Management Control Systems and Cost Analysis

Management Control:

Process by which managers ensure that resources are obtained and used in the most efficient way to achieve goals. Defines strategy, organization MCS. Steps: Set goals, planning budgeting, measuring actual comparing, corrective.

Strategy:

Set of plans to achieve goals.

SWOT Analysis:

Analysis of the overall strategic possibilities of business and its environment. Purpose is to identify strategies that will create a firm-specific business model that will best align an organization's resources and capabilities with requirements of the environment.

BCG Matrix:

Aims to identify high-growth prospects by categorizing the company's products according to market growth and share.

Porter:

For developing an organization's strategy. It determines industry structure.

Goals:

Measurable objectives SMART.

Planning:

Deciding in advance what, when, and how to do. An exercise in problem-solving and decision-making. A systematic thinking about ways and means for the accomplishment of predetermined goals.

Business Plan:

Formal statement of business goals, reasons they are attainable, plans for reaching. Exec summary-business goals-mark plan-operational plan-financial plan-budget.

Control System:

Set of formal and informal procedures to assist management to lead the organization toward goals. Consists of Structure, Process, Information Systems.

Structure:

Integration of different activities responsible for the realization of products/services. Organized in Responsibility Centers, organizational units led by managers responsible for activities. 4 categories: Revenue, Cost, Profit, Investment.

Process:

Define key variances that will inform performance, define how variances are measured, measure and record results, report, analysis. Information Systems: set methods of measurement and evaluation of critical variables enabling the organization to compare actual performance and planned goals. ERP: business management software purpose is to facilitate the flow of information between all business functions in the organization and manage connections to shareholders. Indicators: measurement tools focused on relevant aspects of the company KPI. Nature, object, scope, function. Scorecard: informs the political evolution of business fundamentals and shows the main indicators in a clear and useful way. Balanced Scorecard: financial and non-financial measures connected to business strategy. 4 perspectives: Financial, Customers, Internal business processes, Learning and growth.

Cost System:

Tool used to measure consumption of resources. Cost is the monetary valuation of consumed resources to achieve. Categories: direct/indirect, variable/fixed. Period Cost: costs not included in the inventory valuation treated as expenses Amortization, Product Cost: costs that are identified with goods purchased or produced for resale, Packaging.

Direct Costing:

In unit product costs only variable manufacturing costs. Allows to know CM BEP, decide to produce or not. Difficult to decide selling price. (product cost, direct materials, direct labor).

Full Costing:

Costs of all manufacturing components as inventorial according to functional classification.

Activity-Based Costing:

Treats costs of all manufacturing components as inventorial or product costs (DM, DL, Variable factory overhead, fixed factory overhead). Present expenses on income statement according to functional classification.

Standard Costing:

Expected level of costs associated with the production of a good or service. Actual cost-standard=variances.

Cost Analysis: BVP

The level of the activity at which Revenues are equal to costs.

Contribution Margin:

SP-VC, CM% CM/SP, Units: TFC/CM, Sales TFC/CM%.

Sales Mix:

Proportion in which two or more products are sold. Some more profitable. BEP of sales mix is based on the contribution approach method.

Transfer Price:

The value of transfer of services between two or more profit centers, proper distribution of revenue between profit centers. Three methods for calculating transfer price: market-based, cost-based, negotiated.