Management Advisory Services Overview

Management Advisory Services (MAS)

• MAS provides professional advisory services to improve client use of capabilities and resources to achieve organizational objectives.
• Professionals involved have proper education and experience.
• Objectives include maximizing profit and shareholder wealth.
• Ownership structures can include sole proprietorships, partnerships, and corporations.
• Services are focused on management functions, including planning, leading, organizing, controlling, and motivating.
• Services often address future decision-making and problem-solving.
• Assignments are broad in scope and require good human relations skills.

Managerial vs Financial Accounting

• Users: Managerial accounting focuses on internal users (e.g., owners), while financial accounting focuses on external users (e.g., BIR, SEC).
• Nature of Reports: Managerial reports are often special and future-oriented, while financial reports are generally historical.
• Time Frame: Managerial reports often cover future periods, while financial reports cover past periods.
• Reporting Standards: Managerial accounting often uses subjective standards, while financial accounting uses generally accepted accounting principles (GAAP).
• Analysis of Data: Managerial accounting analyzes data subjectively and for decision-making purposes, while financial accounting analyzes data objectively and for reporting.

Organizational Structure

• Organizational structure describes the distribution of responsibilities and authority within an organization.
• Organizations can either be centralized or decentralized.
• Organization charts illustrate the relationships between different roles and responsibilities within an organization.
• Line and staff relationships define reporting lines and support functions.

Chief Financial Officer (CFO)

• The CFO manages the accounting department and reports to the CEO.
• The CFO is a member of the top management team and plays an active role in planning, control, and decision-making.
• The CFO leads high-level organization decisions.

Treasurership vs Controllership

• Treasurership:
  • Provides capital.
  • Manages investor relations.
  • Handles short-term financing.
  • Manages banking and custody of funds.
• Controllership:
  • Plans and controls operations.
  • Reports and interprets financial data.
  • Evaluates and consults on financial matters.
  • Administers taxes.

Cost Accounting

• Cost accounting focuses on identifying, measuring, analyzing, accumulating, preparing, interpreting, and communicating monetary costs.
• Cost accounting only considers monetary costs; non-monetary costs can still be relevant in decision-making.
• Cost accounting supports financial reporting and decision-making for operations.
• Cost accounting is concerned with determining, analyzing, and controlling costs.
• Cost accounting involves classification of costs:
  • Costs can be classified in a number of ways -depending on the purpose of the classification.( external vs internal)

Cost Classifications

• Manufacturing costs include direct materials, direct labor, and manufacturing overhead.
• Prime cost (or direct cost): direct materials + direct labor
• Conversion cost : direct labor + manufacturing overhead
• Nonmanufacturing costs include selling and administrative costs.

Cost Accounting Periods

• Capital expenditures: Outlays that benefit an organization for more than one accounting period.
• Revenue expenditures: Outlays that are expensed in the period incurred.
• Product costs (frequently called inventoriable costs): Costs are involved with manufacturing a product.
  • These costs are carried as inventory on the balance sheet until the product is sold.
• Period costs: Are costs that are expensed in the accounting period when they are incurred.
  • Examples include marketing, selling, and administrative costs.

Cost Behavior

• Variable costs: Vary in total in direct proportion to changes in activity levels. Constant per unit.
• Fixed costs: Remain constant in total regardless of activity level changes. Vary per unit.
• Semi-variable costs: Mixed costs containing both fixed and variable components.
• Step-fixed costs: Fixed within a relevant range of activity but increase in steps.
• Non-linear costs: Costs that vary, but their relationship with activity level cannot be described with a constant or declining rate.

Cost for Analytical Process

• Relevant costs: Differential costs that change based on managerial decisions.
• Irrelevant costs: Costs that are not affected by management decisions.
• Differential costs: Difference in cost between two or more alternatives.
• Incremental costs: Additional costs of a certain choice.
• Decremental costs: Reduced costs based on a certain choice.
• Marginal costs: Additional costs for each unit.
• Avoidable costs: Costs that can be eliminated if a segment or activity is eliminated.
• Unavoidable costs: Costs that continue even if a segment or activity is eliminated.
• Out-of-pocket costs: Costs that require an outlay of cash.
• Imputed costs: Costs that do not require a cash outlay.
• Opportunity cost: Potential benefit lost when an alternative course of action is chosen.
• Sunk costs: Costs that have already been incurred and cannot be recovered.

Quality Costs

• Prevention costs are expenditures aimed at avoiding quality problems.
• Appraisal costs include expenditures aimed at assessing quality during production.
• Internal failure costs relate to defects identified during production.
• External failure costs relate to defects found after products are delivered to customers.

This quiz explores the key aspects of Management Advisory Services (MAS) and contrasts managerial with financial accounting. It covers the objectives of MAS, the roles of professionals, and the differences in reporting between internal and external users. Test your knowledge on how these elements contribute to effective organizational management.