Fourth Edition

Cost Management
ACCOUNTING AND CONTROL

HANSEN & MOWEN

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Task Force Clip Art

included in this electronic
presentation is used with
the permission of New
Vision Technology of
Nepean Ontario, Canada.

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Introduction to
Cost Management
Prepared
Preparedby
by

Douglas
DouglasCloud
Cloud

Pepperdine
PepperdineUniversity
University

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Objectives
Objectives
After
After studying
studying this
this chapter,
chapter,you
you should
should be
be able
ableto:
to:

1. List the similarities and differences between

financial accounting and cost management.
2. Identify the current factors affecting cost
management.
3. Discuss the importance of the accounting
system for internal and external reporting.
4. Explain the need for todays cost accountant
to acquire cross-functional expertise.
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Objectives
Objectives
5. Describe how management accountants
function within an organization.
6. Understand the importance of ethical
behavior for management accounts.
7. Identify the thee forms of certification
available to internal accountants.

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Financial
Financial Accounting
Accounting Versus
Versus
Cost
Cost Management
Management
Financial accounting is devoted to providing

information for external users; these users

include investors, government agencies, and
banks.

Cost management identifies, collects,

measures, classifies, and reports information

that is useful to managers in costing
(determining what something costs), planning,
controlling, and decision making.
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Financial
Financial Accounting
Accounting Versus
Versus
Cost
Cost Management
Management
Cost accounting attempts to satisfy costing

objectives for both financial and management

accounting.

Management accounting is concerned

specifically with how cost information and

other financial and nonfinancial information
should be used for planning, controlling, and
decision making.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
Global Competition
The new competitive
environment has increased the
demand not only for more cost
information but also for more
accurate information.
Vastly imported transportation
and communication has led to a
global market for many
manufacturing and service firms.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
Growth of the Service Industry
As the traditional industries has

declined in importance, the

service sector of the economy
has increased in importance.
Deregulation of many services

has increased competition in the

service industry.

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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
Advances in Information Technology
Computers are used to monitor and

control operations, which allows for a

considerable amount of useful
information to be collected and
provided to management
instantaneously.
The emergence of electronic commerce

which allows buyers and sellers to

come together electronically.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
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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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
Customer Orientation
Firms are concentrating on the

delivery of value to the customer

with the objective of establishing a
competitive advantage.
Companies must compete not only

in technological and manufacturing

terms but also in terms of the speed
of delivery and response.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
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.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
Total Quality Management
Continual improvement and elimination of waste are
the two foundation principles that govern a state of
manufacturing excellence.
A philosophy of total quality management, in which
managers strive to create an environment that will
enable organizations to manufacture perfect products,
has replaced the acceptable quality attitudes of the
past.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
Time as a Competitive Element
Time is the crucial
element in all phases of
the value chain.
Decreasing non-valueadded time appears to go
hand-in-hand with
increasing quality.
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Current
Current Factors
Factors Affecting
Affecting Cost
Cost
Management
Management
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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Traditional
Traditional Accounting
Accounting System
System
Transactions

Journal Entries
Posting to
Accounts
Financial
Reports
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Data-Based
Data-Based Relationship
Relationship
Accounting
Accounting System
System
Transactions
Custom
Report

Custom
Report

Custom
Report

Custom
Report

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Line
Line and
and Staff
Staff Positions
Positions
Line positions are positions
that have direct responsibility
for the basic objectives of an
organization.
Staff positions are positions
that are supportive in nature
and have only indirect
responsibility for an
organizations basic objectives.
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Partial Organization Chart,

Manufacturing Company
President
Line Function

Staff Function

Production
Vice-President

Financial VicePresident

Production
Supervisor

Machining
Foreman

Assembly
Foreman

Controller

Internal
Audit

Cost

Financial

Treasurer

Systems

Tax
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Role
Role of
of Controller
Controller and
and Treasurer
Treasurer
Controller
1.
2.
3.
4.
5.
6.
7.

Financial reports
SEC reporting
Tax planning and reporting
Performance reporting
Internal auditing
Budgeting
Accounting systems and
internal controls
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Role
Role of
of Controller
Controller and
and Treasurer
Treasurer
Treasurer
1. Collection of cash
2. Monitoring of cash
payments
3. Monitors cash availability
4. Short-term investments
5. Short and long-term
borrowing
6. Issuing of capital stock
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The
The Management
Management Process
Process
Planning is the
detailed formulation of
future actions to
achieve a particular
end. Planning requires
setting objectives and
identifying methods to
achieve those
objectives.

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The
The Management
Management Process
Process
Controlling is the
managerial activity of
monitoring a plans
implementation and
taking corrective
action as needed.
Control
Feedback
isis usually
is
achieved
that
with
can
be
used
of
evaluate
Control
Feedback
usually
is information
information
achieved
that
with
canthe
the
beuse
use
used
ofto
tofeedback.
feedback.
evaluate
or
or correct
correct the
the steps
steps being
being taken
taken to
to implement
implement aa plan.
plan.
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The
The Management
Management Process
Process
Continuous
improvement is
required in a dynamic
environment if a firm is
to remain competitive
or to establish a
competitive advantage.

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The
The Management
Management Process
Process
Decision making is
the process of
choosing among
competing
alternatives.

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Standards
Standards of
of Ethical
Ethical Conduct
Conduct
for
for Management
Management Accountants
Accountants

Competence: Management accountants have a

responsibility to-1. Maintain an appropriate level of professional competence
by ongoing development of their knowledge and skills.
2. Perform their professional duties in accordance with
relevant laws, regulations, and technical standards.
3. Prepare complete and clear reports and recommendations
after appropriate analysis of relevant and reliable
information.

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Standards
Standards of
of Ethical
Ethical Conduct
Conduct
for
for Management
Management Accountants
Accountants

Confidentiality: Management accountants have a

responsibility to-1. Refrain from disclosing confidential information acquired in the
course of their work except when authorized, unless legally
obligated to do so.
2. Inform subordinates as appropriate regarding the confidentiality
of information acquired in the course of their work and monitor
their activities to ensure the maintenance of that confidentiality.
3. Refrain from using or appearing to use confidential information
acquired in the course of their work for unethical or illegal
advantage either personally or through a third party.
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Standards
Standards of
of Ethical
Ethical Conduct
Conduct
for
for Management
Management Accountants
Accountants

Integrity: Management accountants have a

responsibility to- Avoid actual or apparent conflicts of interest and advise all
appropriate parties of any potential conflict.
Refrain from engaging in any activity that would prejudice
their ability to carry out their duties ethically.
Refuse any gift, favor, or hospitality that would influence
their actions.
Refrain from either actively or passively subverting the
attainment of the organizations legitimate and ethical
objectives.
Continued
Continued
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Standards
Standards of
of Ethical
Ethical Conduct
Conduct
for
for Management
Management Accountants
Accountants

Integrity: Management accountants have a

responsibility to- Recognize and communicate professional limitations or
other constraints that would preclude responsible
judgment or successful performance of an activity.
Communicate unfavorable as well as favorable
information and professional judgments or opinions.
Refrain from engaging in or supporting any activity that
would discredit the profession.

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Standards
Standards of
of Ethical
Ethical Conduct
Conduct
for
for Management
Management Accountants
Accountants

Objectivity: Management accountants have a

responsibility to-1) Communicate information fairly and objectively.
2) Disclose fully all relevant information that could
reasonably be expected to influence an intended users
understanding of the reports, comments, and
recommendations presented.

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Professional
Professional Certifications
Certifications
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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The
The CMA
CMA
Four areas emphasized on the exam:
1) Economics, finance, and management
2) Financial accounting and reporting
3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems

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End of

Chapter
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