hello welcome to the session this is Professor Farhad in this session we're going to look at an introduction to cost accounting and basically I'm starting a new course that's cost accounting so the first session in any course is to gonna basically explain the basic concept so we're gonna start by looking at the basic terminology just to make sure we understand the basic concept then we're going to talk a little bit more about the discipline itself what does it entails then we will proceed by looking at more detail so this is basically the big picture so the first thing we're gonna define is few terms that we need to be familiar with first of all who are management or Cost Accountant now I'm going to be using the term cost and management accountant interchangeably so hopefully you can live with that so are those people those people are professionals finance or accounting professionals who develop cost management information which we're going to see what this is to assist the in implementing the organizational strategy so they devised a system to help the company achieve their strategy whatever their strategy is so the system is cost management information so what is cost management information well cost management information consists of both financial and non-financial information it's not only numbers they do look at other non-financial information to help the company achieve their strategy that is developed and used to implement again the organized organizational strategy so very important key to remember is cost management information has non financial information information that's not financial in nature for example customer satisfaction and we'll look at that later on just I don't I wanna make sure you're aware of that now what is cost management cost management is a development and use of cost management information by management accountant so when we use the system it's called cost management now how does the IMA define management accountant now what is the IMA the IMA is the organization that oversees the professional organization that oversees management and cost accounting the Institute the Institute of Management Accountants a it's the equivalent of the AICPA if you're practicing public accountant you have the AICPA which is the professional organization that oversees the industry day the IMA is the equivalent of the AICPA that it's for management accountant so how do they define how do they define the term the discipline management accounting or again cost accounting it's a profession that involves again we're going to be repeating the same thing partnering and management decision-making devising planning and performance management system and providing expertise and financial reporting and control to assist again management so we are partnering with management so it's a group of people that study numbers in financial and non-financial that's gonna help the manager in the formulation and implementation of the organizational strategy so basically everything that we said earlier so management accountant are people that use financial and non-financial information to help management make decision planning and control now the first thing you want to be aware of is the primary users of of this information the primary users of management or constic outing are internal users and why do I need to define this because remember we have internal users who are management CEO CFO directors and we have external users external users are external users are creditors investors suppliers bankers anyone that's outside the company customers as well so the information that we provide through management accountant focuses on the internal users because it's kind of the reason for it again is to help management make a better decision not to provide external users with valid information that's it's it's it doesn't mean the information that we provide internally it's not used for external users but we don't publish this information so the target of management accountant are the internal the management okay so what does that mean it means the scope of questions answers are much more in details so management accountant will then try to do they'll try to answer specific questions that that status of the company needs such as who are our customers okay what is our product looks like which product should we sell maybe information about certain region profitability of a certain region so the answers are very specific to specific segments and specific product within the company okay now when we prepare externally we report the your revenue overall we don't really break it down and if we break it down it's not that much aggregate the aggregated it's not that much in detail but management accountant they they go into the detail of things and remember each business is different therefore I cannot tell you exactly what but this is the overall picture maybe customer product region so on and so forth one thing you want to remember is usefulness and timeliness is important aspect of management accounting you want to provide useful information to management and you want to provide it in a timely fashion before they produce the right product they sell it in the right market because it has to be useful and thank goodness otherwise if if we get the information late it's not really useful to also what we need to know is management accountant is not GAAP does not follow GAAP what does that mean it means we don't have hard rules that we follow just like gap for example this is how we have to prepare a certain financial statement we don't have to follow this so it's basically the rules depending on the business needs what is our need as a business and we'll follow those rules so you're not gonna see that this is how we prepare a financial statement this is what we need to disclose it all depends on technically what management wants us to do to achieve our organizational goal and this could be a kind of difficult for some students because they want strict rules how to prepare financial statements well it doesn't mean we don't learn specific rules but in the real world there is no strict adherence to those rules so the discipline is not really very strict but it all depends on the company need it all depends on the company need and from an organizational perspective this is basically a typical organizational chart basically Cost Accountant this is what they fit this again this is a typical organization so at the CEO the CFO and under the CFO we have the controller now sometimes they may not they may not be in that order specifically but usually it's an accounting function cost management is under the accounting function of the controller this is what they fit and the reason you want to see where they fit because you want to see overall how do they serve the company how do they serve the company well they're gonna help management cost management cost management so they're gonna help the company so cost management information is needed for each of the following for management functions so management does four things and they're gonna help in those four management one is a strategic management to planning and decision-making three is management and operational control and four is the preparation of financial statements and we're going to cover each one of those separately just kind of real quick just to see how management accountant fit in the picture of the company first strategic management what will usually strategic management is the most important function for management because they're planning to draw the big pictures that involve identifying implementing goals and plans to maintain the competitive advantage whatever your competitive advantages we'll talk about that later so you're looking at the big picture what could be some examples of strategic management is basically which product we should we should we should choose which manufacturing method we should employ which marketing technique we should use how should we distribute our product what is our customer profitability and other long-term issues so the strategic management is looking at the big picture and cost management accountant day to help us in that function they do help tremendously because they're going to be giving us information about the product so this is strategic management also after we draw the strategic management we have to implement and how do we do this planning and decision-making we have to make decision on a day-to-day basis really support reoccurring decisions so management accountant they do help in that such as scheduling production and how to price a product repairing and replacing equipment equipment it should we replace should we repair what what should be the decision basic basically capital budgeting decision how to manage our cash managing our cash flow when do we need cash should we borrow upfront should we have a line of credit how much interest rate we should pay all these decision they would help us also when we when we when we produce we need to budget we need to budget raw material we need to budget purchasing all these decisions management accountant or Cost Accountant they play an important role in that also they play a role in management and operational control basically what does that mean it means cost management is needed to provide a fair and effective basis for identifying inefficient operation if something's going wrong management accountants are gonna tell us we are producing items at a much higher cost than for example our competitors or than the prior periods and also it's gonna tell us who's doing a good job because it's gonna break down the product by by division by by a specific unique identifier so it's gonna tell us if a manager is doing a good job or not so basically what's going to happen it's gonna help us identify good practices and good employees and by the fall tell us if they're if they're telling us what are the good practices and who are the good employees they're gonna tell us by default who are not doing a good job therefore we take corrective actions so to help you in operational control management control operational control and the fourth function is preparing financial statements now you might be saying this is the role of financial accountant but not management accountant we still need management information because for example when we price inventory inventory is a function of management accounting we need to know how much something is costing us so information is needed to guarantee compliance with regulatory and reporting agencies such as the IRS the SEC because cost management is needed for inventory to to price something cost of goods sold and you're gonna see inventory and cost of goods sold many many things goes into those two figures actually every inventory turns into a cost of goods sold but before we determine the inventory especially in a manufacturing environment many many things goes into inventory we're gonna see that later direct labor direct material manufacturing overhead and when manufacturing overhead we're gonna have a list of items so cost cost management they do help us in preparing those financial reports for external users okay as well as helping and the other three management function because financial reporting covers everything else so if you want to summarize there's a strategic focus there's the strategic focus from a cost management perspective once again let's wrap it up the focus of can cost cost management is working with management again partnering with management to achieve the company's strategies whatever that competitive environment is in implementing its strategy to succeed in that environment now how do we do it we're gonna see later you know examples but this is the big picture this after means using all the organizational resources which is financial and non-financial information to identify and satisfy customers need it so set Ridgid the strategic emphasis often required creative and integrating thinking from a cross-functional viewpoint so measuring the calven they have to work with everyone they have to work with customer service department they have to work with our marketing people they have to work with the suppliers they have to work with everyone so it's a cross-functional if you want so this is basically an introduction of the role of cost management and this face as we go throughout the course we're gonna be emphasizing on those main points this is basically the big picture if you have any questions any comments by only is email me or see me in class if you're studying for your CPA exam by all means study hard it's worth it or if you're studying for your CMA as well because this topic is governed heavily on the CMA exam good luck