PART I: RESEARCH

1. Describe briefly the nature, scope, objective and responsibilities of management

accounting. (20 points)

Management accounting is the presentation of accounting information in such a way as to assist

management in creation of policy and day-to-day operation of an undertaking.

Nature of Management Accounting

 Focuses on the needs of internal parties.

 Addresses individual or divisional concerns rather than the enterprise as a whole.
 Information – current or forecasted, qualitative or quantitative, monetary or nonmonetary, and
futuristic.
 No requirement or legislation that mandates the format or use of managerial accounting
 Reports prepared are special purpose reports.

Scope

The scope of management accounting is very wide and broad-based. It includes all information
which is provided to the management for financial analysis and interpretation of business operations.
This includes financial and cost accounting budgeting and forecasting, cost control procedures and
reporting.

Objective

The primary objective of management accounting is to enable the management to maximize

profits or minimize losses.

Responsibilities

Responsibilities of a management accountants include recording, budgeting, planning,

strategizing, and decision making.

2. Identify the major differences and similarities between management accounting

and financial accounting? (15 points)

Managerial accounting and Financial accounting are similar in that they are financially focused,
produce financial reports, have a specific set of users and require a deep understanding of accounting
theory.

The following are the major differences of Financial Accounting and Managerial Accounting:

Financial Accounting

 Use of accounting information for reporting to external parties, including investors and

creditors. Primarily concerned with financial statements for external use.

  Focus on the enterprise as a whole.
 Information – historical, quantitative, monetary and verifiable.
 Reports prepared are general-purpose reports. Uses GAAP or PFRS.
 Information provided is usually presented in the form of financial statements, tax

returns, and other formal reports distributed to various external users.

 Requirement for compliance to SEC and BIR.

 More concerned on precision and verifiability.

Managerial Accounting

 Focuses on the needs of internal parties.

 Addresses individual or divisional concerns rather than the enterprise as a whole.
 Information – current or forecasted, qualitative or quantitative, monetary or nonmonetary, and
futuristic.
 No requirement or legislation that mandates the format or use of managerial accounting
 Reports prepared are special purpose reports.
 More concerned on timeliness and relevance.

3. Explain briefly the relationship between management accounting and cost

accounting. (10 points)

Management uses cost accounting data to minimize the cost and evaluate the performance as a
basis for decision making. It is for this reason that most of the cost accounting concepts are also used in
management. Although there is some overlapping in the areas of cost accounting ang management
accounting the two are not synonymous.

4. Discuss the controllership: explain briefly the qualifications and functions of the

controller.

Controllership is an accounting-related activity wherein a controller who is an individual has

responsibilities for accounting and auditing, including high-level accounting, managerial accounting, and
finance activities within the company. A controller usually oversees the day-to-day operations of the
finance department and manages financial reporting. Controllers need to be organized self-managers,
with skills to compel the wider company to follow policies and procedures.

5. Compare the controller’s function with that of the treasurer. (10 points)

Treasurers and controllers are both financial managers, but they have different roles. Controllers
prepare financial statements and other reports based on past activity. On the other hand, treasurers
focus outward and interact with the bankers, shareholders and potential investors who provide capital.
6. Differentiate line authority from staff authority. Give at least 3 examples. (10

points)

The key difference between line authority and staff authority is that line authority reflects
superior-subordinate relationships characterized by the power of decision making whereas staff
authority refers to the right to advice on improving the effectiveness for line employees in performing
their duties.

 Examples are managers within a business who have line authority are the controller,
production manager and sales manager.
 Examples of staff positions are accounting finance, purchasing, and management
information systems.

7. Define the following terms: (40 points)

a) Just-in Time (JIT)

A manufacturing concept which is about customers with what they want when they want it and
aims to inventories by supplying by producing only what it necessary when it is necessary.

b) Total Quality Management (TQM)

Total Quality Management (TQM) is an all-inclusive and well though-out means to

organizational management that searches to advance the quality of processes, products, services, and
culture through continuing minor changes in reply to constant feedback. TQM consists of continuous
process enhancement activities concerning managers and workers alike in an organization in a
completely integrated effort toward improving performance at all level.

c) Process Reengineering

Reengineering sometimes called Business Process Reengineering (BPR), involves a complete

rethinking and transformation of key business processes, leading to a strong horizontal coordination and
greater flexibility in responding to changes in environment. Because work is originated around processes
rather than function, reengineering often involves a shift to horizontal structure based on teams.

d) Mass Customization

Mass Customization is the process of delivering market goods and services that are modified to
satisfy a specific customer’s needs. Mass customization is a marketing and manufacturing technique that
combines the flexibility and personalization of custom-made products with the low unit costs associated
with mass production. Also known as made-to-order or built-to-order.

e) Balance Scorecard

The balance scoreboard links performance measures. It provides answers to four basic
questions;

 How do customers see us? (Customer perspective)

 What must we excel at? (Internal perspective)
 Can we continue to improve and create value? (Innovation and learning perspective)
 How do we look to shareholders? (Financial perspective)

f) Activity Analysis

Activity analysis is the examination of the process steps within a selected area of an
organization. This analysis determines the following items:

 Which process steps are being executed?

 Which personnel are involved with each step?
 The amount of time required to complete each step
 Which process steps should be measured and which measurements to use
 The value produced by each step

g) Activity Based Costing

Activity-based costing (ABC) also known as transaction costing. Those activities (transactions)
that consume overhead resources are identified and related to the costs incurred. The basic premise in
activity-based costing is that overhead costs that are caused by activities are traced to individual product
units on the basis of frequency of consumption of overhead resources by each product.

h) Activity Based Management

Activity-based management (ABM) is a system for determining the profitability of every aspect
of a business so that its strengths can be enhanced and its weaknesses can either be improved or
eliminated altogether. ABM can be used to look at the cost of operating the department, the costs of
testing out new products and whether the products developed turned out to be profitable.

i) Theory of Constraints
 Theory of Constraints (TOC) is a management paradigm that views any manageable system as
being limited in achieving ore of its goals by a very small number of constraints. There is always at least
one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the
organization around it.

j) Life Cycle Costing

Life cycle costing, or whole-life costing, is the process of estimating how much money you will
spend on an asset over the course of its useful life. Whole-life costing covers an asset’s cost from time
you purchase it and time you get rid of it.

k) Target Costing

Target Costing is a management technique wherein prices are determined by market

conditions., taking into account several factors, such as homogeneous products, level of competition,
no/low switching costs for the end customer. When these factors come into the picture, management
wants to control the cost, as they have little or no control over the selling price. Target cost is a product
cost estimate derived from a competitive market price. Target costing is equal to the selling price less
profit margin.

l) Automation

Automation, or automatic control, is the use of various control systems for operating equipment
such as machinery processes in factories, boilers, and heat-treating ovens, telecommunication network,
etc., by application of machines to tasks once performed by human beings, a simple replacement of
human labor by machines, which by generally implies integration.

m) Computer-aided design (CAD)

Computer-aided design (CAD) is the use of computers to aid in the creation, modification,
analysis or optimization of design. CAD software is used to increase the productivity of the designer,
improve quality of design, improve quality of documentation, and to create database for manufacturing.