Cost Management Chapter 1

Cost management information is developed and used within the organizations information value chain which include what 5 steps?
Stage 1- Business Events
Stage 2- Data
Stage 3- Cost Management Information
Stage 4- Knowledge
Stage 5- Decisions
Who does the management accountant report to?
The controller
Cost management information is provided for each of the four management functions which are
1. Strategic Management 2. Planning and decision making 3. Management and Operational control 4. Preparation of financial statements
Strategic Management
Development and implementation of a sustainable competitive position in which the firms competitive advantage provides continued success
Planning and Decision Making
Involves budgeting and profit planning, cash flow management, and other decisions related to operations
Management and Operational Control
Operational- mid level managers monitor activities of operating level managers and employees
Management- evaluation of mid to upper level managers
Preparation of Financial Statements
Requires management to comply with the financial reporting requirements of regulatory agencies
What 6 changes in the business environment has caused significant modifications in cost management practices?
1. Increased global competition 2. Lean Manufacturing 3. Advances in information technologies 4. Greater focus on customer 5. New forms of management organization 6. Changes in social, political, and cultural environment
Lean Manufacturing
the adaptation of just-in-time inventory methods to reduce the cost and waste of maintaining large levels of raw materials and unfinished product.
Critical Success Factors
are measures of those aspects of the firm’s performance that are essential to its competitive advantage and to the success
Balanced Scoreboard
An accounting report that includes the firms critical success factors in 4 areas: financial performance, customer satisfaction, internal processes, and learning and growth
Strategy Map
method based on scorecard that links the various perspectives in a cause-effect diagram
Value Chain
analysis tool firms use to identify the specific steps required to provide a product or service to customer
means the balancing of the company short and long term goals in all three dimensions of performance- social, environmental and financial
Activity based costing
Used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers
Activity based Management
Uses activity analysis and activity based costing to help managers improve the value of products and services and increase the organizations competitiveness
Total Quality Management
method by which management develops policies and practices to ensure that the firms products and services exceed customers expectations.
SWOT Analysis
Strengths Weaknesses Opportunities Threats
systematic procedure for identifying a firm’s critical success factors
What is the first step in implementing strategy?
To identify the critical success factors that the firm must focus on to be successful
Core competencies
Skills or competencies that the firm employs well
What are some examples of strengths and weaknesses within the firm?
Product Lines, Management, R&D, Operations, Marketing, Strategy
What are some examples of opportunities and threats outside of the firm?
Barriers to entry, Intensity of rivalry among competitors, pressure from substitute products, bargaining power of customers, bargaining power of suppliers
Value Chain Analysis
analysis tool used to better understand the firms competitive advantage, to identify where value to customers can be increased or cost reduced, and to better understand the firms linkages with suppliers, customers and other firms in the industry
What are the three phases for Value Chain
1. Upstream
2. Operations
3. Downstream
Upstream Phase of value chain
Product development and firms linkages with suppliers
Operations phase of value chain
Manufacturing operations/ operations involved in providing service
Downstream phase of value chain
Linkages with customers, including delivery, service, and other related activities
What are the 2 steps for value chain analysis
1. Identify value chain activities
2. Develop a competitive advantage by reducing cost or adding value
Cost leadership vs. Differentiation
Cost Leadership- Being the cheapest
Differentiation- having something unique and different
Management focus on making priorities and achieving CSF
Why is sustainability important to the balanced score card?
Climate change has increased commodity prices, and other factors, expectations for corporate social and environmental responsibility have increased significantly in recent years
Order of implementing strategy using tools
1. SWOT Analysis
2. Execution
3. Value Chain Analysis
4. Balanced Scorecard
5. Strategy Map
6. Sustainability
Business Process Improvement (BPI)
management method by which managers and workers commit to a program of continuous improvement in quality and other critical success factors
Theory of Constraints
help firms effectively improve the rate at which raw materials are converted to finished products (cycle time)
Life cycle costing
method used to identify and monitor the costs of a product throughout its life cycle. It consists of all steps from product design and purchase of raw materials to delivery and service of the finished product.
firm identifies its critical success factors, studies the best practices of other firms for achieving these critical success factors, and then implements improvements in the firms processes to match or beat the performance of those competitors.
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 product.
Theory of Constraints helps and identify and eliminate
Bottlenecks– places where partially completed products tend to accumulate as they wait to be processed in the production process
What is the contemporary management technique used by management accounting to respond to the changing business environment? Hint: 13
BSC, Value Chain, Activity based Costing and Management, Business Intelligence, Target Costing, Life Cycle Costing, Benchmarking, Business Process Improvement, Total Quality Management, Lean Accounting, Theory of Constraints, Enterprise Risk Management
3 dimensions of balancing sustainability in company’s performance
Economic, Social and environmental
5 steps used for strategic decision making
1. Identify alternative actions
2. Determine strategic issues surrounding problem
3. Choose and implement alternative
4. provide ongoing evaluation of effectiveness of implementation