STRACOSMAN: STRATEGIC COST MANAGEMENT

CHAPTER 2: Management Accounting Concepts and Techniques for Planning and Control
SUMMARY NOTES BY: Mary Joy C. Nala, CB
BS ACCOUNTANCY 3B | 2nd SEMESTER A.Y. 2022-2023

COST TERMS, CONCEPTS, AND BEHAVIOR DIFFERENT TYPES OF COST ACCUMULATION METHODS
TERM DEFINITION Is the accumulation of costs by specific jobs (i.e., physical
Expenditures incurred by the business to carry on it units, distinct batches, or job lots). This costing method is
Cost Job order
investing, operating, and financing activities. appropriate if a product can be produced separately, distinct
costing method
An account in which variety of similar costs are from the other jobs which require different number of materials,
Cost Pool accumulated prior to allocation to cost objects (e.g., labor, and overhead.
overhead account) Accumulates all the costs of operating a process for a period
Intermediate and final disposition of cost pools for a of time and then divides the cost by the number of units of
Cost Object Process costing product that passed through that process during the period; the
particular activity
A factor that causes a change in the cost pool for a result is a unit cost. If the product of one process becomes the
Cost Driver particular activity and basis for cost allocation. Any factor or material of the next, a unit cost is computed for each process.
activity that has direct cause-effect relationship Has been popularized because of the rapid increase in the
Activity-based automation of manufacturing process, which has led to a
costing (ABC) significant increase in the incurrence of indirect costs and a
Cost Classification consequent need for more accurate cost allocation.
A. Accountant’s Perspective
1. As to function ANALYSIS OF COST BEHAVIOR
a. Product – DM, DL, VOH, and FxOH (Variable, Fixed, Semi-Variable/Mixed, Step-Cost)
b. Period – Administrative, Marketing, Distribution A range of activity that reflects the company’s normal
2. As to product Relevant Range operating range. Within this relevant range, the cost behavior
a. Direct – directly attributable: DM & DL to be discussed is valid.
b. Indirect – factory overhead: VOH & FxOH The total amount varies directly with cost driver, and the per
Variable
cost driver remains constant.
3. As to process
The total amount remains constant, and the per cost driver
a. Common – all departments: salaries, depreciation, Fixed
varies inversely with cost driver.
electricity Semi-Variable / Mixed costs or Total Costs have variable and fixed costs
b. Joint – for 2 or more products; not directly traced Mixed components.
When activity changes, a step cost shifts upward or
Step Cost
B. Manager’s Perspective downward by a certain interval or step.
1. As to segment: Direct, Indirect
2. As to control: Controllable, Uncontrollable Relevant Range Time Period
3. As to incurrence: Avoidable, Unavoidable Linear and valid relationships Valid for specific time period
Y = a + bx In short run, fixed costs is constant
C. Proprietor’s Perspective Usually based on capacity In long run, fixed cost variable
1. Out of the pocket *Operational capacity
2. Noncash Costs
Slope-intercept form

Direct costs
NATURE AND CLASSIFICATION OF COST
Are costs that are related to a particular cost object and can Y=a+bx
economically and effectively be traced to that cost object
Costs that are related to a cost object, but cannot practically, Dependent Variable Assumed Constants Independent
economically, and effectively be traced to such cost object. Total Cost a – fixed cost (y - intercept) Variable
Indirect costs
Cost assignment is done by allocating the indirect cost to the b – variable cost per unit Level of
related cost objects or slope Activity
Are within the relevant range and time period under
consideration, the total amount varies directly to the change
Variable costs
in activity level or cost driver, and the per unit amount is
constant.
Cost Segregation Approaches
Are within the relevant range and time period under Scatter Graph Making use of a scatter diagram to determine the visual fit line
consideration, the total amount remains unchanged, and the Account Classification
Fixed costs per unit amount varies inversely or indirectly with the change Engineering Incorporating time and motion studies fixed and variable cost
in the cost driver. Fixed costs may be committed or Method segregation
discretionary (managed) This method’s objective is to minimize the sum of the squared
Least – Square
Are costs incurred to manufacture a product. deviations of all the relevant points in a given data set in order
Method
• Product costs of the units sold during the period are to arrive at a cost function that represents the data set
recognized as expenses (cost of goods sold) in the High – Low Use of slope formula in identifying the fixed and variable cost
Inventoriable Method portion of the total mixed cost
income statement.
(Product) costs
• Product costs of the unsold units become the costs
of inventory and treated as asset in the balance High – Low Method Formula:
sheet.
Non-manufacturing costs that include selling, administrative,
and research and development costs. These costs are 𝑌2 (𝐻𝑖𝑔ℎ𝑒𝑠𝑡) − 𝑌1 (𝐿𝑜𝑤𝑒𝑠𝑡) Δ𝑦
Period costs
expensed in the period of incurrence and do not become part
𝑏= or Δ𝑥
𝑋2 (𝐻𝑖𝑔ℎ𝑒𝑠𝑡) − 𝑋1 (𝐿𝑜𝑤𝑒𝑠𝑡)
of the cost of inventory.
Are income or benefits given up when one alternative is
Opportunity costs
selected over another. 1. Remove the outliers (anomalous data)
Sunk/Past or Are already incurred and cannot be changed by any decision
Historical costs made now or to be made in the future. a. Given/Stated in the problem
b. Hints
COST AS TO BEHAVIOR 2. Identify the highest and lowest X (i.e., work
TYPE Per Unit Total
orders, output, etc.)
FIXED Varies K
VARIABLE K Varies
3. Find the value of “b”
4. Find “a” (Re: Y = a + bx)

SUMMARY NOTES
Prof. Rica M. Quitoriano BSA 3B
STRACOSMAN: STRATEGIC COST MANAGEMENT
CHAPTER 2: Management Accounting Concepts and Techniques for Planning and Control
SUMMARY NOTES BY: Mary Joy C. Nala, CB
BS ACCOUNTANCY 3B | 2nd SEMESTER A.Y. 2022-2023

COST VOLUME PROFIT (CVP) ANALYSIS THE CONTRIBUTION MARGIN INCOME STATEMENT
Cost Concepts
FIXED Varies The costs and expenses in the Contribution Margin Income Statement
VARIABLE K are classified as to behavior (variable and fixed). The amount of
What is CVP Analysis? contribution margin, which is the difference between sales and
Analyzing cost, volume and profit variable costs, is shown. The format is as follows:
Factors affecting Profit (FUSUN)
Fixed Cost CONTRIBUTION MARGIN INCOME STATEMENT
COST Inverse
Unit Variable Cost
Sales Mix Multiple Products Sales (units x selling price) xx
Unit Selling Price Less variable costs
VOLUME Direct (units x variable cost per unit) xx
No. of units sold
Contribution margin xx
Assumptions in CVP (CULETS)
Less total fixed costs xx
Cost Variable & Fixed
Income before tax xx
Unit Selling Price; VC; Constant
CM; and Total Fixed Cost
Linear Relationship Relevant Range MARGIN OF SAFETY
Ending Inventory = Beg. Inventory; Production = Sales - Margin where you are safe
Time Value of Money Ignored - Level of sales that contributes to profit
Sales Mix Constant - Level of sales that can be lost without a loss
Definition
- The amount of peso sales or the number of
Assumptions units by which actual or budgeted sales may be
Variables of Profit decreased without resulting into a loss.
Basic Sensitivity
Sales Volume Changes Changes
Unit Sales Price Constant* Changes Margin of Safety (MOS) = Total Sales – Breakeven Sales
Unit Variable Costs Constant Changes UNITS %
Total Fixed Costs Constant Changes Total Sales xx 100%
Sales Mix Constant Changes FORMULA Breakeven Sales (xx) BE Ratio
MOS XX MOS Ratio
BREAKEVEN ANALYSIS Other MOS Ratio x CM Ratio = Profit Ratio
Level of Sales Revenue = Cost formulas BE Ratio x CM Ratio = Fixed Cost Ratio
(units/peso) Profit/Loss = 0
Methods The amount of peso sales or the number of units by which
1. Break even Chart
a. Graphical Method actual or budgeted sales may be decreased without resulting
2. Profit Volume Chart
Profit = Sales – Chart
into a loss.
b. Equation Approach Let x be the breakeven point
0 = SP (x) – VC (x) – TFC MSp = Sp – BEPp or MSp / SP
BEP (units) = Total Mixed Cost
c. Contribution Margin CM/unit MSu = Su – BEPu or MSu / SU
Approach BEP (peso) = Total Fixed Cost
CM ratio MSR = MSp / Sp or MSu / Su
Target Profit
How many units? To achieve target profit Where: MSp = Margin of safety in pesos
How many sales? - Total Amount; per unit, or in terms of % MSu = Margin of safety in units
TP (units) = Total Fixed Cost + Target NIBTx
CM/unit MSR = Margin of safety ratio
Formula: TP (peso) = Total Fixed Cost+ Target NIBTx Sp = Sales in pesos
CM ratio Su = Sales in units
BEPp = Break-even point in pesos
BEPu = Break-even point in units
Contribution Margin Income Statement SP = Selling price
- Direct costing
- Cost if classified according to behavior (variable/fixed) Degree of Operating Leverage or Operating Leverage Factor
- For internal reporting purposes only
UNITS TOTAL Per Unit % of Sales
DOL = CM or 1 or % ∆ in Net Income
Sales xx SP/u 100% FORMULA NIBTx MOS Ratio % ∆ in Sales
Variable cost (xx) VC/u VCRatio
1. Operating Risk = Risk of Loss
PRO Contribution margin xx CM/u CMRatio Measures 2. Fixed Cost Use
FORMA Fixed cost (xx) FC/u FCRatio (w/ Direct
3. Earnings Potential
NIBTx xx NIBTx/u NIBTx Ratio Relationship to
DOL)
Tax (xx) Tx/u Tx Ratio % ∆ in Sales x DOL = % ∆ in Profit (+/-)
NIATx XX NIATx/u NIATx Ratio
Contribution Margin – residual amount from Selling Price that
contributes to Profit

SUMMARY NOTES
Prof. Rica M. Quitoriano BSA 3B
STRACOSMAN: STRATEGIC COST MANAGEMENT
CHAPTER 2: Management Accounting Concepts and Techniques for Planning and Control
SUMMARY NOTES BY: Mary Joy C. Nala, CB
BS ACCOUNTANCY 3B | 2nd SEMESTER A.Y. 2022-2023

Standard Costing and Variance Analysis - Assigns only manufacturing costs to the product
- Fixed OH is treated as period expense
DIRECT MATERIALS VARIANCE (rationale: cost of capacity or staying in
Actual DM Cost AQu x AP Price business)
Budgeted DM Cost AQu x SP
Standard DM Cost SQ X SP Quantity
If AQu is given: MQV = (AQu - SQ) x SP
COMPARISON OF ABSORPTION AND VARIABLE
ABSORPTION VARIABLE
Product Costs DM, DL, VOH, FOH DM, DL, VOH
DIRECT LABOR VARIANCE Period Costs SE, AE FOH, SE, AE
Actual DL Cost AH x AR Rate
Budgeted DL Cost AH x SR
- GAAP requires AC for external reporting
Standard DL Cost SH x SR Efficiency - VC can supply a vital cost information for decision
making and control
FIXED OH VARIANCE - For internal application, VC is an important
Actual FOH Cost AH x AFOR Budget/
managerial tool
Spending
Budgeted FOH Cost AH x SFOR
Efficiency
Standard FOH Cost SH x SFOR Product Cost Period Cost
Inventoriable cost – Asset Expired cost – expense
VARIABLE OH VARIANCE Includes raw materials, labor General, selling, and
Actual VOH Cost AH x AVOR Spending and overhead administrative expense
Budgeted VOH Cost AH x SVOR
Standard VOH Cost SH x SVOR Efficiency
ABSORPTION VARIABLE THROUGHPUT
For Unit Cost COSTING COSTING COSTING
MIXED & YIELD VARIANCE Direct Material ✓ ✓ ✓
Weighted Average – Std. Combination Direct Labor ✓ ✓ x
(Std. Units x Std. Price) + Total Std Units x Variable FOH x
✓ ✓
Weighted Average – Actual Combination Fixed FOH ✓ x x
(Actual Units x Std. Price) + Total Actual Units (x)
Difference F (UF) x
Variable Conversion Cost
Actual Input or Total Actual Units x (x)
DM MIX VARIANCE x
INCOME STATEMENT
Actual Input X ABSORPTION COSTING
Standard Input (AO + SO x SI) (x) Sales xxx SP x units SOLD
Less: COGS xxx Unit Cost AC x units SOLD
Difference F (UF) x
Gross Profit or Margin xxx
Weighted Ave. SP – Std Combination x (x) Less: Selling & Admin xxx Fixed Commercial/OpEx +
DM YIELD VARIANCE x Expense Variable Commercial/OpEx

Net income – AC xxx If there is Noncontrollable

Variance, this NI is @ std. value
Actual Input x
+/- Noncontrollable Variance xxx / (xxx) Favorable (+); Unfavorable (-)
Standard Input (AO + SI x SO) (x) ACTUAL Net Income
NET INCOME – AC Xxx
Difference F (UF) x
Std Price per Unit (Std Units x Std Price + SO) x x
VARIABLE COSTING
DM YIELD VARIANCE x
Sales xxx SP x units SOLD
Less: Variable Cost xxx Unit Cost VC x units SOLD
DM Mix Variance + DM Yield Variance = DM Qty Var. Contribution Margin xxx CM/u x units SOLD
Less: Fixed Cost xxx Fixed Commercial/OpEx + Fixed
FOH
PRODUCT COSTING Fixed OH (on units produced)
Fixed Selling & Admin Expense
1. Absorption Costing Net income – VC xxx If there is controllable Variance,
this NI is @ std. value
- Assigns all manufacturing costs to the product +/- Controllable Variance xxx / (xxx) Favorable (+); Unfavorable (-)
- DM, DL, VOH & FOH define the cost of a NET INCOME – VC Xxx ACTUAL Net Income
product
- Fixed OH is viewed as a product cost, not a ABSORPTION (FULL) COSTING
period cost • A product costing method that includes all the
- Fixed OH is assigned to the product through the manufacturing costs (direct materials, direct labor,
use of a predetermined fixed OH rate and is not and both the variable and fixed factory overhead) in
expected until the product is sold the cost of a unit of product.
• Under the absorption costing method, fixed factory
2. Variable Costing overhead is treated as a product cost.
- Stresses the difference between fixed and
variable manufacturing costs

SUMMARY NOTES
Prof. Rica M. Quitoriano BSA 3B
STRACOSMAN: STRATEGIC COST MANAGEMENT
CHAPTER 2: Management Accounting Concepts and Techniques for Planning and Control
SUMMARY NOTES BY: Mary Joy C. Nala, CB
BS ACCOUNTANCY 3B | 2nd SEMESTER A.Y. 2022-2023

VARIABLE COSTING Accountin COSTING METHOD

g
• A product costing method that includes only the Principles Absorption Variable
variable manufacturing costs (direct materials, direct Distinguishes between Distinguishes
labor, and variable overhead) in the cost of a unit of production and other costs between variable and
fixed costs
product. S xx
S xx
• Under the variable costing method, fixed factory - CGS (production
xx
Income cost) - VC xx
overhead is treated as a period cost. statement
Gross profit xx CM xx
PRODUCT COST COMPONENTS - S&A Costs xx - FC xx
COSTING METHOD Profit xx
Absorption Variable Profit xx
Direct materials Direct materials Net income between the two methods may differ from
Direct labor Direct labor each other because of the difference in the amount
Variable FOH Variable FOH of fixed overhead costs recognized as expense
Fixed FOH - during an accounting period. This is due to variations
Net income between sales and production. In the long run,
Product Cost Product Cost however, both methods give substantially the same
results since sales cannot continuously exceed
production, nor production can continually exceed
Distinction Between Product Cost And Period Cost sales.
COST
Product Period RECONCILIATION OF ABSORPTION AND VARIABLE
Cost that is charged against COSTING INCOME FIGURES
Cost that is included in the current revenue during a
computation of product cost time period regardless of Absorption costing income xx
that is apportioned between the difference between
Add : Fixed overhead in the beginning inventory xx
the sold and unsold units. production and sales
volume. Total xx
An inventoriable cost. The Less : Fixed overhead in the ending inventory xx
portion of the cost that has
Does not form part of the Variable costing income xx
been allocated to the
cost of inventory.
unsold units becomes part
of the cost of inventory.
Reduces current income by Variable costing income xx
the portion allocated to the Add : Fixed overhead in the ending inventory xx
Reduces income for the
sold units; the portion
current period by its full Total xx
allocated to unsold units is
amount. Less : Fixed overhead in the beginning inventory xx
treated as an asset; being
part of the cost of inventory. Absorption costing income xx

Inventory Costs Between Variable Costing and

Absorption Costing ACCOUNTING FOR DIFFERENCE IN INCOME
Accountin COSTING METHOD Change in inventory (production less sales) xx
g Multiply by Fixed FOH cost per unit xx
Principles Absorption Variable
Difference in income xx
Seldom segregates costs
Cost Costs are segregated
into variable and fixed
segregation into variable and fixed
costs DIFFERENCE IN INCOME UNDER ABSORPTION AND
Cost of inventory
Cost of inventory includes includes only the VARIABLE COSTING
all the manufacturing costs: variable
Cost of
materials, labor, variable manufacturing costs: COMPARISON OF
inventory
factory overhead and fixed materials, labor, and
factory overhead variable factory Production And Fixed FOH
Net Income
overhead Sales Expensed
Treatment P=S AC = VC AC = VC
Fixed factory
of fixed Fixed factory overhead is
overhead is treated as P>S AC > VC AC < VC
factory treated as product cost
period cost
overhead P<S AC < VC AC > VC

SUMMARY NOTES
Prof. Rica M. Quitoriano BSA 3B
STRACOSMAN: STRATEGIC COST MANAGEMENT
CHAPTER 2: Management Accounting Concepts and Techniques for Planning and Control
SUMMARY NOTES BY: Mary Joy C. Nala, CB
BS ACCOUNTANCY 3B | 2nd SEMESTER A.Y. 2022-2023

BUDGETING MODELS
Financial Planning and Budgets A series of budgets prepare for many levels of activity. It makes
Flexible
possible the adjustment of the budget to the actual level of activity
budgeting
before comparing the budget figures with the actual results.
BUDGET Does not segregate costs into fixed and variable components. Costs
• Is a detailed plan, expressed in quantitative terms, Fixed or
are estimated only at a single level of activity. Actual costs are
compared with the budgeted costs regardless of the actual level of
about business operations for a specific period; a static
production and costs variances are obtained and analyzed
budgeting
budget is a useful tool for planning and controlling accordingly. A budget based on only one level of activity (sales or
production volume)
company expenses, cash flows, and earnings. The Maintains a particular time frame (or period) covered in budgeting
Continuous
term budgeting is used to denote the process of or rolling
(say 12 months). When a time segment (e.g., month) had passed, it
is dropped from the budget frame and a new month is added to
coming up with budgets. budgeting
maintain a given time covered by the budget.
• A realistic plan, expressed in quantitative terms, for Does not consider the past performances in anticipating the future.
Incoming costs should be classified and packaged based on
a certain future period of time. Zero-based activities which must be prioritized and justified as to their
budgeting incurrence. The objective is to encourage objective examination of
all costs in the hope that costs could be better controlled. ZBB starts
BUDGET MANUAL – describes how a budget is to be from the lowest budgetary units of the organization.
prepared. It usually includes: Incremental A budgeting process wherein the current period’s budget is simply
budgeting adjusted to allow for changes planned for the coming period.

• BUDGET PLANNING CALENDAR – the schedule

STATIC BUDGET VARIANCE ANALYSIS
of activities for the development and adoption of
the budget. It includes a list of dates indicating ACTUAL BUDGET VARIANCE
when specific information is to be provided by / to Level of activity
(sales or
those who are involved in the budgeting process. 500 200 300
production
volume)
• DISTRIBUTION INSTRUCTIONS – for all budget Cost 1 2,000 3,000 ( 1,000) F
schedules, so that those segments involved in the
budget preparation would know to whom / from Cost 2 5,500 5,000 500 U
whom a computed budget schedule is to be given Total 7,500 8,000 ( 500) F
/ acquired.
FLEXIBLE BUDGET VARIANCE ANALYSIS
BUDGET REPORT – shows a comparison of the actual ACTUAL BUDGET VARIANCE
and budget performance. The budget variances, which are Level of activity
properly described as either favorable or unfavorable, are (sales or
500 500 -
also shown on the report. production
volume)
THE MASTER BUDGET Variable Costs 3,500 2,500 1,000 U
Fixed Costs 5,000 5,000 -
The master budget is a comprehensive budget that Total 8,500 7,500 1,000 U
consolidates the overall plan of the organization for a
specified period. The master budget is mainly composed Activity-Based Costing (ABC) And Activity-Based
of: (1) operating budgets and (2) financial budgets. The Management (ABM)
master budget, in some organizations, is also referred to as
pro forma budget, forecast budget, master profit plan. ACTIVITY BASED COSTING (ABC) SYSTEM allocates
overhead to multiple activity cost pools and assigns the
MASTER
BUDGET activity cost pools to products by means of cost drivers.
OPERATING FINANCIAL
BUDGET BUDGET
a. Activity Levels (Unit-Level, Batch-Level, Product-
Level and Facility-Level), Cost Pools and Activity
Budgeted Budgeted
Production Budgeted Cost Budgeted Net
Sales Budget Operating Income Cash Budget
Budget of Goods Sold Income
Expenses Statement

Direct Materials Budgeted

Drivers
Budget Balance Sheet
- An activity is any event, action, transaction, or
Direct Labor
Budget
Budgeted Cash
Flow Statement work sequence that incurs costs when
Factory Capital producing a product or providing a service.
Overhead Expenditure
Budget Budget

Working ACTIVITY LEVELS

Capital Budget
The unit-level activities are performed each time a unit of a
Preparing a Master Budget by Unit-Level product is produced. The number of times unit-level
activities (such as drilling holes and inspecting every part)
Analyzing the Behavior of Revenues and Costs

SUMMARY NOTES
Prof. Rica M. Quitoriano BSA 3B
STRACOSMAN: STRATEGIC COST MANAGEMENT
CHAPTER 2: Management Accounting Concepts and Techniques for Planning and Control
SUMMARY NOTES BY: Mary Joy C. Nala, CB
BS ACCOUNTANCY 3B | 2nd SEMESTER A.Y. 2022-2023

are performed varies according to the number of units

produced.
STRATEGIC COSTS MANAGEMENT
These are costs incurred every time a group (batch) of units
is produced or a series of steps is performed. Purchase
Batch-Level
orders, machine setup, and quality tests are examples of A core definition of total quality management (TQM)
batch‐level activities. describes a management approach to long–term success
Also known as the product sustaining level, these are
activities that are needed to support the entire product line
through customer satisfaction. In a TQM effort, all members
Product-Level
regardless of the number of units and batches produced. of an organization participate in improving processes,
Examples: engineering costs, product development costs.
Also called business (organization) sustaining activity, is an
products, services, and the culture in which they work.
Facility-Level activity that supports business operations in general and
cannot be traced to individual units, batches, or products.
8 Principles of TQM:
1. Customer-focused
COST POOLS 2. Total employee involvement
• A “bucket” in which costs are accumulated that relate to a
single activity measure in the ABC system
3. Process-centered
• It is a group of costs usually associated with a common cost 4. Integrated system
driver. 5. Strategic and systematic approach
6. Continual improvement
ACTIVITY DRIVERS 7. Fact-based decision making
• A factor that causes a change in the cost pool for a particular 8. Communications
activity. It is used as a basis for cost allocation; any factor or
activity that has a direct cause-effect relationship.
• Cost drivers are the actual activities that cause the total cost
Just-In-Time Production System
in an activity cost pool to increase.
Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and
decrease waste by receiving goods only as they are needed in the production process,
Traditional Costing Activity-based costing thereby reducing inventory costs. This method requires producers to forecast demand
Traditional costing assigns Activity-based costing allocates accurately.
manufacturing overhead based the costs of manufacturing a
Continuous improvement, sometimes called continual improvement, is the ongoing
on the volume of a cost driver, product according to the improvement of products, services or processes through incremental and breakthrough
such as the amount of direct activities needed to produce the improvements.
labor hours needed to produce item. Managers should
an item. A cost driver is a factor understand the advantages and Kaizen costing is applied to products that are already in production phase. Prior to
kaizen costing, when the products are under development phase, target costing is
that causes cost to incur, such disadvantages of both systems applied.
as machine hours, direct labor to meet the needs of their
hours and direct material hours business. Product Life Cycle
An advantage of using
traditional-based costing is that Activity-based costing provides PRODUCT
it aligns with Generally Accepted a more accurate view of product LIFE CYCLE
Accounting Principles, or GAAP. cost, but companies typically
Easy implementation for use it as a supplemental costing
companies that provide one system.
product also is a plus Early Stages Later Stages

PROCESS VALUE ANALYSIS

A strategy that businesses use to determine whether all of Introduction Maturity

their operational expenses are necessary and if they could
be operating more efficiently. Process value analysis looks
at what the customer wants and then asks if each aspect of Growth Decline
operations is necessary to achieve that result. The goal of
process value analysis is to eliminate unnecessary A series of stages that products pass through in their lifetime, characterized by changing
product demands over time.
expenses incurred in the process of creating a good or Target costing
service without sacrificing customer satisfaction.
Target costing is defined as "a disciplined process for determining and achieving a full-
stream cost at which a proposed product with specified functionality, performance, and
Value-Added Activities Non-Value-Added quality must be produced in order to generate the desired profitability at the product’s
Activities anticipated selling price over a specified period of time in the future."

Value added to customers: Non-value-added: steps that

steps that directly impact could be eliminated or
customer satisfaction changed without harming
service levels or the Target costing process
organization

SUMMARY NOTES
Prof. Rica M. Quitoriano BSA 3B