Chapter 1 Outline
Chapter 1
Introduction to Cost Management
I. FINANCIAL ACCOUNTING VERSUS COST MANAGEMENT:
A SYSTEMS FRAMEWORK
A system is a set of interrelated parts that performs one or more processes to accomplish specific objectives. An accounting information system consists of: objectives, interrelated parts, processes, and outputs.
Inputs are generally economic events and the operational model of an accounting system is critically involved with the user of information.
There are two basic accounting information systems:
1) Financial accounting information system - primarily concerned with producing outputs for external users.
2) Cost management information system - primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives.
Because managers in many different areas of a business require cost information, a highquality cost management system should have an organization-wide perspective and be able to interact with other information systems within the organization.
Cost Accounting System
Cost accounting attempts to satisfy three broad objectives for both financial and management accounting: 1. Costing of products, services and other objects of interest to management;
2. Planning and control: and
3. Decision making.
The first objective depends on the nature of the object being costed and the reason management wants to know the cost. Product costs include the cost of materials, labor and overhead. Managers want to know costs associated with products associated with products for tactical and strategic purposes.
Different Systems for Different Purposes
Cost Accounting Information System: a cost management subsystem designed to assign costs to individual products and services and other objects as specified by management.
Operational Control Information System: a cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and
Introduction to Cost Management
I. FINANCIAL ACCOUNTING VERSUS COST MANAGEMENT:
A SYSTEMS FRAMEWORK
A system is a set of interrelated parts that performs one or more processes to accomplish specific objectives. An accounting information system consists of: objectives, interrelated parts, processes, and outputs.
Inputs are generally economic events and the operational model of an accounting system is critically involved with the user of information.
There are two basic accounting information systems:
1) Financial accounting information system - primarily concerned with producing outputs for external users.
2) Cost management information system - primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives.
Because managers in many different areas of a business require cost information, a highquality cost management system should have an organization-wide perspective and be able to interact with other information systems within the organization.
Cost Accounting System
Cost accounting attempts to satisfy three broad objectives for both financial and management accounting: 1. Costing of products, services and other objects of interest to management;
2. Planning and control: and
3. Decision making.
The first objective depends on the nature of the object being costed and the reason management wants to know the cost. Product costs include the cost of materials, labor and overhead. Managers want to know costs associated with products associated with products for tactical and strategic purposes.
Different Systems for Different Purposes
Cost Accounting Information System: a cost management subsystem designed to assign costs to individual products and services and other objects as specified by management.
Operational Control Information System: a cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and