Business Administration and Management: A Comprehensive Guide
Definition of Organization
An organization is a set of related items arranged to achieve a specific objective. Key elements include people, goals, tasks, and administration.
Management Definition
Management is the coordination of people and material resources to achieve objectives.
Phases in the Management Process
According to Freeman, the phases include planning, control, organization, and management.
Management’s Foundation
Management is founded on decision-making.
Definition of Control
Pérez-Carballo (1995) defines control as a function ensuring the achievement of objectives set in the planning stage.
Areas of Control Application
- Goals and plans
- Organization
- Implementation
- Control itself
Types of Control
- A priori (before)
- A posteriori (after)
Formal vs. Informal Control
Formal control is systematic, regular, and organized, requiring designed procedures. Informal control is based on discretion and spontaneity, occurring naturally.
Control Tools
- Budget control (a priori)
- Internal audit (a posteriori)
- External audit (a posteriori)
- Inspection (a posteriori)
Decision-Making Process
- Intelligence phase
- Modeling phase
- Choice phase
- Review phase
Requirements for Effective Control
- Active management backing
- Relevance to activities
- Action-oriented checks
- Clearly assigned objectives
Scientific Model
A scientific model is a theoretical and abstract representation of reality used for understanding, explanation, prediction, and influence.
Types of Scientific Models
- Descriptive (e.g., Model of the atom)
- Predictive (e.g., Meteorology)
- Regulatory (e.g., Production planning system)
Management Science in Decision-Making
Management science provides models, tools, and techniques for decision-making.
Data vs. Information
Data are raw facts. Information is data placed in context, giving it meaning.
Relevant Internal Information for Strategy
- Cost information
- Quality information
- Technological level
- Resource capabilities
Break-Even Analysis
Determining the break-even point helps estimate the production volume needed to cover costs.
Objectives of Accounting Information Systems
- Provide systematic information about company performance
- Evaluate benefits and interests of economic activities
- Meet managers’ information needs at different levels
Decisions Supported by Accounting Information
- Product/service decisions
- Pricing decisions
- Manufacturing/purchasing decisions
- Product profitability analysis
- Equipment replacement/process design
Expense, Cost, and Payment
Expenditure: Acquisition of goods/services/rights through immediate or future exchange.
Cost: Spending incorporated into the production process.
Payment: Current money exchange for a commitment to future spending.
Symptoms of an Obsolete Accounting System
- Operational areas not using provided information
- Frequent demands for customized information
- Inconsistent information
Types of Costs
By Objectivity
- Direct costs (e.g., Materials)
- Indirect costs (e.g., Maintenance)
By Variability
- Variable costs (CVU(Q))
- Fixed costs (CF)
Cost System
A cost system is an information system classifying, accumulating, and allocating costs to reference units (products, activities, etc.).
Key Elements of a Cost System
- Costs
- Reference units
- Classification and allocation criteria
Types of Cost Systems (by Timing)
- A priori systems
- A posteriori systems (full cost, variable cost, ABC)
Conventional vs. ABC Cost Systems
ABC systems assign costs to activities, which consume resources, rather than directly to products.
Cost Absorption Rate
The cost absorption rate is the ratio of overhead costs to total activity units.
Cost Systems and Income Statement
Direct costing provides better income statement results when sales are less than production, as only direct costs are assigned to units.
Cost Systems and Inventory Valuation
Full cost systems value inventory higher, including both direct and indirect costs.
Sub-Activity Centers
Sub-activity centers represent costs arising from underutilized activity.
Discretionary Cost Centers
Discretionary cost centers have outputs that cannot be measured quantitatively.
ABC System Activities
Primary activities are directly involved in production (e.g., cutting, designing).
Secondary activities support primary activities (e.g., accounting, administration).
Cost Generator
A cost generator is a measure enabling direct and objective cost allocation, similar to traditional activity units.
Examples of Cost Generators
- Unit level: kg of material
- Batch level: Number of purchase orders
- Line level: Design study hours
- Enterprise level: Client meeting hours
Standard Cost
Standard cost is the expected cost under defined internal and external conditions.
Standard Cost Based on Past Data
Advantage: Easy to establish.
Disadvantage: Doesn’t reflect changing conditions.
Best Way to Establish Standard Costs
Use the technically affordable standard cost system with realistic standards.
Standard Costs and Budgetary Management
Standard costs are based on forecasts used in budget management.
Stages of Standard Cost Implementation
- Estimate standards
- Calculate actual costs
- Calculate and analyze deviations
- Present results
- Make decisions and allocate deviations
Economic Filter
An economic filter tracks deviations from planned situations, enabling corrective actions.
Types of Deviations
Direct Cost Deviations
- Raw material deviation
- Direct labor deviation
Indirect Cost Deviations
- Technical deviation
- Economic deviation
Joint Deviation
Joint deviation analysis examines the combined effect of technical and economic deviations, especially when they are inversely proportional.