Kings College of the Philippines 2019

MANAGEMENT ADVISORY SERVICES ROLE OF CONSULTANTS AND CLIENTS IN MAS

- Management Consulting Services, Business ENGAGEMENT S
Advisory Services, Management Services
1. FULL SCOPE ENGAGEMENT
- Providing advice and technical assistance to
help clients improve the use of their resources to (7 phases in the analytical process)
2. SPECIAL STUDY ENGAGEMENTS
achieve their goals
*management consultant-qualified by (5 phases in the analytical process) decision and
action beyond the decision is solely the
education, experience, technical ability, and
temperament to advise or assist businessmen on a responsibility of the client
3. INFORMAL ADVICE
professional basis in identifying, defining, and solving
specific management problems involving the Consultants respond as practicable at the moment
and express the basis for the response
organization, planning, direction, control, and
operation of the firm
MAS PRACTICE STANDARDS
ANALYTICAL APPROACH AND PROCESS/CONSULTING ***GENERAL STANDARDS
PROCESS: a. Professional Competence
1. Ascertaining the pertinent facts and b. Due Professional Care
circumstances c. Planning and Supervision
2. Seeking and identifying objectives d. Sufficient Relevant Data
3. Defining the problem or opportunity for e. Forecasts
improvement
4. Evaluating and determining possible solutions *** TECHNICAL STANDARDS
a. Role of MAS Practitioner (should maintain role as
5. Presenting findings and recommendations
6. Planning and scheduling actions adviser)
b. Understanding with the Client
7. Advising and providing technical assistance
(State responsibilities of each party)
c. Client Interest (achieve the client’s goal
***ANALYSIS STAGE (1,2,3)
***DESIGN STAGE (4,5) objectives)
d. Communication with Clients
***IMPLEMENTATION STAGE (6,7)
(Conflict of interest, objectivity, independence)
CONSULTING SERVICES:
1. Consultations MANAGEMENT ACCOUNTING
-Managerial/Internal Accounting
2. Advisory Services
3. Implementation Services MANAGEMENT FUNCTIONS
1. Planning
4. Transaction Services
5. Staff and Other Support Services a. Setting of Immediate and long range goals
b. Predicting future conditions
6. Product Services
c. Considering different means to achieve goals
FACTORS AND THE EMERGENCE AND GROWTH OF d. Deciding which strategies to use
MAS CONSULTANCY: 2. Directing and Motivating- overseeing day to day
1. Growth in size and complexity of business firms activities, seeing to it that members of the org are
2. Complexities in managing and conducting a mobilized to carry out plans
business 3. Controlling
3. Lack of competent staff -checking performance versus the plan or
4. Trend towards industrialization standard set, deciding what action to take should
5. Need for adequate and timely information in there be any deviation
management decision-making
6. Development of techniques for the solution of DISTINCTIONS: MANAGEMENT, COST and
management problems, and businessmen’s FINANCIAL ACCOUNTING
awareness of their usefulness 1. Users of Report
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2. Purpose 1. Planning for Control
3. Types of Reports 2. Reporting and Interpreting
4. Basis of Reports 3. Evaluating and Consulting
5. Standards of Presentation 4. Tax Administration
6. Reporting Entity 5. Government Reporting
7. Period Covered 6. Protection of Assets
7. Economic Appraisal
***Cost Accounting accumulates cost information
for both management and financial accounting. It DISTINCTIONS BETWEEN CONTROLLERSHIP
AND TREASURERSHIP
is part of the company’s overall accounting
system CONTROLLERSHIP TREASURERSHIP
1. Planning and Provision of
STANDARDS OF ETHICAL CONDUCT FOR Control Capital
MANAGEMENT ACCOUNTANTS 2. Reporting and Investor Relations
(From the American Institute of Management Interpreting
Accountants) 3. Evaluating and Short-Term
1. Competence Consulting Financing
4. Tax Banking and
2. Confidentiality
Administration Custody
3. Integrity 5. Government Credit and
4. Credibility Reporting Collections
6. Protection of Investments
RESOLUTIONS OF ETHICAL CONFLICT Assets
1. Established policy of the organization 7. Economic Insurance
regarding conflicts Appraisal
2. Immediate superior
3. Next higher managerial level (If the COSTS IN MANAGEMENT ACCOUNTING
Immediate superior is involved)
4. Audit Committee, Executive Committee, COSTS- monetary measure of the amount of
Board of Directors, Board of Trustees, Owners resources given up or used for some purpose
(If IS is the CEO)
TERMS:
***Contact with levels above the IS should be
initiated only with the superior’s knowledge, 1. Cost Objects- anything for which cost is
assuming the superior is not involved computed
***To authorities/ people not involved in the 2. Cost Driver- any variable that usually
organization- only if there’s a clear violation affects cost over a period of time
of the law 3. Cost Pool- grouping of individual cost
5. Impartial Advisor- for better understanding of item, variety of similar costs which are
possible course of action accumulated
4. Activity-transaction with a specified
purpose
a. Value-adding Activities- necessary to
CONTROLLER: The Chief Management Accountant
produce the product
CONTROLLER- Chief Management accounting b. Non-value adding Activities- do not
executive of an organization who is mainly make the product more valuable to
responsible for the accounting aspects of customer
management planning and control
DIFFERENT COSTS FOR DIFFERENT PURPOSES
FUNCTIONS:
NATURAL 1. Manufacturing
CLASSIFICATION Costs/Product Cost
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 Kings College of the Philippines 2019

2. Non-Manufacturing -systematic examination of the relationships

Costs/Commercial/Opera among cost, cost driver, and profit
ting Expenses ELEMENTS:
a. R&D 1. Sales
b. Marketing
2. Total Fixed Cost
c. Distribution
d. Selling 3. Variable cost per unit
e. After-sales 4. Sales Mix
f. General and
Administrative APPLICATIONS (in planning and decision-
APPLICABILTY TO 1. Capital Expenditures making)
ACCOUNTING 2. Revenue Expenditures
PERIOD 1. Type of product to produce and sell
1. Direct Materials 2. Pricing policy to follow
2. Direct Labor 3. Marketing strategy to use
IN RELATION TO
THE PRODUCT
3. Factory Overhead 4. Type of productive facilities to acquire
a. Indirect Material
b. Indirect Labor
COSTS FOR 1. Budgeted Cost CONTRIBUTION MARGIN INCOME
PLANNING AND 2. Standard Cost STATEMENT (Direct Costing IS/ Variable
CONTROL
Costing IS/ Marginal IS)
1. Relevant Cost
FOR ANALYTICAL
PROCESSES
2. Irrelevant Cost (Sunk Sales-Variable Cost= CM
cost)
1. Differential Cost- KEY ASSUMPTION OF CVP ANALYSIS
a. Incremental 1. All costs are classifiable as either variable or
b. Decremental
FOR DECISION- fixed
MAKING
2. Avoidable Cost
3. Out of Pocket Cost 2. Cost and revenue relationships are
3. Opportunity Cost predictable and linear over a relevant range of
4. Sunk Cost activity and a specified period of time.
DEGREE OF 1. Controllable Cost 3. Total variable costs change directly with the
CONTROLLABILITY 2. Non-Controllable Cost cost driver, but variable costs per unit are
1. Variable Cost constant over the relevant range
AS TO BEHAVIOR 2. Fixed Cost
4. Total fixed costs are constant over the
(Reaction to a. Committed
Changes in Cost b. Discretionary/ relevant range, but fixed costs per unit vary
Driver) Managed inversely with the cost driver
3. Mixed Cost 5. Selling prices per unit and market condition
1. Prevention Cost remain unchanged
QUALITY COST 2. Appraisal Cost 6. Production equal sales (when there is no
3. Internal Failure Cost change in inventory)
4. External Failure Cost
7. The time value of money is ignored.

BREAK-EVEN ANALYSIS
RELEVANT RANGE- range of activity that
reflects the company’s normal operating Break-even point- neither profit nor loss
range
A. Single-Product
TOTAL AMOUNT PER COST DRIVER FC
Varies directly with 1. BEP ( Pesos ) =
VC
cost driver
Constant CMR
Varies Inversely
FC Constant
with cost driver FC
2. BEP ( Units )=
CMu
COST-VOLUME PROFIT ANALYSIS
B. Multiple Products
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FC To earn DP DP
1. BEP ( Pesos ) =
WaCMR Desired
Profit after
[ (
FC +
1−tax rate )[] (
FC +
1−tax rate )]
Tax CMU CMR
Total CM
a. WaCMR= To earn
Total Sales
desired FC + DP FC+ DP
profit ratio CMU−PU CMR−PR
b. (Profit as %
WaCMR= of [ ( CMR∗Sales Mix Ratio ) per product
∑ of sales)
]

*
OPERATING LEVERAGE
Sales∈Pesos
Sales Mix Ratio= -extent to which a company uses fixed cost in its
Total Sales∈Pesos cost structure
- used to calculate a company’s break-even point
FC
2. BEP ( Units )= and help set appropriate selling prices to cover all
WaCMu costs and generate a profit.

Total CM
a. WaCMu= OPERATING LEVERAGE FACTOR (OLF) or DEGREE OF
Total Units
OPERATING LEVERAGE (DOL)
-used to measure the extent of the change in EBIT
b.
resulting from the change in sales
WaCMu=∑ of [( CMu∗Sales Mix Ratio ) per product ]
Total CM
1. DOL∨OLF =
* EBIT
Sales∈Units
Sales Mix Ratio=
Total Sales∈Units % ∆∈EBIT
2. DOL∨OLF =
% ∆∈Sales
MARGIN OF SAFETY
- Amount of peso-sales/ number of units by which 3. % ∆∈Profit=% ∆∈Sales∗DOL
actual or budgeted sales may be decreased
without resulting into a loss
 One conclusion companies can learn from
examining operating leverage is that firms that
1. MOS ( Pesos ) =Sales∈Pesos−BEP ∈Pesos minimize fixed costs can increase their profits
2. MOS ( Units )=Sales∈Units−BEP ∈Units without making any changes to the selling price,
MOS ( Pesos ) contribution margin or the number of units they
MOS ( Units )=
Selling Price sell.
MOS ( Pesos )  The operating leverage formula can show how a
3. MOS Ratio=
Sales∈ Pesos company's costs and profit relate to each other,
and show that reducing fixed costs can increase
profits without changing sales quantity,
MGMT Required Sales Required Sales contribution margin or selling price.
GOALS (QUANTITY) (PESOS)
To earn
FC + DP FC + DP
desired
profit before CMU CMR
tax (DP)
To earn
desired
MOS ( Units )∗CMUMOS ( Pesos )∗CMR
profit before
tax (DP)

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