INTRODUCTION TO COST MANAGEMENT

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CHAPTER 1

INTRODUCTION TO COST MANAGEMENT

DISCUSSION QUESTIONS

1.Cost management is concerned with assign- ing costs and using information for planning, controlling, continuous improvement, and decision making. It encompasses cost accounting and management accounting but has a broader focus than the usual roles as- signed to cost accounting and management accounting. Cost accounting is concerned with assigning costs to various cost objects such as products, services, and activities.Cost management broadens this focus by emphasizing accuracy of assignments based on causal relationships. Management accounting is concerned with planning, controlling, and decision making. Cost man- agement broadens this focus by emphasiz- ing continuous improvement and expanding planning, control, and decision making to in- clude such factors as processes, value chain, life cycle analyses, strategic consid- erations, and environmental costs.

2.Cost management differs from financial

accounting in the following major ways: (1) an

internal focus, (2) an emphasis on the future, (3) freedom from GAAP and other mandatory rules, (4) a multidisciplinary scope, (5) an evaluation of individual segments within the firm, and (6) the provision of more detailed information.

3.Factors affecting the focus and practice of cost management are global competition, service industry growth, advances in infor- mation technology, advances in the manu- facturing environment, customer orientation, new product development, total quality management, time as a competitive factor, and efficiency. Global competition means that companies are now competing with the best of the best. Accurate, timely, and rele- vant accounting data are crucial in appropri- ately managing costs. Service industry growth has led to the need for increased management accounting information to im- prove productivity and quality. The advances in information technology have led to the creation of integrated relational databases that allow a variety of users to develop their own reports based on their particular needs.It has also fostered the implementation and use of more sophisticated accounting sys- tems such as activity-based costing. Cus- tomer orientation, new product development, total quality management, time as a competi- tive factor, and efficiency require the ac- countant to create and track financial and nonfinancial measures of customer satisfac- tion, quality improvement, responsiveness, cycle time, target costs, cost, and productivi- ty. Advances in the manufacturing environ- ment are characterized by practices such as the theory of constraints, just-in-time, and au- tomation. These changes are affecting such practices as inventory management and product costing.

4.A flexible manufacturing system is a com- puterized system that allows different prod- uct lines to be manufactured on the same equipment. The equipment can be reconfig- ured simply by calling up different programs.

5.The controller is responsible for both internal and external accounting. These responsibili- ties usually include such diverse activities as taxes, SEC reports, cost accounting, budg- eting, internal auditing, financial accounting, and systems accounting.

6.A line position has direct responsibility for carrying out the basic missions of an organi- zation. A staff position has indirect responsi- bilities for the basic missions and provides a supportive role for line activities.

7.For most organizations, the controller should be a member of the top management staff.The controller is the financial expert of an organization and can provide critical advice and insight. Furthermore, the current ten- dency of having a cross-functional man- agement team increases the likelihood that the controller will be included as part of the management staff.

8.Planning establishes performance stand- ards, feedback compares actual perfor- mance with planned performance, and control uses feedback to evaluate deviations from plans.Cornerstones of Cost Management 3e Don Hansen Maryanne Mowen (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Solutions Manual Supplement files download link at the end of this file. 1 / 4

1-2 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• Cost management has the role of providing

information to help identify opportunities for improvement and also provides an evalua- tion of the progress made in implementing the actions designed to create improvement.

• Performance reports compare actual costs

and revenues with planned costs and reve- nues and thus provide signals to managers that allow them to take corrective actions.

• Business ethics is concerned with making

the right choices and usually involves sacri- ficing individual self-interest for the well- being of others. It is possible to teach ethical behavior in virtually any course. By intro- ducing ethical dilemmas in management ac- counting, students can become aware of the behavior that is expected in the business world and, in particular, for management ac- countants.

• Yes. There is some evidence that ethical

behavior actually is good business. It im- proves society, helps align individual goals with firm goals, enhances a firm’s public im- age, and even seems to be related to better financial performance. The market and con- sumers appreciate ethical behavior and are willing to reward those who adopt it.

• Yes. As management accountants become

more informed about what behavior is ac- ceptable and what is not, support should in- crease for ethical behavior. The code also recommends solutions to ethical dilemmas that might not have been obvious to the practicing management accountant.

• The three forms of certification are the CMA,

the CPA, and the CIA certificates. Although each certification can prove to be valuable for management accountants, the CMA des- ignation is tailored to fit the needs of man- agement accountants. The CPA designation has a public accounting orientation, and the CIA designation has an internal auditing orientation. Only the CMA designation spe- cifically addresses the professional require- ments of a management accountant.

• The two parts are (1) financial planning and

control; (2) financial decision making. The parts reveal the emphasis on managerial use of accounting information and imply the interdisciplinary nature of management accounting.

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EXERCISES

Exercise 1.1

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Exercise 1.2

• Customers can be internal or external. Users of the component produced by

Barry’s department are his internal customers. This includes the Assembly Department and the Rework Department. They are directly affected by the quality of the product produced by Barry’s department. In a sense, those who buy the cell phones are his customers, too—after all, the functionality of the MP3 player is affected by the quality and reliability of its components.

• Barry’s department is producing a low-quality component. One out of every

50 units is a high defect rate and is causing a lot of rework. Being sensitive would require a dramatic reduction in the defect rate. A reduction in the defect rate would decrease cycle time, lower the rework rate, and decrease costs. This creates the potential to increase value for external customers and makes the life of internal customers much easier.

• Cost management can provide information concerning quality—both financial

and nonfinancial. Defect rates can be tracked over time. Rework costs attributable to defective components from Barry’s department can be meas- ured and tracked over time. Cycle time reductions due to improved quality can be measured and reported. Product cost reductions attributable to im- proved quality can be reported. 3 / 4

1-4 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Exercise 1.3

• Planning and control
• Costing of service
• Costing of product/activity
• Planning and control
• Planning and control
• Decision making
• Costing of product
• Planning and control
• Decision making
• Costing of service
• Costing of an activity
• Planning and control
• Decision making
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