OBJECTIVES, ROLE, SCOPE OF MA - overseeing the work of subordinates.

- Act of watching & directing work and workers

1.1.1 BASIC MANAGEMENT FUNCTIONS AND - Daily basis
CONCEPTS  Motivation
- Inspiring, stimulating or encouraging subordinates
Management Advisory Services with zeal to work
- Providing professional advisory (consulting) - Rewards and punishment
services  Leadership
- Primary purpose: Improve the client’s use of its - Process by w/c manager guides and influences the
capabilities and resources (proper utilization) to work of subordinates in desired direction
achieve objectives (vision & mission) - Acting as leader not boss, showing them how it is
- Decision making side done, leading them
Top Level Planning  Communications
- Overall or Strategic Planning (aka) - Process of passing info, experience, opinion from
- Long range planning (5 yrs) one person to another
- Encompasses the long-range objectives and - For production efficiency
policies 5. Controlling
- Concerned with corporate rather than sectional - Measurement of accomplishment against the
objectives standards
- Making decisions for the entire company in the long - Correction of deviation if any
run - Making sure the objectives are attained
Business Level Strategy - Performance evaluation on specific areas then
- Focuses on satisfying customers and increase matched with the objectives of the “planning”
operating profits (benchmark if successful in the
marketplace) 1.1.2 DISTINCTION AMONG MANAGEMENT, COST
- Offer goods and services that meets customer AND FINANCIAL ACCOUNTING
needs (market segmentation)
Corporate-Level Strategy 7 Key differences noted by IMA:
- Business makes a decision that affects the whole Managerial Accounting vs. Financial Accounting
company Financial Accounting Managerial Accounting
- For a short or longer period of time Reports: External Users Internal Users (decision
- Will help attain the long-term vision and mission makers)
- Steps that being done on an annual basis Summarized PAST Strong emphasis on the
- Milestones that must be attained at a given short transactions FUTURE
Data: should be Objective & Data: should be Relevant
period of time to attain the long term Verifiable
Operational Strategies Focus: Precision Focus: Timeliness of
- Methods companies use to reach objectives Information
- Ex: Production dept: provide high quality products Concerned with reporting for a Focuses on SEGMENTS of a
- Short term: achievable for 1 year company as a WHOLE company
Must conform to financial Not bound by financial
Basic Functions of Management (POSDC) accounting standards accounting standards
1. Planning Mandatory Not Mandatory
Notes:
- Basic function
- Satisfy needs of investors, agencies etc (FA)
- Deals with chalking out future course of action - Primary source of management accntg is still financial
- Deciding in advance the most appropriate course of accntg therefore, FA is for external and internal users but
actions for achievement of predetermined goals the primary users are external users
- Forecasting: thinking process - End product of FA are FS who came from past
- Short term & long-term planning transactions
- Objectives must satisfy with SMART - The end of FA is the start of MA
*S-specific – - MA uses FA’s reports to project things that might happen
*M-measurable – quantified in the future (trend analysis)
*A-attainable – - FA is the process, the MA is the product
*R-realistic – the needed resources are there, provided by - Objective: there is a proper standard for that transaction
management - Relevance: useful in decision making
*T-timebound – objective must be attainable in a given period - Precision: FA is subject to audit(errors,
2. Organizing misrepresentations)
- Process of bringing together physical, financial and - MA is not subject to audit
- Importance is timeliness (availability of info when it is
human resources
needed) reports will lose its relevance it is stale
- Developing productive relationship among them - Segmented reports: for performance evaluation, interim
- Purch machines reports
3. Staffing - FA follows a standard for external reports so it has to
- Function of manning the organization & keeping it conform with IFRS
manned - MA is only for internal users, no reporting standard is
- Hiring of the workforce followed
4. Directing - Mandatory: must comply with periodicity wherein once a
- Part of managerial function year the company must prepare a set of FS
- MA only prepares reports when management needs it
- Actuates organizational methods to work efficiently
- Telling them what to do on the daily basis and their Financial Accounting vs. Cost Accounting
desired output Financial Accounting
- Monitoring - Assist external users w/ business decisions (e.g.
4 Directing Functions purchase & sale of stocks, issuance of loans)
 Supervision Cost Accounting

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 - Has internal focus - defines the company’s business, its objectives and
- Identifies, collects, measures, classifies and reports its approach to reach those objectives
information that is used by managers for costing Vision Statement
purposes, planning, controlling, and decision - Describes the desired future position of the
making (pricing decisions) company
- Attempts to satisfy costing objectives for both
financial and management accounting
Management accounting
- is concerned with how cost information and other
financial and non-financial information should be Sources of Competitive Advantage
used for planning, controlling and decision making Michael Porter’s 3 Generic Strategies
- BOTH the cost management information system & 1. The Cost Leadership Strategy – increase profits
the financial accounting information system are part by reducing cost, charging industry-average prices
of the entire accounting information system - affordable high-quality products
- Highlight: Product
Consultant – external sa company, not employee 2. The Differentiation Strategy – making products
Controller – managerial accountant is an employee of the different from and more attractive than competitors
company - Unique products (high priced)
- Highlight: Product
1.1.3. ROLES & ACTIVITIES OF CONTROLLER & 3. The Focus Strategy - concentrate on particular
TREASURER niche markets, its dynamics and its unique needs.
Treasurer Controller - Highlight: Market
1 Provision of Capital Planning & Control Subdivided into 2:
2 Investor Relation Reporting & Interpreting a. Focus on Cost Leadership
3 Short-term Financing Evaluating & Consulting - Cater product to midrange and low-end consumers
4 Banking and Custody Tax administration - The higher the units sold, the higher the profits
5 Credits and Collection Government Reporting b. Focus on Differentiation
(working capital) - Caters to high end market (unique, high price)
6 Investments (longterm) Protection of Assets
(internal auditing) Positions in the Industry
7 Insurance Economic Appraisal - Leader, Follower, Challenger, Nicher

Treasurer – involves cash, resources, topics under financial II. Identifying & Building Resources &
management will be the functions of treasurer. Utilization of Capabilities
company’s resources 1. Strategic Analysis
Controller – for core topics of MAS, an accounting related  matching knowledge of marketplace
function but it does not involve collection of opportunities and threats with company’s
cash/disbursements. For small companies, controller will act resources & capabilities (SWOT)
as internal auditor
Line vs. Staff Authority 2. Balance sheet information about assets
Line Positions  Current Resources – give idea of
- Those that have the responsibility and authority for the company’s liquidity and sustain
achieving the major goals (targets for revenue & current activities. Sufficiency of
profits) of the corp. current assets to cater demand
- Those directly involved in the daily operations of a  Cash Adequacy
business by selling or producing a product or  Inventory Management
service  Long term productive assets – for
- Obtaining specific objectives of a company right investments. Needed to support
- If assigned to operations, mostly they are operating activities to sustain long
considered line functions term profitability. Refers to capital
- CFO, Treasurer, COO, Marketing, Production goods needed to produce the final
Staff Positions product/service
- Provide support, assistance and specialized advice  Analyze trends and measure
and expertise to colleagues in line positions efficiencies
- Provide consultancy  Develop network of
- Controller, HR, IT relationships w/ customers
or suppliers
ROLES & ACTIVITIES OF THE MANAGERIAL  Identify financial and non-
financial costs and benefits
ACCOUNTANT
associated with alternative
I. Strategic Decisions
choices
- Key to a company’s success in creating value to
 Intangible Assets – assets that
customers while differentiating itself from
lack physical attributes or
competitors
existence but generate cash flows
- For Long term plans
for the company (copyrights)
5 Stages of the process:
1. Clarify Your Vision
Michael Porter’s 5 Competitive Forces (5 Forces Model)
2. Gather & Analyze Information
- Help boost profits but must be continuously
3. Formulate a Strategy
monitored for changes and adjust strategy
4. Implement your Strategy
1. Competition in the Industry
5. Evaluate and Control
- No.of competitors and their ability to offer lower
Mission vs Vision prices
Mission Statement

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 - Red Ocean Marketing: many competitors (low 3. Feedback (linking planning & control for future
profit) decision making)
- Blue Ocean Marketing: newly created market  Actual vs Plans: where to improve
2. Threats of New Entrants
- Low barriers to entry in the industry, the more the B. Supporting Managers by providing information
company’s position is weakened to improve strategic, planning and control
3. Power of Suppliers decisions
- the more the suppliers, the better – more 1. 3 Roles of management accountants for
alternatives success
- if few suppliers, suppliers control the market a. Problem solving
4. Power of Customers b. Scorekeeping - records the results of
- if fewer customers, customers can command price various actions of the managers and helps
in assessing whether the results expected
5. Threats of Substitutes from the various actions are realized or
- High threat if product is homogenous (similar) not.
- Low If product is unique c. Attention directing – focus on what
matters
Different Types of Markets
a. Monopoly – difficult to enter
2. Goals to assist managers in making better
b. Oligopoly – hard to control the players, few players
decisions
and is difficult to enter
a. Different decisions emphasize roles
c. Monopolistic Competition – anyone can enter the
differently
market with unique product
b. Interaction among types of decisions
means activity/roles done simultaneously.
Boston Consulting Group (BCG) Growth Share Matrix
The functions of management overlap as it
- Planning tool that uses graphical representations of performs its duties. Non sequential in
a company’s products and services
nature
- Help company decide what should be kept, sell or c. Information must be relevant and timely to
invest more in be useful
4 Quadrants
a. Dogs (or Pets) C. Enhancing the value of management accounting
- low market share and is at a low rate of growth systems by guiding managers to focus on
- Red Ocean & not the market leader challenges
- Candidates for disposal 1. Customer Focus
b. Cash Cows  Satisfy customers, profitability will follow
- low growth but has large market share 2. Value Chain and Supply Chain Analysis
- are typically leading products in mature markets a. Companies add value through
- Red ocean/saturated but is the market leader i. R&D
c. Stars ii. Design of products, services,
- high growth market, make up sizable portion of that processes
market & generates high income BUT consume iii. Production
large amount of cash iv. Marketing
- for newly created products and blue ocean markets v. Distribution
d. Question Marks vi. Customer Service
- Questionable opportunities b. Managers in all business functions are
- high growth rate markets but does not maintain a customers of management accounting info
large market share. 3. Key success factors (CQTI)
- Typically grow fast but consume large amount of a. Cost efficiency
resources b. Quality
- Possible developments in the future c. Time
- Candidates for star or pets d. Innovation
4. Continuous Improvement and
III. MA’s Role in Implementing Strategy benchmarking
A. Implementing Strategy  Grabbing the best practices
- Managers uses planning and control systems to  Your company against other company
help the collective decisions of the org
1. Planning (setting company’s specific targets)
1.1.4 INTERNATIONAL CERTIFICATIONS IN
a. Thinking Process
MANAGEMENT ACCOUNTING
i. Selecting organization goals
ii. Predicting results under various
Certified Management Accountant (CMA) – professional
alternatives of achieving those
certification credential in the management accounting &
goals
financial management fields
iii. Deciding how to attain those
goals
Main Bodies that offer CMA Certification:
b. Communicating goals and how to attain
1. Institute of Management Accountants (USA)
them to entire organization (goal
2. Institute of Certified Management Accountants
congruence)
(Australia)
2. Control
3. Certified Management accountants of Canada
a. Taking actions to implement the planning
decisions
ETHICAL STANDARDS IN MAS
b. Deciding on performance evaluation
IESBA & IMA

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The PRC BOA adopted the 2016 Code of Ethics issued by  Management is expected to report what is
International Ethics Standards Board for Accountants expected to happen
(IESBA) through Board resolution #18 Series of 2018  Possible future trends
2. Business Analytics imbedded in Enterprise
In addition to the IESBA Code of Ethics, CMA’s are bound to Performance Methods
comply with the code of ethics of Institute of Management - The need for analytics maybe the only sustainable
Accountants (IMA) long term competitive advantage
- Big Data Analysis – research method. Gather
The IMA code of ethics composed of 2 parts: present data and look for trends
1. The Personal Standards
2. Resolution of Conflict 3 Primary Methods
a. Descriptive – describes current situation
IMA’s 4 Overarching Principles (HFOR) b. Predictive – possible events in the future
1. Honesty c. Prescriptive – Data Analytics can provide
2. Fairness decisions, recommendations for the future.
3. Objectivity Benefits:
4. Responsibility a. More Informed decision making
b. Greater Revenue
c. Improved Operational Efficiency
I. Personal Standards (CCIC)
 Grounds to revocation of certification 3.
Managing Information Technology and Shared
a. Competence Services as a Business
Each member has a responsibility to  Information Technology Management –
1. Maintain appropriate level of professional process whereby all resources related to
expertise by continually developing information technology are managed accd to an
knowledge & skills (CPD requirements) organization’s priorities and needs
2. Perform professional duties in accd w/ law  Shared Services – consolidation of business
3. Provide decision support information & operations that are used by multiple parts of the
recommendations that are accurate, clear, same organization. Using same resource for
concise & timely multiple uses.
4. Recognize and communicate professional 4. Expansion from product to channel & customer
limitations that would preclude responsible profitability analysis
judgement or successful performance of  Product-driven environment – product first then
an activity (competence before you accept search for market
client)  Customer-driven environment – market first then
b. Confidentiality product
1. Keep info confidential except when 5. Co-existing and improved management
authorized or legally required accounting methods
2. Inform relevant parties for the appropriate - Globalization, technological advancements and
use of confidential information interconnectivity have made the existence of
3. Refrain from using confidential information organization tougher than ever
for unethical or illegal advantage 4Stages of the Evolution of Management Acctng
c. Integrity
1. Mitigate actual conflict of interest Stage Year Focus
2. Refrain from engaging in any conduct that 1 Prior 1950 Cost determination, Financial
would prejudice carrying out duties Control
3. Abstain engaging from activity that might 2 1965 Provision of information for
discredit the profession management planning & control
d. Credibility 3 1985 Reduction of waste in resources
1. Communicate info fairly & objectively 4 1995 Generation or creation of value
2. Disclose all relevant info that could
influence user’s understanding of reports, 3 Categories of Factors in change of Management
analysis and recommendations Accntg
3. Disclose delays or deficiencies in a. External
information b. Internal
c. Organizational
II. Resolution of Ethical Conflict
1. Discuss the issue with your immediate supervisor 6. Management Accounting’s expanding role with
except when he is involved. In that case, present Enterprise Performance Management (EPM)
the issue to the next level, then to next
management level EPM - process & methodology designed to enhance
Communication of such problems to authorities or the company’s performance and enable
individuals not employed/engaged by the org is not management to better respond to presented
considered appropriate, unless there is a clear challenges as well as opportunities
violation of law (whistleblowing) 4 Main Themes
2. Clarify relevant ethical issues thru confidential a. Target setting
discussion w/ an IMA counselor or impartial advisor - Entails having tight alignment between business
3. Consult own attorney strategy & KPIs
4. Disassociate to the company (resign) b. Integrated business planning
- Prompts execution of business strategy while
1.1.5 GLOBAL TRENDS IN MANAGEMENT ACCOUNTING forecasting and predicting results
c. Performance measurement & reporting (PMR)
7 Trends in Management Accounting - Collecting and validating performance information to
1. The shift to PREDICTIVE accounting reveal what’s really happening and provide insight

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 d. Analytics - The use of variable costing helps eliminate the
- Discovering patterns or trends based upon a huge manipulation of net income by treating fixed OH as
sets of data available period cost

7. The need for better skills and competency with Period Costs Product Costs
behavioral change management  Cost that is charged Cost that is INCLUDED in
- Requires change agent management accountants against revenue during the computation of product
to motivate mid-level managers and other a point in time (point of cost that is apportioned
champions to demonstrate that progressive sale) between the sold and
management accounting and EPM methodologies regardless of the difference unsold units
make sense to implement between production & sales
volume
5 Roles that managers & supervisors must play  OUTRIGHT EXPENSE  An Inventoriable Cost.
in times of change
1. Communicator of change
2. Advocate for change
3. Coached for employees
4. Liaison to the project team – glue of the team
5. Resistance manager – help them transition

1.2.4 VARIABLE & ABSORPTION COSTING

The portion allocated to unsold
units is treated as an asset,
When a company prepares its PnL, it uses the Conventional being part of the cost of
format which is Absorption Costing (Cost of sales and inventory
expenses are deducted against Total Sales)

Internal users favor Contribution Margin Format, also known

as Variable Costing

Throughput Costing – has only raw materials as product

costs and treats all other costs as period cost. also known as 1.2.4.2 INVENTORY COSTS BETWEEN VARIABLE
Super Variable Costing. & ABSORPTION COSTING
Super Absorption Costing – considers manufacturing costs 1. As to treatment of the various operating costs
and non-manufacturing costs as period costs as long as it is
value added.
2. As to net operating Income & Inventory levels
Absorption Costing (Full Costing)
- A product costing method that includes ALL
manufacturing costs (DM, DL, VOH, FFOH) in the 3. As to cost segregation
unit cost of the product Variable Costing – according to behavior
- Fixed factory overhead (FFOH) is a Product Cost Absorption Costing – according to function ( Manu, Selling &
- Income statement -> Conventional Format Admin)

Variable Costing (Contribution Margin Costing) 4. As to Presentation of Income Statement

- A product costing method that includes only variable Variable Costing – uses Contribution Margin Income
manufacturing costs (DM, DL, VOH) in the unit cost Approach
of the product Absorption Costing – Conventional income Statement
- FFOH is a Period Cost Throughput Costing – Throughput Contribution Income
- Income Statement -> Contribution Margin Format Statement

Product Cost Components One motivation for an undesirable buildup of inventories

Absorption Costing Variable Costing could be due to the fact that a MANAGER’s BONUS is based
DM DM on Absorption Costing Operating Income which increases as
+DL +DL production increases
+Variable FOH +Variable FOH
+Fixed FOH - Performance Issues of Absorption Costing
Product Cost Product Cost  Managers may manipulate income by producing
too many units
 Manufacture products that absorb the highest
amount of fixed costs, regardless of demand
1.2.4.1 DISTINCTION BETWEEN PERIOD COSTS &
 Accepting an order to increase production even
PRODUCT COSTS though another plant in the same firm is better
suited to handle that order
Product Costs
 Deferring maintenance
- Inventoried when incurred and will be only charged
against revenues only at the point of sale Top Management Actions to reduce undesirable effects
- Deferred in inventory when Production (U) > Sales of Absorption Costing
- Released in inventory when: Sales > Production  Focus on careful budgeting and inventory planning
to reduce management’s freedom to build up
Period Costs excess inventory. (production is almost similar to
- Outright expense as incurred, regardless of the sales)
relationship between sales and production in units

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  Incorporate a “Carrying charge” for inventory in the  tool for planning budgets, managing and
internal accounting system controlling costs, and evaluating cost
 Change the period to evaluate performance. management performance
Instead of quarterly or annual horizon, evaluate the  SP x SQ (materials, labor, OH)
manager over a 3-5 year period
 Include nonfinancial and financial variables in the Note: The last 3 cost systems have variances
measure of performance evaluation

1.2.4.3 NATURE AND TREATMENT OF FIXED

FACTORY OVERHEAD COSTS

Primary Difference of Variable & Absorption 1.2.4.4 RECONCILATION OF OPERATING INCOME

- Treatment of FOH UNDER VARIABLE & ABSORPTION
COSTING
 Variable Costing assumes that FOH is incurred
regardless of production, hence expensed outright Variable Costing inventories is always understated
 Absorption Costing dictates that FOH is essential in the by the fixed overhead because it is treated as an outright
production process. It is impossible to produce w/out expense
overhead, hence inventoriable
 Key Issue in AC – capacity level (denominator) to Reconciliation under Actual and Normal Cost system w/
compute Fixed cost. insignificant variance is:
 Determining the appropriate level of capacity is one of the
most strategic and difficult decisions faced by managers Net Income – VC xx
Add: Fixed Cost, End Inv xx
4 Different Capacity Levels to compute Budgeted Fixed Less: Fixed Cost, Beg Inv xx
Manufacturing Cost Rate Net Income – Ab Costing xx
1. Theoretical capacity
 Level of capacity based on producing at Reconciliation under Normal cost systems, variance is
full efficiency all the time significant
 Everything is working perfectly
2. Practical capacity Net Income – VC xx
 Level of capacity that reduces theoretical Add: Fixed Cost, End Inv xx
capacity by considering unavoidable Less: Fixed Cost, Beg Inv xx
operating interruptions – scheduled Add/Deduct any over (under) Applied OH xx
maintenance or holidays Net Income – Ab Costing xx
 Traditional. Allowance for waste,
downtimes Reconciling Contribution Margin & Gross Profit
3. Normal Capacity
 Level of capacity utilization that satisfies Contribution Margin xx
average customer demand over a period Add: Variable Selling & Admin exp xx
of time – 2-3 years often (and includes Less: Fixed OH based on units sold xx
seasonal, cyclical and trend factors) Gross Profit xx
 Average capacity for a period of time
4. Master-Budget Capacity Utilization
 Level of capacity that managers expect for
the current period, typically 1 year

4 Cost Systems (Alternative Methods)

- Were developed to control cost and easily allocate
overhead
1. Actual Cost System
 Uses actual cost or rates and actual
quantities or hours in production to
determine the cost of specified products
 AP x AQ (materials, labor, OH)
2. Normal Cost System
 A company measures the actual costs of
DM and DL but uses predetermined FOH
rates to measure the factory overhead for
a period
 AP x AQ (materials, labor)
 SP x AQ (OH)
3. Extended Normal Cost System or Flexible
Budget
 Used to track production costs.
 It determines the cost of production using
budgeted costs of the inputs used in
production multiplied by the actual quantity
of the inputs that were used in production
 SP x AQ (materials, labor, OH)
4. Standard Cost System or Static Budget

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