ACCO-2011 3 Strategic-Cost-Management PDF

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY AND FINANCE DEPARTMENT OF ACCOUNTANCY COURSE TITLE COURSE CODE CREDIT UNITS COURSE PREREQUISITE COURSE DESCRIPTION

STRATEGIC COST MANAGEMENT ACCO 20113 3 UNITS ACCO 20073: Cost Accounting and Control This course is designed to acquaint students with the role of accounting in the management team by providing and assisting in the analysis, interpretation, and forecasting of business organizations. It covers the discussion of the foundation of management accounting; its expanding role, organizational structure, and professional ethics for management accountants; design of management accounting systems (e.g., responsibility accounting system), evaluating the impact of changes in business structure, functions and appropriateness of management accounting techniques and methods; basic interpretation and use of financial statements; performance measurement for planning and control such as marginal, absorption, and opportunity costing, cost behavior, cost volume profit analysis; quantitative techniques and methods for planning and control. This course also deals with the application and techniques focusing on segment reporting, profitability analysis and decentralization, information for decision making purposes (short term and long term) and nonfinancial indicators such as productivity per employee or per service unit; decision making affecting short run operations; pricing of goods and services and environmental cost accounting.

Institutional Learning Outcomes 1. Creative and Critical Thinking Graduates use their imaginative as well as a rational thinking ability to life situations in order push boundaries, realize possibilities, and deepen their interdisciplinary and general understanding of the world. 2. Effective Communication Graduates are proficient in the four macro skills in communication (reading, writing, listening, and speaking) and are able to use these skills in solving problems, making decisions, and articulating thoughts when engaging with people in various circumstances. 3. Strong Service Orientation Graduates exemplify the potentialities of an efficient, well-rounded and responsible professional deeply committed to service excellence. 4. Community Engagement Graduates take an active role in the promotion and fulfillment of various advocacies (educational, social and environmental) for the advancement of community welfare. 5. Adeptness in the Responsible Use of Technology Graduates demonstrate optimized use of digital learning abilities, including technical and numerical skills. 6. Passion to Lifelong Learning Graduates are enabled to perform and function in the society by taking responsibility in their quest to know more about the world through lifelong learning. 7. High Level of Leadership and Organizational Skills Graduates are developed to become the best professionals in their respective disciplines by manifesting the appropriate skills and leaderships qualities. 8. Sense of Personal and Professional Ethics Graduates show desirable attitudes and behavior either in their personal and professional circumstances.

Program Outcomes BSA and BSMA graduates must demonstrate the ability to review, interpret, evaluate financial data and systems in compliance with established policies, procedures, guidelines, agreements and/or legislation. They must be able to link data, knowledge and insight together with different sources and disciplines to make informed decisions. BSA and BSMA graduates should possess active listening skills and the ability to effectively communicate one’s point of view, both orally and in writing, at all organizational levels; be able to explain verbally and/or writing financial, statistical, administrative matters/policies/procedures/regulatory matters/audit results at a level appropriate to the audience and must be able to negotiate effectively. BSA and BSMA graduates should develop an ability to work in groups, possess skills to participate as member of a team or/and contribute to group effort; be able to teach others new skills; be able to work to the satisfaction of the clients; negotiate and work with diversity or work well with men and women from diverse backgrounds. BSA and BSMA graduates must work with the highest standards of professionalism, to attain higher level of performance and generally to meet the public interest, he must conform to the ethical standards of the profession that include: Integrity, objectivity and independence, professional competence and due care, confidentiality, professional behavior and moral values. BSA and BSMA graduates should possess general knowledge in gaining and understanding of the different cultures in the world and developing an international objective thus, he must possess competency in English language, adaptability to foreign business practices, level of trainability and good capabilities in dealing with foreign partners. BSA and BSMA graduates should not only be conversant with IT concepts for business systems but sound knowledge on internal control in computer-based systems, development standards and practices for business systems, management of the adoption, implementation and use of IT, evaluation of computer business systems, and managing the security information.

Course Outcomes

Upon completion of the course, the students will be able to: 1. Describe strategic cost management and its importance to business organization. 2. Understand financial statements and its components and derive insights from these for decision making 3. Apply and relate the skills and knowledge obtained in strategic cost management, accounting, and financial reporting to arrive at a holistic approach in solving problems. 4. Understand management accounting; its expanding role, organizational structure, and professional ethics for management accountants 5. Know the application and techniques focusing on segment reporting, profitability analysis and decentralization, information for decision making purposes (short term and long term) and nonfinancial indicators.

9. Sense of National and Global Responsiveness Graduates’ deep sense of national compliments the need to live in a global village where one’s culture and other people culture are respected.

BSA and BSMA graduates should possess broad base of knowledge concerning macroenvironmental, economic and industry issues, business process structures, functions and practices. It includes knowledge in areas such as economics, quantitative models and business statistics, organizational behavior, international business, ethics and corporate governance.

Course Plan Week 1

1

Topic Class Management Introduction to the course Discussion of the syllabus Classroom policies

Learning Outcomes The learner will: • Have an appreciation of the coverage of the course • Establish order in the class

Methodology • Lecture and discussion • Manage expectation by sharing insights of the instructor and the students

Resources Copy of the syllabus

Introduction to Strategic Cost Management and Management Accounting • Management and its objectives. • Strategic cost management • Management Accounting and its objectives • Comparison of Financial Accounting, Management Accounting and Cost Accounting. • Functions of a financial officer (controller) and a treasurer. • Management Information System • Qualities and essential components of an accounting system. • Setting up management accounting systems and design. • Set up Management Information and Control System.

After the session, the student is expected to: • Define management and the objectives of management. • Define strategic cost management • Define Management Accounting and identify the objectives of Management Accounting. • Know the relationship of Financial Accounting and Management Accounting. • Know the relationship of Management Accounting with Cost Accounting. • Understand the need for accounting information by the management. • Understand the changing role of traditional accountant to financial managers. • Understand the role of management accountant in controlling and evaluating performance and decision making. • Understand the organizational structure and the role of accounting in the organization. • Understand Financial Management Responsibilities. • Differentiate the functions of a financial officer (controller) and a treasurer. • Understand different management terms • Understand the need for an information system. • Know the definition, nature, and objectives of management accounting systems. • Know the qualities and essential components of an accounting system.

• Lecture • Case study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

Student handbook

Assessment • Summary of student reflection and expectation • Elect class officers, prepare seat plan.

• Recitation • Presentation • Quiz

• Procedures and steps in setting up management accounting systems and design. • Know the essential characteristics and qualities of good management information system. • Know the different sources of accounting information, and elements of good internal control. • Set up Management Information and Control System. 2

Cost Concepts, Classifications and Cost Behavior • Cost accounting and cost information • Classification of costs a. Manufacturing and nonmanufacturing costs b. Product and period costs c. Direct and indirect costs d. Controllable and noncontrollable cost • Cost Behavior a. Relevant range b. Fixed, variable, and mixed cost c. Separation of mixed costs using high-low, scatter diagram and least square methods. • Other relevant costs a. Differential cost b. Incremental cost c. Marginal cost d. Unit cost e. Opportunity cost

After the session, the learner must: • Define and identify the key cost concepts. • Identify how are costs be classified to its appropriate use and why are such classifications useful. • Distinguish between manufacturing and nonmanufacturing costs. • Distinguish between product costs and period costs. • Distinguish between direct and indirect costs. • Distinguish between controllable and noncontrollable costs. • Understand how cost behavior affects planning and controlling functions of management and distinguish the three major kinds of cost behavior – variable, fixed and mixed. • Define the relevant range and explain its significance in cost behavior analysis. • Formulate cost function and know its purpose. • Identify costs relevant to decision making.

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

3

Product Costing • Absorption costing • Variable costing • Throughput costing • Income Statement a. Contribution margin approach b. Absorption approach

After the session, the student is expected to: • Know what variable costing is as against absorption costing. • Understand the rationale of using variable costing internally for management planning and control. • Differentiate inventory valuation under variable (direct) costing as against absorption (full) costing. • Identify costs included in the product cost under variable costing.

• Lecture • Case Study •

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

• Recitation • Presentation Quiz

• Recitation • Quizzes or Long Exams

Reconciliation of net income under absorption, variable, and throughput costing

• Know how fixed overhead costs are deferred in inventory under absorption costing. • Know why fixed overhead costs are charged to period costs when incurred and not part of product costs. • Prepare an income statement under variable costing (Contribution Margin approach). • Prepare an income statement under absorption costing or full costing approach. • Learn how to reconcile the net income under variable costing and absorption costing methods. • Know the proper treatment of volume variance under absorption costing when sales and production in a period differs.

Cost Volume Profit (CVP) Analysis • Definition and key assumptions of CVP Analysis • CVP Diagram • CVP Terms a. Breakeven b. Contribution margin c. Contribution margin per unit d. Contribution margin ratio e. Margin of safety f. Margin of safety ratio g. Sales mix • Cost structure • Operating leverage factor and degree of operating leverage • Limitations of CVP Analysis

After the session, the learner is expected to: • Define what is cost volume profit analysis. • Explain how changes in volume or activity affect net income. • Understand cost-volume-profit (CVP) analysis and its uses (break-even point in volume and in revenues). • List and discuss the key assumptions of CVP analysis. • Compute a break-even point using the contributionmargin approach and the equation approach. • Prepare and diagram a Break -even point and Profit volume graphs and explain how it is used. • Apply CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume. • Compute margin of safety and understand its significance. • Compute the break-even point for a multiple product line and sales mix. • Understand the limitations of breakeven point. • Understand the effects of shifts in the sales mix on contribution margin and breakeven point. • Explain the role of cost structure and operating leverage (operating leverage factor and degree of operating leverage) in CVP relationships.

•

4

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

• Recitation • Quizzes or Long Exams

5–6

Activity Based Costing and Service Cost Allocation • Activity Based Costing (ABC) and Activity Based Management (ABM) • ABC versus traditional costing method • Service cost allocation a. Direct method b. Step or sequential method c. Algebraic or simultaneous or reciprocal method

After the session, the learner is expected to: • Define what is activity-based costing. • Understand its concept and purpose. • Describe the major components in activity-based costing and their interrelationships. • Identify the steps in the development of an activitybased costing system. • Understand the cost accumulation procedures of activity-based costing method. • Determine the costs to be charged to the product using ABC system. • Know the advantages of ABC method and its difference to traditional costing method. • Identify what is a service department cost. • Understand why it is necessary to allocate service department cost to operating departments. • Allocate service department costs, using the direct, step and algebraic methods.

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

• Recitation • Quizzes or Long Exams

7–8

Standard Costing for Cost Control • Definition and functions of standard costing system • Standard bases • Standard costs for a. Materials b. Labor c. Overhead • Variances and variance analysis a. Materials price and volume variances b. Labor rate and efficiency variances c. Overhead analysis • One-way • Two-way • Three-way • Four way d. Price, mix and yield variances

After the session, the learner is expected to: • Define standard costs. • Know the functions of standard costing system. • Explain how standard costing is used to help control costs, • Know different kinds of standard bases. • Explain several methods for determining the significance of cost variances. • Describe some behavioral effects of standard costing. • Explain how standard costs are used in product costing. • Compute and interpret the different variances for materials price and volume variances; labor rate and efficiency variances; factory overhead variances under the a. One way variance method b. Two variance method c. Three variance method d. Four variance method e. price, mix and yield variances for materials and labor costs

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

• Recitation • Quizzes or Long Exams

9

MIDTERM DEPARTMENTAL EXAMINATION

10-11

Business Planning and Short-Term Budgetary System • Budgeting System • Master Budget a. Operating Budget b. Financial Budget

After the sessions, the student is expected to: • List and explain purposes of budgeting systems. • Identify the components of a master budget. • Identify the components of an operating budget. • Define budgeting and describe the concept of budgetary systems. • Enumerate the major advantages of budgeting. • Know the behavioral implications of budgetary systems. • Know the role of the budget committee. • Learn the contents of the budget manual. • Know the basic factors to consider in preparing the budget. • Know the factors to consider in a sales forecast. • Understand the basic limitations of budgeting.

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

12-13

Differential Cost Analysis (Relevant Costing) • Relevant and irrelevant costs • Non-routine decisions c. Make or buy d. Accept or reject e. Shut down or continue operations f. Drop or retain g. Sell as is or process further h. Profit maximization i. Replace or retain • Quantitative and qualitative analyses in decision making

After the sessions, the student is expected to: • Describe the different steps in decision making process and the managerial accountant’s role in that process. • Understand the concept of incremental analysis (differential costing). • Understand the concept of relevance in differential costing analysis. • Identify relevant costs for specific (non-routine) decisions and their respective benefits, giving proper treatment to other type of costs such as irrelevant costs (sunk costs), opportunity costs and unit costs. • List and explain the different criteria that must be satisfied by relevant information in different decision-making areas. • Explain the relationship between quantitative and qualitative analyses in decision making.

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

14-15

Responsibility Accounting and Performance Measures • Definition and objectives of responsibility accounting • Goal congruence • Centralized and decentralized forms of organizations

After the sessions, the student is expected to: • Define responsibility accounting. • Understand its concepts and objectives. • Differentiate cost, profit, and investment centers. • Identify costs in relation to performance evaluation by a center and by a responsible officer. • Know the forms organization and management styles, (centralized and decentralized) and their differences.

• Lecture • Case Study

Strategic Cost Management by Payongayong, Roque and Oliveros, 2nd Ed.

• Recitation • Quizzes or Long Exams

• Recitation Quizzes or Long Exams

• Recitation • Quizzes or Long Exams

•

•

•

16

Advantages and disadvantages of decentralized forms of organization Responsibility centers a. Cost Center b. Revenue Center c. Profit Center d. Investment Center Performance evaluation a. Variance Analysis b. Return on Investment (ROI) c. Residual Income (RI) d. Economic Value Added (EVA)

Transfer Pricing • Definition and objectives of transfer pricing • Optimal transfer price • Market versus Cost versus negotiated based transfer pricing Pricing Decision • Factors affecting pricing decision • Cost-plus pricing formulas • Mark-up percentage on different kinds of cost

17

18

Balance Scorecards and Nonfinancial Measures in Performance Evaluation • Definition and objectives of b...