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The Accountant’s 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.
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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.
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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.
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Learning Objective 2
Understand how management
accountants affect
strategic decisions.
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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
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Learning Objective 3
Distinguish between the
planning and control
decisions of managers.
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Planning and Controlling
Management Accounting System
Planning
Budgets
Control
Accounting
System
Performance
Evaluation
Performance
Reports
Feedback
Management Decision
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Planning and Controlling
What is planning?
Setting
goals
Predicting
results
Deciding how
to attain goals
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Planning and Controlling
What is control?
Deciding
and
taking
actions
Deciding on
performance
evaluation
and feedback
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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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Planning and Controlling
What are performance reports?
These are reports that
compare actual results
with budgeted amounts.
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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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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
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Feedback
This involves managers examining past performance
and systematically exploring alternative ways to
make better informed decisions in the future.
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Learning Objective 4
Distinguish among the problemsolving, scorekeeping, and
attention-directing roles of
management accountants.
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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?
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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.
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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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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.
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Learning Objective 6
Describe the set of business
functions in the value chain.
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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
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Service
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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.
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Value Chain Functions
Distribution
It is the delivery of products or
services to the customer.
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Value Chain Functions
Service
It is the after-sale support activities
provided to customers.
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Learning Objective 7
Describe three ways
management accountants
support managers.
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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
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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.
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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
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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.
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Learning Objective 8
Understand how cost management
accounting fits into an
organization’s structure.
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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.
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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
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Investor
Relations
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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
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Learning Objective 9
Understand what
professional ethics mean
to management accountants.
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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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