CHAPTER 1
techniques and concepts to economic data so as to assist
Strategy – set of policies, procedures and approaches to business
that produce long term success.
Strategic Management – involves the development of a sustainable
competitive position.
Strategic cost management – involves the development of cost
management information to facilitate the principal management
function which is strategic management.
Cost management information – is the information that the
manager needs to effectively manage the firm, profit oriented as well
as not for profit organization.
• Useful in all organizations ( profit or non profit)
• Public goods – resources provided by governmental units
or charities.
• Product life cycle – the time from the introduction of a new
product its removal from the market is expected to
become shorter and shorter.
Cost management – is the practice of accounting in which the
accountant develops and uses the cost management information.
USES OF COST MANAGEMENT INFORMATION
1. Strategic Management – involves the development of a
sustainable competitive position in which the firm’s
competitive advantage spells continued success.
2. Planning and decision making – cost management
information is needed to support recurring decision such as
replacing and maintaining equipment, managing cash flow,
budgeting raw materials etc.
3. Management and operational control – cost management
information is needed to provide a fair and effective basis
for identifying inefficient operations and to reward and
motivate.
• Operational Control – takes place when mid level manages,
monitors the activities of operating level managers and
employees.
• Management and Control – evaluation of mid level
manager by upper level manager.
4. Reportorial and Compliance to Legal Requirements – require
management to comply with the financial reporting
requirements to regulatory agencies such as SEC and BIR.
CHAPTER 2
Line Authority – authority to command action or give orders to
subordinates.
Line Managers – directly responsible for attaining objectives of the
business.
Management Accounting – involves the application of appropriate
management in establishing plans for reasonable economic
objectives.
Management accountants – ( including cost accountants) concerned
with providing info to managers, that is people inside the
organization who direct and control the operations.
Tasks of Management Accountants
1. Scorekeeping or data accumulation – which enables both
internal and external parties to evaluate organizational
performance and position.
2. Interpreting and reporting of information – helps the
manager focus on operating problems, opportunities as
well as inefficiencies.
3. Problem Solving – relative merits of possible courses of
action as well as recommendations as to best procedure.
Commonly associated with non recurring decisions.
Cost Benefit Approach – should be in making decisions resources
should be spent if they are expected to better attain company goals
in relation to the expected cost of these resources.
Planning – identifying alternatives and selecting courses of action
and specifying how the action will be implemented to further
organization’s objectives.
Control – evaluating the performance of managers and the
operations for which they are responsible.
Performance Report – reports used to evaluate performance of
managers.
Decision Making – integral part of planning and control process –
decision are made to reward or punish the manager and decision are
made to change operations or revise plans.
Cost Accounting – systematic set of procedures for recording and
reporting measurements of the cost of manufacturing goods and
performing services in aggregate or in detail.
Cost Management – output of cost accounting. Its purpose is to
provide managers with information which aids decision.
Staff Authority – advise but not command exercised laterally
upward.
Staff Managers – gives support, advice and service to line
departments.
Functional Authority – right to command action, laterally or
downward with regard to a specific function or specialty.
CFO ( Chief financial officer) – also called as finance director, is the Treasurership – concerned with the acquisition, financing and
executive responsible for overseeing the financial operations of an management of assets of a business concern to maximize the wealth
organization. of the firms for its owners.

Include the ff. areas: Treasurer – custody of cash and funds invested in various marketable
securities.
• Controllership – financial information for reports to
managers and reports to shareholders and overseeing the Plays a major role in managing the cash and other lenders.
overall operations of the accounting system. 1. Funds Procurement – involves raising of funds in
• Treasury – banking and short and long term financing, accordance with the firms planned capital structure. This
investments and management of cash. responsibility may require negotiating for loans, short term
• Risk Management – managing financial risk (interest rate, or long term
exchange rate and derivatives) 2. Banking and Custody of funds – direct management of
• Taxation – income taxes, sales taxes, and international tax cash and cash equivalents and maintenance of good
and planning. relations with banks and other non banks institution.
3. Investment of Funds – management of company’s
• Internal Audit – reviewing and analyzing financial and placements and securities or purchase of debt or equity
other records to attest to the integrity of the organization’s instruments such as ordinary or preference shares in other
financial reports and to adherence to its policies and corporate entities.
procedures. 4. Operating Responsibilities related to:
Controller – financial executive primarily responsible for a) Credit collection
management accounting and financial accounting. b) Inventory management
• Provide reports for planning and evaluating company c) Corporate pension and retirement fund
activities and provides information needed to make d) Investor relations
management decisions e) Insurance
• Has the responsibility for all financial accounting reports f) Compliance with legal and regulatory provisions
and tax fillings with the BIR and other taxing agencies. relating to funds

Controllership – is the practice of established science of control
which is the process by which management assures itself that the
resources are procures and utilized according to plans.
Basic Function of Controllership
Ethical Standards for Management Accountants
IMA or Institute of Management Accountants of the USA developed
a very useful ethical code called the Standards of Ethical Conduct for
Practitioners of Management Accounting and Financial Management.

Planning – establish and maintain an integrated plan of operation Code of Conduct for Management Accountants
consistent with the company’s goals and objectives.
1. To maintain a high level of professional competence
Control - develop and revise standards against which to measure 2. To treat sensitive matters with confidentiality
performance and provide guidance and assistance to the other 3. To maintain personal integrity and
members of management. 4. To be objective in all disclosing
Reporting – prepare, analyze, and interpret financial results for Competence
utilization by management in the decision making process, evaluate
the data with reference to company unit objectives. • Maintain an appropriate level of professional competence
by ongoing development of knowledge and skills
Accounting – design establish and maintain general and cost
accounting system at all company levels, including corporate, • Perform their professional duties
divisional, plant, and unit to properly record all financial transactions. • Prepare complete and clear reports

Other Primary Responsibilities – manage and supervise such Confidentiality

functions as taxes, including interface with the perspective taxing
• Refrain from disclosing confidential information
authorities and agents maintain appropriate relationships with
internal and external auditors. • Inform subordinates as appropriate regarding
confidentiality of information
(Qualifications)
 • Refrain from using or appearing to use confidential Strategic Measures Of Success
information acquired in the course of their work
Firms uses cost management to support their strategic goals.
Integrity
Financial Performance measures includes:
• Avoid actual or apparent conflicts of interest
a) Growth in sales
• Refrain from engaging in any activity that would prejudice
their ability to carry out duties b) Cash flows
• Refuse any gift, favor or hospitality that would influence or c) Stock price
would appear to influence their actions Non Financial measures of operations includes:
Objectivity
a) Market share
• Communicate information fairly and objectively b) Product quality
• Disclose fully all relevant information c) Customer satisfaction
d) Growth opportunities
CMA (Certified Management Accountant) – passed the rigorous
qualifying examination, has met an experience requirement and The non financial factors show the firms current and potential
participates in continuing education competitive position

CPA (Certified Public Accountant) – has met pre qualification 1. The customer
educational requirements, passed the CPA licensure examinations 2. Internal business process
given by the Professional Regulatory Board of Accountancy and has 3. Innovation and learning
satisfied all other legal and regulatory requirements
Strategic financial and non financial measures of success are also
CIA (Certified Internal Auditor) – an individual must pass a commonly called: Critical Success Factor (CSFs)
comprehensive examination designed to ensure technical
competence and have required number of years work experience Competitive Strategies
Contemporary Business Environment
Cost Leadership – is a competitive strategy in which a firm succeeds
1. Increase in Global Competition in producing products or services at lowest cost in the industry.
2. Advances in manufacturing technologies Product Differentiation – is implemented by creating a perception
3. Advances in Information Technology among consumers that the product or service is unique in some
4. A greater focus on the customer important way, usually by being higher quality, features or
5. New forms of management organization innovation. This perception allows the firm to charge higher prices
6. Changes in social, political, and cultural environment and outperform the competition.

The Global Business Environment Contemporary Cost Management Techniques

Growth of international markets and trades are the key development
that drive the extensive changes in the contemporary business
environment
Advances in Manufacturing Technologies
Firms around the world adopt new manufacturing technologies to
remain competitive in the face of the increased global competition.
Speed to Market – have the ability to deliver the product or service
faster than a competition
A Greater Focus on customers
To succeed in this era, customer value is the key focus that business
of all types must be concerned with. A key change in increased
customer demand for product functionality and quality.
CHAPTER 4
a) Total Quality Management – is a technique in which
management develops policies and practices to ensure the
firms product and services exceed customer expectations.
( focus on serving customer and systematic problem
solving)
b) Just – in – Time (JIT ) – is the philosophy that activities are
undertaken only as needed or demanded. Also known as
pull-it-through approach, in which materials are purchased
and units are produced only as needed to meet actual
customer demand.
c) Process Reengineering – radical approach to improvement
that TQM, is an approach where business process is
diagrammed in detail.
• reengineering is a process of creating competitive
advantage in which a firm reorganizes its operating and
management function
 • business process – is any series of steps that are followed
in order to carry out some task in business.\
d) Benchmarking – is a process by which a firm determines its
critical success factors, studies the best practices of other
firms and then implements improvements in the firms
processes to match or beat the performance of those
competitors.
e) Balanced Scorecard – is an accounting report that includes
the firms critical success factor in four areas:
1. Financial performance
2. Customer satisfaction
3. Internal business process and
4. Innovation and learning
f) Mass Customization – is a management technique in
which marketing and production process are designed to
handle the increased variety that results from delivering
customized products and services to customers.
g) Activity-based Costing and Management – is used to
improve the accuracy of cost analysis by improving the
tracing of costs to products or to individual customers.
• Activity Analysis – is used to develop a detail
description of the specific activities performed in
the operation of the firm.
• Activity-based Management (ABM) – uses
activity analysis to improve operational control
and management control.
h) Theory of Constraints (TOC) – is a sequential process of
identifying and removing constraints in a system.
Emphasizes the importance of managing the organization’s
constraints or barriers that hinder or impede progress
toward an objective.
i) Life Cycle Costing – is a management technique to identify
and monitor the cost of a product throughout its lifecycle.
CHAPTER 5
Budget – is a financial plan of the resources needed to carry out tasks
and meet financial goals
Budgeting – act of preparing a budget
Budgetary Control – uses budget to control a firms activities
External Factors (under ng formulation strategy page 100)
• Competition
• Technical, economic, political, regulatory, social and
environmental factors
Internal Factors
• Financial Strength
• Managerial talent and expertise
• Functional structure
• Organizational culture
It consists of all steps from product design and purchase of
raw material to delivery of service of the finished product.
j) Target Costing - involves the determination of the desired
cost for a product or the basis of a given competitive price
so that the product will earn desired profit. TARGET COST =
Market determined price – Desired profit
k) Computer Aided Design and manufacturing – Computer
Aided design (CAD) is the use of computers in product
development, analysis and design modification to improve
the quality and performance of the product.
• Computer aided manufacturing (CAM) – is the use of
computers to plan, implement, and control
production.
l) Automation – involves and requires a relatively large
investment in computers, computer programming,
machines and equipment.
• Flexible manufacturing system (FMS) – is a
computerized network of automated equipment that
produces one or more groups of parts or variations of
a product in a flexible manner.
• Computer-integrated manufacturing (CIM) – is a
manufacturing system that totally integrates all office
and factory functions within a company via a
computer-based information network.
m) E-Commerce – internet based companies have emerged
and been proven successful. ( Amazon.com and eBAY)
n) The Value Chain – refers to the sequence of the business
functions in which usefulness is added to the products or
services of a company.
• Is any analysis tool that firms use to identify the
specific steps required to provide a product or service
to the customer.
Long Range Planning – entails capital budgeting, which is a process of
evaluating proposed major projects such as purchases
Short term Objectives – are goals for the coming period, which can
be a month, a quarter, a year, or any length of time desired by the
organization for planning purposes. (aralin diagram page 103)
Master Budget – overall financial and operating plan for a coming
fiscal period and coordinated program for achieving the plan. Usually
prepared on a quarterly or an annual basis.
Steps in developing master budgets
1. Establish basic goals and long range plans for the
company.
2. Prepare a sales forecast for the budget period
3. Estimate the cost of sales and operating
expanses
4. Determine the effect of budgeted operating
results on assests, liabilities and ownership
 A participative budgeting process, is a bottom up approach that
involves the people affected by the budget, including lower level
5. Summarize the estimated data in the form of projected income employees in preparing the budget.
statement for the budget period

Capital Budgets – long range budgets, which incorporate plans for

major expenditure for plant and equipment or addition product
lines, might be prepared to cover plans for as long as 5 to 10 years.

Responsibility Budgets – which are segments of the master budget

relating to the aspect of the business that is the responsibility of a
particular manager are often prepared monthly.

Cash Budgets – may be prepared on a day to day or monthly basis.

• Cash receipts
• Cash Disbursements

Sales Budget – showing what products will be sold in what quantities

at what prices, is the foundation on which all other short term
budgets are built.

Production Budget – key factor in the determination of other

budgets, including the direct materials, direct labor and the
manufacturing overhead

Budgeting Service Industries – plans for the resources available from

operation and the required resources in operations to fulfill
budgeted goals

Budgeting in not for profit organization –

Budgeting in International Setting –

Zero base Budgeting – is a budgeting process that requires managers

to prepare budgets from a zero base. A zero base budgeting process
on the other hand allows no activities or functions to be included in
the budget unless managers can justify their needs

Activity Based Budgeting – is a budgeting process based on activities

and cost driver operations.

Kaizen (Continuous Improvement) Budgeting – is a budgeting

approach that explicitly demands continuous improvement in
operation processes and incorporates the improvements in the
budget

Ethical Issues in budgeting

Goal Congruence – is consistency between the goals of the firm and

the goals of its employees

Authoritative or Participative Budgeting

Authoritative budgeting in top down budgeting process top

management prepares budget for the entire organization, including
those lower level operations.