UNIVERSITY OF SANTO TOMAS

AMV College of Accountancy

CA51014 – STRATEGIC COST MANAGEMENT
Introduction to Strategic Cost Management and Management Accounting

Management Accounting For both historical and projected data

Walang
GAAP, Management Accounting refers to reports designed to meet the needs of internal users, particularly the managers.
kasi nga The American Association of Accountants (AAA) defined it as the application of appropriate techniques and concepts
internal in processing the historical and projected economic data of an entity to assist management in establishing a plan for
users reasonable economic objectives and in the making of rational decisions with a view towards achieving these
objectives. Financial Accounting - mostly historical data lang

Management Accounting vs. Financial Accounting

Managerial accounting is concerned with providing information to personnel within an organization so that
they can plan, make decisions, evaluate performance, and control operations. There are no rules and regulations
associated with this field since the information is intended solely for use within the firm.

Financial accounting, in contrast, focuses on financial statements and other financial reports. This area
deals with reporting to groups outside of an organization (e.g., stockholders, lenders, government agencies) so that
some assessment of profitability and overall financial health can be made. Given the large number of firms in our
economy and the varying level of user sophistication, the field is heavily regulated (by the Financial Accounting
Standards Board and, to a lesser degree, by the Securities and Exchange Commission).

Strategic Cost Management Management Accounting dati (this is under Managament Advisory Services)

Strategic cost management is the process of reducing total costs while improving the strategic position of a business.
This goal can be accomplished by having a thorough understanding of which costs support a company's strategic
position and which costs either weaken it or have no impact. Subsequent cost reduction initiatives should focus on
those costs in the second category. Conversely, it may be useful to increase costs that support the strategic position
of the business.

It is almost never worthwhile to cut costs in strategically important areas, since doing so reduces the customer
experience and therefore will eventually lead to a decline in sales. Consequently, management needs to be involved
in cost reduction activities, so that they can provide input regarding how certain costs must be incurred in order to
support the competitive position of the firm.
Pag total cost lang pinag-uusapan, cost accounting yun BUT the process of reducing cost
it's COST MANAGEMENT. the application of the COST MANAGEMENT to the improvement
of strategic position of a business, its strategic cost mamnagement
Summary of Differences:

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

1. Users of information Primarily for external users Exclusively for internal users
Should be in accordance with
2. Accounting principles Generally Accepted Accounting Management wants and needs
Principles
Mandatory, particularly by the
3. Optional/Mandatory Discretionary or optional
government
The end-product which is the Monetary and also non-monetary like
4. Type of information financial statements are primarily units produced, units sold, number of
monetary (financial) in nature labor hours, etc.
5. Emphasis on reports Reliability (precision of data) Relevance and timeliness of data.
To assist the management in decision-
6. Purpose/End result To produce financial statements
making
From company’s (internal) From internal and external users such
7. Source of data
information system as economics, etc.
 Reports are compressed and Reports are more extensive and
8. Amount of detail
simplified detailed
Focus on segments (e.g., products,
Financial statements focus mainly
9. Focus of information divisions, departments within the
on business as a whole
company) and business as a whole
As frequent as management need
10. Frequency of reports Periodic (annually, quarterly)
arises
Future-oriented using current and
11. Time orientation Mainly historical (past) data
past data
12. Unifying concept Assets = Liabilities + Equity No unifying concept or equation

The Controller: Chief Management Accountant

Controllership - is the practice of the established science of control, which is the process by which management
assures itself that the company’s resources are obtained and utilized according to plans that are in line with the
company’s set objectives. making sure that everything is okay in the organization

Controller – is an officer of an organization who has responsibility for the accounting aspect of management control.
He generally performs two basic roles:
1. Accumulation and reporting of accounting information to all levels of management and;
2. Directing management’s attention to problems and assisting them in solving such problems.

Controller vs. Treasurer

CONTROLLER TREASURER

1. Planning & control 5. Government reporting 1. Provision of capital 5. Credit & collections

2. Reporting &
6. Protection of assets 2. Investor relations 6. Investments
interpreting

3. Evaluating &
7. Economic appraisal 3. Short-term financing 7. Insurance
consulting
4. Tax administration 4. Banking & custody

Chief Financial Officer

A chief financial officer (CFO) is the senior executive responsible for managing the financial actions of a company.
The CFO's duties include tracking cash flow and financial planning as well as analyzing the company's financial
strengths and weaknesses and proposing corrective actions.

The role of a CFO is similar to a treasurer or controller because they are responsible for managing the finance and
accounting divisions and for ensuring that the company’s financial reports are accurate and completed in a timely
manner. Many have a CMA designation.

Internal Auditor

An internal auditor (IA) is a trained professional employed by companies to provide independent and objective
evaluations of financial and operational business activities, including corporate governance. They are tasked with
ensuring that companies comply with laws and regulations, follow proper procedures, and function as efficiently as
possible.
Line Function vs. Staff Function

Line Function is the authority to give command or orders to subordinates. It exercises direct downward
authority over line departments (e.g., VP for operations over operations manager). CEO lang yung 100% line function

Staff Function is the authority to advise but not to command others; the function of providing line and staff
managers with specialized service and technical advice for support. It is exercised laterally or upward.

 When it comes to the whole organization, a controller usually exercises staff functions since its primary
function is to give advice. But when it comes to its own department, a controller exercises line functions
among its own staff.

 A Treasurer usually exercises line functions within an organization.

Standards of Ethical Conduct for Management Accountants

Management accountants have responsibility for ethical behavior in four broad areas, Competence, Confidentiality,
Integrity and Objectivity.

1. Competence - In order to be competent, management accountants must:

• Maintain an appropriate level of professional competence.
• Follow applicable laws, regulations, and standards.
• Provide accurate, clear, concise, and timely decision support information.
• Recognize and communicate professional limitations that preclude responsible judgment.

2. Confidentiality - Management accountants must:

• Not disclose confidential information acquired in the course of their work unless legally obligated to do so.
• Ensure that his subordinates do not disclose confidential information.
• Not use confidential information for unethical or illegal advantage.

3. Integrity – Management accountants must:

• Mitigate conflicts of interest and advise others of potential conflicts.
• Refrain from conduct that would prejudice carrying out duties ethically.
• Abstain from activities that might discredit the profession.

4. Objectivity – Management accountants must:

• Communicate information fairly and objectively.
• Disclose all relevant information that could influence a user’s understanding of reports and
recommendations.
• Disclose delays or deficiencies in information timeliness, processing, or internal controls.

To sum up, Competence means having the capacity to function in a particular manner. Confidentiality
means having the ability to maintain or keep information undisclosed. Integrity is defined as adherence to a code of
moral values. Objectivity is defined as expressing or using facts without distortion by personal feelings or prejudices.

EXERCISES

TRUE OR FALSE

1. Managerial accountants more and more are considered "business partners".

2. Managerial accountants often are part of cross-functional teams.
3. An increasing number of organizations are segregating managerial accountants in separate managerial-
accounting departments.
4. The role of managerial accountants has changed considerably over the past decade.
5. Management accounting focuses on financial statements and other financial reports.
6. The primary objective of management accounting is to provide management with information useful for
planning and control of operations.
7. Both financial and management accounting rely on the same accounting information system.
8. Managerial accounting is concerned with external decision makers.
 9. Management accounting is synonymous to managerial accounting.
10. Management accounting has no externally imposed standards while financial accounting has to follow the
GAAP.
11. Financial accounting deals with information that is primarily reported to individuals outside the
organization.
12. Cost accounting refers to accounting for the annual costs of operating a business.
13. Financial accounting is a subset of cost accounting.
14. Management accounting is a subset of cost accounting.
15. Cost accounting is a subset of both management and financial accounting.
16. Management accounting is a subset of both cost and financial accounting.
17. The controller performs primarily a line function.
18. The treasurer performs primarily a line function.
19. The primary functions of a controller are basically the same as those of a treasurer.
20. The controller, as the title implies, exercises direct control over business operations.

MULTIPLE-CHOICE

1. The day-to-day work of management teams will typically comprise all of the following activities except:
a. decision making c. cost minimizing
b. planning d. directing operational activities

2. Which of the following functions is best described as choosing among available alternatives?
a. Decision making c. Directing operational activities
b. Planning d. Controlling

3. Which of the following managerial functions involves a detailed financial and operational description of
anticipated operations?
a. Decision making c. Directing operational activities
b. Planning d. Controlling

4. Which of the following involves the coordination of daily business functions within an organization?
a. Decision making c. Directing operational activities
b. Planning d. Controlling

5. Marco Company has set various goals, and management is now taking appropriate action to ensure that the
firm achieves these goals. One such action is to reduce outlays for overhead, which have exceeded
budgeted amounts. Which of the following functions best describes this process?
a. Decision making b. Planning c. Coordinating d. Controlling

6. Which of the following is not an objective of managerial accounting?

a. Providing information for decision making and planning.
b. Assisting in directing and controlling operations.
c. Maximizing profits and minimizing costs.
d. Measuring the performance of managers and subunits.

7. The role of managerial accounting information in assisting management is a(n):

a. financial-directing role c. planning and controlling role
b. attention-directing role d. organizational role

8. Managerial accounting:
a. focuses only on historical data.
b. is governed by GAAP.
c. focuses primarily on the needs of personnel within the organization.
d. provides information for parties external to the organization.

9. Managerial accounting:
a. is unregulated.
b. produces information that is useful only for manufacturing organizations.
c. is based exclusively on historical data.
d. is regulated by the Securities and Exchange Commission (SEC).
10. Which of the following would likely be considered an internal user of accounting information rather than an
external user?
a. Stockholders b. Consumer groups c. Lenders d. Middle-level managers

11. Financial accounting focuses primarily on reporting:

a. to parties outside of an organization c. to an organization's board of directors
b. to parties within an organization d. to financial institutions

12. Which of the following statements represents a similarity between financial and managerial accounting?
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both draw upon data from an organization's accounting system.
d. Both rely heavily on published financial statements.

13. Which of the following employees at Philippine Airlines would not be considered as holding a line position?
a. Pilot b. Chief financial officer (CFO) c. Flight attendant d. Ticket agent

14. Which of the following employees would be considered as holding a line position?
a. The controller of Exxon Corporation.
b. The vice-president for government relations of Microsoft.
c. The manager of food and beverage services at Disney's Magic Kingdom.
d. A secretary employed by Hewlett-Packard.

15. Which of the following employees at Starbucks would likely be considered as holding a staff position?
a. The company's chief operating officer (COO).
b. The company's lead, in-house attorney.
c. The company's chief financial officer (CFO).
d. Both the company's lead, in-house attorney and the chief financial officer.

16. A controller is normally involved with:

a. preparing financial statements c. raising capital
b. managing investments d. safeguarding assets

17. Which of the following is not a function of the treasurer?

a. Safeguarding assets c. Preparing financial statements
b. Managing investments d. Being responsible for an entity's credit policy

18. Managerial accountants:

a. often work on cross-functional teams.
b. are located throughout an organization.
c. are found throughout an organization and work on cross-functional teams.
d. are found primarily at lower levels of the organizational hierarchy.

19. Much of managerial accounting information is based on:

a. a cost-benefit theme c. cost minimization
b. profit maximization d. the generation of external information

20. Managerial accounting has changed in recent years because of:

a. the growth of e-business. c. the emergence of new industries.
b. increased global competition. d. all of the above factors.

21. Which of the following is not an ethical standard of managerial accounting?

a. Competence b. Confidentiality c. Efficiency d. Integrity

22. Which of the following is not an element of competency?

a. To develop appropriate knowledge about a particular subject.
b. To perform duties in accordance with relevant laws.
c. To perform duties in accordance with relevant technical standards.
d. To refrain from engaging in an activity that would discredit the accounting profession.
23. Assume that a managerial accountant regularly communicates with business associates to avoid conflicts of
interest and advises relevant parties of potential conflicts. In so doing, the accountant will have applied
the ethical standard of:
a. objectivity b. confidentiality c. integrity d. credibility

24. A practice in which a subordinate and a supervisor agree on goals and the methods of achieving them.
a. Management by objectives c. Management by exception
b. Management by subjective d. Management by example

25. Which of the following functions is most directly related to management by objective?
a. Reporting b. Decision making c. Control d. Planning

26. Which of the following is included in the day-to-day work of the management team?
a. decision making b. planning c. controlling d. all of the given choices

27. For internal uses, managers are more concerned with receiving information that is:
a. completely objective and verifiable. c. completely accurate and precise.
b. relevant, flexible, and immediately available. d. relevant, completely accurate, and precise.

28. How does managerial decision-making compare with external performance evaluation?

Managerial Decision-Making External Performance Evaluation

a. Detailed Detailed
b. Detailed More aggregated
c. More aggregated Detailed
d. More aggregated More aggregated

29. Internal reports must be communicated

a. daily b. monthly c. annually d. as needed

30. Under which ethical standard of conduct does the managerial accountant have the responsibility to refuse
any gift, favor, or hospitality that would influence or appear to influence his or her decision?
a. competence b. confidentiality c. integrity d. objectivity