CHAPTER 1 INTRODUCTION TO COST MANAGEMENT DISCUSSION QUESTIONS 1. Cost management is concerned with assigning costs and using information for planning, controlling, continuous improvement, and decision making. It encompasses cost accounting and management accounting but has a broader focus than the usual roles assigned to cost accounting and management accounting. Cost accounting is concerned with assigning costs to various cost objects such as products, services, and activities. Cost management broadens this focus by emphasizing accuracy of assignments based on causal relationships. Management accounting is concerned with planning, controlling, and decision making. Cost management broadens this focus by emphasizing continuous improvement and expanding planning, control, and decision making to include such factors as processes, value chain, life cycle analyses, strategic considerations, and environmental costs. 2. Cost management differs from financial accounting in the following major ways: (1) an internal focus, (2) an emphasis on the future, (3) freedom from GAAP and other mandatory rules, (4) a multidisciplinary scope, (5) an evaluation of individual segments within the firm, and (6) the provision of more detailed information. 3. Factors affecting the focus and practice of cost management are global competition, service industry growth, advances in information technology, advances in the manufacturing environment, customer orientation, new product development, total quality management, time as a competitive factor, and efficiency. Global competition means that companies are now competing with the best of the best. Accurate, timely, and relevant accounting data are crucial in appropriately managing costs. Service industry growth has led to the need for increased management accounting information to improve productivity and quality. The advances in information technology have led to the creation of integrated relational databases that allow a variety of users to develop their own reports based on their particular needs. It has also fostered the implementation and use of more sophisticated accounting systems such as activity-based costing. Customer orientation, new product development, total quality management, time as a competitive factor, and efficiency require the accountant to create and track financial and nonfinancial measures of customer satisfaction, quality improvement, responsiveness, cycle time, target costs, cost, and productivity. Advances in the manufacturing environment are characterized by practices such as the theory of constraints, just-in-time, and automation. These changes are affecting such practices as inventory management and product costing. 4. A flexible manufacturing system is a computerized system that allows different product lines to be manufactured on the same equipment. The equipment can be reconfigured simply by calling up different programs. 5. The controller is responsible for both internal and external accounting. These responsibilities usually include such diverse activities as taxes, SEC reports, cost accounting, budgeting, internal auditing, financial accounting, and systems accounting. 6. A line position has direct responsibility for carrying out the basic missions of an organization. A staff position has indirect responsibilities for the basic missions and provides a supportive role for line activities. 7. For most organizations, the controller should be a member of the top management staff. The controller is the financial expert of an organization and can provide critical advice and insight. Furthermore, the current tendency of having a cross-functional management team increases the likelihood that the controller will be included as pa