1 / 19

Chapter 12: Introduction to Cost Management Systems

Chapter 12: Introduction to Cost Management Systems. Cost Accounting Principles, 9e. Raiborn ● Kinney. Learning Objectives . Why do organizations have management control systems? What is a cost management system? What are the organizational roles of a cost management system?

cherie
Download Presentation

Chapter 12: Introduction to Cost Management Systems

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 12:Introduction to Cost Management Systems Cost Accounting Principles, 9e Raiborn● Kinney

  2. Learning Objectives • Why do organizations have management control systems? • What is a cost management system? • What are the organizational roles of a cost management system? • What factors influence the design of a cost management system? • What are the three groups of elements that comprise a cost management system, and what are the purposes of these elements? • What is gap analysis, and how is it used in the evolution of a cost management system?

  3. FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT ACCOUNTING Relationship of Financial, Management, and Cost Accounting

  4. Cost Accounting • Financial Accounting • Uses cost accounting information for external reporting • Conforms to GAAP • Highly aggregated • Historical • Management Accounting • Uses cost accounting information for internal purposes—planning, controlling, decision making, and performance evaluation • Segmented • Current • Relevant for specific purposes

  5. Cost Management System (CMS) Formal methods to plan and control an organization’s cost-generating activities with major challenges of • Achieving profitability in the short run • Maintaining a competitive position in the long run

  6. Short Run Organizational efficiency Specific costs: manufacturing, service, marketing, administration Timely, accurate, highly specific, short term Long Run Survival Cost categories: customers, suppliers, products, distribution channels Periodic, reasonably accurate, broad focus long term Cost Management System (CMS) Objective Focus Information Characteristics IMA 1998

  7. Cost Management System Goals • Develop product costs • Assess product/service life-cycle performance • Improve understanding of processes and activities • Control costs • Measure performance • Allow pursuit of organizational strategies

  8. Cost Management System Design • The design of the CMS is influenced by • Organizational form, structure, and culture • Organizational mission and core competencies • Operations and competitive environment and strategies

  9. Organizational Form • Choice of form affects • Cost of raising capital • Cost of operating business • Cost of litigating • Statutory authority to make decisions • Forms of the business include • Corporations, Partnerships, LLPs, LLCs

  10. Organizational Structure • Distribute authority and responsibility • Centralized or decentralized decision making • Group subunits • Geographically • By similar missions (build, harvest, or hold) • By natural product clusters • Determine accountability for cost management and organizational control • Determine the information needed by the decision maker

  11. Organizational Culture Organizational culture is: • An underlying set of assumptions about the entity and the goals, processes, practices, and values that are shared by its members • How people interact with each other • The extent to which individuals take authority and assume responsibility for organizational outcomes

  12. Organizational Mission and Core Competencies • Business mission regarding competition • Avoid competition • Product Differentiation • Cost Leadership • Confront competition by identifying and exploiting temporary opportunities • Business mission in relation to product life cycle

  13. Organizational Core Competencies Critical core competencies • Timeliness • Quality • Customer service • Efficiency and cost control • Responsiveness to change The cost management system • gathers data related to measurement of these items • collects external intelligence on competitor performance in competency areas • tracks performance in competency areas through time • reports about core competencies in a useful format

  14. Operations and Competitive Environment and Strategies Management needs to assess: • Cost structure, including the proportion of fixed and variable costs • Level of technology costs, which tends to be fixed and not susceptible to short-run control • Production capacity • Flexibility to respond to a change in short-term conditions

  15. CMS Elements • Motivational elements • Information elements • Reporting elements

  16. Implement CMS • Gap Analysis • Identify gap to overcome • Prioritize differences • Develop and deploy improvements • Repeat process to ensure continuous improvement

  17. Enterprise Resource Planning • For a truly integrated CMS • Standardize information systems/replace legacy systems • Automate and integrate transfer of data among systems • Improve the quality of information • Improve timeliness of information • Real-time, on-line reporting Oracle SAP PeopleSoft

  18. Questions • Why do companies have management control systems? • How does the external operating environment affect the cost management system? • What is gap analysis?

  19. Potential Ethical Issues • Using the financial accounting system rather than a cost management system to support management functions • Not balancing long- and short-run concerns in the design of the cost management system • Using motivational elements to create high payoffs for fraudulent behavior • Designing motivational elements that donot align with manager’s authority

More Related