Introduction to Cost Management

The accounting information system within an organization has two major subsystems : The financial accounting information system and the Cost management accounting information system

Financial Accounting Information System

Financial accounting information system is primarily concerned with producing outputs for external users. For financial Accounting, nature of the inputs and rules and conventions governing processes are defined by the Securities Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). Among its outputs are financial statements such as the balance sheet, income statement, and statement of cash flows for external users (investors, creditors, government agencies, and other outside users). Financial accounting information is used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures.

The Cost Management Information System

Cost management information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. Cost Management Information system has three broad objectives that provide information for : 1. Costing out services, products, and other objects of interest to management 2. Planning and control 3. Decision Making Cost information is also used for planning and control. Cost information is a critical input for many managerial decisions. Cost management has a much broader focus than that found in traditional costing systems.

Different Systems for Different Purposes

Financial accounting and cost management systems show us that different systems exits to satisfy different purposes. The cost management information system also has two major subsystems: the cost accounting information system and the operational control information system. The Cost accounting information system is a cost management subsystem designed to assign costs to individual products and services and other objects as specified by management. For external financial reporting, the cost accounting system must assign costs to products in order to value inventories and determine cost of sales.

The individual product level, distorted products level, distorted product costs can cause managers to make significant decision errors. The Operational Control information system is a cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control of activities.Operational control is a concerned with what activities should be perfomed and assessing how well they are perfomed. It focuses on identifying opportunities for improvement and helping to find ways to improve. Product cist information plays a role in this process, but by itself, is not sufficient.

Factors Affecting Cost Management

Global Competition Vastly improved transportation and communication systems hav led to a global market for many manufacturing and service firms. Cos informations plays a vital role in reducing costs, improving productivity, and assessing product-line profitability Growth of the Service Industry As traditional industries have declined in importance, the service sector of the economy has increased in importance. Cost information for planning, controlling, continuous improvement, and decision making. Advances in Information Techonology Three significant advances relate to information technology. One,Computers are used to monitor and control operations. The result is an operational system that is fully integrated with marketing and accounting data. Two,Increased ability to accurately cost products because of advances in tools. Three,Emergence of e-commerce o Internet trading
o

Electronic data interchange(EDI)

o Bar coding Advances in the Manufacturing Environment

Manufacturing management approaches such as the theory of constraints and just-in-time have allowed firms to increase quality, reduce inventories, eliminate waste, and reduce costs o Theory of constraints The theory of constraints is a method used to continuously improve manufacturing activities and nonmanufacturing activities. o Just-in-time Manufacturing Just-in-time manufacturing is a demand-pull system that strives to produce a product only when it is needed and only in the quantities demanded by customers. o Computer-integrated manufacturing Computer-integrated manufacturing is the automation of the manufacturing environment. Customer Orientation Firms are competing not only in terms of technology and manufacturing, but in the speed of delivery and response to deliver value to the customer. Companies must also satisfy the needs of internal customers, such as staff functions exist to support line functions. New Product Development Management recognizes that a high proportion of production costs are committed during the development and design stage of a new product. The requirement to control cost encourages the use of target costing and activity-based management. Total Quality Management Continuous improvement and elimination of waste are the two foundation principles that govern a state of manufacturing excellence. Manufacturing excellence is the key to survival in the todays worldclass competitive environment. Time as a Competitive Element

Time is the crucial element in all phases of the value chain. Decreasing non-value-added time appears to go hand-in-hand with increasing quality. Efficiency While quality and time are important, improving these dimensions without corresponding improvements in financial performance may be futile, if not fatal.

The Role of The Management Accountant

Line and Staff Positions The role of cost and management accounts in an organization is one of support and teamwork. They assist those who are responsible for carrying out an organizations basic objectives. Positions that have direct responsibility for the basic objectives of an organization are referred to as line positions. Positions that are supportive in nature and have only indirect responsibility for an organizations basic objectives are called staff positions. o The Controller The chief accounting officer, supervises all accounting departments. Because of the critical role that management accounting plays in the operation of an organization, the controller is often viewed as a member of the top management team and encouraged to participate in planning, controlling, and decision-making activities. o The Treasurer The treasurer is responsible for the finance function.Specifically, the treasurer raises capital and manages cash (banking and custody), investments, and investor relations Information for Planning, Controlling, Continuous Improvement, and Decision making

The cost and management accountant is responsible for generating financial information required by the firm for internal and external reporting. o Planning o Controlling o Continuous Improvement o Decision Making

Accounting and Ethical Conduct

Benefits of Ethical Behavior Standards of Ethical Conduct for Management Accountants

Certification
The Certificate in Management Accounting