Acc 213 W1 3 Sim

UNIVERSITY OF MINDANAO
College of Accounting Education
Program: BSA, BSIA, BSMA, BSAIS
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
Course/Subject: ACC 213 – Strategic Cost Management
Name of Teacher: ____________________
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

FOR REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS
INTENDED USE. THIS IS INTENDED ONLY FOR THE USE OF
THE STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
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TABLE OF CONTENTS
Page No.
Course Outline 3
Course Outline Policy 3-6
Course Information 7
Big Picture Week 1-3: Unit Learning Outcomes 8
Big Picture in Focus: Unit Learning Outcome A 8
Metalanguage 8-9
Essential Knowledge 9-14
Self-Help 14
Let’s Check 15-16
Let’s Analyze 16-17
In A Nutshell 18
QA List 19
Keywords Index 19
Big Picture in Focus: Unit Learning Outcome B 20
Metalanguage 20
Research Work 21
Self-Help 27
Let’s Check 27-28
Let’s Analyze 29
In A Nutshell 30
QA List 31
Keywords Index 31
Big Picture in Focus: Unit Learning Outcome C 32
Metalanguage 32
Self-Help 49
Let’s Check 49-51
In A Nutshell 54-56
QA List 56
Keywords Index 56-57
Big Picture in Focus: Unit Learning Outcome D 57
Metalanguage 57
Self-Help 65
Let’s Check 65-67
In A Nutshell 69
QA List 70
Keywords Index 70
Course Schedule Weeks 1-3 71
Online Code of Conduct 72
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Course Outline: MAS 1 – Management Accounting, Part 1
Course Coordinator: Myra T. Miraflores

Email: myra_miraflores@umindanao.edu.ph
Student Consultation: By appointment
Mobile: 0917-8135633
Phone: (082) 300-5456 loc. 137
Effectivity Date: May 25, 2020
Mode of Delivery: Blended (On-Line with face to face or virtual
sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Pre-requisite: ACCTG 10a – Cost Accounting and Cost
Management, Part 2
Credit: 3
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face to face sessions.
Course Outline Policy
Areas of Concern Details

Contact and Non-contact This 3-unit course self-instructional manual is designed for blended
Hours learning mode of instructional delivery with scheduled face to face
or virtual sessions. The expected number of hours will be 54
including the face to face or virtual sessions. The face to face
sessions shall include the summative assessment tasks (exams)
since this course is crucial in the Certified Public Accountant
Licensure Examination (CPALE).
Assessment Task Submission of assessment tasks shall be on 3rd, 5th, 7th and 9th
Submission week of the term. The assessment paper shall be attached with a
cover page indicating the title of the assessment task (if the task
is performance), the name of the course coordinator, date of
submission and name of the student. The document should be
emailed to the course coordinator. It is also expected that you
already paid your tuition and other fees before the submission of
the assessment task.
If the assessment task is done in real time through the features in

the Blackboard Learning Management System, the schedule shall
be arranged ahead of time by the course coordinator.
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Since this course is included in the CPALE, you will be required to

take the Multiple Choice Question exam inside the University. This
should be scheduled ahead of time by your course coordinator.
This is non-negotiable for all licensure-based programs.
Turnitin To ensure honesty and authenticity, all assessment tasks are

Submission required to be submitted through Turnitin with a maximum
(if necessary) similarity index of 30% allowed. This means that if your paper goes
beyond 30%, the students will either opt to redo her/his paper or
explain in writing addressed to the course coordinator the reasons
for the similarity. In addition, if the paper has reached more than
30% similarity index, the student may be called for a disciplinary
action in accordance with the University’s OPM on Intellectual and
Academic Honesty.
Please note that academic dishonesty such as cheating and

commissioning other students or people to complete the task for
you have severe punishments (reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after the designated
Assignments/Assessments time on the due date, without an approved extension of time, will
be reduced by 5% of the possible maximum score for that
assessment item for each day or part day that the assessment item
is late.
However, if the late submission of assessment paper has a valid

reason, a letter of explanation should be submitted and approved
by the course coordinator. If necessary, you will also be required to
present/attach evidences.
Return of Assignments/ Assessment tasks will be returned to you two (2) weeks after the
Assessments submission. This will be returned by email or via Blackboard portal.
For group assessment tasks, the course coordinator will require

some or few of the students for online or virtual sessions to ask
clarificatory questions to validate the originality of the assessment
task submitted and to ensure that all the group members are
involved.
Assignment Resubmission You should request in writing addressed to the course coordinator
his/her intention to resubmit an assessment task. The
resubmission is premised on the student’s failure to comply with
the similarity index and other reasonable grounds such as
academic literacy standards or other reasonable circumstances
e.g. illness, accidents financial constraints.
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Re-marking of You should request in writing addressed to the program

Assessment Papers and coordinator your intention to appeal or contest the score given to
Appeal an assessment task. The letter should explicitly explain the
reasons/points to contest the grade. The program coordinator shall
communicate with the students on the approval and disapproval of
the request.
If disapproved by the course coordinator, you can elevate your

case to the program head or the dean with the original letter of
request. The final decision will come from the dean of the college.
Grading System All culled from BlackBoard sessions and traditional contact
Course discussions/exercises – 30%
1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%
All culled from on-campus/onsite sessions (TBA):

Final exam – 40%
Submission of the final grades shall follow the usual University

system and procedures.
Preferred Referencing Depends on the discipline; if uncertain or inadequate, use the

Style general practice of the APA 6th Edition.
Student Communication You are required to create a umindanao email account which is a
requirement to access the BlackBoard portal. Then, the course
coordinator shall enroll the students to have access to the
materials and resources of the course. All communication formats:
chat, submission of assessment tasks, requests etc. shall be
through the portal and other university recognized platforms.
You can also meet the course coordinator in person through the
scheduled face to face sessions to raise your issues and concerns.
For students who have not created their student email, please
contact the course coordinator or program head.
Contact Details of the Lord Eddie I. Aguilar

Dean Dean
Email: aguilar_lordeddie@umindanao.edu.ph
Phone: (082) 3050645 local 137
Contact Details of the Mary Grace S. Sombilon

Assist. Dean and Program Assistant Dean
Heads Email: sombilon_marygrace@umindanao.edu.ph
Phone: (082) 3050645 local 137
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Jade Solana CPA, MBA

Program Head – BSA, BSMA
Email: jd_solana@umindanao.edu.ph
Phone: 082-3050647 local 137
Devzon U. Porras
Program Head - BSIA, BSAIS
Email: dporras@umindanao.edu.ph
Phone: (082) 3050645 local 137
Students with Special Students with special needs shall communicate with the course
Needs coordinator about the nature of his or her special needs.
Depending on the nature of the need, the course coordinator with
the approval of the program coordinator may provide alternative
assessment tasks or extension of the deadline of submission of
assessment tasks. However, the alternative assessment tasks
should still be in the service of achieving the desired course
learning outcomes.
Library Contact Brigida E. Bacani

Email: library@umindanao.edu.ph
Phone: 09513766681
for inquiries, you can email at umlic.eresources@gmail.com,

raphael_digal@umindanao.edu.ph or
chat with us here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-Learning-and-
Information-Center-Davao-City-962331877193048/
Well-being Welfare Ronadora E. Deala

Support Help Desk GSTC Head
Contact Email: Ronadora_deala@umindanao.edu.ph
Phone: 09212122846
Zerdszen P. Rañises
GSTC Facilitator
Emai: gstcmain@umindanao.edu.ph
Phone: 09058924090
GSTC Facebook Page:

https://facebook.com/UM-GSTC-Main-CAE-
111901303784349/?modal=admin_todo_tour
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Course Information – see/download course syllabus in the Black Board LMS
CC’s Voice: Hello student! Welcome to this course ACC 213: Strategic Cost
Management. One of the areas that a competent accounting
practitioner must be adept with is cost accounting and management. At
this point in your journey as an accounting student, you have already
been oriented on the basics of cost accounting and management, the
cost behavior and the different methods of cost accumulation and
allocation.
CO The course ACC 213 is designed to deepen your knowledge on cost

management. It aims to acquaint the students with the impact of
changes in costs and volume to a company’s profit; advances in cost
management, such as activity-based cost management system;
concepts related to management control systems such as
decentralization, responsibility accounting, divisional performance
evaluation and transfer pricing; advances in inventory and production
management and accounting principles and practices such as
economic order quantity, Just-In-Time manufacturing, backflush
costing, lean accounting and productivity measurement. This course
also covers relevant concepts in budgetary systems, business planning
and control. At the end of this course, you are expected to be able to
explain the basic concepts and practices in cost management, apply
knowledge in problem solving using relevant managerial tools in
decision-making and prepare a Master Budget.
Let us begin!
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Big Picture
Weeks 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to
a. Explain the nature and characteristics of cost management.

b. Discuss the role of management accountants and the importance of ethical
standards.
c. Apply cost-volume-profit analysis in both single- and multiple-product
settings.
d. Understand the budgeting framework and develop a master budget.
Big Picture in Focus: ULOa. Explain the nature and characteristics

of cost management.
Metalanguage
In this section, the most essential terms relevant to the study of cost
management and to demonstrate ULOa will be operationally defined to establish a
common frame of reference as to how the texts work in your chosen field or career.
You will encounter these terms as we go through the study of cost management.
Please refer to these definitions in case you will encounter difficulty in understanding
cost management concepts.
1. System. It is a set of interrelated parts that performs one or more processes to

accomplish specific objectives.
2. Accounting information system. It is a system that consists of interrelated
manual and computer parts and uses processes such as collecting, recording,
summarizing, analyzing and managing data to provide information to users.
3. Financial accounting system. It is primarily concerned with producing
information for the company’s external information users.
4. Cost management system. It is primarily concerned with producing outputs for
internal information users, using inputs and processes needed to satisfy
management objectives.
5. Planning. This refers to a basic management function which is the setting of an
organization’s goals and deciding how best to achieve them. It is the detailed
formulation of action to achieve a particular end.
6. Controlling. This is the final phase of the management process which is the
monitoring of the organization’s progress toward its goal attainment. It is the
monitoring of a plan’s implementation
7. Decision making. This is a part of the planning process that involves selecting a
course of action from a set of competing alternatives.
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8. Cost accounting system. This is a cost management subsystem designed to

assign costs to individual products and services and other cost objects specified
by management.
9. Operational control system. This is another cost management subsystem
designed to provide accurate and timely feedback concerning the performance of
managers and others relative to their planning and control of activities.
10. Cost accounting. This is a branch of accounting that deals with a systematic set
of procedures for recording and reporting measurements of the cost of
manufacturing goods and performing services in the aggregate and in detail.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for the first three
(3) weeks of the course, you need to fully understand the following essential
knowledge that will be laid down in the succeeding pages. Please note that you are
not limited to exclusively refer to these resources. Thus, you are expected to utilize
other books, research articles and other resources that are available in the
university’s library e.g. ebrary, search.proquest.com etc.
Accounting Information System
A system is a set of interconnected parts composed of one or more processes

to meet identified objectives. Like any system, an accounting information system has
objectives, interrelated processes, and outputs. Its ultimate objective is to provide
information to users.
Figure 1. The Accounting Information System
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The interrelated processes include collecting, recording, summarizing, and

managing data. There are some processes that use inputs and provide
recommended decisions as the information output. The outputs may be in the form
of data and reports that provide users with their required information. The operational
model for an accounting information system is illustrated in Figure 1.
The accounting information system has two major interrelated subsystems: (1)
the financial accounting system and (2) the cost management system. Ideally,
the two subsystems should be integrated and have linked databases. The output of
each subsystem can be utilized as input for the other.
Cost Management System vs. Financial Accounting System
Criteria Cost Management Financial Accounting

System System
Target users of output Internal information users External information users
Nature of inputs and Not bound by externally Must follow GAAP when
processes imposed criteria preparing outputs such as
financial statements
Types of information Financial (cost Financial information

produced information) and
nonfinancial information
Uses of information 1. Costing of products, 1. Investment decisions

produced services and other 2. Stewardship evaluation
(broad objectives) objects of interest to
management; 3. Activity monitoring
2. Planning and control; 4. Regulatory measures
and,
3. Decision-making
Cost Management Systems

A cost management system is primarily concerned with producing outputs for
internal information users, using inputs and processes needed to satisfy
management objectives. A cost management information system is not bound by
externally imposed criteria that define inputs and processes. Instead, the criteria that
govern the inputs and processes are set by people within the company.
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Broad Objectives:
1. The information requirements for costing purposes depend on the nature of the
object being costed and the reason management wants to know the cost.
2. Cost information is also used for planning and control. It should help managers
decide what should be done, why it should be done, how it should be done, and
how well it is being done.
3. Finally, cost information is a critical input for many managerial decisions.
Cost Management Subsystems
A cost management system consists of two major subsystems: the cost

accounting system and the operational control system.
1. The cost accounting system is a cost management subsystem designed to

assign costs to individual products and services and other cost objects as
specified by management. For external financial reporting, the cost accounting
system must assign costs to products in order to value inventories and
determine cost of goods sold. These assignments must conform to the rules and
conventions set by the SEC and the financial accounting standard-setting body.
Using financial accounting principles to define product costs may lead to under-
and over-statements of individual product costs.
2. The operational control system is a cost management subsystem designed to

provide accurate and timely feedback concerning the performance of managers
and others relative to their planning and control of activities. Operational control
is concerned with what activities should be performed and assessing how well
they are performed. It focuses on identifying opportunities for improvement and
helping to find ways to improve. A good operational control system provides
information that helps managers engage in a program of continuous
improvement of all aspects of their businesses.
Factors Affecting Cost Management
“Change has come”. This is one of the famous lines of the incumbent
administration. This is not only true in the political arena but as well as in the
business world. Innovation has become a byword in the leading organizations
worldwide with the intensification of global as well as domestic competition. In order
to attain and maintain competitive advantage, a firm has to be innovative in
addressing the changing and increasing needs of the consumers. Product
development has therefore become a necessity to stay competitive. Furthermore,
these changes, as described below, have prompted the development of innovative
and relevant cost management practices. To provide you with these specific events,
here are some excerpts from a reference book.
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1. Global Competition. Improvement in transportation and communication

systems have led to a global market for many manufacturing and service firms.
This new competitive environment has increased the demand for more accurate
cost information that plays a vital role in reducing costs, improving productivity,
and assessing product-line profitability (Hansen, Mowen & Liming, 2009).
2. Growth of the Service Industry. Many services such as accounting,

transportation, and medical services are exported. The increased competition
has made managers in this industry more conscious of the need to have
accurate cost information for planning, controlling, continuous improvement, and
decision making. Thus, the changes in the service sector add to the demand for
innovative and relevant cost management systems (Hansen, Mowen & Liming,
2009).
3. Advances in Information Technology.

a. Computer-integrated applications. With automated manufacturing,
computers are used to monitor and control operations. Because a computer
is being used, a considerable amount of useful information can be collected,
and managers can be informed about what is happening within an
organization almost as it happens (Hansen, Mowen & Liming, 2009).
b. An enterprise resource planning (ERP) system is a centralized database

system that integrates all functional areas of a firm and provides access to
real-time data from any functional area of the firm. Using this real-time data
enables managers to continuously improve the efficiency of organizational
units and processes (Hansen, Mowen & Liming, 2009).
c. Availability of personal computers (PCs), online analytic programs

(OLAP), and decision support systems (DSS). The PC serves as a
communication link to the company’s information system, and OLAP and DSS
supply managers with the capability to use that information. The PC acts as a
networking terminal connected to an organization’s database, allowing
managers to access information more quickly for analysis and report
preparation. This enhances the firm’s ability to provide accurate product cost
(Hansen, Mowen & Liming, 2009).
d. Emergence of electronic commerce. Electronic commerce (e-commerce)

is any form of business that is executed using information and
communications technology. Internet trading, electronic data interchange, and
bar coding are examples of e-commerce. Internet trading allows buyers and
sellers to come together and execute transactions from diverse locations and
circumstances. Electronic data interchange (EDI) involves the exchange of
documents between computers using telephone lines and is widely used for
purchasing and distribution. The sharing of information among trading
partners reduces costs and improves customer relations, thus leading to a
stronger competitive position. EDI is an integral part of supply chain
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management. Supply chain management is the management of products

and services from the acquisition of raw materials through manufacturing,
warehousing, distribution, wholesaling, and retailing (Hansen, Mowen &
Liming, 2009).
4. Advances in the Manufacturing Environment.

a. Theory of Constraints. A method used to continuously improve
manufacturing and nonmanufacturing activities. It is characterized as a
“thinking process” that begins by recognizing that all resources are finite.
Some resources, however, are more critical than others. The most critical
limiting factor, called a constraint, becomes the focus of attention. By
managing this constraint, performance can be improved. To manage the
constraint, it must be identified and exploited. All other actions are
subordinate to the exploitation decision. Finally, to improve performance, the
constraint must be elevated. The process is repeated until the constraint is
eliminated. The process then begins anew with the resource that has now
become the critical limiting factor (Hansen, Mowen & Liming, 2009).
b. Just-in-Time Manufacturing. A demand-pull system, just-in-time (JIT)

manufacturing strives to produce a product only when it is needed and only
in the quantities demanded by customers. Demand pulls products through the
manufacturing process. Each operation produces only what is necessary to
satisfy the demand of the succeeding operation. No production takes place
until a signal from a succeeding process indicates the need to produce. Parts
and materials arrive just in time to be used in production (Hansen, Mowen &
Liming, 2009).
c. Computer-Integrated Manufacturing. Automation of the manufacturing

environment leads to reduction in inventory, increase in productive capacity,
improvement in quality of product and service, decrease in processing time,
and increase in output. It may mean installation of a computer-integrated
manufacturing (CIM) system which has the following capabilities: (1) the
products are designed through the use of a computer-assisted design (CAD)
system; (2) a computer assisted engineering (CAE) system is used to test the
design; (3) the product is manufactured using a computer-assisted
manufacturing (CAM) system; and (4) an information system connects the
various automated components (Hansen, Mowen & Liming, 2009).
5. Customer Orientation. Firms are concentrating on the delivery of value to the

customer with the objective of establishing customer loyalty. This refers to a
firm’s value chain as the set of activities required to design, develop, produce,
market, and deliver products and services to customers. Delivery of the product
or service is now included as part of the product. Firms must compete not only in
technological and manufacturing terms but also in terms of the speed of delivery
and response (Hansen, Mowen & Liming, 2009).
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6. New Product Development. More sophisticated cost management procedures

relating to new product development are now recognized. Target costing
encourages managers to assess the overall cost impact of product designs over
the product’s life cycle and simultaneously provides incentives to make design
changes to reduce costs. Activity-based management identifies the activities
produced at each stage of the development process and assesses their costs.
Activity-based management is complementary to target costing because it
enables managers to identify the activities that do not add value and then
eliminate them so that overall life cycle costs can be minimized (Hansen, Mowen
& Liming, 2009).
7. Total Quality Management. A philosophy of total quality management (TQM),

in which managers strive to create an environment that will enable firms to
produce defect-free products and services, has replaced the acceptable-quality
attitudes of the past. The cost management system provides crucial information
concerning quality-related activities and quality costs. Managers need to know
which quality-related activities add value and which ones do not. They also need
to know what quality costs are and how they change over time (Hansen, Mowen
& Liming, 2009).
8. Time as a Competitive Element. Time is a crucial element in all phases of the

value chain. Firms can reduce time to market by redesigning products and
processes, by eliminating waste, and by eliminating non-value-added activities.
Firms can reduce the time spent on delivery of products or services, reworking a
product, and unnecessary movements of materials and subassemblies.
Reducing non-value-added time must go hand-in-hand with increasing quality
9. Efficiency. While quality and time are important, improving these dimensions
without corresponding improvements in financial performance may be futile, if not
fatal. Improving efficiency is also a vital concern. Both financial and nonfinancial
measures of efficiency are needed. Cost is a critical measure of efficiency
Self-Help: You can also refer to the sources below to help you further
understand the lesson. You can also use other materials.
th
Hansen, D., Mowen, M., & Liming, G. 2009, Cost Management Accounting & Control, 6
Edition, Cengage Learning, Mason, OH.
th
Horngren, C., Datar, S. & Rajan, M. 2015, Cost Accounting A Managerial Emphasis, 15
Edition, Pearson Education Limited, England.
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Let’s Check
Activity 1. Now that you have been taught the most essential terms in the study of
cost management system, let us try to check your recollection of these terms. On
the space provided, write the letter assigned to the term listed below that
corresponds to each of the following descriptions:
_______1. the detailed formulation of action to achieve a particular objective
_______2. managers strive to create an environment that will enable firms to
produce defect-free products and services
_______3. encourages managers to assess the overall cost impact of product
designs over the product’s life cycle and simultaneously provides
incentives to make design changes to reduce costs
_______4. consists of interconnected parts that uses processes such as collecting,
recording, summarizing, analyzing and managing data to provide
information to users
_______5. installed for the automation of a manufacturing environment
_______6. a system that is designed to assign costs to individual products and
services and other cost objects specified by management
_______7. a demand-pull system that produces a product only when it is needed
and only in the quantities demanded by customers
_______8. an area of accounting that measures, records, and reports information
about costs
_______9. focuses on eliminating the critical limiting factor in improving activities
______10. involves the exchange of documents between computers using
telephone lines and is widely used for purchasing and distribution
______11. a broad concept that involves producing outputs for internal information
users, using inputs and processes needed to satisfy management
objectives
______12. the management of products and services from the acquisition of raw
materials through manufacturing, warehousing, distribution, wholesaling,
and retailing
______13. a system designed to provide accurate and timely feedback concerning
the performance of managers and others relative to their planning and
control of activities
______14. a centralized database system that allows access to real-time data from
any functional area of the firm
______15. the monitoring of a plan’s implementation
A. Accounting Information System H. Target Costing O. ERP

B. Theory of Constraints I. Cost Accounting P. System
C. E-commerce J. Operational Control System Q. TQM
D. Cost Management System K. Decision-making R. EDI
E. Controlling L. Supply Chain Management S. JIT
F. Global Competition M. Cost Accounting System T. CIM
G. Financial Accounting N. Planning U. OLAP

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Let’s Check
Activity 2. You were oriented on the two major subsystems of the accounting
information system and their differences. Let us try to check if you can classify the
activities listed below. On the space provided, write FA (financial accounting) or CM
(cost management).
_____1. Preparing a performance report that compares actual costs with budgeted
costs
_____2. Preparing financial statements that conform to GAAP
_____3. Determining the cost of a supplier
_____4. Using a cost information to decide whether to accept or reject a special
order
_____5. Reporting a large contingent liability to current and potential shareholders
_____6. Determining the future cash flows of a proposed JIT manufacturing system
_____7. Filing financial reports with the SEC
_____8. Determining the cost of a customer
_____9. Issuing a voluntary annual report on environmental costs and issues
____10. Reducing costs by eliminating activities that do not add value
Let’s Analyze
Activity 1. You are now familiar with the essential terms in the study of cost
management system. But it is important that you are also able to discuss
confidently the concepts introduced. Below are some writing instructions for you. On
the space provided, please write a thorough discussion of the required information.
1. Explain how a cost management system operates.
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___________________________________________________________________
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2. Discuss the three objectives of cost management system.
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3. Describe the two subsystems comprising the cost management system.
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In a Nutshell
Activity 1. The concept of cost management has been likened to any kind of system
that requires inputs in order to provide outputs to various users depending on their
needs and requirements.
Based on the definition of the most essential terms in the study of cost management
and the learning exercises that you have done, please feel free to write your
arguments or lessons learned below. I have indicated my arguments or lessons
learned.
1. Cost management system is half of a broader system, called Accounting

Information System (AIS), and thus, plays an important role in the
accumulation and management of data and information crucial in realizing
organizational goals and objectives.
2. If financial accounting system, the other half of the AIS, provides a bigger
picture of the financial condition of the organization, the cost management
system, on the other hand, magnifies the smaller portions that led to the
bigger picture.
Your Turn
3. _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
4. _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
5. _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Q&A LIST
Do you have any question/issue/concern for clarification? Please list them down
below and raise them formally by posting the list in the designated forum section.
Your teacher or any of your classmates may provide the answer or clarification you
need. Once satisfied, you return to this list and write the corresponding answers in
your own words. This list will help you in the review of the concepts and essential
knowledge.
Questions / Issues / Concerns Answers
1.
2.
3.
4.
5.
KEYWORDS INDEX
In this section, keywords are listed down to help you recall the lesson. The list may
include concepts, ideas, theories, names of people and other vital terms to
remember that may or may not necessarily be found in the Metalanguage section.
You may refer to this list as you review the lesson.
Activity-based Management Decision Support Systems Personal Computers
Accounting Information System E-commerce Planning
Computer Integrated Mfg. Efficiency Processes
Continuous Improvement Electronic Data Interchange Product Development
Controlling Enterprise Resource Planning Supply Chain Management
Cost Accounting Financial Accounting System System
Cost Management System Global Competition Target Costing
Cost Accounting System Just-In-Time Mfg. Theory of Constraints
Customer Orientation Online Analytic Programs Total Quality Management
Decision-making Operational Control System Value Chain
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Big Picture in Focus: ULOb. Discuss the role of management

accountants and the importance of ethical standards.
Metalanguage
For you to demonstrate ULOb, you will need to have an operational

understanding of the terms listed below. Please note that you will also be required to
refer to the previous definitions found in ULOa section.
1. Management (managerial) accounting. It is the branch of accounting that is

primarily concerned with providing economic and financial information for internal
users, particularly the managers or the decision-makers in an organization.
2. Management accountant. The one responsible for generating financial and
non-financial information required by the firm for internal and external reporting.
This involves responsibility for collecting, processing, and reporting information
that will help managers in their planning, controlling, and other decision-making
activities.
3. Business ethics. It is learning what is right or wrong in the work environment
and choosing what is right. It could also be described as the science of conduct
for the work environment.
4. Principles of personal ethical behavior. This may include concern for the well-
being of others, respect for others, trustworthiness and honesty, fairness, doing
good, and preventing harm to others.
5. Ethical behavior principles for professionals. This can be expanded to
include concepts such as objectivity, full disclosure, confidentiality, due diligence,
and avoiding conflicts of interest.
Essential Knowledge
In the previous lesson, cost management system has been compared with
financial accounting system. Now to deepen your understanding on related concepts
as a prelude to discussing the role of management accountants, let us extend our
examination on the relationship of financial accounting, this time, to management
accounting and cost accounting.
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Research Work
Utilize the university’s online library resources e.g. ebrary, search.proquest.com
etc. On a single A-4 document, compare and contrast financial accounting,
management accounting and cost accounting as illustrated in Figure 2. Identify
similarities as well as differences. List down your sources using APA format. Submit
your assignment to the designated section in your Black Board LMS on or before the
specified date and time.
Figure 2. Comparison of Finansial, Management, and Cost Accounting
Management Functions and the Need for Managerial Accounting Information
1. Planning. This is the detailed formulation of future actions to achieve a particular

end. Planning therefore requires setting objectives and identifying methods to
achieve those objectives.
2. Controlling. This management activity is a set of processes in monitoring a

plan’s implementation and taking corrective action as needed. Control is usually
achieved with the use of feedback. Feedback is information that can be used to
evaluate or correct the steps that are actually being taken to implement a plan.
Accounting reports that provide feedback by comparing planned (budgeted) data
with actual data are called performance reports.
3. Continuous Improvement. This refers to “the relentless pursuit of improvement

in the delivery of value to customers.” It is searching for ways to increase overall
efficiency by reducing waste, improving quality, and reducing costs.
4. Decision Making. This is the process of choosing among competing

alternatives. Decisions can be improved if information about the alternatives is
gathered and made available to managers.
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Financial Accounting vs. Management Accounting

Criteria Financial Accounting Management Accounting
Users of report External information users: Internal information users:
investors, creditors, officers and managers
government, etc.
Purpose To provide external users To provide internal users

with information about the with information that may be
organization’s financial used by managers in
position and results of carrying out management
operation. functions.
Types of reports Primarily financial statements Budgets, financial

with accompanying notes to projections, cost analysis,
FS etc. depending on the
specific needs of
management
Standards of presentation Must follow GAAP and other Management can set the
pronouncements of rules in producing the
authoritative accounting information most relevant to
bodies its specific needs
Reporting entity Reports relate to the Focus of report is on the

business as a whole company’s value chain (i.e.
business segment, product
line, supplier or customer);
Period covered by reports Year, semi, quarter, or month Any time period (i.e. year,
quarter, month, week, day,
etc.);
As needed by Mgmt.
Others Historical in nature Deals with the future

Accounting and finance Multidisciplinary
Focuses on the process of Focuses on the usefulness of
FS preparation FS
Precision Timeliness
Cost Accounting encompasses both financial accounting and management accounting.
Management accounting is the application of appropriate techniques and concepts

in processing the historical and projected economic data (including costs) of an entity
to assist management in establishing a plan for reasonable economic objectives and
in the making of rational decisions with a view towards achieving these objectives
(AAA Committee on Management Accounting).
Objectives of Management Accounting
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1) Costing 2) Planning and control 3) Decision-making
Application of Management Accounting

Managerial accounting provides the economic information needed by:
1. Businesses/business managers – for the attainment of their profit or economic
goals.
2. Non-profit organizations – for the attainment of their organizational objectives
Activities involved in Management Accounting

1. Determining, accumulating and explaining costs (both manufacturing and non-
manufacturing)
2. Computing or determining product cost or service cost
3. Determining cost behavior
4. Providing assistance to management in profit planning/ budgeting
5. Accumulating and presenting data which may be used by managers in decision-
making
6. Providing bases for cost control with the use of standard costs and other planned
objectives
7. Assisting managers in developing the company’s prices both for external and
internal transactions
Strategic Decisions and Management Accounting–key to a company’s success in

creating value for customers while differentiating itself from its competitors
1. Strategy: how an organization uses what it has, to get what it wants within the
market
2. Two broad strategies used:
a. Providing a quality product or service at a lower price than competitors
b. Providing a unique product or service at a higher price than competitors
Role of Management Accountant

Management accountants perform staff functions. They are considered as
staff management providing advice and assistance to line management such as
manufacturing and marketing. Line managers are directly responsible for attaining
the goals of the organization.
Line personnel – directly involved in carrying out the mission of the organization
(e.g. assembly workers in a factory, doctors in a hospital, teachers in a school)
Staff personnel – provide support for the organization’s mission (e.g. accountants,
lawyers, personnel directors, and other administrative positions)
The head of a management accounting group in an organization is the

management accountant. He may take different position such as Vice President for
Finance, Chief Financial Officer (CFO), Budget Director or Accounting Manager.
Traditionally, a management accountant is called Controller (or Comptroller).
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The responsibilities of the CFO vary among organizations, but they usually
include the following areas:
1. Controllership includes providing financial information reports to managers and
reports to stockholders and overseeing the overall operations of the accounting
system.
2. Treasury includes banking and short- and long-term financing, investments and
management of cash.
3. Risk management includes managing the financial risk of interest-rate and
exchange-rate changes and derivatives management.
4. Internal audit includes reviewing and analyzing the financial and other records
to attest to the integrity of the organization’s financial reports and to adherence
to its policies and procedures.
Basic Functions
Controllership Treasurership
1. Planning and controlling 1. Provision of capital

2. Reporting and interpreting 2. Investor relations
3. Evaluation and consulting 3. Short-term financing
4. Tax administration 4. Banking and custodianship
5. Government reporting 5. Credit and collection
6. Protection of assets 6. Investments
7. Economic appraisal 7. Insurance
Certification Programs Available to Management Accountants

1. Certified Management Accountant (CMA) – developed by the Institute of
Management Accountants (IMA) with covers four areas: (1) business analysis,
(2) management accounting and reporting, (3) strategic management, and (4)
business application
2. Certificate in Internal Auditing (CIA) – administered by the Institute of
Internal Auditors (IIA)
3. Certificate in Financial Management (CFM)
Code of Conduct for Management Accountants

There are two (2) parts of the standard.
I. General guidelines for ethical behavior. Management Accountants have ethical
responsibilities in four (4) broad areas namely:
1) To maintain a high level of professional competence,
2) To treat sensitive matters with confidentiality,
3) To maintain personal integrity, and
4) To be objective in all disclosing.
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II. Specific guidance concerning what should be done if an individual finds evidence
of ethical misconduct within an organization.
Below are some consequences of not abiding by the standards.

1. Suppose employees could not be trusted with confidential information. This
result to Top Management’s reluctance to distribute confidential information
within the company leading to decisions being made based on incomplete
information and therefore may cause deterioration of operations.
2. Suppose employees accept bribes from suppliers. This can lead to higher costs
but at low quality.
3. Suppose CEO’s or presidents of companies routinely lied in their annual reports
to shareholders and grossly distorted financial statements. Investors and
creditors would have little basis for making informed decision. Lesser funds
would be made available for productive investments and many firms might be
unable to raise any funds at all. This would ultimately lead to slower economic
growth, fewer goods and services and higher prices.
Standards of Ethical Conduct for Management Accountants

Giving serious attention to business ethics can bring significant benefits to a
business entity. Companies with a strong code of ethics most likely enjoy strong
customer and employee loyalty and a lot more. In the same manner, management
accountants have an obligation to the organizations they serve, their profession, the
public and themselves to maintain the highest standards of ethical conduct. In
recognition of this obligation, the Institute of Management Accountants (IMA),
formerly the National Association of Accountants (NAA), has promulgated the
following standards of ethical conduct for management accountants. Adherence to
these standards is integral to achieving the objectives of management accounting.
Management accountants shall not commit acts contrary to these standards nor shall
they condone the commission of such acts by others within their organizations.
IMA Statement of Ethical Professional Practice
Members of IMA shall behave ethically. A commitment to ethical professional practice includes
overarching principles that express our values, and standards that guide our conduct.
PRINCIPLES
IMA’s overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility.
Members shall act in accordance with these principles and shall encourage others within their
organizations to adhere to them.
STANDARDS
A member’s failure to comply with the following standards may result in disciplinary action.
I. Competence
Each member has a responsibility to:
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1. Maintain an appropriate level of professional expertise by continually developing

knowledge and skills.
2. Perform professional duties in accordance with relevant laws, regulations, and technical
standards.
3. Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
4. Recognize and communicate professional limitations or other constraints that would
preclude responsible judgment or successful performance of an activity.
II. Confidentiality
1. Keep information confidential except when disclosure is authorized or legally required.
2. Inform all relevant parties regarding appropriate use of confidential information.
Monitor subordinates’ activities
to ensure compliance.
3. Refrain from using confidential information for unethical or illegal advantage.
III. Integrity
1. Mitigate actual conflicts of interest, regularly communicate with business associates to
avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that might discredit the profession.
IV. Credibility
1. Communicate information fairly and objectively.
2. Disclose all relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, analyses, or recommendations.
3. Disclose delays or deficiencies in information, timeliness, processing, or internal
controls in conformance with organization policy and/or applicable law.
Resolution of Ethical Conflict
In applying the Standards of Ethical Professional Practice, you may encounter problems
identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues,
you should follow your organization’s established policies on the resolution of such conflict. If
these policies do not resolve the ethical conflict, you should consider the following courses of
action:
1. Discuss the issue with your immediate supervisor except when it appears that the supervisor
is involved. In that case, present the issue to the next level. If you cannot achieve a
satisfactory resolution, submit the issue to the next management level. If your immediate
superior is the chief executive officer or equivalent, the acceptable reviewing authority may
be a group such as the audit committee, executive committee, board of directors, board of
trustees, or owners. Contact with levels above the immediate superior should be initiated
only with your superior’s knowledge, assuming he or she is not involved. Communication of
such problems to authorities or individuals not employed or engaged by the organization is
not considered appropriate, unless you believe there is a clear violation of the law.
2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics
Counselor or other impartial advisor to obtain a better understanding of possible courses of
action.
3. Consult your own attorney as to legal obligations and rights concerning the ethical conflict.
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Source: Institute of Management Accountants (http://www.imanet.org). Adapted with permission 2006.

(Hansen & Mowen, 2015)
th
th
Let’s Check
Activity 1. Please encircle the letter under each item that best reflects your answer.
1. In the planning and control process, what is the proper sequence of events?
a. set goals, set objectives, develop plans, implement plans, evaluate
performance
b. establish a master budget, set standard costs, develop variance analysis
c. develop engineered costs, develop pricing targets, calculate contribution
margins
d. identify variable costs, identify fixed costs, project the sales mix, determine
break-even
2. Management accounting
a. is governed by generally accepted accounting principles.
b. is geared primarily to the past rather than the future.
c. draws from disciplines other than accounting.
d. places more emphasis on precision of data compared with financial
accounting which does not place more emphasis on accuracy of information.
3. Which of the following characteristics relate to financial accounting?

a. Reports are promptly prepared and submitted to preserve its usefulness.
b. Data may be both historical and estimates.
c. It must adhere to the generally accepted accounting principles.
d. It provides information needed by management in making decisions.
4. The formal report in management accounting is covered by the guidelines of

a. GAAP b. SEC c. Management d. PICPA
5. One major difference between financial and management accounting is that

a. financial accounting reports are prepared primarily for users external to the
company.
b. management accounting is not under the jurisdiction of the Securities and
Exchange Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.
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6. Which type of authority do management accountants generally exercise?

a. functional b. company c. line d. staff
7. Line management includes

a. manufacturing managers. c. information-technology managers.
b. management-accounting managers. d. human resource managers.
8. Which of the following positions would most likely be a line manager?

a. personnel department manager c. treasurer
b. president d. purchasing department manager
9. All the following report to the CFO except the

a. controller c. production manager
b. tax department manager d. treasurer
10. The chief accounting officer of an organization is the

a. vice president of finance c. treasurer
b. internal auditor d. controller
11. The chief management accountant called “controller” traditionally performs these
functions except
a. Relate to specific problems where expert help is required
b. The establishment and implementation of the financial planning process
c. Financial and management reporting and interpretation
d. Protection of company resources and economic evaluation
12. Which of the following is a controller’s responsibility?

a. Tax planning and accounting
b. Custodian of funds
c. In-charge of credit and collection
d. Arranging short-term loans and financing
13. Which of the following is not a controller’s function?

a. In-charge of planning and control
b. Arranging short-term financing
c. Protection of assets
d. Interpretation and reporting on effects of external factors on the business
14. Controllers are generally not concerned with

a. Reporting to government c. Preparation of tax returns
b. Protection of assets d. Investor relations
15. Which of the following is not a controllership function, as distinguished from a

treasury function?
a. reporting and interpreting c. protection of assets
b. credit and collection d. government reporting
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Let’s Analyze
Activity 1. In this lesson, you have been oriented on the role of management
accountants in the business world and what are expected of them. Now I want to
hear your thoughts further.
1. If you become a management accountant, what do you think would be your role
in the organization that you will be joining? What principles and standards should
you observe to become an effective management accountant?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
2. Explain why having an ethical behavior important for a management accountant.

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
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In a Nutshell
Activity 1. CASE ANALYSIS
Amoranto, Inc. is a closely held brokerage firm that has been very successful over
the past five years, consistently providing most members of the top management
group with 50 percent bonuses. In addition, both the chief financial officer and the
chief executive officer have received 100 percent bonuses. Amoranto expects this
trend to continue.
Recently, the top management group of Amoranto, which holds 40 percent of the
outstanding shares of common stock, has learned that a major corporation is
interested in acquiring Amoranto. Amoranto’s management is concerned that this
corporation may make an attractive offer to the other shareholders and that
management would be unable to prevent the takeover. If the acquisition occurs, this
executive group is uncertain about continued employment in the new corporate
structure. As a consequence, the management group is considering changes to
several accounting policies and practices that, although not in accordance with
generally accepted accounting principles, would make the company a less attractive
acquisition. Management has told Pederico Casanova, Amoranto’s controller, to
implement some of these changes. Pederico has also been informed that
Amoranto’s management does not intend to disclose these changes at once to
anyone outside the immediate top management group.
Required:
Using the code of ethics for management accountants, evaluate the changes that
Amoranto’s management is considering, and discuss the specific steps that
Pederico Casanova should take to resolve the situation. (CMA adapted)
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
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___________________________________________________________________
Q&A LIST
knowledge.
1.
2.
3.
4.
5.
KEYWORDS INDEX
Business Ethics Credibility Management Accountant
Certified Mgmt. Accountant Due Diligence Management Accounting
Chief Financial Officer Ethical Behavior Managerial Accounting
Competence Ethical Professional Practice Management Functions
Confidentiality Financial Accounting Objectivity
Conflict of Interest Full Disclosure Resolution of Ethical Conduct
Controller Institute of Mgmt. Accountants Staff Personnel
Controllership Integrity Standards of Ethical Conduct
Cost Accounting Line Personnel Treasurership
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Big Picture in Focus: ULOc. Apply the cost-volume-profit analysis

in both single- and multiple-product settings.
Metalanguage
In this section, the most essential terms relevant to the study of cost-volume-
profit relationships and to demonstrate ULOc will be operationally defined to
establish a common frame of reference as to how the texts work in your chosen field
or career. You will encounter these terms as we go through this new lesson. Please
refer to these definitions in case you will encounter difficulty in understanding
concepts.
1. CVP analysis. This refers to the management’s systematic study of the

relationships among costs, volume and profits.
2. Break-even analysis. This is an application of the CVP analysis.
3. Break-even point. This is the point of sales (in peso or unit) at which the
company neither makes a profit nor suffers a loss.
4. Variable costs. Items of cost which vary directly, in total, in relation to volume of
production
5. Fixed costs. Items of cost which remain constant in total, irrespective of the
volume of production.
6. Contribution margin. It is the excess of sales over variable costs.
7. Operating income. It denotes income or profit before income taxes.
8. Sales mix. It is the relative combination of products being sold by a firm.
9. Sensitivity analysis. This is conducted on CVP results to examine the
sensitivity of profits to changes in sales.
10. Margin of safety. This is one of the measures used in sensitivity analysis. It is
the excess of actual or budgeted sales over break-even sales; the amount of
sales that the company can afford to lose before an actual loss is incurred.
11. Operating leverage. This is another measure used in sensitivity analysis. It is
the use of fixed costs to extract higher percentage changes in profits as sales
activity changes.
12. Indifference point. It is the level of volume or revenues at which total costs, and
hence, profits, are the same under both cost structures (the relative proportions
of fixed and variable costs).
Essential Knowledge
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Managers are constantly faced with decisions about selling prices, variable
costs and fixed costs. To be able to choose from among alternative actions, it is
necessary to have a good estimate of the probable costs that would result from each
choice. Management needs to know the costs to be incurred under normal operating
conditions and how they might vary if conditions change. The cost-volume-profit
analysis is one of the most powerful tools that managers can utilize for this purpose.
Uses of Cost-Volume-Profit (CVP) Analysis

1. Planning, controlling and evaluation. Because CVP analysis emphasizes the
interrelationships of costs, quantity sold, and price, it brings together all of the
financial information of the firm. CVP analysis can be a valuable tool in
identifying the extent and magnitude of the economic trouble a company is
facing and helping pinpoint the necessary solution.
2. Decision-making. CVP analysis is a useful in decision-making activities

covering areas such as, but not limited to, the following:
a. Setting selling prices
b. Selecting the mix of products to sell
c. Choosing among marketing strategies
d. Analyzing the effects of changes in cost on profits
Short-run decisions: most frequently asked questions

1) How many units will be manufactured?
2) What is the company’s break-even sales?
3) Should the selling price be changed?
4) Should the company spend more on advertising?
5) What profit contribution can be realized if the organization performs as
expected for the period?
6) Should the product be sold as is or should it be processed further?
7) What would be the effects of the changes in the cost of materials and in the
efficiency of production?
Long-run decisions: such as buying a new plant and equipment also need
predictions of the resulting cost-volume-profit relationship
Significance of CVP Analysis

Helps managers understand the interrelationship between cost, volume and profit in
an organization by focusing on interactions between the following five elements:
1. Prices of products
2. Volume or level of activity within relevant range
3. Variable cost per unit
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4. Total fixed costs

5. Mix of products sold
Assumptions and Limitations

To give you a heads-up, below are some underlying assumptions upon which
the CVP analysis rests which place definite limitations on the conclusions which can
be drawn from its results. Whenever these underlying assumptions do not
correspond to a given situation, the limitations of the analysis must be clearly
recognized if the break-even tool is to be useful.
1. The analysis is valid only within the relevant range in a limited period of time.
2. All costs can be categorized as fixed or variable.
3. Variable costs change proportionately with volume (linear rate).
4. Fixed costs are constant within the relevant volume range.
5. Selling prices do not change as sales volume changes.
6. For multi-products, the sales mix remains constant.
7. Productive efficiency does not change.
8. Inventory levels remain constant (i.e. in physical units, sales equals
production).
9. Volume is the only relevant factor affecting costs and revenues.
CVP ANALYSIS: BREAK-EVEN PLANNING

The starting point in many business plans is determining the break-even point.
Break-even point (BEP) is the level of sales volume where:

Total Revenues = Total Expenses, thus, operation results to: NO PROFIT / NO
LOSS
BEP Planning Methods:

1. Operating Income approach;
2. Contribution Margin approach; and,
3. Graphical approach
Operating Income Approach (Equation Method)

This approach focuses on the income statement as a useful tool in organizing the
firm’s costs into fixed and variable categories. The income statement can be
expressed as an:
Equation
Sales xxx
Variable Costs (xxx)
Contribution Margin xxx
Fixed Costs (xxx)
Operating Income xxx
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At Break-even Point:
Break-even Sales = Variable Costs + Fixed Costs
Break-even Sales = Total Costs
Contribution Margin Approach (Formula Method)

This approach is a refinement of the operating income approach. In effect, we are
simply recognizing that:
at break-even: Total Contribution Margin = Total Fixed Costs
Contribution Margin per unit (CMPU) or marginal income per unit is the excess of
unit selling price over unit variable cost; the amount each unit sold contributes
towards
o covering fixed costs
o providing operating profits
Formula
Unit Selling Price xxx
Less: Unit Variable Cost (xxx)
Contribution Margin per unit xxx
Contribution Margin ratio (CMR) is the percentage of contribution margin to total

sales; shows how CM will be affected by a given peso change in total sales
Formula
Contribution Margin ratio = Contribution Margin
Sales
Example:
If CMR = 40%, this means that
o for each peso increase in sales, total CM will increase by P0.40
o net income will increase by P0.40 assuming that there are no changes in the
fixed costs
At Break-even Point:
Break-even point (units) = Total Fixed Cost
CM per unit
Break-even point (peso) = Total Fixed Cost

CM ratio
Graphical Approach
Visual portrayals may further our understanding of CVP relationships. A graphical
representation can help managers see the difference between variable cost and
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revenue. It may also help managers understand quickly what impact an increase or
decrease in sales will have on the break-even point.
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Under this approach, sales revenue, variable costs and fixed costs are plotted
on the vertical axis while volume is plotted on the horizontal axis of the cost-volume-
profit graph, also known as the break-even chart, as shown in Fig. 3. The break-even
point is the point where the total sales revenue line intersects the total cost line.
C-V-P Graph highlights the CVP

relationships over a wide range of
activity and gives managers a
perspective that can be obtained in no
other way.
Figure 3.
Cost-Volume-Profit Graph
The break-even chart can be shown in a much simpler form in Fig. 4. Unlike the
CVP graph, the profit-volume graph does not show the total cost and sales lines.
Instead, it illustrates a profit line drawn on a graph with volume (in units and in
pesos) in the horizontal axis and profit/loss in the vertical axis.
P-V Graph focuses on profitability;

highlights only the difference between
total sales revenue and total costs;
enables managers to more easily
determine the operating P/L for
various levels of operation
Figure 4.
Profit-Volume Graph
For our purpose, we will not anymore delve too much into this approach. It is
enough to take note of the highlights of the two graphs.
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CVP ANALYSIS: REVENUE AND COST PLANNING

- determining the level of sales needed to achieve a desired level of profit
Sales (units) = Total Fixed Cost + Desired Profit

CM per unit
Sales (pesos) = Total Fixed Cost + Desired Profit

CM ratio
Illustration (2-1): Breakeven Analysis (adapted)

The Income Statement for one of the CostMan Company’s product shows:
Sales (100 units at P100 a unit) P10,000
Cost of Goods Sold:
Direct Labor P1,500
Direct Materials Used 1,400
Variable FOH 1,000
Fixed FOH 500 4,400
Gross Profit P 5,600
Marketing Expenses
Variable 600
Fixed 1,000
Administrative Expenses
Variable 500
Fixed 1,000 3,100
Operating Income P 2,500
Required:
1. Compute the BEP in units and in pesos.
2. If sales increase by 25%, how much will be the new operating income?
3. Compute the new BEP in pesos if fixed FOH will increase by P1,700.

Solution:
1. BEP in units and in pesos
Fixed Costs (FC) = 500 + 1,000 + 1,000 = P2,500
Variable Costs (VC) = 1,500 + 1,400 + 1,000 + 600 + 500 = P5,000

a. Using Operating Income Approach
Equation
Selling Price P10,000 /100 units P100
VC per unit 5,000 /100 units (50)
CM per unit (CMPU) P 50

Let BEP (units) = x = number of units to be sold at break-even
BEP Sales = Fixed Costs + Variable Costs
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P100x = P2,500 + P50x

BEP (units) = x = P2,500/P50 = 50 units
BEP (pesos) = P100 x 50 units = P5,000

Income Statement:
Sales P100 x 50 units P5,000
Variable Costs P50 x 50 units (2,500)
Contribution Margin P50 x 50 units P2,500
Fixed Costs constant in total regardless of volume (2,500)
Operating Income P -0-

b. Using Contribution Margin Approach
Formula
CMPU = P5,000 / 100 units = P50

BEP (units) = Total FC = P2,500 = 50 units
CMPU P50

CMR = CM = P 5,000 = 0.50 = 50%
Sales P10,000

BEP (pesos) = Total FC = P2,500 = P5,000
CMR 50%

2. Incremental units = 100 units x 25% = 25 units
Current Operating Income P2,500
Add:
Incremental Contribution Margin
P50 x 25 units 1,250
Operating Income P3,750

3. BEP (pesos) = Total FC + additional FC = P2,500 + P1,700 = P8,400
CMR 50%

To immediately apply your new knowledge, proceed to answering ULOc Let’s
Analyze Activity 1 Problem 1.
Illustration (2-2): CVP Analysis with Changes in Cost Structure

(adapted)
The FinAct Company sold 100,000 units of its product at P20 per unit. Variable
costs are P14 per unit (manufacturing costs of P11 and marketing costs of P3).
Fixed costs are incurred uniformly throughout the year and amount to P792,000
(manufacturing costs of P500,000 and marketing costs of P292,000).
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Required:
2. Number of units that must be sold to earn an income of P60,000 before
income tax
3. Number of units that must be sold to earn an after-tax income of P90,000.
Income tax rate is 40%.
4. Number of units required to break-even if there is a 10% increase in wages
and salaries. Labor cost constitutes 50% of variable costs and 20% of fixed
costs.
Solution:
Fixed Costs (FC) = P792,000
Variable Costs (VC) = P 14 x 100,000 units = P1,400,000

a. Using Operating Income Approach
Equation
Selling Price P20
VC per unit (14)
CM per unit (CMPU) P 6

Let BEP (units) = x = number of units to be sold at break-even
BEP Sales = Fixed Costs + Variable Costs
P20x = P792,000 + P14x

BEP (units) = x = P792,000/P6 = 132,000 units

BEP (pesos) = P20 x 132,000 units = P2,640,000

Income Statement:
Sales P20 x 132,000 units P2,640,000
Variable Costs P14 x 132,000 units (1,848,000)
Contribution Margin P 6 x 132,000 units P 792,000
Fixed Costs constant in total regardless of volume ( 792,000)
Operating Income P -0-

b. Using Contribution Margin Approach
Formula
CMPU = P20 – P14 = P6
BEP (units) = Total FC = P792,000 = 132,000 units
CMPU P6
CMR = CM = P6 = 0.30 = 30%
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Sales P20
BEP (pesos) = Total FC = P792,000 = P2,640,000
CMR 30%
2. Sales (units) = Total FC + Desired Profit = P792,000 + P60,000 = 142,000 units
CMPU P6

3. Sales (units) = Total FC + Desired Profit = P792,000 + P150,000 = 157,000 units

CMPU P6

Desired Profit = Income before tax = P90,000 / 60% = P150,000

4. BEP (units) = Total FC = P792,000 + [(20% x P792,000) x 10%] = 152,423 units

CMPU P5.30
Selling Price P20.00
VC per unit:
Materials, OH and marketing 50% x P14 P7.00
Labor 50% x P14 x 110% 7.70 (14.70)
CM per unit (CMPU) P 5.30

For multiple products:

Break-even Sales = Total Fixed Cost
(combined units) Weighted CM per unit
(Unit CM x Qty. per mix) + (Unit CM x Qty. per mix)

Weighted CM per unit = of product A of product B
Total Number of Units per Sales Mix
Sales Mix – relative combination of products
Break-even Sales = Total Fixed Cost

(combined pesos) Weighted CM ratio
Weighted CM ratio = Total Weighted CM (pesos)

Total Weighted Sales (pesos)
Illustration (2-3): Multiple-Product Firm (adapted)

ABS, Inc. produces only two products, X and Y. These account for 60% and 40% of
the total sales pesos of ABS, respectively. Variable costs as a percentage of sales
pesos are 60% for X and 85% for Y. Total fixed costs are P150,000. There are no
other costs.
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Required:
1. Weighted contribution margin ratio
2. BEP in sales pesos (combined)
3. Sales pesos necessary to generate a net income of P9,000 if total fixed costs
will increase by 30%
Solution:
1. Weighted contribution margin ratio (CMR)
X Y
Selling Price 100% 100%
Variable Costs 60% 85%
Contribution Margin ratio 40% 15%

Sales Mix ratio 60% 40%
Multiply by: CMR 40% 15%
Weighted CMR 24% + 6% = 30%

Break-even Sales = Total Fixed Cost = P150,000 = P500,000
(combined pesos) Weighted CM ratio 30%

3. Desired net income P 9,000
Add: Total fixed costs P150,000 x 130% 195,000
Contribution margin P204,000
Divided by weighted CMR 30%
Sales necessary to generate desired net income P680,000

Sales P204,000 / 30% P680,000
Variable Costs ( 142,800)
Contribution Margin P204,000
Fixed Costs P150,000 x 130% ( 195,000)
Operating Income P 9,000

Illustration (2-4): Multiple-Product Firm (adapted)

The CBN Corp. sells two products, D and W at a rate of 2 units and 3 units
respectively. The following data are available:
D W
Unit Selling Price P10 P5
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Unit Variable Costs P6 P3

Total Fixed Costs P420,000
Required:
1. Weighted contribution margin per unit
2. BEP in units (combined)
3. Weighted contribution margin ratio
5. BEP in sales pesos for: a) Product D b) Product W
Solution:
1. Weighted contribution margin per unit (CMPU)
D W
Selling Price P10 P 5
Variable Costs 6 3
Contribution Margin per unit P 4 P 2

Sales Mix ratio 2/5 3/5
Multiply by: CMPU P 4 P 2
Weighted CMPU P1.60 + P1.20 = P2.80

2. BEP in units (combined)
Break-even Sales = Total Fixed Cost = P420,000 = 150,000 units
(combined units) Weighted CMPU P2.80

3. Weighted contribution margin ratio (CMR)
D W
Selling Price P10 P 5
Variable Costs 6 3
Contribution Margin per unit P 4 P 2
Contribution Margin ratio 40% 40%

Sales Mix ratio 2/5 3/5
Multiply by: CMR 40% 40%
Weighted CMR 16% + 24% = 40%

Break-even Sales = Total Fixed Cost = P420,000 = P1,050,000
(combined pesos) Weighted CM ratio 40%

5. BEP in sales pesos for:
Product D
P1,050,000 x P1.60 = P600,000
P2.80
Product W
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P1,050,000 x P1.20 = P450,000

P2.80

Risks and Uncertainties

An important assumption of CVP analysis is that prices and costs are known
with certainty. But in reality, this is not always the case. Risk and uncertainty are in a
tandem in business decision making and must be dealt with accordingly.
How do managers deal with risk and uncertainty? A variety of methods may be
used. Managers may engage in sensitivity or what-if analyses. Two concepts useful
to management in sensitivity analysis are margin of safety and operating leverage.
Both are considered measures of risk that requires knowledge of fixed and variable
costs.
SENSITIVITY ANALYSIS OF CVP RESULTS

-examining the sensitivity of profits to changes in sales, either of the measures
may be used:
a. Margin of Safety – potential effect of the risk that sales will fall short of
planned levels
b. Operating Leverage – potential effect of the risk that sales will fall short of
planned levels as influenced by the relative proportion of fixed to variable
manufacturing costs
Margin of Safety
–amount of sales that the company can afford to lose before a loss is incurred,
computed as:
Margin of Safety = Actual or Planned Sales - BEP
(excess of sales over the break-even point)
The margin of safety (MS) can be viewed as a crude measure of risk. There are
always events, unknown when plans are made, that can lower sales below the
original expected level. If a firm’s margin of safety is large given the expected sales
for the coming year, the risk of suffering losses should sales take a downward turn is
less than if the margin of safety is small. Managers who face a low margin of safety
may wish to consider actions to increase sales or decrease costs.
The margin of safety can also be used as a ratio, a percentage of sales as
follows:
Margin of Safety ratio = Margin of Safety
Actual or Planned Sales
The margin of safety ratio (MSR) is useful for comparing the risk of two
alternative products, or for assessing the riskiness in any given product. The product
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with a relatively low margin of safety ratio is the riskier of the two products and
therefore usually requires more of management’s attention.
Illustration (2-5): Margin of Safety (adapted)

Miraflor Manufacturing Company’s budget for the coming year revealed the following
unit data:
Budgeted net income for the year P875,000
Unit Selling Price P50
Unit Costs:
Variable Fixed
Manufacturing Cost P14 P12
Selling Cost P2.50 P5.50
General Cost P0.25 P7
Required:
1. Determine the budgeted sales volume in units and in pesos.
2. Determine the margin of safety in units and in peso.
3. Determine the margin of safety percentage.

Solution:
1. Budgeted sales volume (units) = Total Budgeted net income = P875,000 = 100,000 units
Net income per unit P8.75

Budgeted sales (pesos) = 100,000 units x P50 = P5,000,000
Selling Price P50
Variable Cost per unit P16.75
Contribution Margin per unit P33.25 66.5% of sales
Fixed Cost per unit P24.50
Net income per unit P 8.75
Variable Fixed
Manufacturing Cost P14 P12
Selling Cost P2.50 P5.50
General Cost P0.25 P7
Unit Cost P16.75 P24.50

2. MS (pesos) = Budgeted Sales – BEP = P5,000,000 – P3,684,211 = P1,315,789
MS (units) = Budgeted Sales – BEP = 100,000 – 73,684 = 26,316 units

BEP (pesos) = Total FC = P24.50 x 100,000 units = P3,684,211
CMR 66.5%
BEP (units) = Total FC = P24.50 x 100,000 units = 73,684 units
CMPU P33.25 per unit

3. Margin of Safety ratio = Margin of Safety (pesos) = P1,315,789 = 26%
Actual or Planned Sales P5,000,000
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Operating Leverage
– principle by which management with a relatively high contribution margin can
increase profits substantially with a small increase in sales volume
In financial terms, operating leverage is concerned with the relative mix of fixed
costs and variable costs in an organization. Sometimes fixed costs can be traded-off
for variable costs. As variable costs decrease, the unit contribution margin increases,
making the contribution of each unit sold greater. This increases the effect of
fluctuations in sales on profitability. Thus, firms that have lowered variable costs by
increasing the proportion of fixed costs will benefit with greater increases in profits as
sales increase than will firms with a lower proportion of fixed costs. In this case, fixed
costs are being used as leverage to increase profits. Unfortunately, though, firms
with higher operating leverage will also experience greater reductions in profits as
sales decrease.
Operating leverage is the use of fixed costs to extract higher percentage

changes in profits as sales activity changes. The greater the degree of operating
leverage, the more that changes in sales activity will affect profit. Because of this
phenomenon, the mix of costs that an organization chooses can have a considerable
influence on its operating risk and profit level.
Degree of Operating Leverage (DOL) – change in operating income (EBIT)

resulting from a percentage change in sales; the unchanging fixed costs are used as
a lever to increase profits; for every increase in sales, profit will increase nth times
DOL = Contribution Margin = 1/MSR

Profit
DOL = Percentage change in operating income
Percentage change in sales
Example: if DOL = 5, this means

for every increase/decrease in sales, profit will increase/decrease 5 times in %
If fixed costs are used to lower variable costs such that contribution margin
increases and profit decreases, then the degree of operating leverage increases—
signaling an increase in risk.
The greater the DOL, the greater the risk of loss when sales decline but the
greater the reward when sales increase.
Illustration (2-6): Operating Leverage (adapted)
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Below is an income statement of two competing companies in the microtel industry:
Microtel A Microtel B
Amount % of Sales Amount % of Sales
Sales P100,000,000 100% P100,000,000 100%
Variable Costs P 60,000,000 60% P 30,000,000 30%
CM P 40,000,000 40% P 70,000,000 70%
Fixed Costs P 30,000,000 P 60,000,000
Net Income P 10,000,000 P 10,000,000
Required:
1. Calculate the operating leverage of each company. If sales increase, which
company benefits more? How do you know?
2. Assume sales rise 10% in the next year. Calculate the percentage increase in
profit for each company. Are the results what you expected?

Solution:
1. Degree of operating leverage = Contribution Margin
Profit
Microtel A:
Degree of operating leverage = P40,000,000 = 4
P10,000,000
Microtel B:
Degree of operating leverage = P70,000,000 = 7
P10,000,000
Microtel B will benefit more if sales increase because of a higher DOL. Microtel B has a
higher proportion of fixed costs in relation to variable costs, therefore it has a higher
operating leverage than does Microtel A. The degree of operating leverage is a
measure, at a specific level of sales, of how a percentage change in sales volume will
affect profits. The higher the operating leverage, the more sensitive profits are to
changes in sales volume.
Remember, however, that even though a higher DOL can mean a greater reward when
sales increase, it could also bring in greater risk of loss when sales decline.

2. Microtel A Microtel B
Amount % of Sales Amount % of Sales
Sales P110,000,000 100% P110,000,000 100%
Variable Costs P 66,000,000 60% P 33,000,000 30%
CM P 44,000,000 40% P 77,000,000 70%
Fixed Costs P 30,000,000 P 60,000,000
Net Income P 14,000,000 P 17,000,000

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Microtel A:
Change in profits = P14,000,000 – P10,000,000 = 40%
P10,000,000
Microtel B:
Change in profits = P17,000,000 – P10,000,000 = 70%
P10,000,000

Yes, these results are what we expected. Operating leverage indicates what change in net
income can be expected from a change in sales volume. An operating leverage of 4
implies that the change in net income will be 4 times as large as the change in sales
volume. Therefore, if sales increased by 10%, net income should increase by 40%. This is
precisely what happened. The same logic applies to Microtel B.

Indifference Point
– level of volume or revenues at which total costs, and hence profits, are the same
under both cost structures (relative proportions of fixed and variable costs)
If the company is operating at that level of volume, which alternative to use

would not matter because income would be the same either way. Because selling
price is the same under both alternatives and total costs are the same, profits will be
the same.
The indifference point is calculated by setting up an equation where each side

represents total costs under both alternatives.
Alternative A Alternative B
VC + FC = VC + FC
At unit volumes below the indifference point, the alternative with lower fixed
costs gives higher profits. At volumes above the indifference point, the alternative
with higher costs is more profitable.
Illustration (2-7): Indifference Point (adapted)

Flores Company sells a product for P20, variable costs are P8 per unit, and fixed
costs are P32,000.
Required:
1. What is Flores’ break-even point in units?
2. Find the selling price that Flores must charge to earn an P8,000 profit selling
1,600 units.
3. Flores is considering new equipment that would increase fixed costs by
P2,000 while reducing unit variable costs by P1.60 per unit. Find the sales
level where Flores is indifferent between the two costs structures.
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Solution:
1. BEP (units) = Total Fixed Costs = P32,000 = 2,667 units
CMPU P20 – P8
2. Profit = Sales – VC – FC
P8,000 = 1,600x – (1,600 x P8) – P32,000
Let x = selling price = P33

3. Current costs = Proposed costs
P32,000 + P8Q = P34,000 + P6.40Q
Let Q = indifference point in sales unit = 1,250 units


th
th

Let’s Check
Provide a solution whenever necessary to derive the answer.
1. Cost-volume profit analysis includes some underlying assumptions. Which of the
following is not one of these assumptions?
a. Cost and revenues are predictable.
b. Cost and revenues are linear over the relevant range
c. Changes in beginning and ending inventory levels are insignificant in
amount.
d. Sales mix changes are irrelevant.
2. The term relevant range, as used in cost accounting, means the range
a. over which costs may fluctuate.
b. over which cost relationships are valid.
c. of probable production.
d. over which production has occurred in the past ten years.
3. Cost-volume-profit analysis is used primarily by management
a. as a planning tool.
b. for control purposes.
c. to prepare external financial statements.
d. to attain accurate financial results.
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4. Cost-volume-profit analysis assumes all of the following EXCEPT

a. all costs are variable or fixed.
b. units manufactured equal units sold.
c. total variable costs remain the same over the relevant range.
d. total fixed costs remain the same over the relevant range.
5. In CVP analysis, when the number of units changes, which one of the following
will remain the same?
a. Total sales revenues c. Total fixed costs
b. Total variable costs d. Total contribution margin
6. The contribution income statement

a. reports gross margin.
b. is allowed for external reporting to shareholders.
c. categorizes costs as either direct or indirect.
d. can be used to predict future profits at different levels of activity.
7. The contribution income statement highlights

a. gross margin
b. product costs and period costs
c. different product lines
d. variable and fixed costs
8. In CVP analysis, focusing on target net income rather than operating income
a. will increase the breakeven point.
b. will decrease the breakeven point.
c. will not change the breakeven point.
d. does not allow calculation of breakeven point.
9. The breakeven point decreases if

a. the variable cost per unit increases.
b. total fixed costs decrease.
c. the contribution margin per unit decreases.
d. the selling price per unit decreases.
10. In multiproduct firms, when sales mix shifts toward the product with the highest
contribution margin then
a. total revenues will decrease
b. breakeven quantity will increase
c. total contribution margin will decrease
d. operating income will increase
11. It is the process of varying key estimates to identify those estimates that are the
most critical to a decision.
a. The graph method
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b. A sensitivity analysis
c. The degree of operating leverage
d. Sales mix
12. The margin of safety is the difference between

a. budgeted expenses and breakeven expenses
b. budgeted revenues and breakeven revenues
c. actual operating income and budgeted operating income
d. actual contribution margin and budgeted contribution margin
13. The percentage change in earnings before interest and taxes associated with the
percentage change in revenues is the degree of
a. operating leverage c. breakeven leverage
b. financial leverage d. combined leverage
14. In a company with low operating leverage

a. fixed costs are high and variable costs are low.
b. large changes in sales volume result in small changes in net income.
c. there is a higher possibility of net loss than a higher-leveraged firm.
d. less risk is assumed than in a highly leveraged firm.
15. The indifference point is the level of volume at which a company

a. earns the same profit under different operating schemes.
b. earns no profit.
c. earns its target profit.
d. any of the above.
Let’s Analyze
Activity 1. Below are problems that will test your basic understanding of the CVP
analysis. Read, analyze and provide the required information.
Problem 1 (adapted)
Davao Company sells its only product at P30 per unit. Variable costs are P22 per
unit and fixed costs are P100,000 per month.
Required: Treat each question independently from the others.
1. If Davao can sell 15,000 units in a particular month, what will be its income?
2. What is the break-even point in units?
3. What is the break-even point in pesos?
4. What unit sales are required to earn P50,000 for the month?
5. What sales, in pesos, are required to earn P50,000 for the month?
6. Suppose Davao reduces its selling price to P28 because competitors are
charging that amount. What is its new break-even point (a) in units and (b) in
pesos?
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7. Suppose that fixed costs are expected to increase by P10,000 per month and
price remains at P30. What is the new break-even point (a) in units and (b) in
pesos?
8. Suppose Davao is currently selling 10,000 units per month. The marketing
manager believes that sales would increase if advertising were increased by
P5,000. How much would sales have to increase, in units, to give Davao the
same income or loss that it is currently earning? (Although, you know how
many units are now being sold, you do not need this fact to solve the
problem.)
Problem 2 (adapted)
Forbes Company’s product sells for P16 and has a variable cost per unit of P12.
Fixed costs are P120,000.
Required:
1. Compute the break-even point in pesos.
2. Compute the number of units required to earn a P30,000 profit.
3. Forbes has a target profit of P36,000 and expects to sell 30,000 units.
Compute the selling price Forbes must charge to earn the target profit.
4. Forbes wants to keep its selling price at P16 per unit and earn a 10% return
on sales. Calculate the number of units Forbes must sell to meet the target.
Problem 3 (adapted)
Cagayan Company sells three products. Planned results for next year are as follows:
A B C
Unit Selling Price P10 P8 P4
Unit Variable Costs P4 P6 P1
Sales Mix in pesos 25% 25% 50%
Total Fixed Costs P500,000
Required:
1. Compute the weighted contribution margin percentage.
2. Compute the sales in pesos required to earn a P100,000 profit.
3. Supposed now that the sales mix, in units, is 25%, 25%, 50%. Determine the
weighted contribution margin per unit.
4. Determine the total unit sales needed to earn a P100,000 profit.
Problem 4 (adapted)
Park Company markets two computer games: Ping and Pong. A contribution format
income statement for a recent month for the two games appears below:
Ping Pong Total
Sales P100,000 P50,000 P150,000
Variable expenses 25,000 5,000 30,000
Contribution margin P 75,000 P45,000 P120,000
Fixed expenses 90,000
Net operating income P 30,000
Required:
1. Compute the overall contribution margin ratio.
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2. Compute the overall break-even point for the company in sales pesos.
3. Verify the overall break-even point for the company by constructing a
contribution format income statement showing the appropriate levels of sales
for the two products.
Let’s Analyze
Activity 2. Now, it’s your turn to apply the sensitivity analysis on CVP results.
Problem 1 (adapted)
Abigail Corporation is a distributor of a sun umbrella used at resort hotels. Data
concerning the next month’s budget appear below:
Selling Price P25 per unit
Variable expense P15 per unit
Fixed expense P8,500 per month
Unit sales 1,000 units per month
Required:
1. Compute the company’s margin of safety.
2. Compute the company’s margin of safety as a percentage of its sales.
Problem 2 (adapted)
Victoria Company sells a single product. The company’s sales and expenses for a
recent month follow:
Total Per Unit
Sales P600,000 P40
Less: variable expenses 420,000 28
Contribution margin P180,000 P12
Fixed expense 150,000
Net operating income P 30,000
Required:
1. What is the monthly break-even point in units sold and in sales pesos?
2. Without resorting to computations, what is the total contribution margin at the
break-even point?
3. How many units would have to be sold each month to earn a minimum target
profit of P18,000? Use the contribution method. Verify your answer by
preparing a contribution income statement at the target level of sales.
4. Refer to the original data. Compute the company’s margin of safety in both
peso and percentage terms.
5. What is the company’s CM ratio?
6. If monthly sales increase by P80,000 and there is no change in fixed
expenses, by how much would you expect monthly net operating income to
increase?
Problem 3 (adapted)
Davao Company sells its only product at P30 per unit. Variable costs are P22 per
unit and fixed costs are P100,000 per month.
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Required:
1. Suppose Davao is selling 20,000 units per month at P30. What is its margin of
safety (a) in units and (b) in pesos?
2. Suppose Davao is selling 20,000 units per month at P30. What is the degree
of operating leverage?
3. Davao currently pays its salespeople salaries that total to P40,000 per month,
but no commissions. The vice president for sales is considering a plan
whereby the salespeople would receive a 5 percent commission, but their
salaries would fall to a total of P25,000 per month (a drop of P15,000). At
what sales level is the company indifferent between the two compensation
plans?
In a Nutshell
Activity 1. COMPREHENSIVE PROBLEM ON CVP ANALYSIS
GCQ Company is a small but growing manufacturer of telecommunications

equipment. The company has no sales force of its own. Rather, it relies completely
on independent sales agents to market its products. These agents are paid a
commission of 15% of selling price for all items sold. Inday, GCQ’s controller, has
just prepared the company’s budgeted income statement for next year. The
statement follows:
GCQ Company
Budgeted Income Statement
For the year ended December 31
Sales P16,000,000
Less: Manufacturing Costs
Variable 7,200,000
Fixed overhead* 2,340,000 9,540,000
Gross Profit P 6,460,000
Less: Operating Expenses
Marketing Expenses
Commissions to agents 2,400,000
Fixed marketing costs 120,000 2,520,000
Fixed Administrative Expenses 1,800,000
Operating Income P 2,140,000
Less: Fixed Interest Cost 540,000
Income before income taxes 1,600,000
Less: Income Tax (30%) 480,000
Net Income P 1,120,000
*primarily depreciation on storage facilities
As Inday handed the statement to Rody, GCQ’s president, she commented, “I went
ahead and used the agents’ 15% commission rate in completing these statements,
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but we’ve just learned that they refuse to handle our products next year unless we
increase the commission rate to 20%.”
“That’s the las straw,” Rody replied angrily. “Those agents have been demanding
more and more. This time they’ve gone too far. How can they possibly defend a
20% commission rate?”
“They claim that after paying for advertising, travel, and other costs of promotion,
there’s nothing left over for profit,” replied Inday.
“I say it’s just plain robbery,” retorted Rody. “And I also say it’s time we dump those
guys and get our own sales force. Can you get your people to work up some cost
figures for us to look at?”
“We’ve already worked them up,” said Inday. “Several companies we know about
pay a 7.5% commission to their own salespeople, along with a small salary. Of
course, we would have to handle all promotion costs, too. We figure our fixed costs
would increase by P2,400,000 per year, but that would be more than offset by the
P3,200,000 (20% x P16,000,000) that we would avoid on agent’s commissions.”
The breakdown of the P2,400,000 cost figure follows:

Salaries
Sales manager P 100,000
Sales persons 600,000
Travel and entertainment 400,000
Advertising 1,300,000
Total P2,400,000
“Super,” replied Rody. “And I note that the P2,400,000 is just what we’re paying the
agents under the old 15% commission rate.”
“It’s even better than that,” explained Inday. “We actually save P75,000 a year
because that’s what we’re having to pay the auditing firm now to check out the
agents’ reports so our overall administrative costs would be less.”
“Pull all of these number together and we’ll show them to the executive committee
tomorrow,” said Rody. “With the approval of the committee, we can move on the
matter immediately.”
Required:
1. What is the breakeven point in pesos for next year assuming that the agent’s
commission rate remains unchanged at 15%?
2. What is the breakeven point in pesos for next year assuming that the agent’s
commission rate is increased to 20%?
3. What is the breakeven point in pesos for next year if the company employs its
own sales force?
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4. Assume that GCQ Company decides to continue selling through agents and
pays the 20% commission rate. What would be the volume of sales that would
be required to generate the same net income as contained in the budgeted
income statement for next year?
5. What is the volume of sales at which net income would be equal regardless of
whether GCQ Company sell through agents (at a 20% commission rate) or
employs its own sales force? (DCCPAR adapted)
Q&A LIST
knowledge.
1.
2.
3.
4.
5.
KEYWORDS INDEX
Break-even Analysis CVP Graph Operating Income Approach
Break-even Chart Degree of Operating Leverage Operating Leverage
Break-even Point Fixed Cost PV Graph
Break-even Planning Graphical Approach Risks and Uncertainties
Contribution Margin Indifference Point Sales Mix
Contribution Margin Approach Margin of Safety Sensitivity Analysis
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Contribution Margin per unit Margin of Safety Ratio Single-Product Firms
Contribution Margin Ratio Multiple-Product Firms Variable Costs
CVP Analysis Operating Income Weighted CMR
Big Picture in Focus: ULOd. Understand the budgeting framework

and develop a master budget.
Metalanguage
In this section, the most essential terms relevant to the study of budgeting for
planning and control and to demonstrate ULOd will be operationally defined to
establish a common frame of reference as to how the texts work in your chosen field
or career. You will encounter these terms as we go through this new lesson. Please
refer to these definitions in case you will encounter difficulty in understanding
concepts.
1. Budget. It is a financial plan for the future based on a single level of activity
dealing with the acquisition and use of resources over specified time period.
2. Budgeting. This is the process of formalizing plans and translating qualitative
narratives into a documented quantitative format. It is the act of preparing a
budget; a process of identifying, gathering, summarizing and communicating
financial and non-financial information about the future activities of the
organization.
3. Master budget. It is a comprehensive financial plan for the year and is made up
of various individual departmental and activity budgets which can be divided into
operating and financial budgets.
4. Operating budget. It is a budget concerned with the income-generating
activities of a firm: sales, production, and finished goods inventories. This budget
is expressed in units and pesos.
5. Financial budget. It is a budget concerned with the inflows and outflows of cash
and with financial position.
6. Cash budget. It details the planned cash inflows and outflows.
7. Goal congruence. It refers to making sure that the personal goals of the
managers are closely aligned with the goals of the organization.
Essential Knowledge
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Careful planning is important to the health of any organization. Failure to plan

can lead to financial disaster. Business managers must know their resource
capabilities and have a plan that details the use of these resources. In this lesson,
the basics of budgeting are discussed, and the traditional master budget and its
components are presented.
THE BUDGETING FRAMEWORK

The budgeting process can range from the informal process undergone by a
small firm, to an elaborately detailed of several months procedure employed by large
firms. The controller of an organization is responsible for directing and coordinating
the overall budgeting process.
Advantages of budgeting:
1. can define specific goals and objectives that can become benchmarks, or
standards of performance, for evaluating future performance
2. forces communication throughout the organization
3. forces management to focus on the future and not be distracted by the daily
crises in the organization
4. can increase the coordination of organizational activities and help facilitate goal
congruence
5. can help management identify and deal with potential bottlenecks or constraints
before they become major problems
6. means of allocating resources
Role of Budgeting in Management Functions

Planning–the cornerstone of good management, involves developing objectives and
goals for the organization, as well as the actual preparation of budgets
o relate to organizations long-term goal to its short-term activities
o distribute resources and workloads
o communicate responsibilities
o select performance measure
o set goals for bonuses and rewards
Plans identify objectives and the actions needed to achieve them. Budgets are
the quantitative expressions of these plans. When used for planning, a budget is a
method for translating the goals and strategies of an organization into operational
terms.
Operating–involves day-to-day decision making which is often facilitated by

budgeting
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Execution: 1) communicate expectations 2) measure performance and motivate

employees 3) coordinate activities and allot resources
Control–involves ensuring that the objectives and goals developed by the

organization are being attained; often involves a comparison of budgets to actual
performance and the use of budgets for performance evaluation purposes
Reporting: 1) communicate budget information 2) provide continuous feedback
3) support operating decisions
Reviewing: 1) evaluate performance 2) determine timeliness 3) find variances
and create solutions 4) compare planned with actual performance
Control is the process of setting standards, receiving feedback on actual

performance, and taking corrective action whenever actual performance deviates
materially from planned performance. Thus, budgets can be used to compare actual
outcomes with planned outcomes, and they can steer operations back on course, if
necessary.
Basic Concepts
1. Budgets should start with a top-down strategic plan that guides and integrates
the whole company and its individual budgets.
2. Budgeting is a management task, not a mechanical bookkeeping task which
requires a great deal of thoughtful planning and input from a broad range of
managers in a company.
3. Budgets are used throughout planning, operating and control activities.
4. Budgets are future oriented and make extensive use of estimates and forecasts.
5. Flexible budgets are based on the actual number of units produced rather than
the budgeted units of production.
6. Zero-based budgets require managers to build budgets from the ground up each
year.
7. Although we typically think of budgets as being prepared annually, changing
expectations often require that budgets be revised frequently.
Behavioral Implications of Budgeting

When budgets are used for both planning and control purposes, conflicts may
be inevitable. If managers are evaluated and compensated according to whether
they “meet the budget,” they may have incentives to pad the budget, thus making the
targets easier to reach. This may lead to unethical behaviors and is clearly not
beneficial for the company as a whole. Companies can either take punitive actions
or more positive steps such as assuring managers that performance evaluation will
be done in a fair and equitable manner and will include other factors.
Budgetary control-an act of using budgets to control an organization’s activity
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Budgetary slack–an intentional underestimation of revenues and/or overestimation

of expenses in a budgeting process; a technique applied by several operating
managers in order to report favorable variances
Budget Models
Static Budgeting–costs and expenses are not segregated to fixed and variable
components and the budgeted costs, without adjustments to actual capacity, serve
as the basis in evaluating actual performance
Flexible Budgeting–costs and expenses are segregated to fixed and variable
components giving way to the determination of estimated costs based on actual
capacity
Continuous (rolling) Budgeting–a time frame is maintained (i.e. 12 months, 6
months, etc.) and when a segment in a budgeted time frame expires and is dropped,
a new segment is to be added to maintain the same time frame.
Imposed Budgeting–budgets are prepared by top management with little or no
inputs from operating personnel
Participatory Budgeting–budgets are developed through joint decision making by
top management and operating personnel
Program Budgeting–an approach that relates resource inputs to service outputs; it
generally starts by defining the objectives by output results rather than in terms of
quantity of input activities
Zero-based Budgeting–activities to be incurred are to be prioritized based on its
order of relevance in line with a defined goal in the coming period without regard to
past experiences or present condition
Life-cycle Budgeting–costing is done over the entire life span of a product starting
from its period of conception (e.g. research and development), to infancy (e.g.
product introduction), growth (e.g. acceptance), expansion, up to maturity (or
decline); it includes all costs expected to be incurred in the research and
development, design, commercial production, marketing, channels of distribution,
customer services, and post-sales services of a product to determine the most
strategic price for market dominance, saturation or influence
Static vs. Flexible Budgets

1. Static budgets are set at the beginning of the period and remain constant. They
are useful for planning and operating purposes, but can be problematic when
used for control. Control requires the comparison of actual outcomes with
desired outcomes. When static budgets are used and actual sales are different
from budgeted sales, a comparison is inaccurate.
2. Flexible budgets take differences in cost due to volume differences out of the
analysis by budgeting based on actual production. They can be accurately used
for control purposes because any differences in cost caused by differences in
volume of production have been removed.
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The Budget Committee (Management Committee or Executive Committee)–

primarily responsible in developing and institutionalizing budgetary systems and
processes; consists of key functional and process executives such as the finance
manager, production manager, human resource manager, purchasing manager,
quality control manager, information resource manager, design and engineering
manager, logistics manager and others
Budget Manual–a detailed set of information and guidelines about the budgetary
process; includes 1)statement of budgetary purpose and its desired results 2) a
listing of specific budgetary activities to be performed 3) a calendar of scheduled
budgetary activities 4) sample budgetary forms, and 5) original, revised and
approved budgets
Master Budget–the comprehensive set of budgets, budgetary schedules and pro
forma organizational financial statements, the components of which are as follows:
Operating Budgets Financial Budgets
Sales Budget Balance Sheet Budget
Inventory Budget Statement of Cash Flows Budget
Production Budget Statement of Changes in Owners’ Equity Budget
Materials Purchases Budget Schedules of receivables, payables, accruals and
deferrals
Direct Labor Budget
Factory Overhead Budget
Selling and Administrative Budget
Income Statement
Budgeting for Sales

1. All organizations require the forecasting of future sales volume and the
preparation of a sales budget.
2. The sales forecast and the sales budget are the starting points in the preparation
of production budgets for manufacturing companies.
Factors in Forecasting Sales

1. Historical data, such as sales trend, competitors, and the industry
2. General economic trends or factors, such as inflation rates, interest rates,
population growth, and personal spending levels
3. Regional and local factors expected to affect sales
4. Anticipated price changes in both purchasing costs and sales prices
5. Anticipated marketing or advertising plans
6. The impact of new products or changes in product mix on the entire product line
7. Other factors, such as political and legal events and weather changes
All the remaining budgets and the decisions that are made based on their
forecasts are dependent upon this estimate of sales. It is important to estimate sales
with as much accuracy as possible. A small error in a sales forecast can cause
larger errors in other budgets that depend on the sales forecast.
Exercise: Developing a Master Budget Try doing this yourself.
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The Crown Company is preparing budgets for the quarter ending June 30.
Budgeted sales for the next five months are:
April 20,000 units
May 50,000 units
June 30,000 units
July 25,000 units
August 15,000 units
The selling price is P10 per unit.
Sales budget
Month 1 Month 2 Month 3 Total
Sales in units
X selling price (SP)
Production budget
The management at Crown Company wants ending inventory to be equal to 20% of the
following month’s budgeted sales in units. On March 31, 4,000 units were on hand.
Month 1 Month 2 Month 3 Month 4
Budgeted Sales
Add: Desired
Ending Inventory
Total units needed
Less: Beg. Inv.
Req. production
Direct materials budget and its cash disbursement budget

At Crown Company, five pounds of materials are required per unit of product. Management
wants materials on hand at the end of each month equal to 10% of the following month’s
production. On March 31, 13,000 pounds of material are on hand. Material cost is P0.40
per pound. One-half of a month’s purchases is paid for in the month of purchase; the other
half is paid in the following month. The March 31 accounts payable balance is P12,000.
Req. production
Mat’ls needed/unit
Total req. mat’ls
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Add: Desired E/Inv.
Total mat’ls
needed
Less: Beg. Inv.
Mat’ls purchased
X purchase price
Total purchased
cost
Payment made
Direct labor budget and its cash disbursement budget

At Crown Company, each unit of product requires 0.05 hours (3 minutes) of direct labor. In
exchange for the “no layoff” policy, workers agree to a wage rate of P10 per hour regardless
of the hours worked (NO overtime pay).
Req. production
Hours needed/unit
Total Hours Req.
X labor rate
Total labor budget

cost
Factory overhead budget and its cash disbursement budget

At Crown Company, manufacturing overhead is applied to units of product on the basis of
direct labor hours. The variable manufacturing overhead rate is P20 per direct labor hour.
Fixed manufacturing overhead is P50,000 per month and includes P20,000 of noncash costs
(primarily depreciation of plant assets).
Budg. Hours Req.
X VOH rate
Variable FOH
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Fixed FOH
Total FOH cost
Less: Non-cash cost
Cash Disbursement
for FOH
Ending finished goods inventory budget

Production Cost Quantity needed/unit Cost/unit TC/unit
Direct Materials
Direct Labor
FOH
Product Cost per unit
Ending inventory (units) xx

X unit production cost xx
Ending Finished Goods xx
Selling and administrative budget

At Crown Company, the selling and administrative expenses budget is divided into variable
and fixed components. The variable selling and administrative expenses are P0.50 per unit
sold. Fixed selling and administrative expenses are P70,000 per month. The fixed selling
and administrative expenses include P10,000 in costs – primarily depreciation – that are not
cash outflows of the current month.
Budgeted sales
X VS&A rate
VS&A expenses
Fixed S&A
Total S&A
Less: non-cash
costs
Cash disbursement

Cash collection budget
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All sales are on account. Crown’s collection pattern is: 70% collected in the month of sale,
25% collected in the month following sale, 5% uncollectible. The March 31 accounts
receivable balance of P30,000 will be collected in full.
Cash budget
The beginning cash balance for March 31 is P350,000. Dividend declared and paid are:
P15,000, P17,000 and P20,000 for the month of April, May and June, respectively.
Beg. Cash balance
Add: cash
collections
Total cash available
Less: cash
disbursements
D-Materials
D-Labor
FOH
S&A
Dividend
Excess (deficiency)
Add (deduct):
Financing
Add: Borrowing
Less: Interest
Ending Cash
Balance
th
th
Let’s Check
1. Which of the following is not a primary purpose of preparing a budget?
a. To make sure the company expands its operation.
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b. To provide a basis for comparison of actual performance.

c. To communicate the company’s plans throughout the entire business organizations.
d. To control income and expenditures in a given period.
2. These statements are proper to the budgeting process except

a. It is a part of management’s responsibility to plan the use of its resources.
b. Actual results need not be compared with plan, since the process ends after the
budget is approved.
c. It is a tool to orchestrate of various levels of individuals in the company is necessary
to gain acceptance and attain its goals.
d. The involvement of various levels of individuals in the company is necessary to gain
acceptance and attain its goals.
3. The starting point in the preparation of an annual as well as monthly master budget
prepared by the Budget Committee is the
a. Cash budget c. Balance sheet budget
b. Production budget d. Sales budget
4. A planning calendar in budgeting is the

a. calendar period covered by the budget
b. schedule of activities for the development and adoption of the budget
c. calendar period covered by the annual budget and the long-range plan
d. sales forecast by months in the annual budget period
5. Budgetary slack can best be described as

a. the elimination of certain expenses to enhance budgeted income.
b. the planned overestimation of budgeted expenses.
c. a plug number used to achieve a preset level of operating income.
d. the planned underestimation of budgeted expenses.
6. In a master budget plan, sales forecast is under

a. Financial budget c. Performance budget
b. Operating budget d. Capital budget
7. Which of the following is normally included in the financial budget of firm?

a. Direct materials budget c. Budgeted balance sheet
b. Selling expenses budget d. Sales budget
8. Which one of the following items is the last schedule to be prepared in the normal
budget preparation process?
a. Cost of goods sold budget c. Selling expense budget
b. Manufacturing overhead budget d. Cash budget
9. Which of the following may be considered an independent item in the preparation of the
master budget?
a. Ending inventory budget
b. Capital investment budget
c. Pro-forma statement of financial position
d. Pro-forma income statement
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10. This budgeting system places the burden of proof on the manager to justify authority to
spend any money whether or not there was spending in the previous period. Different
ways of performing the same activity and different levels of effort for the activity is
evaluated. This system is called
a. Scenario
b. Zero-based budgeting
c. Budgeting by alternatives
d. Budgeting by responsibility and authority
11. The budgeting tool or process in which estimates of revenues and expenses are
prepared for each product beginning with the product’s research and development
phase and traced through to its customer support phase is a(n)
a. Master budget c. Life-cycle budget
b. Activity-based budget d. Zero-based budget
12. The budget that describes the long-term position, goals, and objectives of an entity
within its environment is the
a. Capital budget c. Cash management budget
b. Operating budget d. Strategic budget
13. Budget that are prepared for various degree of plant operations and are used to control
costs at different levels of productive capacity is
a. Operating budget c. Flexible budget
b. Rolling budget d. Out-of-pocket costs
14. A systematized approach known as zero-based budgeting

a. classifies the budget by the prior year’s activity and estimates the benefits arising
from each activity
b. commences with either the current level of spending or projected whichever is lower.
c. presents planned activities for a period of time but does not present a firm
commitment
d. divides the activities of individual responsibility centers into a series of packages that
are prioritized
15. In flexible budget, when production levels are expected to decline within a relevant
range, the effects would be
a. Increase in both fixed and variable costs per unit.
b. Increase in fixed costs per units only
c. Decrease in fixed costs per unit only
d. No effect on both fixed and variable costs per unit.
Let’s Analyze
Activity 1. Now, it’s your turn to apply your skill in preparing the components of the
master budget.
Problem 1 (adapted)
Lydia Company manufactures a single product. It keeps its inventory of finished
goods at twice the coming month’s budgeted sales and inventory of raw materials at
150% of the coming month’s budgeted production. Each unit of product requires five
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pounds of materials, which cost P3 per pound. The sales budget is, in units: May,
10,000; June, 12,400; July, 12,600; August, 13,200.
Required:
1. Compute the budgeted production for June.
2. Compute the budgeted production for July.
3. Compute budgeted material purchases for June in pounds and pesos.
Problem 2 (adapted)
Conchita Company has the following information:
Month Budgeted Sales
March P 50,000
April 53,000
May 51,000
June 54,500
July 52,500
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next
month’s cost of sales.
Required: Prepare a purchases budget for April and May.
Problem 3 (adapted)
Ramon Manufacturing has a cash balance of P8,000 on August 1 of the current year.
The company’s controller forecast the following cash receipts and cash
disbursements for the upcoming two months of activity.
Receipts Payments
August P 45,000 P 57,000
September 66,000 56,000
Management desires to maintain a minimum cash balance of P8,000 at all times. If
necessary, additional financing can be obtained in P1,000 multiples at a 12% interest
rate. All borrowings are made at the beginning of the month; debt retirement, on the
otherhand, occurs at the end of the month. Interest is paid at the time of repaying
loan principal and is computed on the portion of debt repaid.
Required:
1. Determine the ending cash balance in August both before and after any
necessary financing or debt retirement.
2. Repeat part “1” for September.
Problem 4 (adapted)
Dante Manufacturing has a cash balance of P8,000 on August 1 of the current year.
The company’s controller forecast the following cash receipts and cash
disbursements for the upcoming two months of activity.
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Purchases Sales
January P 142,000 P 172,000
February 148,000 166,000
March 136,000 165,000
April 154,000 178,000
May 160,000 166,000
Customers pay 60% of their balances in the month of sale, 30% in the month
following sale, and 10% in the second month following sale. The company pays all
invoices in the month following purchase and takes advantage of a 3% discount on
all amounts due. Cash payments for operating expenses in May will be P119,500;
Crispin’s cash balance on May 1 was P127,800.
Required: Determine the following:
1. Expected cash collections during May.
2. Expected cash disbursements during May.
3. Expected cash balance on May 31.
Problem 5 (adapted)
Fernando Company developed the following data for the month of August:
1. August 1 cash balance P123,000.
2. Cash sales in August P800,000.
3. Credit sales for August are P300,000; for July P400,000; and for June
P400,000. 70% of credit sales are collected in the month of sale, 15% in the
following month, and 10% in the second month following the sale.
4. Purchases for July were P500,000 and for August are P400,000. One-fourth
of purchases are paid in the month of purchase and the remaining three-
quarters in the following month.
5. August salaries are P314,000, utilities are P32,200, and depreciation on the
building and equipment is P100,000.
Required:
1. Anticipated cash receipts from accounts receivable in August.
2. Anticipated total cash available from all sources in August.
3. August cash payments for purchases made in July and August.
4. Anticipated cash balance on August 31.
In a Nutshell
Activity 1. PRACTICE SET
To further develop your skills in the preparation of an operating budget and a cash
budget, a practice set is attached in your LMS for you to do. You will be graded on
this activity based on the rubrics provided in the syllabus.
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Q&A LIST
knowledge.
1.
2.
3.
4.
5.
KEYWORDS INDEX
Budget Continuous Budgeting Master Budget
Budgetary Control Direct Labor Budget Material Purchases Budget
Budgetary Slack Factory Overhead Budget Operating Budget
Budget Committee Financial Budget Participatory Budgeting
Budgeting Flexible Budgeting Production Budget
Budgeting Framework Goal Congruence Program Budgeting
Budget Manual Imposed Budgeting Sales Budget
Cash Budget Income Statement Selling and Admin Budget
Cash Collection Budget Inventory Budget Static budgeting
Cash Disbursement Budget Life-cycle Budgeting Zero-based Budgeting
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Course Schedule
Please be guided by this calendar of activities (partial list).

Activity Date Where to submit
Weeks 1-3 ULO A Let’s Check Activity 1 & 2 Aug. 22, 2020 BB Weeks 1-3 ULO A
Weeks 1-3 ULO A Let’s Analyze Activity 1 Aug. 20, 2020 BB Weeks 1-3 ULO A
Weeks 1-3 ULO A In a Nutshell Activity 1 Aug. 20, 2020 BB Weeks 1-3 Forum A
Weeks 1-3 ULO A Q&A List Aug. 20, 2020 BB discussion feature
Weeks 1-3 ULO B Research Aug. 25, 2020 BB Research
Weeks 1-3 ULO B Let’s Check Activity 1 Aug. 25, 2020 BB Weeks 1-3 ULO B
Weeks 1-3 ULO B Let’s Analyze Activity 1 Aug. 25, 2020 BB Weeks 1-3 ULO B
Weeks 1-3 ULO B In a Nutshell Activity 1 Aug. 25, 2020 BB Weeks 1-3 Forum B
Weeks 1-3 ULO B Q&A List Aug. 25, 2020 BB discussion feature
Weeks 1-3 ULO C Let’s Check Activity 1 Aug. 30, 2020 BB Weeks 1-3 ULO C
Weeks 1-3 ULO C Let’s Analyze Activity 1 & 2 Aug. 30, 2020 BB Weeks 1-3 ULO C
Weeks 1-3 ULO C In a Nutshell Activity 1 Aug. 30, 2020 BB Weeks 1-3 Forum C
Weeks 1-3 ULO C Q&A List Aug. 30, 2020 BB discussion feature
Weeks 1-3 ULO D Master Budget Exercise Sept. 4, 2020 BB Master Budget
Weeks 1-3 ULO D Let’s Check Activity 1 Sept. 4, 2020 BB Weeks 1-3 ULO D
Weeks 1-3 ULO D Let’s Analyze Activity 1 Sept. 4, 2020 BB Weeks 1-3 ULO D
Weeks 1-3 ULO D In a Nutshell Practice Set Sept. 4, 2020 BB Practice Set
Weeks 1-3 ULO D Q&A List Sept. 4, 2020 BB discussion feature
First Exam Sept. 18, 2020
Second Exam Oct. 2, 2020
Third Exam Oct. 15-16, 2020
Competency Exam
Final Exam Oct. 15-16, 2020
Special Instructions: Sample Filename Formats:
STUDENT’S SURNAME_1-3 ULO_A_Check_1
1. All online submissions must be in PDF file. STUDENT’S SURNAME_1-3 ULO_B_ Analyze_1
2. Follow sample filename format. Filename will STUDENT’S SURNAME_1-3 ULO_C_ Nutshell_1
STUDENT’S SURNAME_1-3 ULO_C_Research
serve as your guide in your submission. STUDENT’S SURNAME_1-3 ULO_C_Budget
STUDENT’S SURNAME_1-3 ULO_C_Practice
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Online Code of Conduct

1. Students are expected to abide by and honor code of conduct, and thus everyone and all are
exhorted to exercise self-management and self-regulation.
2. All students are guided by professional conduct as learners in attending On-Line Blended
Delivery (OBD) course. Any breach and violation shall be dealt with properly under existing
guidelines, specifically in Section 7 (Student Discipline) in the Student Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core Values,
specifically in the adherence to intellectual honesty and integrity; academic excellence by giving
due diligence in virtual class participation in all lectures and activities, as well as fidelity in doing
and submitting performance tasks and assignments; personal discipline in complying with all
deadlines; and observance of data privacy.
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The University shall
institute monitoring mechanisms online to detect and penalize plagiarism.
5. Students shall independently and honestly take examinations and do assignments, unless
collaboration is clearly required or permitted. Students shall not resort to dishonesty to
improve the result of their assessments (e.g. examinations, assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students shall not
post or share their answers, assignment or examinations to others to further academic
fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the Online Code of
Conduct, as well as all the requirements and protocols in handling online courses.
Prepared by:

Myra T. Miraflores, CPA
Course Coordinator

Reviewed by:

Jade D. Solaña, CPA, MBA Devzon U. Porras, CPA, MSA
Program Head – BSA and BSMA Program Head – BSIA and BSAIS

Mary Grace S. Sombilon, CPA, MSA
Assistant Dean

Approved by:

Lord Eddie I. Aguilar, MBA, CPA
Dean
72

Acc 213 W1 3 Sim

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Acc 213 W1 3 Sim

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UNIVERSITY OF MINDANAO

College of Accounting Education

Program: BSA, BSIA, BSMA, BSAIS

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACC 213 – Strategic Cost Management

Name of Teacher: ____________________

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

Course Outline: MAS 1 – Management Accounting, Part 1

Course Coordinator: Myra T. Miraflores

Course Outline Policy

Areas of Concern Details

If the assessment task is done in real time through the features in

Since this course is included in the CPALE, you will be required to

This is non-negotiable for all licensure-based programs.

Turnitin To ensure honesty and authenticity, all assessment tasks are

Please note that academic dishonesty such as cheating and

However, if the late submission of assessment paper has a valid

For group assessment tasks, the course coordinator will require

Re-marking of You should request in writing addressed to the program

If disapproved by the course coordinator, you can elevate your

All culled from on-campus/onsite sessions (TBA):

Submission of the final grades shall follow the usual University

Preferred Referencing Depends on the discipline; if uncertain or inadequate, use the

Contact Details of the Lord Eddie I. Aguilar

Contact Details of the Mary Grace S. Sombilon

Jade Solana CPA, MBA

Library Contact Brigida E. Bacani

for inquiries, you can email at umlic.eresources@gmail.com,

Well-being Welfare Ronadora E. Deala

GSTC Facebook Page:

Course Information – see/download course syllabus in the Black Board LMS

CO The course ACC 213 is designed to deepen your knowledge on cost

a. Explain the nature and characteristics of cost management.

Big Picture in Focus: ULOa. Explain the nature and characteristics

1. System. It is a set of interrelated parts that performs one or more processes to

8. Cost accounting system. This is a cost management subsystem designed to

Accounting Information System

A system is a set of interconnected parts composed of one or more processes

Figure 1. The Accounting Information System

The interrelated processes include collecting, recording, summarizing, and

Cost Management System vs. Financial Accounting System

Criteria Cost Management Financial Accounting

Target users of output Internal information users External information users

Types of information Financial (cost Financial information

Uses of information 1. Costing of products, 1. Investment decisions

Cost Management Systems

Cost Management Subsystems

A cost management system consists of two major subsystems: the cost

1. The cost accounting system is a cost management subsystem designed to

2. The operational control system is a cost management subsystem designed to

Factors Affecting Cost Management

1. Global Competition. Improvement in transportation and communication

2. Growth of the Service Industry. Many services such as accounting,

3. Advances in Information Technology.

b. An enterprise resource planning (ERP) system is a centralized database

c. Availability of personal computers (PCs), online analytic programs

d. Emergence of electronic commerce. Electronic commerce (e-commerce)

management. Supply chain management is the management of products

4. Advances in the Manufacturing Environment.

b. Just-in-Time Manufacturing. A demand-pull system, just-in-time (JIT)

c. Computer-Integrated Manufacturing. Automation of the manufacturing

5. Customer Orientation. Firms are concentrating on the delivery of value to the