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  • 1. Strategic Cost Management Professor William F. O’Brien, MBA, CPA Fall 2004
  • 2. Session 1A--Introduction & Cost Accounting Review
    • Cost Management
      • Financial
      • Non-Financial
  • 3. Financial Management Evolution DATA INFORMATION ANALYSIS IMPLEMENTATION Today’s Corporate Focus is on Results!
  • 4. Company F/S Users Economic Decisions Financial Impact (useful & relevant) Financial Accounting Model
  • 5. Managerial Accounting Model Plan Implement Monitor Adjust Accounting Information Communication Environment
  • 6. Four Management Functions …another Perspective
    • Strategic Management
    • Planning and Decision Making
    • Management and Operational Control
    • F/S Preparation
    • How is Cost Management Info Used?
  • 7. Factors Influencing Today’s Business Environment
    • Global competition
    • Manufacturing and IT advances
    • Customer focus
    • Revised organizational structures
    • Social, political and cultural changes
  • 8. Contemporary Mgt. Techniques
    • Benchmarking
    • Total Quality Management (TQM)
    • Continuous Improvement
    • Activity-Based Costing (ABC) and Mgt. (ABM)
    • Reengineering
    • Theory of Constraints (TOC)
    • Mass Customization
    • Target Costing
    • Life-cycle Costing
    • The Balanced Scorecard
  • 9. Ethics
    • Lack of ethics--everyone loses
    • Recent examples
      • Enron
      • WorldCom
      • Adelphia
      • Arthur Andersen
  • 10. 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...
  • 11. Cost Actg. Review
    • Cost…an economic sacrifice
  • 12. 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
  • 13. 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
  • 14. 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
  • 15. 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
  • 16. CVP Analysis
    • Uses
      • Revenue planning
      • Cost classification
      • Commission analysis
      • Volume and mix determination
      • ABC modifications
  • 17. 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
  • 18. Margin of Safety
    • Actual sales - B/E sales
    • Margin of safety percentage
      • Margin of safety/actual sales
  • 19. 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
  • 20. Multiple Product Line Format
  • 21. Behavioral Issues
    • Risk aversion bias
    • Uncertainty
  • 22. CVP Limitations
    • Relevant range assumption
    • Difficulty in cost determination
    • Allocations
      • The “Scarlet Letter” of accounting
  • 23. Scarlet Letter of Accounting
    • Lacks Cost Mgt.
    • Error Prone
    • Distraction
  • 24. Session 1B--Strategic Cost Management & the Organizational Role of Management Accountants
  • 25. Strategic Cost Management
    • Strategic cost management is the development of cost management information to facilitate the principal management function--strategic management.
  • 26. Ansari: SMA
    • Strategic Triangle (QCT)
      • Competition based on quality, cost & Time
    • Mgt. Acctg. 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
  • 27. 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
  • 28. SMA, cont.
    • QCT Triangle
      • Self evident
    • TBC Triangle
      • Provides Technical insight
      • Encourages Behavioral changes
      • Supports Cultural beliefs
  • 29. Accounting Business Skills “The What”
    • Business Perspective
    • Organizational Focus
    • Bias for Action
    • Communication Excellence
    • People Proficiency
  • 30. Financial Management Guidelines “The How”
    • C c: communication versus control
    • KTT: know the territory
    • MBWA: manage by wandering around
    • R ƒ R 3: respect is a function of...
      • responsiveness
      • reliability
      • relevance