Managerial Accounting (Partial)

NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION

Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87
MANAGERIAL ACCOUNTING
AND THE DIFFERENCE BETWEEN
FINANCIAL ACCOUNTING
INTRODUCTION
Submitted by: Erlinda L. Labalan

Definitions:
Accounting
 Means as an information system is the process of identifiying, measuring

and communicating the economic information of an organization to its users
who need the information for decision making. It identifies transactions and
events of a specific entity.
 Is the art of recording, classifying, and summarizing in a significant manner
and in terms of money, transactions and events which are in part at least, of
a financial character and interpreting the result thereof.
Management Accounting
 Is a term used to describe the accounting methods, systems and techniques

which coupled with special knowledge and ability assists management in its
task of maximizing profits and minimizing losses.
 Or also known as Managerial Accounting is the process of identifying,
analyzing, recording and presenting financial information that is used for
internally by the management for planning, decision making and control.
Financial Accounting
 Keeping Track of records and creating a summary of financial transaction

called bookkeeping-When this information is produced and displayed in
reports for the use of the public outside the company, this process called
Financial Accounting.
Objective of Accounting
 To keep systematic records

 To ascertain the financial position of the business
 To Portray the liquidity position
 To protect business properties
 To facilitate rational decision making
 To satisfy the requirement of law.
Managerial Accounting Important Set of Activities
 Planning
 Decision Making
 Directing and Motivating
 Controlling
 Performance Evaluation
Difference between Managerial Accounting versus Financial Accounting.
Managerial Accounting Financial Accounting

Audience Audience
 Management  Investors
 Employees  Creditors
 Customer
 Taxing Authorities
Objective Objective
 To help the management by  To disclose the end result of the
providing information that is used business, and the financial
to plan, set goals and evaluate condition of the business on a
these goals. particular date.
Focus Focus
 Focuses on the present and  Focuses on History: Reports on
forecasts for the future. the prior quarter or year.
Department Department
 Is not specific task of particular  Preparing financial accounting is
department. Co-ordination of all the work of finance department.
department creates management
Accounting
Format Format
 Is Informal and is on a per  Financial accounts are reported in
department/company basis as a specific format, so that different
needed. organizations can be easily
compared.
Reporting Frequency and Duration Reporting Frequency and Duration
 As needed- daily, weekly,monthly.  Defined- Annually, semi-
annually,quarterly,yearly.
Purpose of Information Purpose of Information
 Help Managers plan and control  Help Investors, creditors, and other
business operations. make investment, credit and other
decision.
 The Key Difference between financial and managerial accounting. Is that financial
accounting is aimed at providing information to parties outside the organization.
 Whereas managerial accounting information is aimed at helping managers within
the organization make decisions.
How Managerial Accounting adds value to the Organization
 Providing information for decision making and planning.

 Assisting managers in directing and controlling activities.
 Motivating Managers and other employees towards the organization‘s goals.
 Measuring Performance of Activities, Managers, and other employees.
 Assessing the organization‘s competitive position.
Professional Ethics.
 Competence
 Confidentiality
 Integrity
 Credibility
SESSION I (old syllabus)
TOPIC :
Controllership
 Board management aspects of controllership

 The controllers responsibilities
Michael R. Lagrosas
2019-10381
What/Who is a Controller?
A controller is an individual who has responsibility for all accounting-related activities,

including:
• high-level accounting,
• managerial accounting, and
• finance activities, within a company.
A financial controller typically reports to a firm's chief financial officer (CFO), although
these two positions may be combined in smaller businesses.
The duties of a controller include assisting with the preparation of the operating budgets,
overseeing financial reporting and performing essential duties relating to payroll.
More specifically controller has many tasks which might include
• preparing budgets and outlines important budgeting schedules throughout an

organization
• collection, analysis, and consolidation of financial data
• monitors variances, summarizes trends and investigates budget deficiencies
• reports material budgeting variances or expenditure variances to management
• works with external auditors to ensure proper reporting standards are being utilized
• establishes, monitors, and enforces internal control over financial reporting
• in publicly traded companies, delegated the task of public financial filings
• monitors future legislation that impacts taxation and operations
• monitoring for future risk and ensuring proper permits, licenses, or operating
requirements are met
FINANCIAL VICE-PRESIDENT
The top financial person is usually a senior vice-president in the company, the
financial vice president (often called chief financial officer—CFO). This person is in
charge of the entire accounting and finance function and is typically one of the
three most influential people in the company. The other two are the chief executive
officer and the president.
CONTROLLER
The controller manages cost and managerial accounting in most organizations.

The name controller sounds like someone who ‗‗controls things.‘‘ In fact, the
controller‘s staff works in planning, decision making, designing information
systems, designing incentive systems, and helping managers make operating
decisions, among other things. If you have a career in marketing, production, or
general management, you will have frequent interactions with controllers.
TREASURER
The corporate treasurer manages cash flows and raises cash for operations. The
treasurer normally handles relations with banks and other lending or financing sources,
including public issues of shares or bonds.
INTERNAL AUDITOR
The internal audit department provides a variety of auditing and consulting services.
Internal auditors often help managers in that they provide an independent perspective on
managers‘ problems. Internal auditors frequently act as watchdogs who find internal
fraud.
Key points:
 A controller acts as an overseer of a company's financial health
 Depending on the company's needs, a controller may also be responsible for hiring
and training staff who will work in the financial department.
 Controllers are not only responsible for calculating the bottom line but for meeting
tax, permit, and licensing requirements.
FOUR PRIORITIES OF FINANCIAL CONTROLLERS
Traditional Modern
Commentator • Focus on explaining • Include more non-

numbers financial KPIs
• Tell the business story in • Delivering the reports
electronically, with
numbers
interrogation tools
• Variance analysis • Providing more
• Management reports added-value
commentary
• Driving for relevance
and brevity
Business • Focus is value creation • Leave desk and get to
Partner • Acts as business advisor know the independent
and integrator directors and divisions
• Help support decision-
• Provides insight and
making by knowing
robust challenge to the decision makers
support decision making and their needs
Scorekeeper • Focused on bookkeeping • Invest in IT and

• Process transactions process improvement
• Reconcile balances (shared services)
• Produce trial balance
Custodian • Focus on governance • Be strategic and
forward thinking and
• Works with the business don‘t get pulled into

to ensure compliance and detail unnecessarily.
effective controls
• Custodian assets and
value protection
• Conscience of the
business
Top three requirements of the board from a controller are:

• A strategic partner
• Effective in preparing annual budgeting and forecasting
• Astute risk management skills
References:
Ernst & Young (2008). The Changing Role of the Financial Controller. [online] Ernst &
Young Global Limited. Available at:
https://www.ey.com/Publication/vwLUAssets/Changing_role_of_the_financial_contr
oller/$FILE/EY Financia_l_controller_changing_role.pdf [Accessed 14October
2019].
Garrison, R. H., Noreen E.W., Brewer, P.C., Cheng N.S., Yuen, K.C.K. (2012).
Managerial Accounting: An Asian perspective. Singapore:McGraw Hill.
Maher, M. W., Stickney, C. P., & Weil, R. L. (2008). Managerial accounting: an
introduction to concepts, methods, and uses. Mason, OH: Thomson/South-
Western.
SESSION I (old syllabus)
Organizational structure for effective Controllership

Performance Measures
Presented by:
JORELYN D. MENDOZA
What Is an Organizational Structure?
An organizational structure is a system that outlines how certain activities are directed in
order to achieve the goals of an organization. These activities can include rules, roles,
and responsibilities.
The organizational structure also determines how information flows between levels within
the company. For example, in a centralized structure, decisions flow from the top down,
while in a decentralized structure, decision-making power is distributed among various
levels of the organization.
The two general classifications of organizational structure are:
 Centralized. Decision-making is concentrated at the top of the organization, with

lower levels of the organization being told how to implement those decisions. This
approach is more common in large organizations operating in industries that do not
experience much change.
 Decentralized. Decision-making is diffused throughout the organization, which results
in fewer levels within the organizational structure. This approach works best when the
organization needs to be more agile in its decision-making.
Organizational Structure
 Functional. This approach breaks up a company into departments, so that each area
of specialization is under the control of a different manager. For example, there may
be separate departments for accounting, engineering, purchasing, production, and
distribution. This is the most common organizational structure.
 Organic. This approach has an extremely flat reporting structure, where the span of
control of the typical manager encompasses a large number of employees.
Interactions among employees tend to be horizontally across the organization, rath er

than vertically between layers of managers and their direct reports.
 Divisional. This approach creates separate organizational structures to service
different geographic regions or product lines. It is used in larger organizations. There
can be functional or organic structures within a division.
 Matrix. This approach allows employees to have multiple responsibilities across
multiple functional areas. When implemented correctly, it can result in an effective
organization. However, it is confusing for employees and so is rarely used
Performance measure
A performance measure is a numeric description of an agency‘s work and the results of

that work. Performance measures are based on data, and tell a story about whether an
agency or activity is achieving its objectives and if progress is being made toward
attaining policy or organizational goals.
In technical terms, a performance measure is a quantifiable expression of the amount,
cost, or result of activities that indicate how much, how well, and at what level, products or
services are provided to customers during a given time period.
―Quantifiable‖ means the description can be counted more than once, or measured using
numbers.
―Activities‖ mean the work, business processes and functions of Washington state
government agencies.
―Results‖ are what the agency‘s work is intended to achieve or accomplish for its
customers.
Performance measurement is the process of collecting, analyzing and/or reporting

information regarding the performance of an individual, group, organization, system or
component.
Input
Input measures monitor the amount of resources being used to develop, maintain, or
deliver a product, activity or service. Examples include:
 Money spent on equipment

 Number of employee hours worked
 Number of vehicles
 Facility costs
 Total operating expenditures
 Rental fees
 Number of full-time employees
Output
Output measures monitor ―how much‖ was produced or provided. They provide a number
indicating how many items, referrals, actions, products, etc. were involved. Examples
include:
 Number of permits issued

 Number of pavement miles resurfaced
 Number of people trained
 Number of water leaks fixed
 Number of cases managed
 Number of arrests made
 Number of documents processed
 Number of clients served
Efficiency
Efficiency measures are used to monitor the relationship between the amount produced
and the resources used. This means that efficiency measures are created by
comparing input and output, see expressing measures with two or more variables. There
are two general types of efficiency measures: unit cost and productivity. Unit cost is a
comparison of an input to an output (i.e. resources used/number produced). Productivity
is a comparison of an output to an input (i.e. number produced/resources
used). Examples include:
Unit Cost
 Cost per license issued
 Cost per employee taught
 Cost per lane-mile paved
 Cost per client served
 Cost per document
Productivity
 Licenses processed per employee-hour
 Units produced per week
 Students taught per instructor
 Cases resolved per agent
 Calls handled per hour
Quality
Quality measures are used to determine whether customer expectations are being met.
These expectations can take many forms, including: timeliness, accuracy, meeting
regulatory requirements, courtesy, and meeting customer needs. The expectations can
be identified as a result of internal or external feedback.
The comparison of outputs is often used to create measures of quality. It may be

important to identify certain aspects (aspects / total outputs) about the services, products
or activities produced by an organization that are important to its customers. This
comparison of specific outputs to total outputs is used to create measures of accuracy,
timeliness and to determine the extent regulatory requirements are met. Quality
measures can also be derived from the evaluation of customer feedback data. See
expressing measures with two or more variables.
Examples include:
Timeliness
 Busy signal rate
 Percent of drivers licenses issued within one hour.
Accuracy
 Percent of applications requiring rework due to internal errors.
 Taxpayer error rate on tax returns.
Requirements
 Percent of wells meeting minimum water quality requirements.
 Percentage of clients that rated themselves as successfully rehabilitated.
Meeting Customer Needs
 Percentage of customers that rated service good, very good or excellent.
Outcome
Outcome measures are used determine the extent to which a core function, goal, activity,
product, or service has impacted its intended audience. These measures are usually built
around the specific purpose or result the function, goal, service, product, or activity is
intended to deliver or fulfill. An outcome measure should show progress towards or
achievement of agency mission or goals. See expressing measures with two or more
variables. Examples include:
 Highway death rate
 Crime recidivism rate
 Percent of persons able to read and write after attending a remedial
 education course
 Percent of entities in compliance with requirements
 Percent of clients rehabilitated
 Percent of cases resolved
References:
https://www.accountingtools.com/articles/organizational-structure.html
https://dom.iowa.gov/faq/what-are-different-types-performace-measures
https://en.m.wikipedia.org/wiki/Performance_measurement
Internal Control System

Session 2 (Old Syllabus)
Report by: ANTONETTE LYN LANDINGIN
- Internal control system was introduced to achieve the objective of a business

activities in the light of prevailing laws and socio economic conditions of the
country
- It is introduced to avoid errors and frauds for systematic control of

business activities.
- Internal control systems includes a set of rules; policies and procedures an

organization implements to provide direction, increase efficiency and
strengthen adherence to policies.
In small business organizations, generally the owner-manager controls the total

activities of his business by his personal supervision and direct participation:
Example: The owner generally purchases required business materials and other
properties.
He himself gives the appointment of employees, completes the contract with them
through discussion and also keeps constant watch over their activities. He himself signs
cheques for payments in different heads. Since he signs all the cheques, he can easily
have an idea of what commodities, assets, aqnd services he signing for. But with the
expansion of business, the appointment of additional employees and officer is needed
and the scope of business also widens. Under such conditions, it becomes almost
impossible on the part of the manager to perform all the activities of the business alone
for which he is to delegate authority and so his overall control tends to decrease.
In such circumstances the introduction of internal control becomes essential.
Three Elements of Internal Control System
Environment control: The attitude, alertness and work-zeal of

directors, managers and shareholders are reflected through
environmental control.
Accounting System: Accounting system means some procedures and

recordings with which identification of business transactions, classifications,
summarization, statement preparation and analysis for timely presentation of
correct information are performed.
Control Procedure: The additional policies and procedures adopted by

the business and authority of ensuring the achievement of the specific goal of
a business organization are the controlling procedures.
These control procedures are:

Proper delegation of power
Segregation of responsibility
Preparation and use of documents
Adoption of adequate security measures to protect the properties, and
Independent control over the execution of activities
5 components of Internal Control System
1. Control the environment: The control environment is the basis of other

elements of the internal control system. Moral values, managerial skills the
honesty of employees and managerial etc. Are included in the controlling
environment.
2. Risk assessment: after setting up the objective of business, external and

internal risks are to be assessed. The management determines risk controlling
means after examining the risks related to every objective.
3. Control Activities: The management establishes a controlling activities

system to prevent risk associated with every objective. These controlling
activities include all those measures that are to be followed by the employees.
4. Information and communication: Relevant information for taking decision are

to be collected and reported in proper time from internal or external sources.
(Communication is very important for achieving management goals. The
employees are to realize what is expected of them and how their responsibilities
are related to the activities of others. Communication of the owners with outside
parties like suppliers is also very important.)
5. Monitoring: When the Internal control system is in practice, the

organization monitors its effectiveness so that necessary changes can be
brought if any serious problem arises.
Responsibility for Internal

Control System
It is general responsibility of all employees, officers, management of a company to

follow the internal control system. The under mentioned three parties have definite
roles to make internal control system effective.
1. Management: Establishment and maintenance of an effective internal control

structure mainly depends on the management. (Through leadership and
example or meeting, the management demonstrates ethical behaviour and
integrity of character within the business.)
2. Board of Directors: the board of directors possessing a sound working

knowledge gives directives to the management so that dishonest managers
cannot ignore some control procedures. (The board of director stops this
sort of unfair activity. Sometimes the efficient board of directors having
access to the internal audit system can discover such fraud and forgery).
3. Auditors: The auditors evaluate the effectiveness of the internal control

structure of a business organization and determine whether the business
policies and activities are followed properly. (The communication network helps
an effective internal control structure in execution. And all officers and
employees are part of this communication network.)
3 Objectives of Internal Control System
- Internal control system includes a set of rules policies and procedures an

organization implements to provide direction, increase efficiency and
strengthen adherence to policies.
1. Financial Reports are
reliable
2. Operations are effective and efficient
3. Activities comply with applicable laws and regulations.
Characteristics of a proper Internal Control System
(An effective internal control system includes organizational planning of a business

and adopts all work system and process to fulfil the following targets)
1. Safeguarding business assets from stealing and wastage.
2. Ensuring compliance with business policies and the law of the land.
3. Evaluating true and reliable operating data and financial statements.
4. Ensuring true and reliable operating data and financial statements.
It is to be kept in mind, a business organization be its small or large can enjoy the
benefits of adopting an internal control system.
Prevention of stealing-plundering and wastage of assets is a part of the internal control

system
Protection of Assets:
A business organization protects its assets in the following ways:

1. Segregating the duties of the employees: Segregation of duties of the
employees means that each employee is assigned with specific tasks.
2. Assigning specific duties to each employee:
3. Rotating Jon assignments of the employees
4. Using Mechanical devices
The Accuracy of Accounting records:
A business organization should maintain a complete and correct accounting record.
While maintaining accounts of transactions the account is to preserve the following four
documents:
1. Purchase requisition
2. Purchase order
3. Invoice
4. Receiving Reports
Rianne Karisa V. Lumabao 2019-10323

Session 2 (Old Syllabus): Internal Audit Function & Controller’s Role in Investor
Relation
A. Internal Audit Function
a. Internal Audit Definition

b. Internal Audit Objectives &
Activities
c. Internal Audit Function
d. Internal Audit Process
B. Controller‘s Role in Investor Relation

a. Definition of Control
b. Definition of Investor Role
c. Objective of Controller‘s Role
d. Role of Controller
A. INTERNAL AUDIT FUNCTION

a. Definition: Is the evaluation of management controls and operations
performance and the determination of the degree of compliance with laws,
regulations, managerial policies, accountability measures, ethical
standards and contractual obligations.
It involves the appraisal of the plan of organization and all the coordinate
methods and measures to recommend courses of action on all matters
relating to management control and operations audit is an independent,
objective assurance and consulting activity designed to add value and
improve an organization‘s operations.
b. Internal Audit Function Objective and Activities

 Monitoring
 Examining
 Reviewing
 Risk management
 Governance
c. Internal Audit Function
 Verifying  Assessment
 Evaluating  Reviewing
 Recommendation  Investigation
B. CONTROLLERS ROLE IN INVESTOR RELATION
a. Definition:
Control – a group or individual used as a standard of comparison for checking
the results of a survey or experiment.
Investor‘s Role - To provide company‘s information to investors to help them

make informed buy and sell decisions.
b. Objective
 To provide company‘s information to investors to help them make informed
buy and sell decisions.
 To enhance shareholder value.
c. Communication Vehicles for Investor‘s Relation
 Methods to communicate investor related messages.
 Corporate announcement of special interest to investors.
d. Information Needs of the Financial Analyst
 Management Presentations
 Company and Industry comparison analysis
 Quarterly and Annual reports
e. Role of the Controller and Other Principals
 Controller
 Chief Financial Officer
 Corporate Executive Officer

f. Steps to get Investor Attention:
a. Prepare Pitch
b. Provide Contact
c. Usage of Graphic
d. Highlight Important Issue
e. Neat and Nice Layout Style
SESSION 2 (NEW SYLLABUS)

INCOME STATEMENTS AND BALANCE SHEETS MANUFACTURING SET UP
Report by: JOY SAMSON
Importance
Businesses summarize the results of their operations and their current status
periodically in the form of financial statements.
Financial accountants generally prepare the financial statements; however, managerial

accountants analyze financial statements to determine how well a business is doing and
how it could improve.
Income statement
The first financial statement prepared is an income statement. An income statement is a

financial statement that reports the revenues and expenses of a business as well as its
net income at the end of a fiscal period.
An income statement may be prepared at any time but is always prepared at the end of
a fiscal year to show the results of the year‘s operations.
EXAMPLE OF INCOME STATEMENT

The difference of manufacturing company‘s income statement is how it compute its cost
of goods, in the said reports the later account was titled as Cost of good manufactured
and computed in an example below.
VERTICAL ANALYSIS OF AN INCOME STATEMENT
Managerial accountants use an income statement as a starting point. The job of a

managerial accountant is to analyze an income statement to understand the
relationships among the different components in order to determine whether the
business has operated successfully and met its goals.
Vertical Analysis Formula (Income Statement) = Income Statement Item / Total Sales *
100
The above vertical analysis example shows the net profit of the company where we can
see the net profit in both amount and percentage. Where the same report can be used
to compare with other industry. Where the income statement can be compared with
previous years and the net income can be compared where it helps to compare and
understand the percentage of rising or loss of income percentage.
BALANCE SHEET
A balance sheet is a financial statement that reports the assets, liabilities, and owners‘
equity of a business at a particular moment in time.
As they do with the income statement, managerial accountants analyze a balance sheet
to determine how well a business is doing. Creditors, investors, and regulatory groups
also are interested in information reported on a balance sheet.
The three major sections of a balance sheet are assets, liabilities, and owners‘ equity. A
balance sheet must always be in balance, which means that the total assets must
always equal the total liabilities plus owners‘ equity. Assets Liabilities Owners‘ equity
VERTICAL ANALYSIS OF A BALANCE SHEET
For a balance sheet, managers are interested in knowing the makeup of the structure of
the business. It is important to know, for example, how much of a business is financed
by debt (liabilities) and how much is financed by equity (stockholders‘ equity).
Vertical Analysis Formula (Balance Sheet) = Balance Sheet Item / Total Assets
(Liabilities) * 100
The information provided in the balance sheet provides the change in working capital,
fixed income over a period of time. where the altered business that requires a different
amount on the ongoing fund. The same can be done like the income statement where
the previous years can be compared and find out the change in the working capital and
fixed assets over time.
REFERENCES
(Burns, Quinn, Warren & Oliveira, Management Accounting, McGraw-Hill, London,

2013)
COST CONCEPTS, TERMS AND CLASSIFICATIONS

Session 2 (New Syllabus)
Report by: AGNES S.ENERO
COST
- is a foregoing, measured in monetary terms, incurred or potentially to be incurred to

achieve a specific objective
-refers to monetary measure of the amount of resources given up or used for some
specified purpose. It is the value the goods or services expended to obtain current or
future benefits
Cost Driver
-is a unit of activity that causes a business to endure costs.
Costs may be categorized according to their
1. Management function,
2. Ease of traceability,
3. Timing of charge against revenue
4. Behavior in accordance with activity, and
5. Relevance to decision making.
1. According to Management Function
a. Manufacturing costs - incurred in the factory to convert raw

materials into finished goods. It includes cost of raw materials used (direct
materials), direct labor, and factory overhead.
Direct Materials-all materials that become an integral part of

the finished product
Direct Labour –is the labour directly involved in making the

product
Factory Overhead-defined as including all costs of

manufacturing except direct and indirect labour
b. Non Manufacturing costs - not incurred in transforming

materials to finished goods. These include selling expenses (such as
advertising costs, delivery expense, salaries and commission of
salesmen) and administrative expenses (such as salaries of executives
and legal expenses).
2. According to Ease of Traceability
a. Direct costs - those that can be traced directly to a particular

object of costing such as a particular product, department, or branch.
Examples include materials and direct labor. Some operating
expenses can also be classified as direct costs, such as advertising
cost for a particular product.
b. Indirect costs - those that cannot be traced to a particular object

of costing. They are also called common costs or joint costs. Indirect
costs include factory overhead and operating costs that benefit more
than one product, department, or branch.
3. According to Timing of Charge against Revenue
a. Product costs - are inventoriable costs. They form part of inventory

and are charged against revenue. All manufacturing costs
*Asset in balance sheet- WIP,raw materials & finished good

inventories
* Expense in income statement- when goods are sold, cost is

transferred from finished goods inventories to cost of goods sold
b. Period costs - are not inventoriable and are charged against revenue
immediately. Period costs include non-manufacturing costs
 Marketing and Selling expenses

 Administrative expenses
4. According to Behavior in Accordance with Activity

a. Variable costs - vary in total in proportion to changes in activity. Examples

include direct materials, direct labor, and sales commission based on sales.
b. Fixed costs - costs that remain constant regardless of the level of activity.
Examples include rent, insurance, and depreciation using the straight line
method.
c. Mixed costs - costs that varies in total but not in proportion to changes in
activity. It basically includes a fixed cost portion plus additional variable costs.
An example would be electricity expense that consists of a fixed amount
5. According to Relevance to Decision Making
a. Relevant cost - cost that will differ under alternative courses of action.
In other words, these costs refer to those that will affect a decision.
b. Standard cost - predetermined cost based on some reasonable basis

such as past experiences, budgeted amounts, industry standards, etc. The
actual costs incurred are compared to standard costs.
c. Opportunity cost - benefit forgone or given up when an alternative is

chosen over the other/s. Example: If a business chooses to use its building
for production rather than rent it out to tenants, the opportunity cost would be
the rent income that would be earned had the business chose to rent out.
d. Out of Pocket or Sunk costs - historical costs that will not make any
difference in making a decision. Unlike relevant costs, they do not have an
impact on the matter at hand.
e. Controllable costs - refer to costs that can be influenced or controlled

by the manager. Segment managers should be evaluated based on costs
that they can
control.
Non Controllable Cost- are those that a company cannot change,

Financial Impact of the Strategic Plan and Profit Planning

Report by: Joyce Lappay
Decision Making Process:
1st- Vision Statement
2nd- Mission Statement
3rd- Analysis
4th- Strategy formulation
5th- Strategy Implementation and Management
 The purpose is to provide insight about the operating center, or strategic business
unit (SBU).
 The financial aspects of planning are important to business survival and growth
 The purpose of strategic planning is to set the guidelines and policies of the
company.
Corporate Planning- a formal, systematic, managerial process, organized by
responsibility, time and information, to ensure that the operational planning, project
planning and strategic planning are carried out regularly to enable top management
direct and control the future of the enterprise.
Strategic Planning- process of making decisions which will tend to optimize the
organization‘s future position despite changes in future environments. It is also
concerned with preparing long term- action plans to attain the organizations objective by
considering the changes at horizon.
Project Planning- also known as Capex Planning or Capital Expenditure Planning. It

entails detailed plans involving acquisition of new products, modification, or acquisition
or adoption of new systems and acquisitions of new entities.
Operational Planning- It is how to efficiently and effectively utilize the entity‘s

resources to achieve the company‘s short- term and long- term objectives set up during
strategic planning.
Risk Analysis:
>Competitive response.
Competitors will have a response to any new product introduction or expansion into a
new geographic area. The response may be price cuts, lawsuits, lobbying for
government regulation, or other possibilities.
>Capital cost overruns.
Construction projects have been known to exceed budgets. A worst-case scenario

could help management anticipate funding requirements.
>Nationalization of facilities.
Some countries have a history of nationalizing certain industries with little or no

compensation to the previous owners of expropriated facilities. If management becomes
aware of such a problem, then it may wish to relocate its new facilities.
>Ecological costs.
Some industries (e.g., the tobacco industry and pharmaceutical companies) have been
targets of lawsuits due to products that were later found to be unsafe. In addition, any
product or process that has significant chemical waste by-products should be brought to
the attention of management, because resulting lawsuits or government fines could
destroy any profits from sale of the product.
>Sales fluctuations.
Sales projections are sometimes inaccurate. Management should be aware of the

worst- and best-case scenarios. The worst case may result in significant losses to the
company, and the best case may require construction of additional production facilities.
>Raw material scarcity.
Some raw materials are in short supply (computer chips) or are tightly controlled by the
producer (such as oil). If so, sales projections may fall short due to the inability of the
company to produce enough of the product to meet demand.
>Deterioration of margins.
Competing products may come onto the market that will force margins to deteriorate
due to price cuts. The company should make some attempt to identify this risk from both
national and international competitors and derive a likely range of margin percentage
reductions to factor into the long-range plan.
>Technological advances.
Advances in technology may make a product obsolete. Though these advances may be
hard to predict, some rudimentary technology can be found in trade literature that will
allow the company to forecast a decline in its market. For example, the movie DVD
rental market is projected to decline in the face of on-demand movie rentals through
cable television companies.
Programming- the process of determining the different major activities of an enterprise

geared towards the attainments of its objectives and the sequence of which they are to
be accomplished.
Budgeting- a process whereby future income and expenditure are decided in order to
streamline the expenditure process.
Approaches to Budgeting Process:
The initial flow of budget data is from lower levels of responsibility to higher levels of
responsibility. Each person with responsibility for cost control will prepare his or her
own budget estimates and submit them to the next higher level of management. These
estimates are reviewed and consolidated as they move upward in the organization.
Sales Budget- This outlines the forecasted income stream of the business. It is usually
the first budget to be prepared as the revenue generated will ultimately determine the
level of expenditure.
-Previous Pattern of Sales
-Economic Conditions e.g. rate of inflation, interest rate, exchange rate
-Political Conditions
-Statement of competition in the market

Production Budget- It determines the number of units of a product that will be

produced by the business. It also determines the cost at which the products have to be
produced. Production budget is made according to the sales budget.
Direct Labor Budget- Labor that participates in the production process. This budget is
prepared according to the number of labor hours and cost per hour.
Overhead Budget- Those cost that are not incurred directly in the production of goods
but are indispensable with regard to the production activity.
SG&A Budget- cost that are incurred in order to conduct the day to day operations of a
business.
Cash Budget- Helps to formulate in advance the payment and receipt cycles of the
business and thus it ensures that cash is readily available to a business.
Budgeted Financial Statements- these are prepared on the basis of each budget
component. These budgeted financial statements are called pro forma financial
statements.
Importance of Budgets:
- Budgets Set Target -Control Spending

- Strategy requires funding -Eliminate Turf Wars
- Budgets communicate priorities -Provides a Profit Margin.
Subject Code : MBA-ACC

Subject Title : MANGERIAL ACCOUNTING
Professor : DR. ERLINDA DAQUIGAN
Student/Reporter : ANA CRISTINA T. BIGLETE
Topic : THE PLANNING FUNCTION OF CONTROLLERSHIP

BUSINESS PLANS AND PLANNING:
NTERRELATIONSHIP OF PLANS, STRATEGIC PLANNING
WHAT IS BUSINESS PLANNING?
■ Is the emergence of comprehensive planning systems and a new sense of

urgency about the need to plan. The financial aspects of planning are important
to business survival and growth; the financial officers of the corporation should
be aware of the interrelationship of plans, methods of planning and problems,
and the concomitant financial implications of each.
FRAMEWORK FOR BUSINESS PLANNING:
 The system of plans that should comprise the whole – for all activities of the
business and for all planning periods – and their relationship to each other;
 The orderly process by which each plan is formulated; and
 The basic elements that should be inherent in any sound plan of action
WHAT IS PLANNING?
■ It involves setting of both immediate and long-range goals for the organization;
predicting future conditions that are expected to prevail; considering the different
means or strategies by which the goals set may be achieved; and deciding,
which of the strategies should be used to attain such goals.
Some of the factors that serve as a guide in selecting the proper planning time span
are:
 Lead time for product development

 Life span of the product
 Market development time

 Time for construction of physical facilities
 Payout period for capital investment
STRATEGIC PLAN OVERVIEW:
 Strategic planning begins with the present and extends as far into the future as
useful for planning purposes.
 It identifies the key decisions that must be made and usually set guidelines for
making them. The process guides the company in decisions about the current
generation of products as well as the next and succeeding generations of
products and markets.
PURPOSE AND FUNCTION OF PLANNING:
 Effective planning enables management to craft its own future, at least to some
degree, rather than merely reacting to external events without a coherent
motivating force for corporate actions. Management sets objectives and charts a
course of action so as to be proactive rather than reactive to the dynamics of the
business environment.
THE PLAN COMPOSE OF SIX ELEMENTS WHICH ARE ESSENTIALS TO

BUSINESS:
 A statement of purpose
 Action to take
 Resources to take
 Goals to meet
 Time schedules to follow
 Assumption made
The strategic plan is usually communicated to the board of directors in summary form,
and typically includes these areas:
• Comparison to the prior year plan

• The major planning assumptions

• The growth strategy
• Business goals
• Perceived strengths, weaknesses, opportunities, problems, and threats
• Profits plans for the existing business
• Programs and strategies for new business development
• Financial summaries of major factors, trends, and return on assets
An important part of the planning cycle is the environmental analysis:
 External environment - The external environment consists of influences outside

the company that are or will be dominant factors in its activities.
 Internal environment - The internal environment consists of those forces inside
the company that will be significant forces in just how it will function.
WHAT IS CONTROLLERSHIP?
 Controllership may be defined as the function of business management which

combines the responsibility for accounting, reporting, measurements, auditing,
taxes, operating controls and other related areas.
The controller‘s role in strategic planning:
■ The corporate mission. The mission is determined based on a thorough

knowledge of the company's strengths and weaknesses and a host of subjective
opinions
■ The corporate long-range objectives. The controller should make any analysis for
long-range objectives based on financial facts or calculations.
■ Developing strategies. The controller should conduct the financial analysis
related to some of the strategies. Areas to analyze would include the profit
impact of alternative choices or relative to cost effectiveness, unrealistic earnings
estimate of proposed acquisitions, unduly optimistic economic assumptions, an
excessive inflation rate, excessive use of bottleneck operations, or cost estimates
that are too low.
The basic functions of controllership?
■ Is responsible for ensuring that all accounting allocations are appropriately made
and documented.
■ May also perform cash management functions and oversee accounts payable,
accounts receivable, cash disbursements, payroll and bank reconciliation
functions.
■ Is accountable for the accounting operations of the company, to include the
production of periodic financial reports, maintenance of an adequate system of
accounting records.
An integrated planning structure has three components:
Chapter 1:
 Strategic plan – Gather your team and create a timeline
Chapter 2:
 Development plan – Survey for needs and demand of the clients
Chapter 3:
 Operational plan – Time to launch your strategy
Planning is a sub component of Managerial Accounting because it

needs budget allocation for the operation.
IMELDA F. SANOSA
TOPIC: Cost Behavior Pattern: Analysis and Use

SESSION 3 (New Syllabus)
Cost Behavior Pattern: Analysis and Use :
- Definition, importance and Analysis of Cost Behavior

- Variable, Fixed, Semi variable ( mixed )and stepped fix cost
- Techniques in analyzing mixed cost.
COST ANALYSIS
Is an integral part of the planning and control functions. The key to effective cost
prediction lies in an understanding of cost behavior patterns.
COST BEHAVIOR PATTERNS
- refer to how business and operating expenses change or remain stable through
different events. Patterns can change especially during varying production levels or
sales volume within the company.
- Cost behavior patterns occur in fixed, variable, mixed and stepped cost.
Importance of Cost Behavior Analysis
= for managerial decision making purposes because Managers would be able to reduce
total cost incurred on activities.
TYPES OF COST BEHAVIOR PATTERN
1. variable cost
2. fixed cost
3. mixed cost or semi variable cost
4. stepped fixed cost
1. Variable Costs
Are those costs that change in total as the level of activity changes in the short run
and within the relevant range
Example of Variable Costs
a. In a Manufacturing Company
- Direct Materials
- Direct Labor
- Some manufacturing overhead such as :
indirect materials,
- indirect labor,
- materials handling costs,
- energy costs,
- supplies
- distribution costs
- Sales commission
b. In a Merchandising Company
Cost of sales
Sales commission
c. In a Service Organization
Direct labor and materials used to perform the services such as auto repair and
consulting, supplies, travel
2. Fixed Costs - Are costs that remain constant in total regardless of changes in the
level of activity within the relevant range.
- It‘s a cost that does not change when the level of production changes.
Example of Fixed Costs
Rent = The monthly rent for an auto factory is fixed regardless of the number of autos
produced
Insurance
Property taxes
Supervisory salaries
Straight line depreciation
Administrative salaries
Advertising
3. Mixed costs( semi variable Cost ) = Is one that contains both variable and fixed
costs elements. Also known as semi variable costs.
4.Stepped Fixed Cost = is a cost that does not change steadily with changes in activity
volume, but rather at discrete points.
REFERENCE BOOK:
Management Accounting
Concept & Application ( 27th edition )
By: Elenita B. Cabrera

Gilbert Anthony B. Cabrera
Managerial Accounting
PLANNING AND CONTROLLING OPERATIONS
Presented by: YASMIN V. TIU
PLANNING
Planning may be defined as selecting the best course of action in anticipation of

future trends so that the desired result will be achieve. Any programs, activities and
projects of an organization shall be meticulously and judiciously planned and based on
specific needs.
A plan, which is the output of planning, provides a methodical way of achieving

desired results. In the implementation of activities, the plan serves as a useful guide.
The Benefits and Importance of Planning
1. It helps the establishment of organizational goals.

2. It helps managers to be future-oriented
3. It enhances decision making
4. It emphasizes on the organizational objectives
5. It pushes managers to coordinate their decisions
6. It helps as a measurement of accomplishments
Planning at Various Management Level
1. Strategic Planning for Top Management – refers to the process of determining

major goals of the organization and the policies and strategies for obtaining and
using resources to achieve goals. Strategic plan spells the decisions about long-
range goals of the organization.
2. Intermediate Planning for Middle Management – refers to the process of

determining the contributions the subunits can make with allocated resources.
The goal of the subunit is determined and a plan is prepared to provide a guide
for the realization of the goals.
3. Operational Planning for Lower Management – the process of determining how

specific tasks can best be accomplished on time with available resources.
The Planning Process
1. Setting Organizational, Divisional, or Unit Goals – the sense of direction of the

organization or unit. If everyone in the organization is aware of the goals,
everyone will contribute his share of the realization of the goals.
GOALS – are precise statements of results sought, quantified in time and

magnitude where possible.
2. Developing Strategies or Tactics to Reach Goals –
Strategies – course of action aimed at ensuring that the organization will achieve
its objectives.
Tactic – a short term action by management to adjust to negative or external

influences.
3. Determining Resources Needed – these are the human and non-human

resources required by such strategies and tactics. Even if resource requirements
are currently available, they must be specified.
4. Setting Standards –quantitative or qualitative measuring device to help monitor

the performance of people, capital, goods, or processes.
The TYPES OF PLANS
Functional Area Plans
a. Marketing Plan
b. Production Plan
c. Financial Plan
d. Human Resource Plan
Plans with varied frequency of use
Standing Plan
e. Policies
f. Procedures
g. Rules
Single Use Plan
a. Budget
b. Program
c. Project
Plans with Time Horizon
h. Short term plan

i. Long term Plan
Planning barriers:
 Manager‘s inability to plan
 Improper planning process
 Lack of commitment to the planning process
 Improper information
 Focusing on the present at the expense of the future
 Too much reliance on the planning department

 Concentrating on only the controllable variables
Aids to Planning
 Gathering as much information as possible
 Developing multiple sources of information
 Involving others in the planning process
CONTROLLING
Controlling refers to the process of ascertaining whether objectives have been

achieved; if not, to determine why not; and determining what activities should be taken
to achieve objectives better in the future.
Controlling is making sure that the right things happen, in the right ways, and at
the right time.
The Control Process
The Importance of Controlling
1.Helps the organization achieve its goal in the most efficient and effective manner
2. Eliminates if not minimizes deviations, mistakes and shortcomings.
3. Making efficient use of resources.
4. Judging of accuracy of standards.
5. Improve employee motivation.
6. Ensures order and discipline

7. Facilitates coordination in action
8.Helps in improving performance
TYPES OF CONTROL
IDENTIFYING CONTROL PROBLEMS
Executive Reality Check - when the manager is inaccessible to his subordinates and
has no way of knowing what is really happening in the workplace. It is encouraged for
managers to perform or at least know the task of one of his staff. In doing so, he will be
able to see things he could not see inside the confines of his office.
Comprehensive Internal Audit – an internal audit is usually undertaken to determine the

efficiency and effectiveness of the activities of an organization. This aims to detect
dysfunctions in the organization before they bring bigger troubles to the management.
Symptoms of Inadequate Control – in the absence of internal audit, the checklist of

inadequate control maybe used:
a. Unexplained decline in income of profit

b. Customers complaining about poor service
c. Employee dissatisfaction, grievances
d. Cash shortage
e. Idle facilities or personnel
f. Disorganized operations
g. Excessive cost of projects
h. Evidence of waste and inefficiency.
References:
Business Organization and Management (Roberto G. Medina) ,2015

Reported By: Neil DR. Santos

GENERAL DISCUSSION OF ACCOUNTING / STATISTICAL STANDARDS:
BENCHMARKING – Session 4 (Old Syllabus)
Control
By definition assumes that a plan of action or a standard has been established against
which performance can be measured.
 This is done to minimize deviation from standards and ensure that the stated
goals of the organization are achieved in a desired manner.
 In small plants or organizations, the manager or owner personally can observe
and control all operations.
Accounting Controls
Other means of control are required to manage effectively, such as accounting controls
and statistical reports. By the use of reports, management is enabled to plan, supervise,
direct, evaluate, and coordinate the activities of the various functions, departments, and
operating units.
 Accounting controls and reports of operations are part of a well-integrated plan to

maintain efficiency and determine unfavorable variances or trends.
 Accounting structure allows for the control of costs and expenses and
comparison of such expenditures to some predetermined plan of action. Through
the measurement of performance by means of accounting and statistical records
and reports, management can provide appropriate guidance and direct the
business activities.
 The accounting/statistical control system must include records that establish
accountability and responsibility to really be effective.
EXTENT OF ACCOUNTING/STATISTICAL CONTROL
Effective control extends to every operation of the business, including every unit, ever
function, every department, every territory or area, and every individual.
 Accounting control encompasses all aspects of financial transactions such as

cash disbursements, cash receipts, funds flow, judicious investment of cash, and
protection of the funds from unauthorized uses. It includes control of receivables
and avoidance of losses through inappropriate credit and collection procedures.
 Accounting control includes planning and controlling inventories, preventing
disruption of production schedules and shipments or losses from scrap and
obsolescence.
 Control relates to every classification in the balance sheet or statement of
financial position and to each item in the statement of income and expense.
In short, accounting/statistical control extends to all activities of the business. The
accounting system that includes the accounting controls when integrated with the
operating controls provides a powerful tool for management to plan and direct the
performance of the business enterprise.
 Statistical control also may relate to the nonfinancial quantitative measurement of

any business functions and their effect, for example, customer satisfaction,
development time for new products, cycle time from receipt of customer order to
delivery of product.
STANDARDS
 Is an idea or thing used as a measure, norm, or model in comparative

evaluations
 Is a common set of principles, standards and procedures that define the basis
of financial accounting policies and practices
Performance measurement should be applied to all activities. It is essential that a
yardstick of desirable or planned results be established against which actual results
may be compared if the performance measurement is to be effective.
 It is natural to compare current performance with historical performance such as

last month, last quarter, or last year. Such a comparison points out trends, but it
also serves to perpetuate inefficiencies.
 Changes in technologies, price levels, manufacturing processes, and the relative
volume of production tend to limit the value of historical costs in determining what
current costs should be.
A historical cost is a measure of value used in accounting in which the value of an
asset on the balance sheet is recorded at its original cost when acquired by the
company. The historical cost method is used for fixed assets in the United States
under generally accepted accounting principles (GAAP).
DEFINITION OF STANDARDS
A standard of any type is a measuring stick or the means by which something

else is judged. The standard method of doing anything can usually be described as the
best method devised, as far as humanly possible, at the time the standard is set. It
follows that the standard cost is the amount that should be expended under normal
operating conditions. It is predetermined cost scientifically determined in advance, in
contrast to an actual or historical cost. It is not an actual or average cost, although past
experience may be a factor in setting the standard.
Standard in simple words is a measure of what is expected to take place under

the current or anticipated circumstances. Another way of defining standard is that it is
something that is predetermined or planned and management wishes that actual results
equate to standards.
Two conditions implied in setting standards:
1. Standards are the result of careful investigation or analysis of past

performance and take into consideration expected future conditions. They
are not mere guesses; they are the opinions, based on available facts, of the
people best qualified to judge what performance should be.
2. Standards may need review and revision from time to time. A basis of certain
conditions. As these conditions change, the standard must change; otherwise, it
would not be a true measuring stick. Where there is really effective teamwork,
and particularly, where standards are related to incentive payments, the

probability of change is great.
Two points of standards:
 Whether a standard should be

1. Current Standard that is one that reflects what performance should be in the
period for which the standard is to be used.
2. Basic Standard, which serves merely as a point of reference.
 The level at which a standard should be set—an ideal level of accomplishment, a
normal level, or the expected level.
STANDARD COSTS
Where standard costs are carried into the formal records and financial statements, the
current standard is generally the one used.
 Reference to the variances immediately indicates the extent to which actual costs
departed from what they should have been in the period.
ADVANTAGES OF STANDARDS
 Better control of manufacturing costs.

 The benefits from the use of standards extend beyond the relationship with cost
control to all the other applications, such as price setting or inventory valuation.
Four Primary Functions of Standards
1. Controlling Costs
 Standards provide a better measuring stick of performance.
 Use of the ―principle of exception‖ is permitted, with the consequent saving
of much time.
 Economies in accounting costs are possible.
 A prompter reporting of cost control information is possible.
 Standards serve as incentives to personnel.
2. Setting Selling Prices

 Better cost information is available as a basis for setting prices.
 Flexibility is added to selling price data.
 Prompter pricing data can be furnished.
3. Valuing Inventories
 A ―better‖ cost is secured.
 Simplicity in valuing inventories is obtained.
4. Budgetary Planning
 Determination of total standard costs is facilitated.
 The means is provided for setting out anticipated substandard
performance.
TYPES OF STANDARDS NEEDED
Formulating consistent standards that move the company objective forward takes
a great deal of thought and time and is a management task of great importance.
1. Standard for all Business Activity

 Business executives generally do not question the need or desirability of
standards for the control of administrative, distribution, and financial
activities; they do, however, recognize the difficulties involved.
 Moreover, as business processes change, some performance standards
will increase in importance, while
 Others will decrease, for example, the use of a labor standard in which
―direct‖ labor is less crucial and will be combined with related service
support labor standards such as inspection or quality control.
2. Standard for Individual Performance
 Costs are controlled by people. It is through the action of an individual or
group of individuals that costs are corrected or reduced to an acceptable
level.
3. Material Quantity Standard

 Quantitative standards, based on engineering specifications, outline the
kind and quantity of material that should be used to make the product.
Material Cost- the amount of money invested in the production of a product.
4. Manufacturing Overhead Expense Standards

 Manufacturing overhead consists of a great variety of expenses, each of
which reacts in a different fashion at varying levels of plant activity.
 Control of overhead expenses rests with a large number of individuals in
the organization.
5. Sales Standards
 Sales standards may be set for the purpose of controlling and measuring
the effectiveness of the sales or
Types of standards found useful in managing and directing sales effort are:
 Number of total customers to be retained

 Number of new customers to be secured
 Number of personal calls to be made per period
 Number of telephone contacts to be made per period
 Average size of order to be secured
 Amount of gross profit to be obtained

6. Distribution Cost Standard
 Selling expense per unit sold
 Selling expense as a percentage of net sales
 Cost per account sold
 Cost per call
 Cost per day
 Cost per mile of travel
 Cost per sales order
7. Administrative Expense Standard

 As business expands and volume
increases, there is a tendency for
administrative expenses to
increase proportionately and get
out of line. The same need for
control exists for these types of
expenses as for manufacturing or
production costs. Control can be
exercised through departmental
or responsibility budgets as well
as through unit or individual performance standards.
Examples of types of standards to be considered are:
8. Financial Ratios
 Financial ratios are relationships determined from a
company's financial information and used for comparison purposes.
 These measures relating to financial condition and profitability rates are of
special interest to the financial executives in testing business plans and the
financial health of the enterprise.
BENCHMARKING
Benchmarking is a way of discovering what is the best performance being achieved –

whether in a particular company, by a competitor or by an entirely different industry.
This information can then be used to identify gaps in an organization‘s processes in
order to achieve a competitive advantage. Thus it is important for Six Sigma
practitioners to:
 Understand fully the purpose and use of benchmarking.

 Understand the difference between benchmarking and competitor research.
 Gain insight to ensure that benchmarking is in alignment with the company‘s
management objectives.
Three Primary Classifications of Benchmarking
Although there are many forms of benchmarking, they can be classified into three
categories – internal, competitive and strategic.
 Competitive benchmarking is used when a company wants to evaluate its

position within its industry. In addition, competitive benchmarking is used when a
company needs to identify industry leadership performance targets.
 Strategic benchmarking is used when identifying and analyzing world-class
performance. This form of benchmarking is used most when a company needs to
go outside of its own industry. Six Sigma often uses Hoshin to ensure that all
employees are knowledgeable about the strategic direction for the company.
Within a company‘s Hoshin plan, goals are established relative to benchmarks
set by world-class organizations. Often, these benchmarks are obtained from
outside industries.
Steps Involved in Benchmarking
It is important that Six Sigma practitioners have a thorough understanding of their own
company‘s guidelines before undertaking a benchmarking opportunity. The following is
a list of the vital few steps involved in benchmarking. These steps should be tailored
based on company policies, resource availability and the project or process one is
dealing with:
1. Understand the company’s current process performance gaps. This will help
decide what needs benchmarking.
2. Obtain support and approval from the executive leadership team. That approval
and support will assist with eliminating roadblocks, providing adequate resources and
expediting the benchmark-gathering process.
3. Document benchmarking objectives and scope. This is a necessity for any
project.
4. Document the current process. Without up-to-date knowledge of the current
process:
a. Time and resources can be wasted collecting process documentation and data
that already exists.
b. The project may lack focus, purpose and/or depth.
c. Benchmarking visits may appear to be random exercises in information-
gathering.
d. The team could select a partner whose performance is actually worse than
that of its own organization.
e. Collected benchmarking data will be difficult to compare ―apples to apples‖ in
terms of process requirements.
5. Agree on the primary metrics. Benchmarking measurements are used as the basis
of many comparisons:
a. To determine the gap between current performance and that of partner
organizations.
b. To track progress from the present (with the current process) into the future.
c. To track partners‘ progress toward their goals.
d. To determine superior performance with process improvements.
e. To use a measurement systems analysis (MSA):
i. These comparisons will be valid only if everyone participating in the study
measures performance in exactly the same way – every time.

ii. It is important to make sure metrics are being established that potential
benchmarking partners are probably already tracking or that can be easily
derived from existing measurements.
6. The metrics should be put in writing. In particular:

a. What is being measured
b. How the units of measure will be classified.
c. What should be included in the measurement.
d. What should not be included.
e. How to make any necessary calculations.
f. Examples of typical measurements.
7. Agree on what to benchmark. Everyone must be in agreement on what to

benchmark prior to any benchmark gathering initiative in order to:
a. Understand gaps of low performers.

b. Understand impact to customers, associates and shareholders.
c. Prioritize and select one to three metrics to benchmark.
8. Develop a data collection plan.
9. Identify research sources and initiate data gathering.
10. Design a screening survey to assist with partner selection. Characteristics of

the survey are important:
a. Crisp focus on indicators of excellence
b. Two pages maximum
c. 30 minutes maximum to complete
d. Objective, multiple-choice questions
e. Communicates the plans, objectives and resource requirements for the study
f. Reflects focus areas for subsequent in-depth questionnaires
11. Determine how to contact and screen companies.

12. Design a detailed survey to gather information.
13. Decide if gathered information meets original objectives.
14. Conduct a site visit.
15. Apply the learnings to performance gaps.
16. Communicate to the executive leadership to ensure continued support.
17. Develop a recommended implementation plan with process owner.
18. Know when to update and recalibrate.
Planning and Control of Sales

Reported by: JHONEL C. DOMINGO
Review of Terms relating to Plan and Control of Sales
Planning – It is the process of developing business strategies and vision for the future.
Financial Planning – Also called as budgeting which is define as the process of

setting performance goals and organizing systems to achieve these goals in the future.
Controlling – It is a management function that helps in measuring progress towards the

organizational goals and bring any deviations and corrective actions.
Sales – It refers to the revenues earned when a company sells its goods, products,
merchandize, etc.
Sales Plan – It is a document used to establish sales objectives and develop strategies
necessary to achieve them.
STEPS IN CREATING A SALES PLAN
1. Outline the Mission & Objectives - This includes both a restatement of your
company‘s mission (or vision) statement as well as your sales plan‘s objectives in
terms of growth.
a. Define Mission Statement – It is a formal statement describing what your

business stands for and what it wants to achieve. This is also known as
your company‘s vision statement and is the formalized guiding principle
behind your business.
Example: ―We provide customers with cutting-edge digital marketing

solutions with best-in-class technical support at a profit to our
shareholders.‖
b. Establish Sales Objectives - Sales objectives are goals supporting the

company‘s growth a year from now, as well as years in the future, in terms
of revenue, market share, or profit margin.
Sales objectives can be describe using the SMART format:

 Specific – This is the specific goal you want to achieve

 Measurable – Include a numerical value in your goal
 Achievable – The number you select should be realistic
 Relevant – The specific goal should be related to the responsibilities of the
person or people the goal is assigned to
 Timed – The goal should have a specific due date or end data.
2. Define Customer Focus – In this step, you should clearly state your target
market. A proper segmentation of target market should be considered for us to
achieve our stated sales plan.
a. Build Your Ideal Customer Profile – this includes the demographics and
psychographics of your target market.
b. Describe Your Ideal Customer Organization – this is through setting or
choosing a company that would patronize your products in general. This is
usually based on the location chosen. Businesses near the location are
most likely considered to be as the business ideal Customer Organization.
c. Define Your Sales Territory – This describes the geographical location of
the business. As a manager, you should set limitations on the territory of
the customers who will be benefited by the products and services.
Through this, we can better satisfy their needs and wants, and business
can gain more sales.
3. Consider Strategies & Tactics – this is where we set long term and short-term
strategies which will serves as a guide for the attainment of company‘s vision and
mission statement. And for us to acquire new business opportunities and as well
as grow with existing customers.
a. New Business Acquisition Strategies & Tactics
i. Exceed sales quota – quota needs to be stretched sometimes for
us to increase our sales but make sure that set quota should be
realistic and attainable.
ii. Increase Awareness for Products, Services, & Solutions – improve
marketing strategies. Joining and participating professional
associations, attending trade shows and conventions that would
promote our products and services are most likely increase
awareness to potential customers and would probably increase the
sales and profit of the company.
iii. Obtain Referrals from New Customers – Referral are very effective
in terms of growing our sales, thus relationship marketing is very
important in any business for us to have a long-lasting relationship
with our customers. Word of mouth is very effective in terms of
gaining new customers, we can only achieve this by means of
exceeding the guest satisfaction.
4. Assign Sales Plan Metrics – As a top management employee, when planning

for a sales objective, a metric tool should be identified for us to measure the
progress of our plan.
The following should be considered to achieve success:
a. Establish sales process

b. Define critical steps in each stage

c. Describe success in terms of conversion rates
5. Describe Sales Team’s Roles & Responsibilities – manpower has the biggest
responsibility in carrying out the sales plan of a business since they are the ones
involve in selling the products and services of the company. It is important for
them to be knowledgeable enough for their assigned task. It is the responsibility
of the top management to look for the best roster of employees that would help in
realizing the mission and vision of the company. A summary of employee roster
and specific task/role and contribution to the sales process should be
accomplished by managers. Then, list the names of the individual team members
and their personal key performance indicators (KPIs).
6. Create Sales Plan Budget – For a business to gain a reasonable profit or
revenue, a budget must be properly planned. Itemizing the expected costs will
help us compute for the expected gain and anticipate the return of investment.
Proper costing of the products and services are very important for us to have a
clear view of the profit that the business is expected to receive after selling these
products or services.
For example:
A burger that is being sold in a fast-food establishment, before they can come up
with a selling price (SP); a costing is made by the company for them to determine
the cost of food and the profit for the specific product. Through this, they can
forecast sales for specific month or quarters.
Quantity Unit Ingredients Unit Cost Total Cost
(Php)
100 Grams Ground beef P 350.00/1000 35.00
grams
5 Grams Lettuce P 60.00/50 grams 6.00
10 Grams Tomato P 100.00/ 500 2.00
grams
10 Grams Cucumber P 100.00/250 4.00
grams
10 ML Mayonnaise P 50.00 / 100 ML 5.00
10 ML Mustard P 120.00/250 ML 4.80
TOTAL RAW FOOD COST (RFC) 56.80

BUFFER MARGIN (10 %) 5.68
BUFFER MARGIN (10 %) + RFC 62.48
FOOD COST PERCENTAGE (40 %) BM +RFC/.40 156.20
SELLING PRICE PHP 157
Types of Sales Plans
A business may serve more than one market or sell products that vary by
territory. For this reason, your business may be better served by the creation of
several more detailed sales plans, each with a narrow focus and which work
together to support larger company sales objectives.
The five major types of sales plans include:

I. Strategic Sales Plan

 This is the main type of sales plan and sets the standard for sales
objectives and sales strategies across the organization.
 In addition to objectives, the strategic plan also outlines the roles,
responsibilities, performance measurements, tasks, and approved
tools needed to achieve those objectives.
II. Territory Sales Plan

 A territory sales plan is a more narrowly-defined version of the
strategic sales plan, and is limited to strategies, tactics, and tools used
within a specific customer base, group of prospects, or market
segment.
 A territory sales plan may include exceptions to the strategic sales
plan, such as additional systems, tools, or roles required to better
serve a specified market.
III. Tactical Sales Plan

 A tactical sales plan supports a strategic sales plan by focusing on a
distinct area of the organization.
 For example, an inside sales manager may choose to create a
miniaturized version of the corporate sales plan that goes into greater
detail into the tactics and metrics that will be used specifically by his or
her team.
IV. Operational Sales Plan

 An operational sales plan supplements a strategic sales plan by
defining the organization‘s policies and procedures as they relate to
the sales team in minute detail.
 An operational sales plan might, for example, specify how credit card
orders are to be processed or outline minimum order requirements.
V. Contingency Sales Plan

 A contingency sales plan supports the strategic plan by defining how
the organization might continue sales-related activities in the case of
circumstances like the sudden loss of key personnel, a major change
in credit arrangements, or natural disaster.
 Contingency plans should include strategies for accessing data and
records, alternative means of communication, and policies related to
mismanagement, public safety threats, and product liability.
SALES MANAGEMENT
Chief Sales or Marketing Executive – has the primary responsibility for the planning
and control of sales in any company or business segment. However, Chief Accounting
Officer which is knowledgeable in cost and cost behavior and accounting analysis is
also able to assist the chief sales or marketing Executive in planning and controlling of
sales.
Controller – is accountable for the accounting operations of the company, to include

the production of periodic financial reports, maintenance of an adequate system of
accounting records, and a comprehensive set of controls and budgets designed to

mitigate risk.
Areas to Consider by Controller in Planning and Controlling Cost
 Selection and application of mathematical/statistical methods to develop or verify

sales level trends and relationships
 Analysis of internal sales data to reveal trends and relationships
 Analysis and assembling of the proposed sales plan/budget
 Development and application of sales standards for use by the marketing
executive, if applicable
 Application of the relevant costs as a factor in setting product sales prices

Sales Forecasting – it is the process of estimating future sales.
 The accuracy of sales forecast is essential to good planning that would result
in higher revenue or profit.
 The controller can work with sales management to realistically evaluate the
degree to which the actual sales will relate to sales budget or forecast.
The following is representative of some of the fundamental questions that are constantly
raised when resolving sales problems:
1. Product
 What product is to be sold and in what quantity?
 Is it to be the highest quality in its field or lower?
 Is the product to be a specialty or a staple?
Points to consider:
 Selection of the product or consideration of changes in the line, sizes, and

colors.
 Consider the cost when deciding on what product to produce
 The chief accounting official should be able to indicate the probable margin
on the product, as well as the margins on alternative choices.
2. Pricing
 At what price is the article to be sold?
 Shall the company follow a policy of meeting all price competition?
 What are the terms of sale to be granted?
Points to consider:
 Total costs (actual cost incurred in the production of product), marginal or

differential costs (it is the cost in producing one more unit of product), out-
of-pocket costs (are expenses that could be incurred or avoided depending
on management‘s decision), or cost differences must be considered in
developing the price structure.
3. Distribution
 To whom shall the product be sold; that is, shall the firm sell directly to the
ultimate consumer or through others, such as wholesalers?
 What channels of distribution should be used?
Points to consider:
 The management must choose the best distribution channel to used in the
delivery of products to the selected consumers (direct selling, selling
through intermediaries, and dual distribution).
 The minimum order to be accepted.
 The strategic location of the warehouse.
4. Method of sale
 How shall the goods be sold?
 Is it to be by personal solicitation, advertising, or direct mail?
 What sales promotion means shall be used?
Points to consider:
 Controller can help in providing historical cost and alternative cost estimates
for various methods of sale.
 Methods of sale must be properly determined to have a best return of
investment.
A. Sales Discount – is a reduction in the price of product or service that is

offered by the seller, in exchange of early payment by the buyer.
How to calculate:
 The rate is usually given as percent
 To find the discount, multiply the rate by the original price
 To find the sales price, subtract the discount from original price.
Example:
In a department store, a blouse that sells for Php 450.00 is ―marked 20%
off‖. How much is the discount? What is the sale price of the item?
Given:
Discount rate: 20%
Original price: 450.00
The discount is: 0.20 X 450.00 = Php 90.00
Original Price 450.00

Discount 90.00
Sale Price Php 360.00
B. Sales Promotion – is used to draw stronger and quicker buying response

from the buyer. It can also be a big help in highlighting product offers
which are short run and to boost dropping sales.
Examples of devices used in Sales Promotion:
 Coupons
 Samples
 Rebates
 Sweepstakes
Benefits of Sales Promotion:
 Communication – they help gain the attention of the consumer

 Invitation – they persuade buyer in making immediate buying
 Incentive – The consumers feel that they gain more value due to
the inducement.
Example:
SM Advantage card, consumers are temp to purchase more due to the

incentives received when a consumer purchase the minimum amount per
transaction.
C. Sales Quota – is the sales goal or figure set for product line, company
division or sales representative. It is the minimum sales for a given period.
This could be individual or a team.
Sales quota types:
Volume Based – This is being measured by number/units of products

being sold.
Revenue Based – This is determined by sales generated by sales of
products or services.
Profit Based – This is determined by profit earned through the sales.
How to set Sales Quota:
Strategic estimation – In this method, as per the estimation and planning

for future sales drive individual quota of sales designated for individuals or
smaller groups.
Individual Capability – This method sees the capability of sales force and
previous performance put in by the team.
D. Sales Orientation – is a business approach of increasing profit by
focusing on persuasion of people to buy products instead of
understanding the customer needs. Emphasis is on the advertising and
improving the abilities of sales force.
Characteristics of Sales Oriented business:
More reliance on promotional activity

Aggressive selling tactics
It focuses mostly on short term planning
More share of the original budget to promotional services
5. Organization
 How shall salespersons be selected, and how shall they be trained?
 What is to be the basic organizational setup?

 Are there to be branch offices?
 Will sales supervisors handle all lines of product, or will each specialize?
 Into what departments shall the sales organization be divided?
 How many salespersons should be employed?
Points to consider:
 Organizational structure may vary on how big the company is. Small business
requires a minimal number of employees in the sales and marketing
department while large companies may require different staff who will handle
the sales and marketing separately. Through this, each department can focus
in implementing the company goals and objectives for success of the
company.
SALES CONTROL
Sales Control – is one of the functions of Sales Management which ensures the sales
achievement and profit objectives of the company by coordinating effectively the
different sales functions.
Goals of Sales Control
Enhance number of sales

Maximize Profit
Control Revenue
 Sales must be controlled to achieve the best or expected return on investment.

The optimum net income is realized only when a proper relationship exists among
these four factors:
(1) investment in working capital and facilities
(2) volume of sales
(3) operating expenses, and
(4) gross margins

Sales Control Process
SALES CONTROL
BEHAVIORAL COST ASPECTS

ASPECTS
Allocation of Performance Sales-function

Sales Effort
Selling Time Expenses
Administration
Sales control process can be executed either through behavioral aspects like
sales effort and allocation of selling time or through cost aspects like
performance expenses and sales function administration.
Sales personnel must be trained sufficiently to maintain a consistent effort in
sales.
Basic Tools to control efforts:
Sales Budget (Financial Plan)

Sales Programmes (Sales Plan)
Other Tools:
Sales Audit - it is a systematic and unbiased review of basic objective and policy
of the selling function of an organization.
Audits normally examine six aspects such as:
o Objective of the company

o Internal Policies
o Structure of the organization
o Sales method
o Procedures
o Sales Personnel
Sales Analysis – It is the study of sales volume operations to find the sales and
profit trend. It also provides insights on sales territories, types of customers and
products.
References:
Hilton, R W and Platt, D E (2015) Managerial Accounting: Creating Value in a Dynamic

Business Environment. (Tenth Edition) Printed in the Philippines. C & E Publishing, Inc.
Internet source: Sales Control. www.mbaskool.com

Internet source: Steps in creating a Sales Plan. https://fitsmallbusiness.com
TECHNOLOGY IN MANAGEMENT
Report by: Jethro M. Madroño
Table of Contents
I. What is Information Security System?

II. What are the Security Triads?
III. Tools for Information Security
IV. What is Project Risk Management?
V. Four Basic Ways in Handling Risk
VI. Risk Management Process
VII. Improving Project Communication and Develop a Communication Strategy
I. What is Information Security System?

 more commonly referred to as INFOSEC, refers to the processes and
methodologies involved with keeping information confidential, available,
and assuring its integrity.
II. The Security Triads
Introduction
As computers and other digital devices have become essential to business

and commerce, they have also increasingly become a target for attacks. In
order for a company or an individual to use a computing device with
confidence, they must first be assured that the device is not compromised in
any way and that all communications will be secure. In this chapter, we will
review the fundamental concepts of information systems security and discuss
some of the measures that can be taken to mitigate security threats. We will
begin with an overview focusing on how organizations can stay secure.
Several different measures that a company can take to improve security will
be discussed. We will then follow up by reviewing security precautions that
individuals can take in order to secure their personal computing environment.
The Information Security Triad: Confidentiality, Integrity, Availability (CIA)
Confidentiality
 When protecting information, we want to be able to restrict access to

those who are allowed to see it; everyone else should be disallowed from
learning anything about its contents. This is the essence of confidentiality.
For example, federal law requires that universities restrict access to
private student information. The university must be sure that only those
who are authorized have access to view the grade records.
Integrity
 Integrity is the assurance that the information being accessed has not
been altered and truly represents what is intended. Just as a person with
integrity means what he or she says and can be trusted to consistently
represent the truth, information integrity means information truly
represents its intended meaning. Information can lose its integrity through
malicious intent, such as when someone who is not authorized makes a
change to intentionally misrepresent something. An example of this would
be when a hacker is hired to go into the university‘s system and change a
grade.
Integrity can also be lost unintentionally, such as when a computer power surge
corrupts a file or someone authorized to make a change accidentally deletes a file or
enters incorrect information.
Availability
 Information availability is the third part of the CIA triad. Availability means
that information can be accessed and modified by anyone authorized to
do so in an appropriate timeframe. Depending on the type of information,
appropriate timeframe can mean different things. For example, a stock
trader needs information to be available immediately, while a sales person
may be happy to get sales numbers for the day in a report the next
morning. Companies such as Amazon.com will require their servers to be
available twenty-four hours a day, seven days a week. Other companies
may not suffer if their web servers are down for a few minutes once in a
while.
III. Tools for Information Security
In order to ensure the confidentiality, integrity, and availability of information,
organizations can choose from a variety of tools. Each of these tools can be utilized as
part of an overall information-security policy, which will be discussed in the next section.
Authentication
The most common way to identify someone is through their physical appearance, but
how do we identify someone sitting behind a computer screen or at the ATM? Tools for
authentication are used to ensure that the person accessing the information is, indeed,
who they present themselves to be.
Authentication can be accomplished by identifying someone through one or more of

three factors: something they know, something they have, or something they are. For
example, the most common form of authentication today is the user ID and password. In
this case, the authentication is done by confirming something that the user knows (their
ID and password). But this form of authentication is easy to compromise (see sidebar)
and stronger forms of authentication are sometimes needed. Identifying someone only
by something they have, such as a key or a card, can also be problematic. When that
identifying token is lost or stolen, the identity can be easily stolen. The final factor,
something you are, is much harder to compromise. This factor identifies a user through
the use of a physical characteristic, such as an eye-scan or fingerprint. Identifying
someone through their physical characteristics is called biometrics.
A more secure way to authenticate a user is to do multi-factor authentication. By

combining two or more of the factors listed above, it becomes much more difficult for
someone to misrepresent themselves. An example of this would be the use of an RSA
SecurID token. The RSA device is something you have, and will generate a new access
code every sixty seconds. To log in to an information resource using the RSA device,
you combine something you know, a four-digit PIN, with the code generated by the
device. The only way to properly authenticate is by both knowing the code and having
the RSA device.
Access Control
Once a user has been authenticated, the next step is to ensure that they can only
access the information resources that are appropriate. This is done through the use of
access control. Access control determines which users are authorized to read, modify,
add, and/or delete information. Several different access control models exist. Here we
will discuss two: the access control list (ACL) and role-based access control (RBAC).
For each information resource that an organization wishes to manage, a list of users
who have the ability to take specific actions can be created. This is an access control
list, or ACL. For each user, specific capabilities are assigned, such as read, write,
delete, or add. Only users with those capabilities are allowed to perform those functions.
If a user is not on the list, they have no ability to even know that the information
resource exists.
ACLs are simple to understand and maintain. However, they have several drawbacks.
The primary drawback is that each information resource is managed separately, so if a
security administrator wanted to add or remove a user to a large set of information
resources, it would be quite difficult. And as the number of users and resources
increase, ACLs become harder to maintain. This has led to an improved method of
access control, called role-based access control, or RBAC. With RBAC, instead of
giving specific users access rights to an information resource, users are assigned to
roles and then those roles are assigned the access. This allows the administrators to
manage users and roles separately, simplifying administration and, by extension,
improving security.
Encryption
Many times, an organization needs to transmit information over the Internet or transfer it
on external media such as a CD or flash drive. In these cases, even with proper
authentication and access control, it is possible for an unauthorized person to get
access to the data. Encryption is a process of encoding data upon its transmission or
storage so that only authorized individuals can read it. This encoding is accomplished
by a computer program, which encodes the plain text that needs to be transmitted; then
the recipient receives the cipher text and decodes it (decryption). In order for this to
work, the sender and receiver need to agree on the method of encoding so that both
parties can communicate properly. Both parties share the encryption key, enabling them
to encode and decode each other‘s messages. This is called symmetric key encryption.
This type of encryption is problematic because the key is available in two different
places.
An alternative to symmetric key encryption is public key encryption. In public key

encryption, two keys are used: a public key and a private key. To send an encrypted
message, you obtain the public key, encode the message, and send it. The recipient
then uses the private key to decode it. The public key can be given to anyone who
wishes to send the recipient a message. Each user simply needs one private key and
one public key in order to secure messages. The private key is necessary in order to
decrypt something sent with the public key.
Backups
Another essential tool for information security is a comprehensive backup plan for the
entire organization. Not only should the data on the corporate servers be backed up, but
individual computers used throughout the organization should also be backed up. A
good backup plan should consist of several components.
o A full understanding of the organizational information resources. What

information does the organization actually have? Where is it stored? Some
data may be stored on the organization‘s servers, other data on users‘
hard drives, some in the cloud, and some on third-party sites. An
organization should make a full inventory of all of the information that
needs to be backed up and determine the best way back it up.
o Regular backups of all data. The frequency of backups should be based
on how important the data is to the company, combined with the ability of
the company to replace any data that is lost. Critical data should be
backed up daily, while less critical data could be backed up weekly.
o Offsite storage of backup data sets. If all of the backup data is being
stored in the same facility as the original copies of the data, then a single
event, such as an earthquake, fire, or tornado, would take out both the
original data and the backup! It is essential that part of the backup plan is
to store the data in an offsite location.
o Test of data restoration. On a regular basis, the backups should be put to
the test by having some of the data restored. This will ensure that the
process is working and will give the organization confidence in the backup
plan.
o Besides these considerations, organizations should also examine their
operations to determine what effect downtime would have on their
business. If their information technology were to be unavailable for any
sustained period of time, how would it impact the business?
Additional concepts related to backup include the following:
o Universal Power Supply (UPS). A UPS is a device that provides battery backup
to critical components of the system, allowing them to stay online longer and/or
allowing the IT staff to shut them down using proper procedures in order to
prevent the data loss that might occur from a power failure.
o Alternate, or ―hot‖ sites. Some organizations choose to have an alternate site
where an exact replica of their critical data is always kept up to date. When the
primary site goes down, the alternate site is immediately brought online so that
little or no downtime is experienced.
As information has become a strategic asset, a whole industry has sprung up around
the technologies necessary for implementing a proper backup strategy. A company can
contract with a service provider to back up all of their data or they can purchase large
amounts of online storage space and do it themselves. Technologies such as storage
area networks and archival systems are now used by most large businesses.
IV. What is Project Risk Management?

- is the process of identifying, analyzing and then responding to any
risk that arises over the life cycle of a project to help the project
remain on track and meet its goal.
V. Four Basic Ways in Handling Risk
When you‘re planning your project, risks are still uncertain: they haven‘t happened
yet. But eventually, some of the risks that you plan for do happen, and that‘s when
you have to deal with them. There are four basic ways to handle a risk.
a. Avoid: The best thing you can do with a risk is avoid it. If you can prevent
it from happening, it definitely won‘t hurt your project. The easiest way to
avoid this risk is to walk away from the cliff, but that may not be an option
on this project.
b. Mitigate: If you can‘t avoid the risk, you can mitigate it. This means taking
some sort of action that will cause it to do as little damage to your project
as possible.
c. Transfer: One effective way to deal with a risk is to pay someone else to
accept it for you. The most common way to do this is to buy insurance.
d. Accept: When you can‘t avoid, mitigate, or transfer a risk, then you have
to accept it. But even when you accept a risk, at least you‘ve looked at the
alternatives and you know what will happen if it occurs. If you can‘t avoid
the risk, and there‘s nothing you can do to reduce its impact, then
accepting it is your only choice.
VI. Risk Management Process
Risk Identification
 A more disciplined process involves using checklists of potential risks and

evaluating the likelihood that those events might happen on the project.
Some companies and industries develop risk checklists based on
experience from past projects. These checklists can be helpful to the
project manager and project team in identifying both specific risks on the
checklist and expanding the thinking of the team. The past experience of
the project team, project experience within the company, and experts in
the industry can be valuable resources for identifying potential risk on a
project.
Risk Evaluation
 After the potential risks have been identified, the project team then
evaluates each risk based on the probability that a risk event will occur
and the potential loss associated with it. Not all risks are equal. Some risk
events are more likely to happen than others, and the cost of a risk can
vary greatly. Evaluating the risk for probability of occurrence and the
severity or the potential loss to the project is the next step in the risk
management process.
Risk Mitigation
After the risk has been identified and evaluated, the project team develops a risk
mitigation plan, which is a plan to reduce the impact of an unexpected event. The
project team mitigates risks in various ways:
o Risk avoidance
o Risk sharing
o Risk reduction
o Risk transfer
Each of these mitigation techniques can be an effective tool in reducing individual risks
and the risk profile of the project. The risk mitigation plan captures the risk mitigation
approach for each identified risk event and the actions the project management team
will take to reduce or eliminate the risk.
Contingency Plan
 The project risk plan balances the investment of the mitigation against the
benefit for the project. The project team often develops an alternative
method for accomplishing a project goal when a risk event has been
identified that may frustrate the accomplishment of that goal. These plans
are called contingency plans. The risk of a truck drivers‘ strike may be
mitigated with a contingency plan that uses a train to transport the needed
equipment for the project. If a critical piece of equipment is late, the impact
on the schedule can be mitigated by making changes to the schedule to
accommodate a late equipment delivery.
VII. Improving Project Communication and Develop a Communication
Strategy
Tips for More Effective Project Communication
Project managers and C-Suite executives often agree that effective communication to
stakeholders throughout the project lifecycle is an essential core competency. Here are
some tips to communicate more effectively:
o Make communication a priority – Communication should be front and

center in all project planning. Make a conscious effort to engage in a
communication strategy.
o Don‘t assume you know everything – If you‘re struggling in a particular
area, seeking help from others with more experience is advisable.
Emphasize that communication is a two-way street, and allow
stakeholders to offer their views when appropriate.
o Keep things positive – Don‘t hide negative news, but avoid gloom-and-
doom updates to stakeholders who may already be nervous about the
project‘s progress. Share information that tells them what they need to
know. Explain problems or setbacks clearly, but be sure to include the
solutions, as well.
o Switch up the communication channels – Weekly emails are great, but
also include face-to-face updates and phone calls, or new charts,
graphs and images to keep communications fresh, and help recipients
pay attention to the details.
o Keep updates timely and concise – Don‘t overwhelm stakeholders with
details. Instead, keep project updates clear and concise. But, make
sure stakeholders know what they need to know in the appropriate
time frame.
Develop a Communication Strategy
The PMI report concluded that companies that communicate more effective were
more likely to use project communication plans on every project. When developing a
communication strategy, here are a few questions to ask:
o Who needs to be informed? Project team members, executives,

stakeholders or clients?
o What kind of communication will be required? Team and management
meetings, project updates?
o How frequently will communication be needed? Weekly? Bi-weekly?
Monthly?
o What details must be communicated? Meeting notes, progress,
problems, successes?
o Who needs to know what? For example, does the CEO need to know
about a delivery hitch? Who needs to know about budget overages?
When preparing communications, continue demonstrating how the key project
deliverables are benefitting the business and/or stakeholders. Tailor your message
to the various stakeholder groups, and limit the fine points to those on a must-know
basis.
Session 12 (Old Syllabus): Selecting an Information System and Performance

Management System - Computer System and Related Technology
Report by: Arvin B. Javier
Selecting a Financial Information System
What is Information System?
 Information system (IS) is an organized system for the collection,

organization, storage and communication of information.
 Information system can also be described as a combination of hardware,
software, data, business process and functions which can be used to
increase efficiency and management of an organization.
 Information Systems is the expression used to describe an Automated
System (which may be referred to as a Computerized Information
System), be it manual, which covers people, machines or organized
hmethods to collect, process, transmit and disseminate data representing
information for the user or client.
What is Financial Information System?
A financial information system (FIS) is a business software system used to input

and track financial and accounting data. The system generates reports and alerts that
assist managers in effectively running the business.
Main Modules
 Financial Accounting Modules

- Records all accounting and financial transactions in general ledger
accounts for assets, liabilities, revenues and expenses that produces
financial statements.
 Funds Management
- Identifies funding sources and overall spending consistent with
budgets.
 Controlling
- Tracks revenue and expenses for each project or department.
Availability
Major global software providers such as Oracle and SAP develop and sell
financial information systems. Increasingly, systems are available as Internet-based
applications that need not be installed on company servers.
Cost
Systems are not cheap. Costs include the initial software license, system
installation and integration, annual maintenance contracts for support and upgrades,
and staff training on system features and use.
Implementation
Systems need to be integrated with other business applications such as Human

Resources modules on pay and benefits. Therefore, businesses often hire integration
specialists. System deployment and integration is complex and time consuming, and
raises overall cost.
Benefits
A financial information system is not suitable for everyone. Due to its complexity
and cost, it is better suited for medium- and large-sized organizations.
Example of a Financial Information System
SAP ( Systems, Applications, Products)
is a German-based European multinational software corporation that makes

enterprise software to manage business operations and customer relations.
Overview of AMS (Adminisrative Management Systems)
The Administrative Management Systems (AMS) is a group of computerized

components that house and process all the data (financial and otherwise) necessary to
meet the management and reporting requirements of the company.
AMS is used to record and report data that pertain to the following general areas:
• Accounting, budgeting and control
• Sales & distribution, materials management and purchasing
• Personnel administration, payroll and time management
• Research, Donation management, Facilities and Services etc.

Computer Systems and Related Technology
What is technology based accounting system?
• An accounting as an information system (AIS) is a system of collecting, storing

and processing financial and accounting data that are used by decision makers.
An accounting information system is generally a computer-based method for
tracking accounting activity in conjunction with
information technology resources.
• For example, consultants might use the information in an AIS to analyze the
effectiveness of the company's pricing structure by looking at cost data, sales
data, and revenue. Also, auditors can use the data to assess a company's
internal controls, financial condition and compliance.
• The AIS should be designed to meet the needs of the people who will be using it.
The system should also be easy to use and should improve, not hinder
efficiency.
• Accounting information systems generally consist of six primary components:
people, procedures and instructions, data, software, information technology
infrastructure, and internal controls.
• The six components of an AIS all work together to help key employees collect,
store, manage, process, retrieve, and report their financial data. Having a well-
developed and maintained accounting information system that is efficient and
accurate is an indispensable component of a successful business.
What Are the Different Types of Accounting Systems?
• There are two types of accounting systems: The first is a Single Entry System
where a small business records every transaction as a line item in a ledger. The
other is a Double Entry System, where every transaction is recorded both as a
debit and credit in separate accounts.
• A Double Entry System ensures a company‘s books balance.
• A single entry system does not require complicated software. An excel
spreadsheet or something similar is all that‘s needed to input the information.
• A double entry system of accounting does require software to properly manage
it.
• 7 Benefits of Computerised Accounting Systems
• Reduce the time spent on manual processes
• Less errors and increased accuracy
• Real-time financial information
• Automated invoices, credit notes and receipts
• Innovative financial technology
• Save money on resources
• Faster record-keeping leads to more business
Role of Computers in Accounting:
• The manual system of recording accounting transactions requires maintaining

books of accounts such as journal, cash book, special purpose books, and ledger
From these books summary of transactions and financial statements are
prepared manually.
• The advanced technology involves various machines, which can perform
different accounting functions, for example a billing machine. This machine is
capable of computing discount, adding net total and posting the requisite data to
the relevant accounts.
Objects of Introduction of Computers in Accounting:
• Labor Saving:
• Labor saving is the main aim of introduction of computers in accounting. It refers
to annual savings in labor cost or increase in the volume of work handled by the
existing staff.
• Time Saving:
• Savings in time is another object of computerization. Computers should be used
whenever it is important to save time. It is important that jobs should be
completed in a specified time such as the preparation of pay rolls and statement
of accounts. Time so saved by using computers may be used for other jobs.
• Accuracy:
• Accuracy in accounting statements and books of accounts is the most important
in business. This can be done without any errors or mistakes with the help of
computers. It also helps to locate the errors and frauds very easily.
• Minimization of Frauds:
• Computer is mainly installed to minimize the chances of frauds committed by the
employees, especially in maintaining the books of accounts and handling cash.
• Effect on Personnel:
• Computer relieves the manual drudgery, reduces the hardness of work and
fatigue, and to that extent improves the morale of the employees.
OUTSOURCING THE ACCOUNTING FUNCTION

Report by : Lomtong, Catherine M.
FINDING A SUPPLIER
The search methods are:
 Industry trade journals.

 Outsourcing clearinghouse
 Personal contacts
 Seminars
 They find you
 Trade shows
 Yellow Pages.
To narrow a controller‘s range of options, here is a sampling of the market-leading
suppliers of services in the more commonly outsourced functions:
 Accounts payable check printing.

 Collections
 Payroll
 Taxation and internal auditing
 Transaction processing
GENERAL ADVANTAGES OF OUTSOURCING
 Acquire better management

 Acquire new skills
 Alter the break-even level
 Assist high-growth situations
 Avoid investments
 Focus on core functions
 Handle overflow situations
 Improve performance
OUTSOURCING COSTS
 Base price plus fees for extra

 Cost of living adjustment (COLA)
 Compensation based on value provided
 Escalation caps
 Milestone award
 Severance payments to employees
 Termination fees
 Variable pricing based on volume
PREPARATION AND MAINTENANCE OF MANUALS
WORK STEPS FOR CONSTRUCTING A PROCEDURES MANUAL

1. Define the project. 10. Send out preliminary procedures
2. Obtain a project sponsor. for review.
3. Determine the size of the project 11. Update preliminary procedures.
team. 12. Approve procedures.
4. Obtain an approved budget. 13. Assemble procedures manuals.
5. Determine the number of 14. Determine procedures distribution
procedures to be written. list.
6. Prioritize the procedures. 15. Distribute procedures manuals.
7. Establish a timeline. 16. Determine frequency of review.
8. Issue requests for existing 17. Obtain approval of budget
procedures. continuations.
9. Undertake initial interviews. 18. Write a project review
SUGGESTED LIST OF PROCEDURES

A short list of the more common procedures follows, which can be used as the
basis for a procedure manual:
• Cash • Payroll
 Authorize a wire transfer payment  Calculate excess life insurance
 Process cash receipts payments
 Process credit card payments  Calculate payroll taxes
 Process credit card refunds  Calculate profit sharing
 Reconcile bank statement to book  Process payroll transactions
balance  Summarize timesheets
 Reconcile petty cash
• Financing • Fixed assets
 Conduct a daily cash sweep  Calculate depreciation on fixed
 Create borrowing base certificate assets
 Issue capital stock  Conduct inventory of fixed assets
 Issue dividends  Enter fixed asset payments
 Pay for outstanding debt  Evaluate capital purchase
 Prepare a cash forecast proposals
 Process a letter of credit  Record gain/loss on sale of an
 Request additional debt from a asset
revolving credit line
• Inventory and Purchasing • Sales
 Cycle count inventory  Authorization of bad debts
 Physical count inventory  Billings to employees
 Purchase under economic order  Calculation of allowance for bad
quantity calculations debt reserve
 Purchase small tools and supplies  Collection of overdue accounts
 Receive deliveries from unqualified  Create customer invoices
suppliers  Issue credit to customers
 Receive deliveries from qualified  Record sales returns
suppliers  Record scrap sales
 Track scrap transactions
• Payments • Financial statements
 Calculate commissions  Accrue for earned vacation time
 Calculate royalties  Accrue for income taxes payable
 Calculate sales taxes  Accrue for unpaid wages
 Match receiving, purchasing, and  Accrue for warranty expenses
supplier documents  Calculate earnings per share
 Obtain authorization for non-  Calculate overhead costs and
purchase order acquisitions application thereof
 Print 1099 forms  Create journal entries
 Process manual check payments  Create the budget
 Review expense reimbursements  Calculate accruals
 Void checks  Enter the budget into the financial
statement report
MAINTAINING ACCOUNTING MANUALS

Accounting manual changes consist of adding or deleting something, changing a
record, account, or procedure, or clarifying a previous release. The level of changes
are:
 Minor changes, such as adding or deleting one or a few account numbers,
income or expense codes, approval authorizations and so on, can be reported
by interoffice correspondence or memoranda to those departments or

employees affected by the change;
 Intermediate changes, such as the replacement of a significant portion of a
manual, the introduction of a new form, a significant change in an existing form,
or a policy or procedural change that may affect most operations within the
company, are disclosed through the policy/procedure statement (P/PS) system,
possibly in conjunction with replacement sections of the manual as attachments;
 Major change, such as a new accounting system, a new data processing system
affecting users, a replacement of several action or transaction forms, and so
forth, would require the rewriting and reissuance of the manual, or major
sections thereof if the changed affected only one or two separate sections of a
manual.
RESPONSIBILITY FOR MAINTENANCE OF MANUALS

The following is a job description showing the traits desirable in an employee
who will be assigned the writing and compiling tasks, and the criteria for selecting an
outside consultant who may be employed to produce specific accounting manuals:
• Documenter Job Description:
 Degree in accounting
 Large-company business experience
 Knowledge of internal accounting controls
 Good writing ability (style)
 Desire to spend several years in this job
 Good interviewing techniques
• Consultant Selection Criteria:

 Significant experience in writing documentation for accounting, data processing,
or similar operations.
 Well-designed plan to utilize internal employees as much as possible for startup
materials.
 Good, readable writing style. (Review several recent reports or actual
documentation prepared by the consultant who will be assigned to the job.)
 Receive assurance that the consultant understands fully the exact requirements
of the specific manuals that he or she will complete.
 Determine any other specific needs such as office space, photocopying, printing
services, and so on to be provided.
SPECIFICATIONS FOR MAINTENANCE OF MANUALS

The instructions should include five categories of information:
1. Mechanics. Size of paper used for different types of forms and reports, as
well as the method by which a manual is bound
2. Content. types of forms, tables, policies, procedures, and other
instructions to be contained within the manual.
3. Updating. Types of information should be updated on a regular basis.
4. Numbering and indexing. the numbering schemes used to identify
documents within each manual.
5. Normal distribution and retention. Notes who receives each manual and
what happens to old manuals when they are replaced by new ones.
PHYSICAL CONSTRUCTION OF THE MANUAL‘S BINDER

The following are some subtleties to the purchase of a binder that should be
considered:
 Use a loose-leaf binder.
 Buy the slant-ring version of the binder.
 Buy binders that are too large.
 Base binder size on the ring width.
 Buy a stiff binder.
 Buy binders with plastic overlay covers.
 Use clearly visible index tabs.
 Reference procedure numbers on index tabs.
CREATION AND STORAGE OF THE MASTER MANUAL COPY

1. Assign the same release date to all documents.
2. Update the revision history.
3. Verify that old-page versions are replaced.
4. Create multiple tables of contents.
5. Update the existing tables of contents.
6. Lock up the master copy.
PHYSICAL DISTRIBUTION PROCESS

1. Match cover letters to manuals.
2. Securely package manuals.
3. Route local deliveries through internal mail stops.
4. Route external deliveries through a delivery verification service.
ISSUANCES TO NEW EMPLOYEES

One approach is to create a form for use by the human resources department,
which it forwards to the manuals development group whenever a new employee is
hired, which is sufficient notification that a manual should be sent to that person as well
as added to the ongoing mail list for future updates.
Another approach is to have the human resources staff send a notification to the
new employee‘s supervisor as a reminder to go over the supervisor‘s copy of the
manual. A further step may be to require the supervisor to sign a document attesting to
the completion of such training and then send it back for inclusion in the employee‘s file.
MANUAL RETRIEVAL
The only reason why a manual should be retrieved when an employee leaves is
that it is less likely to be maintained with new document updates, and so will eventually
contain less-than accurate information. Consequently, there should be a notation in the
exit interview form that reminds the interviewer to inquire if the manual has been turned
in. This is a much more reasonable approach than forcing departing employees to pay
for nonreturned manuals.
BASIC ELECTRONIC MANUAL

An on-line accounting manual is essentially a direct restatement of the existing
paper-based manual, with no enhancements such as interactive tutorials, help menus,
sound, or video clips. Despite the lack of these additional features, a basic on-line
accounting manual can be quite an attractive option, because it requires limited skill to
transfer documents to the on-line format. The files are either posted directly to the
company intranet, or else they are incorporated into the help screens used in the
corporate accounting software. By using this approach, a company can have its
manuals available to the company as a whole with very little effort.
BENEFITS OF USING ELECTRONIC MANUAL

 Cannot lose the manual.
 Faster access to desired information.
 Greater frequency of updates.
 Instant data access.
 Provides an additional help capability.
 Reduced cost of distribution.
 Reduced documentation tracking cost.
 Send comments to the maintainer of the manual.
DISADVANTAGES OF USING ELECTRONIC MANUALS

 Cost of reprinting electronic documents.
 Duplicate use of both paper-based and electronic manuals.
 More complex formatting requirements.
 Methods of electronic access required.
 No access if the computer system is down.
MAINTAINING AN ELECTRONIC MANUAL

 Constant maintenance.
 Additional training.
 Less review time.
 Stratified review system.
 Database access issues.
MAINTENANCE AND DESTRUCTION OF RECORDS
MAINTENANCE OF RECORDS
 Review of Records Inventory
The first step in reviewing your department's records and the management of
those records should be to identify the type of records being maintained, in what form
(paper, electronic, etc.) they exist and for how long they're being retained. As this
inventory is being taken, identical records that exist in several places should be noted.
Once this inventory process is completed, the next step is to determine the importance
of the record(s) to the ongoing operation of your department. The process of
determining a record's relative importance can result in the decision to limit its retention
period or even to eliminate entirely the need for its further retention.
 Organization/Filing
Organizing your records more efficiently has many benefits and if you're having
trouble finding things on a regular basis or often misplace things, the following
suggestions are offered:
1. Which records do you need most frequently?
2. Are there types of records that could be grouped together?
3. Do more copies of a record or document exist than are really needed? Are the
people in your department in the habit of printing off every e-mail they receive
whereas keeping them as e-mail may work just as well? Or, what's the worst
thing that would happen if the record was destroyed?
 Organizing Electronic Records

o If you prefer to keep all of your files for a particular project or function
together, then you'll probably want to create a folder for each project or
function that you use (i.e. finance, employee, research etc.)
o Create a main folder that has all of your word processing documents,
another main folder that has all of your spreadsheets, a third main
folder that contains any databases and so on.
DESTRUCTION OF RECORDS
All records have some practical period of usefulness. The decision to keep a
certain type of record permanently or destroy it at some pre-determined point in time
should be based on the significance of the record to ongoing operations within your
department. Every department should establish a written policy outlining the conditions
under which the destruction of records is appropriate. Once records have outlived their
practical usefulness, you must decide whether they should be retained or not. In some
instances, there may be a required legal retention period in effect beyond the period of
practical usefulness. Whenever possible, you should utilize all available information to
determine the retention requirements of a record.
The following points of information should help you to make correct decisions
regarding records destruction:
 Any convenience copy records or non-records (post-it notes, miscellaneous

papers, correspondence without official significance) can be thrown away at any
time after they have outlived their usefulness in your department.
 Official records and confidential records require no prior approvals for destruction
as long as they are listed on an approved records retention schedule. The
destruction of these records must follow the retention time frames listed on the
schedule, if present.
 Once it‘s been determined that the records scheduled for destruction can be
destroyed, shredding is the preferred method for paper records. For electronic,
magnetic tape, CD and other types of computer records, make sure that the
records are erased and cannot be eventually retrieved.
INVENTORY TRACKING
 Inventory – is the term for the goods available for sale and raw materials used to
produce goods available for sale.
DIFFERENCES BETWEEN PERPETUAL AND PERIODIC INVENTORY SYSTEMS
The following points justify installing such a system:

 Avoid wasted time. Staff time is not being efficiently used during a physical
inventory count, because they could be involved in other activities.
 Improve product delivery performance. High inventory accuracy allows
companies to promise shipments to customers with greater confidence,
because products can be built without delays due to missing parts.
 Achieve better accuracy than with physical counts. Inventory counts should
be done by the experts—the warehouse staff—and should be done at their
leisure, which ensures higher count accuracy.
 Use transaction data to reduce the inventory. The transaction history that is a
by-product of a perpetual inventory system allows the materials manager to
make informed decisions regarding deletions of parts from stock.
SETTING UP A PERPETUAL INVENTORY SYSTEM
1. Create the underlying systems.

a) Select and install inventory tracking software
b) Test inventory tracking software.
2. Clean up and rearrange the warehouse
a) Revise the rack layout.
b) Create rack locations.
c) Lock the warehouse
3. Identify and rearrange the parts.
a) Consolidate parts.
b) Assign part numbers
c) Verify units of measure
d) Pack the parts.
4. Count and enter the inventory
a) Count inventory items.
b) Conduct software training
c) Enter data into the computer
d) Quick-check the data.
5. Create control systems
a) Initiate cycle counts.
b) Initiate inventory audits
c) Post results
d) Reward the staff.
AUDITING AND MEASURING A PERPETUAL INVENTORY SYSTEM
PHYSICAL INVENTORY PROCEDURE
1. Organize the inventory. It is very helpful to clean up and organize the inventory
area prior to starting the physical count.
a) Appoint an organization team.
b) Consolidate parts
c) Assign part numbers
d) Pack the parts
2. Select and train teams
a) Select team members
b) Prepare forms
c) Prepare procedures
d) Conduct advance training
e) Clarify organizational roles

 Controller. Responsible for complete planning and execution of the
physical inventory program.
 Coordinator. Ensures complete coordination of all inventory activities
with all functional heads.
 Training supervisor. Responsible for training everyone concerned with
the inventory taking, including those preparing the areas and arranging
stock, as well as the development of a training program and arranging
for the proper selection of employees to participate.
 Counting supervisor. Responsible for the proper identification and
counting of all materials to be inventories and making sure that
inventory cards are properly prepared.
 Checking supervisor. Responsible for recounting and verifying the
accuracy of the counts and ensuring that all items have been counted
and tagged.
 Control supervisor. Responsible for the issuance and control of all
inventory cards and tags, analysis of variances, and the preparation
and distribution of applicable reports.
3. Count the inventory
a) Issue final instructions
b) Schedule counting areas
c) Supervise counts
4. Release the inventory teams
a) Review count cards
b) Input the count cards
c) Review count areas.
d) Check for variances
e) Sign off on count areas
OBSOLETE INVENTORY
HOW TO AVOID THE INVENTORY TRACKING PROBLEM
1. Choke off the flow of incoming inventory

a. Eliminate volume purchases.
b. Create accurate bills of materials
c. Create an accurate production schedule
d. Install a material requirements planning (MRP) system
2. Eliminate existing inventory
a) Throw out inventory.
b) Return inventory
c) Use up inventory
d) Move inventory to shop floor
RISK MANAGEMENT
 A company must determine the amount of risk that it is willing to undertake.

When the board of directors attempts to quantify this, it frequently finds that it is
uncomfortable with the level of risk the company currently has and mandates
more action to reduce that risk. The policy can include a number of risk
management issues, such as the financial limits for risk assumption or retention,
self-insurance parameters, the financial condition of insurance providers, and
captive insurance companies. The policy does not have to cover some risks that
are already required by law, such as workers‘ compensation insurance.
RISK MANAGEMENT PROCEDURES
1. Locate risk areas.

a) Buildings and equipment
b) Business interruption
c) Liabilities to other parties
d) Other assets
2. Determine the risk reduction method.
a) Duplicate
b) Prevent
c) Segregate
3. Implement internal changes to reduce risks
4. Select an agent
5. Determine the types of insurance to be purchased
a) Boiler and machinery
b) Business interruption
c) Commercial property
d) Comprehensive auto liability
e) Comprehensive crime.
f) Directors and officers
g) General liability
h) Group life, health, and disability
i) Inland marine
j) Ocean marine and air cargo
k) Workers‘ compensation
MANAGER OF RISK MANAGEMENT
The job description of a typical risk manager is:
 Ascertain and appraise all corporate risks.

 Estimate the probability of loss due to these risks
 Ensure compliance with state, federal, and local requirements regarding
insurance.
 Select the optimum method for protecting against losses, such as changes to
internal procedures or by acquiring insurance.
 Work with insurance agents, agents, consultants, and insurance company
representatives.
 Supervise a loss prevention program, including planning to minimize losses from
anticipated crises.
 Maintain appropriate records for all aspects of insurance administration.
 Continually evaluate and keep abreast of all changes in company operations.
 Stay current on new techniques being developed in the risk management field.
 Conduct a periodic audit of the risk management program to ensure that all risks
have been identified and covered
Reference:
Bragg, S. M., & Roehl-Anderson, J. M. (2004). Controllership: The Work of The
Managerial Accountant (7th ed.). Hoboken, New Jersey: John Wiley & Sons, Inc.
Financial Management and Budget. (n.d.). Retrieved October 13, 2019, from
https://fmb.fo.uiowa.edu/records-management/maintenance-records
Financial Management and Budget. (n.d.). Retrieved October 13, 2019, from
https://fmb.fo.uiowa.edu/records-management/university-guidebook-records-
management/destruction-records
WORLD CLASS ACCOUNTING SYSTEM

Session 3 : (Old Syllabus)
Report by : Abegail Dela Peña
Types of Comptrollers
 In businesses – Oversees accounting and financial reporting.

 In non-profit organizations – Supervises the accounting for a non-profit entity,
making sure that all donations and expenditures are properly recorded and
tracked. He/She is also responsible for any required financial public reporting or
reporting to a board of directors.
 In government – The duties in a government position vary according to the exact
nature of the position, although the basic role of financial oversight remains a
constant. For example, in the US, the Comptroller General oversees the General
Accountability Office (GAO).
RESPONSIBILITIES OF A FINANCIAL CONTROLLER
 Accounting Tasks
A comptroller is responsible for regular accounting tasks in the organization. These
tasks include maintaining the payroll, handling accounts payable and receivable,
preparing monthly income statements and updating the computerized accounting
system. A comptroller also supervises periodic financial audits. If an external auditor
does the audit, the comptroller collaborates with the auditor by providing the
necessary documents required for the audit to be completed. It is also part of the
financial controller job description to comply with local and federal tax filing
requirements.
 Planning
The comptroller provides concrete financial information for the organization to make
its future decisions. He or she also provides the financial forecast and a budget for
planning. Similarly, this information may be used by the organization to secure a
loan.
 Monitoring Function
It is part of the comptroller job description to enhance the financial checks and
controls to ensure integrity in financial reporting. He or she also monitors the cash
flow within the organization. In addition, the holder of the position monitors the debit
and credit and takes charge of the financial compliance functions to ensure
compliance with the set financial transaction and reporting regulations. As part of the
monitoring function, the comptroller may be required to formulate financial policies
and procedures.
Financial Planning & Analysis
• a group within a company‘s finance organization that provides senior

management with a forecast of the company‘s profit and loss (income statement)
and operating performance for the upcoming quarter and year. These forecasts
inform management on the progress and effectiveness of the

company's strategic plans and investments.
Acquisition Strategies: Reasons and Problems
Reasons for Problems in

Acquisitions Achieving Success
Increased Integration
market power difficulties
Overcome Inadequate
entry barriers evaluation of target
Cost of new Large or

product development extraordinary debt
Increased speed Acquisitions Inability to

to market achieve synergy
Lower risk Too much

vs. new products diversification
Increased Managers overly

diversification focused on acquisitions
Avoid excessive
competition Too large
What Is Business Process Reengineering?
Business process reengineering (BPR) involves the examination and redesign of

business processes and workflows in your organization. A business process is a set of
related work activities that are performed by employees to achieve business goals.
Basically, a business process is the way we perform our work and business process
reengineering is the process of changing the way we do our work so we do it better to
accomplish the goals of our business.
Why Engage in Business Process Reengineering
The idea behind business process reengineering is to make your company more
flexible, responsive, efficient and effective for all stakeholders, including customers,
employees and owners. In order for BPR to work, your business must be willing to make
the following changes:
 Change from a management focus to a customer focus - the boss is not the
boss, the customer is the boss.
 Empower your workers that are involved in each process to have decision-
making and ownership in the process.
 Change your emphasis from managing activities to focusing on results.
 Get away from 'score keeping' and focus on leading and teaching so employees
can measure their own results.
 Change the company's orientation from a functional orientation to a process or

cross-functional orientation. This allows for an increase in organizational
knowledge among its members and a greater degree of flexibility in
accomplishing tasks.
 Move from serial operations to concurrent operations. In other words, multitask
instead of just doing one thing at a time.
 Get rid of overly complex and convoluted processes in favor of simple,
streamlined processes. Use the KISS Principle - keep it simple, stupid.
 Stop trying to build an empire and protect the status quo. Instead, invent new
systems and processes that look towards the future.
What is Accounting System
 Is the system used to manage the income, expenses, and other financial
activities of the business
 It allows a business to keep track of all types of financial transactions, including
purchases (expenses), sales (invoice and income), liabilities (funding, accounts
payable), etc
 It is capable of generating comprehensive statistical reports that provide
management or interested parties with a clear set of data to aid in decision-
making process
Accounting System in History
• The earliest known accounting records were foun in the Middle East and dated
back over 7,000 years
• In the late 1400s, Italian friar Luca Pacioli earned his accreditation as the
―Father of Accounting‖
Golden Rule of Accounting:
―Do not go to bed before the debits equal the credits.‖
Modern Accounting System
• In 1880, the first accounting machine was invented by Herman Hollerith

The tabulation machine used to punch cards to add numbers to a card
that could then used to determine the total
• In 20th century, developments in computer technology and the introduction of PC.
That is: an accounting system that does it all.
Accounting Best Practices For Small Businesses
As an entrepreneur, your task does not end with Business Registration. In fact, that is
just the beginning. What then follows is a long ―to-do-list‖ to keep your business plans,
goals and reporting requirements on target. If the ‖list‖ is not managed properly, you will
end up exhausted, regretful and frustrated because you will soon realize that you are
actually working longer hours than when you were working for somebody else. What
was an 8 to 5 job for an employer becomes a 24/7 headache for your business.
Entrepreneurs, like me, agree that the most daunting and intimidating task in running a
business is accounting (or financial management), unless, that is, you are an
Accountant by profession. We find it so intimidating that the moment we are in
possession of those receipts, invoices, VAT returns and other accounting documents,
we go into a trance like state, staring at the increasingly large pile of papers, picking
them up and putting them down again hoping by some magical spell they will disappear.
1. Familiarize yourself with your financial statements – Balance Sheet, Profit

& Loss, and Cash Flow Statement
Whether you have an accountant or an employee managing your in-house accounting,
it is imperative you know how to read these essential financial tools. They will inform
you of your financial position at any given time. Being financially informed will help you
make sound business decisions.
 Balance Sheet – this shows the company‘s total assets, liabilities and capital at a
particular point in time
 Profit & Loss or Income Statement – shows the revenues generated and
expenses incurred during a particular period
 Cash Flow Statement – shows details of the flow of cash (inward and outward)
as a result of the company‘s operating, investment and financing activities.
2. Prepare business budget/plan
At the beginning of your business operation or of the succeeding operating years, a
business budget and plan will help you project and estimate future expenses and the
amount of income or revenue needed to sustain your operations. A well-documented
business budget and marketing plan is a must when seeking external funding
investment.
3. Decide what accounting method you will use – Cash Basis Method or
Accrual Method
Accounting method depends on the nature of your business.
 Cash Basis – is the simplest form of accounting. You recognize and record
revenue when cash is received. Expenses are recorded when bills are paid.
 Accrual Method – Revenues are recognized and recorded when earned.
Expenses are recognized and recorded when consumed or when an invoice is
received. Remember, when using this method, revenues and invoices don‘t have
to be paid before recording them in your books.
4. Separate business and personal expenses
I believe it was Benjamin Franklin who wrote ―in this world nothing can be said to be
certain, except taxes and death.‖ When running your business it can be tempting to
declare certain ―personal‖ expenses as legitimate business expense. I would advise you
to resist the temptation for two reasons: 1. It distorts the true financial performance of
your enterprise. A factor that may deter external investors; and 2. It is advisable to keep
the revenue authorities on your side. A clean set of books leads to clean audit and less
hassle from the tax authorities. So back to Benjamin, whilst the former may be deferred
by keeping accurate ―clean‖ books thus creating less stress, the latter is, unfortunately
inevitable.
5. Enjoy a terrible accounting joke from time to time
6. Automate payments and invoicing

You have to learn to take advantage of technology. Enroll recurring bills on e-Payments
and regular customers in e-Invoicing. This practice avoids past due bills and un-
accounted revenue.
7. Identify and strictly implement internal controls

Setting up and implementing internal financial controls at a very early stage of your
business will help you achieve your financial goals. These internal controls may include
processes protecting revenues from wastage, errors and fraud; and meeting financial
obligations.
8. Plan your purchases

Buy only the things you need and essential for the business. Always follow this golden
buying rule: ―Will my business benefit by making the purchase?‖
9. Set a routine of closing your books and stick to it

Practice closing your books at the end of each month. This would allow you to see how
your business performed over a given period. This would also enable you to plan
ahead, change or adjust your existing plans, and make sound business decisions.
10. Reconcile your bank account regularly

A monthly reconciliation of bank account is pretty standard. As soon as you receive your
bank statements, make it a habit to reconcile them right away. Make sure that the
balance you have in your books matches your bank account.
11. Pay your bills on time

This practice will build you good credit standing and relationship with your suppliers.
This can be helpful in securing a more lenient payment terms especially when you need
to expand operations. In the long run, you will actually save money because you avoid
past due charges.
12. Submit and pay your tax liabilities at least two weeks before the deadline
(income tax and payroll taxes)
These are obligations that you have to pay whether you like it or not. Creating separate
account for your tax liabilities will be helpful in remitting payments on time.
13. Plan your hiring

Like buying an equipment or asset, you have to plan the hiring of personnel. You have
to know the duties and responsibilities of each member of your team – specifically, their
added value to your company. Every employee must have clear documented details of
their responsibilities, accountabilities, hours of work, reporting relationship,
compensation and benefits. Employing people can be minefield but there is plenty of
free advice available from business groups and or trade associations.
14. Monitor your receivables

Closing a deal or signing another customer is awesome! But remember, a sale is not a
sale until money is exchanged. It goes without saying that effective monitoring of
accounts receivables will improve your cash position. It would help to learn the accounts
receivable ageing report.
15. Hire a reputable accounting firm

whether you do your own bookkeeping or have someone do it for you, it pays to have a
reputable accounting firm on your side to complete your statutory returns and audit.
Starting a business takes courage and perseverance. Some are discouraged because
what they immediately see are the tasks involved. They don‘t realize that there are so
many resources that they could use. Accounting, as one of the important aspects of a
business, can easily be carried out in-house with the use of simple or more complex
software, depending on the nature and size of your operations. Or, you may also use
the skills of an outside source like an accounting firm or freelance bookkeeper.
In conclusion, running your business should be challenging but fun. Challenging

because its success all depends on you…on how much effort and dedication you are
willing to give. But, if you have set up proper systems and follow the above best
accounting practices, then running your business would be a lot easier and FUN!
 DIRECT COST AND INDIRECT COST ON MATERIALS, LABOR AND

EXPENSES
 OPPORTUNITY COST AND SUNK COST
 TYPE OF INCOME STATEMENTS
 ABSORPTION AND VARIABLE
Submitted by: Ace Mel A. Rimbao
What is a cost?
Cost is defined as the cash amount (or the cash equivalent) given up for an asset. Cost
includes all costs necessary to get an asset in place and ready for use.
Cost classification according to ease of traceability
Direct Costs
 Costs that can be easily and conveniently traced to a unit of product or other cost
object.
 ―Traced‖
 Examples: Direct Material, Direct Labor & Direct Expense
Indirect Costs
 Costs that cannot be easily and conveniently traced to a unit of product or other
cost object.
 ―Allocated‖
 Examples: Indirect Material, Indirect Labor & Indirect Expense
Cost Classification According to Relevance to Decision Making
Every decision involves a choice between at least two alternatives. Only those costs
and benefits that differ between alternatives are relevant in a decision. All other costs
and benefits can be ignored as irrelevant.
Relevant cost - cost that will differ under alternative courses of action. In other words,
these costs refer to those that will affect a decision.
Standard cost - predetermined cost based on some reasonable basis such as past
experiences, budgeted amounts, industry standards, etc. The actual costs incurred are
compared to standard costs.
Opportunity cost - benefit forgone or given up when an alternative is chosen over the
other/s. Example: If a business chooses to use its building for production rather than
rent it out to tenants, the opportunity cost would be the rent income that would be
earned had the business chose to rent out.
Sunk costs - historical costs that will not make any difference in deciding. Unlike
relevant costs, they do not have an impact on the matter at hand.
Controllable costs - refer to costs that can be influenced or controlled by the manager.
Segment managers should be evaluated based on costs that they can control.
Types of Income Statement
(1) Traditional Income Statement
Also known as a profit and loss statement, a traditional income statement shows the
extent to which a company is profitable or not during a given accounting period. It
provides a summary of how the company generates revenues and incurs expenses
through both operating and non-operating activities.
Key terms to remember about Traditional Income Statement:
• GAAP
• Used primarily for external reporting
• Focus on cost according to time of charge against revenue
(2) Contribution Income Statement
In a contribution margin income statement, a company's variable expenses are

deducted from sales to arrive at a contribution margin. A contribution margin is
essentially a company's revenues minus its variable expenses, and it shows how much
of a company's revenues are contributing to its fixed costs and net income. Once a
contribution margin is determined, a company can subtract all applicable fixed costs to
arrive at a net profit or loss for the accounting period in question.
Key terms to remember about Contribution Income Statement
• Not GAAP
• Used primarily for internal management
• Focus on cost according to time charge against revenue
Comparison of the Contribution Income Statement with the Traditional Income
Statement
While a traditional income statement works by separating product costs (those incurred
in the process of manufacturing a product) from period costs (those incurred in the
process of selling products, as opposed to making them), the contribution margin
income statement separates variable costs from fixed costs. In a contribution margin
income statement, variable selling, and administrative periods costs are grouped with
variable product costs to arrive at the contribution margin.
A traditional income statement uses absorption or full costing, where both variable and
fixed manufacturing costs are included when calculating the cost of goods sold. The
contribution margin income statement, by contrast, uses variable costing, which means
fixed manufacturing costs are assigned to overhead costs and therefore not included in
product costs.
Companies are generally required to present traditional income statements for external
reporting purposes. Contribution margin income statements, by contrast, are often
presented to managers and stakeholders to analyze the performance of individual
products or product categories. Companies can benefit from contribution margin income
statements because they can provide more detail as to the costs and resources needed
to produce a given product or unit of a product. While both income statements ultimately
serve the purpose of showing whether a company is profitable or not over a certain
period, the contribution margin income statement can offer additional insight as how to
that net profit or loss came to be.
Cost Classification according to Timing Charge against Revenue
Product costs – are inventorial costs. They form part of inventory and are charged
against revenue only when sold. All manufacturing costs (Direct Materials, Direct Labor
& Factory Overhead) are product costs.
Period costs - are not inventoriable and are charged against revenue immediately.
Period costs include non-manufacturing costs, i.e. selling expenses and administrative
expenses.
Absorption and Variable Costing (Product and Period Costs)
Absorption costing, also known as full costing, entails allocating fixed overhead costs
across all units produced for the period, resulting in a per-unit cost, unlike variable
costing, which combines all fixed overhead costs into one expense, reporting them as a
single line item on a balance sheet to be taken against net income. In contrast,
absorption costing will result in two categories of fixed overhead costs: those
attributable to the cost of goods sold and those attributable to inventory.
One of the big advantages of absorption costing is that it is the method required for a
company to follow generally accepted accounting principles (GAAP). Even if a company
decides to use variable costing in-house, it is required by law to use absorption costing
in any external financial statements it publishes. Absorption costing is also the method
that a company is required to use for calculating and filing its taxes.
Absorption costing also provides a more accurate accounting of net profitability,

especially when a company doesn't sell all its products in the same accounting period in
which they are manufactured. Every expense is allocated to products manufactured
whether they are sold.
Variable costing can make it more difficult to determine ideal pricing for its goods and
services since it does not directly consider all the costs the company has to cover to be
profitable. However, by looking only at the costs directly associated with production,
variable costing makes it easier for a company to compare the potential profitability of
manufacturing one product over another.
However, absorption costing is not as helpful as variable costing for comparing the
profitability of different product lines. Variable costing, on the other hand, enables a
company to run a cost-volume-profit analysis. This analysis is designed to reveal the
break-even point in production by determining how many products a company must

manufacture and sell to reach the point of profitability.
KEY TAKEAWAYS
 Absorption costing includes all costs, including fixed costs, related to production,
while variable costing only includes the variable costs directly incurred in
production.
 Absorption costing, also known as full costing, entails allocating fixed overhead
costs across all units produced for the period, resulting in a per-unit cost.
 Variable costing can make it more difficult to determine ideal pricing for its goods
and services since it does not directly consider all of the costs.
Overview of Variable and Absorption Costing
Some arguments in support of variable costing

• Variable costing provides more useful information for decision-making.
• Variable costing removes from profit the effect of stock changes.
Some arguments in support of absorption costing

• Absorption Costing does not understate the importance of fixed costs.
• Absorption costing avoids fictitious losses being reported (e.g stocks
accumulated for seasonal sales).
• Fixed overheads are essential for production
Profit comparisons (Variable and Absorption costing)
 Profits are the same for both methods when production equals sales in periods 1
and 4.
 Where production exceeds sales (increasing stock levels) the absorption costing
system produces higher profits in periods 2 and 5.
 Where sales exceed production (declining stock levels)the variable costing
system produces higher profits in periods 3 and 6.
 With an absorption costing system profits can decline when sales volume
increases and costs remain unchanged (e.g.period 6).
Session 4 (New Syllabus):

Cost-Volume-Profit Relationship
Report by: VIA MAE GALVEZ
4.1 Significance/Importance of CVP Analysis

4.2 CVP and Break-Even Analysis Defined
Elements of CVP Analysis
Cost
is the cash amount (or the cash equivalent) given up for an asset. The 2 basic types of
costs incurred by businesses are fixed and variable. Which means the expenses
involved in producing or selling a product or service.
Volume
is the number of units of inventory sold within a reporting period. Which means the
number of units produced in the case of a physical product, or the amount of service
sold.
Profit
is the positive amount remaining after subtracting expenses incurred from the revenues
generated over a designated period of time. Which means the difference between the
selling price of a product or service minus the cost to produce or provide it.
What is Cost-Volume-Profit (CVP) Analysis?
CVP analysis is a systematic method of examining the effects of changes in an

organization‘s volume of activity on its costs, revenue and profit. In other words, CVP
analysis helps in analysing the effects of change in sales profit or sales volume or sales
mix or fixed costs on profits of the firm. It allows managers to estimate profit levels when
sales volume increases or decreases.
CVP analysis is concerned with identification of a company‘s fixed costs, its variable
cost per unit, the price of its products and using this data to work out the following
measures:
⊸ Contribution Margin
The difference between a company's total revenue and total variable costs. It is
the amount that sales contribute towards fixed costs and profit
⊸ Contribution Margin per unit

The difference between sales price and variable cost per unit.
⊸ Contribution Margin ratio

The ratio of contribution margin to total revenue.
⊸ Break-even point
The sales volume (in units and dollars) at which the company is neither making a
loss nor earning any profit.
⊸ Target income sales

The sales level necessary to achieve a target income.
⊸ Margin of safety
The percentage (or dollars) by which a company's sales volume exceeds its
break-even point.
CVP Analysis Equation
Profit = Revenue – Fixed Costs – Variable Costs
PR = Q × P - Q × V – FC
Break-even Q = FC ÷ (P – V)
The fundamental cost-volume-profit relationship can be derived from profit equation:
Profit = Revenue – Fixed Costs – Variable Costs
Where profit is PR, revenue equals the product of price per unit P and sales volume in
units Q, fixed costs FC are constant and total variable costs equal the product of units
sold Q and variable cost per unit V, the following equation is a more elaborate
representation of CVP relationships:
PR = Q × P - Q × V - FC
This is the most fundamental equation which can be used to work many CVP numbers.
For break-even point, we need to set PR ad 0 and solve for Q and we get:
Break-even Q = FC ÷ (P – V)
It shows that break-even point can be calculated by dividing fixed cost by the
contribution margin per unit.
Contribution Margin Equation Approach
PR = Q × P - Q × V - FC
PR = Q × (P – V) – FC
(P – V) in the equation above is contribution margin per unit.
The CVP equation discussed above can also be expressed in terms of contribution
margin of the product:
PR = Q × P - Q × V - FC
PR = Q × (P – V) – FC
(P – V) in the equation above is contribution margin per unit.

CVP analysis provides answers to questions such as:
⊸ What will be the effect of changes in prices, costs, and volume on profits?
⊸ What minimum sales volume need be affected to avoid losses?
⊸ Which product is the most profitable one and which product should be
discontinued?
Uses:
⊸ For forecasting or predicting how the changes in costs and sales volume affect
profit.
⊸ For forecasting profit by considering cost and profit relation, and volume of
production. This will help in determining the sales volume required to make a
profit.
⊸ To make decisions regarding pricing and sales voume.
⊸ Determining the sales mix of different products, in what proportions each of the
products can be sold.
⊸ Preparing flexible budget considering costs of different levels of production.
⊸ Many companies and accounting professionals use CVP analysis to make
informed decisions about the products or services they sell.
Importance:
⊸ It provides an insight into the effects and interrelationship of factors, which

influence the profits of the firm. The relationship between cost, volume and profit
makes up the profit structure of an enterprise. The CVP relationship becomes
essential for budgeting and profit planning.
⊸ A starting point in profit planning, it helps to determine the maximum sales
volume to avoid losses, and the sales volume at which the profit goal of the firm
will be achieved.
⊸ As an ultimate objective, it helps management to find the most profitable
combination of costs and volume.
What is Break-Even Analysis?
⊸ It is a financial calculation for determining the number of products or services a

company should sell to cover its cost (particularly fixed costs). Breakeven is a
situation where you are neither making money nor losing money, but all your
costs have been covered.
Calculation of Break-Even Analysis
Contribution per unit = Selling price per unit
- Variable cost per unit
BEP in quantity = FC/Contribution per unit or
FC/(P-VC)
*FC = (Total fixed costs)
*VC = (Variable cost per unit)
*P = (Average price per unit)
When is Break-Even Analysis used?
⊸ Starting a new business

Not only it helps you in deciding, whether the idea of starting a new is viable, but
it will force you to be realistic about the costs, as well as guide you about the
pricing strategy.
⊸ Creating a new product

You should still so a be analysis before launching a new product, particularly if
such a product is going to add a significant expenditure.
⊸ Changing the business model

The cost could change considerably and this will help you to figure out the selling
prices need to change too.
COST-VOLUME-PROFIT ANALYSIS
Report by: Mary Joy Magtibay
COST-VOLUME-PROFIT ASSUMPTIONS AND TERMINOLOGY

1. Changes in the level of revenues and costs arise only because of changes in the
number of product (or service) units produced and sold.
2. Total costs can be divided into a fixed component and a component that is
variable with respect to the level of output.
3. When graphed, the behavior of total revenues and total costs is linear (straight-
line) in relation to output units within the relevant range (and time period).
4. The unit selling price, unit variable costs, and fixed costs are (assumed) known
and constant.
5. The analysis either covers a single product or assumes that the sales mix when
multiple products are sold will remain constant as the level of total units sold
changes.
6. All revenues and costs are added and compared without taking into account the
time value of money.
Operating income = Total revenues from operations – Cost of goods sold & operating
costs
Net Income = Operating income + Nonoperating revenues (such as interest revenue) –
Nonoperating
costs (such as interest cost) – Income taxes
ESSENTIALS OF COST-VOLUME-PROFIT ANALYSIS

Abbreviations
USP = Unit selling price
UVC = Unit variable costs
UCM = Unit contribution margin
CM% = Contribution margin percentage
FC = Fixed costs
Q = Quantity of output (units sold or manufactured)
OI = Operating income
TOI = Target operating income
TNI = Target net income
S = Sales
Sample Problem:
Assume that Dresses by ABC Company can purchase dresses for $32 from a local
factory; other variable costs amount to $10 per dress. Because she plans to sell these
dresses overseas, the local factory allows ABC Company to return all unsold dresses
and receive a full $32 refund per dress within one year. ABC Company can use CVP
analysis to examine changes in operating income as a result of selling different
quantities of dresses. Assume that the average selling price per dress is $70 and total
fixed costs amount to $84,000.
1. How much revenue will she receive if she sells 2,500 dresses?
Quantity x Unit Selling Price = Sales
2,500 × $70 = $175,000
2. How much variable costs will she incur?
Quantity x Unit Variable Cost = Variable Cost
2500 x $42 = $105,000
3. Would she show an operating income or an operating loss?
a. An Operating Loss
Sales – Variable Cost – Fixed Cost = Operating Income/(Loss)
$175,000 – 105,000 – 84,000 = ($14,000)
 The only numbers that change are total revenues and total variable cost.
 Contribution Margin = Total revenues – Total Variable Costs
4. What is ABC Company‘s contribution margin per unit?
Selling price – Variable Cost per Unit = Contribution margin per unit
$70 – $42 = $28
5. What is the total contribution margin when 2,500 dresses are sold?
Total revenues – Total Variable Costs = Contribution Margin
2,500 × $28 = $70,000
 If ABC Company sells 3,000 dresses, revenues will be $210,000 and
contribution margin would equal 40% × $210,000 = $84,000
Determine the breakeven point and target operating income using the equation,
contribution margin, and graph methods
BREAKEVEN POINT
- is the sales level at which operating income is zero.
- At the breakeven point, sales minus variable expenses equals fixed expenses.
- Total revenues = Total costs
- Breakeven can be computed by using either the equation method, the
contribution margin method, or the graph method.
TARGET OPERATING INCOME

- can be determined by using any of three methods:
o The equation method
o The contribution margin method
o The graph method
EQUATION METHOD
- With the equation approach, breakeven sales in units is calculated as follows:
- (Unit sales price × Units sold) – (Variable unit cost x units sold) – Fixed expenses
= Operating income
6. Using the equation approach, compute the breakeven for Dresses by ABC
Company
(Unit sales price × Units sold) – (Variable unit cost x units sold) – Fixed
expenses = Operating income
$70Q x $42Q - $84,000 = 0
$28Q = $84,000
Q=
Q = 3,000 units
CONTRIBUTION MARGIN METHOD

- With the contribution margin method, breakeven is calculated by using the
following relationship:
- (Unit Selling Price – Unit Variable Cost) x Quantity = Fixed Cost + Operating
Income
- Unit Contribution Margin x Quantity = Fixed Cost + Operating Income
- Quantity = (Fixed Cost + Operating Income) ÷ Unit Contribution Margin
7. Using the contribution margin percentage, what is the breakeven point for
Dresses by ABC Company in terms of revenue?
$84,000 ÷ 40% = $210,000
GRAPH METHOD
- In this method, we plot a line for total revenues and total costs.
- The breakeven point is the point at which the total revenue line intersects the
total cost line.
- The area between the two lines to the right of the breakeven point is the
operating income area.
Graph Method Dresses by ABC Company
TARGET OPERATING INCOME

- Insert the target operating income in the formula and solve for target sales either
in dollars or units.
8. Assume that ABC Company wants to have an operating income of $14,000.
How many dresses must she sell?
(Fixed costs + Target operating income) divided either by Contribution
margin percentage or Contribution margin per unit
($84,000 + $14,000) ÷ $28 = 3,500
9. What dollar sales are needed to achieve this income?

($84,000 + $14,000) ÷ 40% = $245,000
Explain the use of CVP analysis in decision making and how sensitivity analysis
can help managers cope with uncertainty
10. Suppose the management of Dresses by ABC Company anticipates selling 3,200
dresses. Management is considering an advertising campaign that would cost
$10,000. It is anticipated that the advertising will increase sales to 4,000 dresses.
Should ABC Company advertise?
a. 3,200 dresses sold with no advertising:
Contribution margin $89,600
Fixed costs 84,000
Operating income $ 5,600
b. 4,000 dresses sold with advertising:
Contribution margin $112,000
Fixed costs 94,000
Answer: ABC Company should advertise.
Operating income increases by $12,400.
The $10,000 increase in fixed costs is offset by the $22,400 increase in
the contribution
margin.
11. Instead of advertising, management is considering reducing the selling price to
$61 per dress.
It is anticipated that this will increase sales to 4,500 dresses.
Should ABC Company decrease the selling price per dress to $61?
a. 3,200 dresses sold with no change in the selling price:
b. 4,500 dresses sold at a reduced selling price:
Contribution margin: (4,500 × $19) $85,500
Fixed costs 84,000
Answer: The selling price should not be reduced to $61.
Operating income decreases from $5,600 to $1,500.
SENSITIVITY ANALYSIS AND UNCERTAINTY

- Sensitivity analysis is a ―what if ― technique that examines how a result will
change if the original predicted data are not achieved or if an underlying
assumption changes.
12. Assume that Dresses by ABC Company can sell 4,000 dresses.
Fixed costs are $84,000.
Contribution margin ratio is 40%.
At the present time ABC Company cannot handle more than 3,500 dresses.
 To satisfy a demand for 4,000 dresses, management must acquire additional
space for $6,000.
• Should the additional space be acquired?
• Operating income at $245,000 revenues with existing space =
($245,000 × .40) – $84,000 = $14,000.
• (3,500 dresses × $28) – $84,000 = $14,000
• Operating income at $280,000 revenues with additional space =

($280,000 × .40) – $90,000 = $22,000.
• (4,000 dresses × $28 contribution margin) – $90,000 = $22,000
MARGIN OF SAFETY
- Another aspect of sensitivity analysis
- The margin of safety answers the ―what-if‖ question: If budgeted revenues are
above breakeven and drop, how far can they fall below budget before the
breakeven point is reached? Sales might decrease as a result of a competitor
introducing a better product, or poorly executed marketing programs, and so on.
- The Margin of Safety is the difference between the expected level of sales and
breakeven sales.
It may be expressed in units or dollars of sales.
13. Dresses of ABC Company has a break-even sale of $210,000; budgeted sales
are $245,000.
a. What is the Margin of Safety in revenue of Dresses by ABC Company?
Margin of safety in revenues = Actual(estimated)revenue - revenue at
breakeven point
$245,000 - $ 210,000 = $35,000
b. What is the Margin of Safety in units of Dresses by ABC Company?
Margin of safety in units = Actual(estimated) units of activity Units at
breakeven point
3500 units – 3000 units = 500 units
c. What is the Margin of Safety Percentage in Revenue?
Margin of Safety Percentage = Margin of Safety in dollars ÷ Budgeted (or
actual) revenue
$35,000 ÷ $245,000 = 14.29%
Use CVP analysis to plan costs

Alternative Fixed/Variable Cost Structures
14. Suppose that the factory Dresses by ABC Company is using to obtain the
merchandise offers ABC Company the following:
a. Decrease the price they charge ABC Company from $32 to $25 and
charge an annual administrative fee of $30,000.
What is the new contribution margin? $70 – ($25 + $10) = $35
b. Contribution margin increases from $28 to $35.
What is the contribution margin percentage? $35 ÷ $70 = 50%
What are the new fixed costs? $84,000 + $30,000 = $114,000
c. Management questions what sales volume would yield an identical
operating income regardless of the arrangement.
28Q – 84,000 = 35Q – 114,000
7Q = 30,000
Q = 4,286 dresses
d. Cost with existing arrangement = Cost with new arrangement
.60X + 84,000 = .50X + 114,000
.10X = $30,000
X = $300,000
($300,000 × .40) – $ 84,000 = $36,000
($300,000 × .50) – $114,000 = $36,000
OPERATING LEVERAGE
- measures the relationship between a company‘s variable and fixed expenses.
o The degree of operating leverage shows how a percentage change in
sales volume affects income.
o Degree of operating leverage = Contribution margin ÷ Operating income
15. What is the degree of operating leverage of Dresses by ABC Company at the
3,500 sales level under both arrangements?
a. Existing arrangement:
3,500 × $28 = $98,000 contribution margin
$98,000 contribution margin – $84,000 fixed costs = $14,000 operating
income
$98,000 ÷ $14,000 = 7.0
b. New arrangement:
3,500 × $35 = $122,500 contribution margin
$122,500 contribution margin – $114,000 fixed costs = $8,500
$122,500 ÷ $8,500 = 14.4
- Caveat: as the degree of operating leverage shows how a percentage change in
sales volume affects income it is sometimes taken as a measure of how ―secure‖
the business is
- This interpretation is fallacious.
- Operating Leverage does not tell how likely or unlikely these changes are!
EFFECTS OF SALES MIX ON INCOME
- Sales mix is the combination of products that a business sell.
16. Assume that Dresses by ABC Company is considering selling blouses.
a. This will not require any additional fixed costs.
b. It expects to sell 2 blouses at $20 each for every dress it sells.
c. The variable cost per blouse is $9.
17. What is the new breakeven point?
a. The contribution margin per dress is $28 ($70 selling price – $42 variable
cost).
b. The contribution margin per blouse is $20 – $9 = $11.
c. The contribution margin of the mix is $28 + (2 × $11) = $28 + $22 = $50.
CONTRIBUTION MARGIN OR GROSS MARGIN

 Contribution income statement emphasizes contribution margin.
• Revenues – Variable cost of goods sold – Variable operating costs
= Contribution margin
• Contribution margin – Fixed operating costs
= Operating income
 Financial accounting income statement emphasizes gross margin.
• Revenues – Cost of goods sold = Gross margin
Gross margin – Operating costs = Operating income

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Managerial Accounting (Partial)

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NATIONAL COLLEGE OF BUSINESS AND ARTS

MASTER IN BUSINESS ADMINISTRATION

Submitted by: Erlinda L. Labalan

 Means as an information system is the process of identifiying, measuring

 Is a term used to describe the accounting methods, systems and techniques

 Keeping Track of records and creating a summary of financial transaction

 To keep systematic records

Difference between Managerial Accounting versus Financial Accounting.

Managerial Accounting Financial Accounting

How Managerial Accounting adds value to the Organization

 Providing information for decision making and planning.

SESSION I (old syllabus)

 Board management aspects of controllership

A controller is an individual who has responsibility for all accounting-related activities,

More specifically controller has many tasks which might include

• preparing budgets and outlines important budgeting schedules throughout an

• collection, analysis, and consolidation of financial data

• monitors variances, summarizes trends and investigates budget deficiencies

• reports material budgeting variances or expenditure variances to management

• establishes, monitors, and enforces internal control over financial reporting

• in publicly traded companies, delegated the task of public financial filings

• monitors future legislation that impacts taxation and operations

The controller manages cost and managerial accounting in most organizations.

 A controller acts as an overseer of a company's financial health

FOUR PRIORITIES OF FINANCIAL CONTROLLERS

Commentator • Focus on explaining • Include more non-

Scorekeeper • Focused on bookkeeping • Invest in IT and

• Works with the business don‘t get pulled into

Top three requirements of the board from a controller are:

SESSION I (old syllabus)

Organizational structure for effective Controllership

What Is an Organizational Structure?

The two general classifications of organizational structure are:

 Centralized. Decision-making is concentrated at the top of the organization, with

Interactions among employees tend to be horizontally across the organization, rath er

A performance measure is a numeric description of an agency‘s work and the results of

Performance measurement is the process of collecting, analyzing and/or reporting

 Money spent on equipment

 Number of permits issued

The comparison of outputs is often used to create measures of quality. It may be

Internal Control System

- Internal control system was introduced to achieve the objective of a business

- It is introduced to avoid errors and frauds for systematic control of

- Internal control systems includes a set of rules; policies and procedures an

In small business organizations, generally the owner-manager controls the total

In such circumstances the introduction of internal control becomes essential.

Three Elements of Internal Control System

Environment control: The attitude, alertness and work-zeal of

Accounting System: Accounting system means some procedures and

Control Procedure: The additional policies and procedures adopted by

These control procedures are:

5 components of Internal Control System

1. Control the environment: The control environment is the basis of other

2. Risk assessment: after setting up the objective of business, external and

3. Control Activities: The management establishes a controlling activities

4. Information and communication: Relevant information for taking decision are

5. Monitoring: When the Internal control system is in practice, the

Responsibility for Internal

It is general responsibility of all employees, officers, management of a company to

1. Management: Establishment and maintenance of an effective internal control

2. Board of Directors: the board of directors possessing a sound working

3. Auditors: The auditors evaluate the effectiveness of the internal control

3 Objectives of Internal Control System