Download - Cost Accounting Horngreen, Datar, Foster The Accountant’s Role in the Organization Session 1
Cost Accounting Horngreen, Datar, Foster
The Accountant’s RoleThe Accountant’s Rolein the Organizationin the Organization
Session 1
Cost Accounting Horngreen, Datar, Foster
Learning Objective 1Learning Objective 1
Describe how cost accounting supports
management accountingand financial accounting.
Cost Accounting Horngreen, Datar, Foster
Management vs Financial Management vs Financial AccountingAccounting
Management Accounting:• It measures and reports financial and nonfinancial information that
helps managers make decisions to fulfill the goals of an organization.
Financial Accounting:• Its focus is on reporting to external parties.• It measures and records business transactions.• It provides financial statements based on generally accepted
accounting principles.
Cost Accounting Horngreen, Datar, Foster
Cost Accounting vs Cost Cost Accounting vs Cost ManagementManagement
Cost Accounting: • It provides information for both management accounting and
financial accounting. • It measures and reports financial and nonfinancial data.
Cost Management:• It describes the activities of managers in planning and control of
costs. • It includes the continuous reduction of costs. • It is a key part of general management strategies and their
implementation.
Cost Accounting Horngreen, Datar, Foster
Learning Objective 2Learning Objective 2
Distinguish between theplanning and control
decisions of managers.
Cost Accounting Horngreen, Datar, Foster
Planning and ControllingPlanning and Controlling
Management Decision Management Accounting System
Planning
Control
PerformanceEvaluation
Budgets
AccountingSystem
PerformanceReports
Fee
db
ack
Cost Accounting Horngreen, Datar, Foster
Planning and ControllingPlanning and Controlling
What is planning?• Setting Goals
• Predicting Results
• Deciding how to attain goals
What is control?• Deciding and taking actions
• Deciding on performance evaluation and feedback
What are budgets? • They are quantitative expressions of a proposed plan of action
• They aid in the coordination and implementation of the plan.
What are performance reports?• These are reports that compare actual results with budgeted amounts
Cost Accounting Horngreen, Datar, Foster
Performance Report ExamplePerformance Report Example
Budget Actual VarianceRevenues $59,000 $60,000 $1,000 FCost of goods sold 42,000 43,400 1,400 UWages 6,700 7,000 300 UGeneral 1,300 900 400 FFixed costs 5,000 5,000 0 Operating income $ 4,000 $ 3,700 $ 300 U
Boone Shop, July 2003
Cost Accounting Horngreen, Datar, Foster
Performance Report ExamplePerformance Report Example
Actual cost of goods sold were 72% of revenues instead of the budgeted 71%.
Feedback: This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future.
Budget % Actual %Revenues $59,000 100 $60,000 100Cost of goods sold 42,000 71 43,400 72Gross margin $17,000 29 $16,600 28
Cost Accounting Horngreen, Datar, Foster
Learning Objective 3Learning Objective 3
Distinguish among the problem-solving, scorekeeping, andattention-directing roles of management accountants.
Cost Accounting Horngreen, Datar, Foster
Problem Solving, Score Keeping, Problem Solving, Score Keeping, Attention DirectingAttention Directing
Problem Solving:• This involves comparative analysis for decision making.
• This role asks: Of the several alternatives available, which is the best?
Score Keeping: • This involves accumulating data and reporting reliable results toall levels of
management.
• This role asks: How is the business doing?
Attention Directing:• This involves helping managers properly focus their attention.
• This role asks: Which opportunities and problems should be emphasized first.
• Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities.
Cost Accounting Horngreen, Datar, Foster
Learning Objective 4Learning Objective 4
Identify four themes managersneed to consider for attaining success.
Cost Accounting Horngreen, Datar, Foster
Key Themes in ManagementKey Themes in ManagementDecision MakingDecision Making
Customer Focus
Value Chainand
Supply ChainAnalysis
Key Success Factors:Cost and Efficiency,
Time, Quality,Innovation
ContinuousImprovement
andBenchmarking
Cost Accounting Horngreen, Datar, Foster
Value Chain and Supply Chain Value Chain and Supply Chain AnalysisAnalysis
This theme has two related aspects:• Treat each of the business functions in the value chain as an
essential and valued contributor.• Integrate and coordinate the efforts of all business functions in
addition to developing the capabilities of each individual business function.
Supply chain• describes the flow of goods, services, and information from cradle to
grave,• regardless of whether those activities occur in the same organization
or other organizations.
Cost Accounting Horngreen, Datar, Foster
Key Success FactorsKey Success Factors
These are operational factors that directly affect the economic viability of the organization.• Cost – organizations are under continuous pressure to reduce
costs.• Quality – customers are expecting higher levels of quality.• Time – organizations are under pressure to complete activities
faster and to meet promised delivery dates more reliably.• Innovation – there is now heightened recognition that a
continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations.
Cost Accounting Horngreen, Datar, Foster
Continuous ImprovementContinuous Improvementand Benchmarkingand Benchmarking
Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organizations.
Cost Accounting Horngreen, Datar, Foster
Learning Objective 5Learning Objective 5
Describe the set of businessfunctions in the value chain.
Cost Accounting Horngreen, Datar, Foster
Value ChainValue Chain
The term “value chain” refers to the sequence of business functions in which usefulness is added to the products or services of an organization.
The term “value” is used because as the usefulness of the product or service is increased, so is its value to the customer.
Management accountants provide decision support for managers in the following six
business functions:
Cost Accounting Horngreen, Datar, Foster
Value ChainValue Chain
R & D Design Production
Marketing Distribution Service
Management Accounting
Cost Accounting Horngreen, Datar, Foster
Value Chain FunctionsValue Chain Functions
Research and Development• It is the process that is conducted to generate and
experiment with ideas related to new products, services, or processes.
Design: • It is the detailed planning and engineering of products,
services, or processes.
Production: • It is the acquisition, coordination, and assembly of resources
to produce a product or deliver a service.
Cost Accounting Horngreen, Datar, Foster
Value Chain FunctionsValue Chain Functions
Marketing: • It is the manner by which companies promote and sell
their products or services to customers or prospective customers.
Distribution: • It is the delivery of products or services to the customer.
Service: • It is the after-sale support activities provided to
customers.
Cost Accounting Horngreen, Datar, Foster
Learning Objective 6Learning Objective 6
Describe three waysmanagement accountants
support managers.
Cost Accounting Horngreen, Datar, Foster
Key GuidelinesKey Guidelines
1. Cost-benefit approach
2. Full recognition of behavioral as well as technical considerations
3. Using different costs for different purposes
Cost Accounting Horngreen, Datar, Foster
Cost-Benefit ApproachCost-Benefit Approach
A cost-benefit approach should be used in orderto spend resources if they promote decisionmaking that better attains organization goals
in relation to the costs of those resources.
Cost Accounting Horngreen, Datar, Foster
Behavioral and TechnicalBehavioral and TechnicalConsiderationsConsiderations
A management accounting system should have two simultaneous missions for providing information:
To help managers make wise economic decisions To help managers and other employees to aim and
strive for goals of the organization
Cost Accounting Horngreen, Datar, Foster
Different Costs for Different Different Costs for Different PurposesPurposes
A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers.
A cost concept used for short time decisions need not to be the appropriate concept for long term decisions
A cost concept used for pricing need not to be appropriate for performance evaluation purposes
Cost Accounting Horngreen, Datar, Foster
Learning Objective 7Learning Objective 7
Understand how cost managementaccounting fits into an
organization’s structure.
Cost Accounting Horngreen, Datar, Foster
Line and Staff RelationshipsLine and Staff Relationships
Line management is directly responsible for attaining the objectives of the organization.
Staff management exists to provide advice and assistance to line management.
* G lob a l F in a n c ia l P la n n in g /B u d ge tin g* O p e ra tio n s A d m in is tr a tion* P r o fitab ility R e p o r tin g* In v e n to ry
* R o y a ltie s* G e n er a l L e d g er* A c c ou n ts P a y a b le a n d R e c eiv a b le* S u b s id iar y a n d L iaiso n A c c o u n tin g
E x a m p le s o f F u n c tio n s:
C o n tr o ller
Cost Accounting Horngreen, Datar, Foster
Line and Staff RelationshipsLine and Staff Relationships
C o n tr o ller A u d it T a x T r e asu ry R iskM a n a ge m e nt
In v e storR e la tio ns
C h ie f F in a n c ial O ffic er (C F O )
P r e sid e ntC h ie f O p e r a tin g O ffic er (C O O )
C h a ir m anC h ie f E x e c u tiv e O ffic er (C E O )
B o a r d o f D ire c to rs