Overview of Cost Management and Strategy

Discussions

1. Give 4 examples of firms you think would be significant users of cost management
information and explain why.

 There are various examples of firms or any other business organizations that significantly
uses Cost Management Information. The following are the few :

a. A Musical Studio: to plan for the different compensation for its teachers and to
determine whether they will expand their business by opening another station for
Musical Studio.

b. Grocery Store: This type of firm uses cost management information to keep costs low
by streaming restocking and sales of different products.

c. A Small Volcanizing Shop: this firm need cost management in a way to determine
whether it needs to repair a certain vehicle or replace it with particular equipment to
keep the vehicle run on its own.

d. Resort & Restaurant: To assess the profitability of their hotels (rooms) as well as their
foods.

2. Give 3 examples of firms you think would not be significant users of cost management
information and explain why.

 Firms with a focus on forming strategic alliances, innovation and research, product
leadership firms, and sports teams and fashion companies are examples of non-users of
Cost Management. The following are examples:

a. Fashion Company like Nike: This is a luxury fashion company type that competes on
innovation and product leadership.

b. “Palarong Pambansa” (league Sports): highly dependent primarily on good coaching

and player acquisition.
 c. Other Fashion Industry: a high fashion industry competes on innovation and product
leadership; the development and communication of attractive new ideas is key to
competitive success rather than cost management.

3. What is meant by the term “cost management”? Who in the typical firm or organization is
responsible for cost management?

 The term “cost management means, the practice of accounting in which the accountant
develops and uses cost management information. To plan and control the budget of a
business. Hence, the manager needs information about the business to effectively manage
the firm or non-for-profit organization- both financial information about costs and
revenues and relevant non-financial information about productivity, quality, and other
key success factors for the firm.

And a typical firm or organization that is responsible for cost management is the
Chief Financial Officer (CFO) who often delegates much of this responsibility to the
controller

4. List the 4 functions of management. Explain what type of cost management information is
appropriate for each.

 The four functions of Management are Strategic Management, Planning and Decision-
making, Management and Operational Control and Reportorial and Compliance to legal
requirements.

a. Strategic Management, involves identifying and implementing goals and action

plans. Under this function, it requires an integrative approach which combines skills
from all business function, namely, marketing, production, finance and accounting/
controllership, is necessary in a dynamic and competitive environment.

b. Planning and Decision-making, it involves budgeting and profit planning, cash flow
management and other decision related to the firm’s operation such as deciding
whether to lease or buy facility, whether to replace or just repair as equipment, when
to change a marketing plan or when to begin new product development.

c. Management and Operational Control, under this function, cost management

information is needed to provide a fair and effective basis for identifying inefficient
operations to reward and motivate the most effective manages.

d. Reportorial and Compliance to legal requirements, it requires management to

comply with the financial reporting requirements to regulatory agencies such as the
 Securities and Exchange Commission (SEC) Bureau of Internal revenue (BIR), and
other relevant government authorities and agencies.

5. Which is the most important function of management, and why?

 Strategic Management is the most important because it acts as a foundation for all key
decisions of the firm. It attempts to prepare the organization for future challenges and
play the role of pioneer in exploring opportunities and also helps in identifying ways to
reach those opportunities. For it involves development and implementation of a
sustainable competitive position in which the firm’s competitive advantage- provide
continued success.

6. Identify the different types of business firms and other organizations that use cost management
information and explain how the information is used.

 Cost management information is useful in all organizations: business firms, governmental

units, and not-for-profit organizations.

Business firms are usually categorized by industry, the main categories being
merchandising, manufacturing, and service.

a. Merchandising firms purchase goods for resale. Retail firms’ use cost management
information to manage stocking, distribution, and customer service.
b. Manufacturing firms use raw materials, labor, and manufacturing facilities and
equipment to produce products. Manufacturing and production companies plan cost
allocation methods to ensure production costs can be recouped through the future
sales of finished goods inventory.
c. Service Firms, provide a service to customers that offer convenience, freedom,
safety, or comfort. Firms in the service industries, such as those providing financial
services or other professional services, use cost management information to identify
the most profitable services and to manage the costs of providing those services.
d. Not-for-profit and governmental organizations also must have a strategy to
accomplish their mission and satisfy their constituents. Historically, governmental
units and not-for-profit agencies have tended to focus on their responsibility to spend
in approved ways rather than to spend in efficient and effective ways. Increasingly,
however, these types of organizations are using cost management for efficient and
effective use of their financial resources

7. Name a firm or organization you know of that you are reasonably sure uses strategic cost
management and explain why it does so.
  An example of firm that literally uses strategic cost management are those under
Manufacturing Firms like Automotive Companies such as Ford and GM where they
utilize advanced technology, assembly lines, and human skills to create a finished
product. An example of strategy of this firm is to be able to offer rapid turnaround of
customer orders by maintaining tight control over its bottleneck production operation. To
do so, the company incurs extra cost to keep the bottleneck running 24x7. Expending
extra funds here directly contributes to the profitability of the business.

8. “Managers need accounting information and need to know how to use it.” Critically evaluate
this statement.

 Accounting information is beneficial to the company beyond compliance and regulatory

requirements imposed. It serves as a practical foundation for the enterprise governance.
Managers can create budgets, evaluate efficiency, grasp public opinion, and analyze
business performance, as well as formulate short and long term strategies, and
accomplish excellent corporate governance. It is worth emphasizing that managers can
make judgements based on subjective, or even irrational factors, that allows for a well-
informed managerial decisions. And also, being a manager they also need to know how to
evaluate the accounting information because they will allocate the financial, human and
capital resources towards competing needs of the business through the budgeting process.

9. Bob Gelacio, an owner of small software company, felt his accounting system was useless. He
stated, “Accounting systems only generate historical costs. Historical costs are useless in my
business because everything changes so rapidly.”

 Are historical costs useless in rapidly changing environments?

 Historical costs are not useless. Despite the fact that they do not provide market value for
an economic item at the time, they are nonetheless useful in assisting the business in
allocating the item’s acquisition cost. It also gives management and investors a lot more
alternatives for detecting, reporting and assessing economic data.

 Should accounting systems be limited to historical costs?

 A research from a University on 2017, concludes that the accounting should NOT be
limited to only provide historical information about the financial position and
performance of the company, but also allow the formulation of predictions about the
enterprises itself.
10. Dana Florenco, a finance professor, and Cristine Remote, a marketing professor, were
recently comparing notes on their perceptions of corporations. Dana Florendo claimed the goal
of a corporation should be to maximize the value to the shareholders. Cristine Remot claimed
that the goal of a corporation should be to satisfy customers. What are the similarities and
differences in these two goals?

 The commonalities between these two goals are to generate and enhance a corporation's
profit, as well as to keep the firm healthy for the system's long-term existence. The
distinction between these two aims, on the other hand, is that they each have a different
target.

The basic goal, according to Dana Florenco, a finance professor, is to increase

shareholder wealth, but getting there is the hard part. Not all of the time will this result in
the customer's need being met. While Cristine Remote, a marketing professor, sets the
satisfaction of a customer's wants as the primary goal, there is still a demand.

So, while both of their goals are important to the company's survival, the marketing
professor's goal is preferable because it would satisfy both customers and shareholders. If
a consumer is satisfied with a company's goods, the company will be successful, and
shareholders will benefit since their stock value will rise.

11. How do management accountants support strategic decisions?

 Management accountants support strategic decision by providing information about the

sources of competitive advantage. The management accountant participates, as part of
management, in assuring that the organization operates as a unified whole in its long-run
intermediate and short-run best interests. Furthermore, Management accountants use their
unique expertise (decision making, planning, performance management, and more),
working with the organization’s managers, to help the organization succeed in
formulating and implementing its strategy.

12. Define the term strategic cost management?

 Strategic Cost Management is the development of cost management information to

facilitate the principal management function, strategic management.

13. What is meant by a business strategy?

 Strategy, as defined, is a set of policies, procedures and approaches to business to
produce long-term success. Moreover, business strategy also help attract customer,
compete successfully, strengthening performance, and achieve organizational goals.
14. What information does cost accounting provide?

 Cost accounting provides products cost information to external parties, such as

stockholders, creditors and various regulatory boards for credit and investment decisions.
Cost accounting provides product cost information also to internal parties such as
managers for planning and controlling.

15. How do cost accountants support strategic decisions?

 The accountants can support the decision making process and management activity. The
objective of an accounting system is to provide financial information concerning the
studied company. The information concerns the financial situation and the performance
of a company ad there is intended to the users to taking decisions.

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References:

Accounting in Historical Costs – Since when and until when?. (2017). Ovidus University Annals,
Economic Sciences Service. Volume XVII, Issue 1/2017

Blocher, Stout & Cokins. (2010). COST MANAGEMENT: A Strategic Emphasis. 5th
Edition.McGraw-Hill Irwin.NY

Cabrera, M.E., Cabrera, G.A., & Cabrera B.A. (2021). Strategic Cost Management.2021 Ed.
GIC Enterprices, Co., Inc. Philippines