STRAT COST REV

CH. 1 1. PLANNING AND DECISION MAKING - To

 STRATEGY - A set of policies, procedures, and support recurring decision
approaches to business that produce long-term - involves budgeting, profit planning, cash flow
success (goals, specific actions) (game plan) management

 STRATEGIC MANAGEMENT - involves the 2. MANAGEMENT AND OPERATIONAL

development of a sustainable competitive CONTROL
position. - provide a fair and effective basis for identifying
inefficient operation and to reward and motivate the
 STRATEGIC COST MANAGEMENT - most effective managers.
development of cost management info to
facilitate the principal management function  Operational Control – takes place when mid-
which is strat man. level managers monitors operating-level
managers and employees.
 COST MANAGEMENT INFORMATION - The
information that the manager needs to effectively  Management Control – evaluation of mid-
manage the firm. level managers by upper-level managers

- Includes both financial (cost and revenues) and 3. REPORTORIAL AND COMPLIANCE TO LEGAL
non-financial (productivity, quality, & other key REQUIREMENTS
success factors) information - comply with the financial reporting requirements to
regulatory agencies. (SEC, BIR)
 COST MANAGEMENT - Practice of accounting - Involves financial statement preparation
in which the accountant develops and uses cost
management information.  MANAGEMENT ACCOUNTING
- Involves the application of appropriate
- for success must both focus on financial and non techniques and concepts to economic data so as
financial info, long term measures of operating to assist management in establishing plans for
performance. reasonable economic objectives and in the making of
rational decisions with a view toward achieving these
- a value added concept (adds value by helping a objectives.
firm be more competitive)
- preparation of financial reports for non-
management groups (shareholders, creditors etc)

 Management Accountants - develop and

analyze cost management info & other acctng
info.

 concerned with providing information to

managers – people who direct and
control the operations of the
organization.

 TASKS of Management of accountants

 Cross functional teams - view problems in an integrative
approach that combines skills from all functions
1. Scorekeeping or Data accumulation - internal
and external parties to evaluate org performance
 USERS OF COST MANAGEMENT
& position
INFORMATION
2. Interpreting and reporting of information - helps
- useful in all organizations: business firms,
to focus on operating problems & inefficiencies
governmental units, and not-for-profit organizations.
3. Problem Solving - quantification of relative
 Business firms categories
merits of possible courses ( non recurring
 merchandising, manufacturing, and service.
decisions)
 Wholesalers ( merch firm sells to other
merch firm)
 Guidelines:
 Retailer ( merch to customer)
a. Employ a Cost-benefit approach
b. Recognize behavioral and technical
 Government and Not-for-profit Organizations
considerations
(service) - public goods
c. Use appropriate cost concepts for different
purposes
1. STRATEGIC MANAGEMENT - Involves the
development of a sustainable competitive position in
which the firm’s competitive advantage spells
continued success.
 PLANNING - Involves setting of goals for the  Top Management’s Involvement - Set
firm, evaluating various ways to meet the goals management policy, establish context, set
- identifying alternatives & selecting a course of limits and tolerance, etc.
action
- communicates a company’s goals to employees,
and specifies resources needed
- often expressed in “budgets”
** Plans should be SMART (Specific, Measurable,
Attainable, Realistic and Time-bounded).

 CONTROLLING - if actual performance

conforms with planned goals
- eval performance of managers (reward or not) &
operations (expand, modify etc.)
- controls the future actions of an organization by
deciding corrective actions

 DECISION MAKING - involves determination of

predictive info.

 DIRECTING or ORGANIZING - tackling

activities because management instructs,
guides and inspires employees by
communicating with them.

- “taps” the resources of an organization for

better use or consumption which shall be in
accordance with the plan.
- Management oversee the day-to-day
operations

 Cost Accounting - Systematic set of procedures

for recording and reporting measurement of the
cost of manufacturing goods and performing
services in the aggregate and in detail.

 Cost Management - Needs the output of cost

3. CORPORATE SOCIAL RESPONSIBILITY
accounting – to provide managers with
PERSPECTIVE
information which aids decision.
 (CSR) - is a concept where business
- Accounting reports are tailored to the needs of the
organizations consider the needs of all
decision and decision makers
stakeholders when making decisions.
( customers, suupliers, creditors, stockholders,
 BASIC COST MANAGEMENT PERSPECTIVES
employees, communities, human right advocate etc.)
1. STRAT MAN. PERSPECTIVE - generate profit by
4. PROCESS MANAGEMENT PERSPECTIVES
attracting customers , creating value while
differentiating from competitors
 Business Process - A series of steps that are
followed in order to carry out some tasks in a
 Customer Value Proposition - essence of
business – serve the needs of customers
strategy
 Value Chain - Describe how an organization's
functional departments interact with one
another to form business process.
Business Functions are:
A. Research and Development
B. Distribution
C. Product Design
d.Customer Service
2. Enterprise Risk Management Perspective - Is a E. Manufacturing
process used by an entity to identify those risks
and develop responses to them that enable it to be  Lean Production
assured of meeting its goal - For manufacturing sector
- A process management approach that organizes
 Risk Management System - Establish goals resources such as people and machines around the
and objectives, roles and responsibilities, flow of business processes and that only produces
common language, and oversight structure. units in response to customer orders
 integrity of the organization's financial reports
and to adherence to its policies and procedures.

 Controller - (also called the chief accounting

officer) is the financial executive primarily
responsible for management accounting and
financial accounting.

 Controllership - is the practice of the established

science of control which is the process by which
management assures itself that the
resources are procured and utilized
according to plans in order to achieve the
company's objectives.

 Basic Functions of Controllership

1. Planning - Establish and maintain an integrated

plan of operation consistent with the company's
goals and objectives
CH. 2
2. Control - Develop and revise standards against
 Line authority - is the authority to command
which to measure performance and provide guidance
action or give orders to subordinates.
3. Reporting - Prepare, analyze, and interpret
 Line managers are directly
financial results for utilization by management in the
responsible for attaining the
decision-making process
objectives of the business firm as
efficiently as possible ( ex: sales &
4. Accounting - Design, establish, and maintain
production manager)
general and cost accounting systems
 Staff authority - is the authority to advise but
5. Other Primary Responsibilities - Manage and
not command others; it is exercised laterally or
supervise such functions as taxes
upward.
- give support, advice and service to line
 Treasurership - is concerned with the
departments. (personnel, purchasing, engineering
acquisition, financing and management of
and accounting).
assets of a business concern to maximize the
wealth of the firms for its owners.
 Functional authority - which is the right to
command action, laterally or downward, with - treasurer has custody of cash and funds invested in
regard to a specific function or specialty. various marketable securities,
- responsible for maintaining relationships with
 Chief financial officer (CFO) - also called the investors, banks, and other creditors
finance director in many countries is the - plays a major role in managing cash
executive responsible for overseeing the
financial operations of an organization. In most firms the treasurer has the following
responsibilities:
 Responsibilities:
1. Funds Procurement - involves raising of funds.
1. Controllership - includes providing financial 2. Banking and Custody of Funds - involves direct
information for reports to managers and management of cash and cash equivalents
reports to shareholders and overseeing the 3. Investment of Funds - involves management of the
overall operations of the accounting system. company's placements and securities
4. Operating Responsibilities
2. Treasury - includes banking and short and long-
term financing, investments, and management of  Management Accountant (ethical
cash. responsibilities)
3. Risk management - includes managing the 1. to maintain a high level of professional
financial risk of interest-rate and exchange-rate competence,
changes and derivatives management. 2. to treat sensitive matters with confidentiality,
3. to maintain personal integrity, and
4. Taxation - includes income taxes, sales taxes, 4. to be objective in all disclosing.
and international tax planning.

5. Internal audit - includes reviewing and analyzing

financial and other records to attest to the
 - add new features and new products as quickly
as possible, shorter product life cycle thereby
increasing the overall intensity of competition. The
new business process focuses on customer
satisfaction.

 two general strategies:

CH. 3
(a) cost leadership, and
CONTEMPORARY BUSINESS ENVIRONMENT (b) superior product through differentiation.

 Business environment - in recent years has A focus on customer value means that the
been characterized by increasing competition management accounting system should produce
and relentless drive for continuous improvement. information about both realization and sacrifice.

 changes include 5. New Forms of Management Organization

(1) an increase in global competition
(2) advances in manufacturing technologies - shifted from financial and profit-based measures, of
(3) advances in information technologies, the performance to customer-related, nonfinancial
Internet, and e-commerce performance measures such as quality, time to
(4) a greater focus on the customer delivery and service.
(5) new forms of management organization
-from hierarchical command-and-control type of
(6) changes in the social, political, and cultural
organization is being replaced by a more flexible
environment of business.
organizational form ( focus on teamwork)
 As businesses turned global and product lines
*look at figure 3-1 in page 58-59*
expanded, operations have become more
complex, forward-looking companies saw a
6. Changes in the Social, Political, And Cultural
tremendous need for management oriented data
Environment of Business
 domestic markets on virtually every country - include a more ethically and racially diverse
face greater challenges from foreign workforce
competition - flexible and adaptable and to place greater
responsibility in the hands of a more highly skilled
1. The Global Business Environment
workforce.
- growth of international markets and trade are the
key development that drive the extensive charges  Critical success factors - measures of those
in contemporary business environment. aspects of a firm's performance essential to its
competitive advantage.
 Global business environment - is very
CH.4
competitive and firms need cost management
 Strategy - is a set of policies, procedures and
information to sustain competitiveness.
approaches to business that produce long-term
success.
2. Advances in Manufacturing Technologies - adopt
new manufacturing technologies to remain - begins with determining the purpose and long-
competitive in the face of the increased global range direction or on in other words, the mission of
competition. the company.
- firm succeeds by implementing a strategy
Ex: just-in-time inventory
- A key competitive edge that forms have is the  Strategy specifies how an organization matches
ability to deliver the product or service faster than the its own capabilities with the opportunities in
competition. This is known as speed-to-market. the market place to accomplish its objectives.
3. Advances in Information Technologies, The - how a compete will compete and the opportunities
Internet and E-Commerce its employee should seek and pursue.
- most fundamental of all business changes in recent STRATEGIC MEASURES OF SUCCESS
years.
- manifested in the rapid growth of Internet-based Firms use cost management to support their
firms (the dot-com's such as Amazon, eBay, and E- strategic goals
trade)
 Financial performance measures include among
4. A Greater Focus on Customers - customer value others
is the key focus that businesses of all types must a. growth in sales and earnings
be concerned with. b. cash flows
- A key change in increased customer demand for c. stock price
product functionality and quality.
- financial position and therefore, its current return to  The two major characteristics of TQM are
the shareholders. (1) a focus on serving customers, and
(2) systematic problem-solving using teams made up
 Non-financial measures of operation include of front-line workers.
among others
a. market share b. Just-In-Time ( JIT) - pull it through approach
b. product quality - Pag may demand lang saka na gawa
c. customer satisfaction - activities are undertaken only as needed or
d. growth opportunities demanded.
- materials are purchased and units are produced
- show the firm's current and potential competitive only as needed to meet actual customer demand.
position - inventories are reduced to the minimum and in
some cases, zero.
- Strategic financial and nonfinancial measures of
success are also commonly called: Critical Success  Financial Benefits of JIt
Factors (CSFs 1. Lower investment in inventories.
2. Reductions in carrying and handling costs of
inventories.
*look at page 72* 3. Reductions in risk of obsolescence of inventories.
4. Lower investment in plant space for inventories
 Consequences of Lack of Strategic Information and production.
Decision making based on intuition 5. Reductions in setup costs and total manufacturing
Lack of clarity about direction and goals costs.
Lack of clear and favorable perception of the firm by
customers and suppliers  Major Features of JIT Production System
There are five main features in a JIT production
COMPETITIVE STRATEGIES system:
1. Cost Leadership - quality product @low price
- producing products or services at the lowest cost 1. Production is organized in manufacturing cells, a
in the industry. grouping of all the different types of equipment used
- A firm that is a cost leader makes sustainable to manufacture a given product.
profits at lower prices,
- ex: JFC, Purgold, Cebu Pacific 2. Workers are trained to be multiskilled so that
they are capable of performing a variety of
2. Product Differentiation - focus on product unique operations and tasks.
feature ( charge higher prices)
3 Total quality management is aggressively
-usually by being of higher quality, features or pursued to eliminate defects
innovation.
- Ex: Tiffany, Rolex, Ferrari and BMW are good 4. Emphasis is placed on reducing setup time,
examples of firms that emphasize differentiation.
5. Suppliers are carefully selected to obtain delivery
Distinctive Aspects of the Two Competitive of quality-tested parts in a timely manner.
Strategies
c. Process Reengineering - Reengineering is a
process for creating competitive advantage in
which a firm reorganizes its operating and
management functions, often with the result that
jobs are modified, combined, or eliminated.

- "fundamental rethinking and radical redesign of

business processes to achieve dramatic
improvements in critical, contemporary measures of
performance, such as cost, quality, service, and
speed.

CONTEMPORARY COST MANAGEMENT  business process - is any series of steps that are
TECHNIQUES followed in order to carry out some task in a
business.
a. Total Quality Management
- must produce high-quality products.  main objective:is the simplification and
- management develops policies and practices to elimination of wasted effort
ensure that the firm's products and services (exceed
customers) expectations. - all activities that do not add value to a product or
service should be eliminated. In its most simplified
- TQM affects product costing by reducing the need version, the steps used in process reengineering are
to track the cost of scrap and rework related to each
job.
 recurrent problem: that is employee
resistance.  Computer-aided design (CAD) is the use of
computers in product development, analysis,
d. Benchmarking - a process by which a firm and design modification to improve the quality
determines its critical success factors studies the and performance of the product
best practices of other firms (or other units within a
firm) for achieving these critical success factors, and  Computer-aided manufacturing (CAM) is the
use of computers to plan, implement, and control
e. Mass Customization - products and services to production.
be developed for each customer's unique needs.
- ex: uniqlo l. Automation
 Computer-integrated manufacturing (CIM) - is
f. Balanced Scorecard a manufacturing system that totally integrates all
accounting report that includes the firm's critical office and factory functions within a company via
success factors in four areas a computer-based information network to allow
hour-by-hour manufacturing management.
(a) financial performance,
(b) customer satisfaction, m. E-Commerce - Amazon.com and eBay has also
(c) internal business process, and
(d) innovation and learning. n. The Value Chain - refers to the sequence of
business functions in which usefulness. is added
g. Activity-based Costing and Management to the products or services of a company.

Activity analysis - is used to develop a detailed - analysis tool that firms use to identify the specific
description of the specific activities performed in steps required to provide a product or service to
the operation of the firm. the customer.

The activity analysis provides the basis for activity- Analyzing the firm's value chain helps management
based costing and activity-based management. discover

 Activity-based costing (ABC) is used to improve - which steps or activities are not competitive
the accuracy of cost analysis by improving the - where costs can be reduced, or
tracing of costs to products or to individual - which activity should be outsourced, and
customers.
 Internal value chain - is the set of activities
 Activity-based management (ABM) - uses required to design, develop, produce, market
activity analysis to improve operational control and deliver products or services to customers
and management control.

h. Theory of Constraints (TOC)

- focus on barrier
- sequential process of identifying and removing
constraints in a system.
- emphasizes the importance of managing the
organization's constraints or barriers that hinder
or impede progress toward an objective.

 The basic sequential steps followed in applying

TOC are: analyze production chain, identify
weakest link then focus on improving those.

i. Life Cycle Costing - identify and monitor the

costs of a product throughout its lifecycle.
- all steps from product design and purchase of raw
material to delivery of and service of the finished
product.

j.Target Costing - determination of the desired cost

for a product or the basis of a given the determine
price so that the product will earn a desired profit.

k.Computer-Aided Design and Manufacturing

More companies are using computer-aided design

(CAD) and computer-aided manufacturing (CAM) to
respond to changing consumer tastes more
quickly .