Overview of Cost

Management and
Strategy
Chapter 1
 STRATEGY - is a set of policies, procedures
and approaches to business that produce
long-term success

 Strategic Management - involves the

development of the sustainable competitive
position

 Strategic Cost Management - involves the

development of cost management
information to facilitate the principal
management function which is strategic
management
 Cost Management Information

 is a critical factor in the effective

management of a firm or organization

 is the information that the manager

needs to effectively manage the firm,
profit- orientation as well as not-for-profit
organization.
  Cost Management

- is the practice of accounting in which the

accountant develops and uses cost
management information.
 USERS OF COST MANAGEMENT
INFORMATION
 Wholesalers- merchandisers that sell
other merchandise

 Retailers – those selling directly to

consumers
 PUBLIC GOODS

 resources that provided by governmental

units and or charities.

 EX. Clean Water and Police and Fire Protection are

Provided for all residents
USES OF COST MANAGEMENT
INFORMATION
1.Strategic Management - must make sound
strategic decisions regarding the choice of
products, manufacturing methods, marketing
techniques and channels and other long-term
issues.
2. Planning and Decision-making - involves
budgeting and profit planning, cash flow
management and other decision related to the
firm's operation
3. Management and Operational Control-
Operational Control – takes place when mid-
level manages monitors the activities of
operating-level managers and employers
Management Control – is the evaluation of
mid-level managers by upper-level managers
4. Reportorial and Compliance to Legal
Requirement – requires management to comply
with the financial reporting requirements to
regulatory agencies, and other relevant
government authorities and agencies
 MANAGEMENT ACCOUNTANT’S
ROLE IN STRATEGIC COST
MANAGEMENT
MANAGEMENT ACCOUNTANTS
– are the accounting professionals who develop
and analyze Cost Management information and
other accounting information
- (including cost accountants) are concerned in
providing information to managers, that is, people
inside an organization who direct and control the
operations.
MANAGEMENT ACCOUNTANTS DO
THE FOLLOWING TASKS:
 (a) Scorekeeping or data accumulation- which enables
both internal and external parties to evaluate
organizational performance and position
 (b)Interpreting and reporting of information- that helps
manager to focus on operating problems, opportunities as
well as inefficiencies
 (c) Problem- solving or quantification of the relative merits
of possible courses of action as well as recommendations
to the best procedure
IMPORTANT GUIDELINES
1. Employs a cost-benefit approach
2. Recognize behavioral as well as technical
consideration
3. Use appropriate cost concepts for
different purpose
NECESSARY INFORMATION
USED IN PERFORMING IS
ADMINISTRATIVE FUCTION
OF:
 PLANNING
◦ - a key factor for all companies
◦ - involves identifying alternatives and selecting
a course of action and specifying how the
action will be implemented to further the
organization’s objectives

Budgets- which accounting can make in

resource planning while break-even analysis,
projected income statements are examples of
useful tools in profit planning
 CONTROL
◦ -is achieved by evaluating the performance of
managers and the operations for which they
are responsible

Evaluating Managers – is to determine how their

performance should be rewarded or punished,
which in return motivates them to perform at
high level
Accounting control reports – used to inform
managers when activities are part of their
responsibility are deviating from the plan
Performance Reports – the reports use to evaluate
the performance of managers and the operations
they control

Management By exemption – managers investigate

departures from the plan that appear to be
exceptional; they do not investigate minor
departures from the plan
Figure 1-1: Planning and Control
Process
 DECISION MAKING
◦ Is an integral part of the planning and control
process- decision are made to reward or punish
managers and decisions are made to change
operations or revise plan
 RELATIOSHIP BETWEEN COST
ACCOUNTING AND COST
MANAGEMENT
Managers use cost accounting management
information's to choose strategy, to
communicate it to determine how best to
implement it. They use this information to
coordinate their decision about designing,
producing and marketing a product or
service
 STRATGIC DECISION AND THE
COST MANAGEMENT
ACCOUNTANTS
 A chosen strategy is only as good as how
effectively it is implemented. The
management accountants provide input
that aids in developing strategy, building
resources and capabilities and
implementing strategy. To understand the
management accountant’s role, we must
first understand the manager’s task in
more detail.