CORNERSTONES OF COST

MANAGEMENT, 3E
HANSEN/MOWEN

INTRODUCTION TO COST
MANAGEMENT
CHAPTER 1

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CHAPTER 1 OBJECTIVES
1. Describe cost management and explain how
it differs from financial accounting
2. Identify the current factors affecting cost
management
3. Describe how management accountants
function within an organization
4. Understand the importance of ethical
behavior for management accountants
5. Identify the three forms of certification
available to internal accountants
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service or otherwise on a password-protected website for classroom use.

FINANCIAL ACCOUNTING VERSUS COST

MANAGEMENT: A SYSTEMS FRAMEWORK
Accounting Information System
Consists interrelated manual and computer parts
Uses processes such as collecting, recording,
summarizing, analyzing, and managing data to
transform inputs into information provided to users

Two major systems

The financial accounting information system
The cost management accounting information
system
Major difference is the targeted user
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FINANCIAL ACCOUNTING VERSUS COST

MANAGEMENT: A SYSTEMS FRAMEWORK
Financial Accounting Information
System
Produces outputs for external users
Follows rules and conventions set by the
Corporations Act, ASIC, ASX and AASB
Provides outputs such as financial statements

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FINANCIAL ACCOUNTING VERSUS COST

MANAGEMENT: A SYSTEMS FRAMEWORK
Cost Management Information System
Produces outputs for internal users
Provides information for three broad objectives
Cost services, products, and other objects
Planning and control
Decision making

Criteria and formats are set internally

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FINANCIAL ACCOUNTING VERSUS COST

MANAGEMENT: A SYSTEMS FRAMEWORK
Different
Different Systems
Systems for
for Different
Different Purposes
Purposes
Cost Accounting Information System
Assigns costs to individual products and services
Assists external financial reporting
Conforms to the rules and conventions set by the
SEC and the FASB
Operational Control Information System
Provides accurate and timely feedback
Improves profit by increasing customer value
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FACTORS AFFECTING COST MANAGEMENT

Global Competition
Improved transportation and
communication has led to a global market
Increased the demand for more accurate
cost information
Growth of the Service Industry
Service sector of the economy has
increased in importance
Deregulation has increased competition
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT

Advances in Information Technology
Use of computers to monitor and control operations
Integration of manufacturing with marketing and
accounting data

Enterprise resource planning (ERP) software

provides an integrated system capability
Emergence of e-commerce
Internet trading
Electronic data interchange
Bar coding
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FACTORS AFFECTING COST MANAGEMENT

Advances in Manufacturing
Environment
Theory of constraints: method used to
continuously improve manufacturing activities and
nonmanufacturing activities
Just-in-time manufacturing: strives to produce
a product only when it is needed and only in the
quantities demanded
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT

Advances in Manufacturing
Environment
Lean manufacturing: a persistent pursuit and
eliminates waste that simultaneously embodies
respect for people
Computer-integrated manufacturing: an
automation of the manufacturing environment
allowing firms to reduce inventory, increase
productive capacity, improve quality and service,
decrease processing time, and increase output
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT

Customer Orientation
Deliver value to the customer
Value chain: the set of activities required to
design, develop, produce, market, and deliver
products and services to customers
Satisfy internal customers

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FACTORS AFFECTING COST MANAGEMENT

New Product Development
High proportion of production costs are involved
during the development and design stage of new
products
Cost management procedures
Target costing: encourages managers to assess
the overall cost impact of product designs over the
products life cycle
Activity-based management: identifies the
activities produced at each stage of the
development process and assesses their costs
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FACTORS AFFECTING COST MANAGEMENT

Total Quality Management
Continuous improvement and elimination of waste
are the two foundation principles
Objectives: producing products and services that
actually perform according to specifications and
with little waste

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FACTORS AFFECTING COST MANAGEMENT

Time as a Competitive Element
Crucial element in all phases of the value chain
Decrease in non-value-added time increases
quality

Efficiency
Improving efficiency is a vital concern
Cost is a critical measure of efficiency

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THE ROLE OF THE MANAGEMENT

ACCOUNTANT
Line and Staff Positions
Line positions: positions that have direct
responsibility for the basic objectives of an
organization
Staff positions: positions that are
supportive in nature and have only indirect
responsibility for an organizations basic
objectives
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service or otherwise on a password-protected website for classroom use.

THE ROLE OF THE MANAGEMENT

ACCOUNTANT
The Controller
Supervises all accounting departments
Participates in planning, controlling, and decisionmaking activities
Responsible for both internal and external
accounting requirements

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THE ROLE OF THE MANAGEMENT

ACCOUNTANT
The Treasurer
Responsible for the finance function
raises capital and manages cash, investments, and
investor relations
in charge of credit and collections as well as
insurance

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EXHIBIT 1.1PARTIAL ORGANIZATIONAL CHART:

MANUFACTURING COMPANY

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THE ROLE OF MANAGEMENT ACCOUNTANT

Information for Planning, Controlling,
Continuous Improvement, and Decision
Making
Planning: a detailed formulation of future actions
to achieve a particular end
Requires setting objectives and identifying methods
to achieve those objectives

Controlling: a managerial activity of monitoring a

plans implementation and taking corrective action
Achieved with the use of feedback
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THE ROLE OF MANAGEMENT ACCOUNTANT

Information for Planning, Controlling,
Continuous Improvement, and Decision
Making
Continuous improvement: relentless pursuit of
improvement in the delivery of value to customer
Required to remain competitive or to establish a
competitive advantage

Decision making: process of choosing among

competing alternatives

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ACCOUNTING AND ETHICAL CONDUCT

Benefits of Ethical Behavior
Creates customer and employee loyalty
Avoids litigation costs

Standards of Ethical Conduct for

Management Accountants
Competence
Confidentiality
Integrity
Credibility
Resolution of ethical conflict
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service or otherwise on a password-protected website for classroom use.

CERTIFICATION
The Certificate in Management Accounting
Establishes management accounting as a
recognized and professional discipline
The Certificate in Public Accounting
Intended for those practicing public accounting
The Certificate in Internal Auditing
Recognizes competency in internal auditing
END OF CHAPTER 1
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2014 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.