Strategic cost reviewer Supports recurring decisions like equipment
CHAPTER 1 maintenance, cash flow management, and raw
OVERVIEW OF COST MANAGEMENT AND STRATEGY material budgeting
Strategy is a set of policies, procedures and approaches Involves budgeting, profit planning, and
to business that produce long-term success. decisions related to leasing, repairs, marketing
plans, and new product development
Strategic management
development of a sustainable competitive position Management and Operational Control
Provides a basis for identifying inefficient
Strategic cost management operations and motivating effective managers
development of cost management information to Involves monitoring activities by mid-level
facilitate the principal management function which is managers and evaluating them by upper-level
strategic management. managers.
Cost management information Reportorial and Compliance to Legal Requirements
Ensures compliance with financial reporting
-value added concept requirements to regulatory agencies like the
- critical factor in the effective management of a firm SEC and BIR.
- is the information that the manager needs to
effectively manage the firm, profit-oriented as well as Management accountants
not-for-profit organization. develop and analyze cost management
information and other accounting
information.
If a firm is to compete successfully, importance
should be given to nonfinancial and long-term Management Accounting
measures of operating performance.
application of appropriate techniques and
The firm's attentions is focused on satisfying the concepts to economic data for
customers' needs; all of the firm's resources, establishing and making of rational
from all functions, are directed to that goal. decisions
process of identification, measurement,
USER OF COST MANAGEMENT accumulation, analysis, preparation,
INFORMATION interpretation, and communication of
financial information, which is used to
plan, evaluate and control activities
Strategic Management within an organization.
Create financial reports for non-
-Involves developing a sustainable competitive management groups such as
position shareholders, creditors, regulatory
-Aids in making decisions about products, agencies and tax authorities.
manufacturing, marketing, and long-term issues
-Requires an integrative approach combining
skills from marketing, production, finance, and Management accountants
accounting are concerned with providing information to
aligns costs with the business strategy managers.
Helps in strategy formulation, communication,
implementation, and control Report about key indicators, analysis of
business situation or opportunity and analytical
Planning and Decision-Making reports
-making strategic, tactical and operating
decisions and helping to coordinate the efforts decision making
of the entire organization. which involves determination of predictive information
assures that the organization operates as a
unified whole in its long-run intermediate and
short-run best interests. Planning(key activity)
Management accounting Identifying alternatives and selecting a course of
is concerned primarily with providing action to further the organization's objectives.
information to internal managers (PLANS AND Communicating company's goals and specifying
CREATES DECISION) the resources needed, often through budgets.
Accounting contributions: resource planning
(cash budgets, etc.) and profit planning (break-
TASK OF MANAGEMENT ACCOUNTANTS even analysis, projected income statements).
Scorekeeping or data accumulation Control
enables internal and external parties to
evaluate organizational performance and Evaluating performance of managers and
position. operations.
Motivating managers through rewards or
Interpreting and reporting of information punishments based on evaluations.
helps manager to focus on operating problems, Determining if operations should be changed.
opportunities as well as inefficiencies Accounting control reports (cost variance
associated with current planning and control analysis, etc.) inform managers of deviations
and investigations of recurring routine internal from the plan.
accounting Performance reports compare current
performance with prior or planned
Problem-solving performance.
Quantification of the relative merits of possible
courses of action as well as recommendations --------------------------------------------------------------------------
as to the best procedure. An evaluation of an operation can be negative
associated with non-recurring decisions. even when the evaluation of the manager
responsible for the operation is basically
Three important guidelines help management positive.
accountants with their task Performance reports may not provide definitive
answers, but they are still extremely useful.
1. Employ a cost-benefit approach managers investigate departures from the plan
2. Recognize behavioral as well as technical that appear to be exceptional; they do not
considerations and investigate minor departures from the plan
3. Use appropriate cost concepts for different purpose
Decision Making
integral part of the planning and control process
decisions are made to reward or punish
managers, and decisions are made to change
Planning operations or revise plans
setting of goals for the firm, evaluating the various ----------------------------------------------------------------------
ways to meet the goals and picking out what appears to management accountant develops cost
be the best way to meet the goals management information for the Chief
Financial Officer
controlling
the evaluation of whether actual performance conforms
with planned goals
Cost accounting
is a systematic set of procedures for recording
and reporting measurements of the cost of
manufacturing goods and performing service.
Risk Management System Top Management’s
includes methods for recognizing, classifying, Involvement
allocating, aggregating and reporting such costs Oversight Activites:
and comparing them with standard costs. Risk Management Process:
Every business manager should recognize the fact that
Cost management needs the output of cost every strategy, plan and decision involves
accounting. Its purpose is to provide managers risks.
with information which aids decision. Establish goals and objectives,
roles and responsibilities,
common language, and oversight
structure
STRATEGIC DECISION MAKING AND THE COST Set management policy, establish
MANAGEMENT ACCOUNTANT context, set limits and tolerance,
Basic Cost Management Perspectives etc.
For cost management process to succeed, it is necessary Step 1: Assess Risks Identify source,
that managers must complement their measure
measurement skills with basic management Step 2: Develop/Design Action
perspectives that "go beyond the numbers". This will Plans: Reduce, avoid, retain,
enable them to make intelligent planning, control, and transfer, exploit
decision making for the enterprise. These Step 3: Implement Action Plans
are: Step 4: Monitor and report risk
a.A Strategic Management Perspective management performance
b. An Enterprise Risk Management Perspective Step 5: Continuously improve risk
c. A Corporate Social Responsibility Perspective management capabilities
d. A Process Management Perspective Ensure that process captures all
e.A Leadership Perspective business risks
f. An Ethical Perspective Ensure that all available tools
A. A Strategic Management Perspective and methodologies are used
An enterprise generates profit by attracting customers Review effectiveness of plans,
willing to pay for the goods and services it Check capabilities
offers. Review and evaluate regular
The key to a company's success is creating value reports on performance
for customers while differentiating itself from Evaluate recommendations for
its competitors. Improvement
Identifying how a company will do this is what
strategy is all about.
a chosen strategy is only as good as how
effectively it is implemented.
A strategy is a "game plan" that enables the Enterprise risk management
company to attract customers by distinguishing is a process used by an entity to identify those risks and
itself from competitors. develop responses to them that enable it to be assured
of meeting its goals.
1. Provide its customers with:
Safe, high-quality products that are fairly priced.
b. Easy-to-use information systems for shopping and
tracking orders.
c. Competent, courteous, and rapid delivery of products human behaviour.
and services. (a) Internal motivation
d. Easy-to-use information systems for shopping and refers to motivation that comes from within one's self.
tracking orders.
II. Provide suppliers with: To be perceived as a credible and respectful leader
a. Hassle-free acceptance of timely and complete 1. Technical competence
deliveries. b. Fair contract terms and prompt 2. Personal integrity
payments. 3. Strong communication skills
c. Reasonable time to prepare orders. 4. Strong mentoring skills
d. Cooperative rather than unilateral actions. 5. Strong listening skills
III. Provide stockholders with: 6. Personal humanity
a. Competent management.
b. Full disclosure of enterprise risks. (b) External Incentives (bonus compensation)
c. Easy access to complete and accurate financial given to highlight important goals and to motivate
information. employees to achieve them.
d. Honest answers to knowledgeable questions. (c) Cognitive Bias.
IV. Provide its employees with: Leaders should be aware that are all people (including
a. Fair compensation. themselves) should possess cognitive biases that can
b. Safe and humane working conditions. adversely affect planning, controlling and decision
c. Non-discriminatory treatment and the right to making.
organize and file
grievances. Step to eliminate cognitive biases
d. Opportunities for training, promotion, development. acknowledge their own susceptibility to
and personal cognitive bias
V. Provide the communities with: acknowledge the presence of cognitive bias in
a. Payment of fair taxes. others and minimize their adverse
b. Resources that support charities, schools, and civic consequences.
activities. [Link] independent teams of employees to
c. Honest information about plans such as plant assess the credibility
closings.
d. Reasonable access to media: sources. F. An Ethics Perspective
Without ethics, the economy would operate
VI. Provide environmental and human rights advocate much less efficiently
with: Ethical behavior is the lubricant that keep the
a. Recycling and resource conversation data. economy running smoothly.
b. Full disclosure of suppliers located in developing
countries.
c. Greenhouse gas emission data.
d. Child labor transparency.
D. A Process Management Perspective
.Lean Production is a management approach
that organizes resources such as people and machines
around the flow of business processes and
that only produces units in response to customer
orders.
E. Leadership Perspective
To achieve success, organizational leaders must be able
to unite the behaviours of the fellow
employee who have diverse needs, beliefs and goals to
the workplace. Leaders need to
understand how (a) internal motivation (b) external
incentives and (c) cognitive bias influence
Multiple Choice
[Link] of the following statements is false?
a. Cost accounting measures and reports short-term, d. provides information that is generally available only
long-term financial, and nonfinancial on a quarterly or annual basis.
information.
b. Cost management provides information that helps 6. The person MOST a(n) likely to use management
increase value for customers. accounting information is application.
c. All strategies should be evaluated regarding the
resources and capabilities of the a. banker evaluating a credit application
company. b. shareholder evaluating a stock investment.
d. A good cost accounting system is narrowly focused on c. governmental taxing authority.
a continuous reduction of costs. d. assembly departinent supervisor.
2. Which of the following statements is correct? 7. Which of the following description refers to
management accounting information?
a. The best-designed strategies are valuable whether or a. It is verifiable and reliable.
not they are effectively b. It is driven by rules.
implemented. c. It is prepared for shareholders.
b. b. To take advantage of changing market d. It provides reasonable and timely estimates.
opportunities, the annual budget should be
strictly enforced. 8. Which of the following groups would be LEAST likely
c. c. Linking rewards to performance is a major to receive detailed management accounting reports?
deterrent to good. management
performance. a. Stockholders
d. d. An important strategic decision is making the b. Sales representatives
correct investments in productive assets. c. Production supervisors
d. Managers
3. All of the following statements are true except
9. Management accounting information includes
a. A budget is a tool used to plan and express strategy.
b. Financial accounting reports financial and a. tabulated results of customer satisfaction surveys.
nonfinancial information that helps managers b. the cost of producing a product.
implement company strategies. c. the percentage of units produced that are defective.
c. Feedback links planning and control. [Link] of the above
d. Control includes deciding what feedback to provide
that will help with future decision making. 10. Which of the following types of information are
used in management accounting?
4. All of the following statements are false except
a. Attention-directing activities should focus on cost- a. Financial information
reduction opportunities, and not on value-adding b. Nonfinancial information
opportunities. c. Information focused on the long term
b. For strategic decisions, scorekeeping is the most d. All of the above
prominent role played by management accounting.
c. A budget may be used as a planning tool, but not as a 11. Management accounting includes
control tool.
d. Management accountants often are simultaneously a. implementing strategies.
doing problem- solving, scorekeeping, b. developing budgets.
and attention-directing activities. c. preparing special studies and forecasts.
d. all of the above
5. Management accounting 12. Financial accounting is concerned PRIMARILY with
a. focuses on estimating future revenues, costs, and a. external reporting to investors, creditors, and
other measures to forecast activities and their results. government authorities.
b. provides information about the company as a whole. b. cost planning and cost controls.
c. reports information that has occurred in the past that c. profitability analysis.
is verifiable and reliable.
d. providing information for strategic and tactical 20. Strategic management can be defined as the
decisions. development of sustainable
e.
13. Financial accounting provides a historical a. [Link] of command
perspective, whereas management accounting b. competitive position
Emphasizes c. cash flow
d. business entity
a. the future.
b. past transactions. 21. The control area of management is primarily
c. a current perspective. concerned with:
d. reports to shareholders.
a. [Link] and variances
14. Strategy specifies b. monitoring and evaluation
c. structure and discipline
a. how an organization matches its own capabilities with d. organization and implementation
the opportunities in the
marketplace. 22. Cost management has moved from a traditional
b. standard procedures to ensure quality products. role of product costing and operational
c. incremental changes for improved performance. control to a broader strategic focus, which places an
d. the demand created for products and services. emphasis on:
15. Control includes
a. implementing planning decisions. a. [Link]-competitive pricing
b. evaluating performance, b. domestic marketing
c. providing feedback to help with future decision c. short-term thinking
making: d. integrative thinking
d. all of the above.
16. Linking rewards to performance 23. Dramatic improvements in communication have
a. helps to motivate managers. resulted in increasing global competition,
b. allows companies to charge premium prices. which has required firms to:
c. should only be based on financial information.
d. [Link] all of the above a. completely replace existing cost information systems.
17. Control measures should b. expand existing cost information systems.
a. be set and not changed until the next budget cycle. c. modify existing cost information systems to handle
b. be be flexible to allow for employees who are more data.
slackers. d. develop cost management systems to handle more
c. be kept confidential from employees so that data.
competitors don't have an
opportunity to gain a competitive advantage. 24. All the information the manager needs to
d. be linked by feedback to planning effectively manage the firm or not-for-profit
18. For control decisions, emphasis is placed on the organization is termed:
_____________ role(s) of management a. planning information.
accounting. b. cost management information.
a. problem-solving c. financial information.
b. scorekeeping d. life cycle information.
c. attention-directing
d. both (b) and (c) 25. Those who develop cost management information
19. Which of the following terms does not represent a are most often referred to as:
main focus of cost management
information? a. cost accountants.
a. Usefulness b. operational accountants.
b. Timeliness c. management accountants.
c. Relative accuracy d. industrial accountants.
d. Compliance with external reporting requirements
26. The main focus of cost management information
must be:
a. reliability and usefulness.
b. timeliness and reliability.
c. objectivity and reliability.
d. usefulness and timeliness.
27. The development of a sustainable competitive
position - understanding what specific activities are
needed for the firm to succeed, and making the
appropriate strategic choices - is termed:
a. strategic cost management.
b. strategic management.
c. total quality management
d. activity-based management.
28. The development of cost information to facilitate
the principal management function is
termed:
a. life cycle costing.
b. activity-based costing
c. total quality management
d. strategic cost management
29. The ability to deliver a product or service faster
than the competition is termed:
a. just-in-time.
b. statistical quality control.
c. flexible manufacturing.
d. speed-to-market.
30. A set of policies, procedures and approaches to
business to produce long-term success is
termed a:
a. critical success factor.
b. competitive position.
c. mission.
d. strategy