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© The McGraw-Hill Companies, Inc., 2002

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    • 1. Cost Management A Strategic Emphasis 2nd edition by Edward J. Blocher Kung H. Chen Thomas W. Lin
    • 2. Cost Management An Overview
    • 3. The Uses of Cost Management Information Information managers need to effectively manage an organization. Financial information about costs and revenues. Nonfinancial information about productivity and quality.
    • 4. A Typical Organization Chart Slide 1-3 Chief Financial Officer Chief Executive Officer Vice President for Marketing Vice President for Operations Controller Treasurer Chief Information Officer Cost Management Financial Systems Financial Reporting Other Reporting Obligations
    • 5. Four Functions of Management Strategic management Planning and decision making Management and operational control Preparation of financial statements STRATEGIC MANAGEMENT IS THE MOST IMPORTANT.
    • 6. Four Functions of Management Strategic management Planning and decision making Management and operational control Preparation of financial statements Identification and implementation of specific goals and objectives that provide a competitive advantage.
    • 7. Four Functions of Management Strategic management Planning and decision making Management and operational control Preparation of financial statements Budgeting and profit planning, cash flow management, lease or buy decisions, repair or replace decisions, product development decisions, and marketing decisions
    • 8. Four Functions of Management Strategic management Planning and decision making Management and operational control Preparation of financial statements Monitoring the activities at all levels to insure that goals and objectives are achieved.
    • 9. Four Functions of Management Strategic management Planning and decision making Management and operational control Preparation of financial statements Compliance with reporting requirements of groups such as the FASB, IRS, SEC.
    • 10. Strategic Management and Strategic Cost Management
      • Strategic management requires:
      • Anticipating changes.
      • Understanding the business and competitive environment.
      • Ability to make changes quickly.
      • Ability to identify and solve problems from a cross-functional view.
      Strategic cost management is the development of cost management information to facilitate strategic management.
    • 11. Types of Organizations Merchandisers Manufacturers Service firms Government and Not-for-profit Wholesalers Retailers
    • 12. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies
    • 13. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies Better cost management information is needed to remain competitive.
    • 14. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies
      • Just-in-time inventory
      • Quality improvements
      • Flexible manufacturing
      • Increased facilities costs relative to costs of labor and material
    • 15. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies
      • Computerization
      • Specialized software
      • Internet
      • E-commerce
      • Telecommunications
    • 16. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies Changing emphasis from low-cost production of large quantities to quality, service, timely delivery, response to customer requests for specific features.
    • 17. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies Change from command-and-control organization to a flexible form that encourages teamwork and coordination across functions.
    • 18. Contemporary Business Environment Increased global competition Advances in manufacturing technologies New forms of management organization Social, political, and cultural changes Focus on the customer Advances in information technologies
      • Ethnically and racially diverse workforce
      • Renewed sense of ethical responsibility
      • Government deregulation of business
    • 19. Manufacturing Business Environment Comparison
    • 20. Business Environment Comparison Basis of Economies of scale, Quality, Competition standardization functionality, customer satisfaction Manufacturing H igh value, long Low volume, short Process production runs, production run, focus significant levels of on reducing inventory in-process and levels and other non- finished inventory value added activities and costs Prior Business Contemporary Environment Business Environment
    • 21. Manufacturing Assembly-line Robotics, flexible Technology automation, isolated manufacturing technology systems, integrated applications technology applications connected by network Required Machine paced, Individual and team Labor Skills low-level skills paced, high-level skills Prior Business Contemporary Environment Business Environment Business Environment Comparison
    • 22. Emphasis on Acceptance of a Strive for zero Quality normal or usual defects amount of waste Prior Business Contemporary Environment Business Environment Business Environment Comparison
    • 23. Marketing Business Environment Comparison
    • 24. Products Relatively few Large number of variations, long variations, short product life cycles product life cycles Markets Largely domestic Global Prior Business Contemporary Environment Business Environment Business Environment Comparison
    • 25. Management Organization Business Environment Comparison
    • 26. Type of Almost exclusively Financial and Information financial data operating data, the Recorded and firm’s strategic Reported success factors Management Hierarchical, Network-based Organizational command and organization, teamwork Structure control focus – employee has more responsibility and control, coaching rather than command and control Prior Business Contemporary Environment Business Environment Business Environment Comparison
    • 27. Management Emphasis on the Emphasis on the long Focus short term, short- term, focus on critical term performance success factors, measures and commitment compensation, to the long-term concern for success of the sustaining the firm, including adding current stock price, shareholder value short tenure and high mobility of top managers Business Environment Comparison Prior Business Contemporary Environment Business Environment
    • 28. Four Stages in the Development of Cost Management Systems
      • Basic transaction recording systems.
      • Focus on external reporting.
      • Track key operating data and develop more accurate and relevant cost information for decision making.
      • Strategically relevant cost management information is an integral part of the system.
    • 29. Benchmarking
        • Identify an activity that needs to be improved.
        • Find an organization that is the most efficient at this activity.
        • Study its process, and utilize that process.
      a Benchm rking
    • 30. Total Quality Management Do we need to change the plan? Where are we? Where do we want to go? How do we start? How are we doing? Do Check Plan Act is Benchmarking Continuous Improvement
    • 31. Activity-Based Costing and Management
      • A product costing method that is useful in industries where overhead is high relative to other costs.
      • Activity-based costing assigns costs to products based on several different activities whereas traditional costing methods only assign costs to products on one or two different departments or allocation bases.
      ABC
    • 32. Activity-Based Costing and Management
      • A product costing method that is useful in industries where overhead is high relative to other costs.
      ABC Traditional method Products Products Allocation Bases “ cost drivers”
    • 33. Reengineering
      • The process is redesigned to include only those steps that make our product more valuable.
      • Every step in the business process must be justified.
      • A business process is diagrammed in detail.
    • 34. Reengineering
      • Anticipated results:
      • Process is simplified.
      • Process is completed in less time.
      • Costs are reduced.
      • Opportunities for errors are reduced.
      • The process is redesigned to include only those steps that make our product more valuable.
      • Every step in the business process must be justified.
      • A business process is diagrammed in detail.
    • 35. Theory of Constraints
      • A sequential process of identifying and removing constraints in a system.
      Restrictions or barriers that impede progress toward an objective
    • 36. Mass Customization Marketing and production processes are designed to meet each customer’s specific needs.
    • 37. Target Costing Identify product opportunity. Determine price that would make product competitive. Determine if product can be made at cost sufficiently low to provide a desired profit.
    • 38. Life-Cycle Costing
      • Identify and monitor costs throughout a product’s life cycle
        • Research and Development costs
        • Product design and testing costs
        • Manufacturing, inspecting, packaging and warehousing costs
        • Marketing, promotion, and distribution costs
        • Sales and service costs
    • 39. The Balanced Scorecard Management translates its strategy into performance measures that employees understand and accept. Performance measures Financial Customer satisfaction Innovation and learning Internal business processes
    • 40. The Balanced Scorecard How do we look to the owners? How can we continually innovate and learn? In which internal business processes must we excel? How do we look to customers?
    • 41. The Balanced Scorecard Learning improves business processes. Improved business processes improve customer satisfaction. Improving customer satisfaction improves financial results.
    • 42. IMA Code of Ethics for Management Accountants
      • Competence
      • Confidentiality
      • Integrity
      • Objectivity
    • 43. IMA Code of Ethics for Management Accountants Follow applicable laws, regulations and standards. Prepare complete and clear reports after appropriate analysis. Maintain professional competence. Competence
    • 44. IMA Code of Ethics for Management Accountants Do not disclose confidential information unless legally obligated to do so. Ensure that subordinates do not disclose confidential information. Do not use confidential information for personal advantage. Confidentiality
    • 45. IMA Code of Ethics for Management Accountants Avoid conflicts of interest and advise others of potential conflicts. Recognize and communicate personal and professional limitations. Do not subvert organization’s legitimate objectives. Integrity
    • 46. IMA Code of Ethics for Management Accountants Integrity Avoid activities that could affect your ability to perform duties. Communicate unfavorable as well as favorable information. Refrain from activities that could discredit the profession. Refuse gifts or favors that might influence behavior.
    • 47. IMA Code of Ethics for Management Accountants Communicate information fairly and objectively. Disclose all information that might be useful to management. Objectivity
    • 48. End of Chapter 1

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