chapter 2 introduction to cost management systems cost accounting traditions and innovations...
TRANSCRIPT
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Chapter 2
Introduction to Cost
Management Systems
Cost AccountingTraditions and Innovations
Barfield, Raiborn, Kinney
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Learning Objectives (1 of 2)
• Explain why companies have management control systems
• List cost management system goals
• Describe what factors influence the design of cost management systems
• Explain why organizational form, structure, and culture are important to the design of cost management systems
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Learning Objectives (2 of 2)
• Explain how the internal and external operating environments affect cost management systems
• List the elements that affect the design of cost management systems
• Describe the use of gap analysis when implementing cost management systems
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Management Information System• A structure of interrelated elements that
• collects, organizes, and communicates data
so managers may • plan, control, evaluate performance, and
make decisions
• Emphasizes satisfying internal demands for information rather than external demands
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Internal Information Flows
Planning
Control
Decision
Performance
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External Information Flows
Clients
Government
Competition
Suppliers Creditors
Organization
Intelligence
Organizational communications
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Control System Components
• Detector or sensor
• Assessor
• Effector
• Communications network
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Management Control System
Detector
Assessor
Effector
Control device
Entity being
controlled
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Cost Management System (CMS)
• Formal methods to plan and control an organization’s cost-generating activities with major challenges of:– Achieving profitability in the short run– Maintaining a competitive position in the long run
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Integrated Cost Management System
Marketing
Quality Control
Financial Accounting
Production Planning and Scheduling
Research and Development
Cost Accounting
Inventory Management
Production Reporting
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Cost Management System Goals
• Develop product costs• Assess product/service life-cycle performance• Improve understanding of processes and
activities• Control costs• Measure performance• Allow pursuit of organizational strategies
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Designing a Cost Management System
ANALYZE
DETERMINEdesired outputs
PERFORMgap analysis
ASSESSgap reduction
Improve
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CMS Information
• Enables managers to perform analyses on:– determining core competencies and
organizational constraints– positive and negative financial and non-
financial factors of strategic and operational plans
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Organizational Form, Structure, Culture
• Choice of form affects– Cost of raising capital– Cost of operating business– Cost of litigating– Statutory authority to make decisions
• Forms of business include– Corporations, Partnerships, LLPs, LLCs
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Organizational Form, Structure, Culture
• Distribute authority and responsibility – Centralized, decentralized decision making
• Group subunits– geographically – by similar missions – by natural product clusters
• Determine accountability for cost management and organizational control
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Organizational Form, Structure, Culture
Underlying set of assumptions about entity and goals, processes, practices, and values
that are shared by its members
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Organizational Mission and Core Competencies
• Business mission regarding competition– Avoid competition
• Differentiation• Cost Leadership
– Confront competition
• Business mission in relation to product life cycle
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Organizational Mission and Core Competencies
• Timeliness
• Quality
• Customer service
• Efficiency and cost control
• Responsiveness to change
Cost management system gathers data and reports about core competencies
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Operating and Competitive Environment and Strategies
• Fewer costs susceptible to short-run control
• Cost management efforts targeted toward– the longer term– capacity management
• Decreased flexibility when responding to a change in short-term conditions
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Operating and Competitive Environment and Strategies
• Being first to market - pricing flexibility increase market share or large per-unit profit
• Reduce product cost substantially– develop new production processes– capture learning curve effects– increase capacity utilization– create a focused factory arrangement– design for manufacturability, logistical
support, reliability, maintainability
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Operating and Competitive Environment and Strategies
• Supplier relations– link electronically
• Integration of entire information system– payroll– inventory– budgeting– costing
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CMS Elements
• Motivational elements
• Informational elements
• Reporting elements
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CMS Elements
• Motivational elements– Performance measurements– Reward structure– Support of organizational mission and
competitive strategy
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CMS Elements• Motivational elements
• Informational elements– Support budgeting process– Identify cost drivers– Reduce/eliminate non-value-added activities– Emphasize product life cycle– Adapt to changing competitive conditions– Relate cost to product/process design– Focus on capital spending– Minimize cost distortions
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CMS Elements• Motivational elements
• Informational elements
• Reporting elements– Prepare financial statements– Implement responsibility
accounting system
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Implement CMS
Perform GAP analysis
Information Needs
<Information Available>
Gap to OvercomeGAP
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Implement CMS
• Gap Analysis– Identify gap to overcome– Prioritize differences– Develop and deploy improvements
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Enterprise Resource Planning
For a truly integrated CMS
• Automate and integrate business processes
• Share common data and practices
• Produce and access information in real-time
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Questions
• Why do companies have management control systems?
• Are organizational form, structure, and culture important to the design of cost management systems? Explain.
• How do the internal and external operating environments affect cost management systems?