Chapter 1: Cost Accounting: Information for Decision Making

Cost Accounting:Information for Decision MakingChapter 1Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinValue Chain– Value added activities– Non value added activities The Value Chain describes a set of activities that transforms raw materials and resources into the goods and services end users purchase and consume.L.O. 1 Describe the way managers use accounting information to create value in organizations.1 - *The Value Chain ComponentsProductionLO11 - *Accounting SystemsFinancialaccountingFinancialposition andincomeReportsCostaccountingInformationabout costsReportsL.O. 2 Distinguish between the uses and users of cost accounting and financial accounting information. 1 - *Managerial Decisions Individuals make decisions. Decisions determine the performance of the organization. Managers use information from the accounting system to make decisions. Owners evaluate organizational and managerial performance with accounting information.L.O. 3 Explain how cost accounting information is used for decision making and performance evaluation in organizations.1 - *Costs for Decision Making Carmen’s Cookies has been making and selling cookies through a small store downtown. One of her customers suggests that she expand operations and sell to wholesalers and retailers. Should Carmen expand operations?LO31 - *Carmen’s Cost DriversDriverCostRentInsuranceLaborIngredientsNumber of cookiesLO31 - *Differential Costs, Revenues, and ProfitsSales revenueCosts: Food Labor Utilities Rent OtherTotal costsOperating profits$6,300 1,800 1,000 400 1,250 1,000$5,450$ 850$8,505a 2,700b 1,500b 600b 1,250 1,200c$7,250$1,255$2,205 900 500 200 -0- 200$1,800$ 405(1) Status QuoOriginal ShopSales Only(2) AlternativeWholesale & RetailDistribution(3) DifferenceCarmen’s CookiesProjected Income Statement for One Week(a) 35 percent higher than status quo(b) 50 percent higher than status quo(c) 20 percent higher than status quoLO31 - *Responsibility Centers,Revenues, and CostsCarmen DiazPresidentRay AdamsVice-PresidentRetail OperationsCathy PetersonVice-PresidentWholesale OperationsLO31 - *Responsibility Centers, Revenues, and CostsCarmen’s CookiesIncome Statement For the Month Ending April 30Sales revenueDepartment costs: Food Labora Utilities RentTotal department costsCenter marginbGeneral and admin. costs: General manager’s salaryc Other (administrative)Total general and admin. costsOperating profit$28,400 13,500 4,500 1,800 5,000$24,800$ 3,600$23,600 9,800 3,200 2,100 2,500$17,600$ 6,000$52,000 23,300 7,700 3,900 7,500$42,400$ 9,600 5,000 3,200$ 8,200$ 1,400RetailOperationsWholesaleOperationsTotal(a) Includes department managers’ salaries but excludes Carmen’s salary(b) The difference between revenues and costs attributable to a responsibility center(c) Carmen’s salaryLO31 - *Responsibility Centers, Revenues, and CostsCarmen’s CookiesRetail Responsibility CenterBudgeted versus Actual CostsFor the Month Ending April 30Food: Flour Eggs Chocolate Nuts OtherTotal foodLabor: Manager OtherTotal laborUtilitiesRentTotal cookie costsNumber of cookies sold$ 2,100 5,200 2,000 2,000 2,200$13,500 3,000 1,500$ 4,500 1,800 5,000$24,800 32,000$ 2,200 4,700 1,900 1,900 2,200$12,900 3,000 1,500$ 4,500 1,800 5,000$24,200 32,000$ (100) 500 100 100 -0- $ 600 -0- -0- $ -0- -0- -0- $ 600 -0-ActualBudgetDifferenceLO31 - *Trends in Cost Accounting Research and development Design Purchasing Production Marketing Distribution Customer service8. ERP – Enterprise resource planning9. Creating value in the organizationL.O. 4 Identify current trends in cost accounting.1 - *Enterprise Resource Planning Information technology linking various processes of the enterprise into a single comprehensive information systemTechnologyPurchasingHuman ResourcesMarketingProductionFinanceLO41 - *Ethical Issues for Accountants The design of the cost accounting system has the potential to be misused to defraud customers, employees, or shareholders.L.O. 5 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.1 - *Sarbanes-Oxley Act of 2002What is theintent?Who isimpacted?How arecorporationsimpacted?Address problemof corporategovernanceAccounting firmsandcorporationsCorporateresponsibilityLO51 - *Appendix 1Institute of Management Accountants’ (IMA)Code of Ethics: StandardsCompetenceConfidentialityIntegrityCredibility1 - *End of Chapter 1Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin