Course: Cost Accounting II

Chapter 4: The Accountant’s Role in the Organization

Learning objectives:
1. Identify the major purposes of accounting systems
2. Describe the cost accounting and it’s relation to management accounting and financial
accounting
3. Distinguish between the planning and control decisions of managers
4. Distinguish between the problem-solving, scorekeeping, attention-directing roles of a
management accountant.

5. Describe the set of business functions in the value chain

6. Identify four key themes that are important to managers attaining success in their
planning and control decisions.

7. Describe three guidelines that help management accountants increase their value to
managers.
8. Understand how cost accounting fits into an organization’s structure
9. Understand the importance of professional ethics to management accountant.

1. The Major purposes of Accounting Systems

Accounting systems provides information for three major purposes:
1. Routine internal reporting: gives managers information for decisions that occur with
regularity e.g. daily planning decision on the price, daily sales reports and etc
2. None routine internal reporting: reports information that affects decisions that occur
irregularly or without precedent. e.g. Outsourcing
3. External reporting: reports to external parts such as investors, government authorities
and other outside parts of the organization’s financial position, operations and related
activities:

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Lecturer: Jimale Abdilahi
2. Comparison of cost and management accounting and financial accounting

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Lecturer: Jimale Abdilahi
3. Cost Management
✓ It describes the activities of managers in planning and control of costs.
✓ It includes the continuous reduction of costs
✓ It is a key part of general management strategies and their implementation .
4. Planning and Control Decisions

What is planning?
✓ Setting Goals
✓ Predicting results
✓ Deciding how to attain goals
What is control?
✓ Deciding and taking actions,
✓ Deciding on performance evaluation and feedback
NB: Feedback provides a link between planning and control
What are budgets?
✓ They are quantitative expressions of a proposed plan of action.
✓ They aid in the coordination and implementation of the plan.

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Lecturer: Jimale Abdilahi
 5. Roles of Management (cost) Accountants in Decision Making
There are three common roles in which management accountants support decision making.

1) Problem-solving
✓ This involves comparative analysis for decision making
✓ This role asks: Of the several alternatives available, which is the best?
2) Scorekeeping
✓ This involves accumulating data and reporting reliable results to all levels of
management.
✓ This role asks: How is the business doing? E.g. sales, purchases and payroll of the
year
3) Attention-directing
✓ This involves helping managers properly focus their attention.
✓ This role asks: Which opportunities and problems should be emphasized first
✓ Attention directing should focus on all opportunities to add value to an organization,
not just cost-reduction opportunities.

6. The Value Chain of Business Functions

Planning and control decisions focus on one or more business functions in which both managers
and management accountants perform important roles.
The term “value chain” refers to the sequence of business functions in which usefulness is added
to the products and services of an organization.
Management accountants provide decision support for manager in each of these six business
functions.
1. Research & Development-the generation of, and experimentation with, ideas
related to new products, services and processes.
2. Design-the detailed planning and engineering of products, services or processes
3. Production- the acquisition, coordination and assembly of resources to produce a
product or deliver a service.
4. Marketing-the manner by which companies promote and sell their products or
services to customers or prospective customers.
5. Distribution-the delivery of products or services to the customer.
6. Customer Service-the after-sale support activities provided to customers.

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Lecturer: Jimale Abdilahi
7 Enhancing the Value of Management Accounting Systems

Management accounting can play in helping managers focus on these four themes.
1. Customer Focus: The challenge facing managers is to continue investing sufficient (but
not excessive) resources in customer satisfaction such that profitable customers are
attracted and retained.
2. Key Success factors: These are operational factors that directly affect the economic
viability of the organization.
a) Cost – organizations are under continuous pressure to reduce costs.
b) Quality – customers are expecting higher levels of quality.
c) Time – organizations are under pressure to complete activities faster and to meet
promised delivery dates more reliably.
d) Innovation – there is now heightened recognition that a continuing flow of innovative
products or services is a prerequisite to the ongoing success of most organizations.
3. Continuous Improvement and Benchmarking- Continuous improvement by
competitors creates a never-ending search for higher levels of performance within many
organizations.

4. Value Chain and Supply Chain Analysis

This theme has two related aspects:

a) Treat each of the business functions in the value chain as an essential and valued
contributor.
b) Integrate and coordinate the efforts of all business functions in addition to
developing the capabilities of each individual business function.

Supply chain – describes the flow of goods, services, and information from cradle to grave,
regardless of whether those activities occur in the same organization or other organizations.

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Lecturer: Jimale Abdilahi
8) Key Management Accountant Guidelines
a) Cost-benefit approach
A cost-benefit approach should be used in order to spend resources if they promote decision
making that better attains organization goals in relation to the costs of those resources.

b) Full recognition of behavioural as well as technical considerations

A management accounting system should have two simultaneous missions for providing
information:

To help managers make wise economic decisions

To help managers and other employees to aim and strive for goals of the organization.

c) Using different costs for different purposes

A cost concept used for the external reporting purpose need not be the appropriate concept for
the purpose of internal routine reporting to managers.

9) Organizational Structure and The Management Accountant

Line and Staff Relationships

Line management is directly responsible for attaining the objectives of the organization.
Staff management exists to provide advice and assistance to line management.

Board of Directors

Chairman
Chief Executive Officer (CEO)

President
Chief Operating Officer (COO)

Chief Financial Officer (CFO)

Controller Audit Tax Treasury Risk Investor

Management Relations

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Lecturer: Jimale Abdilahi
 10) Professional Ethics
 The four standards of ethical conduct for management accountants as advanced by the
Institute of Management Accountants:
 Competence:

 Confidentiality

 Integrity
 Objectivity

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 Wishing You All the Best

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Lecturer: Jimale Abdilahi