01.

COST MANAGEMENT AND STRATEGY

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

●​ Transform the data to cost management

01 COST MANAGEMENT AND STRATEGY
information;
●​ Through analysis and use of the management
TOPIC OVERVIEW accountant's expertise of cost management
information is combined with other
I.​ Management Accounting and the Role of
information about the organization’s strategy
Cost Management
and competitive environment to produce
II.​ The Contemporary Business Environment
III.​ The Strategic Focus of Cost Management actionable knowledge; and
IV.​ Contemporary Management Techniques: ●​ Management accountants use this knowledge
The Management Accountant’s Response to participate with management teams in
to the Contemporary Business making decisions that advance the
Environment organization’s strategy.
V.​ Developing a Competitive Strategy
VI.​ The Professional Environment of Cost
Management KEY ROLES IN MANAGEMENT

●​ Management accountants typically report to a

I. MANAGEMENT ACCOUNTING AND controller.
THE ROLE OF COST MANAGEMENT
○​ The controller is assisted by the
management accountant, and has a
●​ Management accountants are the accounting
wide range of responsibilities,
and finance professionals who develop and
including cost management.
use cost management information to assist in
●​ The Chief Financial Officer (CFO) has the
implementing the organization’s strategy.
overall responsibility for the financial function.
●​ Cost management information consists of
●​ The Treasurer manages investor and creditor
financial information about costs and
relationships
revenues and nonfinancial information about
●​ The Chief Information Officer manages the
customer retention, productivity, quality, and
firm’s use of information technology, including
other key success factors for the organization.
computer systems and communications
●​ Cost management is the development and
use of cost management information.
●​ Management accounting is a profession that HOW COST INFORMATION IS USED BY USERS
involves partnering in management decision
making, devising, planning, and performance ●​ In contrast to the cost management function,
management systems, and providing expertise the financial reporting function involves
in financial reporting and control to assist preparing financial statements for external
management in the formulation and users such as investors and government
implementation of an organization's strategy. regulators.
●​ Financial accounting reports require
compliance with certain external
HOW COST MANAGEMENT IS DEVELOPED
requirements.
●​ Cost management information is developed
●​ Management accountants gather and
for use within the firm to facilitate
summarize data from business events;
management and is not needed to meet
standardized requirements.
Andrea Kate C. Palomo
 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

○​ The main focus of cost management

3 MANAGEMENT AND OPERATIONAL
information must be usefulness and CONTROL
timeliness
○​ The focus of financial reports must be ●​ Consists of two functions: Operational control
accuracy and compliance with and management control.
reporting requirements. ○​ Operational control takes place when
■​ However, strict adherence to mid-level managers monitor activities
accuracy can compromise the of operating-level managers and
usefulness of and timelines of employees
information. ○​ Management control is the
●​ The function of the financial information evaluation of mid-level managers by
systems department is to develop and upper-level managers
maintain the financial reporting system and
related systems such as payroll, financial
4 PREPARATION OF FINANCIAL STATEMENTS
security systems, and tax preparation.

●​ Management complies with the reporting

THE FOUR FUNCTIONS OF MANAGEMENT requirements of relevant groups and relevant
federal government authorities.
●​ The financial statement preparation role has
1 STRATEGIC MANAGEMENT
recently received renewed focus as countries
throughout the world have adopted
●​ The most important function.
International Financial Reporting Standards.
●​ The development and implementation of a
●​ The financial statement information also
sustainable competitive position in which the
serves the other three management functions
firm’s competitive advantage provides
because this information is often an important
continued success.
part of planning and decision making, control,
○​ Strategy is a set of goals and specific
and strategic management.
action plans that, if achieved, provide
the desired competitive advantage.
●​ Involves identifying and implementing these STRATEGIC MANAGEMENT AND THE STRATEGIC
goals and action plans. EMPHASIS IN COST MANAGEMENT

●​ Flexibility is an important ability to make fast

2 PLANNING AND DECISION MAKING changes to keep up with rapidly changing
demands of new management concepts of
●​ Involves budgeting and profit planning, cash
e-commerce, speed-to-market, and flexible
flow management, and other decisions
manufacturing.
related to the firm’s operations, such as
●​ Product life cycles (the time from the
deciding when to lease or buy a facility, when
introduction of a new product to the removal
to repair or replace a piece of equipment,
from the market) are expected to become
when to change a marketing plan, and when
shorter and shorter.
to begin development of a new project.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

financial services, personal

●​ The strategic emphasis also requires creative services, and legal services.
and integrative thinking- that is, the ability to
identify and solve problems from a ●​ Service industries are growing at a much
cross-functional view. faster rate than manufacturing or
●​ Business functions are often identified as merchandising industries, in part because of
marketing, production, finance. the increased demand for leisure and
accounting/controllership. convenience and society’s increased
●​ A problem must be looked at the bigger complexity for information.
picture, looking at every function as a whole. ●​ Government and nonprofit organizations do
●​ The firm’s focus is on satisfying the needs of not have their services paid as resources are
the customer; all of the firm’s resources, from merely given. These services provided by the
all functions, are directed towards that goal. government are often called “public goods” to
indicate that no market exists for them.
●​ Cost management information is used to
TYPES OF ORGANIZATIONS
identify the most profitable services and to
●​ Cost management information is useful in all manage the costs of providing these services.
organizations: business firms, governmental ●​ Cost management information can be used in
units, and not-for-profit organizations. a wide variety of ways.
●​ Business firms are usually categorized by ○​ Like finding out how much it costs to
industry, the main categories being create products or services, the cost
merchandising, manufacturing, and service. of making improvements, and finding
○​ Merchandising firms purchase goods new ways to produce products or
for resale. Merchandisers that sell to services.
other merchandisers are called ●​ Downstream costs - costs that occur after
wholesalers; those selling directly to manufacturing products or services.
consumers are called retailers. ○​ By analyzing both manufacturing and
■​ Examples: Walmart, Target, downstream costs, a company is able
Amazon. to determine whether product
○​ Manufacturing firms use materials, enhancements might cause
labor, and manufacturing facilities and manufacturing and downstream costs
equipment to produce products. They to be out of line with expected
sell these products to merchandising increases in customer value and
firms or other manufacturers as revenue for that feature.
materials to make other products. ●​ Cost management supports the strategy of
■​ Examples of manufacturers firms, small or big.
are Ford, General Electric, and ●​ Governmental and not-for-profit organizations
Cisco systems. must have a strategy to satisfy its
○​ Service firms provide a service to constituents.
customers that offers convenience, ○​ They tend to focus on their
freedom, safety, or comfort. responsibility in approved ways,
■​ Common services include rather than to spend in efficient and
transportation, health care, effective ways.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

II. THE CONTEMPORARY BUSINESS ENVIRONMENT LEAN MANUFACTURING

●​ Adapting better technology and techniques

THE GLOBAL BUSINESS ENVIRONMENT for more efficient and effective production
processes where costs are significantly
●​ Opportunities of growth and profitability lie in reduced and only necessary inventory is kept.
global markets. ○​ Examples: Just-in-time inventory
●​ Economic nationalism – which is the ideology method and other lean manufacturing
that promotes domestic economic growth and methods developed by the Japanese.
opposes globalization, free trade, and ●​ Quality improvements are done through the
immigration. use of quality teams and statistical quality
○​ Key matters to be resolved include control.
trading relationships between the two ●​ Other manufacturing changes include flexible
parties, whether there will be tariffs, manufacturing techniques developed to
quotas, or other trade limitations. reduce setup times and fast turn around of
●​ A tariff is an additional cost that importers customer orders.
must pay, thus increasing the cost to ●​ Speed-to-market is the ability to deliver the
consumers of the imported product and product or service faster than the
making domestic products more attractive to competition.
consumers.
○​ Tariffs have their basis in the concept
of mercantilism, common in the 17th USE OF INFORMATION TECHNOLOGY, THE
INTERNET, AND ENTERPRISE RESOURCE
and 18th centuries, which measured
MANAGEMENT
the strength of an economy by the
maximization of exports and the
●​ Businesses now rely heavily on information
minimization of imports.
technology, the internet, AI, blockchain, and
○​ When two or more countries adopt
enterprise systems.
tariffs against each other, it is often
●​ These technologies have transformed
called a “trade war.”
business operations, especially in
communication, sales, and data processing.
“Economic uncertainty, volatility, risk, and ●​ They help companies process transactions
ambiguity are the critical challenges facing business faster.
today. This research is further evidence of the CFO’s ●​ Managers now have better and faster access
strategic business role and the need for greater
to information about their company,
alignment between business strategy and the role
of the finance team, particularly the establishment competitors, and global markets.
of processes, systems or metrics for tracking ●​ Because of this, companies can manage costs
success.” more strategically and make better decisions.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

FOCUS ON THE CUSTOMER III. THE STRATEGIC FOCUS OF COST MANAGEMENT

●​ Businesses have evolved to always satisfy ●​ Cost management focuses not on the
customer wants and needs through quality, measurement, but on the identification of
service, timeliness of delivery, and the ability measures that are critical to the organization’s
to respond to the customer’s desire for success.
specific features. ●​ Robert Kaplan’s classification of the stages of
●​ Globalization eyes customer satisfaction as it the development of cost management
gives them a wide range to choose from systems describes this shift in focus:
quality products and services while economic 1.​ Cost management systems are basic
nationalism protects local producers. transaction reporting systems.
2.​ As they develop into the second stage,
cost management systems focus on
MANAGEMENT ORGANIZATION
external financial reporting. The
●​ Management organizations are changing in objective is reliable financial reports;
response to technology, marketing, and accordingly, the usefulness for cost
manufacturing processes. management is limited.
●​ Due to the focus on customer satisfaction and 3.​ Cost management systems track key
value, emphasis has shifted from financial and operating data and develop more
profit-based measures of performance to accurate and relevant cost
nonfinancial performance measures such as information for decision making; cost
quality, time to delivery, and service. management information is
●​ A more flexible organization form is developed.
encouraged for better teamwork and 4.​ Strategically relevant cost
coordination among business functions. management information is an
integral part of the system.
●​ The first two stages of cost system
SOCIAL, POLITICAL, AND CLIMATE CHANGE development focuses on the management
CONSIDERATION
accountant’s measurement and reporting role.
●​ The third stage shifts to operational control
●​ These changes include a more diverse ethnic
●​ The fourth stage, the ultimate goal, the
and racial workforce, changes in regulatory
management accountant is a full business
requirements, and a renewed sense of ethical
partner.
responsibility among managers and
●​ This requires the identification of the firm’s
employees.
critical success factors (CSFs)
●​ Requires firms to be flexible and adaptable
○​ Critical success factors are measures
and places a greater responsibility on a highly
of those aspects of the firm’s
skilled workforce.
performance essential to its
competitive advantage and success.
○​ Many of these CSFs are both financial
and nonfinancial.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

●​ An accounting report based on the four

IV. CONTEMPORARY MANAGEMENT TECHNIQUES:
THE MANAGEMENT ACCOUNTANT’S RESPONSE TO perspectives is called a balanced scorecard
THE CONTEMPORARY BUSINESS ENVIRONMENT (BSC).
a.​ The concept of balance captures the
intent of broad coverage, financial and
THE BALANCED SCORECARD (BSC) nonfinancial, of all factors that
AND STRATEGY MAP contribute to the firm’s success in
achieving its strategic goals.
●​ CSFs provides a road map for a firm’s
b.​ The balanced scorecard provides a
competitive success.
basis for a more complete analysis
●​ A firm needs both financial and nonfinancial
than is possible with financial data
information to accurately measure a firm’s
alone.
progress and standing among its competitors.
●​ The strategy map is a diagram that links the
●​ To emphasize the importance of using
various perspectives in a balanced scorecard.
strategic information, both financial and
●​ High achievement in the learning and growth
nonfinancial, accounting reports of a firm’s
perspective contributes directly to higher
performance are now often based on critical
achievement in the internal process
success factors in four different perspectives.
perspective, which then produces the desired
One perspective is financial; the other three
financial performance.
are nonfinancial:
●​ The strategy map is a useful tool in
1.​ Financial performance. Measures of
understanding how improvement in certain
profitability and market value, among
critical success factors contributes to other
others, as indicators of how well the
goals and to the ultimate financial results.
firm satisfies its owners and
shareholders.
2.​ Customer satisfaction. Measures of THE VALUE CHAIN
quality, service, and low cost, among
others, as indicators of how well the ●​ The value chain is an analysis tool
firm satisfies its customers. organizations use to identify the specific steps
3.​ Internal processes. Measures of the required to provide a competitive product or
efficiency and effectiveness with service to the customer.
which the firm produces the product ●​ Help management discover which steps or
or service. activities are not competitive, where can costs
4.​ Learning and growth. Measures of be reduced, or which activity should be
the firm’s ability to develop and utilize outsourced.
human resources to meet its strategic ●​ Finds ways to increase value for the customer
goals now and into the future. at one or more steps of the value chain.
●​ A key idea of the value chain analysis is that
the firm should carefully study each step in its
operations to determine how each step
contributes to the firm’s profits and
competitiveness.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

ACTIVITY-BASED COSTING AND MANAGEMENT TARGET COSTING

●​ Activity analysis (development of a detailed ●​ Determines the desired cost for a product on
description of the specific activities performed a basis of a given competitive price, such that
in the firm’s operations) can improve the product will earn a desired profit.
planning, product costing, operational control, ●​ The firm using target costing must often adopt
and management control. strict cost reduction measures or design the
○​ The activity analysis provides the basis product or manufacturing process to meet the
for activity-based costing and market price and remain profitable.
activity-based management.
●​ Activity-based costing (ABC) is used to
LIFE-CYCLE COSTING
improve the accuracy of cost analysis by
improving the tracing of costs to products or ●​ The method used to identify and monitor the
to individual customers. costs of a product throughout its life cycle.
●​ Activity-based management (ABM) uses ●​ The life cycle consists of all steps from the
activity analysis and activity-based costing to product design and purchase of materials to
help managers improve the value of products delivery and service of the finished product.
and services and increase the organization’s ●​ The steps include:
competitiveness. 1.​ research and development
2.​ product design, including prototyping,
BUSINESS ANALYTICS target costing, and testing
3.​ manufacturing, inspecting, packaging,
●​ Also called predictive analytics and warehousing
●​ is an approach to strategy implementation in 4.​ marketing, promotion, and
which the management accountant uses data distribution
to understand and analyze business 5.​ sales and service
performance.
●​ Often uses statistical tools such as regression
BENCHMARKING
or correlation analysis to predict consumer
behavior, measure customer satisfaction, or ●​ Benchmarking is the process by which the
develop models for setting prices, among firm identifies its critical success factors,
others. studies the best practices of other firms for
●​ Best suited for companies that have a achieving these critical success factors, and
distinctive capability that can be derived from then implements improvements in the firm’s
measurable critical success factors processes to match or beat the performance
●​ BA is similar to BSC because it focuses on of those competitors.
critical success factors; the difference is that
BA uses analytical tools to develop predictive
models of core business processes.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

BUSINESS PROCESS IMPROVEMENT THE THEORY OF CONSTRAINTS

●​ The right attitude is important to success. The ●​ It is a methodology that improves profitability
belief is what continuous improvement is all and cycle time by identifying the bottleneck in
about. the operation and determining the most
●​ Business process improvement (BPI) is a profitable product mix given the bottleneck.
management method by which managers and ●​ TOC helps to eliminate bottlenecks, places
workers commit to a program of continuous where partially completed products tend to
improvement in quality and other critical accumulate as they wait to be processed in
success factors. the production process.
●​ Continuous improvement is often associated
with benchmarking and total quality
SUSTAINABILITY
management as firms seek to learn about
each other's CSFs and improve their own ●​ Sustainability means the balancing of the
processes and quality flow. organization’s short- and long-term goals in all
●​ Business process reengineering is a method three dimensions of performance—social,
for creating competitive advantage in which a environmental, and financial.
firm reorganizes its operating and ●​ Includes identifying and implementing ways to
management functions, often with the result reduce cost and increase revenue as well as to
that positions are modified, combined, or maintain compliance with social and
eliminated. environmental regulations and expectations.

TOTAL QUALITY MANAGEMENT ENTERPRISE RISK MANAGEMENT

●​ Is a method by which management develops ●​ It is a framework and process that

policies and practices to ensure that the firm’s organizations use to manage the risks that
products and services exceed customers’ could negatively or positively affect the
expectations. company’s competitiveness and success.
●​ This approach includes increased product ●​ Risk is considered broadly to include
functionality, reliability, durability, and 1.​ hazards such as fire or flood;
serviceability. 2.​ financial risks due to foreign currency
fluctuations, commodity price
LEAN ACCOUTING fluctuations, and changes in interest
rates;
●​ Uses value streams to measure the financial 3.​ operating risk related to customers,
benefits of a firm’s progress in implementing products, or employees; and
lean manufacturing. 4.​ strategic risk related to top
●​ Places the firm’s products and services into management decisions about the
value streams, each of which is a group of firm’s strategy and implementation
related products or services. thereof.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

V. DEVELOPING A COMPETITIVE STRATEGY OTHER STRATEGIC ISSUES

●​ An organization succeeds by implementing a ●​ One strategy (cost leadership or

strategy, a plan for using resources to achieve differentiation) may be dominant over the
sustainable goals within a competitive other.
environment. ●​ MA may implement both strategies, but it
●​ A mission statement is vital in determining the might ultimately fail, unless one of the
direction of a business. strategies succeeds.
●​ The mission statement is developed into ●​ Focusing on one might be best in order to
specific performance objectives, which are succeed.
implemented by specific corporate strategies,
specific actions to achieve the objectives that
THE FIVE STEPS OF STRATEGIC DECISION MAKING
will fulfill the mission.
1.​ Determine the strategic issues surrounding
COST LEADERSHIP the problem.
2.​ Identify the alternative decisions.
●​ A strategy that involves producing products 3.​ Obtain information and conduct analysis on
and rendering services at the lowest possible the alternatives.
cost to outperform other competitors. 4.​ Based on strategy and analysis, choose and
●​ Attracts customers due to low prices arising implement the desired alternative.
from low costs. 5.​ Provide an ongoing evaluation of the
●​ Might cut costs, significantly reducing the effectiveness of implementation of step 4.
quality of products and services of a firm.
VI. THE PROFESSIONAL ENVIRONMENT OF COST
DIFFERENTIATION MANAGEMENT

●​ Unique features of products and services

PROFESSIONAL ORGANIZATIONS
offered, setting them apart from other
competitors.
●​ The professional environment of the
●​ May be called customer-focused or
management accountant is influenced by two
customer-solution strategy.
types of organizations:
●​ Differentiated in significant high quality
○​ One that sets guidelines and
products and services offered, attracting
regulations regarding management
customers and gaining loyalty.
account-ing practices and;
●​ May lack aggressive marketing and
○​ One that promotes the
promotion, slowing down sales growth.
professionalism and competence of
management accountants.

Andrea Kate C. Palomo

 STRATEGIC COST MANAGEMENT
MAS102 - MPGQ2 MRS. MERRYFAITH ARIANE LOPEZ | A.Y. 2025-2026

PROFESSIONAL CERTIFICATIONS

●​ The role of professional certification programs

is to provide a distinct measure of experience,
training, and performance capability for the
management accountant.
●​ Certification is one way in which the
management accountant shows professional
achievement and stature.
●​ Two types of certification are relevant for
management accountants.
○​ The first is the Certificate in
Management Accounting (CMA)
designation administered by the
Institute of Management
Accountants, which is achieved by
passing a qualifying exam and
satisfying certain background and
experience requirements. .
○​ The second certification is the
Certified Public Accountant (CPA)
designation.
■​ The new exam is better linked
to what CPAs must do in
practice, and better linked to
their previous education.
○​ CPA is earned by passing a qualifying
exam and by satisfying certain
background, education, and
experience requirements.

PROFESSIONAL ETHICS

●​ Professional ethics can be summed up as the

commitment of the management accountant
to provide a useful service for management.
●​ This commitment means that the
management accountant has the competence,
confidentiality, integrity, and credibility to
serve management effectively.

Andrea Kate C. Palomo