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Chapter 1 Cost Acctg by Horngern
Chapter 1 Cost Acctg by Horngern
Chapter 1 Cost Acctg by Horngern
Describe how cost accounting supports management accounting and financial accounting
CHAPTER OVERVIEW
Chapter 1 is an important foundation chapter. The theme of the text, Cost Accounting: A Managerial
Emphasis, 11/E, is the major role that accounting plays in management decision making. Accounting provides
information managers need when making decisions. Financial accounting provides information to external
managers while modern cost accounting yields insights into what managers and accountants do within an
organization. Management accountants provide financial and nonfinancial information to help managers
decide how best to deal with challenges and opportunities.
Management accounting is successful when it provides information that improves managers strategic,
planning, and control decisions. The use of accounting in the planning and control process is introduced and
highlighted in the text example.
A framework for understanding management accounting systems in providing managers information is
developed in the chapter. The goals, roles, activities, and guidelines of management accounting systems are
described through understanding what managers do.
An introduction and discussion of professional ethics including standards of ethical conduct for management
accountants is presented.
CHAPTER OUTLINE
Learning Objective 1:
Describe how cost accounting supports management accounting and financial accounting
I.
Accounting systems: processing information from economic events into useful information for managers
and others
A. Purpose of cost accounting: to provide information
1. Identifying and measuring financial and other information related to the acquisition or consumption
of an organizations resources
2. Providing users of economic information (managers) useful reports and access to needed
information
B. Cost accounting: provides information relating to cost of acquiring and utilizing resources for both
management and financial accounting
1. Management accounting: focus on internal reporting for decision making of managers in
fulfilling organizations goals
a. Emphasis on the organizationthe future and influencing behavior of managers and
employees
b. Concern with development and implementation of strategies and policies
2. Financial accounting: focus on external reporting for decision making of those outside the
organization
a. Emphasis on financial statements
b. Strict adherence to GAAP
3. Cost management
a. Approaches and activities of managers in planning and control
b. Integral part of general management strategies and their implementation
Do multiple choice 1.
Learning Objective 2:
Understand how management accountants affect strategic decisions
II. Strategic decisions and management accounting: key to a companys success in creating value for
customers while differentiating itself from its competitors
A. Providing information about the sources of competitive advantage
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Chapter 1
1. Strategy: how an organization uses what it has to get what it wants within the marketplace
2. Two broad strategies used
a. Providing a quality product or service at a lower price than competitors
b. Providing a unique product or service at a higher price than competitors
3. Role of management accountant: provide managers information in helping formulate strategy
B. Identifying and building resources and capabilities
1. Strategic analysis: matching knowledge of marketplace opportunities and threats with companys
resources and capabilities
2. Balance sheet information about assets
a. Current resources
i.
Cash adequacy
Learning Objective 3:
Distinguish between the planning and control decisions of managers
III. Management accountants role in implementing strategy [Exhibits 1 and 2]
A. Implementing strategy: managers taking action by using planning and control systems to help the
collective decisions of an organization
1. Planning
a. Thinking process
i.
Learning Objective 4:
Distinguish among the problem-solving, scorekeeping, and attention-directing roles of management accountants
B. Supporting managers by providing information to improve strategic, planning, and control decisions
1. Three roles of management accountants for success
a. Problem solving: comparative analysis for decision making
b. Scorekeeping: accumulating data and reporting reliable results
c. Attention directing: helping managers properly focus their attention
2. Goals to assist managers in making better decisions [Survey of Company Practice]
a. Different decisions emphasize roles differently
i.
Chapter 1
Learning Objective 5:
Identify four themes managers need to consider for attaining success
C. Enhancing the value of management accounting systems by guiding managers to focus on challenges
[Concepts in Action]
1. Customer focus [Exhibit 1-3]
Learning Objective 6:
Describe the set of business functions in the value chain
2. Value-chain and supply-chain analysis [Exhibits 1-4 and 1-5]
a. Companies add value through
i.
Learning Objective 7:
Describe three ways management accountants support managers
D. Providing the most value through three key management accounting guidelines
1. Employ cost-benefit approach
2. Recognize behavioral and technical considerations
3. Identify different costs for different purposes
Do multiple choice 8.
Learning Objective 8:
Understand how management accounting fits into an organizations structure
E. Working within the organization
1. Line and staff relationships [Exhibit 1-6]
2. The chief financial officer and the controller
Do multiple choice 9.
Learning Objective 9:
Understand what professional ethics mean to management accountants
IV. Professional ethics
A. Guidelines
1. IMA certification programs
2. IMA Standards of Ethical Conduct for Management Accountants [Exhibit 1-7]
a. Competence
b. Confidentiality
c. Integrity
d. Objectivity
B. Typical challenges: Guidance as to Resolution of Ethical Conduct [Exhibit 1-8]
Do multiple choice 10.
Chapter 1
2. c 3. d 4. c 5. a 6. b 7. d 8. d 9. c 10. a
CHAPTER QUIZ
1. Why do most companies adhere to GAAP for their basic internal financial statements?
a.
b.
c.
d.
performance.
2.
c. financial statement.
d. budget.
Four themes are common to many managers. The critical theme for all of these is
a.
b.
c.
d.
9. ________ management exists to provide advice and assistance to those responsible for attaining the
objectives of the organization.
a.
b.
c.
d.
Line
Functional
Staff
Risk
10. Which of the following is not one of the ethical responsibilities of a management accountant?
a.
b.
c.
d.
Compliance
Confidentiality
Integrity
Objectivity
Chapter 1
WRITING/DISCUSSION EXERCISES
1. Describe how cost accounting supports management accounting and financial accounting
What are some basic characteristics of accounting that all accountants use whether in
financial or managerial accounting? The Financial Accounting Standards Board (FASB) describes
a hierarchy of accounting qualities in its second Statement of Financial Accounting Concepts. The
characteristics deemed important for financial accounting are the same as those described throughout the
text as those of managerial accounting. The Concepts describe the users of accounting information as
decision makers with the constraints of cost/benefit and materiality. The qualities of accounting
information are given as understandability, decision usefulness, relevance, and reliability. Relevance is
further described by the terms predictive value, feedback value, and timeliness. Reliability is
characterized by verifiability, neutrality, and representational faithfulness. The additional quality of
comparability, including consistency, belongs to the descriptors of decision usefulness. These qualities
apply to all accounting information, financial or managerial, in processing any economic transaction that
have occurred into information useful for making decisions.
The definition given for accounting by the 1941 Committee on Terminology of the American Institute of
Accountants is . . . the art of recording, classifying, and summarizing in a significant manner and in terms
of money, transactions, and events which are in part, at least, of a financial character, and interpreting the
results thereof. This definition was before the study of cost accounting as an academic subject, but note
the statement from the current text about accounting systemsProcessing any economic transactions
entails collecting, categorizing, summarizing, and analyzing. Some basic characteristics define
accounting.
From FASB Statement of Financial Accounting Concepts No. 2 (Stamford, CT: FASB, 1980)
management accountants
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Chapter 1
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SUGGESTED READINGS
Bhide, A. & Stevenson, H., Why Be Honest if Honesty Doesnt Pay? Harvard Business Review
(September-October 1990) p.121 [9p].
Brooks, L., Business and Professional Ethics for Accountants (2000) South-Western College Publishing,
Cincinnati OH.
Cisco, S. & Strong, K., The Value Added Information Chain, Information Management Journal
(January 1999) p.4 [9p].
Frost, P., Why Compassion Counts! Journal of Management Inquiry (June 1999) p.127 [7p].
Guilding, C., Cravens, K. & Tayles, M., An International Comparison of Strategic Management
Accounting Practices, Management Accounting Research (March 2000) p.113 [23p].
Halal, W., Corporate Community: A Theory of the Firm Uniting Profitability and Responsibility,
Strategy and Leadership (January 2000) p. 10 [7p].
Howard, R., Values Make the Company: An Interview with Robert Haas, Harvard Business Review
(September-October 1990) p.134 [11p].
Litman, J., Genuine Assets: Building Blocks of Strategy and Sustainable Competitive Advantage,
Strategic Finance (November 2000) p.37 [6p].
Martinson, O. and Ziegenfuss, D., Looking at What Influences Ethical Perception and Judgment,
Management Accounting Quarterly (Fall 2000) p.41 [7p].
Michlitsch, J., High-Performing, Loyal Employees: The Real Way to Implement Strategy, Strategy and
Leadership (January 2000) p.28 [6p].
Moriarity, S., Trends in Ethical Sanctions within the Accounting Profession, Accounting Horizons
(December 2000) p.427 [13p].
Moye, J. and Upton, D., Data Warehousing 101, Strategic Finance (February 2001) p.34 [5p].
Thorne, L., The Development of Two Measures to Assess Accountants Prescriptive and Deliberate Moral
Reasoning, Behavioral Research in Accounting (Vol. 122000) p.139 [31p].
Weber, J. & Wasieleski, D., Investigating Influences on Managers Moral Reasoning, Business and
Society (March 2001) p.79 [33p].
West III, G.P. & DeCastro, J., The Achilles Heel of Firm Strategy: Resource Weaknesses and Distinctive
Inadequacies, Journal of Management Studies (May 2001).
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