REVIEWER NI INJEL ^^  Strategic thinking involves anticipating changes.

CHAPTER 1: OVERVIEW OF  Ability to make fast changes is critical as a result of

COST MANAGEMENT ANG STRATEGY the demand of the new management concepts pf e-
commerce, speed to market, and flexible
Strategy manufacturing.
 is a set of policies, procedures, and approaches to
business that produce long-term success. Product life cycle – the time from introduction of a new
 Is a set of goals and specific action plans that if product to its removal from the market – is expected to
achieved, provide the desired competitive become shorter and shorter.
advantage.
“ The manager must be driving the firm by using the
Strategic Management – this involves the development windshield not the rear-view mirror. “
of sustainable competitive competition. meaning while learning from the past is valuable, a
proactive and visionary approach is essential to adapt to
Strategic Cost Management – this involves the changes and maintain a competitive edge. Just as a
development of cost management information to driver uses the windshield to see where they're going,
facilitate the principal management function which is managers should prioritize future goals and market
strategic management. dynamics to guide the firm's direction.

Cost Management Information - Integrative thinking - is the ability to identify and solve
 is the information that the manager needs to problems from a cross-functional view
effectively manage the firm, profit oriented, as well
as not-for-profit organization. Cross-functional view – refers to an approach where
multiple departments or functions within an
 Is a critical factor in the effective management of a organization work together collaboratively to achieve
firm or organization. common goals.

 This includes both financial info (cost and revenue) USERS OF COST MANAGEMENT INFORMATION
as well as non-financial info (productivity, quality,
and other key success factors for the firm) Merchandising firms - purchase goods for resale.
Wholesalers - Merchandisers that sell to other
 A value-added concept. It adds value by helping firm merchandisers.
to be more competitive. Retailers – merchandisers that sell directly to
customers.
Cost Management – is the practice of accounting in Public goods – services provided by governmental and
which the accountant develops and uses cost non profit/philanthropic organizations.
management information.
USES OF COST MANAGEMENT INFORMATION
For competitive success, it is not enough to emphasize Strategic Management involves the development of a
only on financial information. sustainable competitive position in which the firms
This could lead to: competitive advantage spells continued success.
 Stress cost reduction (financial measure) while
ignoring or even lowering quality standards (a non- Due to increasing strategic issues, cost management has
financial measure). moved from traditional role of product costing and
 Could be a critical mistake that could lead to loss of operational control to a broader strategic focus:
customers and market share. Strategic Cost Management

Importance should be given to nonfinancial and long- Strategic Cost Management – is the development of
term measures such as: cost management information to facilitate the principal
 Product and manufacturing advances management function, strategic management.
 Product quality and customer loyalty
Cost Management – is the practice of accounting in Cost-benefit approach – resources should be spent if
which the accountant develops and uses cost they are expected to better attain company goals in
management information. relation to the expected costs of these resources.

Management Accountants – are the accounting The expected benefits from spending should exceed
professionals who develop and analyze cost expected cost.
management information and other accounting
Administrative functions:
information.
 Planning – setting of goals for the firm
Management Accounting  Controlling – evaluation of whether actual
 Involves the application of appropriate techniques performance conforms with planned goals.
and concepts to economic data so as to assist  Decision Making – determination of predictive
management in establishing plans for reasonable information (e.g. relevant costs)
economic objectives and in making of rational
decisions. PLANNING
 A key activity for all companies.
 Process of identification, measurement,  Involves identifying alternatives and selecting a
accumulation, analysis, preparation, interpretation course of action and specifying how the action will
and communication of financial information which is be implemented to further the organizations
used by management to plan, evaluate, and control objectives.
activities of an org.  The plans of management are often expressed
formally in BUDGETS
Management Accountants are involved actively in the  RESOURCE PLANNING includes: cash budget, capital
process of managing the entity. The process includes: budget, and projected statements of financial
 making strategic, tactical and operating decisions, position.
and helping to coordinate the efforts of entire  PROFIT PLANNING includes: break-even analysis,
organizations. projected income statements

MANAGEMENT ACCOUNTANTS DO THE FOLLOWING CONTROL

TASKS:  Evaluating the performance of managers and the
operations for which they are responsible.
a.) Scorekeeping or data accumulation which enables  Managers and operations evaluation is different.
both internal and external parties to evaluate  Managers are evaluated to determine how their
organizational performance and position. performance should be rewarded or punished which
b.) Interpreting and reporting of information that motivates them to perform at high level.
helps manager to focus on operating problems,  ACCOUNTING CONTROL REPORTS are cost variance
opportunities, as well as inefficiencies. analysis, financial statements analysis, gross profit
c.) Problem solving or quantification of the relative variance analysis.
merits of possible courses of action or
recommendation of best procedure. PERFORMANCE REPORTS
 the report used to evaluate the
The three important guidelines that help management performance of managers and the
accountants provided the most value when operations.
scorekeeping, problem solving and attention directing.  Managers use them to ‘flag’ areas that
need closer attention and to avoid areas
1. Employ a cost-benefit approach that are under control.
2. Recognize behavioral as well as tech considerations
3. Use appropriate cost concepts for different Principle of ‘management by exception’
purpose – investigate from the plan that appear
exceptional (necessary) instead from minor
parts of the plan.
Decision making is an integral part of the
planning and control process.
Decisions are made to reward or punish
managers, to change operations or revise
plans. Add or drop product, manufacturing,
pricing, etc.
RELATIONSHIP BETWEEN COST
ACCOUNTING AND COST MANAGEMENT