Philippine Copyright, 2021

by

MA. ELENITA BALATBAT CABRERA

GILBERT ANTHONY B. CABRERA
BERNADETTE ANN B. CABRERA

Any copy of this book not bearing the signature of the author(s) shall be considered as
proceeding from an illegal source.

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do not guarantee the accuracy of information presented at these sites.

ALL RIGHTS REVERVED

ISBN 978-621-416-104-1
Published & Printed by:

GIC ENTERPRISES & CO., INC.

*National Book Development Board Registered
2017 C.M. Recto Avenue, Sampaloc,
Manila, Philippines
About the Authors

MA. ELENITA B. CABRERA

BBA MBA CPA CMA

Dean Cabrera graduated Magna Cum Laude from the University of the East with a degree of Bachelor of Business Administration, major in Accounting
and was one of the topnotchers when she passed the CPA Licensure Board Examination. She earned her Master Business Administration major in
Financial Management from the University of the Philippines and is a candidate for Doctor of Education at the University of the East. She is a holder of
a Certificate in Management Accounting from the Institute of Certified Management Accountants of Victoria, Australia

Dean Cabrera worked with SGV & Co. as Staff Auditor. She taught Financial Accounting, Financial Management, Management Advisory Services,
Auditing Theory and Practice in various colleges and universities and authored books in these subjects. She previously held the position of Dean of the
College of Business Administration at the Lyceum of the Philippines University.

A former Vice Chairman of the Professional Regulatory Board of Accountancy, she was the BOA representative to the Financial Reporting Standards
Council (FRSC), Philippine Interpretations Committee (PIC) and Auditing and Assurance Standards Council (AASC). She served as the Chairman of
the PRC CPE Council of Accountancy and Chairman of the CHED Technical Committee for Accountancy Education. She was a World Bank Project
Philippine Institute of Certified Public Accountants (PICPA) awards as Outstanding CPA in Education, Honorary Life Membership, Distinguished
Accountancy Author and 2018 Accountancy Hall of Fame.

GILBERT ANTHONY B. CABRERA

BBA MBA CPA

Gilbert received his bachelor’s degree in Accountancy from the University of East, Cum Laude. He obtained a Master in Business Administration
degree with concentrations on International Finance and Accounting from the University of Maryland, College Park, Robert H. Smith School of
Business.

A certified public accountant, he has public accounting experience with SGV & Co. (Ernst and Young Member Firm) and teaching experience with the
University of the East, Manila and University of Maryland, Robert H. Smith School of Business. Presently, he is a Senior Vice-President, Risk and
Finance of Global Insurance Brokerage in California, USA, An active member of the Association of Filipino Finance Managers in California, he is also a
former Board Member of Bay Are Red Cross

BERNADETTE ANN B. CABRERA

BBA MBA CPA

Bernadette received her bachelor’s degree in Accountancy from De Lasalle University. She obtained a Master in Business Administration degree from
Vanderbilt University, Owen Graduate School of Management.

A certified public accountant, she has public accounting experiebce with SGV & Co. (Ernst and Young Member Firm). She spent majority of her career
in the USA as a management consultant for Ernst & Young, New York, specializing in Strategy Risk anf Operational Management, and People and
Organizational Change Presently, she runs her own Executive Coaching business where she coaches CEOs and the other executives on Personal
Leadership and High Perfoming Teams.
 I

Preface
The central focus of this 2021 Edition of Stategic Cost Management is how management accounting helps managers better
plan, control and decide for their companies. This book can be immediately after the student has had an introductory course in
Cost Accounting and Control.

The pace of change in organizations continues to be rapid. This book reflects changes occurring, the challenges managers of
business concerns face and how-to-best deal with these challenges using financial and non financial information.

Examples of key additons and changes in topic areas are

 Growing significance of the global economy.

 Increased coverage if strategy and strategic users of cost information,
 Increased discussion of decision users of cost management information occurring such as areas as quality management,
cost estimation and performance measurements.
 Systematic incorporation of new evolving management thinking including supply chain analysis, enterprise resource
planning systems, balanced scorecard, managing productivity and marketing effectiveness.
 Increased attention to behavioral issues such as motivation managers and employees, effect of management control and
transfer pricing on manager’s behavior and earnings management.

A primary concern in the organization and content of this book is the flexibility in meeting the needs of Strategic Cost
Management courses varying in length, content, and student profile.

To aid the student, each chapter begins with measurable learning outcomes that focus on important areas of coverage. Sufficient
text material is available to permit the reader of this textbook to choose topics and depth of coverage as desired. A modular,
flexible organization adopted in this book would facilitate diverse approaches to teaching and learning.

In recognition of the widespread application of strategic cost management concepts, many examples and problems in the book
deal with sevice, not for profit, trading organizations as well as with manufacturing operations. Students gain an understanding of
technical information and learn how to apply that information in appropriate situations. To enhance understanding, relevant
examples on how the concepts apply to the global business environment hace also been included.

The mix of assignment material include questions that review concepts and procedures, exercises that review the direct
application of the basic concepts, problems of varying difficulty that enhance the learning process and cover the concept in
greater depth.

Some problems do not have a single correct answer. Rather they contain multiplt dimensions demanding a broad managerial
perspective. Other problems do not just focus exclusively on computation but may require drawing from one’s knowledge in
marketing, finance economies, economies, quantitative techniques and human resources aspects. Students are therefore
challenged to critically analyze multidimensional issues while still numerical problem-solving skills.

A special note of gratitude goes to

 Our family fir the love and patience,

 Our colleagues in the academe for their ideas, encouragement and support
 Contents in Brief
Preface

Unit 1 Introduction to Strategic Cost Management

1
Chapter 1 Overview of Cost Management and Strategy
2
2 The Professional Environment of Cost
20
Management
3 Contemporary Business Environment and Strategic Focus
54
of Cost Management
4 Developing a Competitive Strategy and Contemporary
Contemporary Cost Management
Techniques 69

Unit II Strategic Cost Management Concepts and

Techniques for Planning Control 97
98
Chapter 5 Strategy and the Master Budget
6 Organizational Innovations:
Totally Quality Management; Just-in-Time 144

Production System
7 The Balanced Scoreboard:
179
A Tool to Implement Strategy
8 Cost Planning for Product Life Cycle:
204
Life-Cycle Costing and Long-Term Pricing;
Target Costing and Theory of Constraints
9 Decentralized Operations and Segment 238

Reporting
10 Variable Costing: A Tool for Evaluating
Management Performance 253
Unit III Cost Management Concepts and Tools for
Decision Making 278

Chapter 11 Relevant Costs for Non- Routine 279

Decision Making
335
12 Quantitative Techniques for Decision Making
13 Capital Investment Decision 413

Unit IV Cost Management Concepts and

Techniques for Control and Strategic 470

Performance Measurement
Chapter 14 Management Control and Strategic
Performance Measurement; Strategic 471

Investment Units and Transfer Pricing

15 Financial and Non- Financial Performance 529
Measures
16 Managing Productivity and Marketing
Effectiveness 557

17 Executive Performance Measures and

Compensation 583

Glossary 599

Appendix Time Value Money Concepts 615

References 629