Strategy

●​ set of policies, procedures and approaches to business that produce long-term

success while strategic management involves the development of a sustainable
competitive position. Strategic cost management involves the development of
cost management information to facilitate the principal management function
which is strategic management.

Cost Management Information

●​ information that the manager need to . effectively manage the firm, profit-oriented
as well as not-for-profit organization. This 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

●​ practice of accounting in which the accountant develops and uses cost

management information. For competitive success, it is not enough to emphasize
only on financial information. This could lead managers to stress cost reduction
(a financial measure) while ignoring or even lowering quality standards (a
nonfinancial measure). This decision could be a critical mistake which could lead
to the loss of customers and market share in the long run. If a firm is to compete
successfully, importance should be given to nonfinancial and long-term measures
of operating performance such as product and manufacturing advances, product
quality and customer loyalty. Cost management information is thus a
value-added concept. It adds value by helping a firm be more competitive.

Uses of Cost Management Information

1.​ Strategic Management
○​ Strategic management focuses on creating a long-term competitive
advantage for a company through well-planned goals and actions. It
involves making key decisions on products, production methods,
marketing, and overall business strategy. A successful strategy integrates
all business functions, including marketing, production, finance, and
accounting, to adapt to a competitive environment.
○​ As strategic challenges grow, cost management has evolved beyond just
tracking expenses and controlling operations. Strategic cost
management uses cost information to support strategic decision-making,
helping businesses improve efficiency and gain a competitive edge.
2.​ Planning & Decision Making
 ○​ Management information is essential for making recurring decisions, such
as replacing or maintaining equipment, managing cash flow, budgeting
raw material purchases, scheduling production, pricing, and distribution.
Effective planning and decision-making involve budgeting, profit planning,
and cash flow management. Businesses must also decide on key
operational issues, such as leasing vs. buying facilities, repairing vs.
replacing equipment, adjusting marketing strategies, or starting new
product development.
3.​ Management & Operational Control
○​ Cost management information helps identify inefficiencies and motivates
effective managers.
○​ Operational control
i.​ occurs when mid-level managers (e.g., product or regional
managers) oversee operating-level managers and employees.
○​ Management control
i.​ involves upper-level managers (e.g., CFO or Controller) evaluating
mid-level managers to ensure overall efficiency and performance.
4.​ Reportorial and Compliance to Legal Requirements
○​ Management must comply with financial reporting requirements set by
regulatory agencies like the SEC and BIR. Accurate financial statements
are crucial, especially after accounting scandals, as they ensure
transparency for investors. Financial statement information also supports
key management functions, including planning, decision-making, control,
and strategic management.

Manager Accountants’ Role on Strategic Cost Management

●​ Cost Management
○​ an accounting practice where management accountants develop and use
cost-related information to assist in decision-making. Management
accountants analyze financial data to help businesses plan, evaluate,
and control operations.
●​ Management Accounting
○​ applies techniques to economic data for setting objectives and making
informed decisions. It involves identifying, measuring, analyzing, and
interpreting financial information for internal management. Additionally, it
includes preparing financial reports for external stakeholders like
shareholders, creditors, and regulatory agencies.
●​ Management accountants
○​ provide critical information to internal managers to help direct and control
operations. Their reports assess performance, analyze business
 opportunities, and investigate problems. They actively participate in
strategic, tactical, and operational decision-making, ensuring the
organization functions efficiently and aligns with its short-term and
long-term goals.
●​ Functions of Management Accounting
○​ Management accounting focuses on providing internal managers with
information for planning, controlling operations, and decision-making. It
involves:
i.​ Scorekeeping – Collecting and reporting data to evaluate
performance, identify inefficiencies, and assist in planning and
control.
ii.​ Problem-Solving – Analyzing different courses of action and
recommending the best approach for decision-making.
iii.​ Attention Directing – Highlighting key issues and opportunities
that require management action.
○​ To maximize value, management accountants follow three key guidelines:
i.​ Cost-Benefit Approach – Ensuring benefits outweigh costs.
ii.​ Considering Behavioral & Technical Factors – Balancing data
analysis with human decision-making.
iii.​ Using Appropriate Cost Concepts – Applying different cost
methods for various business needs.
●​ Resource Allocation & Role of Management Accountants
○​ Management accountants help make resource-allocation decisions, such
as purchasing software or hiring employees, using a cost-benefit
approach—spending resources only when expected benefits outweigh
costs. Though benefits and costs may be difficult to quantify, this approach
aids decision-making.
○​ They also provide systems that support management in three key
administrative functions:
i.​ Planning – Setting goals, evaluating options, and selecting the
best strategy.
ii.​ Controlling – Monitoring actual performance against planned
goals.
iii.​ Decision-Making – Using relevant cost data to guide important
business decisions.
●​ Planning, Control, and Decision-Making in Management
○​ Planning
●​ Planning involves identifying alternatives, selecting the best
course of action, and determining how to implement it to
achieve company objectives. It communicates goals to
 employees and ensures proper resource allocation.
Management uses various tools for planning, such as:
a.​ Cash budgets – Managing cash flow.
b.​ Capital budgets – Planning long-term investments.
c.​ Break-even analysis & projected income
statements – Aiding profit planning.
ii.​ Control
●​ Control ensures business activities align with the plan by
evaluating managers and operations. Managers are
assessed based on their performance, influencing
compensation and promotion. Operations are reviewed to
determine if adjustments are needed.
iii.​ Control Tools & Reports:
●​ Cost variance analysis – Identifies cost deviations.
●​ Financial statement analysis – Evaluates financial
performance.
●​ Performance reports – Compare actual results with
planned targets.
iv.​ Managers use management by exception, focusing on significant
deviations while ignoring minor ones. If actual results differ from
expectations, management may need to revise plans, improve
operations, or take corrective action, such as expanding,
contracting, or modifying business processes.
○​ Decision-Making
i.​ Decision-making is a crucial part of planning and control. Managers
must make key decisions such as:
●​ Adding or discontinuing a product.
●​ Manufacturing or outsourcing a component.
●​ Setting product prices.

Organization Structure and Managerial Accountant

●​ Role of Management Accounting and Authority in Organizations

○​ Management accounting involves various interrelated activities that must
be coordinated to help achieve an organization's short-term and long-term
objectives. Management accountants play key roles in controllership,
treasury, financial analysis, planning, budgeting, cost accounting,
internal audit, and general accounting. Their job titles may include
controller, treasurer, budget analyst, cost analyst, and accountant.
 ○​ The accounting function is typically a staff function, providing
specialized services such as budgeting, controlling, and pricing to support
line managers, who are directly responsible for business operations.
●​ Types of Authority in Organizations:
1.​ Line Authority – The power to give orders and make decisions, usually
held by sales and production managers.
2.​ Staff Authority – The ability to provide advice and support without direct
command, often found in personnel, purchasing, engineering, and
accounting.
3.​ Functional Authority – A special type of authority where an expert (e.g.,
the Controller) has the right to direct line managers on specific functions,
such as implementing accounting procedures.

difference between CFO and Controller

●​ The Chief Financial Officer (CFO) (also known as Finance Director)

○​ oversees an organization's financial operations. Their key responsibilities
include:
○​ Controllership – Providing financial reports for managers and
shareholders and managing the accounting system.
○​ Treasury – Handling banking, financing, investments, and cash
management.
○​ Risk Management – Managing financial risks related to interest rates,
exchange rates, and derivatives.
○​ Taxation – Overseeing income taxes, sales taxes, and tax planning.
○​ Internal Audit – Ensuring financial integrity and compliance with policies.
○​ In some companies, the CFO also manages information systems, while
in others, a separate Chief Information Officer (CIO) holds this
responsibility.
●​ The Controller,
○​ reporting to the CFO, plays a crucial role in financial management,
particularly in cost accounting. They help estimate costs for
decision-making and inventory valuation.
●​ The Controller’s Authority:
○​ Staff Authority – Provides advice and services to other departments.
○​ Line Authority – Directly manages the accounting department.
○​ Functional Control – Influences management decisions by reporting and
interpreting financial data.

Functions of Controllership
 ●​ The Controller plays a crucial role in financial planning, control, and reporting
within an organization. Their primary responsibilities include:
1.​ Planning – Developing and maintaining an operational plan aligned with
company goals, ensuring effective communication and necessary
revisions.
2.​ Control – Setting performance standards, monitoring actual results, and
guiding management to ensure alignment with goals.
3.​ Reporting – Preparing, analyzing, and interpreting financial results for
decision-making, as well as filing external reports for regulatory
compliance.
4.​ Accounting – Designing and maintaining general and cost accounting
systems at all company levels, ensuring proper financial records and
internal controls.
5.​ Other Responsibilities – Managing taxes, liaising with auditors,
maintaining financial systems, overseeing treasury functions, and handling
investor relations.

international certification

●​ A CMA has passed a comprehensive examination, fulfilled an experience

requirement, and engages in continuing education. This certification is awarded
by the Institute of Management Accountants (IMA) and is a recognized credential
for management accountants. CMAs focus on financial management, strategic
planning, and decision-making within organizations.
●​ Certified Public Accountant (CPA):​
A CPA meets specific educational requirements, passes the CPA licensure
exams, and adheres to legal and regulatory requirements for public accountants.
CPAs mainly focus on auditing and providing assurance on the reliability of
financial statements. They play a key role in ensuring the integrity of a company's
financial reporting.
●​ Certified Internal Auditor (CIA):​
The CIA certification is granted by the Institute of Internal Auditors (IIA). It is
awarded to individuals who pass a rigorous examination and meet work
experience requirements. Management accountants often pursue the CIA to
develop strong skills in detecting and preventing errors and fraud in accounting
records, ensuring effective internal controls within an organization.

Business Environment
●​ Contemporary Business Environment
 ○​ Global Competition: As markets have become more interconnected,
businesses face heightened competition from international players.
Companies must be more agile, responsive, and aware of global trends to
stay competitive.
○​ Advancements in Technology: The rise of new manufacturing and
information technologies, particularly the internet and e-commerce, has
transformed business operations. These technologies have not only made
it easier to communicate and trade globally but also improved operational
efficiency and the ability to gather and process data.
○​ Customer Focus: With the rise of global competition, businesses are
increasingly focusing on customer needs and preferences. Tailoring
products to specific consumer demands and ensuring satisfaction has
become critical for survival and success in the market.
○​ Management Organization: The structure of organizations has evolved
to better meet the challenges of a more dynamic and competitive business
environment. Companies are adopting new management practices that
emphasize flexibility, quick decision-making, and strategic planning.
○​ Changes in the Business Environment: Societal, political, and cultural
factors also impact the way companies operate. This could include shifts
in government regulations, environmental concerns, or changing cultural
preferences that influence consumer behavior.
○​ Management Accounting's Role: The traditional role of management
accounting—providing financial data—is being expanded to include more
strategic and forward-looking information. In an era of complex global
competition, cost data and other relevant management-oriented data are
crucial for charting the course for future success. Management
accountants now play an influencing role, helping guide decisions rather
than simply informing about past performance.
○​ Need for Strategic Cost Management: As businesses face new
challenges, they need a strategic approach to cost management that goes
beyond traditional cost-cutting methods. Managing costs strategically can
help businesses achieve long-term profitability while remaining
competitive in the global marketplace.
●​ Global Business Environment
○​ Impact on Profit-Oriented and Not-for-Profit Organizations: Both
profit-driven businesses and not-for-profit organizations feel the effects of
global trade. Profit-oriented businesses must adapt to the complexities of
international markets, while not-for-profits may see new opportunities for
cross-border collaborations, funding, and support.
 ○​ Consumers and Regulators: The increased global trade offers
consumers a wider range of low-cost, high-quality products, improving
their purchasing power and satisfaction. However, regulators face new
challenges in ensuring fair trade practices, environmental compliance, and
maintaining consumer safety on a global scale.
○​ Multinational Alliances and Trade Agreements: The growing number of
alliances between large multinational corporations and trade agreements
among countries signal a shift toward more interconnected markets.
These developments create opportunities for growth and profitability by
opening up new markets for businesses while encouraging collaboration
across borders.
○​ Benefits for Consumers and Businesses: Consumers benefit from the
availability of affordable, high-quality goods, while businesses and
investors profit from accessing global markets. By engaging in
international sales and production activities, firms can increase their reach
and revenue potential, benefiting from economies of scale and diverse
market opportunities.
○​ Competitive Global Environment: In such a competitive global
environment, firms must be highly efficient in their cost management
practices. Companies need to manage both direct and indirect costs
effectively to maintain profitability while staying competitive. This requires
comprehensive information on costs, operational efficiencies, and market
dynamics.
○​ Need for Financial and Non-Financial Information: In addition to
traditional financial data, businesses also need non-financial information
such as customer preferences, market trends, and competitive analysis to
navigate global competition. Managers, owners, and investors require
both quantitative and qualitative insights to make informed decisions in the
face of constantly changing global market conditions.

11. cost leadership and product differentiation

●​ Cost Leadership
○​ Mechanism: By operating at a lower cost, a company can maintain
profitability even when reducing prices, often driving competitors out of the
market. As a result, the firm discourages new entrants who may not be
able to compete on cost. The cost leader often benefits from economies of
scale, better procurement practices, and cost-efficient production
methods.
○​ Example: Companies like Walmart and Southwest Airlines are prime
examples of cost leaders. They focus on keeping operational costs low,
 allowing them to offer competitive prices and maintain large market
shares.
●​ Product Differentiation
○​ Definition: Product differentiation is a strategy where a company strives to
make its product or service stand out as unique in the marketplace,
typically through superior quality, features, design, or innovation.
○​ Mechanism: By creating a perception of uniqueness, firms can justify
charging higher prices, leading to higher profit margins. This strategy is
effective when consumers are willing to pay a premium for products they
perceive as distinct or of higher quality.
○​ Appeal: The appeal of differentiation is strong in markets where branding,
reputation, and product quality are crucial. Industries like cosmetics, luxury
goods, and high-end automobiles thrive on this strategy. Companies with
strong differentiation can often create brand loyalty and repeat customers.
○​ Example: Apple, Rolex, Ferrari, and Tiffany are excellent examples of
companies that emphasize differentiation. Their products offer superior
design, quality, or status appeal, which allows them to charge premium
prices and create a loyal customer base.
●​ Comparison and Strategic Implications
○​ Cost Leadership is ideal for companies looking to compete on price and
dominate in price-sensitive markets. The focus is on efficiency, and the
aim is to reduce costs while maintaining sufficient quality to meet
consumer expectations.
○​ Product Differentiation, on the other hand, is suitable for businesses
aiming to carve out a niche with a unique value proposition that appeals to
a specific set of consumers. It’s a strategy focused on branding,
innovation, and customer loyalty.
○​ While businesses may work on process improvement and efficiency,
they should generally focus on mastering one of the two main
strategies—either cost leadership or differentiation—to gain a
competitive edge. Trying to be both a cost leader and a differentiator can
spread resources too thin and lead to a lack of focus.
○​ However, there are cases where a business may combine both strategies
in a best-cost approach, where the firm offers superior products at
competitive prices. This is more difficult to execute but can be effective if
one strategy is dominant.
○​ “Stuck in the Middle”:
■​ "Getting stuck in the middle" is a situation where a company fails
to effectively implement either cost leadership or differentiation.
 When this happens, the firm is unable to achieve a competitive
advantage and is caught in an uncompetitive position.
■​ For example, Makati Supermarket, as you mentioned, is stuck
between trying to compete with Pure Gold on cost and price while
attempting to attract more style-conscious customers by
differentiating. This lack of clear focus often results in poor
performance in both areas, as the company is not sufficiently strong
in either cost efficiency or uniqueness.
●​ Strategic Implications:
○​ Focus on One Strategy: A company must decide whether to compete on
price (cost leadership) or offer superior quality (differentiation). Failing
to decide clearly and commit to one strategy often results in mediocrity,
where the firm doesn't stand out in the market.
○​ Potential for "Best-Cost" Strategy: If a company tries to combine
elements of both cost leadership and differentiation, it needs to ensure
that one strategy is clearly dominant. Otherwise, it risks becoming "stuck
in the middle." The best-cost strategy may be viable in certain contexts,
but it requires precision in execution.
○​ Continuous Improvement: Both cost leaders and differentiators must
continuously improve their operations. Even cost leaders should look for
opportunities to innovate and enhance customer experience. Similarly,
differentiators need to constantly evolve their products and marketing
strategies to maintain their uniqueness.

Cost Management Technique

●​ Managers use various tools to implement a firm's broad strategy and achieve
success in critical areas. Some key tools include Just-in-Time (JIT), Total Quality
Management (TQM), process reengineering, benchmarking, mass customization,
balanced scorecard, and others. Below is a simplified explanation of two of these
techniques:
○​ Total Quality Management (TQM)
■​ TQM focuses on improving product quality and production
efficiency. It involves creating policies and practices that ensure a
company’s products meet customer expectations. The main goal is
to listen to customer needs, minimize defects, and improve
processes continuously. Although there isn't a universally perfect
way to implement TQM, companies generally focus on preventing
errors, improving quality, and engaging workers in the process. This
method can reduce the costs associated with scrap and rework.
 The two key elements of TQM are customer focus and teamwork
for problem-solving.
○​ Just-in-Time (JIT)
■​ JIT is a production philosophy where materials and products are
created only when needed, minimizing inventory. This "pull-through"
system is demand-driven, meaning that each step of production is
triggered by the need for the next. JIT leads to close coordination
between work centers, reducing inventory levels and improving
efficiency. Financially, JIT helps reduce costs in several areas,
including inventory handling, storage, waste, and obsolescence. It
also improves revenues by allowing companies to respond quickly
to customer demand.

13. importance of strategy in budgeting

14. management process of preparing the master budget