Download Course Introduction

Determine The Purpose And
Motivation For Managerial Costing
Principles of Cost Analysis and
Management
© Dale R. Geiger, 2011
Used by Permission
1
Would you go into battle without
reconnaissance?
© Dale R. Geiger, 2011 Used by Permission
2
Terminal Learning Objective
• Task: Determine The Purpose And Motivation
For Managerial Costing
• Condition: You are a cost advisor technician with
access to all regulations/course handouts, and
awareness of Operational Environment
(OE)/Contemporary Operational Environment
(COE) variables and actors
• Standard: with at least 80% accuracy:
• Demonstrate understanding and awareness of the
purpose and motivations for Managerial Costing
© Dale R. Geiger, 2011 Used by Permission
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Costing Systems Differ
Goals:
Consistency
Comparability
Equity
Users:
Shareholders
Congress
Regulators
Tax Authorities
Methodology:
Laws
Rules
GAAP
Financial &
Regulatory
Managerial
Goals:
Fit
Functionality
Relevance
Users:
Managers
Methodology:
Situation
Dependent
© Dale R. Geiger, 2011 Used by Permission
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Managerial Cost Accounting
• Seeks to understand true economic cost
• Based on cause-effect relationships
• Reflecting drivers of resource consumption
• With reasonable, but not precise, accuracy
• Enables cost based management for
continuous improvement
• Enables better decision making
• Enables rational consumption behavior
© Dale R. Geiger, 2011 Used by Permission
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Why Do Managerial Costing?
1. Enhance decision making
2. Provide reconnaissance necessary for
Cost Based Management process
3. Influence resource consumption behavior
© Dale R. Geiger, 2011 Used by Permission
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1. Cost Measurement’s Role in
Decision Making
• Which Metal is Best for Transmission?
Conductivity
Metal A
Metal B
Metal C
+
++
+++
© Dale R. Geiger, 2011 Used by Permission
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2. Cost Managed Organizations Need
Cost Measurement
• Cost managers must have cost measurement
to fight Cost War
• Cost measurement
Informs Cost Warriors of financial implications of
management decisions
• Provides a basis of accountability
• Is prerequisite to cost reduction
•
© Dale R. Geiger, 2011 Used by Permission
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3. Cost Measurement’s Influence on
Consumption
• The Demand Curve - Economics 101
Cost
Quantity Demanded
© Dale R. Geiger, 2011 Used by Permission
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Not Knowing Cost Makes Everything
Appear Free
• Cost influences consumption
• Quantity demanded rises as cost falls
• Free goods have infinite demand
• Things that aren’t free, but appear free, get
overconsumed
• Attempts to prevent overconsumption lead
to rules, regulations, restrictions
© Dale R. Geiger, 2011 Used by Permission
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Check on Learning
• How does demand for a good change as cost
decreases?
• What is the logical result of not knowing what
something costs?
© Dale R. Geiger, 2011 Used by Permission
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What should we measure?
Complex Organizations Have Many Potential
Views of Cost to Measure:
•
•
•
•
•
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Organization Views
Process Views
Product/Service Views
Customer Views
Job Order Views
Budgetary Views
© Dale R. Geiger, 2011 Used by Permission
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Where should we start?
• Many cost accounting textbooks list “Define
activities” as the first step
• Activities are meaningless if organizations do
not first define:
•
•
•
•
What are the outputs?
What decisions must be made?
How will the information be used?
What view of cost is useful to management?
© Dale R. Geiger, 2011 Used by Permission
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What are the outputs?
•
•
•
•
What is our mission?
What are the significant inputs?
What are the direct costs of the outputs?
What resources are consumed indirectly by
the outputs?
• What activities drive the consumption of
indirect resources?
© Dale R. Geiger, 2011 Used by Permission
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What decisions must be made?
•
•
•
•
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Hiring?
Purchasing?
Choosing between alternatives?
Others?
What costs are relevant to the decisions?
© Dale R. Geiger, 2011 Used by Permission
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How will the information be used?
• Which cost measurement methodology best
fits the use?
• Which key elements of information are
necessary?
• Which elements of cost require detailed
measurement?
© Dale R. Geiger, 2011 Used by Permission
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What view of cost is useful to
management?
• What (or who) are the primary consumers of
resources?
• Which costs are most significant?
• Which resources tend to be over-consumed?
• What do managers need to know in order to
make decisions?
• How do decisions affect the consumption of
resources?
© Dale R. Geiger, 2011 Used by Permission
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What Information will help you Win
your Personal Cost War?
• Read Winning the Cost War
• Foreword
• Introduction
• Chapter 1
• Prepare two PowerPoint slides to present to
the class:
1. Describe a personal Cost War you have
experienced/are experiencing
2. Describe the information you needed/need to
meet that challenge
© Dale R. Geiger, 2011 Used by Permission
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What Information will help your
Organization win its Cost War?
© Dale R. Geiger, 2011 Used by Permission
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Check on Learning
• How do you know if your organization is in a
Cost War?
• What is the role of cost information in winning
the Cost War?
© Dale R. Geiger, 2011 Used by Permission
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