CHAPTER 1
INTRODUCTION TO COST MANAGEMENT
DISCUSSION QUESTIONS
1. Cost management is concerned with assign- It has also fostered the implementation and
ing costs and using information for planning, use of more sophisticated accounting sys-
controlling, continuous improvement, and tems such as activity-based costing. Custom-
decision making. It encompasses cost er orientation, new product development, total
accounting and management accounting but quality management, time as a competitive
has a broader focus than the usual roles as- factor, and efficiency require the accountant
signed to cost accounting and management to create and track financial and nonfinancial
accounting. Cost accounting is concerned measures of customer satisfaction, quality
with assigning costs to various cost objects improvement, responsiveness, cycle time,
such as products, services, and activities. target costs, cost, and productivity. Advances
Cost management broadens this focus by in the manufacturing environment are charac-
emphasizing accuracy of assignments terized by practices such as the theory of
based on causal relationships. Management constraints, just-in-time, and automation.
accounting is concerned with planning, These changes are affecting such practices
controlling, and decision making. Cost man- as inventory management and product cost-
agement broadens this focus by emphasiz- ing.
ing continuous improvement and expanding
4. A flexible manufacturing system is a com-
planning, control, and decision making to in-
puterized system that allows different prod-
clude such factors as processes, value
uct lines to be manufactured on the same
chain, life cycle analyses, strategic consid-
equipment. The equipment can be reconfig-
erations, and environmental costs.
ured simply by calling up different programs.
2. Cost management differs from financial
5. The controller is responsible for both internal
accounting in the following major ways: (1) an
and external accounting. These responsibili-
internal focus, (2) an emphasis on the future,
ties usually include such diverse activities as
(3) freedom from GAAP and other mandatory
taxes, SEC reports, cost accounting, budget-
rules, (4) a multidisciplinary scope, (5) an
ing, internal auditing, financial accounting,
evaluation of individual segments within the
and systems accounting.
firm, and (6) the provision of more detailed
information. 6. A line position has direct responsibility for
carrying out the basic missions of an organi-
3. Factors affecting the focus and practice of
zation. A staff position has indirect responsi-
cost management are global competition,
bilities for the basic missions and provides a
service industry growth, advances in infor-
supportive role for line activities.
mation technology, advances in the manu-
facturing environment, customer orientation, 7. For most organizations, the controller should
new product development, total quality man- be a member of the top management staff.
agement, time as a competitive factor, and The controller is the financial expert of an
efficiency. Global competition means that organization and can provide critical advice
companies are now competing with the best and insight. Furthermore, the current ten-
of the best. Accurate, timely, and relevant dency of having a cross-functional manage-
accounting data are crucial in appropriately ment team increases the likelihood that the
managing costs. Service industry growth has controller will be included as part of the
led to the need for increased management management staff.
accounting information to improve produc-
tivity and quality. The advances in infor- 8. Planning establishes performance stand-
mation technology have led to the creation of ards, feedback compares actual perfor-
integrated relational databases that allow a mance with planned performance, and
variety of users to develop their own reports control uses feedback to evaluate deviations
based on their particular needs. from plans.
, 9. Cost management has the role of providing 13. Yes. As management accountants become
information to help identify opportunities for more informed about what behavior is ac-
improvement and also provides an evalua- ceptable and what is not, support should in-
tion of the progress made in implementing crease for ethical behavior. The code also
the actions designed to create improvement. recommends solutions to ethical dilemmas
10. Performance reports compare actual costs that might not have been obvious to the
and revenues with planned costs and reve- practicing management accountant.
nues and thus provide signals to managers 14. The three forms of certification are the CMA,
that allow them to take corrective actions. the CPA, and the CIA certificates. Although
11. Business ethics is concerned with making each certification can prove to be valuable
the right choices and usually involves sacri- for management accountants, the CMA des-
ficing individual self-interest for the well- ignation is tailored to fit the needs of man-
being of others. It is possible to teach ethical agement accountants. The CPA designation
behavior in virtually any course. By intro- has a public accounting orientation, and the
ducing ethical dilemmas in management ac- CIA designation has an internal auditing
counting, students can become aware of the orientation. Only the CMA designation spe-
behavior that is expected in the business cifically addresses the professional require-
world and, in particular, for management ac- ments of a management accountant.
countants. 15. The two parts are (1) financial planning and
12. Yes. There is some evidence that ethical control; (2) financial decision making. The
behavior actually is good business. It im- parts reveal the emphasis on managerial
proves society, helps align individual goals use of accounting information and imply the
with firm goals, enhances a firm’s public im- interdisciplinary nature of management
age, and even seems to be related to better accounting.
financial performance. The market and con-
sumers appreciate ethical behavior and are
willing to reward those who adopt it.
INTRODUCTION TO COST MANAGEMENT
DISCUSSION QUESTIONS
1. Cost management is concerned with assign- It has also fostered the implementation and
ing costs and using information for planning, use of more sophisticated accounting sys-
controlling, continuous improvement, and tems such as activity-based costing. Custom-
decision making. It encompasses cost er orientation, new product development, total
accounting and management accounting but quality management, time as a competitive
has a broader focus than the usual roles as- factor, and efficiency require the accountant
signed to cost accounting and management to create and track financial and nonfinancial
accounting. Cost accounting is concerned measures of customer satisfaction, quality
with assigning costs to various cost objects improvement, responsiveness, cycle time,
such as products, services, and activities. target costs, cost, and productivity. Advances
Cost management broadens this focus by in the manufacturing environment are charac-
emphasizing accuracy of assignments terized by practices such as the theory of
based on causal relationships. Management constraints, just-in-time, and automation.
accounting is concerned with planning, These changes are affecting such practices
controlling, and decision making. Cost man- as inventory management and product cost-
agement broadens this focus by emphasiz- ing.
ing continuous improvement and expanding
4. A flexible manufacturing system is a com-
planning, control, and decision making to in-
puterized system that allows different prod-
clude such factors as processes, value
uct lines to be manufactured on the same
chain, life cycle analyses, strategic consid-
equipment. The equipment can be reconfig-
erations, and environmental costs.
ured simply by calling up different programs.
2. Cost management differs from financial
5. The controller is responsible for both internal
accounting in the following major ways: (1) an
and external accounting. These responsibili-
internal focus, (2) an emphasis on the future,
ties usually include such diverse activities as
(3) freedom from GAAP and other mandatory
taxes, SEC reports, cost accounting, budget-
rules, (4) a multidisciplinary scope, (5) an
ing, internal auditing, financial accounting,
evaluation of individual segments within the
and systems accounting.
firm, and (6) the provision of more detailed
information. 6. A line position has direct responsibility for
carrying out the basic missions of an organi-
3. Factors affecting the focus and practice of
zation. A staff position has indirect responsi-
cost management are global competition,
bilities for the basic missions and provides a
service industry growth, advances in infor-
supportive role for line activities.
mation technology, advances in the manu-
facturing environment, customer orientation, 7. For most organizations, the controller should
new product development, total quality man- be a member of the top management staff.
agement, time as a competitive factor, and The controller is the financial expert of an
efficiency. Global competition means that organization and can provide critical advice
companies are now competing with the best and insight. Furthermore, the current ten-
of the best. Accurate, timely, and relevant dency of having a cross-functional manage-
accounting data are crucial in appropriately ment team increases the likelihood that the
managing costs. Service industry growth has controller will be included as part of the
led to the need for increased management management staff.
accounting information to improve produc-
tivity and quality. The advances in infor- 8. Planning establishes performance stand-
mation technology have led to the creation of ards, feedback compares actual perfor-
integrated relational databases that allow a mance with planned performance, and
variety of users to develop their own reports control uses feedback to evaluate deviations
based on their particular needs. from plans.
, 9. Cost management has the role of providing 13. Yes. As management accountants become
information to help identify opportunities for more informed about what behavior is ac-
improvement and also provides an evalua- ceptable and what is not, support should in-
tion of the progress made in implementing crease for ethical behavior. The code also
the actions designed to create improvement. recommends solutions to ethical dilemmas
10. Performance reports compare actual costs that might not have been obvious to the
and revenues with planned costs and reve- practicing management accountant.
nues and thus provide signals to managers 14. The three forms of certification are the CMA,
that allow them to take corrective actions. the CPA, and the CIA certificates. Although
11. Business ethics is concerned with making each certification can prove to be valuable
the right choices and usually involves sacri- for management accountants, the CMA des-
ficing individual self-interest for the well- ignation is tailored to fit the needs of man-
being of others. It is possible to teach ethical agement accountants. The CPA designation
behavior in virtually any course. By intro- has a public accounting orientation, and the
ducing ethical dilemmas in management ac- CIA designation has an internal auditing
counting, students can become aware of the orientation. Only the CMA designation spe-
behavior that is expected in the business cifically addresses the professional require-
world and, in particular, for management ac- ments of a management accountant.
countants. 15. The two parts are (1) financial planning and
12. Yes. There is some evidence that ethical control; (2) financial decision making. The
behavior actually is good business. It im- parts reveal the emphasis on managerial
proves society, helps align individual goals use of accounting information and imply the
with firm goals, enhances a firm’s public im- interdisciplinary nature of management
age, and even seems to be related to better accounting.
financial performance. The market and con-
sumers appreciate ethical behavior and are
willing to reward those who adopt it.
