CHAPTER 9 (Strategic Cost Management)
DECENTRALIZATION
CENTRALIZATION
- business org na isa lang ang nagdedesisyon
(centralized) which is effective for the entity
[owner: regarding products, services, directions,
and such]
- businesses can be centralize dosregarding its
size
- magiging effective if need ng competitive
strategy [mabilisang pag-iisp ganon]
- lower level management decisions are limited
[may chance lang pero not really talga kasi nga
isa lang pwede magdecision, siguro for recos
and suggestions lang]
e.g. Apple - chief executive is the one who
decides
- apples totally is same talaga [galing sa isang
mind lang, haha]
Advantages
1. Clarity
- kung ano yung decision, yun na yun
2. Streamlined implementation
- comes from one then naipapasa lang sa lower
management
3. Control over the strat direction
- there is ONLY ONE who decides for everything
Disadvantages
1. limited opportunities for employees to
provide feedback
2. Higher risk of inflexibility
- various [parang isasabog hahaha] and divided
into smaller segments for easier performance
measuring
Why?
- need talaga nila maka-isip ng competitive
strats kaya nagwowork hard sila that will make
them unique ganon
- to quickly adopt and find answers to
opportunities [team effort — marami nag-iisip
and marami nagdedecide] — delegation
- eventhough the anos are delagated , need pa
rjn congruence [same goal dapat yung mga
naiisip nila]
e.g. Johnson & Johnson - everyone is given a
chance to develop their expertise and such, to
innovate, but same goals
Advantages
1. quick deciuions and response time
- no need to wait for top decision maker
2. gives a better ability to expand the company
- exploring opportunities abt service and
products
3. highly skilled employees dapat
4. increase morale of employee
- success of org is based on the ability to obtain,
develop, and retain highly motivated employees
5. between compensation and responsibility
- this is your responsibility so this is what you
need to do, ganon hahaha
6. better use of lower and middle management
- you can have lower and middle managers to
help on decision-making
Disadvantages
1. Coordination problems - minsan
nakakalimutan na may common goal kaya
kanya-kanyang gawa nalang
2. increased admin cost - dahil kanya-kanya
nang gawa parang mas marami effort so more
cost
3. Incongruity in operations - baka matempt
yung managers na tignan yung goa nila instead
of goal of the goal [parang self-centered —
galingan natin para sa incentive rather than the
other team, ganon hahah]
4. Total reliance - baka mangyari na masyadong
nakarely sa lower and middle management ang
higher levels and vice versa
Can they go together?
i.e. school na may branch or campus (STI)
In case of advantage
centralized - highly organized and paper trail
[may mga decisions na need talaga iconsult sa
admin office]
decentralized - each campus can focus on its
own development and decision-making wil by
easier for diff. functions [mga decisions na hindi
naman na need na ipasa sa main campus]
- kasi kahit may dean and program coords na
delegated sa functions, sa main pa rin
manggagaling yung mga ano
RESPONSIBILITY ACCOUNTING
- summeizes and colects the responsibilities
(measuring their performance based on each
ano)
- if assigned sayo, then, i-e-evaluate nila yun
regarding if good or bad yung results
- lower level mnagers can decide pero
accountable sila sa results or effect of that
decision
Fundamental Aspects
1. Inputs nd Outputs, Cost, and Revenues
- something u can measure and utilize
- PnL based ang pagmeasure (revenue and
expenses)
2. Planned and Actual info or used of budgeting
- actual vs. budgeted/planned (variance
analysis)
3. Responsibility Center
- identification of responsibility centers [cost
center, revenue and profit center, investment
center]
4. Relationship between Org Structure and
Responsibility Accounting
- dapat fitted or connected sa isa:'t-isa
5. Assigning cost to Individuals and Limiting
their Efforts to Controllable Costs [kasi more
effort is more cost kaya need i-limit]
6. Performance Reporting or Measurement
- variance analysis (yung may unfavorable and
favorable — difference between actua and
budgeted cost)
7. Participative Management - with mutual
consent
8. Management by Exception
- mga events na need i-exempt na hindi n need
pansinin
9. Human Aspect
- by considering the employees (take care of
your people), (we gain from you, you gain from
us)
Responsibility Centers
1. Cost Center
- more on gastos rather that revenue pero
nagcocontribute sa entity [kapag walang cost,
wala ka products and such]
- tracking of costs
- actual vs. budgeted, cost per unit, how
departments perform (utiizing and managing
costs)
2. Revenue or Profit Center
- walang control sa cost but accountable sa
revenues pero dibaaa based on matching
principle (recognize cost at the same time as
revenue)
- directly adds to the entity's profitability
- separate segments
- crucial in which segments are performing good
or not
- Cost - Benefit supremacy hahaha
measurement: SCI (profit and loss nga, paulit-
ulit hays)
3. Investment Center (extension of profit
center)
- may profit pa rin pero may UTILIZATION OF
CAPITAL na
- kapag may sarili na siyang SFP and SCI
- could usually be a subsidiary
measurement: ROI, Residual Income (expected
minimum amount(, Economic Value Added)
BALANCE SCORECARD
- used to identify and improve internal
functions
- information used involves financial and non-
financial
Perspectives
1. Financial Perspective
- may include cost saving, profit margins, and
revenue sources (quanti info)
2. Customer Perspective
- parang how do u really serve you customers
(performance based)
- may also include customer service and
satisfaction, market share (small lang ba or
gusto ka ng customers), and brand awareness
(how strong is your branch)
3. Internal Business Processes
- setting out goals and objectives and what to
do to achieve or meet it
- may include process improvements, qualitu
optimization, and capacity utilization
4. Learning and Growth
- considers intangible performance
- it may include human capital (skills, talents,
and knowledge of employees), info capital (data
bases and info systems), and organization
capital
Return on Sales (ROS)
= segment income / net sales
Asset Turnover
= net sales / average assets
Return on Investment (ROI)
= return on sales × asset turnover , or;
= segment income / average assets (yung asset
mo is kumita ng segment income)
Residual Income
= segment income - minimum income required
[average asset × cost of capital rate]

ECONOMIC VALUE ADDED

Sales

Less: VC

= CM

Less: FC

= Operating Income

multiplied by: Tax Rate complement

= Net Operating Profit after Tax

Book Value of Net Assets

= total assets per record - current and long-term

liabilities

Fair Value of Net Assets (same formula above

but the basis is fair value)

Book Value of Long-term Equity

= total assets per records - current liabilities

Fair Value of Long-term Assets (same above

but the basis is fair value, of course)

CHAPTER 10 (Strategic Cost Management)

TRANSFER PRICE

- amount charged
- two separate divisions or segments kung saan
magtatransfer tayo ng products, and, may
kaakibat itong price

- may possibility na need pala siy ng kabilng

segment

- pwede ring ino-offer sa labas

- affects buying and selling division

Bakit internal lang?

- may parent-subsidiary relationship dapat

(management accounting) - internal transaction

- kapag may external transaction naman sa

afvance accounting na yun

High transfer price - higher profit for selling,

lower profit for buying (increased costs)

Low transfer price - lower profit for selling,

higher profit fo buying (decreased costs)

Why need to conside transfer pricing?

- magagamit ito sa performance evaluation and

internal profitability

Transfer Price = outlay cost (direct VC that

incurred as a result of the transfer) +
opportunity cost (benefit foregone by choosing
another option)