COST ACCOUNTING

Assoc. Prof Le Kim Ngoc

Management Accounting Department
School of Accounting and Auditing
Lecturer’s Information

❖Email: Ngoclk@neu.edu.vn; ngockt@gmail.com

❖Tel: 0913.360066 (before 10pm)
Content

The manager and management accounting

An introduction to cost terms and purposes

Job Costing

Process Costing

Spoilage, Rework, and Scrap

Activity-Based Costing and Activity-Based Management

Textbook and Reference books
Course requirements

❖Before class
▪ Read the textbook
▪ Summarize important content
▪ Prepare group presentations
▪ Submit your assignment on LMS
❖In-class
▪ Go to class on time
▪ Use the wheel of names to select at least 2
groups to present each class
▪ Actively participate in discussions and correct
exercises
Set your group

❖ Each group has 5 students

❖ Name of your group
❖ Slogan of your group
❖ Role of each member in your group
❖ Desires of the group
❖ Take 10 minutes for discussion and 2 minutes for
introduction your group
 CHAPTER 1

The manager and management accounting

Content

Distinguish FA. MA & Cost Accounting

Strategic cost management

Value-chain analysis

Decision-making process

Organization structure and the management accountant

Professional Ethics
Accounting Overview
Accounting Overview
Accounting Overview

Accounting systems are used to record economic

events and transactions and then process the
data into a format that is helpful for managers and
others.
Accounting Overview
Accounting Overview

Managerial accounting Financial accounting

provides information provides information
for managers inside an to stockholders,
organization who creditors and others
direct and control who are outside
its operations. the organization.
Accounting Overview

❖Management accounting—measures,
analyzes, and reports financial and nonfinancial
information to help managers make decisions to
fulfill organizational goals. Management
accounting need not be GAAP compliant.

❖Financial accounting—focuses on reporting to

external users including investors, creditors,
banks, suppliers, and governmental agencies.
Financial statements must be based on GAAP.
Accounting Overview
Accounting Overview

Financial Accounting Managerial Accounting

1. Users External persons who Managers who plan for
make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on
versus relevance objectivity and verifiability relevance

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focus on

companywide reports segment reports

6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS

and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
 Accounting Overview

❖Cost accounting – measures, analyzes and

reports financial and nonfinancial information
related to the costs of acquiring or using resources
in an organization.
❖Cost accounting provides information for both
management and financial accounting
❖Most accounting professionals take the position that
cost information is part of management accounting;
therefore, the distinction between the two is not
clear-cut and the terms are used interchangeably.
Accounting Overview
Evolution of Cost Accounting

❖ Ovunda Adum (2015), The Development of Cost and Management Accounting: A

Historical Perspective, European Journal of Humanities and Social Sciences Vol.
34, No.1, 2015.
Objectives of Cost Accounting

20
Cost control vs Cost Reduction
Strategy and Management Accounting

Strategy specifies how an organization matches its

own capabilities with the opportunities in the
marketplace.
Cost leadership strategy: providing quality products or services
at low prices and by judiciously managing their operations,
marketing, customer service, and administration cost.
Product differentiation strategy: offering differentiated or unique
products or services that appeal to their customers and are
often priced higher than the less-popular products or services
of their competitors.
Strategic cost management—describes cost
management that specifically focuses on strategic
issues.
Cost leadership vs
Product differentiation strategy
❖ a. Stila Cosmetics is considering introducing an anti-
aging facial cream with natural ingredients.
❖ b. Kontron Computers is deliberating to produce a
special type of microprocessor with an advanced
technology which will reduce the cost of production.
❖ c. Pelican Industries wants to install biometric system in
its factory to reduce idle labor time and increase
productivity.
❖ d. Coral Health Solutions decides to introduce a unique
telemedicine facility for its remote patients.
For each decision, discuss what information the
managerial accountant can provide about the
source of competitive advantage for these firms.
Strategy and Management Accounting

Management accounting helps answer important

questions such as:
▪ Who are our most important customers, and how can
we be competitive and deliver value to them?
▪ What substitute products exist in the marketplace,
and how do they differ from our own?
▪ What is our most critical capability?
▪ Will adequate cash be available to fund the strategy
or will additional funds need to be raised?
Discussion

Generally, companies follow one of two broad strategies: Low

Price strategy or Differential Strategy. Assume you are opening a
small food outlet across the street from your campus. How might
that business be operated under each of the two broad strategies?
Consider the following specific operational areas:
❖ a. target customers
❖ b. products offered
❖ c. product pricing
❖ d. location choice
❖ e. advertising content
❖ f. advertising media
Management Accounting and Value

❖Value is the usefulness a customer gains from a

company’s product or service. The entire
customer experience determines the value a
customer derives from a product.
❖Creating value is an important part of planning and
implementing strategy.

❖The Value chain is the sequence of business

functions in which a product is made progressively
more useful to customers.
Management Accounting and Value

❖ The Value chain consists of:

1. Research & development
2. Design of Products and Processes
3. Production
4. Marketing
5. Distribution
6. Customer service
Classify each cost item (a–h) as one of the
business functions in the value chain
❖ a. Purchase of tomatoes by a canning plant for Campbell’s tomato
soup products
❖ b. Materials purchased for redesigning Pepperidge Farm biscuit
containers to keep biscuits fresh
❖ c. Payment to Backer, Spielvogel, & Bates, the advertising agency,
for advertising work on the Healthy Request line of soup products
❖ d. Salaries of food technologists researching a Prego pizza sauce
that has minimal calories
❖ e. Payment to Safeway for redeeming coupons on Campbell’s food
products
❖ f. Cost of a toll-free telephone line for customer inquiries about
Campbell’s soup products
❖ g. Cost of gloves used by line operators on the Swanson Fiesta
breakfast-food production line
❖ h. Cost of handheld computers used by Pepperidge Farm delivery
staff serving major supermarket accounts
 Classify each cost item (a–h) as one of the
business functions in the value chain
❖ a. Electricity costs for the plant assembling the Presario computer line
of products
❖ b. Transportation costs for shipping the Presario line of products to a
retail chain
❖ c. Payment to David Kelley Designs for design of the Armada
Notebook
❖ d. Salary of computer scientist working on the next generation of
minicomputers
❖ e. Cost of Compaq employees’ visit to a major customer to
demonstrate Compaq’s ability to interconnect with other computers
❖ f. Purchase of competitors’ products for testing against potential
Compaq products
❖ g. Payment to television network for running Compaq advertisements
❖ h. Cost of cables purchased from outside supplier to be used with
Compaq printers
 Supply-chain analysis

❖The supply chain describes the flow of goods,

services and information from the initial sources of
materials, services, and information to their delivery
regardless of whether the activities occur in one
organization or in multiple organizations.

❖ The Supply-Chain includes Production and

Distribution which are the parts of the value chain
associated with producing and delivering a product
or service.
Supply-chain analysis
 Key Success Factors

❖Customers want companies to use the value chain

and supply chain to deliver ever-improving levels of
performance when it comes to several (or even all)
of the following:
▪ Cost and efficiency
▪ Quality
▪ Time
▪ Innovation
▪ Sustainability
Key Success Factors

Vortex Consulting has issued a report recommending changes for its

newest high-tech manufacturing client, Precision Instruments. Precision
currently manufactures a single product, a surgical robot that is sold and
distributed internationally. The report contains the following suggestions
for enhancing business performance:
❖ a. Develop a more advanced cutting tool to stay ahead of
competitors.
❖ b. Adopt a TQM philosophy to reduce waste and defects to near
zero.
❖ c. Reduce lead times (time from customer order of product to
customer receipt of product) by 20% in order to increase customer
retention.
❖ d. Redesign the robot to use 25% less energy, as part of Vortex’s
corporate social responsibility objectives.
❖ e. Benchmark the company’s gross margin percentages against its
major competitors.
Decision Making Process

Identify the problem and uncertainties

Obtain information

Make predictions about the future

Make decisions by choosing between

alternatives

Implement the decision, evaluate

performance, and learn
Decision Making Process

Brook Exteriors is a firm that provides house painting services. Richard

Brook, the owner, is trying to find new ways to increase revenues. Mr.
Brook performs the following actions, not in the order listed.
❖ a. Mr. Brook decides to buy the paint sprayers rather than hire
additional painters.
❖ b. Mr. Brook discusses with his employees the possibility of using
paint sprayers instead of hand painting to increase productivity and
thus profits.
❖ c. Mr. Brook learns of a large potential job that is about to go out for
bids.
❖ d. Mr. Brook compares the expected cost of buying sprayers to the
expected cost of hiring more workers who paint by hand and
estimates profits from both alternatives.
❖ e. Mr. Brook estimates that using sprayers will reduce painting time
by 20%.
❖ f. Mr. Brook researches the price of paint sprayers online.
Planning and Control Systems

❖Planning selects goals and strategies, predicts

results, decides how to attain goals, and
communicates this to the organization.
▪ Budget—the most important planning tool-is the
quantitative expression of a plan of activity by
management and is an aid to coordinating what
needs to be done to execute that plan.
❖Control takes actions that implement the planning
decision, evaluates performance, and provides
feedback and learning to the organization.

.
Planning and Control Systems

Gregor Company makes and sells brooms and mops. It takes the
following actions, not necessarily in the order given. For each action (a–
e), state whether it is a planning decision or a control decision.
❖ a. Gregor asks its advertising team to develop fresh advertisements
to market its newest product.
❖ b. Gregor calculates customer satisfaction scores after introducing its
newest product.
❖ c. Gregor compares costs it actually incurred with costs it expected
to incur for the production of the new product.
❖ d. Gregor’s design team proposes a new product to compete directly
with the Swiffer.
❖ e. Gregor estimates the costs it will incur to distribute 30,000 units of
the new product in the first quarter of next fiscal year.
Management Accounting Guidelines

Three guidelines help management accountants

provide the most value to the strategic and operational
decision- making of their companies:
Cost–benefit approach: benefits of an
action/purchase generally must exceed costs as a
basic decision rule.
Behavioral and technical considerations: people are
involved in decisions, not just dollars and cents.
Different Costs for Different Purposes: Managers
use alternative ways to compute costs in different
decision-making situations.
A Typical Organizational Structure
and the Management Accountant

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Professional Ethics
Sarbanes-oxley act (sox)

The Sarbanes-Oxley legislation was passed in 2002

in response to a series of corporate scandals. The
act focuses on improving:
1. Internal controls
2. Corporate governance
3. Monitoring of managers
4. Disclosure practices of public companies

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