Introduction to Strategic Cost Management and Management Accounting

 Management – a process of leading and controlling a group of people, resources, or an organization

in totality to achieve the goals and objectives of the entity in pursuit of success and value-creation.
- Is process of planning, decision making, organizing, leading, motivation and
controlling the human resources, financial, physical, and information resources of
an organization to reach its goals efficiently and effectively.

 FOUR MANAGEMENT FUNCTIONS

 Planning – determining proper courses of action and strategizing tactics to enforce
in order to achieve the goals set.
 Organizing – coordinating activities and resources, and delegation of responsibilities.
 Leading – managing ang guiding people, along w/ proper motivation and direction.
 Controlling – monitoring and evaluating activities to ensure they answer the goals
being set.
 MANAGERIAL INFORMATION NEEDS
 Controlling is the function of mgt. that deals w/ the determination and evaluation on
whether the goals and objectives set are being achieved.
 Controlling involves performance action
 Planning and controlling are two functions of mgt. that goes together in order to determine
the proper courses of action.
 ACCOUTING AS A TOOL FOE DECISION-MAKING
 The role of an accountant to provide quantitative information about business entities.
 The use of accounting as a tool for decision-making by owners and managers.
 STRATEGIC COST MANAGEMENT
 Strategic cost management – is the application of cost mgt. techniques which aims to reduce
cost while strengthening the strategic position of business. Is the use of cost information as
tool for decision making and business development that would support the strategic
placement of an entity.
 STRATEGIC PLACEMENT AND ITS RELATION WITH COSTS
 Cost leadership – manage cost accordingly so that costs can be reduced and therefore we
can sell our products at lower prices. (lower cost > lower prices > higher revenue)
 Product differentiation – it is beneficial to increase costs that support the strategic position
of the business. (not so lower but regulated costs > unique products > higher prices)
 MANAGEMENT ACCOUNTING
 The use of accounting information to serve as a primary tool for the internal users of
accounting information to make decisions that would add value to the betterment of the
entity.
 Four Major Objectives of Management Accounting:
- Providing managers with information for decision making and planning.
- Assisting managers in directing and controlling operations.
- Motivating managers towards achieving the organization’s goal.
- Measuring performance of managers and sub-units within the organization.
 THREE AREA OF ACCOUNTING
 Financial accounting – information primarily used by the external users of accounting
information. Standardized financial reporting through GAAP.
 Management accounting – information specifically used by the internal users of accounting
information. Specialized reporting for managerial decision making.
 Cost accounting – providing cost information for reporting, managing, and decision making.
 ORGANIZATIONAL STRUCTURE AND FINANCIAL INFORMATION
The common officers involved in an entity’s financial information are:
 CEO
 CFO
  CONTROLLER (treasurer)
 FINANCIAL MANAGEMENT
 Financial management – means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise.
- Forecasting and planning
- Capital investment and financing decisions
- Controlling and coordinating
 TREASURER VS CONTROLLER
 Treasurer – management of cash and marketable securities, planning of capital structure
and raising capital.
- Provision of capital
- Maintaining relationship with banks and other financial institutions.
- Cash and receivables management.
- Protect funds and securities
- Maintain investor relations
 Controller – accounting, financial reporting, and tax
- Accounting process
- Financial reporting
- Planning and control
- Internal audit and control
- Tax administration
- Statutory and government reporting
- Managerial accounting
 PROFESSIONAL ETHICS FOR MANAGEMNET ACCOUNTANTS
 Entity has a goal of adding value to the entity and maximize shareholders’ wealth.
 All activities an entity does should be subjected to ethical considerations.
 Sarbenes-Oxley Act of 2002
 Management Accountants – are expected to have ethical conduct.
- must maintain integrity and ethical behavior and must make top
management aware of any unethical behavior done by the people.
- Shall promote and encourage ethical behavior in all aspects of business and
professional life.
 Standards of ethical conduct for management accountants
 Competence
 Confidentiality
 Integrity
 Objectivity
 MANAGEMENT (ACCOUNTING) INFORMATION SYSTEM
 A system that provides past, present, and projected information that is timely and relevant
to be able to be used as a tool for decision making.
 The design of management accounting system should fit within the operations of the entity
and conform with the characteristics of the firm (legal nature, organizational structure, and
organizational culture and specific processes).
 ELEMENTS OF MANAGEMENT ACCOUNTING SYSTEM
 Motivational elements
 Informational elements
 Reporting elements
 COST MANAGEMENT SYSTEM
 Includes a set of formal methods developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives.
 CHARACTERISTICS AND QUALITIES OF INFORMATION
  Accuracy and verifiability
 Completeness
 Relevance
 Timeliness
 ACCOUNTING INFORMATION SYSTEMS
 Major components of a systems:
- Inputs
- Processes
- Outputs
- Feedback
 AIS components:
- Forms
- Equipment
- Procedures
- People
 Computerized accounting system works:
INPUT PROCESS OUTPUT
 ELEMENTS OG A GOOD INTERNAL CONTROL
 Reliable personnel
 Separation of duties
 Supervision
 Responsibility
 Document control
 Job rotations and forced leaves
 Periodic review of the system
 Physical safeguards
 Routine and spot checks