Chaper 1 Flashcards
Management accounting
Management accounting:
- provides information to internal decision makers of the business such as top executives, managers, sales representatives, and production supervisors.
- Its purpose is to help managers predict and evaluate future results.
- Reports are generated often and usually broken down into smaller reporting divisions such as department or product line.
- There are no rules to be complied with since these reports are for internal use only.
- Management accounting embraces more extensively such topics as the development and implementation of strategies and policies, budgeting, special studies and forecasts, influence on employee behavior, and nonfinancial as well as financial information.
Financial accounting
Financial accounting, by contrast, provides information to external decision makers such as investors and creditors.
- Its purpose is to present a fair picture of the financial condition of the company.
- Reports are generated quarterly or annually and report on the company as a whole.
- The financial statements must comply with GAAP (generally accepted accounting principles). A CPA audits, or verifies, that the GAAP are being followed.
Cost accounting
is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization.
Cost management
is describe the activities managers undertake to use resources in a way that increases a product’s value to customers and achieves an organization’s goals.
calculating the cost of a product is a cost accounting function that meets both the financial accountant’s inventory-valuation needs and the management accountant’s decision-making needs (such as deciding how to price products and choosing which products to promote).
Cost management
is describe the activities managers undertake to use resources in a way that increases a product’s value to customers and achieves an organization’s goals.
In other words, cost management is not only about reducing costs. Cost management also includes making decisions to incur additional costs—for example, to improve customer satisfaction and quality and to develop new products—with the goal of enhancing revenues and profits. Whether or not to enter new markets, implement new organizational processes, and change product designs are also cost management decisions.
Objectives of cost accounting
Measuring the product or service cost (cost for each item that used in the production process)
Contribute in the product pricing process (pricing product and even guide to reduce selling price to increase sales and profit)
Measuring the actual performance by more details (preparing the cost statement)
Helping management in planning and preparing budgets
Helping management to control costing items (variances analysis)
Helping management in decision making (e.g., pricing decision, purchase or produce, selling by 10 and cost was 12???
Strategy
specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives
Strategic cost management
focuses specifically on the cost dimension within a firm’s overall strategy
Two main strategies
Businesses follow one of two broad strategies. Some companies, such as Southwest Airlines, follow a cost leadership strategy. They have been profitable and have grown over the years by providing quality products or services at low prices and by judiciously managing their costs. Other companies such as Apple follow a product differentiation strategy. They generate their profits and growth because they offer differentiated or unique products or services that appeal to their customers and are often priced higher than the less-popular products or services of their competitors.
Value chain
Value chain is the sequence of business functions in which customer usefulness is added to products or services. The Value chain consists of R&D, Design, Production, Marketing, Distribution, Customer survice
Key Success Factors
The dimensions of performance that customers expect, and that are key to the success of a company include:
Cost and efficiency
Quality
Time
Innovation
Sustainability
Research & development (R&D):
generating and experimenting with ideas related to new products, services, or processes.
Design
detailed planning, engineering, and testing of products and processes
Production
procuring, transporting, and storing and coordinating and assembling resources to produce a product or deliver a service
Marketing
promoting and selling products or services to customers or prospective customers
Distribution
processing orders and shipping products or services to customers
Customer service
providing after-sales service to customers
Cost and efficiency
Companies face continuous pressure to reduce the cost of the products they sell. To calculate and manage the cost, managers must first understand the activities (such as setting up machines or distributing products) that cause costs to arise and monitor the marketplace to determine the prices customers are willing to pay for products or services.
Management accounting information helps managers calculate a target cost for a product by subtracting from the “target price”. To achieve the target cost, managers eliminate some activities as rework and reduce the costs of performing activities in all value-chain functions—from initial R&D to customer service. Many U.S. companies have cut costs by outsourcing some of their business functions. Nike has moved its manufacturing operations to China and Mexico, and Microsoft and IBM are increasingly doing their software development in Spain, Eastern Europe, and India.
Quality
Customers expect high levels of quality. Total quality management (TQM) is an integrative philosophy of management for continuously improving the quality of products and processes. Managers who implement TQM believe that each and every person in the value chain is responsible for delivering products and services that exceed customers’ expectations. Using TQM, companies design products or services to meet customer needs and wants, to make these products with zero defects and waste, and to minimize inventories. Managers use management accounting information to evaluate the costs and revenue benefits of TQM initiatives.
Time
New-product development time is the time it takes for companies to create new products. The increasing pace of technological innovation has led to shorter product life cycles and more rapid introduction of new products. To make new-product development decisions, managers need to understand the costs and benefits of a product over its life cycle.
Customer-response time describes the speed at which an organization responds to customer requests. To increase the satisfaction of their customers, organizations need to meet their promised delivery dates and reduce their delivery times. To deliver the product on time, managers need to increase the capacity of the machine to produce more output. Management accounting information can help managers quantify the costs and benefits of doing so.
Innovation
A constant flow of innovative products or services is the basis for the ongoing success of a company. Managers rely on management accounting information to evaluate alternative investment and R&D decisions.
