Cost Accounting

Traditions and Innovations

Barfield, Raiborn, Kinney

Chapter 1
Introduction to Cost and Management
Accounting in a Global Business
Environment
 Learning Objectives (1 of 3)
• Explain the relationship between financial
and management accounting
• Describe the relationships among cost,
financial, and management accounting
• Describe the role of ethics in guiding
workforce behavior
• Identify the factors that influence the
globalization of business
 Learning Objectives (2 of 3)
• List the primary factors and constraints that
influence an organization’s strategy
• Explain the impact of the competitive
environment on an organization’s strategy
• Clarify the impact of the accounting
function on achievement of strategic goals
and objectives
 Learning Objectives (3 of 3)
• Explain the effect of the product life cycle
on the company segment’s mission
• Describe the importance of the value chain
Accounting

The
Language
of
Business
 Accounting
• Provides information to external parties
– Stockholders, creditors, regulators
• Estimates the cost of products produced and
services provided
• Provides information to internal decision
makers
– To plan, control, and evaluate performance
 Two Types of Accounting
Financial Management
• Meet external • Meet internal
information needs information needs
• Comply with GAAP • Provide product
costing information
 Financial Accounting Should
Provide information to
stockholders, creditors, and
various regulatory bodies

Comply with GAAP

 Management Accounting Should
Provide product costing information
for external financial statements

Provide information
useful for
making decisions
and controlling
operations
 Accounting Differences
Financial Managerial
• External • Internal
• Aggregated • Segmented
• Historical • Current/Forecasted
• Quantitative • Quantitative/Qualitative
• Monetary • Monetary/Nonmonetary
• Verifiable • Timely/Reasonable estimate
• GAAP • Benefits exceed costs
 Relationship of Financial,
Management, and Cost
Accounting

FINANCIAL COST MANAGEMENT

ACCOUNTING ACCOUNTING ACCOUNTING
 Accounting Standards
Financial Management
• Financial Accounting • Cost Accounting
Standards Board Standards Board
(FASB) (CASB)
• Private-sector body • Public-sector board
 Accounting Organizations
Institute of Management Society of Management
Accountants (IMA) Accountants of Canada
• Statements on • Management Accounting
Management Accounting Guidelines (not legally
(not legally binding) binding)

• Certified Management
Accountant (CMA)
• Certified in Financial
Management (CFM)
 Ethics & Management Accountants
• Standards of Ethical Conduct for
Management Accountants
– Competence
– Confidentiality Competence
– Integrity Confidentiality
Integrity
– Objectivity Objectivity
 Global Business Environment

International trade of goods

and services
International movement of
labor
International flows of
capital and information
 Global Business Challenges
• Understand the factors influencing
international business markets
• Devise a long-term plan to achieve
organizational goals
• Develop information systems that keep the
company’s operations consistent with its
plans and goals
 Global Business Environment
• Electronic Commerce
• Trade Agreements
– North American Free Trade Agreement
(NAFTA)
– General Agreement on Tariffs and Trade
(GATT)
North American Free Trade
Agreement (NAFTA)

Members agreed
to allow duty-free
transfer of goods
under certain
conditions
 General Agreement on
Tariffs and Trade (GATT)
To provide a “level playing field” for
trade among the 100+ signatory nations
 Global Business Environment
Risks
• Strategic
– Environment and Organization
• Operating
• Financial
• Information
 Global Business Environment
Ethical Considerations
– Is it legal?
– Does it comply with our values?
– How will it look in the newspaper?
– If you do it, will you feel bad?

– If it’s wrong, don’t do it.

– If you’re not sure, ask.
 Goals and
Objectives
Strategic
Planning

Tactical
Planning
Organizational
Strategy
 Organizational Strategy
• Organizational Structure
• Core Competencies
• Organizational Constraints
• Organizational Culture
• Environmental Constraints
 Organizational Strategy
• Organizational Structure

Centralization Decentralization
 Organizational Strategy
• Organizational Structure
• Core Competencies
– A higher proficiency than the competitors
– Technological innovation
– Engineering
– Product development
– After-sale service
 Organizational Strategy
• Organizational Structure
• Core Competencies
• Organizational Constraints
– Monetary Capital
– Intellectual Capital
• Human Capital
• Structural Capital
• Relationship Capital
 Organizational Strategy
• Organizational Structure
• Core Competencies
• Organizational Constraints
• Organizational Culture
– An organization’s norms
• internal and external
• formal and informal
 Organizational Strategy
• Organizational Structure
• Core Competencies
• Organizational Constraints
• Organizational Culture
• Environmental Constraints
– Limitations on strategy caused by external
differences in culture, competitive market
structures, fiscal policy, laws, or political
situations
 Business Intelligence System
Formal process for gathering and analyzing
information and producing intelligence to
meet decision-making needs

• Information about internal processes

• Knowledge of markets, technologies,
and competitors
 Business Intelligence

Competitive Intelligence

Competitor
Analysis

Levels of Intelligence Gathering

 Business Segments
• Segment Mission relates to Product Life
Cycle
– Build
– Hold
– Harvest
 Accounting Information
• Strategic Resource Management
– Planning for deployment of resources to create
value for customers and shareholders
• Value Chain—Foundation of SRM
– Set of processes that convert inputs into
products and services

Use accounting information to evaluate the

value chain to improve strategic resource
management
 The Accountant’s Role
• Accountants provide information that is used to
– make strategic decisions
– measure and evaluate management
– provide appropriate incentives
– provide information about the value chain
 Questions
• What is the relationship among cost,
financial, and management accounting?
• How do ethics guide workforce behavior?
• What is the impact of the accounting
function on achievement of strategic goals
and objectives?