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Ses. 1 Ses. 1 Presentation Transcript

  • Strategic Cost Management Professor William F. O’Brien, MBA, CPA Fall 2005
  • Session 1--Introduction
    • Strategic Cost Management
      • Quantitative
      • Strategic
      • Tactical
    This is the key point of today’s class…if not the entire course!!!
  • Strategic Cost Management
    • Strategic cost management is the development of cost management information to facilitate the principal management function--strategic management.
  • Financial Management Evolution DATA INFORMATION ANALYSIS IMPLEMENTATION Today’s Corporate Focus is on Results!
  • Managerial Accounting Model Plan Implement Monitor Adjust Accounting Information Communication Environment
  • Four Management Functions …another Perspective
    • Strategic Management
    • Planning and Decision Making
    • Management and Operational Control
    • F/S Preparation
    • How does SMA (Strategic Management Actg) impact each of these areas?
  • Factors Influencing Today’s Business Environment
    • Global competition
    • Manufacturing and IT advances
    • Customer focus
    • Revised organizational structures
    • Social, political and cultural changes
  • Contemporary Mgt. Techniques
    • Business partnering
    • Activity based costing and activity based management
    • Value chain analysis
    • Target costing
    • Lean production management accounting
    • EVA ®
    • Theory of constraints
    • Cost of quality analysis
    • Environmental costing
  • Ethics
    • Lack of ethics--everyone loses
    • Recent examples
      • Enron
      • WorldCom
      • Adelphia
      • Arthur Andersen
  • Ethics and You
    • You will face an ethical challenge
    • It could impact
      • Your job
      • Your family
      • Your relationships
      • Your financial stability
      • Your physical well-being
    • You have only ONE reputation...
  • Ansari: SMA
    • Strategic Triangle (QCT)
      • Competition based on quality, cost & Time
    • Attribute Triangle (TBC)
      • Impacts technical, behavioral & cultural aspects
    • Mgt. Acctg. Links Strategy with Action
      • It is not an end unto itself
      • It is an integrating tool
  • SMA, cont.
    • The two triangles are dependent upon each other
    • This process is a framework to ensure that our management accounting tools possess the attributes necessary to achieve our strategic goals
  • SMA, cont.
    • QCT Triangle
      • Self evident
    • TBC Triangle
      • Provides Technical insight
      • Encourages Behavioral changes
      • Supports Cultural beliefs
  • Cost Actg. Review
    • Cost…an economic sacrifice
    • Review these concepts on your own, we will discuss them on Sep. 28th
      • Common cost terminology
      • Manufacturing cost flows
      • Direct costing and contribution margin analysis
  • Critical Cost Terms
    • Fixed vs. Variable
    • Product vs. Period
    • Manufacturing vs. Non-manufacturing
    • Direct vs. Indirect
    • Controllable vs. Uncontrollable
    • Opportunity and Sunk Costs
    • Differential Cost and Revenue
    • Cost Drivers
  • Cost Drivers and Final Cost Objectives
    • Cost Drivers
      • Anything that causes a cost to occur
    • Final Cost Objective (FCO)
    • Generally used in conjunction with Activity Based Costing
  • Manufacturing Cost Flows BOH I O EOH RAW MATERIAL WORK-IN-PROCESS FINISHED GOODS B O/H R/M B O/H WIP B O/H F/G R/M PURCHASES TRANSFERS TO WIP E O/H R/M R/M TRANSFERS DIR. LABOR MFG OVERHEAD MANUFACTURING COSTS COST OF GOODS MANUFACTURED (COGM) E O/H WIP COGM COST OF GOODS SOLD (COGS) E O/H F/G P&L
  • Direct Costing
    • Also known as “Contribution Margin Format”
    • Direct costing  direct costs
    • P&L format:
      • Sales xxx
      • Variable costs - xxx
      • Contribution margin xxx
      • Fixed costs - xxx
      • Net income xxx
  • CVP Analysis
    • Uses
      • Revenue planning
      • Cost classification
      • Commission analysis
      • Volume and mix determination
      • ABC modifications
  • Break-even Analysis
    • Sales - variable costs = fixed costs
    • Contribution Margin Approach
      • FC/contribution margin ratio ($)
      • FC/unit contribution margin (units)
    • Equation Approach
      • (Unit SP)x - (unit VC)x = FC (units)
      • X - (VC%)x = FC ($)
    • CM approach is the easier to apply
  • Margin of Safety
    • Actual sales - B/E sales
    • Margin of safety percentage
      • Margin of safety/actual sales
  • Operating Leverage
    • CM/NI
    • Reflects the percentage increase in sales compared to the percentage increase in net income
    • High OL reflects high opportunity and high risk
  • Multiple Product Line Format
  • CVP Limitations
    • Relevant range assumption
    • Difficulty in cost determination
    • Allocations
      • The “Scarlet Letter” of accounting
  • Scarlet Letter of Accounting
    • Lacks Cost Mgt.
    • Error Prone
    • Distraction
  • Barbary Pirates Case
    • Historical and analytical relevance
    • Note the “spin”
    • Where are the strategic and tactical considerations?