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Introduction to Cost
Accounting
Cost Accounting:
Foundations and Evolutions, 8e
Kinney Raiborn
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
What are the relationships among financial, management, and cost
accounting?
What are the 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 organizations
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 organizations
strategy?
Why is ethical behavior so important in organizations?
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Types of Accounting
Financial Management
Meet external Meet internal
information needs information needs
Comply with GAAP Does not have to
comply with GAAP
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Financial versus Managerial
Financial Managerial
External focus Internal focus
Whole organization Segments or divisions
Historical Current/projected
Quantitative Quantitative/qualitative
Monetary Monetary and nonmonetary
Verifiable Timely/reasonable estimate
GAAP Benefits exceed costs
Formal recordkeeping Formal and informal
recordkeeping
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Product Cost Information
Financial Management
Public Company Institute of
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Management Accounting
Organizations
IMA
Statements on Management Accounting
(not legally binding)
Society of Management Accountants of
Canada
Management Accounting Guidelines
(not legally binding)
Cost Accounting Standards Board (CASB)
Government contracting standards
(legally binding)
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Professional Ethics
Earnings managementdeliberate
accounting adjustments to hit profit targets
Often adjustments involve cost accounting
Product costs
Inventory valuations
Stretching legitimate accounting techniques
Outright fraud
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ethics and Legislation
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ethics and Management Accounting
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Organizational Strategy
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Organizational Strategy
1. Develop mission statement
2. Implement strategy
Develop,
Establish implement, and
appropriate monitor
measures of necessary
accomplishment information
systems
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Five Factors in Organizational
Strategy
Core competencies
Organizational structure
Management style and organizational culture
Organizational constraints
Environmental constraints
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Organizational Strategies
Core competencycritical function or
activity providing a competitive advantage
Cost leadership strategyundercut
competitor prices
Product differentiation strategysuperior
quality products or unique services sold at
a premium
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Strategy Questions
Who are your five most important
What are your customers most
competitors? important purchase criteria?
Is your firm more or less profitable How do you and your competitors
than these firms? rate on these purchase criteria?
Compare prices for equivalent What are your main strengths and
products/services. competencies? Are they appreciated
Are they higher or lower? Explain by the market?
the difference. Is it customers,
costs, or profit requirements?
Which are your priority segments?
Are your costs higher or lower than Where is it most important that you
those of main competitors? Where gain market share?
are the differences most What is your competitive advantage?
pronounced?
What segment(s) of your business
represents 80% profits?
For each business segment above,
how large are you relative to the
largest competitors? Are you gaining
or losing relative market share?
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Organizational Structure
Distribution of authority and responsibility in an
organization
Authorityright to use resources to accomplish a
achieve an objective
Line manager works directly toward attaining
organizational goals
Staff employees give assistance and advice to line
managers
Treasurer and Controller
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Value Chain
A set of value-adding functions and
processes that converts inputs into
products or services
Research and Marketing
Development Distribution
Product Design Customer Service
Supply
Production
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Balanced Scorecard
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Balanced Scorecard Perspectives
Learning and Growth
Use the organizations intellectual capital to adapt to changing
customer needs or to influence new customers needs and
expectations through product or service innovations
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
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Balanced Scorecard Measures
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Ethics in Multinationals
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Questions
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Potential Ethical Issues
Earnings management
Low-cost production at any cost
Whistle-blower retaliation
Fixing prices
Bribery and other corruption
Hiding managerial acts
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.