NAME: JONAIRA A LAGUINDAB
COURSE TITLE: STRATEGIC COST MANAGEMENT
CREDIT: 3 UNITS
DISCUSSIONS
1. Give 4 examples of firms you think would be significant users of cost management information and explain
why?
Firms Using Cost Management. Here are some examples;
 Wal-Mart: to keep costs low by streamlining restocking and sales
 COMPAQ: to keep costs low by improving manufacturing performance and by using target costing and
other management techniques
 A local school district or public agency: to keep costs low in order to provide the best possible service
given available funds
 A small machine shop: which needs cost management to determine whether it should repair or replace a
machine
2.Give 3 examples of firms you think would not be significant users of cost management information and explain
why.
Firms not expected to be significant users of cost management information:
 Microsoft: here the focus is on forming strategic alliances, innovation and competition; cost management
is more important for other firms in the information technology business, such as COMPAQ, Hewlett
Packard, and IBM that compete in part on innovation but also on price
 Versace: a high fashion firm competes on innovation and product leadership; the development and
communication of attractive new ideas is the key to competitive success rather than cost management
 Other firms in the fashion industry, such as Chanel, Givency, and Armani: for reasons similar to Versace
3. What is meant by the term “cost management”? Who in the typical firm or organization is responsible for cost
management?
 Cost management information is a broad concept. It is the information the manager needs to effectively
manage the firm or not-for-profit organization -- both financial information about costs and revenues and
relevant non-financial information about productivity, quality, and other key success factors for the firm.
Typically, cost management is the responsibility of the Chief Financial Officer (CFO) who often delegates
much of this responsibility to the Controller.
4. List the 4 functions of management. Explain what type of cost management information is appropriate for
each.
The four functions of management are:
1. Strategic Management -- information is needed by management to make sound strategic decisions
regarding choice of products, manufacturing methods, marketing techniques and channels, and other
long term issues.
2. Planning and Decision Making -- information is needed to support recurring decisions regarding
replacement of equipment, managing cash flow, budgeting raw materials purchases, scheduling
production, and pricing.
3. Management and Operational Control -- information is needed to provide a fair and effective basis for
identifying inefficient operations, and to reward and support the most effective managers.
4. Preparation of Financial Statements -- information is needed to provide accurate accounting for
inventory and other assets, in compliance with reporting requirements, for the preparation of financial
reports and for use in the three other management functions.
5. Which is the most important function of management, and why?
 Strategic management is the most important management function since it most directly relates to the
overall success of the firm. In strategic management, top managers determine how the firm is to compete
and what specific goals it must set and achieve to be successful. The determination of these strategies
and goals drives all other activities in the firm.
6. Identify the different types of business firms and other organizations that use cost management information
and explain how the information is used.
 Merchandising firms purchase goods for resale. Merchandisers that sell to othe merchandisers are called
wholesalers, while those selling directly to consumers are called retailers. Examples of merchandising
firms include the large retailers, such as Sears, Wal-Mart, and Radio Shack. Merchandisers use cost
management information to control stocking, distribution, and customer service.
 Manufacturing firms use raw materials, labor, and manufacturing facilities and equipment to produce
products. These products are sold to merchandising firms or to other manufacturers as raw materials for
additional products. Examples of manufacturers include General Motors, IBM, and Sony. These firms use
cost management information to control production costs.
 Service firms provide a service to customers that offers convenience, freedom, safety, or comfort.
Common services include transportation, financial services (banking, insurance, accounting), personal
services (physical training, hair styling), medical services, and legal services. These firms use cost
management information to identify profitable services and to control costs incurred in providing services.
7.Name a firm or organization you know of that you are reasonably sure uses strategic cost management and
explain why it does so.
 One great example of a firm that reasonably uses strategic cost management is General Motors. It was
incorporated in Delaware in 2009. The company designs, manufacture, and sells various vehicles. Among
the vehicles sold includes trucks, cars, vehicles, and it is the second-largest automobile manufacturer in
the world. Since General Motors Company is a manufacturing company, it surely uses strategic cost
management in accurately computing the cost of the products and specify if the variable and fixed costs.
According to the research of Antoinette L. Lynch, it was in 1993 when General Motors adopt the ABC
costing method in their company. They established ABC costing, and this was aimed at helping the
company in determining the true cost for a service, product, or job. The decisions promoted by ABC
promote consistent with lean production, and this includes a reduction in inventories, increase of the
common components, quality increasing among others.
 8. “Managers need accounting information and need to know how to use it.” Critically evaluate this
statement.
 Managerial accounting is a common practice within an organisation where accounting information is
identified, measured, analysed, interpreted and communicated to relevant parties to pursue a goal.
Accounting information can be analysed in different ways and be used for different purposes. It’s
important to identify the type of decision that needs to be made to ensure that the correct accounting
information is gathered and analysed for the best decision making. For instance, an organisation that
wants to attract investors will depend mostly on cash flow statements and cash flow forecasts, the
income statement and a balance sheet, whereas an organisation that needs to apply for a loan will rather
look into certain ratios such as debt to equity and debt to service coverage ratios.
 Managerial accounting is mostly used in scenarios where quick decisions need to be made to help
managers optimise business operations. Accounting information is used by managers to plan, evaluate
the company performance and manage risks. Budgeting is a great part of an organisation and financial
reporting can help a manager to set a realistic budget and identify the need for funding. To measure the
company’s performance certain ratios can be used such as the liquidity ratio which measures the
company’s ability to generate cash to meet the short-term financial commitments, efficiency ratio that
mostly relates to the inventory turnover and the profitability ratio can be used to measure the return on
assets and net profit margins.
8. “Managers need accounting information and need to know how to use it.” Critically evaluate this statement.
Managerial accounting is a common practice within an organisation where accounting information is identified,
measured, analysed, interpreted and communicated to relevant parties to pursue a goal. Accounting information
can be analysed in different ways and be used for different purposes. It’s important to identify the type of decision
that needs to be made to ensure that the correct accounting information is gathered and analysed for the best
decision making. For instance, an organisation that wants to attract investors will depend mostly on cash flow
statements and cash flow forecasts, the income statement and a balance sheet, whereas an organisation that
needs to apply for a loan will rather look into certain ratios such as debt to equity and debt to service coverage
ratios.
Managerial accounting is mostly used in scenarios where quick decisions need to be made to help managers
optimise business operations. Accounting information is used by managers to plan, evaluate the company
performance and manage risks. Budgeting is a great part of an organisation and financial reporting can help a
manager to set a realistic budget and identify the need for funding. To measure the company’s performance
certain ratios can be used such as the liquidity ratio which measures the company’s ability to generate cash to
meet the short-term financial commitments, efficiency ratio that mostly relates to the inventory turnover and the
profitability ratio can be used to measure the return on assets and net profit margins.processes and prices, the
historical costs are inadequate approximations of the opportunity costs of using resources. Historical costs may,
however, be useful for control purposes, as they provide information about the activities of managers and can be
used as performance measures to evaluate managers.
 Should accounting systems be limited to historical costs? The purpose of accounting systems is to provide
information for planning purposes and control. Although historical costs are notgenerally appropriate for
planning purposes, additional measures arecostly to make. An accounting system should include
additionalmeasures if the benefits of improved decision making are greater than the costs of the
additional informations.
10. Dana Florenco, a finance professor, and Cristine Remote, a marketing professor, were recently comparing
notes on their perceptions of corporations. Dana Florendo claimed the goal of a corporation should be to
maximize the value to the shareholders. Cristine Remot claimed that the goal of a corporation should be to
satisfy customers. What are the similarities and differences in these two goals?
The financial department goal is to maximize shareholder wealth. And the goal of marketing department is to
satisfy customers. The main similarity of these goals is that both the goals tend to maximize the profit of
corporation, but setting different targets to reach this maximization. The main difference is that marketing
department sets the needs of a customers as the main goal to achieve, and if the needs are satisfied, there is a
demand for corporation products and it is profitable, so the shareholders wealth will be maximized. But financial
department sets the shareholders wealth as the main goal, but the reaching of it not always will cause the
satisfying of the customer needs. So, apparently the goal of marketing department is better, as both customers
and shareholders will be satisfied.
11. How do management accountants support strategic decisions?
 cost accounting is an effective management tool that enables a company to measure profitability by
capturing key information by recording and tracking the data necessary for operating the company most
efficiently and profitably. Managing costs to remain profitable is a critical priority across every industry
sector, which means relying on data to make smart and educated choices. Having the right data available
is key for every decision maker. This requires owners to have an understanding of the full costs for
producing their products and services, including variable and fixed costs which are those costs that tend
to remain the same regardless of seasonality or busy time periods and which do not rise and fall based on
the volume of work. All costs need to be part of the analytics that owners draw on when evaluating the
company’s success and cost accounting is a tool to use to identify and then reduce or eliminate some of
the costs in a business to increase profitability.
12. Define the term strategic cost management?
 Strategic cost management is the process of reducing total costs while improving the strategic position of
a business. This goal can be accomplished by having a thorough understanding of which costs support a
company's strategic position and which costs either weaken it or have no impact. Subsequent cost
reduction initiatives should focus on those costs in the second category. Conversely, it may be useful to
increase costs that support the strategic position of the business.
13. What is meant by a business strategy?
 Business strategy is a clear set of plans, actions and goals that outlines how a business will compete in a
particular market, or markets, with a product or number of products or services.
14. What information does cost accounting provide?
 Cost accounting is the reporting and analysis of a company's cost structure. Cost accounting is a process of
assigning costs to cost objects that typically include a company's products, services, and any other
activities that involve the company. Cost accounting is helpful because it can identify where a company is
spending its money, how much it earns, and where money is being lost. Cost accounting aims to report,
analyze, and lead to the improvement of internal cost controls and efficiency. In short, cost accounting is
a system of operational analysis for management.
15. How do cost accountants support strategic decisions?
 Cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative
courses of action. Its goal is to advise management on the most appropriate course of action based on the
cost efficiency and capability. Cost accounting provides the detailed cost information that management
needs to control current operations and plan for the future.
 Cost accounting is a business practice in which you record, examine, summarize, and understand the
money that a business spent on a process, product, or service. It can help an organization control costs
and engage in strategic planning to improve cost efficiency. Cost accounting helps management decide
where they need to cut back and where they need to increase costs.
 Cost accounting differs from financial accounting because its reporting is generally only used internally,
for decision making. Because financial accounting is employed to produce financial statements for
external stakeholders, such as stockholders, vendors or lenders, it must follow a specific set of accounting
rules and guidelines. Cost accounting does not, it is designed to get you information to help you
understand and manage your business. The most important aspect is the information must be relevant
for a particular situation and measure a product, process or service on a consistent basis. Therefore, you
have flexibility in how you design your cost accounting and reporting system.
Cost accounting allows you to understand the following:
 Cost behavior. For example, will the costs increase or stay the same if production of your product or
service goes up?
 Appropriate prices for your goods or services. Once you understand cost behavior, you can adjust your
pricing based on the current market or focus on the more profitable items.
 You can create more effective budgets if you know the real costs of the final product or your service.
References:
https://www.thestrategywatch.com/why-planning-is-the-most-important-function-in-management/
https://www.academia.edu/7933404/CHAPTER_1_COST_MANAGEMENT_AN_OVERVIEW_QUESTIONS
https://www.assignmentexpert.com/homework-answers/management/question-167822
Understanding Profitability. www.extension.iastate.edu
Cost Accounting. En.wikipedia.org
Cost Accounting: The Key to Managing profitability in Healthcare. Jay Spence. AxiomEPM.
https://www.accountingtools.com/articles/strategic-cost-management.html
https://www.investopedia.com/ask/answers/041615/what-are-main-objectives-cost-accounting.asp