SCM (Module)
SCM (Module)
Definitions
Strategy
- set of policies, procedures and approaches to business that produce a long-term success.
Strategic Management
- is the ongoing planning, monitoring, analysis and assessment of all necessities an organization
needs to meet its goals and objectives.
- includes financial and non-financial information about of the organization that managers
needed to effectively manage the firm.
Cost Management
- practice of accounting in which accountant develops and uses cost management information.
1) Strategic Management
– for recurring decisions (ex, repair or replace). This involves budgeting and profit
planning.
– by providing a fair and effective basis for identifying inefficient operations and to
2) Management Accountants
Management Accountants
- Management accountants have titles as controller, treasure, budget analyst, cost analyst, and
accountant, among others. Their function in the organization is usually “staff”, with
responsibility for providing line managers and also other staff managers, with specialized
services.
• Tailors the application of the process to the organization to achieve the organization’s objectives
effectively
• Provides variety of reports to managers who direct and control the operations.
- Concerns have been raised regarding ethical behavior in business and public life. Allegations and
scandals of unethical conduct have been directed towards managers in virtually segment of
society, including government, business, charitable organizations, and even religion.
- Specific guidance concerning what should be done if an individual finds evidence of ethical
misconduct within an organization.
- “Employees like to work for a company that they can trust. Customers like to deal with an
ethically reliable business. Suppliers like to sell to firms which they can have a real partnership.
Communities are more likely to cooperate with organizations that deal honestly and fairly with
them. If the business community is to function effectively, all of the players need to act
ethically.”
Scenario 1
Scenario 2
Scenario 3
- The Company President routinely lied their annual reports to shareholders and grossly distorted
financial statements
Business environment in recent years has been characterized by increasing competition and relentless
drive for improvement.
2. Advances in Manufacturing Technologies – deliver the product faster than competition (speed-
to-market)
3. Advances in Information Technologies, The Internet and E-Commerce – the most fundamental
of all business changes in the recent years
5. Changes in Social, Political and Cultural Environment of Business – more ethically, racially
diverse workforce.
MODULE 2
STRATEGIC COST MANAGEMENT CONCEPTS AND TECHNIQUES
- Planning sets the goals for the organization and controlling ensures their accomplishment.
- In planning the objectives or targets are set in order to achieve these targets control
- Controlling directs the course of planning. Controlling spots the areas where planning is
required.
- In controlling the actual performance is compared to the standards set and records the
deviations, if any. The information collected for exercising control is used for planning
also.
- Planning is the first function of management. The other functions like organizing, staffing,
- Control records the actual performance and compares it with standards set. In case the
performance is less than that of standards set then deviations are ascertained. Proper
- Planning is the first function and control is the last one. Both are dependent upon each
other.
- Planning is always for future and control is also forward looking. No one can control the
- Planning and controlling are concerned with the achievement of business goals. Their
combined efforts are to reach maximum output with minimum of cost. Both systematic
planning and organized controls are essential to achieve the organizational goals
Financial planning and analysis (FP&A) is a decision-making platform that includes reporting and
analysis, planning and budgeting, forecasting, and financial modeling.
- is used to determine how changes in costs and volume affect a company's operating
services.
- is mostly used in the manufacturing industry since it enhances the reliability of cost data,
hence producing nearly true costs and better classifying the costs incurred by the
- the success of the JIT production process relies on steady production, high-quality
- is the process that a business uses to determine which proposed fixed asset purchases it
- this process is used to create a quantitative view of each proposed fixed asset investment,
1)Payback Period;
4) Profitability Index.
- involves analyzing the different costs and benefits that would arise from alternative
- Managers often use differential analysis to determine whether to keep or drop a product
line, make or buy a component of the product, accepting special orders among others.
7) Pricing – Module 7
- is the process whereby a business sets the price at which it will sell its products and
3) Cost plus pricing - Price based on cost of goods or services plus a markup
- financial plan of the resources needed to carry out tasks and meet financial goals. It is a
quantitative expression of the goals the organization wishes to achieve and the cost if
- It makes decision process more effective by helping managers meet uncertainties and it
should not be an expression of wishful thinking but rather descriptions of attainable goals.
- Standard costing allows comparison between actual costs incurred and budgeted costs
based on standards.
expected cost, a budgeted unit cost, a forecast cost, or as the "should be" cost.
- Before looking at absorption versus variable costing, it will be important to understand the
- Direct costs are usually associated with COGS, which affects a company’s gross profit and
- Indirect costs are associated with the operating expenses of a company and will heavily
PRODUCT COSTING
(Absorption & Variable)
Absorption Costing
- is a costing method that includes all manufacturing costs in the cost a unit of product.
Variable Costing
- is a costing method that includes only variable manufacturing costs in the cost a unit of a
product.
Product Cost
- a product cost is an inventoriable cost that is subject to allocation between sold and unsold
units.
- current income is reduced only by the amount allocated to the sold units.
UNSOLD UNITS
Assets as Inventory
PRODUCT COST
SOLD UNITS
Period Cost
Expense as COGS
- is a cost that is charged as expense against income, regardless of the sales performance.
- no allocation is necessary.
ABSORPTION VARIABLE
1) Product Costs DM DM
Manufacturing Costs DL DL
VFOH VFOH
FFOH
Pattern 1:
Pattern 2:
Pattern 3:
Reconciliation of Income
Summary:
P=S A=V
P>S A>V
Reconciliation of Income
Where:
Alternative Formula:
Total xx
Merit:
* This method highlights the relationship between sales and variable production costs.
* May be easier for members of management who are not formally trained in accounting.
Limitations:
* Variable costing is not a generally accepted method of inventory costing for external purposes because
total costs are not matched with sales revenue and does not include fixed factory overhead in the work
in process and finished goods inventories.