Chapter 12: Introduction to Cost Management Systems IM 10
posted to a publicly accessible website, in whole or in part.
2. Motivational elements
a. Performance measures are chosen to be consistent with organizational goals and
i. These measurements may be quantitative or nonquantitative, financial or
nonfinancial, and short-term or long-term.
transactions and accruals by managers to distort the performance measurements of
the accounting system.
d. Firms develop internal controls to protect the integrity of financial reports and to
safeguard assets.
its subunits; and
iii. help recruit and retain qualified employees.
f. Different forms of rewards have different incentive effects and can reflect different time
orientations.
oriented in their decisions.
g. Performance rewards for top managers may consist of both short-term (e.g., cash) and
long-term incentives (e.g., stock options).
h. The rewards for subunit managers should be based on the specific subunit’s mission.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
to the short term.
i. Today’s companies experiment with a variety of incentives as carrots to induce
employees and managers to act in the best interest of shareholders.
i. Profit sharing refers to compensation that is contingent on the level of
organizational profit generated.
selected performance measurement and reward criteria.
k. Performance measurement is meaningful only in a comparative or relative sense.
3. Information elements
a. A CMS should be able to provide the financial information necessary for budget
offerings.
i. In the future, managers will confront the fact that products will spend less time in the
competitive conditions.
Text Exhibit 12.13 (p. 489) illustrates the shift in control emphasis of future
competitive environments which will increase the importance of competitive
flexibility.
c. The accounting information system must be able to relate resource consumption and
to product design and development.
d. The system should produce cost information with minimal distortions from improper or
inaccurate allocations or from improper exclusions.
i. Because the information required to support decisions depends on the unique
situational factors of the firm and its subunits, the information system must enable
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
management, job order and process costing, and cost-volume-profit analysis, relate
to the role of cost information in decision making.
4. Reporting elements
a. The CMS must be effective in generating fundamental financial statement information
b. A responsibility accounting system provides information to top management about the
c. Performance reports are useful only to the extent that the measured performance of a
d. The movement toward delegation of authority, or decentralization, has increased the
e. Only by linking costs to activities and activities to strategies, can the yield on costs be
understood.
i. This logic suggests that organizational management is made easier by breaking
down operations into subunits.
ii. Top managers can assign responsibility and accountability for distinct subunit
missions to a particular manager.
f. Costs can be managed effectively by subunit managers only when they are provided
with relevant information.
g. A reporting system provides a comparison of expected to actual performance for each
manager.
i. Optimal organizational performance is realized only if there is consistency for each
h. One of the evolving challenges in today’s business environment is the management of
activities across the entire supply chain.
i. Future financial specialists will develop cost management systems that include
LO.6: What is gap analysis, and how is it used to update a cost management system?
G. Perform Gap Analysis and Assess Improvements
Chapter 12: Introduction to Cost Management Systems IM 13
posted to a publicly accessible website, in whole or in part.
1. Gap analysis is the study of the differences between two information systems, often a
current system and a proposed system.
potentially because of software or hardware capability or availability.
d. Methods of reducing or eliminating the gaps should be specified in detail, qualitatively
order.
i. Once the CMS has been established, previously identified gaps can become
irrelevant or can rise in rank of priority.
2. Technological impact on cost management system design and implementation is significant.
a. With advancements in technology, it is becoming possible to link a company’s feeder
systems into a truly integrated CMS.
systems that allow companies to:
Manage and coordinate a myriad of organizational activities;
Present complex project information in a way that indicates current status;
Improve operational efficiencies and timeliness of information;
globally;
Take advantage of cost savings from shared service centers; and
Contribute substantially to competitive advantage and strategic value.
3. ERP software often involves a large number of separate modules that collect data from
1. Computer Aided Manufacturing-International, Inc. (CAM-I) formed a consortium of
posted to a publicly accessible website, in whole or in part.
Chapter 12: Introduction to Cost Management Systems IM 15
Multiple Choice Questions
1. (LO.1) Select the incorrect statement concerning the historical relationship between cost
accounting systems and financial accounting systems.
a. The two systems often compete.
management purposes.
2. (LO.1) A structure of interrelated elements that collects, organizes, and communicates data
a. cost management system (CMS).
b. enterprise resource planning (ERP) system.
3. (LO.1)Which of the following is not a primary component of a management control system?
a. Assessor
4. (LO.2) Which of the following is not an organizational role of a cost management system?
a. Help manage core competencies
d. Identify the organization’s mission
5. (LO.3) Which of the following is not a primary goal of a cost management system?
a. Assess product/service life-cycle performance
b. Develop accurate product costs
d. Measure performance
6. (LO.3) The product/service costs generated by the CMS are used for which of the following
purposes?
a. Prepare financial statements
7. (LO.4) The relative composition of an organization’s fixed and variable costs and, thus, how
a. cost behavior.
b. cost horizon.
c. cost pattern.
d. cost structure.
8. (LO.4) The underlying set of assumptions about the entity and the goals, processes,
practices, and values that its member share is referred to as its:
a. mission.
b. strategic plan.
Chapter 12: Introduction to Cost Management Systems IM 16
9. (LO.4) The strategy of identifying and exploiting temporary opportunities for advantage is
known as a
a. confrontational strategy.
10. (LO.4) Core competencies which are the operational dimensions that are key to the
company’s survival include:
a. quality.
11. (LO.4) Select the incorrect statement from the following.
a. High-tech companies can’t pursue a cost leadership strategy due to the high costs of
technology.
b. Management of high technology costs requires beating competitors to the market with
12. (LO.4) Cost control (Cost Leadership), product replacement (Product Differentiation), and
Distribution channel development (Confrontation) are activities for which product life cycle?
a. Build
b. Harvest
c. Hold
d. Grow
a. cash incentive plan.
b. short-term performance incentive.
competitive environments?
a. Performance Measurement: From concentrating on multiple types of critical success
measures to concentrating on financial results
15. (LO.6) Which of the following is not an objective of enterprise resource planning systems?
a. Manage and coordinate a myriad of organizational activities
Chapter 12: Introduction to Cost Management Systems IM 17
Multiple Choice Solutions
1. c
2. d
3. b
4. d
5. c