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The Islamic University of Gaza. Cost Accounting. CHAPTER 1 Introduction Dr. Hisham Madi. Main references Supporting the Course. Horngren , HT., Datar , S.M. and Rajan , M (2012). Cost Accounting A Managerial Emphasis (14 th ) Prentic Hall.
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The Islamic University of Gaza Cost Accounting CHAPTER 1 Introduction Dr. HishamMadi
Main references Supporting the Course • Horngren, HT., Datar, S.M. and Rajan, M (2012). Cost Accounting A Managerial Emphasis (14th) Prentic Hall. • Charles T. Horngren, George Foster, AlnoorBhimani, and Srikant M. Datar,Management and Cost Accounting, 3rd ed., Prentice Hall, 2005. • Michael W. Maher, Madhav V. Rajan, and William N. Laner, Fundamentals of Cost Accounting, Mcgraw – Hill, 2006
Assessment Methods and Types Assignment 10 Marks Attendance 5 Marks Quiz 10 Marks Midterm Test 25 marks Final Examination 50 Marks
Financial, Management and Cost Accounting • Accounting systems process economic events and transactions into information helpful to managers • Processing any economic transaction means collecting, categorizing, summarizing, and analyzing • Accounting systems provide information found in the financial statements as well as in internal performance reports. • Financial accounting—focuses on reporting to external users including investors, creditors, banks, suppliers, and governmental agencies. Financial statements must be based on GAAP
Management Accounting • Management accounting—measures, analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. • Managers use management accounting information to • Develop, communicate, and implement strategies • Coordinate product design, production, and marketing decisions and evaluate a company’s performance
Cost Accounting • Cost accounting provides information for both management accounting and financial accounting professionals. • 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 Accounting For example, • Calculating the cost of a product is a cost accounting function that meets both the financial accountant’s inventory-valuation needsand the management accountant’s decision-making needs (such as deciding how to price products and choosing which products to promote
Major differences between management and financial accounting
Strategy and Management Accounting • Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace. • There are two broad strategies: cost leadership or product differentiation • Strategic cost management—describes cost management that specifically focuses on strategic issues.
Strategy and Management Accounting • Management accounting helps answer important questions such as: • Who are our most important customers, and how can we be competitive and deliver value to them? • What substitute products exist in the marketplace, and how do they differ from our own? • What is our most critical capability? • Will adequate cash be available to fund the strategy or will additional funds need to be raised?
Management Accounting and Value • Creating value is an important part of planning and implementing strategy. • Value is the usefulness a customer gains from a company’s product or service. The entire customer experience determines the value a customer derives from a product.
Management Accounting and Value • The Value chain is the sequence of business functions in which a product is made progressively more useful to customers. • The Value chain consists of: • Research & development (Generating and experimenting with ideas related to new products, services, or processes) • Design of Products and Processes (Detailed planning, engineering, and testing of products and processes) • Production • Marketing (Promoting and selling products or services to customers or prospective customers) • Distribution (Processing orders and shipping products or services to customers) • Customer service
Management Accounting and Value • Customer service (Providing after-sales service to customers)
Key Success Factors • Customers want companies to use the value chain and supply chain to deliver ever-improving levels of performance when it comes to several (or even all) of the following: • Cost and efficiency: Companies face continuous pressure to reduce the cost of the products they sell. • Quality: Customers expect high levels of quality. Total quality management (TQM) aims to improve operations throughout the value chain and to deliver products and services that exceed customer expectations • Time: New-product, Customer-response time • Innovation: A constant flow of innovative products or services is the basis for ongoing company success • Sustainability: the development and implementation of strategies to achieve long-term financial, social, and environmental performance.
A Five-Step Decision Making Process in Planning and Control Identify the problem and uncertainties. Obtain information; Gathering information before making a decision helps managers Make predictions about the future. Make decisions by choosing between alternatives; When making decisions, strategy is a vital guidepost; many individuals in different parts of the organization at different times make decisions. Implement the decision, evaluate performance, and learn.
Management Accounting Guidelines • Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies: • Cost–benefit approach: • benefits of an action/purchase generally must exceed costs as a basic decision rule. • Managers rely on management accounting information to quantify expected benefits and expected costs although all benefits and costs are not easy to quantify
Management Accounting Guidelines Behavioral and technical considerations: people are involved in decisions, not just dollars and cents. Different Costs for Different Purposes: Managers use alternative ways to compute costs in different decision-making situations
A Typical Organizational Structure and the Management Accountant