&) RSQ. The Review School of Ucconedlanen Monagemeed Advisory Sovricee MAS-C: STRATEGIC COST MANAGEMENT STRATEGIC COST MANAGEMENT (SCM) - 1s the process through which activities or cost drivers are identified and analyzed in order to lower costs and maximize Product value so that an entity would have a strategic competitive advantage over other players within an industry. Three (3) genenic strategies in order to achieve sustainable competitive advantage’ 1) COST LEADERSHIP - to provide the same or better value to customers at a lower cost than offered by competitors (example: a company might redesign product so that fewer parts are needed, lowering production costs and costs of maintaining the product) 2) DIFFERENTIATION - strives to increase customer value by increasing what the customer receives (example: a retailer of computers offers an on-site repair service, a feature not offered by other rivals) 3) FOCUS - a firm selects and emphasizes a customer segment in which to compete (1.¢., market niche) ‘TERMINOLOGIES ASSOCIATED WITH STRATEGIC COST MANAGEMENT VALUE CHAIN = a sequence of value-creating activities from purchase of raw materials to the disposal of finished product by end-users or customers; the term “value” refers to the increase in the usefulness of the product or service as a result of the customer consumption. PRODUCT LIFE CYCLE a management technique used to identify and monitor costs of a product throughout its COSTING life cycle, which can be divided into the following stages: > Production viewpoint: 1) research 2) planning 3) design 4) testing 5) production 6) logistics > Marketing viewpoint: 1) introduction 2) growth 3) matunty 4) decline TOTAL QUALITY. = a management technique that integrates all organizational functions (marketing, MANAGEMENT (TQM) finance, design, engineering, production, customer service) to focus on meeting CUSTOMER expectation and business objectives; TQM requires management to develop. policies to ensure that products and services exceed customer's expectations; it ts @ formal effort to ensure and improve quality throughout an entity's vaiue chain. CONTINUOUS ~ the constant effort to eliminate waste, reduce response time, simplify the design of IMPROVEMENT both products and processes, and improve quality and customer service. Continuous Improvement can be done in two ways: 1) Kaizen 2) business process reengineering. KAIZEN = the gradual process of reducing costs during the manufacturing phase of an existing (graaua) improvement) Product through small and continual improvements rather than through radical changes. Reengineering, on the other hand, 1s a bit more drastic, often involving the complete redesign of a process in hopes cf finding a creative new way to accomplish an objective. Reengineering often prescribes radical, quick, and significant change. BUSINESS PROCESS —_- the series of steps that are followed to carry out business activities, BUSINESS PROCESS —_- involves redesigning business process to reduce costs and eliminate inefficiencies and REENGINEERING (eee) opportunities for errors. Cornmon features of BPR: 1) radical approach to improvement (radical improvement) 2) business process is diagrammed in details, analyzed and completely redesigned 3) Simplification of business process 4) elimination of non-value-added activities. JUST-IN-TIME (IT) JIT isa “demand-pull” system where inventories are purchased/produced only as needed for production/sale, reduced to the minimum level and, in some cases, reduced to zero (1.€., elimination of non-value-added costs). » JIT Purchasing - raw materials are received just in time for production; goods for sale are received just in time for delivery or sale. >» JIT Manufacturing - manufactured materials are completed just im time for production, products are completed just in time for delivery. se “|= TRADITIONAL/ CONVENTIONAL = | Demand-pull system [Push-through system =f Insignificant mventores ____, Signficant inventories [Small supplier base | Large supplier vase supplier contracts [Decentralized services [ High employee involvement Facilitating management style | Supe snagement style [Total quality controt ~TAcceptable quality level ~ [Value-chain focus | Value-added focus BENCHMARKING - involves the following three (3) steps: 1) Identifying critical success factors 2) Studying the best practices of other firms based on identified success factors 3) Implementing needed improvements to match or beat the performance of other firms. THEORY OF + considers the effective management of constraints as a key to success in meetin: CONSTRAINTS (ToC) business objectives; ToC is considered as a process of continuous improvement ° Page 1 of 4 pagesRSQ. The Review School of OcconeHancy MAS-C STRATEGIC COST MANAGEMENT 10. rte 12 13, MULTIPLE-CHOICE QUESTIONS (Sources: CMA/CIA/AI PA/Various texts and test banks) Which of the following ts NOT among the three (3) strategies prescribed by Strategic Cost Management? a. Focus «Market segmentation D. Cost leadership d. Product differentiation The value chain 1s the sequence of business functions in which ’a. Value is deducted from the products or services of an organization Value 1s proportionately added to the products or services of an organization ©. Products and services are evaluated with respect to their value to the supply chain 4d. Usefulness 1s added to the products or services of an organization R&D, production and customer service are business functions that are all included as part of a. Value chain Marketing Benchmarking J. Suppiy chain Which among the following is a value-added artivity? a. Processing Storing b. Moving 4. Inspecting There are four broad classes of activities in the value chain. Research and development is part of ‘a. Activities related to getting ready to make the product b. Activities related to making the prod.ict c. Activities related to dealing with the customer d. Other activities that support the first three activities, ‘There are four broad classes of activities in the value chain. Storing work-in-process 1s part of ‘a. Activities related to getting ready to make the product b. Activities related to making the product c. Activities related to dealing with the customer d. Other actwities that support the first three activities, There are four broad classes of activities in the vale chain. Billing activity 1s part of ’. Activities related to getting ready to make the product b. Activities related to making the product c. Activities related to dealing with the custorner d. Other activities that support the first three activities ‘There are four broad classes of activities in the value chain, Accounting activity is part of ‘a. Activities related to getting ready to make the product b. Activities related to making the product Activities related to dealing with the customer d. Other activities that support the first three activities ‘The unyielding and continuing improving effort by everyone in the organization to understand, meet and ‘exceed the customer expectations an¢ uses front-line workers to solve problems systematically. ‘a. Just-in-time manufacturing c. Tela quality inanagement b. Conventional manufacturing ¢ Total quantity management Which of the following is at the core of the detinition of total quality management (TQM)? ‘a. Customer surveys cc. Employee satisfaction b. Continuous improvement. 4. Supplier inspections ‘The primary reason for adopting TQM Is to achieve a. Greater customer satisfaction c. Reduced delivery charges b. Greater employee participation d. Reduced delivery time TQM should be viewed as ‘Management centered and technology driven a, b. Customer centered and employee driven ¢. Policy centered and procedure driven d. Goal centered and standard driven A characteristic of TQM Is ‘a. Quality by final inspection c. Education and self-improvement b. Management by Objectives (MBO) d. On-the-Job training by other workers Page 2 of 4 page: &ReSQ- The Review School of Aecornitonrey MAS-C STRATEGIC COST MANAGEMENT D 14. In which of the following organizations does total quality management (TQM) work best? a. Mierarchal Teams of people from the same speciaity b. Specialists working individually . Teams of people from different speciatties 15. Implementation of total quality management (TQM) in a firm: ’2._ Takes from three to five years b. Must follow a rigid, predetermined process to be successful €._ Involves some lower-level managers and all senior executives 4. Isa bottom up process, with senior management involved only in the final phase 16. A traditional quality contro! process in manufacturing consists of mass inspection of goods onty at the end of a production process. A major deficiency of this traditional quality control process is that 'a. It is expensive to do the inspections at the end of the process b. It does not focus on improving the cntire production process It is not possible to rework defective items, 4. It is not 100% effective 17. Under a total quality management (TQM) approach, ‘2. Measurement occurs throughout the process and errors are caught and corrected at the source b. Quality controt 1s performed by well-trained inspectors at the end of production process Upper management assumes the primary responsibility for the quality of the products and services 4. A large number of suppliers are used in order to obtain the lowest possible prices 18. Which is NOT listed as a practice that successfull TQM firms use to ensure having quality suppliers? 2. Forming long-term relationships with suppliers as working partners b. Setting measures that truly reflect the needs and expectations of suppliers Reducing the supplier base d. Selecting suppliers based on price and their capability and willingness to improve quality, cost, delivery, flexibility, and for their dedication to continuous improvement 19. The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals. ‘a. Decentralization Planning b. Benchmarking d. Control 20. A tool that compares how tasks are performed internally against the best practices of industry leaders 1s ‘a. Process value analysis c. Benchmarking b. Reengineering d. None of the above 21. Itis an approach to developing new ways (\.e., radical redesign) to perform existing activities is called a. Process value analysis Benchmarking b. Business Process Reengineering ¢. None of the above 2. In Business Process Reengineering (BPR), the main objectives are to simplify and to possibly eliminate ‘2. Value-added activities c. Constraint b. Non-value-added activities d. Non-constraint 23. Which of the following statements is TRUE regarding BPR? ‘2.__It requires a change in the company’s products b. It involves redesigning business processes and eliminating value-added activities ¢._ It involves completely redesigning business processes and it is often implemented by outside consultants d. It empowers front-line workers to solve problems and it focuses attention on solving problems rather than on finger-pointing 24. BPR 'a. Affects employees in a way that boosts their morale BL Is less likely to result in employee resistance than total quality management €._ Is more likely to result in emotoyee resistance than total quality management 4. Does not affect employees, hence, 19 resistance from employees is expected when it is applied 25, Which of the following quality tools 1s another term for gradual yet continuous improvement? ‘2. Theory of constraints . Six-sigma b. Kaizen . Lean manufacturing Page 3 of 4 pagesRSQ. The Renew School of ecovntaneg, MAS-C STRATEGIC COST MANAGEMENT . 28. 29, 3 32, 33 34. 35, 36, 37, 38. 39. ‘The just-in-time manufacturing (JIT) system 1s also called the ‘a. job in training system Zero cost system b. job in transit system 4. zero inventories system IIT purchasing can be used by a. Retailers Manufacturers b. Wholesalers All of the choices Ideally, the number of units that should be produced i7 a JIT manufacturing system is equal to the: a. Maximum productive capacity ‘c. Budgeted demand for the current period b. Actual demand for the current period d._ Budgeted demand for the following period In JIT, the flow of goods is controlled by a “pull” approach it means that: a." Work is initiated only in response to customer orders b. Customers are pulled to buy more units to reduce the company's inventory Warehouses should always be full to be sure thar customer demands are always met d. Production officers see to it that there is always something to do to keep everyone busy Al of the following are characteristics of a just in-time manufacturing environment, EXCEPT’ 2. Frequent deliveries of materials ‘c._Litvie or no inventory of finished product b. Manufacturing cells 4d. Longer production cycle Just-in-time purchasing (demand-pull system) requires ‘a. Smaller and more frequent purchase orders, b. Larger and more frequent purchase orders ¢. Smaller and less frequent purchase orders 4. Larger and less frequent purchase orders A just-in-time manufacturer is more hikely than a conventional manufacturer to a. Receive more frequent deliveries of maturiais b. Hold large inventories to serve as buffers . Spend less money on advertising d. Need workers with fewer skills A conventional manufacturer 1s more likely than a just-in-time manufacturer to ‘a. Have a short production cycle ‘c. Hold large inventories to serve as buffers b. Produce goods in small batches 4. Receive more frequent deliveries of materials Which of the following is @ characteristic of just-in-time (JTT) inventory management systems? ‘a. JIT users determine the optimal level of safety stocrs b. JIT is applicable only to large comparies CUT does not really increase overall econcmic eff ciency because it merely shifts inventory levels further up the supply chain 4. JIT relies heavily on good-quality materiais All of the following are potential financial benefits of JT, EXCEPT a. Reducing the risk of obsolescence b. Reducing manufacturing lead time c. Lower investments in inventories 4. Lower investments in plant space for inventories Which of the following do just-in-time (JIT) operations try to eliminate? ‘a. Discretionary fixed costs c. Avoidable costs b. Non-value-adding costs 4. Direct costs Well-implemented just-in-time production and purchasing techniques ‘a. Result in large stockpiles of inventory to keep production running b. Strengthen a company’s ability to compete in the marketplace ¢. Increase a reliance on long-term customer forecasts 4. Reduce a company's competitive edge 1. Under Theory of Constraints (ToC), No company has constraints Improvement efforts should be focused cn non-constraints Efforts that would improve output of 2 workstation shall be focused on the constraints. ‘A company that wants to improve its operation shall focus on workstation with the highest productive capacity Page 4 of 4 pages © ange