Strategic Cost Management Lecture-08.20.2022

8/20/2022
Strategic
Cost
Management
E V E R Y S AT U R D AY
4 : 0 0 P M TO 7: 0 0 P M
Note: background photo not mine. The photo is used only for class discussion purposes.
This Photo by Unknown Author is licensed under CC BY-SA
Introduction:
Businesses, throughout the years, had become more challenging.
Global competitions play a big role; and industries are now
technology-driven, like having accounting software in place of an
accountant to do the financial reports.
So, with these continuing changes in the field of business and
managing the business itself becoming more complex, employing
the services of an accountant for effective management skills will
help these businesses cope with the changes.
NOTE: BACKGROUND PHOTO NOT MINE. THE PHOTO IS USED FOR CLASS DISCUSSION PURPOSES. 2
8/20/2022
What is “management”?
It is the process of achieving organizational objectives.
Example of organizational objectives?
1. Increase sales.
2. Increase profit or income.
3. Be able to put up another line of business or business
expansion.
Planning
What is this Controlling Organizing

“process”?
Leading
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Why are Planning and Controlling

the two (2) important functions of
management?
It is in planning that management formulates their expectations in
the project, it is where the management design or envision what
will happen at the end of a project.
Controlling is where the management assesses the information or

the reports. It is where they evaluate the project. Are they able to
reach or meet the goals they have set during the planning stage?
1. Planning:
Planning is the setting of goals and developing strategies and
tactics to achieve them.
What are your ways or what

What result do you have in will you do to realize the
mind at the end of the goal you have set?
process? Example: (1) Offer
Example: At the end of this discounts on bulk sales; or
project, there will be an (2) Focus on advertising
increase in sales. the product – awareness
campaign.
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1. Planning:
What are the things to consider in

planning?
1. Planning:
A. The economic conditions. What are the contingencies facing the
organization?
B. Competitors and Customers
C. Forecast of future conditions
D. What are the alternative courses of action for achieving the
objectives? (What are the other options?)
E. Necessary steps in ensuring the effective implementation of the
plan (https://open.lib.umn.edu/principlesmanagement )
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1. Planning (Different types)

Strategic Planning
- Analyzing competitive opportunities and threats, as well as the
strengths and weaknesses of the organization.
- It involves the determination of how to position the organization
to compete effectively in its environment.
- It generally includes the entire organization and includes the
formulation of objectives.
- It is the top management that often conducts this planning.

Tactical Planning
- It is an intermediate range planning that is designed to develop
relatively concrete and specific means to implement the strategic
plan.
- It is the middle-level manager who often engages in tactical
planning.
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Operational planning
- it generally assumes the existence of organization-wide or subunit
goals and objectives and specifies ways to achieve them.
- It is short-range planning that is designed to develop specific
action steps that support the strategic and tactical plans.
2. Organizing
Organizing is the function of management that involves developing
an organizational structure (Organizational Design) and allocating human
resources (Job Design) to ensure the accomplishment of objectives.
(https://open.lib.umn.edu/principlesmanagement )
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2. Organizing (Two types)

A. Organizational Design
- It refers to a decisions made about the structure of an organization.
- The structure of the organization is the framework within which

effort is coordinated.
ORGANIZATIONAL Graphic representation of

the chain of command
CHART (represents the within an organization
structure)

A. Organizational Design (continuation)
- it involves decision on
> how to departmentalize, or cluster jobs into departments to
coordinate effort effectively
> when we say “departmentalize”, it may be organizing by
function, product, geography, or customer.
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B. Job Design
- It refers to a decisions made about the nature of the jobs within the
organization.
- Here, decisions must be made about the duties and responsibilities

of individual jobs, as well as the manner in which the duties should
be carried out.

B. Job Design (continuation)
- Traditionally, job design was based on the principle of division of labor
and specialization.
- Recently, however, many organizations have attempted to strike a
balance between the need for worker specialization and the need for
workers to have jobs that entail variety and autonomy.
- Many jobs are now designed based on the principles of empowerment,
job enrichment, and teamwork.
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3. Leading
Leading involves the social and informal sources of influence that
you use to inspire an action taken by others.
Example:
- If managers are effective leaders, their subordinates will be
enthusiastic about exerting effort to attain organizational objectives.
- According to research, for a manager to become an effective
leader, one must first understand their subordinates’ personalities,
values, attitudes, and emotions.
4. Controlling
Controlling is determining whether goals are being met, and if not,
what can be done.
It involves ensuring that performance does not deviate from

standards.
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4. Controlling (3 Steps)
A. Establishing performance standards,
B. Comparing actual performance against standards, and
C. Taking corrective action when necessary.
A. Establishing performance standards
Monetary terms such as: Other terms such as:

> Revenue > Units produced
> Cost > Number of defective products
> Profit > Levels of quality
> Customer Service
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B. Comparing actual performance against
standards.
- Measurement of performance (this will depend on the
performance standards)
> Financial statements > Sales reports, production results
> Customer Satisfaction > Formal performance analysis
C. Taking corrective actions.
PERFORMANCE ACTUAL
STANDARDS ≠ PERFORMANCE
- Managers, taking corrective actions does not mean manipulating
the behavior or attitudes of their subordinates.
- Manager’s role is to ensure that the work-related activities of
subordinates are consistent with and is contributing toward the
accomplishment of organizational and departmental objectives
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Controlling (2 traditional controlling techniques)
1. Budget Audit – it provides information about where the

organization is with respect to what was planned or budgeted for.
2. Performance Audit – it involves determining whether the

figures reported are a reflection of actual performance.
Planning and Controlling

- Both of these two functions/processes require
decisions.
- Decision-making is selecting one alternative from a
set of choices.
- Decision-making will depend on the goal, expected
results from each alternative, and the information
available when decision is made.
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How does an accountant contributes to

the process? (PLOC)
It is because accountants develop and communicate much of the

economic information used by managers of businesses and other
economic organizations as external users.
Information provided to internal users is called management
accounting information and is done by the management accountant.
Management accounting information is an indispensable part of the
system that provides information to managers – the people whose
decisions and actions determine the success or failure of the
organization.
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What is Strategic Cost Management?
Strategic Cost Management

It is the application of cost management techniques that aims to
reduce costs while strengthening the strategic position of a
business.
It is an approach focusing on making a business more competitive
by reducing the cost of operations. (https://thebusinessprofessor.com)
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Strategic Cost Management

It is a vital part of the value chain as it covers various aspects like
production, design, sales, purchases, and services.
(https://harappa.education)
It integrates cost information into the decision-making structure as a

means of reinforcing the business strategy of the organization.
(https://thebusinessprofessor.com)
Give an instance(s) where strategic cost

management techniques may be applied
or integrated)
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Instances:
> In case of a company engaged in delivery services, cutting costs of
delivery by combining those to be delivered in the same place or
area.
> In case of a manufacturing company, employing a machine in the

manufacturing process will reduce the cost of salary while
maintaining same number or level of output.
Ways to institute cost

management techniques to
manage cost and augment profit.
1. Develop systems that would streamline the transactions between
corporate support departments and the operating units.
2. Establish transfer pricing system to coordinate the buyer-supplier

interactions between decentralized organizational operating units.
3. Utilize pseudo (artificial) profit centers to create profit

maximizing behavior in what were formally cost centers.
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What is management accounting?
Management Accounting
It is the process of identifying, measuring, accumulating, analyzing,
preparing, interpreting, and communicating information that helps
managers fulfill their organizational objectives.
It focuses on the information needs of an organization’s internal

managers that are related to planning, controlling, and decision-
making functions.
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It is the process of identifying, measuring, accumulating, analyzing,
preparing, interpreting, and communicating information that helps
managers fulfill their organizational objectives.
It focuses on the information needs of an organization’s internal

managers that are related to planning, controlling, and decision-
making functions.
It is not covered by Generally Accepted Accounting Principles
(GAAP).
What is the effect if Management Accounting is not
covered by GAAP?
- The effect is that there is no standards to be followed except that of
the management. Managers defines which data are relevant and
which date are not relevant.
Take note: Relevant data varies in every organization.
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What should the accountants

recognize in the Management
accounting process?
1. Determine what are the information needed by the management.
2. Know why these information are needed.
3. How these information be presented in the best feasible forms
that will enhance the understandability character of these reports to
the users, and
4. How the information be given to the user in the earliest time
possible to be more useful to decision-making.
Objectives of Management
Accounting
1. To provide managers with information for decision-making and
planning.
2. To assist managers in directing and controlling the operations.
3. To motivate managers toward achieving the organization’s goals.
4. To measure performance of managers and sub-units within the
organization.
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Management Accounting, Financial

Accounting, Cost Accounting
(Relationship as to provider of
information)
What are the uses of accounting information?
1. To provide information to external parties. (Stockholders,
creditors, regulatory bodies)
2. To estimate the cost of products produced or services rendered.
3. To provide information useful for making decisions and
controlling operations.

(Relationship as to the provider of
information)
Cost accounting is the field of accounting that creates an overlap
between financial accounting and management accounting.
It integrates with financial accounting by providing product costing
information for financial statements, and with management
accounting by providing some of the quantitative, cost-based
information managers need to perform their functions.
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(Relationship as to provider of
information)
These information is used by the
managers for purposes of
Financial managing the organization.
accounting Management Accounting
information - The process of identifying,
measuring, accumulating,
Management is the
analyzing, preparing, process of achieving
Cost accounting interpreting, and communicating organizational objectives.
information information to managers. 1. Planning
2. Organizing
3. Leading
4. Controlling
Differences between Management

Accounting, Financial Accounting,
and Cost Accounting efinancemanagement.com
Basis Financial Accounting Cost Accounting Management Accounting

Objects Records transactions & Ascertainment, To assist the management in
determine financial allocation, accumulation decision-making & policy
position & profit or loss and accounting for cost. formulation
As to nature of Reports focus on the Concerned with both Reports often focus on
reports and company in its entirety. present recorded subunits within the
procedures Concerned with (historical in nature) organization. Reports are
historical or transaction based on a combination of
data. historical data and estimates
and projections for a future
event. (futuristic in nature)
As to regulations to Required and must Certain principles No set principles are followed.
follow conform with GAAP followed for recording
costs.
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Differences between Management

Accounting, Financial Accounting,
and Cost Accounting efinancemanagement.com
Basis Financial Accounting Cost Accounting Management Accounting

Data used Qualitative aspects are Only the quantitative Uses both quantitative and
not recorded. aspect is recorded. qualitative concepts.
Users of information External users Internal users Internal users
Other distinguishing characteristics

of management accounting
Management accounting:
> Has no constraints, maybe other than costs, as to the benefits of
improved management decisions.
> Behavioral implications are evident, as it concerns how
measurements and reports will influence managers’ daily behavior.
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> Management accounting is called to be time-focus. The users of
management accounting report always compare the past and its
relationship to the future.
> Management accounting reports could vary in period coverage.

> Management accounting reports could be as detailed as they could
be. (Example: Sales could be presented by product line, by territory, by
department, or by agent)
> Management accounting covers so many fields of discipline.
(economics, decision sciences, behavioral sciences, or even political
science)
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Functions of Management
Accountants
Management accountants provides both quantitative and
qualitative information to assist managers in decision-making.
Qualitative information
Quantitative information
- Furnishes the fact that
- It allows managers to
help eliminate some of
know the number impact
the inherent
of every alternative
uncertainties related to
choice.
such alternative choice.
Accountants
> Planning – it is the process of translating the goals and
objectives of an organization and developing a strategy for
achieving those goals in a systematic manner.
> Managers depend heavily on management accountants
when planning is being prepared.
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Accountants
> Controlling – is the process of setting performance
standards, measuring performance periodically comparing actual
performance with standards, and taking corrective measures or
actions when operations do not conform.
> It is management accountants who provide reports to
managers.
Accountants
> Performance evaluation – is the process of determining the
degree of success in accomplishing the plan.
> Effectiveness – how well an organization’s goals and objectives are

achieved.
> Efficiency – is a measure of the degree to which tasks were performed
to produce the best yield at the lowest cost from the resources available.
(comparing outputs and inputs).
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Accountants
> Decision-making – is the process of choosing among the
possible solutions available to a given problem situation.
Most common officers involved

in the financial information
Chief Executive Officer (CEO)
Chief Financial Officer (CFO)
Treasurer/Comptroller/Controller/Chief Accountant
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Financial Management
Responsibilities
Primary task of financial manager
- to plan for the acquisition of funds so as to maximize the value of
the firm, that is, he or she makes decisions about alternative sources
and uses of funds.
Financial Management
Responsibilities
> Forecasting and planning
> Capital investment and financing decisions
> Controlling and coordinating
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Basic duties of Controller

1. Planning, controlling, designing, installing, and maintaining the
cost accounting system.
2. Predicting future costs.
3. Coordinating the development of the budget.
4. Accumulating and analyzing actual costs.
5. Preparing and analyzing the performance reports.
Basic duties of Controller

6. Preparing reports for external users.
7. Providing information for special decisions.
8. Consulting with management as to cost information.
9. Internal auditing.
10. Tax administration.
11. Protection of assets.
12. Economic appraisal.
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Basic Duties of Treasurer

1. Financial planning or fund management.
2. Obtaining funds to finance the acquisition of fixed assets.
3. Evaluating the position of fixed assets.
4. Short-term finance sourcing or managing working capital
needed.
5. Banking and custody.
6. Managing the pension fund
Basic Duties of Treasurer

7. Managing foreign exchange transactions.
8. Credits and collection.
9. Distribution of corporate earnings to owners.
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Major responsibilities financial

management (whether financial
managers, controllers, and treasurers)
1. Which investments should the firm should make;
2. how their projects should be financed;
3. how managers of the firm can most effectively protect and
manage its existing resources.
Future financial executives can perform their individual functions

effectively if they are equipped with a better understanding of
1. management accounting,
2. organization structure, and
3. professional ethics as well as
4. good management accounting system.

Strategic Cost Management Lecture-08.20.2022

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8/20/2022

What is this Controlling Organizing

Why are Planning and Controlling

Controlling is where the management assesses the information or

What are your ways or what

What are the things to consider in

1. Planning (Different types)

1. Planning (Different types)

1. Planning (Different types)

2. Organizing (Two types)

- The structure of the organization is the framework within which

ORGANIZATIONAL Graphic representation of

2. Organizing (Two types)

2. Organizing (Two types)

- Here, decisions must be made about the duties and responsibilities

2. Organizing (Two types)

It involves ensuring that performance does not deviate from

Monetary terms such as: Other terms such as:

Controlling (2 traditional controlling techniques)

1. Budget Audit – it provides information about where the

2. Performance Audit – it involves determining whether the

Planning and Controlling

How does an accountant contributes to

It is because accountants develop and communicate much of the

What is Strategic Cost Management?

Strategic Cost Management

Strategic Cost Management

It integrates cost information into the decision-making structure as a

Give an instance(s) where strategic cost

> In case of a manufacturing company, employing a machine in the

Ways to institute cost

2. Establish transfer pricing system to coordinate the buyer-supplier

3. Utilize pseudo (artificial) profit centers to create profit

What is management accounting?

It focuses on the information needs of an organization’s internal

It focuses on the information needs of an organization’s internal

What should the accountants

Management Accounting, Financial

Management Accounting, Financial

Management Accounting, Financial

Differences between Management

Basis Financial Accounting Cost Accounting Management Accounting

Differences between Management

Basis Financial Accounting Cost Accounting Management Accounting

Users of information External users Internal users Internal users

Other distinguishing characteristics

Other distinguishing characteristics

Other distinguishing characteristics

> Effectiveness – how well an organization’s goals and objectives are

Most common officers involved

Chief Financial Officer (CFO)

Basic duties of Controller

Basic duties of Controller

Basic Duties of Treasurer

Basic Duties of Treasurer

Major responsibilities financial

Future financial executives can perform their individual functions

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