AECOST_REVIEWER-1
AECOST_REVIEWER-1
4. Accounting. Design, establish, and maintain general and Rapid growth of international markets and trade
drives significant changes in the contemporary
cost accounting systems at all company levels, including
business environment.
corporate, divisional, plant, and unit to properly record all
financial transactions in the books of accounts and records in Economic independence and increased
accordance with sound accounting principles with adequate competition significantly affect profit-oriented
internal control. businesses, not-for-profit organizations,
consumers, and regulators.
5. Other Primary Responsibilities. Manage and supervise Large multinational alliances and increasing trade
such functions as taxes, including interface with the respective agreements highlight growth opportunities in global
taxing authorities and agents; maintain appropriate markets.
relationships with internal and external auditors; develop and Global trade benefits consumers, managers,
maintain systems and procedures; develop record retention business owners, and investors by offering low-
programs; supervise assigned treasury functions; institute cost, high-quality goods.
investor and financial public relations programs; office Firms need cost management and financial and
management; and direct other assigned functions. non-financial information to sustain
competitiveness in the competitive global business
environment.
International Certifications
Cost Leadership and Product Differentiation
Certified Management Accountant (CMA) - is one who has
passed the rigorous qualifying examination, has met an Cost Leadership is a competitive strategy in which a firm
experience requirement, and participates in continuing succeeds in producing products or services at the lowest cost
educations. The CMA Certificate is granted by the Institute in the industry. A firm that is a cost leader makes sustainable
Management Accountants (IMA). profits at lower prices, thereby limiting the growth of
competitions in the industry through its success in price wars
Certified Public Accountant (CPA) - is one who has met the and undermining the profitability of competitors which must
pre-qualification educational requirements, passed the CPA
meet the firm's low price.
licensure examinations given by the Professional Regulatory
Board of Accountancy and has satisfied all other legal and Product Differentiation is implemented by creating a
regulatory requirements of a public accountant. The CPAs perception among consumers that the product or service is
main responsibility is to provide assurance concerning the unique in some important way, usually by being of higher
quality, features or innovation. This perception allows the firm Reductions in paperwork
to charge higher prices and outperform the competition in
profits without reducing cost significantly. Most industries, There are five main features in a JIT production system:
including automobile, consumer electronics, and industrial
equipment, have differentiated firms. The appeal of 1. Production is organized in manufacturing cells, a
differentiation is especially strong for product lines which the grouping of all the different types of equipment used
perception of quality and image is important, as in cosmetics, to manufacture a given product
jewelry and automobiles. Tiffany, Rolex, Ferrari and BMW are 2. Workers are trained to be multiskilled so that they
good examples of firms that emphasize differentiation. are capable of performing a variety of operations
and tasks.
3. Total quality management is aggressively pursued
to eliminate defects.
Cost Management Techniques 4. Emphasis is placed on reducing setup time, which
is the time required to get equipment, tools and
a. Total Quality Management (TQM) - is a technique in which materials ready to start the production of a
management develops policies and practices to ensure that component or product, and manufacturing lead
the firm's products and services exceed customers' time, which is the time from when an order is ready
expectations. two major characteristics of TQM are a focus on to start on the production line to when it becomes a
serving customers, and systematic problem-solving using finished good.
teams made up of front-line workers. 5. Suppliers are carefully selected to obtain delivery of
quality-tested parts in a timely manner.
TQM. develop a company that stresses listening to the needs
of customers, making products right the first time, reducing c. Process Reengineering
defective products that must be reworked, and encouraging
workers to continuously improve their production process. Reengineering is a process for creating competitive
advantage in which a firm reorganizes its operating and
TQM affects product costing by reducing the need to track the management functions, often with the result that jobs are
cost of scrap and rework related to each job. If TQM is able to modified, combined, or eliminated. It has been defined as the
reduce these costs to a very low level, the benefit of tracking "fundamental rethinking and radical redesign of business
the costs is unlikely to exceed the cost to the accounting processes to achieve dramatic improvements in critical,
system. contemporary measures of performance, such as cost,
quality, service, and speed.
b. Just In Time (JIT) - is a production system also known as
pul-it-through approach, in which materials are purchased and Process reengineering, a more radical approach to
units are produced only as needed to meet actual customer improvement than TQM, is an approach where a business
demand. In a JIT system, inventories are reduced to the process is diagrammed in detail, questioned and then
minimum and in some cases, zero. completely redesigned in order to eliminate unnecessary
steps, to reduce opportunities for errors and to reduce costs.
JIT is the philosophy that activities are undertaken only as
A business process is any series of steps that are followed in
reeded or demanded.
order to carry out some task in a business.
Just-in-Time (JIT) production is a system in which each
The main objective of this approach is the simplification and
component on a production line is produced immediately as
elimination of wasted effort and the central idea is that all
needed by the next step in the production line.
activities that do not add value to product or service should be
The demand-pull feature of JIT production systems achieves eliminated. In its most simplified version, the steps used in
close coordination among work centers. It smoothes the flow process reengineering are:
of goods, despite low quantities of inventory.
1. A business process is diagrammed in detail.
Financial Benefits of MT
2. Every step in the business process must be analyzed and
JIT tends to focus broadly on the control of total manufacturing justified.
costs instead of individual costs such as direct manufacturing
3. The process is redesigned to include only those steps that
labor. JIT can provide many financial benefits, including:
make the product or service more valuable.
Lower investment in inventories.
Reductions in carrying and handling costs of
inventories. This process can yield the following anticipated results:
Reductions in risk of obsolescence of inventories.
Lower investment in plant space for inventories 1. Process is simplified
and production.
2. Process is completed in less time
Reductions in setup costs and total manufacturing
costs.
3. Costs are reduced, and
Reduction in costs of waste and spoilage as a
result improves quality. 4. Opportunities for errors are reduced.
Higher revenues as a result of responding faster to
customer
Process reengineering has one basic recurrent problem, that analysis to improve operational control and management
is - employee resistance. As with other improvement projects, control. ABC and ABM are key strategic tools for many firms,
employees fear loss of jobs which may lead to lost morale and especially those with complex operations, or great diversity of
failure to improve the bottom line i.e.,profits). For the process products.
to prosper and succeed, employees must be convinced that
the end result of the improvement will be more secure, rather h. Theory of Constraints (TOC)
than less secure jobs. They can be made to understand that
The Theory of Constraints is a sequential process of
improving the processes, the company can generate more
business, produce a better product at lower cost and will have identifying and removing constraints in a system. The Theory
of Constraints emphasizes the importance of managing the
the competitive strength to prosper.
organization's constraints or barriers that hinder or impede
d. Benchmarking progress toward an objective. Since the constraint is whatever
is holding back the organization, improvement efforts usually
determines its critical success factors must be focused on the constraint to be really effective.
studies the best practices of other firms (or other
units within a firm) for achieving these critical The basic sequential steps followed in applying TOC are:
success factors, and
1. Analyze all the factors of production (materials, labor,
then implements improvements in the firm's
facilities, methods, etc.) required in the production chain.
processes to match or beat the performance of
those competitors. 2. Identify the weakest link, which is the constraint.
Today benchmarking efforts are facilitated by
cooperative networks of noncompeting firms that 3. Focus improvement efforts on strengthening the weakest
exchange benchmarking information. link.
Target costing involves the determination of the desired cost This E-Commerce business model adopted by Amazon.com
for a product or the basis of a given competitive price so that and eBay has also attracted many investors to pursue the use
the product will earn a desired profit. The basic relationship of Internet in conducting business. Established companies will
that is observed in this approach is undoubtedly continue to expand into cyberspace - both for
business-to-business transactions and for retailing. The
Target cost = Market determined price - Desired profit Internet has important advantages over more conventional
marketplaces for some kinds of transaction such as mortgage
The entity using target costing must often adopt strict cost- banking. It is also very likely that a blockbuster business may
reduction measures to meet the market price and remain be built around the concept of selling low-value, low-margin
profitable. This is a common strategic approach used by
and bulky items like groceries over the Internet.
intensely competitive industries where even small price
differences attract consumers to the lower-priced product. n. The Value Chain
k. Computer-Aided Design and Manufacturing Value chain refers to the sequence of business functions in
which usefulness is added to the products or services of a
More companies are using computer-aided design (CAD) and company. The term value refers to the increase in the
computer-aided manufacturing (CAM) to respond to changing usefulness of the product or service and a result its value to
consumer tastes more quickly. These innovations allow
the customer.
companies to significantly reduce the time necessary to bring
their products from the design process to the distribution The value chain is an analysis tool that firms use to identify
stage. the specific steps required to provide a product or service to
the customer. The key idea of this concept is that the firm
Computer-aided design (CAD) is the use of computers in studies each step in its operation to determine how each
product development, analysis, and design modification to
activity contributes to the firm's competitiveness and profits.
improve the quality and performance of the product.
Analyzing the firm's value chain helps management discover:
Computer-aided manufacturing (CAM) is the use of
• which steps or activities are not competitive
computers to plan, implement, and control production.
• where costs can be reduced, or
l. Automation
• which activity should be outsourced, and
Automation involves and requires a relatively large investment
in computers, computer programming, machines, and • how to increase value for the customer at one or more of the
equipment. Many firms add automation gradually, one steps of the value chain.
process at a time. To improve efficiency and effectiveness
continuously, firms must integrate people and equipment into When properly implemented, these approaches can
the smoothly operating teams that have become a vital part of
manufacturing strategy. Flexible manufacturing systems (a) enhance quality
(FMS) and computer-integrated manufacturing (CIM) are
two integration approaches. (b) reduce cost
a firm's strategy is the path it chooses for attaining its long- Short-term objectives are goals for the coming period, which
term goals and mission. It is the starting point in preparing its can be a month, a quarter, a year, or any length of time
plans and budgets. For example, a very large and successful desired by the organization for planning purposes. A firm
Retail Department Store in the Philippines considers itself the determines short-term objectives for the budget period based
leader of top-of-the-line consumer goods (wardrobe, designer on strategic goals, long-term objectives and plans, operating
bags and shoes, accessories, housewares, and so forth. results of past periods, and expected future operating and
environmental factors including economic, industry and
One of its departments is the Supermarket and Grocery marketing conditions.
Department, selling food items, fresh and processed and
other household needs. Even though this department is a little
bit profitable, for competitive reasons, the firm made a
strategic decision to leave this line of business. Subsequent The Management Process of Preparing the Master Budget
budgets of this firm reflect this strategic decision.
Top Management Involvement
Formulation of Strategy
For a budget to be effective, top management needs to be
The process of determining a company's strategy starts with involved and show strong interest in budget results. Too much
the assessment of external factors that affect operation and involvement, however, may make the budget and alienate
evaluating internal factors than can be its strength and lower managers. The right answer is a good balance of top
weakness. management involvement with lower-level managers.
External factors Top management ensures that budget guidelines are being
followed through the - budget review and approval process.
• Competition Active involvement by top management in reviewing and
approving the proposed budget is an effective way to
• Technical, economic political, regulatory, social and discourage lower-level managers from playing budget games
environmental (e.g., budgets with easy, target and adding stock to a budget).