Fourth Edition

Cost Management
ACCOUNTING AND CONTROL

HANSEN & MOWEN

1-1
 Task Force Clip Art
included in this electronic
presentation is used with
the permission of New
Vision Technology of
Nepean Ontario, Canada.

1-2
 Introduction to
Cost Management
Prepared
Preparedby
by
Douglas
DouglasCloud
Cloud
Pepperdine
PepperdineUniversity
University

1-3
 Objectives
Objectives
1. List the similarities
After and differences
studying this between
After studying this
financial accounting
chapter, and cost management.
chapter, you
you should
should
2. Identify the current
be factors
able to:
be able to: affecting cost
management.
3. Discuss the importance of the accounting
system for internal and external reporting.
4. Explain the need for today’s 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-value-
added 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 Custom
Report Report 1-18
 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
organization’s basic objectives.

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 Partial Organization Chart,
Manufacturing Company
President
Line Function Staff Function

Production Financial
Vice-President Vice-President

Production
Supervisor Controller Treasurer

Machining Assembly Internal Ta

Cost Financial Systems
Foreman Foreman Audit x
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 Role
Role of
of Controller
Controller and
and Treasurer
Treasurer
Controller
1. Financial reports
2. SEC reporting
3. Tax planning and reporting
4. Performance reporting
5. Internal auditing
6. Budgeting
7. 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 plan’s
implementation and
taking corrective
action as needed.

Control
Feedback
Control
Feedback isis usually
is
is information
usually achieved
information that
achieved with
that can
canthe
with be
beuse
the used
use
usedof
ofto
tofeedback.
evaluate
feedback.
evaluate
or
or correct
correct thethe steps
steps being
being taken
taken to
to implement
implement aa plan.
plan.
1-24
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 organization’s 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 user’s
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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