Chapter 1 Powerpoint

Chapter 1:
Introduction to Cost
Accounting
Cost Accounting:
Foundations and Evolutions, 9e
Kinney Raiborn
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
Learning Objectives
What are the relationships among financial, management, and cost

accounting?
What are 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?
What are the sources of ethical standards for cost accountants?
Why is ethical behavior so important in organizations?
Accountants
Financial accountants provide information to external

parties
Managerial accountants provide information to internal

users
Investors
Creditors
Regulators
Donors
Managers
Cost accountants provide information to both internal and

external users
Product cost information
Accounting is the language of business.

Relationship of Financial,
Management, and Cost Accounting
Product
Costs
FINANCIAL
ACCOUNTING
COST
MANAGEMENT
ACCOUNTING ACCOUNTING
Types of Accounting
Financial
Meet external
information needs
Comply with GAAP
Management
Meet internal
information needs
Does not have to
comply with GAAP
Financial versus Managerial

Financial
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
Product Cost Information
External partiesstockholders, creditors,

regulators, and donors
For investment and credit decisions

Complies with GAAP
Enterprise focus
Internal parties
Planning, controlling, and decision making

Evaluating performance
Includes upstream and downstream costs
Disaggregated
Accounting Bodies
Financial
Public Company
Accounting Oversight
Board (PCAOB)
Securities and
Exchange Commission
(SEC)
Financial Accounting
Standards Board
(FASB)
Management
Institute of
Management
Accountants (IMA)
Society of Management
Accountants of Canada
Cost Accounting
Standards Board
(CASB)
Management Accounting
Organizations
IMA
Society of Management Accountants of

Canada
Statements on Management Accounting

(not legally binding)
Management Accounting Guidelines

(not legally binding)
Cost Accounting Standards Board (CASB)
Government contracting standards

(legally binding)
Organizational Strategy
1.
2.
3.
4.
Develop mission statement

Implement strategy
Deploy resources to create value for
customers and shareholders
Recognize that each organization is unique
thus unique strategies must be developed
Organizational Strategy
1. Develop mission statement
2. Implement strategy
Establish
appropriate
measures of
accomplishment
Develop,
implement, and
monitor
necessary
information
systems
Five Factors in Organizational

Strategy
Core competencies
Organizational structure
Management style and organizational culture
Organizational constraints
Environmental constraints
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
Strategy Questions
What are the most important factors

in your organizations operating
environment?
Economy, population demographics,

competitors, suppliers, resource
availability, innovation, environment
What are your organizations core

competencies?
Have you organizations core
competencies become competitive
advantages?
What is your organizations current
position relative to your competitors?
What are your customers purchase
or selection criteria?
What is the organizational vision
identified by your management,
shareholders, and other internal and
external stakeholders?
Does your organization have the

appropriate resources (financial,
personnel, and technological) to
fulfill its vision?
Have appropriate performance
measurements been established to
determine if progress is being made
towards your organizations mission
and vision?
Are operating conditions
continuously monitored to detect
changes so that your organization
can adapt with flexibility and
sensitivity, especially to new trends
in technology?
Is the vision supported by identifiable goals

and objectives?
Organizational Structure
Distribution of authority and responsibility in an

organization
Authorityright to use resources to accomplish a
task or achieve an objective
Responsibilityobligation to accomplish a task or
achieve an objective
Line manager works directly toward attaining
organizational goals
Staff employees give assistance and advice to line
managers
Treasurer and Controller
Organizational Constraints
Four common organizational constraints
Monetary capital
Intellectual capital
Technology
Environmental constraints
Value Chain
A set of value-adding functions and

processes that converts inputs into
products or services
Research and
Development
Product Design
Supply
Production
Marketing
Distribution
Customer Service
Communicate strategy to all members of the value chain.

Components of the Value Chain
Balanced Scorecard
Balanced Scorecard Perspectives
Learning and Growth
Internal Business
Things to do well to meet customer needs and expectations
Customer Value
Use the organizations intellectual capital to adapt to changing

customer needs or to influence new customers needs and
expectations through product or service innovations
How well the organization is doing relative to important

customer criteria
Financial
Address stockholders/stakeholders concerns about

profitability and organizational growth
Balanced Scorecard Measures
Short-term and long-term

Internal and external
Financial and nonfinancial
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
Potential Ethical Issues
Earnings management
Low cost production at any cost
Whistle-blower retaliation
Fixing prices
Bribery and other corruption
Hiding managerial acts
Ethics and Legislation
Sarbanes-Oxley ActCEOs and CFOs

personally accountable for the accuracy of
their organizations financial reporting
False Claims Actwhistle-blower protection
and penalties for failure to blow the whistle
(disclose known financial frauds)
Dodd-Frank Actencourages whistle-blowing
with awards from 10 to 30 percent of amount
recouped
Ethics and Management Accounting
Standards of Ethical Conduct for

Management Accountants
Competence
Confidentiality
Integrity
Credibility
Ethics in Multinationals
Foreign Corrupt Practices Actprohibits

bribes to obtain/retain business
Organization of Economic Cooperation and
Development Conventioncrime to offer,
promise, give bribes to obtain/retain internal
business deals
Questions
What is the relationship among financial,

management, and cost accounting?
How is the balanced scorecard used to
implement an organizations strategy?
Where can an accountant find ethical
standards for cost accounting?

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Chapter 1:

What are the relationships among financial, management, and cost

Financial accountants provide information to external

Managerial accountants provide information to internal

Cost accountants provide information to both internal and

Product cost information

Accounting is the language of business.

Financial versus Managerial

Product Cost Information

External partiesstockholders, creditors,

For investment and credit decisions

Planning, controlling, and decision making

Society of Management Accountants of

Statements on Management Accounting

Management Accounting Guidelines

Cost Accounting Standards Board (CASB)

Government contracting standards

Develop mission statement

Five Factors in Organizational

Core competencycritical function or

What are the most important factors

Economy, population demographics,

What are your organizations core

Does your organization have the

Is the vision supported by identifiable goals

Distribution of authority and responsibility in an

Four common organizational constraints

A set of value-adding functions and

Communicate strategy to all members of the value chain.

Components of the Value Chain

Balanced Scorecard Perspectives

Learning and Growth

Things to do well to meet customer needs and expectations

Use the organizations intellectual capital to adapt to changing

How well the organization is doing relative to important

Address stockholders/stakeholders concerns about

Balanced Scorecard Measures

Short-term and long-term

Stretching legitimate accounting techniques

Potential Ethical Issues

Ethics and Legislation

Sarbanes-Oxley ActCEOs and CFOs

Ethics and Management Accounting

Standards of Ethical Conduct for

Foreign Corrupt Practices Actprohibits

What is the relationship among financial,

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