UNIVERSITY OF MINDANAO

College of Accounting Education

Program: BSA, BSIA, BSMA, BSAIS

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)

Course/Subject: ACC 213 – Strategic Cost Management

Name of Teacher: ____________________

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

FOR REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS
INTENDED USE. THIS IS INTENDED ONLY FOR THE USE OF
THE STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

TABLE OF CONTENTS
Page No.
Course Outline 3
Course Outline Policy 3
Course Information 7

Big Picture Weeks 8-9: Unit Learning Outcomes 8

Big Picture in Focus: Unit Learning Outcome A 8
Metalanguage 8
Essential Knowledge 9
Self-Help 15
Let’s Check 15
Let’s Analyze 16
In A Nutshell 17
QA List 18
Keywords Index 18
Big Picture in Focus: Unit Learning Outcome B 19
Metalanguage 19
Essential Knowledge 19
Self-Help 21
Let’s Analyze 21
In A Nutshell 22
QA List 23
Keywords Index 23
Course Schedule Weeks 8-9 24
Online Code of Conduct 25

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Course Outline: MAS 1 – Management Accounting, Part 1

Course Coordinator: Myra T. Miraflores

Email: myra_miraflores@umindanao.edu.ph
Student Consultation: By appointment
Mobile: 0917-8135633
Phone: (082) 300-5456 loc. 137
Effectivity Date: May 25, 2020
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Pre-requisite: ACCTG 10a – Cost Accounting and Cost
Management, Part 2
Credit: 3
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face to face sessions.

Course Outline Policy

Areas of Concern Details

Contact and Non-contact This 3-unit course self-instructional manual is designed for blended
Hours learning mode of instructional delivery with scheduled face to face
or virtual sessions. The expected number of hours will be 54
including the face to face or virtual sessions. The face to face
sessions shall include the summative assessment tasks (exams)
since this course is crucial in the Certified Public Accountant
Licensure Examination (CPALE).

Assessment Task Submission of assessment tasks shall be on 3 rd, 5th, 7th and 9th week
Submission of the term. The assessment paper shall be attached with a cover
page indicating the title of the assessment task (if the task is
performance), the name of the course coordinator, date of
submission and name of the student. The document should be
emailed to the course coordinator. It is also expected that you
already paid your tuition and other fees before the submission of the
assessment task.

If the assessment task is done in real time through the features in

the Blackboard Learning Management System, the schedule shall
be arranged ahead of time by the course coordinator.

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Since this course is included in the CPALE, you will be required to

take the Multiple Choice Question exam inside the University. This
should be scheduled ahead of time by your course coordinator.

This is non-negotiable for all licensure-based programs.

Turnitin To ensure honesty and authenticity, all assessment tasks are

Submission required to be submitted through Turnitin with a maximum similarity
(if necessary) index of 30% allowed. This means that if your paper goes beyond
30%, the students will either opt to redo her/his paper or explain in
writing addressed to the course coordinator the reasons for the
similarity. In addition, if the paper has reached more than 30%
similarity index, the student may be called for a disciplinary action
in accordance with the University’s OPM on Intellectual and
Academic Honesty.

Please note that academic dishonesty such as cheating and

commissioning other students or people to complete the task for you
have severe punishments (reprimand, warning, expulsion).

Penalties for Late The score for an assessment item submitted after the designated
Assignments/Assessments time on the due date, without an approved extension of time, will be
reduced by 5% of the possible maximum score for that assessment
item for each day or part day that the assessment item is late.

However, if the late submission of assessment paper has a valid

reason, a letter of explanation should be submitted and approved by
the course coordinator. If necessary, you will also be required to
present/attach evidences.

Return of Assignments/ Assessment tasks will be returned to you two (2) weeks after the
Assessments submission. This will be returned by email or via Blackboard portal.

For group assessment tasks, the course coordinator will require

some or few of the students for online or virtual sessions to ask
clarificatory questions to validate the originality of the assessment
task submitted and to ensure that all the group members are
involved.

Assignment Resubmission You should request in writing addressed to the course coordinator
his/her intention to resubmit an assessment task. The resubmission
is premised on the student’s failure to comply with the similarity index
and other reasonable grounds such as academic literacy standards
or other reasonable circumstances e.g. illness, accidents financial
constraints.

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Re-marking of You should request in writing addressed to the program coordinator

Assessment Papers and your intention to appeal or contest the score given to an assessment
Appeal task. The letter should explicitly explain the reasons/points to
contest the grade. The program coordinator shall communicate with
the students on the approval and disapproval of the request.

If disapproved by the course coordinator, you can elevate your case

to the program head or the dean with the original letter of request.
The final decision will come from the dean of the college.

Grading System All culled from BlackBoard sessions and traditional contact
Course discussions/exercises – 30%
1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%

All culled from on-campus/onsite sessions (TBA):

Final exam – 40%

Submission of the final grades shall follow the usual University

system and procedures.

Preferred Referencing Depends on the discipline; if uncertain or inadequate, use the

Style general practice of the APA 6 th Edition.

Student Communication You are required to create a umindanao email account which is a
requirement to access the BlackBoard portal. Then, the course
coordinator shall enroll the students to have access to the materials
and resources of the course. All communication formats: chat,
submission of assessment tasks, requests etc. shall be through the
portal and other university recognized platforms.

You can also meet the course coordinator in person through the
scheduled face to face sessions to raise your issues and concerns.

For students who have not created their student email, please
contact the course coordinator or program head.

Contact Details of the Lord Eddie I. Aguilar

Dean Dean
Email: aguilar_lordeddie@umindanao.edu.ph
Phone: (082) 3050645 local 137

Contact Details of the Mary Grace S. Sombilon

Assist. Dean and Program Assistant Dean
Heads Email: sombilon_marygrace@umindanao.edu.ph
Phone: (082) 3050645 local 137

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Jade Solana CPA, MBA

Program Head – BSA, BSMA
Email: jd_solana@umindanao.edu.ph
Phone: 082-3050647 local 137

Devzon U. Porras
Program Head - BSIA, BSAIS
Email: dporras@umindanao.edu.ph
Phone: (082) 3050645 local 137

Students with Special Students with special needs shall communicate with the course
Needs coordinator about the nature of his or her special needs. Depending
on the nature of the need, the course coordinator with the approval
of the program coordinator may provide alternative assessment
tasks or extension of the deadline of submission of assessment
tasks. However, the alternative assessment tasks should still be in
the service of achieving the desired course learning outcomes.

Library Contact Brigida E. Bacani

Email: library@umindanao.edu.ph
Phone: 09513766681

for inquiries, you can email at umlic.eresources@gmail.com,

raphael_digal@umindanao.edu.ph or
chat with us here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-Learning-and-
Information-Center-Davao-City-962331877193048/

Well-being Welfare Ronadora E. Deala

Support Help Desk GSTC Head
Contact Email: Ronadora_deala@umindanao.edu.ph
Phone: 09212122846

Zerdszen P. Rañises
GSTC Facilitator
Emai: gstcmain@umindanao.edu.ph
Phone: 09058924090

GSTC Facebook Page:

https://facebook.com/UM-GSTC-Main-CAE-
111901303784349/?modal=admin_todo_tour

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Course Information – see/download course syllabus in the Black Board LMS

CC’s Voice: Hello student! Welcome to this course ACC 213: Strategic Cost
Management. One of the areas that a competent accounting practitioner
must be adept with is cost accounting and management. At this point in
your journey as an accounting student, you have already been oriented
on the basics of cost accounting and management, the cost behavior
and the different methods of cost accumulation and allocation.

CO The course ACC 213 is designed to deepen your knowledge on cost

management. It aims to acquaint the students with the impact of changes
in costs and volume to a company’s profit; advances in cost
management, such as activity-based cost management system;
concepts related to management control systems such as
decentralization, responsibility accounting, divisional performance
evaluation and transfer pricing; advances in inventory and production
management and accounting principles and practices such as economic
order quantity, Just-In-Time manufacturing, backflush costing, lean
accounting and productivity measurement. This course also covers
relevant concepts in budgetary systems, business planning and control.
At the end of this course, you are expected to be able to explain the basic
concepts and practices in cost management, apply knowledge in
problem solving using relevant managerial tools in decision-making and
prepare a Master Budget.

Let us begin!

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Big Picture

Weeks 8-9: Unit Learning Outcomes (ULO): At the end of the unit, you are expected
to

a. Discuss the just-in-time (JIT) inventory management and define the theory of
constraints as used to manage inventory.
b. Describe the basics of lean manufacturing and accounting.

Big Picture in Focus: ULOa. Discuss the just-in-time (JIT) inventory

management and define the theory of constraints as used to
manage inventory.

Metalanguage

In this section, the most essential terms relevant to the study of the just-in-time
inventory management and theory of constraints and to demonstrate ULOa will be
operationally defined to establish a common frame of reference as to how the texts
work in your chosen field or career. You will encounter these terms as we go through
this new lesson. Please refer to these definitions in case you will encounter difficulty
in understanding concepts.

1. Just-in-case inventory management. It is a traditional inventory model based

on anticipated demand.
2. Just-in-time inventory management. It is a contemporary inventory model in
which purchases and production of materials, parts and subcomponents are
scheduled so that items are available just when needed for production, not earlier
and not later. There is zero inventories.
3. Ordering costs. These are the costs of placing and receiving an order. Examples
include the costs of processing an order (clerical costs and documents), insurance
for shipment, and unloading costs.
4. Setup costs. These are the costs of preparing equipment and facilities so they
can be used to produce a particular product or component. Examples are wages
of idled production workers, the cost of idled production facilities (lost income), and
the costs of test runs (labor, materials, and overhead).
5. Carrying costs. These are the costs of holding inventory. Examples include
insurance, inventory taxes, obsolescence, the opportunity cost of funds tied up in
inventory, handling costs, and storage space.
6. Stock-out costs. are the costs of not having a product available when demanded
by a customer. Examples are lost sales (both current and future), the costs of
expediting (increased transportation charges, overtime, and so on), and the costs
of interrupted production.

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3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

7. Economic order quantity. It is a mathematical approach to compute order size

(number of units to order) to minimize the annual sum of the inventory carrying
cost and ordering cost.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for Weeks 8-9 of
the course, you need to fully understand the following essential knowledge that will be
laid down in the succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books, research
articles and other resources that are available in the university’s library e.g. ebrary,
search.proquest.com etc.

INVENTORY POLICIES
Inventory policy can be used to reduce costs and help organizations strengthen their
competitive position. Just-in-case inventory management provides the necessary
background for grasping the advantages of inventory management methods that are
used in the contemporary manufacturing environment. These methods include JIT and
the theory of constraints.

Just-In-Case Inventory Management

Inventory management is concerned with managing inventory costs.

Three types of inventory costs:

(1) the cost of acquiring inventory (other than the cost of the good itself)
(2) the cost of holding inventory
(3) the cost of not having inventory on hand when needed

If the inventory is a material or good acquired from an outside source, then these
inventory-acquisition costs are known as ordering costs.

If the material or good is produced internally, then the acquisition costs are called
setup costs.

Ordering costs and setup costs are similar in nature—both represent costs that must
be incurred to acquire inventory. They differ only in the nature of the prerequisite
activity (filling out and placing an order versus configuring equipment and facilities).

If demand is not known with certainty, a third category of inventory costs—called stock-
out costs—exists.

Just-In-Time Inventory Management

In the past decade, many companies have focused attention on their inventory
policies. Many have implemented just-in-time (JIT) systems described as follows:

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

JIT Management
End-goals: speed, accuracy and cost-effectiveness
Speed in manufacturing cycle time are accomplished with the following:
a. Unqualified support from top management
b. Retention and maintenance of reliable suppliers
c. Most efficient equipment and machinery maintenance program
d. Well-trained, responsible and quality-oriented personnel
e. Effective and efficient design department
f. Use of statistical quality control techniques
g. Improving plant layout

JIT Inventory System

Anchored on the premise that
-materials should be received just-in-time they are needed for production, and,
-finished goods are completed just-in-time they are needed by customers

Quality principle states: “the best warehouse is a clean warehouse”

-aims to eventually eliminate warehousing and reduce costs of inventory holding

Fundamental objective: to produce and deliver what is needed, when it is needed,

at all stages of the production process just-in-time to be fabricated, assembled and
shipped to the customer

JIT Inventory System

-Forces strong quality relationship between the supplier, the company and its
customers
-Speeds up delivery to customers at the best possible production quality and
productivity
Benefits:
✓ Lower inventory level
✓ Faster response time
✓ Higher output per input (per employee)
✓ Fewer floor space requirements

JIT Inventory System

PULL SYSTEM: inventories are pulled through production by current demand,
NOT pushed through by anticipated demand
Plant Layout: not designed in functional department process but by manufacturing
cells (group of machines grouped in semicircle)
Worker (@cell): must be able to operated all machines and to perform support
tasks; teamwork; continuously trained; more participation; empowered
Manufacturing cycle time and setup time are reduced.
Central support departments are reduced or eliminated.
Space is saved.
Fewer and smaller factories may be required.
Materials and tools are brought closer to the point of use.

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

JIT Inventory System

Use of KANBAN incorporated in the design of a computerized manufacturing

Just-in-time (JIT)

appropriate when
Costs of Carrying Inventory
far exceed:

Costs of Ordering and Receiving purchased items

or
Costs of Setting-up Production Runs of internally produced items

system (Japanese term: ticket; card; market)

Withdrawal kanban states the quantity that a succeeding process shall withdraw
Production kanban states the output of the present process
Vendor kanban that tells the vendor what, how much, when and where to deliver

Optimum Level of Inventory

Many non-JIT companies, or those who do not fully implement a JIT system, manage
their inventories by trying to maintain an optimum level of inventory.

Optimum Level
is

best inventory level = minimum total costs

too high inventory level = unnecessary carrying costs and risks of obsolescence
too little inventory levels = disrupts production or loses sales

Relevant Costs of Inventories

Cost of Ordering
1. Preparing purchase or production orders
2. Receiving (unloading, unpacking, inspecting)
3. Processing all related documents
4. Extra costs of numerous small production runs, setups and training
5. Quantity discounts lost (trade discounts on volume purchases)

Cost of Carrying
1. Foregone return on capital invested in inventory
2. Risk of obsolescence and deterioration
3. Storage-space costs
4. Personal property taxes on inventory
5. Insurance on inventory

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Ordering Costs and Carrying Costs

-tend to offset one another (inverse relationship)
-as orders decrease in frequency and grow in size,
the total relevant costs of carrying the inventory, including interest, increase,
but the total costs of ordering, delivery and so on, decrease;
and vice versa

Inventory Control
Two Main Questions

1. How much to order?

best/optimum size = Economic Order Quantity (EOQ)

the point where:

total ordering costs = total carrying costs
or
total relevant inventory costs (at the lowest) = ordering costs + carrying costs

2. When to order?
reorder point – inventory level where a purchase order should be placed

Economic Order Quantity

Economic Order Quantity (in units) =

2 xAD xCPO
CCPU
where;
AD = annual demand in units
CPO = cost of placing an order
CCPU = annual cost of carrying one unit in a stock per year

Economic Order Quantity (in peso) =

2 xAD( P) xCPO
CCR
where;
AD (P) = annual demand in peso
CPO = cost of placing an order
CCR = carrying cost ratio

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Illustration (9-1): Economic Order Quantity

Annual demand for an inventory item X is 10,500 units, ordering cost is
P15.90 per order placed, and carrying cost per unit per year is 10% of the unit cost
P3.00.
AD = 10,500 units
CPO = P15.90
CCPU = 10% of P3.00 unit cost
2 (10,500)(15.90)
EOQ = .30
= 1,055 units is the purchased quantity of item X that will
minimize the holding cost and ordering cost

Other Formulas to remember:

Carrying Cost per unit = Total Carrying Costs
(CCPU) Average Inventory

CCPU = Unit Cost x Carrying Cost Ratio

Total Carrying Cost = CCPU x Average Inventory

Average Inventory = Order Size / 2

Technically, however,
Average Inventory = OS/2 + Safety Stock Quantity

Cost per Order = Total Ordering Costs

(CPO) No. of Orders

Total Ordering Cost = Cost per Order x No. of Orders

No. of Orders = Annual Demand (AD)

Order Size

Order Size (OS) = Average Inventory x 2

To immediately apply your new knowledge, proceed to answering ULOa Let’s

Analyze Activity 1 Problems 1 and 2.

Reorder Point (ROP)-inventory level where a purchase order should be placed

ROP = Lead Time Quantity + Safety Stock Quantity

Lead Time-the period (waiting time) between the time the order is placed and the
goods are received can be expressed as Maximum lead time or Normal lead time
Lead Time Quantity = normal usage x normal lead time

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3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Safety Stock
-reserve stock held to avoid stock out in cases of sudden increase in demand and or
delays delivery of orders.
Safety stock = Safety Stock (in usage) + Safety Stock (in time)
Safety stock (in usage)
= (Maximum Usage – Normal Usage) x Normal Lead Time
Safety stock (in time)
= (Maximum Lead Time – Normal Lead time) x Normal Usage
or Average Daily Usage
Average Daily usage (demand)
= Annual demand / No. of days operation per year
Maximum Inventory Level = Safety Stock Quantity + Order Size

Illustration (9-2): Safety Stock

Company X has the following information relative to its primary raw material:
25,200 cases evenly in one year
Normal lead time= 20 days
Maximum lead time= 25 days
Working days= 360 days

Average daily usage

= 25,200/360 days = 70 units
Safety Stock
= (25 – 20) x 70 = 5(70) = 350 units

To immediately apply your new knowledge, proceed to answering ULOa Let’s

Analyze Activity 1 Problem 3.

THEORY OF CONSTRAINTS
Goal: to make money now and in the future by man- aging constraints
-recognizes that the performance of any organization (system) is limited by its
constraints; every system has at least one constraint that limits its output
-develops a specific approach to manage constraints to support the objective of
continuous improvement
-focuses on the system-level effects of continuous improvement.

Each company (i.e., system) is compared to a chain. Every chain has a weakest link
that may limit the performance of the chain as a whole. The weakest link is the
system’s con- straint and is the key to improving overall organizational performance.
Why? Ignoring the weakest link and improving any other link costs money and will not
improve system performance. On the other hand, by strengthening the weakest link,
system performance can be improved.

At some point, however, strengthening the weakest link shifts the focus to a different
link that has now become the weakest. This next-weakest link is now the key system

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Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

constraint, and it must be strengthened so that overall system performance can be

improved. Thus, TOC can be thought of as a systems approach to continuous
improvement.

Five-Step Method for Improving Performance

The theory of constraints uses five steps to achieve its goal of improving organizational
performance:
1. Identify an organization’s constraints.
2. Exploit the binding constraints.
3. Subordinate everything else to the decisions made in step 2.
4. Elevate the organization’s binding constraints.
5. Repeat the process as a new constraint emerges to limit output.

Self-Help: You can also refer to the sources below to help you further
understand the lesson. You can also use other materials.
Hansen, D., Mowen, M., & Liming, G. 2009, Cost Management Accounting & Control, 6th Edition,
Cengage Learning, Mason, OH.
Horngren, C., Datar, S. & Rajan, M. 2015, Cost Accounting A Managerial Emphasis, 15th Edition,
Pearson Education Limited, England.

Let’s Check
Activity 1. Please encircle the letter under each item that best reflects your answer.
1. In JIT manufacturing, each operation produces
a. only what is necessary for the succeeding operations.
b. all that it can to offset fixed costs.
c. a fixed percentage in excess of orders to ensure adequate quality stock.
d. all that it can in order to build inventories.

2. Companies that adopt just-in-time purchasing system often experience

a. an increase in carrying costs.
b. a reduction in the number of suppliers.
c. a greater need for inspection of goods as they arrive.
d. Less used for linkage with a vendor’s computerized order entry system.

3. The benefits of a just-in-time system for raw materials usually include

a. maximization of the standard delivery quantity, thereby lessening the
paperwork for each delivery.
b. decrease in the number of deliveries required to maintain production.
c. elimination of nonvalue-adding operations.
d. increase in the number of supplier, thereby ensuring competitive bidding.

4. What modern production methodology emphasizes strengthening the weakest link

of the company to improve operations to become more efficient and effective?
a. Weakest link theory
b. Just-in-time

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Matina Campus, Davao City
Telefax: (082)305-5456
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c. Total quality
d. Theory of constraints

5. A manufacturing company is attempting to implement a just-in-time purchase

policy system by negotiating with its primary suppliers to accept long-term
purchase orders which results in more frequent deliveries of smaller quantities of
raw materials. If the JIT purchase policy is successful in reducing the total
inventory costs of the manufacturing company, which of the following
combinations of cost changes would be most likely to occur?
a. increase purchasing costs; decrease stockout costs
b. increase purchasing costs; decrease quality costs
c. increase quality costs; decrease ordering costs
d. increase stockout costs; decrease carrying costs

Let’s Analyze
Activity 1. Read each problem carefully and provide what is being required.

Problem 1 (adapted)
MTM Corporation has been buying product AAA in lots of 1,250 units which represents
a three month’s supply. The cost per unit is 220. The order cost is P900 per order;
and the annual inventory carrying cost per one unit is P25. Assume that the units will
be reordered evenly throughout the year. Determine the following:
Required:
1. Economic order quantity
2. Number of orders in a year
3. Average inventory based on EOQ
4. Total carrying cost, ordering costs and relevant inventory costs at EOQ
5. Total relevant costs for order sizes of 2,000 units, 1,000 units, 600 units, 250
units and 100 units

Problem 2 (adapted)
The KMT Corporation determines the manufacturing cost per order of a raw material
is P25. The company expects to use P50,000 of this material in the coming year. Its
carrying charge is 10% of inventory. Determine the following:
Required:
1. Economic order quantity in pesos
2. Number of times the raw material be ordered in the coming year
3. Average inventory
4. Total relevant inventory costs at EOQ

Problem 3 (adapted)
FQS Corporation makes available the following information relative to its Material G4.
Annual demand 30,000 units
Working days in a year 300 days
Normal lead time 12 days

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Matina Campus, Davao City
Telefax: (082)305-5456
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Maximum lead time 19 days

Maximum usage per working day 125 units
Economic order size 6,000 units
Required:
1. Lead time quantity
2. Safety stock quantity
3. Reorder point
4. Average inventory
5. Maximum inventory

In a Nutshell
Activity 1. You are now familiar with the essential terms related to quality and
environmental cost management. But it is important that you are also able to
confidently discuss the concepts introduced. On the space provided below, please
write a thorough discussion of the required information.

1. Discuss just-in-time inventory management.

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

2. Define the theory of constraints as used to manage inventory.

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

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Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Q&A LIST
Do you have any question/issue/concern for clarification? Please list them down
below and raise them formally by posting the list in the designated forum section. Your
teacher or any of your classmates may provide the answer or clarification you need.
Once satisfied, you return to this list and write the corresponding answers in your own
words. This list will help you in the review of the concepts and essential knowledge.

Questions / Issues / Concerns Answers

1.

2.

3.

4.

5.

KEYWORDS INDEX
In this section, keywords are listed down to help you recall the lesson. The list may
include concepts, ideas, theories, names of people and other vital terms to remember
that may or may not necessarily be found in the Metalanguage section. You may refer
to this list as you review the lesson.

Carrying costs Kanban system Reorder point

Economic order quantity Lead time Safety stock

Just-in-time inventory mgmt. Ordering costs Theory of constraint

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Big Picture in Focus: ULOb. Describe the basics of lean accounting and
productivity measurement.

Metalanguage

In this section and in order to demonstrate ULOb, the most essential terms
relevant to the study of activity-based costing will be operationally defined. You will
encounter these terms as we expound the topic into the study of activity-based
management system. Please refer to these definitions in case you will encounter
difficulty in understanding related terms and concepts.

1. Lean manufacturing. It is an operating approach designed to eliminate waste and

maximize customer value. It is characterized by delivering the right product, in the
right quantity, with the right quality (zero-defect), at the exact time the customer
needs it and at the lowest possible cost.
2. Lean accounting. This accounting approach organizes costs according to the
value chain and collects both financial and nonfinancial information. The objective
is to provide financial statements that better reflect overall performance, using both
financial and nonfinancial information.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for Weeks 8-9 of
the course, you need to fully understand the following essential knowledge that will be
laid down in the succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books, research
articles and other resources that are available in the university’s library e.g. ebrary,
search.proquest.com etc.

Lean Manufacturing
Many companies are changing their business processes to focus on the customer as
well as on the value chain activities that support a customer orientation and focus on
the elimination of waste. These companies have embarked on lean manufacturing,
which aims at shedding waste and excess from operations. Companies that make this
change in focus find that their accounting must also change. This accounting
approach, referred to as lean accounting.

Objectives:
-allows managers to 1) eliminate waste, 2) reduce costs, and, 3) become more efficient
-adds value by reducing waste

Firms implementing lean manufacturing systems:

-pursuing a cost reduction (cost leadership) strategy by redefining the activities
performed within an organization

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Advantages: better quality, increased productivity, reduced lead times, major

reductions in inventories, reduced setup times, lower manufacturing costs, and
increased production rates

Just-in-time (JIT) manufacturing shares many methods of the lean manufacturing

approach.

Becoming lean requires lean thinking that has the following principles:
1. Precisely specify value by each particular product.
2. Identify the “value stream.”
3. Make value flow without interruption.
4. Let the customer pull value from the producer.
5. Pursue perfection.

Lean Accounting
While the accounting practice cannot outpace changes in the operation of businesses,
it should closely follow. The numerous changes in structural and procedural activities
that we have described for a lean firm have changed traditional cost management
practices for many companies.

The traditional cost management system may not work well in the lean environment.
In fact, the traditional costing and operational control approaches may actually work
against lean manufacturing.

Standard costing variances and departmental budgetary variances will likely

encourage overproduction and work against the demand-pull system needed in lean
manufacturing.

For example, emphasis on labor efficiency by comparing actual hours used with hours
allowed for production encourages production to keep labor occupied and productive.
Similarly, emphasis on departmental efficiency (e.g., machine utilization rates) will
cause non-bottleneck departments to overproduce and build work-in-process
inventory.

Furthermore, we already know from our study of activity-based costing that in a

multiple-product plant, the use of a plantwide overhead rate can produce distorted
product costs relative to focused manufacturing assignments or activity-based
assignments. Distorted product costs can signal failure for lean manufacturing even
when significant improvements may be occurring.

To avoid obstacles and false signals, changes in both product-costing and operational
control approaches are needed when moving to a value-stream-based lean
manufacturing system.

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Self-Help: You can also refer to the sources below to help you further
understand the lesson. You can also use other materials.
Hansen, D., Mowen, M., & Liming, G. 2009, Cost Management Accounting & Control, 6th Edition,
Cengage Learning, Mason, OH.
Horngren, C., Datar, S. & Rajan, M. 2015, Cost Accounting A Managerial Emphasis, 15th Edition,
Pearson Education Limited, England.

Let’s Analyze
Activity 1. You are now familiar with the essential terms related to lean accounting.
But it is important that you are also able to confidently discuss the concepts
introduced. On the space provided below, please write a thorough discussion of the
required information.

1. Discuss briefly the five principles of lean thinking embodied in lean manufacturing.

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

2. Describe lean accounting.

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

In a Nutshell
Activity 1. Based on the definition of the most essential terms in the study of the lean
manufacturing and accounting and the learning exercises that you have done so far,
please feel free to write your arguments or lessons learned below in relation to this
topic.

1. _____________________________________________________________

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

2. _____________________________________________________________

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

3. _____________________________________________________________

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

4. _____________________________________________________________

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

5. _____________________________________________________________

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Q&A LIST
Do you have any question/issue/concern for clarification? Please list them down
below and raise them formally by posting the list in the designated forum section. Your
teacher or any of your classmates may provide the answer or clarification you need.
Once satisfied, you return to this list and write the corresponding answers in your own
words. This list will help you in the review of the concepts and essential knowledge.

Questions / Issues / Concerns Answers

1.

2.

3.

4.

5.

KEYWORDS INDEX
In this section, keywords are listed down to help you recall the lesson. The list may
include concepts, ideas, theories, names of people and other vital terms to remember
that may or may not necessarily be found in the Metalanguage section. You may refer
to this list as you review the lesson.

Lean accounting Lean manufacturing Lean thinking

23
 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Course Schedule

Please be guided by this calendar of activities (partial list).

Activity Date Where to submit
Weeks 8-9 ULO A Let’s Check Activity 1 BB Weeks 8-9 ULO A
Weeks 8-9 ULO A Let’s Analyze Activity 1 BB Weeks 8-9 ULO A
Weeks 8-9 ULO A In a Nutshell Activity 1 BB Weeks 8-9 Forum A
Weeks 8-9 ULO A Q&A List BB discussion feature
Weeks 8-9 ULO B Let’s Analyze Activity 1 BB Weeks 8-9 ULO B
Weeks 8-9 ULO B In a Nutshell Activity 1 BB Weeks 8-9 Forum B
Weeks 8-9 ULO B Q&A List BB discussion feature
Competency Assessment
Final Exam
Special Instructions: Sample Filename Formats:
STUDENT’S SURNAME_8-9 ULO_A_Check_1
1. All online submissions must be in PDF file. STUDENT’S SURNAME_8-9 ULO_B_Check_2
2. Follow sample filename format. Filename will STUDENT’S SURNAME_8-9 ULO_B_ Analyze_1
serve as your guide in your submission. STUDENT’S SURNAME_8-9 ULO_A_ Analyze_2

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 COLLEGE OF ACCOUNTING EDUCATION
3F Facundo Hall, Business and Engineering Building
Matina Campus, Davao City
Telefax: (082)305-5456
Phone No.: (082)300-5456 Local 137

Online Code of Conduct

1. Students are expected to abide by and honor code of conduct, and thus everyone and all are
exhorted to exercise self-management and self-regulation.
2. All students are guided by professional conduct as learners in attending On-Line Blended Delivery
(OBD) course. Any breach and violation shall be dealt with properly under existing guidelines,
specifically in Section 7 (Student Discipline) in the Student Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core Values,
specifically in the adherence to intellectual honesty and integrity; academic excellence by giving
due diligence in virtual class participation in all lectures and activities, as well as fidelity in doing
and submitting performance tasks and assignments; personal discipline in complying with all
deadlines; and observance of data privacy.
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The University shall
institute monitoring mechanisms online to detect and penalize plagiarism.
5. Students shall independently and honestly take examinations and do assignments, unless
collaboration is clearly required or permitted. Students shall not resort to dishonesty to improve
the result of their assessments (e.g. examinations, assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students shall not
post or share their answers, assignment or examinations to others to further academic
fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the Online Code of
Conduct, as well as all the requirements and protocols in handling online courses.

Prepared by:

Myra T. Miraflores, CPA

Course Coordinator

Reviewed by:

Jade D. Solaña, CPA, MBA Devzon U. Porras, CPA, MSA

Program Head – BSA and BSMA Program Head – BSIA and BSAIS

Mary Grace S. Sombilon, CPA, MSA

Assistant Dean

Approved by:

Lord Eddie I. Aguilar, MBA, CPA

Dean

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