Kinney9e PPT Ch1Instructor

Chapter 1:
Introduction to Cost
Accounting
Cost Accounting:
Foundations and Evolutions, 9e
Kinney ● Raiborn
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
Learning Objectives
 What are the relationships among financial, management, and cost
accounting?
 What are 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?
 What are the sources of ethical standards for cost accountants?
 Why is ethical behavior so important in organizations?
Accountants
 Financial accountants provide information to external
parties
 Investors
 Creditors
 Regulators
 Donors
 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.

Relationship of Financial,
Management, and Cost Accounting
Product
Costs
FINANCIAL COST MANAGEMENT

ACCOUNTING ACCOUNTING ACCOUNTING
Types of Accounting
Financial Management
 Meet external  Meet internal
information needs information needs
 Comply with GAAP  Does not have to
comply with GAAP
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
Product Cost Information
 External parties—stockholders, creditors,

regulators, and donors
 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
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)
Management Accounting
Organizations
 IMA
 Statements on Management Accounting
 (not legally binding)
 Society of Management Accountants of
Canada
 Management Accounting Guidelines
 (not legally binding)
 Cost Accounting Standards Board (CASB)
 Government contracting standards
 (legally binding)
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
Organizational Strategy
1. Develop mission statement
2. Implement strategy
Develop,
Establish implement, and
appropriate monitor
measures of necessary
accomplishment information
systems
Five Factors in Organizational
Strategy
 Core competencies
 Organizational structure
 Management style and organizational culture
 Organizational constraints
 Environmental constraints
Organizational Strategies
 Core competency—critical function or
activity providing a competitive advantage
 Cost leadership strategy—undercut
competitor prices
 Product differentiation strategy—superior
quality products or unique services sold at
a premium
Strategy Questions
 What are the most important factors  Does your organization have the
in your organization’s operating appropriate resources (financial,
environment? personnel, and technological) to
 Economy, population demographics, fulfill its vision?
competitors, suppliers, resource
availability, innovation, environment  Have appropriate performance
 What are your organization’s core measurements been established to
competencies? determine if progress is being made
 Have you organization’s core towards your organization’s mission
competencies become competitive and vision?
advantages?  Are operating conditions
 What is your organizations current continuously monitored to detect
position relative to your competitors? changes so that your organization
 What are your customers’ purchase can adapt with flexibility and
or selection criteria? sensitivity, especially to new trends
 What is the organizational vision in technology?
identified by your management,
shareholders, and other internal and
external stakeholders?
 Is the vision supported by identifiable goals
and objectives?
Organizational Structure
 Distribution of authority and responsibility in an

organization
 Authority—right to use resources to accomplish a
task or achieve an objective
 Responsibility—obligation to accomplish a task or
achieve an objective
 Line manager works directly toward attaining
organizational goals
 Staff employees give assistance and advice to line
managers
 Treasurer and Controller
Organizational Constraints
 Four common organizational constraints

 Monetary capital
 Intellectual capital
 Technology
 Environmental constraints
Value Chain
 A set of value-adding functions and
processes that converts inputs into
products or services
 Research and  Marketing
Development  Distribution
 Product Design  Customer Service
 Supply
 Production
Communicate strategy to all members of the value chain.

Components of the Value Chain
Balanced Scorecard
Balanced Scorecard Perspectives
 Learning and Growth
 Use the organization’s intellectual capital to adapt to changing
customer needs or to influence new customers’ needs and
expectations through product or service innovations
 Internal Business
 Things to do well to meet customer needs and expectations
 Customer Value
 How well the organization is doing relative to important
customer criteria
 Financial
 Address stockholders/stakeholders concerns about profitability
and organizational growth
Balanced Scorecard Measures
 Short-term and long-term

 Internal and external
 Financial and nonfinancial
Professional Ethics
 Earnings management—deliberate
accounting adjustments to “hit” profit targets
 Often adjustments involve cost accounting
 Product costs
 Inventory valuations
 Stretching legitimate accounting techniques
 Outright fraud
Potential Ethical Issues
 Earnings management
 Low cost production at any cost
 Whistle-blower retaliation
 Fixing prices
 Bribery and other corruption
 Hiding managerial acts
Ethics and Legislation
 Sarbanes-Oxley Act—CEOs and CFOs

personally accountable for the accuracy of
their organization’s financial reporting
 False Claims Act—whistle-blower protection
and penalties for failure to blow the whistle
(disclose known financial frauds)
 Dodd-Frank Act—encourages whistle-
blowing with awards from 10 to 30 percent of
amount recouped
Ethics and Management Accounting
 Standards of Ethical Conduct for

Management Accountants
 Competence
 Confidentiality
 Integrity
 Credibility
Ethics in Multinationals
 Foreign Corrupt Practices Act—prohibits

bribes to obtain/retain business
 Organization of Economic Cooperation and
Development Convention—crime to offer,
promise, give bribes to obtain/retain internal
business deals
Questions
 What is the relationship among financial,

management, and cost accounting?
 How is the balanced scorecard used to
implement an organization’s strategy?
 Where can an accountant find ethical
standards for cost accounting?

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Chapter 1:

Accounting is the language of business.

FINANCIAL COST MANAGEMENT

 External parties—stockholders, creditors,

1. Develop mission statement

 Distribution of authority and responsibility in an

 Four common organizational constraints

Communicate strategy to all members of the value chain.

 Short-term and long-term

 Sarbanes-Oxley Act—CEOs and CFOs

 Standards of Ethical Conduct for

 Foreign Corrupt Practices Act—prohibits

 What is the relationship among financial,

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