Chapter 1.

Introduction to Strategic Cost Management and Management Accounting

Strategic Cost Management- the process of reducing total cost while improving the strategic position of
the business. Company goals can be achieved by having thorough understanding of costs and which of
these costs support or weaken the company strategic position

Cost Management Techniques

a. Total quality Management (TQM) – developed by William Deming. Continual process of

detecting and reducing errors in manufacturing and ensuring that employees are up to speed
with training
b. Just in Time (JIT)-an inventory system which aligns raw materials orders from suppliers directly
with production. Work-in-progress inventory is eliminated to lessen entity’s product cost.
c. Kaizen- a Japanese term which means “change for better” or continuous improvement. A
Japanese business philosophy regarding processes that continuously improve operations and
involve employees.

Administrative functions of Management

a. Planning- involves setting of goals and budget preparation

b. Control-analysis of financial statements
c. Decision Making- performance of CVP analysis, relevant costing, variable

Finance and Accounting Organizational Chart

Take Note: Auditing is not under the organizational chart since its in not under control by the controller
yet coordinates directly with it.

Classifications of Costs

A. As to nature
a. Product cost- inventories or capitalizable costs
 Direct Materials
 Direct Labor
 Manufacturing Overhead
b. Period cost- cost related to support production
 Selling expenses
 Administrative expenses
 General expenses

B. As to behavior
a. Variable cost- varies directly proportional to activity level
b. Fixed cost- remains constant regardless of activity level