 and welcome to this session in which we would look at value creation. This topic is covered in cost accounting, the CPA exam, BEC section, as well as the CMA exam. As always, I would like to remind you to connect with me only then, if you haven't done so. YouTube is where you would need to subscribe. I have 1,800 plus accounting, auditing, tax, finance, as well as Excel tutorials. If you like my lectures, please like them and share them. Connect with me on Instagram. If these lectures benefit you, it means they might benefit other people as well. On farhatlectures.com, you will find additional resources to complement and supplement this course, as well as your other accounting and finance courses, as well as your CPA exam. I strongly suggest you check out my website. Let's talk about value created in an organization. And specifically, why start with this value creation? Why start with this value chain? And what is that value chain in an organization? And how does it relate to our topic, which is our course cost accounting? Well, the value chain is a set of activities, a series of activities that's going to transform raw material into finished goods and services and users purchase and consume. So simply put, somehow we are going to take some steps, create something to create value, value to whom, value to the customers, value that we can sell. For example, we might be producing batteries, car batteries for electric cars, and we can sell those to Tesla, we can sell those to other companies as well. So the process to make those car batteries is the value chain. It's that set of activities. Now, within that value chain, there's something called value added activities. What are the value added activities? Those are the activities that the customer perceive as adding utility. For example, we want this battery to have a longer life than the previous ones. Why? Because the customer will perceive it. We want to have a battery that can be easily faster and easily charged. Well, that's going to also add value to the customer. Those are value added activities. So the goal of cost accounting, because the course is cost accounting, is to help assist managers in achieving the maximum value for their organization. So that's our job, as cost accountant or at the cost accounting system, is to help managers achieve the maximum value we can deliver in the organization. Now, to be more specific, the best way is to kind of show you an actual example step by step in which how this all works. For example, again, we're dealing with electric car batteries. So the first thing we do is we have to kind of create an start with an idea. Where does the idea start? It starts with research and development. The creation and development of ideas related to a new product, service or process. Well, how does the cost accounting system plays a role here? Well, we need to hire and pay research personnel. We need to apply and pay for patent application. We need laboratory facilities. All of those, they consume cost. So those costs, they will need to be tracked, analyzed, and reviewed. So now we are starting to create some value with the idea. Once the idea can be designed, so the next step in this value chain process is the design, well, guess what? The value of the product increase. Now we have a design. What is a design? A detailed development and engineering of the product, services or process. Now, we are going to have a design center, engineering facilities used to develop and test the prototype. Again, we are going to have cost involved in this process. So notice the costing system is guiding us throughout the way by providing numbers and figures to the creators of the product or to the company for that matter. Once we design the product and it's a viable product, we have a prototype. Now we have to purchase. We have going through the purchase step. We have to purchase the raw material that's going to go onto the product. Well, the acquisition of goods and services needed to produce. Well, we need to look at the purchasing department personnel. We need to hire them. We need to look at our vendor certified and make sure they meet our requirement. Then once we have the raw material, we're going to start the production process. Again, this is always, we're discussing part of the value chain. Here with the collection and assembly of resources to produce the product or deliver the service. Here we need actual machinery, equipment and factory personnel that's going to produce this car batteries. And remember throughout the way, we are dealing with all sorts of different costs. So we need to keep track of that need the costing system. Once the product is done, we're going to have to market the product and sell it. Again, this is part of the value chain. We're adding value because if we produce it and we don't market it and sell it, how good it is. So the process of informing potential customers about the attribute of the product and services that leads to their sale through advertisement, focus group, product placement, as well as other venues. Well, then after we sell it, we have to distribute it. This is also part of this process. The process of delivering product or services to customers. We can use trucks, fuel, website, website creation, hosting and maintenance. Then at the end, after we sell it, we have to make sure the customer is happy. We have to provide post sale service. And this is where our customer service, think about it. If you buy a product, you want to make sure, you want to make sure that the product is serviced in case something happened to it. In case you have any questions, you have to have a customer service such as a call center personnel, return processing and warranty repair. So those are all part of the value chain component. And cost accounting will help in all of them because we are dealing with cost in every step of the way. Let's talk about administrative functions, supply chain and distribution chain. Administrative functions such as HR and accounting are not part of the value chain itself. They are included instead in every business function of the value chain. For example, you will need for the purchasing, you will need to have higher people, you need accounting records for the production, the same thing. So they are included in every business function, but they are not included as part of the value chain. This is basically the value chain that's adding, that's the value creation. This is what adds value to the customer, to the customer and to our product. The supply chain, what is a supply chain? It includes sets of firms and individuals that sell goods to us, to the firm. So we're going to have a supply chain. Someone is going to supply us with the product needed for production. So after we purchase it, we produce it, but we need someone. We have to have a supply chain. We have to have reliable suppliers, suppliers that can deliver quality product that's going to go into our final ending goods. And the distribution chains, it includes sets of firms and individuals that buys and distributed the goods and services from us. Again, here we are talking, we're done with everything, we sold it, now we're going to distribute it. Now those two, these suppliers and customers are the firm, they are called the firm boundaries. Therefore, the supply chain and distribution are part of the value chain outside the firm, they're outside the firm, they're outside the company itself because one supplies us, the other one delivers the final product from us. So simply put, this is basically the value chain and how does it relate to cost accounting. In the next session, we would look at the difference in cost accounting and financial accounting because this is a cost accounting course. You want to make sure you know the difference between the two. Also, when we talk about cost accounting, we're going to go back and talk a little bit about how does cost accounting add value to this process. As always, I'm going to remind you if you like this recording to share it and to visit my website farhatlectures.com, if you're interested in additional material, additional resources for this course as well as your other accounting courses and CPA exam. Good luck, study hard, and more importantly, stay safe.