OVERVIEW OF STRATEGIC COST MANAGEMENT AND STRATEGY Flashcards
Why is strategy important in business?
-sets the tone and action plan
-provides direction and action plan
-identifies trend
-defines accountability
-improves communication
-proper allocation of resources
-framework for decision-making
-gives you a competitive edge/advantage
set of policies, procedures and approaches to business that produce long-term success
Strategy
involves the development of cost management information to facilitate the principle management function which is strategic management.
Strategic cost management
information that the manager needs to effectively manage the firm, profit-oriented as well as not-for-profit organization
Cost management information
includes both financial information about cost and revenues as well as relevant nonfinancial information about productivity, quality and other key success factors for the firm
Cost management information
practice of accounting in which the accountant develops and uses cost management information
Cost management
If a firm is to compete successfully, importance should be given to nonfinancial and long-term measure operating performance such as
-product and manufacturing advances
-product quality
-customer loyalty
a value-added concept
Cost management information
adds value by helping a firm be more competitive.
Cost management information
involves anticipating changes
Strategic thinking
designed to accommodate expected changes in customer demands
Products and production processes
is important
Flexibility
critical as a result of the demand of the new management concepts of e-commerce, speed to market, and flexible manufacturing.
ability to make fast changes
time from the introduction of a new product to its removal from the market
Product life cycle
expected to become shorter and shorter
Product life cycle
USERS OF COST MANAGEMENT INFORMATION
-business firms
-governmental units
-not-for-profit organizations
Cost management information is needed for each of the following management functions, namely:
- strategic management
2.planning and decision-making
3.management and operational control
4.reportorial and compliance to legal requirements
involves the development of a sustainable competitive position in which the firm’s competitive advantage spells continued success
Strategic management
set of goals and specific action plans that if achieved, provide the desired competitive advantage
strategy
involves identifying and implementing these goals and action plans.
Strategic management
management must make sound strategic decisions regarding the choice of products, manufacturing methods, marketing techniques and channels and other long-term issues
Strategic management
needed to support recurring decisions such as replacing and maintaining equipment, managing cash flows, budgeting raw materials purchases, scheduling production, pricing and managing distribution of products to customers, and so forth
Cost management information
involves budgeting and profit planning, cash flow management and other decision related to the firm’s operation such as deciding whether to lease or buy a facility, whether to replace or just repair as equipment, when to change a marketing plan or when to begin new product development
Planning and decision-making
Cost management information is needed to provide a fair and effective basis for identifying inefficient operations and to reward and motivate the most effective managers.
Management and Operational Control
needed to provide a fair and effective basis for identifying inefficient operations and to reward and motivate the most effective managers.
Cost management information
takes place when mid-level managers (e.g., product managers, regional managers) monitors the activities of operating-level managers and employees (e.g., production supervisions, department heads).
Operational Control
evaluation of mid-level manager by upper-level manager (e.g., Controller or the Chief Financial Officer (CFO))
Management control
mid-level managers
-production managers
-regional managers
operating-level managers and employees
-production supervisors
-department heads
upper-level manager
Controller or the Chief Financial Officer (CFO)
Reportorial and compliance responsibilities require management to comply with the financial reporting requirements to regulatory agencies such as the Securities and Exchange Commission (SEC) Bureau of Internal Revenue (BIR), and other relevant government authorities and agencies
Reportorial and Compliance to Legal Requirements
require management to comply with the financial reporting requirements to regulatory agencies such as the Securities and Exchange Commission (SEC) Bureau of Internal Revenue (BIR), and other relevant government authorities and agencies
Reportorial and compliance responsibilities
regulatory agencies
- securities and exchange commission (SEC)
-bureau of internal revenue (BIR)
-other relevant government authorities and agencies
are the accounting professionals who develop and analyze cost management information and other accounting information
Management accountants
involves the applicant of appropriate techniques and concepts to economic data so as to assist management in establishing plans for reasonable economic objectives and in the making of rational decisions with a view towards achieving these objectives
Management Accounting
process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information, which is used by management to plan, evaluate and control activities within an organization.
Management Accounting
comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities
Management Accounting
non-management groups
-shareholders
-creditors
-regulatory agencies
-tax authorities
concerned with providing information to managers, that is, people inside an organization who direct and control the operations.
Management Accountants (including cost accountants)
provide a variety of reports
Management Accountants
at appropriate levels are involved actively in the process of managing the entity
Management Accountants
participates, as part of management, in assuring that the organization operates as unified whole in its long-run intermediate and short-run best interests.
Management Accountants
process of managing the entity includes:
-making strategic, tactical, and operating decisions
-helping to coordinate the efforts of the entire organization
concerned primarily with providing information to internal managers who are charged with planning and controlling the operations of the firm and making a variety of management decisions
Management accounting
Generally, management accountants do the following tasks:
-scorekeeping or data accumulation
-interpreting and reporting of information
-problem-solving or quantification of relative merits of possible courses of action as well as recommendation as to the best procedure
enables both internal and external parties to evaluate organizational performance and position.
Scorekeeping or data accumulation
helps manager to focus on operating problems, opportunities as well as inefficiencies.
Interpreting and reporting of information
commonly associated with current planning and control and the analysis and investigations of recurring routine internal accounting reports to signal situations in which management action may be required.
Interpreting and reporting of information
commonly associated with non-recurring decisions
Problem-solving or quantification of relative merits of possible courses of action as well as recommendation as to the best procedure
Three important guidelines help management accountants provide the most value when scorekeeping, problem-solving and attention directing (interpreting and reporting)
- employ cost-benefit approach
-recognize behavioral as well as technical considerations
-use appropriate cost concepts for different purpose
should be spent if they are expected to better attain company goals in relation to the expected cost of those resources.
Resources
should be used in making these decisions
cost-benefit approach
useful for making resource -allocation decisions
cost-benefit approach
administrative functions
- planning
- controlling
- decision-making
involves setting of goals for the firm, evaluating the various ways to meet the goals and picking out what appears to be the best way to meet the goals
Planning
involves the evaluation of whether actual performance conforms with planned goals
Controlling
involves determination of predictive information (e.g., relevant costs) for making important business decisions
Decision making
key activity for all companies
Planning
involves identifying alternatives and selecting a course of action and specifying how the action will be implemented to further the organization’s objectives.
Planning
Control of organizations is achieved by evaluating the performance of managers and the operations for which they are responsible
Control
some of the accounting control reports used to inform manages when activities which are part of their responsibility are deviating from the plan
- cost variance analysis
- financial statements analysis
-gross profit variance analysis
reports used evaluate the performance of managers and the operations they control
performance reports
Planning and control process
-plan
-actions taken to implement plan
-results
-comparison of planned and actual results
-evaluation
-decisions to change operations or revise
-decisions to reward or punish managers
serves management at all stages of the management process, from the formulation of objectives and so on up to the feedback of performance information which in turn helps in the reformulation objectives.
accounting
helps in the reformulation objectives.
feedback of performance information
part of the planning and control process
decision making
made to reward or punish managers
decisions
made to change operations or revise plans.
decisions
develops cost management information for the Chief Financial Officer, other managers and employee teams to use to manage the firm and make the firm more competitive and successful
management accountant
needs the output of cost accounting.
Cost Management
purpose is to provide managers with information which aids decision
Cost Management
systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail
Cost Accounting
includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs
Cost Accounting
