible website, in whole or in part.
Balanced Scorecard
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Balanced Scorecard Perspectives
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Learning and Growth
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Internal Business
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Things to do well to meet customer needs and expectations
Customer Value
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Use the organization’s intellectual capital to adapt to changing
customer needs or to influence new customers’ needs and
expectations through product or service innovations
How well the organization is doing relative to important
customer criteria
Financial
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Address stockholders/stakeholders concerns about profitability
and organizational growth
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accessible website, in whole or in part.
Balanced Scorecard Measures
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Short-term and long-term
Internal and external
Financial and nonfinancial
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accessible website, in whole or in part.
Professional Ethics
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Earnings management—deliberate
accounting adjustments to “hit” profit targets
Often adjustments involve cost accounting
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Product costs
Inventory valuations
Stretching legitimate accounting techniques
Outright fraud
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accessible website, in whole or in part.
Potential Ethical Issues
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Earnings management
Low cost production at any cost
Whistle-blower retaliation
Fixing prices
Bribery and other corruption
Hiding managerial acts
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accessible website, in whole or in part.
Ethics and Legislation
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Sarbanes-Oxley Act—CEOs and CFOs
personally accountable for the accuracy of
their organization’s financial reporting
False Claims Act—whistle-blower protection
and penalties for failure to blow the whistle
(disclose known financial frauds)
Dodd-Frank Act—encourages whistleblowing with awards from 10 to 30 percent of
amount recouped
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accessible website, in whole or in part.
Ethics and Management Accounting
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Standards of Ethical Conduct for
Management Accountants
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Competence
Confidentiality
Integrity
Credibility
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accessible website, in whole or in part.
Ethics in Multinationals
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Foreign Corrupt Practices Act—prohibits
bribes to obtain/retain business
Organization of Economic Cooperation and
Development Convention—crime to offer,
promise, give bribes to obtain/retain internal
business deals
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
Questions
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What is the relationship among financial,
management, and cost accounting?
How is the balanced scorecard used to
implement an organization’s strategy?
Where can an accountant find ethical
standards for cost accounting?
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.