chapter 1 - introduction to cost accounting (1)
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Chapter 1 - Introduction to Cost Accounting (1)TRANSCRIPT
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Chapter 1
Introduction to Cost Accounting
Cost AccountingFoundations and Evolutions
Kinney and RaibornSeventh Edition
COPYRIGHT © 2009 South-Western, a part of Cengage Learning. South-Western is a trademark used herein
under license.
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Learning Objectives (1 of 3)
• Describe the relationships among financial, management, and cost accounting
• Identify the sources of authoritative pronouncements for the practice of cost accounting
• Identify the sources of ethical standards for cost accounting
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Learning Objectives (2 of 3)
• Describe a mission statement and why it is important to organizational strategy
• Explain what accountants must understand about an organization’s structure and business environment in order to perform effectively in that organization
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Learning Objectives (3 of 3)
• Describe a value chain and the major value chain functions
• Describe how a balanced scorecard is used to implement an organization’s strategy
• Describe why ethics is so important in an organization
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The
Language
of
Business
Accounting
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Accountants• Financial accountants provide information
to external parties - investors, creditors, regulators
• Managerial accountants provide information to internal users - managers
• Cost accountants provide information to both internal and external users – product cost information
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Two Types of Accounting
Financial• Meet external
information needs• Comply with GAAP
Management• Meet internal
information needs• Does not have to
comply with GAAP
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Accounting DifferencesFinancial• External focus• Whole organization• Historical• Quantitative• Monetary• Verifiable• GAAP• Formal
recordkeeping
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Accounting DifferencesFinancial• 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
FINANCIALACCOUNTING
MANAGEMENTACCOUNTING
COSTACCOUNTING
Product Costs
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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
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Professional Ethics
• Earnings management--deliberate accounting adjustments to “hit” profit targets
• Often adjustments involve cost accounting—product costs and inventory valuations
• Stretching legitimate accounting techniques• Outright fraud
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Ethics and Legislation
• Code of ethics for professional accountants – Approved (PICPA) to be recommended for adoption by the (BOA) and approval of (PRC) – January, 2004
• Revised Code of Good Governance – SEC circular 6 series of 2009
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Ethics & Management Accountants
• Standards of Ethical Conduct for Management Accountants– Competence– Confidentiality– Integrity– Objectivity
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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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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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Organizational Strategy
Five factors
• core competencies
• organizational structure
• management style and organizational culture
• organizational constraints
• environmental constraints
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Organizational Strategies
• 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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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
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Organizational Structure• Line manager works directly toward
attaining organizational goals• Staff employees give assistance and advice
to line managers– Treasurer and Controller
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Value ChainSet 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
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Balance Scorecard
Four perspectives
• Learning and Growth
• Internal Business
• Customer Value
• Financial
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Balanced Scorecard
FinancialCustomerValue
Internal Business
Learning and Growth
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Balanced Scorecard• Learning and Growth
– 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
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Balanced Scorecard• Learning and Growth• Internal Business
– Things to do well to meet customer needs and expectations
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Balanced 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
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Balanced 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
– Address stockholders/stakeholders concerns about profitability and organizational growth
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Balanced ScorecardFour perspectives
• Learning and Growth• Internal Business• Customer Value• Financial Performance
Measures • Short-term and long-term• Internal and external• Financial and nonfinancial
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Ethics in Multinationals
• 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
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Questions
• 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 accountants?
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Potential Ethical Issues
• Earnings management
• Low cost production at any cost
• Whistleblower retaliation
• Fixing prices
• Bribery and other corruption
• Hiding managerial acts