Introduction to Cost

Management

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Financial Accounting Versus

Management Accounting: A
Systems Framework

Accounting information systems

Financial accounting

Produces outputs for external users. Follows rules

and conventions such as those set by the SEC and
FASB. Creates outputs such as financial
statements.

Cost management accounting

Produces outputs for internal users. Designed to

cost services, products and other objects. Is used
in planning and control and decision making.
Criteria and formats set internally. Outputs include
reports, schedules and analyses.

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Cost management
accounting information
system

Two major subsystems

Cost accounting information system
Assigns costs to individual products and
services. Assists external financial reporting by
valuing inventories and determining cost of
sales. These assignments must conform to
external rules.
Operational control information system
Provides accurate and timely feedback
concerning performance. Improve profit by
increasing customer value.
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Factors Affecting
Cost Management

Advances in Information Technology

Computers are used to monitor and control

operations. The result is an operational

system that is fully integrated with
marketing and accounting data.
Increased ability to accurately cost
products because of advances in tools.
Emergence of e-commerce

Internet trading
Electronic data interchange
Bar coding
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Factors Affecting
Cost Management

Advances in Management Environment

The

theory of constraints is a method used to

continuously improve manufacturing activities and

nonmanufacturing activities.

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.
Computer-integrated manufacturing is the
automation of the manufacturing environment.
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Factors Affecting
Cost Management

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

costing and activity-based management.

target
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Factors Affecting
Cost Management

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 handin-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.
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The Role of Todays Cost and

Management Accountant
The Controller

The Treasurer

Financial

Collection of cash
Monitoring of cash

reports
SEC reporting
Tax planning and reporting
Performance reporting
Internal auditing
Budgeting
Accounting systems and
internal controls

payments
Monitors cash availability
Short-term investments
Short and long-term
borrowing
Issuing of capital stock

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Information for Planning,

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Controlling, Continuous
Improvement, and Decision
Making
Planning is the detailed formulation of future actions
to achieve a particular end. Planning requires setting
objectives and identifying methods to achieve those
objectives.

Controlling is the managerial activity of monitoring a

plans implementation and taking corrective action as
needed.
Feedback is information that can be used to evaluate or
correct the steps being taken to implement a plan.
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Information for Planning,

Controlling, Continuous
Improvement, and Decision
Making
Continuous improvement is required in a

dynamic environment if a firm is to remain competitive

or to establish a competitive advantage.

Decision making is the process of choosing among

competing alternatives

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Certification

CMA: One of the main purposes of the CMA was to

establish management accounting as a recognized,
professional discipline, separate from the profession
of public accounting.

CPA: The responsibility of a CPA is to provide

assurance concerning the reliability of financial
statements.

CIA: The focus of the CIA is to recognize

competency in internal auditing rather than external
auditing as with the CPA.
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Certification

Four areas emphasized on the CMA exam:

1) Business analysis
2) Management accounting and
reporting
3) Strategic management
4) Business applications

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