CHAPTER 1 Strategy – set of policies, procedures and approaches to business that produce long term success. Strategic Management – involves the development of a sustainable competitive position. Strategic cost management – involves the development of cost management information to facilitate the principal management function which is strategic management. Cost management information – is the information that the manager needs to effectively manage the firm, profit oriented as well as not for profit organization. Useful in all organizations ( profit or non profit) Public goods – resources provided by governmental units or charities. Product life cycle – the time from the introduction of a new product its removal from the market is expected to become shorter and shorter. Cost management – is the practice of accounting in which the accountant develops and uses the cost management information. USES OF COST MANAGEMENT INFORMATION 1. 2. 3. 4. Strategic Management – involves the development of a sustainable competitive position in which the firm’s competitive advantage spells continued success. Planning and decision making – cost management information is needed to support recurring decision such as replacing and maintaining equipment, managing cash flow, budgeting raw materials etc. Management and operational control – cost management information is needed to provide a fair and effective basis for identifying inefficient operations and to reward and motivate. Operational Control – takes place when mid level manages, monitors the activities of operating level managers and employees. Management and Control – evaluation of mid level manager by upper level manager. Reportorial and Compliance to Legal Requirements – require management to comply with the financial reporting requirements to regulatory agencies such as SEC and BIR. CHAPTER 2 Line Authority – authority to command action or give orders to subordinates. Line Managers – directly responsible for attaining objectives of the business. Management Accounting – involves the application of appropriate techniques and concepts to economic data so as to assist management in establishing plans for reasonable economic objectives. Management accountants – ( including cost accountants) concerned with providing info to managers, that is people inside the organization who direct and control the operations. Tasks of Management Accountants 1. 2. 3. Cost Benefit Approach – should be in making decisions resources should be spent if they are expected to better attain company goals in relation to the expected cost of these resources. Planning – identifying alternatives and selecting courses of action and specifying how the action will be implemented to further organization’s objectives. Control – evaluating the performance of managers and the operations for which they are responsible. Functional Authority – right to command action, laterally or downward with regard to a specific function or specialty. Performance Report – reports performance of managers. used to evaluate Decision Making – integral part of planning and control process – decision are made to reward or punish the manager and decision are made to change operations or revise plans. Cost Accounting – systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in aggregate or in detail. Cost Management – output of cost accounting. Its purpose is to provide managers with information which aids decision. CFO ( Chief financial officer) – also called as finance director, is the executive responsible for overseeing the financial operations of an organization. Include the ff. areas: Staff Authority – advise but not command exercised laterally upward. Staff Managers – gives support, advice and service to line departments. Scorekeeping or data accumulation – which enables both internal and external parties to evaluate organizational performance and position. Interpreting and reporting of information – helps the manager focus on operating problems, opportunities as well as inefficiencies. Problem Solving – relative merits of possible courses of action as well as recommendations as to best procedure. Commonly associated with non recurring decisions. Controllership – financial information for reports to managers and reports to shareholders and overseeing the overall operations of the accounting system. Treasury – banking and short and long term financing, investments and management of cash. Risk Management – managing financial risk (interest rate, exchange rate and derivatives) Taxation – income taxes, sales taxes, and international tax and planning. a) b) c) d) e) f) Internal Audit – reviewing and analyzing financial and other records to attest to the integrity of the organization’s financial reports and to adherence to its policies and procedures. Controller – financial executive primarily responsible for management accounting and financial accounting. Credit collection Inventory management Corporate pension and retirement fund Investor relations Insurance Compliance with legal and regulatory provisions relating to funds Provide reports for planning and evaluating company activities and provides information needed to make management decisions Has the responsibility for all financial accounting reports and tax fillings with the BIR and other taxing agencies. Ethical Standards for Management Accountants Controllership – is the practice of established science of control which is the process by which management assures itself that the resources are procures and utilized according to plans. Code of Conduct for Management Accountants Basic Function of Controllership Planning – establish and maintain an integrated plan of operation consistent with the company’s goals and objectives. Control - develop and revise standards against which to measure performance and provide guidance and assistance to the other members of management. Reporting – prepare, analyze, and interpret financial results for utilization by management in the decision making process, evaluate the data with reference to company unit objectives. Accounting – design establish and maintain general and cost accounting system at all company levels, including corporate, divisional, plant, and unit to properly record all financial transactions. Other Primary Responsibilities – manage and supervise such functions as taxes, including interface with the perspective taxing authorities and agents maintain appropriate relationships with internal and external auditors. IMA or Institute of Management Accountants of the USA developed a very useful ethical code called the Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management. 1. 2. 3. 4. To maintain a high level of professional competence To treat sensitive matters with confidentiality To maintain personal integrity and To be objective in all disclosing Competence Maintain an appropriate level of professional competence by ongoing development of knowledge and skills Perform their professional duties Prepare complete and clear reports Confidentiality Refrain from disclosing confidential information Inform subordinates as appropriate regarding confidentiality of information Refrain from using or appearing to use confidential information acquired in the course of their work Integrity (Qualifications hahaah nakakattamad itype e) Avoid actual or apparent conflicts of interest Refrain from engaging in any activity that would prejudice their ability to carry out duties Refuse any gift, favor or hospitality that would influence or would appear to influence their actions Treasurership – concerned with the acquisition, financing and management of assets of a business concern to maximize the wealth of the firms for its owners. Objectivity Treasurer – custody of cash and funds invested in various marketable securities. 1. 2. 3. 4. Plays a major role in managing the cash and other lenders. Funds Procurement – involves raising of funds in accordance with the firms planned capital structure. This responsibility may require negotiating for loans, short term or long term Banking and Custody of funds – direct management of cash and cash equivalents and maintenance of good relations with banks and other non banks institution. Investment of Funds – management of company’s placements and securities or purchase of debt or equity instruments such as ordinary or preference shares in other corporate entities. Operating Responsibilities related to: Communicate information fairly and objectively Disclose fully all relevant information CMA Certified Management Accountant – passed the rigorous qualifying examination, has met an experience requirement and participates in continuing education CPA Certified Public Accountant – has met pre qualification educational requirements, passed the CPA licensure examinations given by the Professional Regulatory Board of Accountancy and has satisfied all other legal and regulatory requirements CIA Certified Internal Auditor – an individual must pass a comprehensive examination designed to ensure technical competence and have required number of years work experience CHAPTER 3 Contemporary Business Environment 1. 2. 3. 4. 5. 6. Increase in Global Competition Advances in manufacturing technologies Advances in Information Technology A greater focus on the customer New forms of management organization Changes in social, political, and cultural environment innovation. This perception allows the firm to charge higher prices and outperform the competition. Contemporary Cost Management Techniques a) The Global Business Environment Growth of international markets and trades are the key development that drive the extensive changes in the contemporary business environment Advances in Manufacturing Technologies b) c) Firms around the world adopt new manufacturing technologies to remain competitive in the face of the increased global competition. Speed to Market – have the ability to deliver the product or service faster than a competition A Greater Focus on customers To succeed in this era, customer value is the key focus that business of all types must be concerned with. A key change in increased customer demand for product functionality and quality. d) CHAPTER 4 Strategic Measures Of Success e) Firms uses cost management to support their strategic goals. Financial Performance measures includes: a) b) c) Growth in sales Cash flows Stock price f) Non Financial measures of operations includes: a) b) c) d) Market share Product quality Customer satisfaction Growth opportunities g) The non financial factors show the firms current and potential competitive position 1. 2. 3. The customer Internal business process Innovation and learning h) Strategic financial and non financial measures of success are also commonly called: Critical Success Factor (CSFs) Competitive Strategies i) Cost Leadership – is a competitive strategy in which a firm succeeds in producing products or services at lowest cost in the industry. Product Differentiation – is implemented by creating a perception among consumers that the product or service is unique in some important way, usually by being higher quality, features or j) Total Quality Management – is a technique in which management develops policies and practices to ensure the firms product and services exceed customer expectations. ( focus on serving customer and systematic problem solving) Just – in – Time (JIT) – is the philosophy that activities are undertaken only as needed or demanded. Also known as pull-it-through approach, in which materials are purchased and units are produced only as needed to meet actual customer demand. Process Reengineering – radical approach to improvement that TQM, is an approach where business process is diagrammed in detail. reengineering is a process of creating competitive advantage in which a firm reorganizes its operating and management function business process – is any series of steps that are followed in order to carry out some task in business.\ Benchmarking – is a process by which a firm determines its critical success factors, studies the best practices of other firms and then implements improvements in the firms processes to match or beat the performance of those competitors. Balanced Scorecard – is an accounting report that includes the firms critical success factor in four areas: 1. Financial performance 2. Customer satisfaction 3. Internal business process and 4. Innovation and learning Mass Customization – is a management technique in which marketing and production process are designed to handle the increased variety that results from delivering customized products and services to customers. Activity-based Costing and Management – is used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers. Activity Analysis – is used to develop a detail description of the specific activities performed in the operation of the firm. Activity-based Management (ABM) – uses activity analysis to improve operational control and management control. Theory of Constraints (TOC) – is a 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. Life Cycle Costing – is a management technique to identify and monitor the cost of a product throughout its lifecycle. It consists of all steps from product design and purchase of raw material to delivery of service of the finished product. Target Costing - involves the determination of the desired cost for a product or the basis of a given competitive price so that the product will earn desired profit. TARGET COST = Market determined price – Desired profit k) Computer Aided Design and manufacturing – Computer Aided design (CAD) is the use of computers in product development, analysis and design modification to improve the quality and performance of the product. Computer aided manufacturing (CAM) – is the use of computers to plan, implement, and control production. l) Automation – involves and requires a relatively large investment in computers, computer programming, machines and equipment. Flexible manufacturing system (FMS) – is a computerized network of automated equipment that produces one or more groups of parts or variations of a product in a flexible manner. CHAPTER 5 Budget – is a financial plan of the resources needed to carry out tasks and meet financial goals Budgeting – act of preparing a budget Budgetary Control – uses budget to control a firms activities External Factors (under ng formulation strategy page 100) Competition Technical, economic, political, regulatory, social and environmental factors Internal Factors Financial Strength Managerial talent and expertise Functional structure Organizational culture Long Range Planning – entails capital budgeting, which is a process of evaluating proposed major projects such as purchases Short term Objectives – are goals for the coming period, which can be a month, a quarter, a year, or any length of time desired by the organization for planning purposes. (aralin diagram page 103) Master Budget – overall financial and operating plan for a coming fiscal period and coordinated program for achieving the plan. Usually prepared on a quarterly or an annual basis. Steps in developing master budgets 1. 2. 3. 4. 5. Establish basic goals and long range plans for the company. Prepare a sales forecast for the budget period Estimate the cost of sales and operating expanses Determine the effect of budgeted operating results on assests, liabilities and ownership Summarize the estimated data in the form of projected income statement for the budget period Capital Budgets – long range budgets, which incorporate plans for major expenditure for plant and equipment or addition product lines, might be prepared to cover plans for as long as 5 to 10 years. Computer-integrated manufacturing (CIM) – is a manufacturing system that totally integrates all office and factory functions within a company via a computer-based information network. m) E-Commerce – internet based companies have emerged and been proven successful. ( Amazon.com and eBAY) n) The Value Chain – refers to the sequence of the business functions in which usefulness is added to the products or services of a company. Is any analysis tool that firms use to identify the specific steps required to provide a product or service to the customer. Responsibility Budgets – which are segments of the master budget relating to the aspect of the business that is the responsibility of a particular manager are often prepared monthly. Cash Budgets – may be prepared on a day to day or monthly basis. Cash receipts Cash Disbursements Sales Budget – showing what products will be sold in what quantities at what prices, is the foundation on which all other short term budgets are built. Production Budget – key factor in the determination of other budgets, including the direct materials, direct labor and the manufacturing overhead Budgeting Service Industries – plans for the resources available from operation and the required resources in operations to fulfill budgeted goals Budgeting in not for profit organization – Budgeting in International Setting – Zero base Budgeting – is a budgeting process that requires managers to prepare budgets from a zero base. A zero base budgeting process on the other hand allows no activities or functions to be included in the budget unless managers can justify their needs Activity Based Budgeting – is a budgeting process based on activities and cost driver operations. Kaizen (Continuous Improvement) Budgeting – is a budgeting approach that explicitly demands continuous improvement in operation processes and incorporates the improvements in the budget Ethical Issues in budgeting Goal Congruence – is consistency between the goals of the firm and the goals of its employees Authoritative or Participative Budgeting Authoritative budgeting in top down budgeting process top management prepares budget for the entire organization, including those lower level operations. A participative budgeting process, is a bottom up approach that involves the people affected by the budget, including lower level employees in preparing the budget.
