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Making
Chapter
1
Learning Objectives
1.Describe the way managers use accounting
information to create value in organizations.
2.Explain how cost accounting information is
used for decision making and performance
evaluation in organizations.
3.Distinguish between the uses and users of
cost accounting and financial accounting
information.
4.Identify current trends in cost accounting.
5.Understand ethical issues faced by
accountants and ways to deal with ethical
problems that you face in your career.
1-2
Value Chain
1-3
1-4
Activities
Productio
Marketin
R&
Customer
n
g
Distributi
Desig
D
service
on
n
Value
Non ValueAdded
Activity:
Added
Does
this
Hmmmm
Customers
Activity:
add as
perceive
Customers
? value?
adding
perceive
value.
no
value.
Evaluate each
activity
Can we improve
the activity?
Non ValueAdded
Activity:
Customers
perceive no
value.
Can we
eliminate the
activity?
1-5
Value Chain
R&
D
Research
and
Developme
nt
Creating a
new
product.
ValueAdded
Non ValueAdded
1-6
Value Chain
Design
Developing and
engineering the new
product.
ValueAdded
Non ValueAdded
1-7
Value Chain
Production
Producing
the
product.
ValueAdded
Non ValueAdded
1-8
Value Chain
Marketing
Informing potential
customers about the
product.
ValueAdded
Non ValueAdded
1-9
Value Chain
Distribution
Delivering the
product to
customers.
ValueAdded
Non ValueAdded
1-10
CS
Value Chain
Customer
Service
Supporting
customers who use
the product.
ValueAdded
Non ValueAdded
1-11
Managerial
L.O. 2 Explain how cost accounting information is used
for decision making and performance evaluation in
Decisions
organizations.
What adds
value to the
firm?
Carmens Cookies
Are costs
greater
than
What arebenefits? What are
Carmens
Carmens
cost
differenti
drivers?
al costs?
What are
Carmens
differential
revenues?
1-12
Dont
Expan
d
Expan
d
1-13
1-14
Cost Driver
What are
Carmens
cost
drivers?
What
drives my
cost?
Cost Drivers
Some may
not be
realized
1-15
Cost Driver
Ren
t
Insuranc
e
Labo
r
Ingredient
s
Number of
storefronts
Number
of cookies
Differential Costs
Costs that change in
response to a particular
course of action.
Differential costs
differ
differ between
actions
actions.
1-16
Differential Revenues
Revenues that change in
response to a particular
course of action.
Differential revenues
differ
differ between
actions
actions.
1-17
1-18
(2)
Status Quo
Alternative
Original Shop
Sales Only
Distribution
Difference
$6,300
$8,505a
$2,205
Food
1,800
2,700b
900
Labor ..
1,000
1,500b
500
Utilities .
400
600b
200
Rent .
1,250
1,250
-----
Other ..
1,000
1,200c
200
Total costs .
$5,450
$7,250
$1,800
Operating profits .
$850
$1,255
$405
(3)
Costs
35 percent
higher than
status quo
50 percent
higher than
status quo
20 percent
higher than
status quo
1-19
Budget
A financial plan for the revenues and
resources needed to meet financial
goals.
CARMENS COOKIES
Budgeted Costs
For the Month Ending April 30
Number of cookies
Food
32,000
Labor
Flour
$2,200
Manager
3,000
Eggs
4,700
Other
1,500
Chocolate
1,900
Total Labor
4,500
Nuts
1,900
Utilities
1,800
Other
2,200
Rent
5,000
Total Food
12,900
$24,200
1-20
Actual to Budget
Comparison
CARMENS COOKIES
Actual vs Budgeted Costs
For the Month Ending April 30
Difference
Actual
Budget
(Variance)
32,000
32,000
Flour
$2,100
$2,200
$(100)
Eggs
5,200
4,700
500
Chocolate
2,000
1,900
100
Nuts
2,000
1,900
100
Other
2,200
2,200
Total Food
$13,500
$12,900
$600
1-21
Actual to Budget
Continued
Difference
Actual
Budget
(Variance)
Manager
3,000
3,000
Other
1,500
1,500
Total Labor
4,500
4,500
Utilities
1,800
1,800
Rent
5,000
5,000
$24,800
$24,200
$600
Labor
Accounting
L.O. 3 Distinguish between the uses and users of cost
Systems
accounting and financial accounting information.
Accounting systems are designed to
provide information to decisionmakers.
Cost
Financial
Accountin
Accountin
g System
g System
Provides
information to
decision-makers
external to the
Provides
information to
decision-makers
internal to the firm.
1-22
Accounting Systems
Continued
1-23
Customers of Cost
Accounting
I love
II love
love
this
this
this
customer
custome
!
customer
r.
.
Individual who
purchases or uses
a commodity or a
service.
1-24
1-25
Customers of Cost
Accounting
Individuals
who use
the
informatio
n
provided.
Manager making
Managers
s
decisions
in the
firm.
Owner
Owners
s
evaluating
Trends in Cost
L.O. 4 Identify current trends in cost
accounting.
Accounting
High-Tech Production Settings
Just-in-Time
Method
Lean Production
Emphasis on
Quality
Benchmarkin
g
Activity-Based
Costing
Enterprise
Resource
Planning
Six
Performance Sigma
Measurement
1-26
High-Tech Production
Settings
Manufacturing
cost driven by
technology
rather than
labor.
1-27
1-28
Just-in-Time
Method
Units are
produced or
purchased just in
time for use,
keeping
inventories at a
minimum.
Lean Production
A Lean Production
philosophy focuses
on:
Minimum
inventory
Quality
Efficiency
Flexibilit
y
Worker training
1-29
Emphasis on Quality
Quality as defined by the
customer
Organization is
managed to excel
on all dimensions.
1-30
Benchmarking
Benchmarking methods
measure products, services
and activities against the
best performance.
Benchmarking is an
ongoing process
resulting in
continuous
improvement.
1-31
Activity-Based Costing
(ABC)
ABC assigns costs
of activities
needed to make a
product then sums
the cost of those
activities to
compute a
products cost.
1-32
1-33
Production
Technology
Human
Resources
Finance
Six Sigma
A system for improving
quality that uses data to
improve processes and
prevent defects.
A statistical
specification
1-34
Performance
Measurements
Performance
measurements indicate
how well a process is
working.
Balanced
Scorecardmeasurement relying on
A performance
multiple financial and nonfinancial
measures of performance.
1-35
Controller
Treasure
r
Internal
Auditor
Cost Accountant
1-36
Controller
Treasure
r
Plans and designs
1-37
1-38
1-39
Address
problems of
corporate
governance
Who is
impacted
?
Accounting
Firms
Corporation
s
Corporation
s?
Corporate
Responsibility
1-40
Corporate Responsibility
Who is
impacted
?
What is
the
impact?
CEO
Chief
Executive
Officer
Manages the
entire corporation.
1-41
CFO
Chief
Financial
Officer
1-42
Appendix
Institute of
Management
Accountants Code of
IMA Code
of
Ethics
Ethics
Competence
Integrit
y
Confidentialit
y
Objectivit
y
Competence
Members have a responsibility
to:
Maintain an appropriate level of
professional competence by ongoing
development of their knowledge and
skills.
Perform their professional duties in
accordance with relevant laws,
regulations, and technical standards.
Prepare complete and clear reports and
recommendations after appropriate
analyses of relevant and reliable
information.
1-43
Confidentiality
Members have a responsibility
to:
1-44
Integrity
Members have a
responsibility
Avoid actual orto:
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
or would appear to influence their actions.
Refrain from either actively or passively subverting the attainment
of the organizations legitimate and ethical objectives.
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.
1-45
Objectivity
Members have a
responsibility to:
Communicate information
fairly and objectively.
Disclose fully all relevant information that
could reasonably be expected to influence
an intended users understanding of the
reports, comments, and recommendations
presented.
1-46
Chapter 1
Should I
expand or
not?
1-47