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The Accountants Role in the Organization Chapter 1

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 1 Describe how cost accounting supports management accounting and financial accounting.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Management Accounting
It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Financial Accounting
Its focus is on reporting to external parties. It measures and records business transactions.

It provides financial statements based on generally accepted accounting principles.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Cost Accounting
It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Cost Management
It describes the activities of managers in planning and control of costs. It includes the continuous reduction of costs. It is a key part of general management strategies and their implementation.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 2 Understand how management accountants affect strategic decisions.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Strategic Cost Management


Developing strategy Building resources and capabilities

Implementing strategy

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Strategic Cost Management


Building resources and capabilities

Current Assets

Long-Term Productive Assets

Intangible Assets

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 3 Distinguish between the planning and control decisions of managers.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Planning and Controlling


Management Decision Management Accounting System Budgets

Planning
Feedback

Control Performance Evaluation

Accounting System Performance Reports


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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Planning and Controlling


What is planning?

Setting goals

Predicting results

Deciding how to attain goals

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Planning and Controlling


What is control?

Deciding and taking actions

Deciding on performance evaluation and feedback


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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Planning and Controlling


What are budgets? They are quantitative expressions of a proposed plan of action. They aid in the coordination and implementation of the plan.
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Planning and Controlling


What are performance reports?

These are reports that compare actual results with budgeted amounts.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Performance Report Example


Boone Shop, July 2003

Budget Revenues $59,000 Cost of goods sold 42,000 Wages 6,700 General 1,300 Fixed costs 5,000 Operating income $ 4,000

Actual $60,000 43,400 7,000 900 5,000 $ 3,700

Variance $1,000 F 1,400 U 300 U 400 F 0 $ 300 U


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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Performance Report Example


Actual cost of goods sold were 72% of revenues instead of the budgeted 71%. Budget % Actual % Revenues $59,000 100 $60,000 100 Cost of goods sold 42,000 71 43,400 72 Gross margin $17,000 29 $16,600 28

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Feedback
This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 4 Distinguish among the problemsolving, scorekeeping, and attention-directing roles of management accountants.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Problem Solving
This involves comparative analysis for decision making. This role asks: Of the several alternatives available, which is the best?

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Scorekeeping
This involves accumulating data and reporting reliable results to all levels of management. This role asks: How is the business doing?

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Attention Directing
This involves helping managers properly focus their attention.
This role asks: Which opportunities and problems should be emphasized first. Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities.
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Learning Objective 5 Identify four themes managers need to consider for attaining success.

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Key Themes in Management Decision Making


Customer Focus

Value Chain and Supply Chain Analysis

Key Success Factors: Cost and Efficiency, Time, Quality, Innovation

Continuous Improvement and Benchmarking

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Customer Focus
The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained.

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Value Chain and Supply Chain Analysis


This theme has two related aspects:
1. Treat each of the business functions in the value chain as an essential and valued contributor. 2. Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function.
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Value Chain and Supply Chain Analysis


Supply chain describes the flow of goods, services, and information from cradle to grave, regardless of whether those activities occur in the same organization or other organizations.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Key Success Factors


These are operational factors that directly affect the economic viability of the organization. Cost organizations are under continuous pressure to reduce costs. Quality customers are expecting higher levels of quality.
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Key Success Factors


Time organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably.
Innovation there is now heightened recognition that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations.
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Continuous Improvement and Benchmarking


Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organizations.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 6 Describe the set of business functions in the value chain.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Value Chain
The term value chain refers to the sequence of business functions in which usefulness is added to the products or services of an organization. The term value is used because as the usefulness of the product or service is increased, so is its value to the customer.

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Value Chain
Management accountants provide decision support for managers in the following six business functions:

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Value Chain
R&D Design Production

Management Accounting

Marketing

Distribution

Service
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Value Chain Functions


Research and Development
It is the process that is conducted to generate and experiment with ideas related to new products, services, or processes.

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Value Chain Functions


Design
It is the detailed planning and engineering of products, services, or processes.

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Value Chain Functions


Production
It is the acquisition, coordination, and assembly of resources to produce a product or deliver a service.

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Value Chain Functions


Marketing
It is the manner by which companies promote and sell their products or services to customers or prospective customers.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Value Chain Functions


Distribution
It is the delivery of products or services to the customer.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Value Chain Functions


Service
It is the after-sale support activities provided to customers.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 7 Describe three ways management accountants support managers.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Key Guidelines
1. Cost-benefit approach

2. Full recognition of behavioral as well as technical considerations


3. Using different costs for different purposes

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Cost-Benefit Approach
A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Behavioral and Technical Considerations


A management accounting system should have two simultaneous missions for providing information: 1. To help managers make wise economic decisions 2. To help managers and other employees to aim and strive for goals of the organization

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Different Costs for Different Purposes


A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 8 Understand how cost management accounting fits into an organizations structure.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Line and Staff Relationships


Line management is directly responsible for attaining the objectives of the organization. Staff management exists to provide advice and assistance to line management.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Line and Staff Relationships


Board of Directors Chairman Chief Executive Officer (CEO)

President Chief Operating Officer (COO)

Chief Financial Officer (CFO)

Controller

Audit

Tax

Treasury

Risk Management

Investor Relations
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Line and Staff Relationships


Controller

Examples of Functions:

* Global Financial Planning/Budgeting * Operations Administration * Profitability Reporting * Inventory

* Royalties * General Ledger * Accounts Payable and Receivable * Subsidiary and Liaison Accounting

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Learning Objective 9 Understand what professional ethics mean to management accountants.

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Professional Ethics
Competence Integrity

Confidentiality

Objectivity

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Ethical Guidelines
The Institute of Management Accountants (IMA) is the largest association of management accountants in the United States. The IMA has issued a Standards of Ethical Conduct for Management Accountant.

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End of Chapter 1

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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