BUSI 601 Cost Accounting Chapter 1 notes

Benchmarking

-studies best practices of other firms or units. -includes identifying critical success factors for the firm. -implements improvements to match or beat competitors.

Five steps of decision making

1. Determine the strategic issues surrounding the problem, because the solution of any problem must fit the organization's strategy. 2. Identify the alternative actions. 3. Obtain information and conduct analyses of the alternatives. 4. Based on strategy and analysis, choose and implement the desired alternative. 5. Provide an ongoing evaluation of the effectiveness of implementation in step 4.

consequences of lack of strategic information

1. decision making based on intuition instead of accurate and timely information. 2. lack of clarity about direction and objectives. 3. lack of a clear and favorable perception of the firm by customers and suppliers. 4. incorrect investment decisions; choosing products, markets, or manufacturing processes inconsistent with strategic goals. 5. inability to effectively benchmark competitors, resulting in lack of knowledge about more effective competitive strategies. 6. failure to identify most profitable products, customers, and markets.

life cycle costing steps

1. research and development 2. product design, including prototyping, target costing and testing. 3. manufacturing, inspecting, packaging, and warehousing. 4. marketing, promotion, and distribution 5. sales and service

the ultimate goal of cost management is reflected by Stage ___ of Robert Kaplan's classifications of cost management systems.

4 - this stage reflects the strategic focus of cost management.

which of the following is used to improve the accuracy of cost analysis?

Activity Based Costing (ABC)

Planning and Decision Making

Budgeting and profit planning, cash flow management. Cost management information is needed to support recurring decisions regarding replacing equipment, managing cash flow, budgeting raw materials purchases, scheduling production, and pricing.

Which of the following is the correct sequence in which cost management information is developed and used?

Business Events, Data, information, knowledge, decisions

which professional certification is an international designation for accountants?

Certified Management Accountant (CMA)

The cost management professionals in an organization probably report directly to the

Controller

The perspective of the Balanced Scorecard include:

Customer Satisfaction Learning and Growth

What are the types of strategy identified by Michael Porter?

Differentiation and cost leadership

Professional certifications are issued by the American Institute of Certified Public Accountants (AICPA), the Institute of Management Accountants (IMA), The Chartered Institute of Management Accountants (CIMA), and the Society of Management Accountants in Canada (CMA-Canada), among other professional accounting organizations. The Certified Management Accounting (CMA) certification is issued by?

IMA

Cost management uses the expertise of the management accountant to:

Implement a strategy of cost leadership or differentiation

The primary professional organization that supports the growth and professionalism of management accounting practices in the United States is:

Institute of Management Accountants.

The IMA statement of Ethical Professional Practice the responsibility to mitigate actual conflicts of interest is an element of:

Integrity

Theory of Constraints (TOC)

Is used to help firms effectively improve the rate at which raw materials are converted to finished products. The TOC helps identify and eliminate bottlenecks - places where partially completed products tend to accumulate as they wait to be processed in the production process. Many managers argue that the focus on speed in the TOC approach is crucial.

The balanced scorecard is best described as a:

Management accounting report

Firms that want to grow quickly in the global marketplace often employ the cost leadership strategy because

Manufacturers around the world adopt lean manufacturing methods to bring their costs down.

which of the following are elements of the Institute of Management Accountants Statement of Ethical Professional Practice relate to the standard of competence?

Recognize and communicate professional limitations or other constraints that would preclude responsible judgement. provide decision support information and recommendations that are accurate, clear, concise and timely.

Which of the following contemporary management techniques does not focus directly on strategy implementation?

Sustainability (focuses on process improvement)

The prior business environment differs from the contemporary business environment in that the prior business environment is associated with:

The "push" rather than the "pull" approach in manufacturing. p.9

The Chief Financial Officer (CFO) oversees the financial functions within an organization. Recent surveys reveal that the role of the CFO has continued to change in that:

The CFO has greater responsibility for developing and implementing strategy.

What is the most important element of strategic decision making?

The chosen option makes the firm more competitive and successful

To determine whether a particular action is professionally ethical or not, using the institute of Management Accountants Statement of Ethical Professional Practice, It is necessary to know?

The intent and the business context of the act.

The balanced scorecard (BCS) and the strategy map are related in that:

The strategy map links the various perspectives of the balanced scorecard in a cause-and-effect diagram.

The strategy ma can be compared to the balanced scorecard (BSC) in that:

The strategy map provides a guide to implementing the BSC by linking the critical success factors.

strategic management

This is the most important management function. cost management information is needed to make sound strategic decisions regarding choice of products, manufacturing methods, marketing techniques and distribution channels, customer profitability, and other long-term issues. development and implementation of a sustainable competitive position in which the firm's competitive advantage provides continued success.

The analysis tool organizations use to identify specific steps needed to provide a competitive product or service is called a(n) _____________________ _________________

Value Chain

companies that have increased global business activities in recent decades include:

Walmart, General Electric

examples of companies following the cost leadership strategy include:

Walmart, Texas Instruments, Southwest Airlines

cost leadership

a competitive strategy in which a firm outperforms competitors in producing products or services at the lowest cost. The cost leader makes sustainable profits at lower prices, therby limiting the growth of competition in the industry through its success at reducing price and undermining the profitability of competitors, which must meet the firm's low price. The cost leader normally has a relatively large market share and tends to avoid niche or segment markets by using the price advantage to attract a large portion of the broad market.

Enterprise Risk Management (ERM)

a framework and process that firms use to manage the risks that could negatively or positively affect the company's competitiveness and success.

Focus on the customer

a key change in the business environment is increased consumer expectation for product functionality and quality. The result has been a shorter product life cycle, as firms seek to add new features and new products as quickly as possible, thereby increasing the overall intensity of competition.

global business environment

a key development that drives the extensive changes in the contemporary business environment is the growth of international markets and trade due to the rise of economies throughout the world and the decline of trade barriers.

Business Process Improvement (BPI)

a management method by which managers and workers commit to a program of continuous improvement in quality and other critical success factors. Continuous improvement is very often associated with benchmarking and total quality management. Business Process Reengineering is more radical.

Business Process Reengineering (BPR)

a method for creating competitive advantage in which a firm reorganizes its operating and management functions, often with the result that positions are modified, combined, or eliminated.

strategy

a plan for using resources to achieve sustainable goals within a competitive environment.

commodity

a product that is the same no matter who produces it.

main focus of financial reports must be

accuracy and compliance with reporting requirements

Firms can improve planning, product costing and control by using________ __________ to develop detailed description of the specific actions performed in the firms operations.

activity analysis

The Balanced Scorecard (BSC)

an accounting report that includes the firm's critical success factors in four areas: 1. financial performance 2. customer satisfaction 3. internal processes 4. learning and growth

value chain

an analysis tool firms use to identify the specific steps required to provide a product or service to the customer.

Examples of firms that are often benchmarked because of their competitive success in their respective industries include:

apple, Nordstrom, boeing p 13

The management accountant works to implement an organization's strategy:

as part of a management team in decision making. by contributing his or her expertise.

management organization

because of the focus on customer satisfaction and value, the emphasis has shifted from financial and profit-based measures of performance to customer-related, nonfinancial performance measures such as quality, time to delivery, and service. cost management practices are also changing to include reports that are useful to cross-functional teams of managers.

The type of information recorded and reported in the management organizations of the contemporary business environment include:

both financial and operational information

Strategies Target uses to achieve competitive success include:

brand recognition differentiated offerings.

Information Value Chain

business events - data - information- knowledge-decisions

Types of Organizations

business firms, governmental units, not for profit

An approach to strategy implementation that uses data to understand and analyze business performance is predictive analytics or ____________________ ______________________

business intelligence or business analytics

a management method where managers and workers commit to a program of continuous improvements in quality and other success factors is:

business process improvement

a sound strategy is important because it can help an organization achieve:

competitive success

When making a decision the management accountant follows a five step procedure to assure a strategically- appropriate decision. the five steps include all of the following except:

consider information that is irrelevant to the decision p.17-18

cost management information

consists of financial information about costs and revenues and nonfinancial information about customer retention, productivity, quality, and other key success factors for the organization.

In a typical organization, the management accountant reports to the

controller

two competitive strategies

cost leadership or differentiation

Management and Operational Control

cost management information is needed to provide a fair and effective basis for identifying inefficient operations and to reward and motivate the most effective managers. operational control- takes place when mid-level managers monitor the activities of operating level managers and employees. management control- is the evaluation of mid-level managers by upper level managers.

Preparation of Financial Statements

cost management information is needed to provide accurate accounting for inventory and other assets, in compliance with reporting requirements, for the preparation of financial reports and for use in the three other management functions. management complies with the reporting requirements of relevant groups. financial statement info is often an important part of planning and decision making, control and strategic management.

According to the Society of Management Accountants in Canada, the management accountant has the following roles and expertise:

creating value, innovative thinking, strategic insight, and collaboration.

Strategic Thinking requires special skills including:

creativity and flexibility.

The sequence of steps that best describes the development and use of cost management information by the management accountant is:

data, information, knowledge, decision

The end goal in stage 5 of the management accounting information value chain is:

decisions by management teams.

target costing

determines the desired cost for a product on the basis of a given competitive price, such that the product will earn a desired profit. Cost is thus determined by price. The firm using target costing must often adopt strict cost reduction measures or redesign the product or manufacturing process to meet the market price and remain profitable.

first step for successful business

develop a competitive strategy

Finding a strategy for an organization begins with:

developing the organization's mission statement.

The institute of management accountants guidelines to assist the management accountant in applying the statement of ethical practice include:

discuss the matter with an immediate supervisor. follow the organization's established policies. consult an attorney if needed.

The consequences of a lack of strategic information include:

failure to identify most profitable products, customers, markets. inability to benchmark. incorrect investment decisions.

true or false: global economic challenges lead to reduced modifications in cost management practices.

false

True or false: Enterprise risk management is only concerned with risks that could negatively affect the company's competitiveness and success.

false. it also manages risks that could positively affect the company.

The functions of the controller typically include:

financial reporting cost management

sustainability refers to the balancing of which organizational goals?

financial, environmental, social

unusual or innovative features and product leadership

firms such as cosmetics, fashion, and pharmaceutical firms, compete on the basis of product leadership, in which the unusual or innovative features of the product make the firm successful. For these firms, the critical management concern is maintaining product leadership through product development and marketing. The role of cost management is to support the firm's strategy by providing the information managers need to succeed in their product development and marketing efforts, such as expected cost of adding a new product feature, the defect rate of a new part, or the reliability of a new manufacturing process.

strategies Walmart uses to achieve competitive success include:

focus on customer service extensive use of technology to reduce cost.

when faced with an ethical issue, the management accountant should first:

follow the organizations established policies on the resolution of such conflict.

which of the following are primarily manufacturing firms?

ford motor company general electric

Some of the distinctive aspects of the cost leadership strategy include:

goal to reach broad market segment low cost

the theory of constraints

helps a firm improve cycle time focuses on speed helps identify and eliminate bottlenecks.

Which of the following are associated with a differential strategy?

higher priced products image perception unique products and services

the role of professional organizations that support management accountants is to:

improve technical skills, professionalism, and ethics of management accountants.

the ultimate goal of the balanced scorecard and strategy map is:

improved financial performance

new business focus vs. old business

in past years, a business typically succeeded by focusing on only a relatively small number of products with limited features and by organizing production into long, low-cost, and high volume production runs aided by assembly line automation. the new business process focuses instead on customer satisfaction. producing value for the customer changes the orientation of managers from low-cost production of large quantities to quality, service, timeliness of delivery, and the ability to respond to the customer's desire for specific features. cost management reports now include specific measures of customer preferences and customer satisfaction.

service industries

in the United States, service industries are growing at a much faster rate than manufacturing or merchandising.

a competitive firm:

incorporates changes in the contemporary business environment in business planning and practice.

changes (modifications) in cost management practices

increased global competition, lean manufacturing, advances in information technologies (internet & enterprise resource management), greater focus on the customer, new forms of management organization, changes in the social, political, and cultural environment of business.

The most fundamental of all business changes in recent years has been?

increased use of information technology and the internet

The most fundamental of all business changes in recent years has been

increased use of information technology and the internet.

increasing competitiveness from global markets:

increases both financial and nonfinancial information needs.

Standards of the Institute of Management Accountants Statement of Ethical Professional Practice include:

integrity credibility competence

strategic thinking

involves anticipating changes; products, services , and operating processes are designed to accommodate expected changes in customer demands.

management accounting

involves: devising planning systems. - helping formulate organizational strategy -- decision making.

Differentiation

is a competitive strategy in which a firm succeeds by developing and maintaining a unique value for the product or service as perceived by consumers. This perception allows the firm to charge higher prices and outperform the competition in profits without reducing costs significantly. A weakness of the differentiation strategy is the firm's tendency to undermine its strength by attempting to lower costs or by ignoring the necessity of having a continual and aggressive marketing plan to reinforce differentiation, then lower cost rival products will appear more attractive.

strategy map

is a method, based on the balanced scorecard, that links the various perspectives in a cause-and-effect diagram.

business intelligence

is an approach strategy implementation in which the management accountant uses data to understand and analyze business performance. Often uses statistical methods such as regression or correlation analysis to predict consumer behavior, measure customer satisfaction, or develop models for setting prices, among other uses. BI is best suited for companies that have a distinctive capability which can be derived from measurable critical success factors.

cost management

is the development and use of cost management information.

lean accounting:

is used by firms that have adopted lean manufacturing. uses value streams to help understand profitability.

Activity Analysis

is used to develop a detailed description of the specific activities performed in the firm's operations. used to improve planning, product costing, operational control, and management control.

activity based costing

is used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers.

lean manufacturing

just in time inventory methods to reduce the cost and waste of maintaining large levels of raw materials and unfinished product.

activity based costing and activity based management

key strategic tools for many firms, especially those with complex operations or diverse products and services.

The sequence that links the elements of the strategy map are:

learning and growth, internal processes, customer satisfaction, financial performance.

IMA definition of management accounting

management accounting involves partnering in management decision making, planning, and performance measurement to assist in the formulation and implementation of an organization's strategy.

Which of the four functions of management involves performance evaluation?

management control operational control

cost management is critical

many firms compete on the basis of being the low-cost provider of the industry's goods or services; for these firms, cost management is critical.

target costing: check all that apply

may require product or process redesign is common when small price differences attract customers. forces firms to be more competitive.

Sustainability

means the balancing of the organization's short - and long term goals in all three dimensions of performance. social, environmental, and financial. We view it in the broad sense to include identifying and implanting ways to reduce cost and increase revenue as well as to maintain compliance with social and environmental regulations and expectations. This can be accomplished through technological innovation and new product development as well as commonsense measures to improve the social and environmental impacts of the company's operations.

critical success factors are:

measures of aspects of the firm's performance that are essential to its competitive success.

Critical Success Factors (CSFs)

measures of those aspects of the firm's performance that are essential to its competitive advantage and, therefore, to its success.

Total Quality Management (TQM)

method by which management develops policies and practices to ensure that the firm's products and services exceed customers' expectations. This approach includes increased product functionality, reliability, durability, and serviceability.

life cycle costing

method used to identify and monitor the costs of a product throughout its life cycle. The life cycle consists of all steps from product design and purchase of raw materials to delivery and service of the finished product.

examples of recent changes in the contemporary business environment include:

new forms of management organization lean manufacturing advances in information technology

which of the following statements is false regarding growth in the global business environment?

not for profit organizations are not significantly impacted by this growth.

which of the four functions of management involves decisions regarding new product development?

planning and decision making

most subsequent life-cycle costs are determined by decision made in the _______ stage

product design

Lean manufacturing is NOT associated with

product innovation

the main purpose of professional certifications for the management accountant is to:

provide a distinct measure of experience , training and ability.

governmental and not for profit organizations

provide services, much like the firms in service industries. However, these organizations provide the services for which no direct relationship exists between the amount paid and the services provided.

Which is not one of the broad risks associated with enterprise risk management?

reporting risk

changes to management organization include:

reports that are useful to cross-functional teams. teamwork and coordination among business functions. a shift away from financial measures of performance.

organizations that set guidelines and regulations regarding management accounting practices include:

securities and exchange commission internal revenue service financial accounting standards board American institute of certified public accountants

downstream costs

service and warranty costs that occur after manufacturing.

strategy

set of goals and specific action plans that, if achieved, provide the desired competitive advantage.

which of the following is typical in today's business environment?

shorter product life cycle with new products added quickly

Robert Kaplan's classification of the stages of development of cost management

stage 1: cost management systems are basic transaction reporting systems. stage 2: as they develop into the second stage, cost management systems focus on external financial reporting. the objective is reliable financial reports; accordingly, the usefulness for cost management is limited. stage 3: cost management systems track key operating data and develop more accurate and relevant cost information for decision making; cost management information is developed. stage 4: strategically relevant cost management information is an integral part of the system.

the most important management function is:

strategic management

Four Functions of Management

strategic management - planning and decision making - management and operational control - preparation of financial statements

The consequences of shorter product life cycles this is that managers must:

take a more integrative approach in their decision making be more flexible in their decision making.

The cost management technique that determines cost based on a given competitive price and desired profit is:

target costing

governmental and not for profit - cost management

tend to focus on their responsibility to spend in approved ways rather than to spend in efficient and effective ways. increasingly, however these types of organizations are using cost management for efficient and effective use of their financial resources.

strategic focus of cost management

the competitive firm incorporates the emerging and anticipated changes in the contemporary environment of business into its business planning and practices. cost management focuses not on the measurement per se, but on the identification of measures that are critical to the organization's success.

cost management is:

the development and use of cost management information.

Information technology, the internet and enterprise resource management

the new economy is reflected in the rapid growth of internet based firms. these technologies have fostered the growing strategic focus in cost management by reducing the time required for processing transactions and by expanding the individual manager's access to information within the firm, the industry, and the business environment around the world.

Professional organizations

the professional environment of the management accountant is influenced by two types of organizations: one that sets guidelines and regulations regarding management accounting practices and one that promotes the professionalism and competence of management accountants.

For strategic purposes, "stuck in the middle" refers to a strategy that is not likely to succeed because:

the strategy is not clearly either cost leadership or differentiation. the firm is not able to sustain a competitive advantage.

Effectively improving cycle time is a goal of:

the theory of constraints.

A useful tool to determine where costs can be reduced or which activities should be outsourced is:

the value chain

a method by which management develops policies and practices to ensure products and services exceed customer expectations is:

total quality management

contemporary management techniques that support process improvement include:

total quality management sustainability lean accounting

true or false: cost leaders only remain competitive as long as consumers view their products and services substantially equivalent to more expensive competitors.

true

business firms

type of organization that is usually categorized by industry. The main categories being merchandising, manufacturing, and service

Handling situations in which an ethical issue arises requires the management accountant to:

understand the firm's business strategy.

main focus of cost management information

usefulness and timeliness

activity based management

uses activity analysis and activity based costing to help managers improve the value of products and services and increase the organization's competitiveness.

Lean Accounting

uses value streams to measure the financial benefits of a firm's progress in implementing lean manufacturing. Lean accounting places the firm's products and services into value streams each of which is a group of related products and services.

An analysis tool organizations use to identify specific steps needed to provide a competitive product or service is called a:

value chain

a firm is likely to work hard at process improvement:

whether a cost leader or differentiator