Chapter 1:

Introduction to Cost
Accounting
Cost Accounting:
Foundations and Evolutions, 8e
Kinney ● Raiborn

© 2011 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.
Learning Objectives
 What are the relationships among financial, management, and cost
accounting?
 What are the the sources of authoritative pronouncements for the
practice of cost accounting?
 What are the sources of ethical standards for cost accountants?
 What is a mission statement, and why is it important to
organizational strategy?
 What must accountants understand about an organization’s
structure and business environment in order to perform effectively in
that organization?
 What is a value chain, and what are the major value chain
functions?
 How is a balanced scorecard used to implement an organization’s
strategy?
 Why is ethical behavior so important in organizations?

© 2011 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.
Accountants
 Financial accountants provide information to
external parties
 Investors
 Creditors
 Regulators
 Managerial accountants provide information to
internal users
 Managers
 Cost accountants provide information to both
internal and external users
 Product cost information

Accounting is the language of business.

© 2011 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.
Relationship of Financial,
Management, and Cost Accounting
Product
Costs

FINANCIAL COST MANAGEMENT

ACCOUNTING ACCOUNTIN ACCOUNTING
G

© 2011 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.
Types of Accounting

Financial Management
 Meet external  Meet internal
information needs information needs
 Comply with GAAP  Does not have to
comply with GAAP

© 2011 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.
Financial versus Managerial

Financial Managerial
 External focus  Internal focus
 Whole organization  Segments or divisions
 Historical  Current/projected
 Quantitative  Quantitative/qualitative
 Monetary  Monetary and nonmonetary
 Verifiable  Timely/reasonable estimate
 GAAP  Benefits exceed costs
 Formal recordkeeping  Formal and informal
recordkeeping

© 2011 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.
Product Cost Information

 External parties—stockholders, creditors, and

regulators
 For investment and credit decisions
 Complies with GAAP
 Enterprise focus
 Internal parties
 Planning, controlling, and decision making
 Evaluating performance
 Includes upstream and downstream costs
 Disaggregated
© 2011 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.
Accounting Bodies

Financial Management
 Public Company  Institute of
Accounting Oversight Management
Board (PCAOB) Accountants (IMA)
 Securities and  Society of Management
Exchange Commission Accountants of Canada
(SEC)  Cost Accounting
 Financial Accounting Standards Board
Standards Board (CASB)
(FASB)

© 2011 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.
Ethics and Management Accounting

 Standards of Ethical Conduct for

Management Accountants
 Competence
 Confidentiality
 Integrity
 Credibility

© 2011 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.
Organizational Strategy

1. Develop mission statement

2. Implement strategy
3. Deploy resources to create value for
customers and shareholders
4. Recognize that each organization is
unique—thus unique strategies must be
developed

© 2011 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.
 Organizational Strategy
1. Develop mission statement
2. Implement strategy

Develop,
Establish implement, and
appropriate monitor
measures of necessary
accomplishment information
systems
© 2011 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.
Questions

 What is the relationship among financial,

management, and cost accounting?
 Where can an accountant find ethical
standards for cost accounting?

© 2011 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.
Potential Ethical Issues

 Earnings management
 Low-cost production at any cost
 Whistle-blower retaliation
 Fixing prices
 Bribery and other corruption
 Hiding managerial acts

© 2011 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.