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|CHAPTER |The Accountant’s Role in the Organization |
|1 | |

If you have not already read the Introduction (page vii), do so now. It describes the purposes and contents of the Student Guide and recommends a six-step approachfor using the Student Guide with the textbook.


Welcome to the study of cost accounting. This introductory chapter explains the intertwining roles of managers and management accountants in choosing an organization’s strategy, and in planning and controlling its operations. Unlike the remainder of the textbook, this chapter has no “number crunching.” Its main purpose is to emphasizethe management accountant’s role in providing information for managers.


1. It is important to distinguish management accounting from financial accounting.

1. • Management accounting measures, analyzes, and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Management accounting (a) emphasizes the future,(b) aims to influence the behavior of managers and other employees in achieving the goals of an organization, (c) does not have to follow generally accepted accounting principles (GAAP), and (d) is based on cost-benefit analysis.
2. • Financial accounting focuses on reporting to external parties such as investors, government agencies, banks and suppliers. It measures and records businesstransactions and provides financial statements—the balance sheet, income statement, statement of cash flows, and statement of retained earnings—that are based on GAAP.

2. Cost accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Cost accounting provides information for both management accountingand financial accounting.

3. Cost management is the approaches and activities of managers to use resources to increase value to customers and to achieve organizational goals. For example, rearranging the production-floor layout might reduce manufacturing costs, or additional product design costs might be incurred in an effort to increase revenues and profits.

4. Strategy specifies howan organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. In other words, strategy describes how an organization will compete and the opportunities its employees should seek and pursue. Companies follow one of two broad strategies:

1. • Sell quality products or services at low prices. An example is Southwest Airlines.
2. • Selldifferentiated or unique products or services at higher prices than charged by competitors. An example is Pfizer.

Deciding between these strategies is a critical part of what managers do. The term strategic cost management describes cost management that specifically focuses on strategic issues.

5. The value chain is the sequence of business functions in which customer usefulness is added toproducts or services. These business functions are research and development (R&D); design of products, services, or processes; production; marketing; distribution; and customer service. Managers in each of these six business functions of the value chain are customers of management accounting information. Rather than proceeding sequentially through the value chain, companies can gain when various partsof the value chain work concurrently as a team. For example, additional spending on R&D and product design might be more than offset by lower costs of production and customer service.

6. The term supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to customers, regardless of whether those...
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