Cost Management: A Strategic Emphasis 7th Edition
The objective of the fi rst seven chapters is to introduce the strategic approach to cost management and to cover the basic concepts of cost management systems.
Chapter 1 is an introduction to cost management—how companies plan for success and the management accountant’s role in implementing strategy. The chapter includes coverage of the Institute of Management Accountants’s recently revised definition of management accounting.
It is also an introduction to the current environment of business, including contemporary management techniques and professional responsibilities.
Chapter 2 focuses on some of the principal means that organizations use to implement strategy. The chapter introduces a strategic management system known as the balanced scorecard (BSC), the strategy map, and the value chain and shows how these tools can be used to help the organization implement its strategy. These tools are foundational tools that appear throughout the text; this is why they are covered in this early chapter.
Chapter 3 defines the key terms that management accountants use to describe product cost systems and cost information for planning, decision making, and control. This terminology is important for both accountants and managers alike. The chapter also introduces the differences in management accounting between service, manufacturing, and merchandising companies.
Chapters 4–7 cover costing systems and their role in strategy implementation. Chapter 4 provides an introduction to costing systems by defining the elements of cost and how these elements are combined to determine the cost of a product or service. There are a number of variations on this basic cost system, each of which is designed to fit a particular manufacturing or service environment. These variations are explained in Chapters 5, 6, and 7.
Chapter 5 covers a strategically important advance in product costing called activity-based costing (ABC). Rather than using the volume-based approach (explained in Chapter 4), the ABC approach incorporates the details of all the activities that are needed to provide the product or service. The result is much more accurate, and therefore more strategically useful, cost information regarding the resource demands of an organization’s outputs.
Chapter 6 introduces process costing, a costing system that is applicable for fi rms that have relatively homogeneous products passing through similar processing steps, often in a continuous fl ow. Commodity-based industries are of this nature: food processing, chemical, and consumer products firms.
Chapter 7 covers cost-allocation issues associated with costing systems—departmental cost allocation and joint cost allocation. The chapter begins with an overview of the objectives and strategic role of cost allocation and then shows how departmental costs and joint costs are allocated to products.
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