Strategic Cost Management Leverage Ratio – ratio showing the composition of an

asset in terms of Capital(OE) and Liability(L).

Previously known as Managerial Accounting
50 above percentage is the preferred ratio.
Is more on Finance than that of Accounting. It means
that it talks about decision making tools used by Finance Function #3
managers Use of company resource to produce, sell and distribute
goods and services.
Accounting
Net Sales
=Profit Margin
Primary function is to provide quantitative information Gross Sales
Present information to Interna and External users
Profit Margin – measures the percentage of earning
The Financial Statements(FS) created are the language
from the sales. In companies, it is added to the retained
of Businesses
earnings. In small businesses, it is added simply on the
CSR(Corporate Social Responsibility) OE and divided if there are partners.

Companies’ obligation to its internal resources Return of Asset(ROA)

specifically “employees.” It corresponds to the
Net Income
company’s capacity to listen to the common societal =ROA
Total Assets
issues and help in fixing to their capacity.
Rate of returns received from all assets, based on the
Functions of SCM
net income received during the operating cycle
Finance Function #1:
Return of Equity(ROE)
Acquisition and Disposal of assets
SCM aims to evaluate the acquisition of asset assessing Net Income Sales Total Assets
× × =ROE
its value obtainable from the assets Sales Total Assets Common Equity
Investing Activities – Assets: Assets are regarded as
investments Cycle of Finance:

Sales
= Asset Turnover Investing Financing
Asset Activities Activities

Asset turnover rate – value obtained from an asset

Notes: Operating
Activities
People are investments just like fixed, financial assets
Honeymoon period – period in which a new employee is
given the time to adjust and learn the new working This cycle represents the activity of a company in terms
environment. The time the person is capable of working of financing where in all the three functions are met
is referred to as his maturity. Money is sourced from Assets, Liabilities, Equity and
Income
Finance Function #2:
Acquisition and Management of Financial Resources CBA(Collective Bargaining Agreement)
SMC aims to manage the obtaining of resources may it Q: Why do businesses do what they do?
be from Capital(OE) or Liability(L) because they want to earn by creating value. Value is
Sources of Financial Resource: CL made through the creation of goods and services that
Capital – investments and profit market need or want, or where there is a costumer.
Liability – obligations made from banks and investors Accounting System – a system that presents data useful
From bank – Face Value + Interest for the operation of a business.
From investor – Face Value + Dividends/Income

Asset
=Leverage Ratio
Capital
Management Accounting vs Financial Accounting Cost Accumulation

Internal users Prime Cost Direct Materials + Direct Labor + Direct

Expense
Internal reporting Production Prime Cost + Conversion Cost
No regulatory format Cost
Conversion Direct Labor + Factory Overhead
External users Cost
Total Cost Prime Cost + Overhead(Non-Factory) or
External reporting
Production Cost + Periodic Cost
Regulated by GAAP and other government bodies

Cost Accounting in SCM Mixed Cost – cost that combines both variable and fixed
costs. This is solved through
Main goals(PCD)
Method #1
P: Planning – creating cost system to obtain and y=a+bx∨TC =FC +VCx
estimate cost

C: Controlling – to adjust expenditure to match the Method #2

intended amount of cost High-Low method
D: Decision Making – to make sound decision based on (1) Find the highest and lowest value of activity cost and
empirical data such whether to stop or continue activity level
production, to buy or omit certain products, etc. (2) Find the difference of the highest and lowest activity
Cost Accounting is generally used to estimate cost cost, as well as with the activity level
useful to any company (3) Use the formula
Elements in CA: Dif of Activity Cost
Variable Cost per unit= Exampl
 Cost Object – MOC, cost not directly involve with Dif of Activity Level
the products produced e:
 Cost – expenditure in producing a product Activity Hours Total Cost
 Cost Unit – Cost of an item per unit basis Printing 120,000 P14,000
 Cost Centers – Departments that accumulate cost Editing 80,000 P10,000
E.g., Accounting Dept, Packaging Dept, etc. Licensing 100,000 P12,000
 Profit Centers – Department that accumulate profit --- 300,000 P36,000
Only Sales Dept and Marketing Dept

Direct Expense – other cost incurred for a specific Cost Level

product that is material. E.g., patents, royalties 14,000 P120,000
10,000 P80,000
Direct Cost – cost directly attributable to the product 4,000 P40,000
Indirect Cost – cost indirectly attributable, but is found
on the Factory 4,000
Variable Cost per unit=
Other Overhead – cost indirectly attributable, and is not 40,000
found in the factory
Variable Cost per unit=P 0.10
Method #3
Vertical Analysis

Sales
(Variable Cost)
Contribution Margin
(Fixed Cost)
Net operating expense

Note:
COGS and OpEx is used in External Vertical Analysis
VC and FC is used in Internal Vertical Analysis
Financial Position Analysis(FPA)

Purpose: Liquidity
Benchmarking – compare results to other companies Availability of Cash as payment to current obligations

NAIA Consortium – referred to the planned Credit Ratio: above 1 = Good; below 1 = Bad
development of the NAIA terminal in Metro Manila Acidity Test: Positive = Good; Negative = Bad
Turnover – how often a certain account is being paid
Two aspects of a company:
Internal – Fixable by the company such as its employee, AR turnover – how often the company’s AR is
machine efficiency, technology, etc. being paid
External – Outside the companies control such as the
AP turnover – how often the company is paying
market, the laws, competitors, etc.
AP
Three methods of analysis
Inventory turnover – how often inventory I
FPA made into COGS
Vertical Analysis
Operating Period – number of days the company’s
Horizontal Analysis
normal operating cycle
Sources of Revenue of a Company
Leverage
Active – sourced from the main activity of the company
composition of assets, capital or liability
Passive – sourced from rent, interest, extra income
Debt to Equity Ratio: More than 50 = Good; Less = Bad
Client Mix – the demographics of the client/costumers
in a specific market Time Interest Earned – It is the capacity of the company
to pay interest. It measures how much is the debt
Product Mix – The different competitor products
capacity of a company.
available on a specific market
Net Income+ Interest Expense +Tax
Financial Statement Analysis TIE=
Intereset Expense
Account 2020 2021 dif change Operating Income=Capacity × TIE
Cash 50,000 100,000 50,000 100% Operating Efficiency – effectivity of the assets in earning
Receivable 150,000 300,000 150,00 100% Profitability – Earnings in contrast to expenses
0
Margin – how much the firm translates an income
Cash increase is Favorable; however, Receivable statement account into profit
increase is generally perceived as Unfavorable since ROI, ROE, etc.
more debt against the company has been made.
Marketing Measures – Value of shares/stocks/bonds

EPS – value of the share for the internal user

Operating DRR – rate of company’s capacity to make use of it

Liquidity Leverage earnings or pay it to the investor.
Efficiency

Marketing
Profitability
Measures

Categories of Calculations used by Management: