Cost Accounting and Management

Cost Accounting

• Provides information for both management accounting and financial accounting.
• Measures and reports financial and non-financial data related to the cost of acquiring or consuming resources by an organisation.

Cost Management

• Describes the actions of managers in short-run and long-run planning and control of costs that increase the value for customers and lower the costs of products and services.
• Entails the continuous reduction of costs.
• A key part of general management strategies and their implementation.

The Growing Role of Strategy in Management Accounting

• Focuses on expansionist, risky, and entrepreneurial strategies.
• Aims to create, not preserve shareholder value in the short term.
• Increases focus on external sources for opportunities.
• Increases the role of management accountants.

Accounting Systems

• Five broad purposes:

  Formulating Overall Strategies and Long-range Plans

  • Internal non-routine reporting.

  Resource Allocation Decisions

  • Internal routine reporting.

  Cost Planning and Cost Control

  • Internal routine reporting.

  Performance Measurement and Evaluation

  • Internal non-routine reporting.

  Meeting External Regulatory and Legal Reporting Requirements

  • External reporting.

Internal Reporting

• Routine reporting: Daily, weekly reports.
• Non-routine reporting: Outsourcing, design of a special cost control tracking system.

External Reporting

• Provides information to investors, government authorities, and other outside company stakeholders on the organisation’s financial position, operations, and related activities.

Planning, Control, and Decision Making

• Planning: Deciding on organisation goals, predicting results under various alternative ways of achieving those goals, and deciding how to attain those desired goals.
• Control: Deciding and taking actions that implement the planning decisions, and deciding on performance evaluation and related feedback that will help future decision-making.
• Budget: A quantitative expression of a plan of action and an aid to the coordination and implementation of the plan.

Performance Report

• Compares actual results with budgeted amounts.
• Examples: Revenues, Cost of Goods Sold, Wages, General, Fixed Costs, Operating Income.

Feedback

• Involves managers examining past performance and systematically exploring alternative ways to improve future performance.

Functions of Management Accounting

• Scorekeeping: Accumulating data and reporting reliable results to all levels of management.
• Attention Directing: Helping managers properly focus their attention.
• Problem-Solving: Identifying and resolving problems.

Adding Value

• Customer Focus: Investing resources in customer satisfaction to attract and retain profitable customers.
• Key Success Factors: Cost, Quality, Time, Innovation, Sustainability.
• Continuous Improvement and Benchmarking: Searching for higher levels of performance within the organisation.

Value-Chain and Supply-Chain Analysis

• Treats each of the business functions in the value chain as an essential and valued contributor.
• Integrates and coordinates the efforts of all business functions in addition to developing the capabilities of each individual business function.

Digitalisation

• Management accountant should be aware of digital disruption, rapid cognitive development, artificial intelligence, robotics, blockchain, and data availability.