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Education.
Cost Accounting: Information
for Decision Making
Chapter 1

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without the prior written consent of McGraw-Hill Education. 1-2
Learning Objectives p.2

LO 1-1 Describe the way managers use accounting

information to create value in organizations.
LO 1-2 Distinguish between the uses and users of cost
accounting and financial accounting information.
LO 1-3 Explain how cost accounting information is used
for decision making and performance evaluation
in organizations.
LO 1-4 Identify current trends in cost accounting.
LO 1-5 Understand ethical issues faced by accountants
and ways to deal with ethical problems that you
face in your career.

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a1LO
1-1

Value Chain p.4

LO 1-1 Describe the way managers use accounting

information to create value in organizations.

The value chain describes a set of activities that

transforms raw materials and resources into the goods
and services end users purchase and consume.

Those activities that

Value-Added customers perceive as
Activities adding utility to the goods
or services they purchase.

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投影片 4

a1 asus, 2020/3/9
LO
1-1 p.4
The Value Chain Components
Exhibit1.1
Research &
Design Purchasing
Development

Production

Marketing & Customer

Distribution
Sales Service

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LO

Accounting Systems
1-2

p.6-7
LO 1-2 Distinguish between the uses and users of cost
accounting and financial accounting information.

Exhibit 1.1

Reports Financial
Financial
position and
accounting
income

Cost Reports Information

accounting about costs

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LO
1-2

p.7
Accounting Systems (2)
The primary purpose of financial accounting is to
provide investors and creditors information
regarding company and management
performance.
The financial data prepared for this purpose are
governed by generally accepted accounting
principles (GAAP) in the United States and by
international financial reporting standards (IFRS) in
many other countries.

In contrast, cost data for managerial use need not

comply with GAAP or IFRS.

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LO
1-2

p.7
Customers of Accounting
Accountants must work with the users of cost
accounting information to provide the best
possible information for managerial purposes.

Different uses of accounting information require

different types of accounting information.

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LO
1-3

p.8-9
Managerial Decisions
LO 1-3 Explain how cost accounting information is used
for decision making and performance evaluation
in organizations.

The manager’s job is to make decisions.

Decisions determine the performance of the

organization.

Managers use information from the accounting

system to make decisions.

Owners evaluate organizational and managerial

performance with accounting information.
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 Cost Data for Managerial
LO
1-3

p.9-10
Decisions
Costs for decision making
Ex: nonvalue-added activities;
identifying strategic opportunities

Costs for control and

evaluations
Ex: evaluat performance and rewards

Different data for different

decisions
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LO
1-3

p.10-11
Costs for Decision Making_
AM Bakery example
The AM Bakery has been making and selling
baked goods through a small store.

One of the customers suggests that the business

expand operations and sell the bakery offerings
at the morning and afternoon break times at the
office park using a food truck.

Should the company expand operations?

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LO
1-3

p.12
AM Bakery’s Cost Drivers

Cost Driver

Utilities Number of distribution

Channels
Marketing (store, food truck… )

Labor
Number of baked goods
Ingredients
(flour, butter…)

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LO
1-3

p.10
Differential Costs

Costs that change in

response to a
particular course of
action.

Differential costs
change (differ)
between actions.

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LO
1-3

p.10
Differential Revenues

Revenues that
change in response
to a particular
course of action.

Differential
revenues change
(differ) between
actions.

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LO
1-3 Differential Costs, Revenues, and Profits
AM Bakery
p.11
Projected Income Statement for a Representative Week

(2)
(1) Alternative (3)
Status Quo Original Bakery
Original Bakery Plus Food Truck
Sales Only Sales Difference
Sales revenue $11,200 $16,800a $5,600
Costs:
Ingredients $2,700 $3,915b $1,215
Labor 3,100 4,495b 1,395
Utilities 500 600c 100
Rent 900 900d -0-
Marketing 25 75e 50
Truck Lease 0 900f 900
Truck Costs 0 150f 150
Total costs $7,225 $11,035 $3,810

Operating profits $3,975 $5,765 $1,790

(a) 50 percent higher than status quo (d) No additional rent required
(b) 45 percent higher than status quo (e) 300 percent higher than status quo
(c) 20 percent higher than status quo (f) New costs for food trucks only

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 Costs for Control and
LO
1-3

p.11
Evaluation
A responsibility center is a specific unit of an
organization assigned to a manager who is
held accountable for its operations and
resources.

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 Responsibility Centers,
LO
1-3

Revenues, and Costs_Example

Organization’s Chart
p.12

Adam Mercer
President

Ed Walsh Ady Joss

Vice-President Vice-President
Bakery Sales Food Truck Sales

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 Responsibility Centers,
LO
1-3

p.12
Revenues, and Costs (2)
The AM Bakery
Income Statement, For the Month Ending August 31
Bakery Food Trucks Total
Sales revenue $52,200 $28,000 $80,200
Department costs:
Ingredients 12,500 6,100 18,600
Labora 15,200 7,000 22,200
Utilities 2,400 550 2,950
Rent 3,600 0 3,600
Marketing 200 225 425
Truck Lease 0 3,900 3,900
Truck operating cost 0 700 700
Total channel costs $33,900 $18,475 $52,375
Channel marginb $18,300 $9,525 $27,825
General and admin. costs:
Corp. office operationsc 5,400
Other 2,900
Total general and admin. costs $8,300

Operating profit $19,525

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 Responsibility Centers,
LO
1-3

Revenues, and Costs (3)

NOTATIONS from the Income Statement

shown on the previous slide:

a) Includes channel managers’ salaries, but

excludes the President’s (Adam’s)
salary.
b) The difference between revenues and
costs attributable to a specific channel.
c) Includes the General Manager’s salary

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 Responsibility Centers,
LO
1-3

p.13
Revenues, and Costs (4)
AM Bakery budgeted AM Bakery
selling $52,200 worth of Bakery Sales
cookies and actually sold Actual and Budgeted Costs
$52,200 worth of cookies in For the Month Ending August 31
the month of August Actual Budgeted Difference
Ingredients:
Flour $ 3,900 $ 3,700 $ 200
Butter 3,500 3,400 100
Oil 1,700 1,800 (100)
Fruit 1,300 1,000 300
Nuts 900 800 100
Chocolate 800 800 -0-
Other 400 300 100
Total Ingredients $12,500 $11,800 $700
Labor:
Channel Manager $4,500 $4,500 $ -0-
Other 10,700 10,900 (200)
Utilities 2,400 2,300 100
Rent 3,600 3,600 -0-
Marketing 200 100 100
Total bakery costs $33,900 $33,200 $700
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Revenues without the prior written consent of McGraw-Hill Education. -0- 1-20
LO
1-4

p.14
Trends in Cost Accounting
LO 1-4 Identify current trends in cost accounting.
1. Research and development
2. Design
3. Purchasing
4. Production
5. Marketing
6. Distribution
7. Customer service
8. ERP – Enterprise resource planning
(Developments in information technology, IT)
9. Creating value in the organization
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 Cost Accounting in
LO
1-4

p.14
Research and Development
Lean manufacturing techniques are not
simply about production.

Companies partner with suppliers in the

development stage to ensure cost-effective
deigns for products.

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LO
1-4

p.15
Cost Accounting in Design
Product designers must write detailed
specifications on a product’s design.

This is often referred to as design for

manufacturing (DFM).

Activity-based costing (ABC) assigns costs

of activities needed to make a product,
then sums the cost of those activities to
compute the total cost of the product.

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LO

p.15
1-4

Cost Accounting in Purchasing

Performance measurement indicates how well a
process is working.

It minimizes unnecessary transaction processes.

Benchmarking methods measure products,

services, and activities against the best
performance.

Benchmarking is an ongoing process resulting in

continuous improvement.

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LO
1-4
p.15
Cost Accounting in Production

A lean accounting system provides

measures at a work cell or process level.

JIT is an inventory system designed to

lower the cost of maintaining excess
inventory.

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LO
1-4
p.16
Cost Accounting in Marketing
Customer relationship
management (CRM) is a system
that allows firms to target
profitable customers by assessing
customer revenues and costs.

Harrah’s Entertainment
provides complimentary services
to some customers (typically
called “comping”).

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LO

p.16
1-4

Cost Accounting in Distribution

Outsourcing occurs when a firm’s activities are
performed by another organization or individual
in the supply or distribution chain.

Nikon, for example, relies on UPS for distribution.

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LO
1-4 Cost Accounting in
p.16
Customer Service
TQM is a management method
which focuses on excelling in all
dimensions.

The emphasis is placed on quality.

Quality is defined by the customer.

Cost of quality (COQ) is a system

that identifies the costs of
producing defective items.

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LO
1-4
p.17
Enterprise Resource Planning
Information technology linking various
processes of the enterprise into a single
comprehensive information system

Purchasing Production

Technology
Human
Finance
Resources

Marketing

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 Key Financial Players
LO
1-4

p.17-18
in an Organization
Title Major Responsibilities Example Activities
Chief financial Manages entire finance Signs off on financial
officer (CFO) and accounting function statements
Determines where to
Treasurer Manages liquid assets
invest cash balances
Plans and designs Determines cost
Controller
information systems accounting policies
Internal Ensures compliance Ensures that procurement
auditor with laws rules are followed
Cost Records, measures, Evaluates costs of
accountant and analyzes costs products and processes

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LO

p.18-19
1-5

Ethical Issues for Accountants

LO 1-5 Understand ethical issues faced by accountants
and ways to deal with ethical problems that you
face in your career.

The design of the cost accounting system

has the potential to be misused to defraud
customers, employees, or shareholders.

Accountants may find themselves under pressure by management

to make accounting choices that improve performance reports
rather than accurately reflecting performance. As a professional
accountant, manager, or business owner, you will face ethical
situations on an everyday basis.

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LO

p.18-19
1-5

Ethics
Follow the Institute of Management Accountants (IMA)
guidelines:

DISCUSS conflicts with the immediate superior, unless the

superior is involved. If so, go to the next authority level.

CLARIFY the relevant issues and concepts by

discussion with a disinterested party or contact the
appropriate confidential ethics “hotline.”

CONSULT an attorney about your rights and

obligations.

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LO

p.20-21
1-5

Sarbanes-Oxley Act of 2002

Address problem
What is the
of corporate
intent?
governance

Accounting firms
Who is
and
impacted?
corporations

How are
Corporate
corporations
responsibility
impacted?
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LO

p.20-21
1-5

Corporate Responsibility
Who is impacted?
• CEO – Chief Executive Officer
– Manages entire corporation
• CFO – Chief Financial Officer
– Manages accounting and finance

What is the impact?

• The officers of the corporation must sign the financial
reports stipulating that the financial statements do not
omit material information.
• The company must disclose the evaluation of their
internal controls.

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Appendix: Institute of Management
Accountants Code of Ethics
p.23-24

Competence Confidentiality

Integrity Credibility

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 p.24
Competence

Members have a responsibility to:

1. Maintain an appropriate level of professional leadership and

expertise by enhancing knowledge and skills.
2. Perform professional duties in accordance with
relevant laws, regulations, and technical standards.

3. Provide decision support information and recommendations

that are accurate, clear, concise, and timely. Recognize and
help manage risk.

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 p.24
Confidentiality

Members have a responsibility to:

1. Keep information confidential except when disclosure

is authorized or legally required.

2. Inform all relevant parties regarding appropriate use

of confidential information. Monitor to ensure compliance.
3. Refrain from using confidential information for unethical
or illegal advantage.

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 p.24
Integrity
Members have a responsibility to:
1. Mitigate actual conflicts of interest. Regularly communicate
with business associates to avoid apparent conflicts of
interest. Advise all parties of any potential conflicts of
interest.
2. Refrain from engaging in any conduct that would prejudice
carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that
might discredit the profession.
4. Contribute to a positive ethical culture and place integrity
of the profession above personal interests.

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 p.24
Credibility
Members have a responsibility to:
1. Communicate information fairly and objectively.
2. Provide all relevant information that could reasonably
be expected to influence an intended user’s understanding
of the reports, analyses, or recommendations.
3. Report delays or deficiencies in information, timeliness,
processing, or internal controls in conformance with
organization policy and/or applicable law.
4. Communicate professional limitations or other constraints
that would preclude responsible judgment or successful
performance of an activity.
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EXCEL PROBLEMS_P1-39

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EXCEL PROBLEMS_P1-39

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EXCEL PROBLEMS_P1-42

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EXCEL PROBLEMS_P1-42

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