The Accountant’s Role
in the Organization
If you have not already read the Introduction page,
do so now. It describes the purposes and contents
of the Student Guide and recommends a six-step
approach for using the Student Guide with the
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
emphasize the management accountant’s role in
providing information for managers.
information for both management accounting and
3. Cost management is the approaches and
activities of managers in short-run and long-run
planning and control decisions that increase value
for customers and lower costs of products and
services. For example, rearranging the productionfloor layout might reduce manufacturing costs, or additional product design costs might be incurred
in an effort to increase revenues and profits.
4. Strategy specifies how an 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. It is important to distinguish management
accounting from financial accounting.
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 employees in
achieving the goals of an organization, and (c)
is not particularly constrained by generally
accepted accounting principles (GAAP).
Financial accounting focuses on reporting to
external parties, such as investors, government
agencies, banks, and suppliers. It measures
and records business transactions and provides
financial statements—the balance sheet,
income statement, statement of cash flows,
and statement of retained earnings—based on
2. Cost accounting measures and reports
financial and nonfinancial information relating to
the costs of acquiring or utilizing resources in an
Sell quality products or services at low prices.
An example is Southwest Airlines.
Sell relatively unique products or services at
higher prices than charged by competitors. An
example is Ralph Lauren.
Choosing between these strategies is among the
most important decisions that managers make. The
term strategic cost management is often used to
describe cost management that specifically focuses
on strategic issues.
5. The value chain refers to the sequence of
business functions in which usefulness (value to
the customer) is added to the products or services
of a company. 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 realize significant gains when various parts of
the value chain work together. 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
activities occur in the same organization or in