SCM Chap 1-10 Reviewer - Strategic Cost Management Solman Chap 1 to 10 PDF

Preview

Summary

QUIZ 1 Throughput time - the time required to make a completed unit of product starting with raw materials. Also known as cycle time. Throughput – the key concept of TOC. Earn a desired profit - Target costing determines the desired cost for a product upon the basis of a given competitive price, suc...

Description

developing, manufacturing, selling, and

QUIZ 1 •

servicing a product is not true.

Throughput time - the time required to make a completed unit of product starting

•

short-term in nature - The key difference

with raw materials. Also known as cycle

between strategic goals and tactical goals

time.

is that tactical goals are speed - The Theory of Constraints focuses

•

Throughput – the key concept of TOC.

•

Earn a desired profit - Target costing

on improving cycle time, the rate at which

determines the desired cost for a product

raw materials are converted to finished

upon the basis of a given competitive price,

product. This strategic management

such that the product will.

technique is primarily concerned with the

Plan-Do-Check-Act cycle - This is a

critical success factor of

•

systematic, fact-based approach to

•

•

steps in the life cycle of a product

continuous improvement that resembles the scientific method. •

•

firm to become more competitive, like •

Process Reengineering - An approach to improvement that involves completely

workers to systematically identify and solve

redesigning business processes in order to

problems.

eliminate unnecessary steps, reduce

Benchmarking - This involves studying the

errors, and reduce costs. •

target costing - determines the desired

considered among the best in the world in

cost for a product based upon a given

performing a particular task.

competitive price

It does not focus on improving the entire

•

non-value-added activities - In Process

production process - A traditional quality

Reengineering, two objectives are to

control process in manufacturing consists of

simplify and to eliminate

mass inspection of goods only at the end of a production process. A major deficiency of the traditional control process is that. •

benchmarking - Target costing forces the

customers and using teams of front-line

business processes of companies that are

•

•

Total quality Management - An approach to continuous improvement that focuses on

purchasing and receiving - not one of the

A simple design causes higher upstream costs but reduces downstream costs statements regarding "Life-cycle" costs of

CHAPTER 1 •

Strategy – set of policies, procedures and

•

Interpreting and reporting of Information

•

Problem-solving

approaches to business that produce long-

•

term success.

Relationship between Cost Accounting and Cost

Strategic Management – development of a

Management

sustainable competitive position. •

Cost Accounting – systematic set of

Strategic cost management – development

procedures for recording and reporting

of cost management information to

measurements of the cost of manufacturing

facilitate the principal management

goods and performing services in the

function which is strategic management.

aggregate and in detail.

Uses of Cost Management Information 1. Strategic Management – development of a sustainable competitive position in which the firm’s competitive advantage spells continued success. 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, mid-level managers monitor the activities of operating-level managers and employees. Management control, evaluation of mid-level manager by upper-level manager. 4. Reportorial and Compliance to Legal Requirements – to comply with the financial reporting requirements to regulatory agencies.

Management accountants do the following tasks: •

•

Scorekeeping or data accumulation

•

Cost Management – needs the output of cost accounting.

o is the financial executive primarily responsible for management accounting and financial accounting o he or she exerts force or influence for better-informed decisions o an integral part of top management

CHAPTER 2 THE PROFESSIONAL ENVIRONMENT OF COST MANAGEMENT

Organization Structure a. Line Authority- to command action or give orders to subordinates b. Staff Authority- to advise but not command others c. Functional Authority- right to command action, laterally or downward with regard to a specific function or specialty

The Controller as the Top Management Accountant Controllership- the practice of the established science of control which assures the resources are procured and utilized according to plans Basic Functions of Controllership

THE CFO, THE CONTROLLER AND THE TREASURER •

The CFO o also called the finance director o is the executive responsible for overseeing the financial operations of an organization o 3rd highest position in a company o highest position in Financial Position o can become CEO, COO, or President o similar to controller and treasurer Responsibilities 1. Controllership- providing financial information to managers, shareholders 2. Treasury- banking and short and longterm financing 3. Risk Management- managing the financial risk 4. Taxation- income taxes, sales taxes and int’l tax planning 5. Internal Audit- reviewing and analyzing financial and other records

•

The Controller o also called the Chief Accounting Officer (CAO)

1. Planning 2. Control 3. Reporting 4. Accounting 5. Other Primary Responsibilities

•

Treasurership o Is concerned with the acquisition, financing and management of assets of a business concern to maximize the wealth of the firm o Treasurer- has custody of cash and funds invested. Generally responsible for maintaining relationships with investors, banks, and other creditors. o Both CONTROLLER and THE TREASURER report to the CFO Responsibilities 1. Funds Procurement- raising of funds 2. Banking and Custody of Funds- direct management of cash and cash equivalents and maintenance of good relations with banks and other non-bank institution 3. Investment of Funds- management of the company’s placements and

securities or purchase of debt or equity instruments 4. Operating Responsibilities related to -credit and collection -inventory management -corporate pension and retirement fund -investor relations -insurance -compliance with legal provisions

Ethical Standards for Management Accountants a. Competence- skills, duties, relevant and reliable reports b. Confidentiality- disclose confidential information c. Integrity- avoid conflicts, refrain prejudice, refuse gift in exchange of favors d. Objectivity- fairly and objectivity, disclose fully all relevant information

Code of International Level (IFAC issued the “Guidelines on Ethics for Professional Accountants”) International Certifications •

• •

Certificate of Management Accountant (CMA) granted by Institute of Accountants (IMA) USA Certificate of Public Accounting (CPA) granted by PRC in the Philippines Certificate of Internal Auditing (CIA) Granted by Institute of Internal Auditors (IAA) in UK

CHAPTER 3 Changes in Contemporary Business Environment 1. Increase in global competition 2. Advances in manufacturing technologies 3. Advances in information technologies, the internet, and e-commerce 4. Greater focus on the customer 5. New forms of management organization 6. Changes in social, political and cultural environment of business Phases of the development of cost management systems should consider the following: Stage 1: basic transaction reporting systems. Stage 2: external financial reporting Stage 3: track key operating data and develop more accurate and relevant cost information for decision making. Stage 4: cost management information is an integral part of the system.

CHAPTER 4 DEVELOPING A COMPETITIVE STRATEGY AND CONTEMPORARY COST MANAGEMENT TECHNIQUES

-

A formal effort to improve quality throughout an organization’s value chain.

•

Cost Leadership strategy – compete on the basis of providing a quality product or service at low prices.

•

Product Differentiation strategy – compete

-

2 major characteristics are focus on serving customers and systematic problem-solving.

Developing a Competitive Strategy

on their ability to offer unique products or services that are often priced higher than the products or services of competitors. Strategic measure of Success Financial performance – shows the impact of the firm’s policies and procedures in the firm’s current financial position. •

Growth in sales and earnings

•

Cash flow

•

Stock price

Non-financial – shows the firm’s current and potential competitive position. •

Market share

•

Product quality

•

Customer satisfaction

•

Growth opportunity

Contemporary Cost Management Techniques •

Total quality Management – ensures the products are the highest quality and that production processes are efficient. -

Develops policies and practices to ensure that the firm’s products and services exceed customer’s expectations.

-finding strategy begins with determining the purpose and long-range direction (mission of the company) -firm succeeds by implementing strategy -strategy specifies how an organization matches its own capabilities with the opportunities in the market place to accomplish its objectives -management accountants work closely with managers in formulating strategy Strategic Measures of Success -firm use cost management to support their strategic goals -includes both financial and non-financial information Strategic Financial and Non-Financial Measures of Success (CSFs) 1. Financial Measures of Success a. Sales b. Profitability c. Liquidity d. Market Value 2. Non-Financial Measures of Success Customer Factors a. Customer Satisfaction b. Dealer and Distributor c. Market and Selling d. Timeliness of Delivery 3. Internal Business Process a. Quality b. Productivity c. Flexibility d. Equipment Readiness e. Safety

4. Learning and Innovation a. Product Innovation b. Timeliness of new product c. Skills development d. Employee morale e. Competence

COMPETITIVE STRATEGIES 1. Cost Leadership -producing products or services at lower cost in the industry -cost leader: makes sustainable profit at lower prices (price wars) 2. Product Differentiation -creating a perception among consumers that product or service is unique in some important way -charge higher prices and outperform the competition in profits without reducing cost significantly CONTEMPORARY COST MANAGEMENT TECHNIQUES a. Total Quality Management -to ensure that their products are of the highest quality and that production processes are efficient -develops policies and practices to exceed customer satisfaction -affects product costing by reducing the need to track the cost of scrap and rework related to each job

b. Just-in-time (JIT) -the philosophy that activities are undertaken only as needed or demanded -aka pull it through approach: materials are purchased and units are produced only as needed to meet actual customer demand -focused broadly on manufacturing costs c. Process Reengineering • Reengineering- firm recognizes its operating and management functions • Process Reengineering- a more radical approach to improvement than TQM, is an approach

•

where business process is diagrammed in detail, questioned and completely design Business Process- any series of steps that are followed in order to carry out some task in a business

d. Benchmarking - determines CSF -studies the best practices of other firms -then implements improvements in the firm processes to match competitors e. Mass Customization -management technique in which marketing and production processes are designed to handle the increased variety that results from delivering customized products and services f. Balanced Scorecard -an accounting report that includes the firm’s CSFs g. Activity-Based Costing and Management -used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers • Activity-Based Management- uses activity analysis to improve operational control and management control h. Theory of Constraints -is a sequential process of identifying and removing constraints in a system constraints-barriers that hinder or impede progress toward an objective i. Life Cycle Costing -is a management technique to identify and monitor the costs of a product throughout its life cycle j. Target Costing -the determination of the desired cost of a product -Market Price minus Desired Profit k. Computer-Aided Design and Manufacturing -to respond to changing consumer tastes more quickly -allows companies to significantly reduce the time to bring products from the design to distribution • Computer Aided Design (CAD)- the use of computers in product development, improvement of product • Computer Aided Manufacturing (CAM)- the use of computers to plan, implement, control production

l. Automation -large investment in computers, computer programming, machines and equipment • Flexible Manufacturing Systems (FMs)computerized network of automated equipment that procures one or more groups of parts or variation of product • Computer Integrated Manufacturing (CIM)totally integrates all office and factory functions m. E-commerce -Amazon.com and Ebay n. The Value Chain -sequence of business functions in which usefulness is added to the products or services of company -an analysis tool that firms use to identify the specific steps required to provide product or service to customer

CHAPTER 5

•

Top Management Involvement – good

•

Budget – financial plan of the resources

balance of top management involvement

•

Budgeting – act of preparing a budget

with lower-level managers. They ensure the

•

Budgetary control – use of budgets to

budget guidelines are being followed

control a firm’s activities.

through the budget review and approval process.

Formulation of Strategy

•

External factors – can identify opportunities,

Organization for Budget Preparation o Budget committee – with representation from the different

limitations and threats. •

Competition

functional areas is generally

•

Technical, economic political,

considered an effective body to

regulatory, social and environmental

oversee preparation and

factors.

administration of the budget. ▪

Internal factors – can identify opportunities,

Decides how budgets shall be prepared, passes on the final

resources and threats •

Financial strength

budget, and settles disputes

•

Managerial talent and expertise

in one segment of the

•

Functional structure

business and another when

•

Organizational culture

differences of opinion arise. o Controller – may be selected to

•

•

•

Long range planning – a process of

serve as head of the committee for

evaluating proposed major projects.

two major reasons: (1) independent

Capital budget – prepared to bring an

from the operating parts of the

organization’s capabilities into line with the

organization (2) has the skills and

needs of its long-range plan and forecast.

experiences in coping with the intricacies of setting up a budget.

Short-term objectives – goals for the

▪

coming period, which can be month, a

budgeting operation.

quarter, a year or any length of time desired by the organization for planning purposes. The Management Process of Preparing the Master Budget

Act as a coordinator in the

•

Budget Guidelines – done by budget committee that provides initial budget guidelines that set the tone for the budget and govern budget preparation.

•

The Budget Period – period cover by a

quantities at what prices, is the

budget should be long enough to show the

foundation on which all other short-

effect of managerial policies but short

term budgets are built. o Production budget – key factor in

enough so that estimates can be made with

the determination of other budgets,

reasonable accuracy.

including the direct materials

o Master budget – overall financial and operating plan for a coming

budget, the direct labor budget and

fiscal period and coordinated

the manufacturing overhead budget. o Raw materials budget

program for achieving the plan.

o Direct labor budget

o Capital budget – incorporate plans for major expenditures for plant

o Overhead cost budget

and equipment or the addition of

o Budgeted costs of sales

product lines.

o Marketing and administrative expense budget

o Responsibility budget – segments

o Cash budget

of the master budget relating to

o Cash receipts – comes from

the aspect of the business that is the responsibility of a particular

customers o Cash disbursement –

manager are often prepared

o Budgeted income statement – net

monthly.

income that is to be expected during

o Cash budgets – prepared on day-

the budget period.

to-day or monthly basis.

o Budgeted statement of financial

o Continuous budgeting plan – budgets are constantly reviewed

position - developed by beginning

and updated.

with the current statement of financial position and adjusting it for

•

The initial budget proposal

the data contained in the other

•

Budget, negotiation, review and approval,

budgets.

revision •

The master budget – a comprehensive budget for a specific period. o Sales budget – showing what products will be sold in what

Alternative Approaches in Budgeting •

Zero-based budgeting – budgeting process that requires managers to prepare budgets from a zero base. It allows no activities or functions to be included in the budget unless managers can justify their needs.

•

Activity-based budgeting (ABC) – budgeting

Provides better-decision making

process ...