To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER INTRODUCTION TO COST ACCOUNTING Learning Objectives After completing this chapter, you should be able to answer the following questions: What are the relationships among financial, management, and cost accounting? What are the sources of authoritative pronouncements for the practice of cost accounting? What are the sources of ethical standards for cost accountants? What is a mission statement, and why is it important to organizational strategy? What must accountants understand about an organization’s structure and business environment to perform effectively in that organization? What is a value chain, and what are the major value chain functions? How is a balanced scorecard used to implement an organization’s strategy? Why is ethical behavior so important in organizations? ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM Terminology Authority: The right (usually by virtue of position or rank) to use resources to accomplish a task or achieve an objective Balanced scorecard: A framework that restates an organization’s strategy into clear and objective performance measures focused on customers, internal business processes, employees, and shareholders Competence: Professional ethics standard that requires professionals to develop and maintain the skills needed to practice their profession Confidentiality: Professional ethics standard that requires professionals to refrain from disclosing company information to inappropriate parties (such as competitors) Core competency: Any critical function or activity in which an organization seeks a higher proficiency than its competitors, making it the root of competitiveness and competitive advantage Cost accounting: A discipline that addresses the demands of both financial and management accounting by providing product cost information to (1) external parties (stockholders, creditors, and various regulatory bodies) for investment and credit decisions and (2) internal managers who are responsible for planning, controlling, decision making, and evaluation of performance Cost leadership: A company’s ability to maintain its competitive advantage by undercutting competitor prices Credibility: Professional ethics standard that requires individuals to provide full, fair, and timely disclosure of all relevant information in a given situation Customer value perspective: The balanced scorecard perspective that addresses how well the organization is doing relative to important customer criteria such as speed (lead time), quality, service, and price (both purchase and after purchase) Downstream cost: Costs such as marketing, distribution, and customer service which are typically incurred after production of the product as opposed to upstream costs of research and development and product design Earnings management: The act of using accounting methods or practices to deliberately “adjust” a company’s profit amount to meet a predetermined internal or external target Environmental constraint: any limitation caused by external cultural, fiscal (such as taxation structures), legal/regulatory, or political situations and by the competitive market structures that cannot be directly controlled by management Financial performance perspective: The balanced scorecard perspective that addresses the concerns of stockholders and other stakeholders about profitability and organizational growth Integrity: Professional ethics standard that prohibits individuals from participating in activities that would discredit their company or profession Intellectual capital: All of the intangible assets contained in an organization, including knowledge, skills, and information that are used to create ideas for products and services, to train and develop employees, and to attract and retain customers ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM Internal business perspective: The balanced scorecard perspective that addresses those things that the organization needs to well to meet customer needs and expectations Lag indicator: Historical financial data or other outcomes resulting from past actions, such as installing a new production process or implementing a new software system Lead indicator: Future financial and non-financial outcomes including opportunities and problems that help an organization assess strategic progress and guide decision making before lag indicators are known Learning and growth perspective: The balanced scorecard perspective that focuses on using the organization’s intellectual capital to adapt to changing customer needs or to influence new customer needs and expectations through product or service innovations Line personnel: Employees who work directly toward attaining organizational goals Line personnel are often held responsible for achieving targeted balanced scorecard measures or budgeted operating income for their divisions or geographic regions; examples would include managers in production, sales, and distribution Management accounting: That part of accounting that is concerned with providing information to parties inside an organization so that they can plan, control operations, make decisions, and evaluate performance Mission statement: A written expression of organizational purpose that describes how the organization uniquely meets its targeted customers’ needs with its products or services Organizational structure: Reflects the way in which authority and responsibility for making decisions is distributed in an organization Product Cost: The sum of the costs incurred within the factory to make one unit of product Product differentiation: A company’s ability to offer superior quality products or more unique services than competitors; such products and services, generally, are sold at a premium price Responsibility: The obligation to accomplish a task or achieve an objective Return on investment (ROI): A measure calculated as net income divided by total assets which was used historically to allocate resources and evaluate divisional performance Staff personnel: Employees who give assistance and advice to line personnel; examples include employees in marketing, engineering, accounting, and finance Strategy: The link between an organization’s goals and objectives and the activities actually conducted by the organization Upstream cost: Costs such as research and development and product design which are typically incurred before production of the product as opposed to downstream costs of marketing, distribution, and customer service Value chain: The set of value-adding functions or processes that convert inputs into products and services for the firm’s customers ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM Lecture Outline LO.1 What are the relationships among financial, management, and cost accounting? A Introduction This chapter compares financial, management, and cost accounting, introduces the organizational setting and environment in which the cost accountant must operate, and stresses the importance of professional ethics B Comparison of Financial, Management, and Cost Accounting Financial Accounting a The objective of financial accounting is to provide useful information to external users of financial statements including investors and creditors b Financial accounting information is typically historical, quantitative, monetary, and verifiable and usually reflects the activities of the whole organization c Financial accounting requires compliance with GAAP established by the FASB, the IASB, and the SEC (or other influential organizations such as the APB and the AICPA) i Publicly traded companies are required to have their financial statements audited by an independent auditing firm ii Oversight of auditing standards for public companies is the responsibility of the Public Company Accounting Oversight Board (PCAOB) which was created by the SarbanesOxley Act of 2002 (SOX) as a response to perceived abuses of accounting information by corporate managers d In the early 1900s, financial accounting was the dominant source of information for evaluating business operations i ii Return on Investment (ROI) was one of the most popular performance measures: ROI is calculated as Income divided by Total Assets ROI was a reasonable performance measure when companies were engaged in one type of activity, operated primarily domestically, were labor intensive, and were managed/owned by a small number of people As the securities market grew, so did the demand for audited financial statements The high cost of preparing financial reports due primarily to the lack of information technology prevented organizations from developing a management accounting system separate from the financial accounting system Management Accounting a Management accounting comprises the financial and nonfinancial information needed by internal users (i.e., managers) ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting i IM Managers are concerned with fulfilling corporate goals, communicating and implementing strategy, and coordinating product design, production, and marketing while simultaneously running distinct business segments b Management accounting information is not required to adhere to GAAP and thus can provide both historical and forward-looking information to managers i c Management accounting information commonly addresses individual or divisional concerns rather than those of the firm as a whole By the mid-1900s, companies were operating in a globally competitive, multiple product environment i Trying to manage by using only financial reporting information often created dysfunctional behavior and thus led to the need and demand for a management accounting system ii Introduction of reasonably priced information technology greatly aided the cause The differences between financial and management accounting are summarized in text Exhibit 1-1 (p 3) d To prepare plans, evaluate performance, and make more complex decisions, management needed forward looking information and information on the organization’s upstream and downstream costs i When making pricing decisions, managers needed to add these upstream and downstream costs to the GAAP-determined product cost as illustrated in Exhibit 1–2 (p 4) Upstream costs are costs such as research and development and product design which are typically incurred before production of the product Downstream costs include costs such as marketing, distribution, and customer service which are typically incurred after production of the product Cost Accounting a Cost accounting information addresses the demands of both financial and management accounting and is thus represented as the intersection of the financial and management accounting systems (See text Exhibit 1-3 (p 4)) i Cost accounting supports the financial accounting system by providing product cost information to external parties (stockholders, creditors, and various regulatory bodies) for investment and credit decisions ii For external reporting purposes, GAAP defines product cost as the sum of the costs incurred within the factory to make one unit of product Cost accounting supports the management accounting system by providing product cost information to internal managers who are responsible for planning, controlling, decision making, and evaluating performance ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM For internal reporting purposes, product cost information can be developed outside the constraints of GAAP to assist management with specific needs b As companies expanded operations, managers recognized that a single cost could no longer be computed for a product i For example, product costs could not easily be compared between multiple locations when production processes were not similar in each location Such complications resulted in the evolution of the cost accounting database to include more than simply financial accounting measures LO.2 What are the sources of authoritative pronouncements for the practice of cost accounting? C Cost Accounting Standards The Institute of Management Accountants (IMA) a The IMA, a voluntary membership organization of accountants, finance specialists, academics, and others, issues directives on the practice of management and cost accounting i These directives, called Statements on Management Accounting (SMAs) are not legally binding standards but they undergo a rigorous developmental and exposure process that ensures wide support The Society of Management Accountants of Canada a The IMA counterpart in Canada also issues guidelines on the practice of management accounting called Management Accounting Guidelines (MAGs) and again, while not mandatory, represent best practices for high-quality organizational accounting The Cost Accounting Standards Board (CASB) a The CASB is a public sector body established in 1970 to issue uniform cost accounting standards for defense contractors and federal agencies b The CASB produced 20 cost accounting standards (one of which has been withdrawn) from its inception until it was terminated in 1980 c The CASB was recreated in 1988 as an independent board of the Office of Federal Procurement Policy to help ensure uniformity and consistency in government contracting d CASB standards not constitute a comprehensive set of rules, but compliance is required for companies bidding on or pricing cost-related contracts with the federal government No official agency publishes generic management accounting standards for all companies a Although the IMA, Society of Management Accountants of Canada, and CASB have been instrumental in standards development, much of the body of knowledge and practice in management accounting has been provided by industry practice and economic and finance theory ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM LO.3 What are the sources of ethical standards for cost accountants? D Professional Ethics Managers achieve their financial targets by concentrating on acquiring a targeted market share and desired levels of customer satisfaction However, executives at some companies (e.g., WorldCom (now MCI), Enron, Tyco, and HealthSouth) have exhibited unethical behavior in trying to “make their numbers.” a Earnings management involves using an accounting method or practice to deliberately adjust a company’s profit amount to meet earnings estimates, preserve a specific earnings trend, convert a loss to a profit, increase management compensation, or hide illegal transactions, for example b Aggressive Accounting involves exceeding the boundaries of reason in applying accounting principles in order to meet a predetermined internal or external target The Sarbanes-Oxley Act of 2002 was passed to hold CEOs and CFOs personally accountable for the accuracy of their organization’s financial reporting a Under SOX, chief financial officers who knowingly certify false financial reports may be punished with a maximum penalty of a $5 million fine, 20 years in prison, or both Certified Management Accountants (CMA) must adhere to the standards of ethical conduct published in the Statement of Ethical Professional Practice issued by the IMA The IMA’s Code of Ethics (See text Exhibit 1–4 (p 6)) has four standards: a Competence means that individuals will develop and maintain the skills needed to practice their profession b Confidentiality means that individuals will refrain from disclosing company information to inappropriate parties (such as competitors) that could be specifically defined in the company’s code of ethics c Integrity means that individuals will not participate in activities that would discredit their company or profession d Credibility means providing full, fair, and timely disclosure of all relevant information Cost and management accountants who discover illegal or immoral behavior such as financial fraud, theft, environmental violations, or employee discrimination should evaluate the situation and, if appropriate, “blow the whistle” on the activities by disclosing them to appropriate persons or agencies a The accountant should keep the information confidential and report it to his/her immediate supervisor (unless that person is suspected of being involved) b The accountant should continue up the chain of command to the first manager who is not involved in the situation —meaning that it could be necessary to take the matter all the way to the audit committee of the board of directors c If the matter cannot be resolved, the only recourse available may be to resign and consult a legal adviser before reporting the matter to regulatory authorities ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM LO.4 What is a mission statement and why is it important to organizational strategy? E Compteting in a Global Environment General a A mission statement expresses the purposes for which the organization exists, what the organization wants to accomplish, and how its products and services can uniquely meet its targeted customers’ needs b Mission statements are used to develop the organization’s strategy or plan of how the firm will fulfill its goals and objectives and achieve an advantage over its competitors Organizational Strategy (see text Exhibit 1-5 (p 8)) a A core competency is any critical function or activity such as technological innovation, engineering, product development, and after-sale service in which an organization seeks a higher proficiency than its competitors, making it the root of competitiveness and competitive advantage b Most companies compete using either a “cost leadership” or “product differentiation” strategy c i Cost leadership refers to a company’s ability to maintain its competitive edge by undercutting competitor prices (e.g., Wal-Mart) ii Product differentiation refers to a company’s ability to offer superior quality products or more unique services than competitors; such products and services are, however, generally sold at premium prices (e.g., Rolex watches) Cost accountants gather financial and nonfinancial information to help management achieve organizational strategy Text Exhibit 1–6 (p 9) provides a checklist of questions that help indicate whether an organization has a comprehensive strategy in place LO What must accountants understand about an organization’s structure and business environment to perform effectively in that organization? F Organizational Structure An organization is composed of people, resources other than people, and commitments that are acquired and arranged to achieve organizational strategy and goals Organizational structure reflects the way in which authority and responsibility for making decisions are distributed in an organization a Authority refers to the right (usually by virtue of position or rank) to use resources to accomplish a task or achieve an objective b Responsibility is the obligation to accomplish a task or achieve an objective Work in organizations is directed by line personnel who work directly toward attaining organizational goals, and staff personnel who give assistance and advice to line managers a The treasurer is generally responsible for achieving short- and long-term financing, investing, and cash management goals ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01: Introduction to Cost Accounting IM b The controller is responsible for delivering to management financial reports in conformity with GAAP Management style, the way managers interact with the entity’s stakeholders, especially employees, impacts the organization’s decision-making processes, risk taking, willingness to encourage change, and employee development Organizational culture refers to the basic manner in which the organization interacts with its business environment, the way in which employees interact with each other and with management, and the underlying beliefs and attitudes held by employees about the organization Short-term organizational constraints that may be overcome by existing business opportunities: a Monetary capital If additional capital cannot be obtained at a reasonable cost management must determine how to reallocate existing capital in an effective and efficient manner b Intellectual capital, which encompasses the knowledge, skills, and information that an organization possesses, impacts the firm’s ability to create ideas for products or services, to train and develop its employees, and to attract and retain customers c Technology Companies must adopt emerging technologies to stay at the top of their industry and achieve a competitive advantage over competitors An environmental constraint is any limitation caused by external cultural, fiscal (such as taxation structures), legal/regulatory, or political situations and by competitive market structures LO What is a value chain, and what are the major value chain functions? G Value Chain The value chain is a set of value-adding functions or processes that convert inputs into products and services for the organization’s customers (See text Exhibit 1–7 (p 11)): a Research and Development—experimenting to reduce costs or improve quality b Design—developing alternative product, service, or process designs c Supply—managing raw materials received from vendors to reduce costs and improve quality d Production—acquiring and assembling resources to produce a product or render a service e Marketing—promoting a product or service to current and prospective customers f Distribution—delivering a product or service to a customer g Customer Service—supporting customers after the sale of a product or service Cost accountants help design the communication network that is used to communicate corporate strategy to all members in the value chain so that the strategy can be effectively implemented ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 19 EMERGING MANAGEMENT PRACTICES Learning Objectives After reading and studying Chapter 19, you should be able to answer the following questions: How business process reengineering initiatives cause radical changes in the way firms execute processes? How are competitive forces driving decisions to downsize and restructure operations? In what ways, and why, are operations of many firms becoming more diverse? How does the increasing diversity affect the roles of the firms’ accounting systems? Why are firms adopting enterprise resource planning systems, and how are such systems used? What are strategic alliances, what forms they take, and why firms participate in them? What are the characteristics of open-book management, and why does its adoption require changes in accounting methods and practices? What are the three generic approaches that firms can take in controlling environmental costs? ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM Terminology Business process reengineering (BPR): a method of examining processes to identify and then eliminate, reduce, or replace functions and processes that add little customer value to products or services Data mining: a form of analysis in which statistical techniques are used to uncover answers to important questions about business operations Downsizing: any management action that reduces employment upon restructuring operations in response to competitive pressures Enterprise resource planning (ERP) system: a packaged software program that allows companies to (1) have a single, comprehensive, enterprise-wide database; (2) make quicker decisions based on realtime information and facts; (3) improve decision making quality; (4) reconcile and optimize conflicting organizational goals; (5) standardize business processes; (6) improve procedures that protect assets and prevent falsification of accounting records; and (7) enhance the audit planning and execution process Open-book management: a philosophy about increasing a firm’s performance by involving all workers and by ensuring that they have access to the operational and financial information necessary to achieve performance improvements Organizational memory: the aggregation of data, facts, experiences, and lessons learned that is important to an organization’s existence Reality mining: the collection and analysis of technology-based data as it relates to social behavior Strategic alliance: an agreement between two or more firms with complementary core competencies to contribute jointly to the supply chain ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM Lecture Outline LO.1: How business process reengineering initiatives cause radical changes in the way firms execute processes? A Introduction Firms are presently decentralizing information, authority, and responsibility to make decisions Unfortunately, not all employees are adequately trained to understand financial information so innovative approaches to developing information skills are needed This chapter discusses innovation in management practices and the impact of innovation on accounting a The “age of change” is an apt description for the current environment b Although, some changes have been driven by the fast pace of evolution in management practices and techniques, many changes have been driven by the even faster evolution of technology c These evolving management methods unite around a theme of focusing organizational resources on customers and maximizing the value the firm delivers to its customers B The Changing Workplace The forces of global competition and technological advancements have caused profound changes in business organizations To survive, managers must develop ways to achieve the competitive changes needed in their organizations Change can be achieved immediately or gradually Some overriding principles that managers should follow when implementing changes are presented in text Exhibit 19–1 Business process reengineering is one tool with which to achieve large, quick gains in effectiveness or efficiency through redesigning the execution of specific business functions C Business Process Reengineering Business process reengineering (BPR) is a method of examining processes to identify, and then eliminate, reduce, or replace functions and processes that add little customer value to products or services a The focus of BPR is on discrete initiatives to improve specific processes i Examples of processes include handling or storing purchased materials and components, issuing checks to pay labor and other production expenses, wrapping finished products for shipment to customers, recording journal entries, and developing an organizational strategic plan ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM b BPR is designed to bring radical changes to an organization’s operations and is often associated with employee layoffs, outsourcing initiatives, and technology acquisition Three major business trends are promoting the increased use of BPR in the 21 st century: a the advancement of technology; b the pursuit of increased quality; and c the increase in price competition caused by globalization To successfully compete on the basis of price, firms must identify ways to become more efficient and reduce costs Because BPR is a methodical way to revolutionize business practices, formal steps can be defined; however, creativity is an important element of the methodology Text Exhibit 19-2 provides the steps for implementing BPR Accountants are important participants in the BPR process because they can provide baseline performance measurements, help determine BPR objectives, and measure the achieved performance of the redesigned process The following keys to a successful BPR implementation highlight the importance of involving customers, suppliers, and top-level managers in the process: a Set “stretch” goals for the reengineered process, expressing them in the most appropriate performance measure, such as financial, time, or defective production; b Make certain that the reengineering efforts have a “champion” and are supported by top management; c To the extent possible, involve in the reengineering project all constituents of the value chain, especially customers and suppliers; d Assign both the authority and responsibility for the project to a single person; and e Use a pilot project to identify problems that might arise during full implementation Involvement of customers ensures that their perspective drives the process redesign and the involvement of top management signals the project’s importance to organizational success The focus of BPR is on improvement of organizational operations and so whether the issue is quality, cost, or customer value, BPR can help effect organizational improvements and change 10 BPR’s radical change is often implemented via downsizing and restructuring, which can have a profound impact on employees ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM LO.2: How are competitive forces driving decisions to downsize and restructure operations? D Downsizing, Layoffs, and Restructuring Global competition and survival requires firms to improve product quality continually while maintaining competitive prices Many methods discussed in the chapter, including the use of automated technology to replace manual labor or equipment run by humans, have proven useful in improving process efficiency and effectiveness as well as product quality One impact of such improvements is the creation of excess personnel as fewer and fewer workers are required to achieve a given level of output Downsizing is any management action that reduces employment upon restructuring operations in response to competitive pressures Firms can find that layoffs have depleted their in-house talent pool a The collective workforce knowledge or organizational memory may have been reduced to the point that the ability to solve problems creatively and generate innovative ideas for growth has been greatly diminished i Organizational memory refers to the aggregation of data, facts, experiences, and lessons learned that are important to an organization’s existence b After downsizing, many firms have found positions that once served as feeder pools for future top management talent have been eliminated Successive rounds of layoffs diminish worker morale, cause worker trust in managers to wane, and lead to decreases in communication between workers and managers a Workers often fear that sharing information could provide insights to management about how to further increase productivity which in turn would result in the elimination of even more of the workforce Downsizing can destroy a corporate culture that embraced lifetime employment as a key factor in attracting new employees or that was perceived as nurturing by employees Downsizing is an accounting issue because of its implications for financial reporting and its role in cost management The financial consequences of downsizing can be significant a When restructuring and downsizing occur in the same year, the firm often reports, in that year, large one-time losses caused by sales of unprofitable assets and severance costs connected with employee layoffs Before recommending downsizing to improve organizational efficiency, accountants should examine the likely impacts on customer service, employee morale and loyalty, and future growth opportunities 10 Text Exhibit 19-3 demonstrates that strategic decisions affect the manner in which inputs, such as labor, technology, purchased material, and services are converted into outputs for customers ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM 11 Financial analysis of the downsizing decision is complex as it relies on comparing cost savings from reduced labor costs realized in the future to the current outlay for restructuring and acquiring additional technology LO.3: In what ways, and why, are operations of many firms becoming more diverse? How does the increasing diversity affect the roles of the firms’ accounting systems? E Workforce Diversity With globalization of manufacturing and other operations, companies find that their employees have very divergent religions, races, values, work habits, cultures, political ideologies, and education levels Corporate policies and information systems must adapt to the changing workforce and greater diversity of operations, which often results in the accounting function having a larger role in managing operations Accounting concepts, tools, and measurements can be the medium through which people of diverse languages and cultures communicate a Accounting provides an ideal international technical language because it is a basic application of another universal language—mathematics Within the United States, there is a trend toward increasing workplace diversity driven partly by legal requirements and business initiatives to increase opportunities for minorities Text Exhibit 19-4 presents the results of a survey seeking to identify why self-interested firms seek a diverse group of employees LO.4: Why are firms adopting enterprise resource planning systems, and how are such systems used? F Enterprise Resource Planning Systems (ERP) Firms commonly use networked personal computers and minicomputers to handle the information management requirements of specific business functions such as finance, marketing, and manufacturing a The increased use of personal computers and local-area networks has resulted in the decentralization of information b As data management and storage have become more decentralized, firms have often lost the ability to integrate information across functions and to access quickly information that spans multiple functions c Text Exhibit 19-5 shows how internal processes and functions are distributed across the supply chain and the types of information that may reside in isolated databases Enterprise resource planning (ERP) systems are packaged software programs that allow companies to (1) have a single, comprehensive, enterprise-wide database; (2) make quicker decisions based on real-time information and facts; (3) improve decision making quality; (4) ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM reconcile and optimize conflicting organizational goals; (5) standardize business processes; (6) improve procedures that protect assets and prevent falsification of accounting records; and (7) enhance the audit planning and execution process Implementing an ERP system should help a company provide its customers the highest-quality products and best possible service Text Exhibit 19-6 illustrates an integrated centralized information system In theory, the ERP system should link the customer end of the supply chain with all functional areas responsible for the production and delivery of a product or service The benefits of an ERP package to a business are in reduced overheads, improved customer service and better quality, and more timely management information Reduced overheads should be achieved through the elimination of duplication of effort in duplicate keying and reconciliation of independent systems ERP’s key concept is a central repository for all organizational data so that they are accessible in real time by and in an appropriate format for a decision maker a Text Exhibit 19-7 provides a list of typical modules included in an ERP system b Text Exhibit 19-8 presents a survey of reasons for adopting ERP and perceived benefits from adoption Installation of an ERP system impacts the finance function in three significant ways: a First, financial and system specialists become responsible for selecting and installing the software; b Second, financial specialists will be responsible for analyzing the data repository to support management decisions; c i Data analysis often involves “drilling down” from aggregate data (such as total sales) to detailed data (such as sales by store) to identify market opportunities and to better manage costs; ii Analysis may also involve data mining, which uses statistical techniques to uncover answers to important questions about business operations Data mining can uncover quality problems, study customer retention, determine which promotions generate the greatest sales impact, and identify cost drivers The modern evolution of data mining is reality mining Reality mining is the collection and analysis of technology-based data as it relates to social behavior (e.g., tracking a user’s internet browsing activities) Third, ERP installation places a burden on financial specialists to maintain the integrity of the data depository i Fulfilling this obligation requires accountants to monitor the ERP modules and to be confident that the system successfully converts raw data into the standardized format required for the main depository ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices ii IM Financial specialists are also accountable for integrating externally purchased data (such as industry sales data) with internally generated data d As ERP systems become increasingly integrated into Internet-based technology, customers will have ease of access to a worldwide marketplace In turn, customer-driven competition will cause firms to seek continually innovative ways to attract potential customers, such as through strategic efforts that combine the talents and capabilities of two or more firms LO.5: What are strategic alliances, what forms they take, and why firms participate in them? G Strategic Alliances While the traditional supply chain structure has no fuzzy boundaries that create an inability to determine where one firm ends its contribution to the supply chain and another begins its contribution, in some cases companies have incentives to develop interorganizational agreements that go beyond normal supplier/customer arrangements A strategic alliance is an agreement, involving two or more firms with complementary core competencies, to contribute jointly to the supply chain Strategic alliances can take many forms including joint ventures, equity investment, licensing, joint R&D arrangements, technology swaps, and exclusive and buyer/seller agreements a A strategic alliance differs from the usual interactions among independent firms in that there is a joint output and the rewards of the joint effort are split among the allied firms b In a typical strategic alliance, a new entity is created c Beyond simply contributing cash, many new ventures require inputs of human capital, technology, access to distribution channels, patents, and supply contracts An overriding concern in designing a strategic alliance is aligning the interests of the parent organizations with the new entity Establishing strategic alliances involves a series of complex decisions that are based on inputs from many specialists The process of managing an alliance requires the use of virtually every tool and concept discussed in the text, including cost management systems, product costing systems, relevant costing, cost allocation, inventory management, decision making, and performance evaluation LO.6: What are the characteristics of open-book management, and why does its adoption require changes in accounting methods and practices? H Open-Book Management General ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM a Open-book management is a philosophy about increasing a firm’s performance by involving all workers and by ensuring that all workers have access to the operational and financial information necessary to achieve performance improvements b Firms practicing open-book management typically disclose detailed financial information to all employees, train them to interpret and use the information, empower them to make decisions, and tie a portion of their pay to the company’s bottom line c i See text Exhibit 19-9 for ten common principles of open-book management ii Application of this philosophy is appropriate in decentralized organizations that have empowered employees to make decisions Merely opening the financial records to a firm’s employees will not necessarily solve any problems or improve performance; the key to understanding the records is training d If financial information is to be the basis of employee decision making, the information must be structured with the level of sophistication of the decision maker in mind Using Games to Teach Open-Book Management a Games can be used to teach financially unsophisticated employees how to understand and use accounting and financial information b Games make learning both fun and competitive and can motivate employees to understand complex financial practices as illustrated by the game described in this section of the text i c Data for the game is provided in text Exhibit 19–10 To exploit the financial information they are given, workers should be trained in ways to improve profits i The “game” of trying to increase profits serves as motivation for workers to learn about cost and operational management methods ii Relating training to the game allows workers to see the relevance of training so that they will seek training to help them understand financial information and to identify approaches that can be used to improve results Motivating Employees a The obvious way to motivate workers to use the game information to improve profits is to link their compensation to profits i Open-book management works only if it is accompanied by adequate incentives b Some companies offer performance-based bonuses to motivate employees, some offer employee stock ownership plans (ESOPs), and some offer both c Pay and performance links can also be based on non-financial measures such as on-time delivery rates, defect rates, output per labor hour, and other measures to make workers aware of how their inputs and outputs affect other departments and financial outcomes ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices i IM 10 All critical dimensions of performance including cost, quality, and investment management can be captured in performance measurements d As soon as workers have become accustomed to receiving financial and other information to manage their departments, more elaborate information systems can be developed as the sophistication of the information consumers (workers) evolves Implementation Challenges a Open-book management can be difficult to implement i Characteristics of firms that are best suited to a successful implementation include small size, decentralized management, a history of employee empowerment, and the presence of trust between employees and managers b One significant obstacle to overcome in most organizations is a history of carefully guarding financial information i c Even in publicly owned organizations that are required to release financial information, top managers have historically limited access of employees to financial data that the top managers regard as sensitive Accountants have historically viewed themselves as the custodians of this sensitive information rather than the conveyors To successfully implement open-book management, accountants must develop an attitude about information sharing that is as fervent as traditional attitudes of guarding information Accountants must develop ways to convey accounting information so that unsophisticated users will understand it Furthermore, by teaching users to have a better understanding of financial data, accountants help facilitate better organizational decision making d The information system must be designed to be sensitive to the user’s financial sophistication e Similarly, performance measures that employees can understand must be devised f i The measures must capture the actual performance relative to the objectives of organizational segments and the organization as a whole ii The primary principle of measurement is to measure what is important Finally, because principles of open-book management include involving all employees and evaluating and rewarding their performance, measures that can be integrated across segments and functional areas must be devised ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM 11 LO.7: What are the three generic approaches that firms can take in controlling environmental costs? I Environmental Management Systems The impact of organizations on the environment is of increasing concern to governments, citizens, investors, and managers a Accountants are increasingly concerned with both measuring business performance with regard to environmental issues and to management of environmental costs b In the future, investors are likely to evaluate a company’s environmental track record along with its financial record when making investment decisions Management of environmental costs requires the consideration of environmental issues in every aspect of operations a For example, there are environmental effects related to the amount of scrap and by-product produced in manufacturing operations, materials selected for product components, actions of suppliers that produce necessary inputs, and habits of customers in consuming and disposing of products and packaging b In short, environmental issues span the entire value chain There are three generic strategies for dealing with environmental effects of operations, each with its own unique financial implications a First, end-of-pipe strategies may be employed wherein managers produce the waste or pollutant and then find a way to clean it up i Common tools used in this approach are wastewater cleaning systems and smokestack scrubbers b A second strategy involves process improvements i c Process improvements involve changes to recycle wastes internally, reduce the production of wastes, or adopt production processes that generate no waste A third strategy is pollution prevention i This approach involves complete avoidance of pollution by not producing any pollutants Although minimizing the impact of operations on the environment may be a reasonable goal, it must be remembered that some impact on the environment is unavoidable For example, energy must be consumed to manufacture products Other managerial concerns related to environmental costs include managing quality, research and development, and technology acquisition a Although the relationship between quality costs and environmental costs is not fully understood, many examples can be cited suggesting that quality and environmental costs are highly related ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM 12 b Research and development identifies new products and new production processes, and develops new materials c New product design influences the (1) types and quantities of materials produced, (2) types and quantities of waste, scrap, and by-products produced, (3) amount of energy consumed in the production process, and (4) potential for gathering and recycling products when they reach obsolescence d Technology acquisition also has many environmental impacts i For instance, technology affects energy consumption and conservation; environmental emissions; the quantity, types, and characteristics of future obsolete equipment; the rate of defective output produced; the quantities of scrap, waste, and by-products produced; and the nature and extent of support activities necessary to keep the technology operating Text Exhibit 19-11 lists considerations for the financial professional to evaluate to determine whether a firm’s information systems provide relevant information for managing environmental costs a An analysis of the checklist will show that the accountant must effectively gather both quantitative and non-quantitative data from both within and outside the firm ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM 13 Multiple Choice Questions (LO.1) Which of the following is not a major business trend promoting the increased use of business process reengineering? a Increasing use of the corporate form of business organization b Advancement of technology c Pursuit of increased quality d Increase in price competition caused by globalization (LO.1) Business process reengineering changes the way firms execute processes by: a making better use of technology b making less use of technology c using more employees d eliminating all but the most profitable products in order to simply operations (LO.2) Global competition is forcing firms to downsize and restructure operations to: a defend core competencies b remain cost competitive c eliminate non-value activities d all of the above (LO.2) One of the grim realities of ever-improving efficiency is that a Input costs are declining b Cycle times are increasing c Fewer workers are required d All of the above (LO.2) The data, facts, experiences, and lessons learned important to an organization’s existence are referred to as: a a data depository b an enterprise resource planning system c workforce diversity d organizational memory (LO.3) Different languages and cultures can impede communication within globally dispersed operations Why is accounting a useful coordinating mechanism? a Because accounting represents an application of the universal language of mathematics b Because the interpretation of accounting information need not depend on local culture c Because accounting is the universal language of business d All of the above (LO.4) All of the following are objectives of enterprise resource planning (ERP) systems except: a to automate accounting processes b to share data across the enterprise c To eliminate information system installation costs d to provide real-time access to company data (LO.4) Installation of an ERP system impacts the financial function in all of the following ways except: a Financial specialists have to find ways to finance the acquisition of the ERP system b Financial and system specialists become responsible for selecting and installing the software c Financial specialists will be responsible for analyzing the data repository to support management decisions d Finance specialists are accountable for integrating externally purchased data with internally generated data ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM 14 (LO.4) Which technique uses statistical techniques to uncover answers to important questions about business operations? a business process reengineering (BPR) b data mining c employee to capital cost ratio (ECC) d enterprise resource planning system (ERP) 10 (LO.5) Joint ventures, equity investments, and technology swaps are examples of a venture capitalists b licensing agreements c strategic alliances d exclusive buyer-seller agreements 11 (LO.5) An agreement involving two or more firms to jointly contribute to the supply chain a involves the exploitation of partner knowledge b includes partners with access to different markets c allows sharing of risks and rewards d all of the above 12 (LO.6) Characteristics of firms that are best suited to a successful implementation of open-book management include all of the following except: a small size b centralized management c a history of employee empowerment d the presence of trust between employees and managers 13 (LO.6) Open-book management: a decreases the transparency of information within an organization b requires accountants to change from a mind-set of sharing to guarding information c frequently uses games and meetings to make information understandable to financially unsophisticated employees d centralizes both authority to make decisions and responsibility for decision results 14 (LO.6) Which of the following is not a common principle of open-book management? a Teach employees to understand the company’s financial results b Link nonfinancial measures to financial results c Empower employees by allowing them to evaluate their own performance d Turn the management of the business into a game that employees can win 15 (LO.7) Which of the following is not a general approach to controlling environmental costs? a Signing the Kyoto Protocol to reduce pollution b Cleaning up pollutants after they are produced c Improving processes to reduce the amount of waste produced d Preventing pollution by never producing polluting materials ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 19: Emerging Management Practices IM 15 Multiple Choice Solutions a a d c d d c a b 10 c 11 d 12 b 13 c 14 c 15 a ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank ... d Truck Tires Variable cost Fixed cost Variable cost Mixed cost Production Supervisor Salaries Fixed cost Variable cost Mixed cost Fixed cost (LO.3) The estimated unit cost for a company planning... SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions... SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions