Department of Accounting Education

Mabini Street, Tagum City

Davao del Norte
Telefax: (084) 655-9591, Local 116

UNIVERSITY OF MINDANAO
Tagum College

Department of Accounting Education

Accountancy Program

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)

Course/Subject: ACCBP 100 – Accounting Plus

Name of Teacher: Daniboy D. Balinawa, CPA

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS INTENDED USE.
THIS IS INTENDED ONLY FOR THE USE OF THE STUDENTS WHO ARE
OFFICIALLY ENROLLED IN THE COURSE/SUBJECT.EXPECT REVISIONS
OF THE MANUAL.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Table of Contents

Page

Part 1. Course Outline and Policies................................................................. 1

Part 2. Instruction Delivery
CC’s Voice............................................................................………….. 5
Course Outcomes................................................................................. 5
Big Picture A: Unit Learning Outcomes ............................................... 6
Big Picture in Focus:ULOa……………………………………………….. 6
Metalanguage....................................................................................... 6
Essential Knowledge............................................................................ 6
Self-Help............................................................................................... 14
Let’s Check........................................................................................... 15
Let’s Analyze......................................................................................... 15
In a Nutshell.......................................................................................... 16
Q&A List................................................................................................ 17
Keywords Index.................................................................................... 17

Big Picture in Focus:ULOb……………………………………………….. 17

Metalanguage....................................................................................... 17
Essential Knowledge............................................................................ 17
Self-Help............................................................................................... 30
Let’s Check........................................................................................... 30
Let’s Analyze......................................................................................... 31
In a Nutshell.......................................................................................... 32
Q&A List................................................................................................ 33
Keywords Index.................................................................................... 33

Big Picture B: Unit Learning Outcomes ............................................... 34

Big Picture in Focus:ULOa……………………………………………….. 34
Metalanguage....................................................................................... 34

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Essential Knowledge............................................................................ 34
Self-Help............................................................................................... 39
Let’s Check........................................................................................... 40
Let’s Analyze......................................................................................... 40
In a Nutshell.......................................................................................... 41
Q&A List................................................................................................ 42
Keywords Index.................................................................................... 42

Big Picture in Focus:ULOb……………………………………………….. 43

Metalanguage....................................................................................... 43
Essential Knowledge............................................................................ 43
Self-Help............................................................................................... 53
Let’s Check........................................................................................... 54
Let’s Analyze......................................................................................... 54
In a Nutshell.......................................................................................... 55
Q&A List................................................................................................ 57
Keywords Index.................................................................................... 57

Big Picture in Focus:ULOc……………………………………………….. 58

Metalanguage....................................................................................... 58
Essential Knowledge............................................................................ 58
Self-Help............................................................................................... 60
Let’s Check........................................................................................... 60
Let’s Analyze......................................................................................... 61
In a Nutshell.......................................................................................... 62
Q&A List................................................................................................ 62
Keywords Index.................................................................................... 62

Big Picture C: Unit Learning Outcomes ............................................... 63

Big Picture in Focus:ULOa……………………………………………….. 63

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Metalanguage....................................................................................... 63
Essential Knowledge............................................................................ 63
Self-Help............................................................................................... 69
Let’s Check........................................................................................... 69
Let’s Analyze......................................................................................... 70
In a Nutshell.......................................................................................... 70
Q&A List................................................................................................ 71
Keywords Index.................................................................................... 72

Big Picture in Focus:ULOb……………………………………………….. 72

Metalanguage....................................................................................... 72
Essential Knowledge............................................................................ 73
Self-Help............................................................................................... 82
Let’s Check........................................................................................... 82
Let’s Analyze......................................................................................... 85
In a Nutshell.......................................................................................... 85
Q&A List................................................................................................ 85
Keywords Index.................................................................................... 85

Big Picture D: Unit Learning Outcomes ............................................... 86

Big Picture in Focus:ULOa……………………………………………….. 86
Metalanguage....................................................................................... 86
Essential Knowledge............................................................................ 86
Self-Help............................................................................................... 98
Let’s Check........................................................................................... 98
Let’s Analyze......................................................................................... 98
In a Nutshell.......................................................................................... 100
Q&A List................................................................................................ 101
Keywords Index.................................................................................... 101

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Part 3. Course Schedule................................................................................. 102

Online Code of Conduct...................................................................... 103
Monitoring of OBD and DED............................................................... 105

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Course Outline: ACCBP100 – Accounting Plus

Course Facilitator : Daniboy D. Balinawa, CPA

Email : dbalinawa@umindanao.edu.ph
Student Consultation : Done online (LMS) or traditional contact
(calls, text,emails)
Mobile : 09105499068
Phone : None
Effectivity Date : August 2020
Mode of Delivery : Online Blended Delivery (OBD)
Time Frame : 54 hours
Student Workload : Expected Self-Directed Learning
Pre-requisite : None
Credit : 3 units
Attendance Requirement : For online sessions: minimum of 95% attendance
For 1-day on campus/onsite review: 100%
attendance; for 1-day on-campus/on-site final
exam: 100% attendance

Course Outline Policies

Areas of Concern Details

Contact and Non-contact Hours This 3-unit course self-instructional manual is
designed for online blended mode of instructional
delivery with scheduled face to face or virtual
sessions which can be done using LMS,
traditional contact (via cellphone/telephone and
SMS) and social media platforms (e.g. email,
private messenger, Facebook, Viber, WhatsApp,
Line, Zoom and other similar applications)
depending on what is available for both teachers
and students. The expected number of hours will
be 54 including the face to face or virtual
sessions. The face to face sessions shall include
the summative assessment tasks (exams) since
this course is crucial in the licensure exam for
CPAs.

Assessment Task Submission Submission of assessment tasks shall be on the

3rd, 5th, 7th and 9thweek of the 1stterm of first
semester. Moreover, specific dates of submission
are specified in the Course Schedules Section of
this manual. The assessment paper shall be
attached with cover page including the title of

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

assessment task (if the task is performance),

the name of the course coordinator, date of
submission and name of the student. The
document shall be submitted to the course
coordinator thru LMS (Quipper), email, FB
messenger or thru any means accessible to
students. It is also expected that you already paid
your tuition and other fees before the submission
of the assessment task.

If the assessment task is done in real time

through the features of LMS accessible to
students, the schedule shall be arranged ahead
of time by the course coordinator.

Since this course is included in the licensure

examination for CPAs, you will be required to
take the Multiple Choice Question Exam inside
the school. This should be scheduled ahead of
time by your course coordinator. This is non-
negotiable for all licensure-based programs.

Turnitin Submission To ensure honesty and authenticity, all

(if necessary) assessment tasks are required to be submitted
thru Turnitin with a maximum similarity index of
30% allowed. This means that if your paper goes
beyond 30%, the students will either opt to redo
her/his paper or explain in writing addressed to
the course coordinator the reasons for similarity.
In addition, if the paper has reached more than
30% similarity index, the student may be called
for a disciplinary action in accordance with the
University’s OPM on Intellectual and Academic
Honesty.

Please note that academic dishonesty such as

cheating and commissioning other students or
people to complete the task for you have severe
punishments (reprimand, warning, expulsion).

Penalties for Late Assignments/ The score for an assessment item submitted after
Assessments the designated time on the due date, without an
approved extension of time, will be reduced by
5% of the possible maximum score for that
assessment item for each day or part day that the
assessment item is late.

However, if the late submission of assessment

paper has valid reason, a letter of explanation
should be submitted and approved by the course

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

coordinator, If necessary, you will also be

required to present/attach evidences.

Return of Assignments / Assessment tasks will be returned to you one (1)

Assessments week after the submission. This will be returned
via LMS, email, FB messenger or any other
communication platforms available for both
teacher and students.

For some group assessment tasks, the course

coordinator will require some or few of the
students for online or virtual sessions to ask
clarificatory questions to validate the originality of
the assessment task submitted and to ensure
that all the group members are involved.

Assignment Resubmission You should request in writing addressed to the

course coordinator his/her intention to resubmit
an assessment task. The resubmission is
premised on the student’s failure to comply with
the similarity index and other standards or other
reasonable circumstances e.g. illness, accidents,
financial constraints.

Re-marking of Assessment You should request in writing addressed to the

Papers and Appeal course coordinator your intention to appeal or
contest the score given to an assessment task.
The letter should explicitly explain the
reasons/points to contest the grade. The course
coordinator shall communicate with the students
on the approval or disapproval of the request.

If disapproved by the course coordinator, you can

elevate your case to the program head or the
dean with the original letter of request. The final
decision will come from the Dean of College.

Grading System You shall be evaluated based on the following:

Assessment methods Weights

EXAMINATIONS 70%
A. Exam 1st – 3rd 30%
B. Final Exam 40%
CLASS 30%
PARTICIPATIONS
Total 100%

Submission of the final grades shall follow the

usual University system and procedures.
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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Preferred Referencing Style Use the general practice of APA 6th edition.

Student Communication The course coordinator shall create Group Chat

in FB messenger for the class. Each student shall
create a Quipper account. The course
coordinator will then provide a Quipper access
code to the students for them to enrol to have
access to the materials and resources of the
course. All communication formats: chat,
submission of assessment tasks, request, etc.
may be done thru any platforms available for the
convenience of teacher and students.

You can also meet the course coordinator in

person through the scheduled face to face
sessions to raise your issues and concerns.

Contact Details of the Dean Dr. Gina Fe G. Israel

Email: deansofficetagum@umindanao.edu.ph
Mobile: 09099942314

Marck Lester L. Navales, CPA, MBA

Assistant Dean
E-mail: navalesmarck@umindanao.edu.ph
Phone: 0975 0517 851

Contact Details of the Program For Accountancy:

Heads
Mary Cris L. Luzada, CPA, MSA
Email: luzadacris@umindanao.edu.ph
Mobile: 09228321794

For Accounting Technology:

Maria Teresa A. Ozoa, CPA, MBA

Email: ozoamateresa@umindanao.edu.ph
Mobile: 09472657119

Students with Special Needs Students with special needs shall communicate
with the course coordinator about the nature of
his or her special needs. Depending on the
nature of the need, the course coordinator with
the approval of the program coordinator may
provide alternative assessment tasks or
extension of deadline of submission of
assessment tasks. However, the alternative
assessment tasks should still be in the service of
achieving the desired course learning outcomes.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Library Contact Details Clarissa R. Donayre, MSLS

Chief Librarian
Email: lictagum@umindanao.edu.ph
Mobile: 09273951639
Well Being Welfare Support Help Rochen D. Yntig, RGC
Desk Contact Details Head
Email: chenny.yntig@gmail.com
Number: 0932 7717 219

Mersun Faith A. Delco, RPm

Psychometrician
Email: mersunfaithdelco@gmail.com
Number: 0927 6086 037

Alfred Joshua M. Navarro

Facilitator
Email: is40fotb@gmail.com
Number: 0977 3416 064

Course Information –see/download course syllabus from

Quipper or other available platforms

CC’s Voice:
Hello there! Welcome to this course ACCBP100: ACCOUNTING PLUS. This
course is designed for you to have an overview of the various aspects of
business. As future accountants, you will be dealing with records; hence, it is
important for you to have basic knowledge of the different aspects of business to
easily relate to potential business transactions. This covers topics related to
business management, finance, marketing and economics. Moreover, this course
will also help you evaluate the worthiness of investment opportunity considering
the concept of the time value of money. I am confident that you will find this
course relevant as this applies not only to business but as well as to your personal
endeavors. I hope that you enjoy while learning this course!

Course Outcome (CO):

Upon completion of the course, the students are expected to be able to explain
the theories, principles and concepts of management and organization,
marketing, finance and economics and be able to assess impacts of various
business environments. Thus, the students are also expected to distinguish
needs and wants of a customer group or market that are unmet or underserved to
identify business opportunities.

Let us begin!

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Big Picture A
Week 1–3: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to:
a. Discuss the nature of business and its relationship in management; and
b. Describe the nature and concept of management.

Big Picture in Focus: ULOa. Discuss the nature of business and

its relationship in management.

Metalanguage
In this section, the most essential terms relevant to the study of accounting plus and
to demonstrate ULOa will be operationally defined to establish a common frame of
reference as to how the texts work in your chosen field or career. You will
encounter these terms as we go through the study of accounting plus. Please refer
to these definitions in case you will encounter difficulty in the in understanding
accounting plus concepts.
1. Business. It is the evolutionary growth of various activities developing from
a simple to a complex system. It involves production and distribution of
goods and services.

Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully understand
the following essential knowledge laid down in the succeeding pages. Please note that you
are not limited to exclusively refer to these resources. Thus, you are expected to utilize other
books, research articles and other resources that are available in the university’s library e.g.
ebrary, search.proquest.com etc., and even online tutorial websites.

1. BUSINESS
A business is as an organization or entity, engaged in commercial, industrial,
or professional activities. Businesses can be for-profit entities or they can be non-
profit organizations that operate to fulfil a certain objective.
The term "business" also refers to the organized efforts and activities to
produce and sell goods and services for profit.
Business is very important to a country’s economy because businesses
provide both goods and services and jobs as well as government’s primary source of
revenue which is the taxes that extremely contributes to the economic growth of
one’s country.

2. RELATIONSHIP BETWEEN BUSINESS AND ECONOMY

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Businesses provide goods and services that becomes an economic output.

Business deals with selling goods or services to the consumers, while economics
deals with supply and demand of the products. They are related since performance
of business in general affects the economy at large.

As shown in figure 1, the economy in general provides the factors of

production to the business and the business in return pays the economy the factors
of production they provide. The business produces the goods and services to the
economy and the economy pays the goods and services they receive from the
business. There’s circular flow of transactions happen between economy and
business.

Figure 1. Relationship Between Business And Economy

3. ELEMENTS OF BUSINESS SYTEM

The following are the elements of business system:
1. Land
2. Labor
3. Capital
4. Entrepreneur Skill

4. PRIMARY MOTIVE TO ENGAGE BUSINESS

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

The lifeblood of business if profit. Profit is the primary reason why individuals
engage in business activities. Here, the question is whether a company or a
business should give up its economic advantage at the time of the crisis? Does
anything change at the time of the crisis for a business? The answer is yes. Though
every business aims to make profits, they have a social responsibility of helping the
society, reaching out to its community people and to give back to society at times of
crisis.

Profit = Income – Expenses

5. RESPONSIBILITY OF BUSINESS ENTERPRISE

As a business entity, profit is not the only thing that it needs to focus on. The
business must also pay attention to the ones who have different interest in the
business.
The following are the stakeholders who have different interest inside and
outside the business:
1. Owners
2. Workers
3. Customers
4. Suppliers
5. Government
6. Community
7. Labor Union
8. Business Association

6. WHY PEOPLE ENGAGE IN BUSINESS?

The reasons why people engage in business may vary for every individuals.
Some may engage business because of specific needs but some also may engage
business because they to achieve something in their lives.

Figure 2, the hierarchy of needs explains the reason why people engage in
business. People engage in business because they are driven by their specific
needs and motivations

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Self
Satisfaction

Esteem

Social
Es
ion

Safety

Physiological

Figure 2. Hierarchy of Needs by Abraham Maslow

 Physiological or biological need - the essentials for survival, such as

the need for food, clothing, shelter, sex, air, water;
 Safety need - the desire for security, stability, or protection against
danger;
 Social need - the need for group belongingness, affection, love, and
friendship;
 Ego or self-esteem need - the need for self-recognition or group
satisfaction;
 Self-fulfillment need - the need for the realization of personal goal or
ambition.

7. KINDS OF BUSINESS
1. Industry
2. Commerce
3. Service Enterprise
a. Public and Community Service
b. Professional or Trade Service
c. Recreation Service

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

d. Personal Service

8. KINDS OF ECONOMIC SYSTEM

1. Capitalism

It is a system in which the means of production are owned and

operated by private individuals. It is a system of economic organization
wherein privately-owned capital, and property rights are privately invested
with the ultimate aim of personal gain.
Capitalism is an economic system in which private individuals or
businesses own capital goods. The production of goods and services is based
on supply and demand in the general market known as a market
economyrather than through central planning known as a planned economy
or command economy (Chappelow, 2020).

2. Socialism
Socialism means the ownership of production and capital by the
government and the regulation by society, as a whole, of the process of
production and distribution, and of the giving of essential services.

Socialism is a populist economic and political system based on

public ownership (also known as collective or common ownership) of
the means of production. Those means include the machinery, tools,
and factories used to produce goods that aim to directly satisfy human
needs.

It is an economic system in which the production and distribution

of goods are controlled substantially by the government rather than by private
enterprise, and in which cooperation rather than competition guides economic
activity.

3. Communism
Communism stands for the collective ownership by the government of
consumption goods and production goods. It is also a way of organizing the
productive forces of a society.
It is a system of government in which ownership of property is ascribed
to the community. Cohen (4) defines communism as a system of organization
in which all social and economic activities are controlled by a totalitarian state
dominated by a self-perpetuating state.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Figure 3. The decision participation of Government and Private Sector in each economic system.

9. PHASES OF ECONOMIC DEVELOPMENT

Criteria In Classifying Phases Of Economic Development
A. Means of Livelihood C. Medium of Exchange
1. Hunting and Fishing Phase 1. Barter Economy
2. Pastoral Phase 2. Money Economy
3. Handicraft Phase 3. Money & Credit Economy
4. Agricultural Phase
5. Industrial Phase
B. Extent of Economic activity
1. Household Economy
2. Village Economy
3. National Economy
4. International Economy

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

10. LEGAL FORMS OF BUSINESS OWNERSHIP

1. Sole Proprietorship
An entity that is ownedan operated by only one individual.

2. Partnership
An entity that is owned by two or more persons and they agreed to contribute
money, property, and industry with the intention of dividing profits among
themselves.

3. Corporation
An entity that is an artificial being operated by the law having the rights of
succession and the powers, attributes and properties expressly authorized by
law or incidence to its existence.

If you are planning to organize a business, some of the vital questions to

answer are: How difficult is it to organize the business and what formalities are
necessary? What is the estimated cost to meet the legal requirements including legal
fees, taxes, and filling cost? How can you can get additional capital? How easy can
you transfer the ownership? 'Will it be possible for the owners to participate actively
in the management of the business? How easy is it to change from one form of
ownership to another after the business has been organized?
Summarized below are some of the major advantages and disadvantages of
the three legal forms of business. These are not the real measurement of what form
the business should take. However, they provide certain comparative attributes that
can help the businessman simplify his selection.

Table 1
Advantages and Disadvantages of Three (3) Forms of Business
Advantages Disadvantages
1. Easy to set up/start 1. Demanding on
2. Decision-making is owner's personal
left entirely to time
Sole Proprietorship
owner 2. Growth limited by
owner’s financial
means
1. Relatively easy to 1. Dissolution of
set up partnership by any
2. Checks and personal rifts
balances between partners
Partnership
maintained with 2. Equal profit sharing
two parties around despite unequal
attention and time
given by partners

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

to business
1. Maximum flexibility 1. Complicated
2. Limited liability of setting–up process
individual share. 2. Limited influence
3. Greater room for on management by
professionalism. stockholders.
4. Dissolution is least 3. Tendency to
Corporation likely to occur. institutionalize
5. Can involve a wide bureaucracy.
range of people in
business including
employees.
6. Reduced tax
burden on owners

11. POSITIVE VALUES OF A FILIPINO ENTREPRENEUR

1. Pakikipagkapwatao (Human Relations)
2. Bahalana (let fate decide the outcome)
3. Pakikipagsapalaran (risk-taking)
4. Gaya-gaya (imitation)
5. UtangnaLoob,hiya, awa, bayanihan (debt of gratitude, shyness, compassion,
unity)
6. Kasipagan (industrious)
7. Pagtitipid (wise spenders & savers)
8. Pagtitiis (Enduring)
9. Pagtitimpi (Selfcontrol)
10. Katapatan ( Honesty)

12. SOCIAL AND ECONOMIC CONTRIBUTIONS OF

ENTREPRENEUR
1. Entrepreneurship creates employment
2. Entrepreneurship improves the quality of life
3. Entrepreneurship contributes to more equitable distribution of income taxes
and therefore eases social unrest

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Self-Help: You can also refer to the sources below to help

you further

Iṅigo, C. E. (2014).Management for Filipinos. Manila: Gemini Phils. Graphic

Arts Corp.
Alvarez, B. A. (2017). Embed with BUSINESS. American Libraries, 48(1), 44-
48. Retrieved from
https://search.proquest.com/docview/1858115212?accountid=31259
Business primary motive. (2016, May 16). Retrieved from
https://studymoose.com/business-primary-motive-essay
Capitalism. (2020, April 6). Retrieved from
https://www.investopedia.com/terms/c/capitalism.asp
Communism During The Cold War History. (2019, Aug 19). Retrieved from
https://studymoose.com/communism-during-the-cold-war-history-essay

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Let’s Check
Questions:
1. What are the elements of a business system? Which is the most important?

2. What is a profit move? Explain its role in the business, world. What would you
consider to be a reasonable profit?

3. What are the responsibilities of business enterprises?

4. Explain the relationship between a business enterprise and the economy.

How does the business contribute to the economy?

5. Discuss the role of business. How does it contribute to the wellbeing of

society?

Let’s Analyze
Question:
Imagine yourself as part of the business system. List some of your activities which
are related to business enterprises. Analyze the enterprise in terms of the four
elements discussed.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

In a Nutshell
Questions:
1. Think of a specific business enterprise. Explain how it is related to the
economy.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

2. Identify some business enterprises which are active in social activities and
discuss their major contributions.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

3. List your own needs. Identify the business activities that will satisfy these
needs. Compare your needs with those of your parents.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Q&A Lists
Do you have any questions?
Questions Answers

Keyword Index
Business Industry
Capital Labor
Capitalism Land
Commerce Partnership
Communism Profit
Corporation Service
Economy Socialism
Entrepreneurship Skill Sole Proprietorhip

Big Picture in Focus: ULOb. Describe the nature and concept of

management

Metalanguage
For you to demonstrate ULOb, you will need to have an operational understanding
of the following terms below. Please note that you will also be required to refer to
the previous definitions found in ULOa section.
1. Management.It is a distinct process of planning, organizing, staffing,
directing, and controlling (POSDICON), performed to determine and
accomplish stated objectives by the use of human being and other
business resources.

Essential Knowledge
1. SIGNIFICANCE OF STUDYING MANAGEMENT
The study of management provides future business leaders with a sound
working knowledge of policies, procedures and practices that govern business and
social operations and, in turn, allows them to understand and control organizational
growth. Management study includes an exploration of policies and practices as they
relate to corporate growth. Academic studies of management also explore business
development and introduce students to theories of leadership and management.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Our study of management begins with presenting the basic principles and
concepts which give a common reference outline within which management is
normally applied.
Substance is placed on the meaning of management, its historical'
development in the country, the influence of the manager's philosophy and values,
and the effect of both internal and external factors. Accepted current management
trends and practices are taken up and the importance of accomplishments in
modem management is clearly explained.
Management is the most important subject in business because it deals with
people, establishing and achieving objectives. It is consequently used in almost
every human activity. Management exists to some degree in the factory, office,
school, bank,store, labor union, hotel, church, armed forces, hospital, or home.

2. FUNCTIONS OF MANAGEMENT
Planning
Planning refers to the formulation of objectives, programs, policies,
procedures, rules and regulations, in order to achieve the goals of the business.
Planning is related to decision-making. It involves selecting the best course of
action that a business or other enterprises and every department will follow. There
are various types of plans, ranging from the company purpose and objective to the
most detailed individual action plan, e.g., when ordering special spare parts for a
certain product, or hiring and training workers needed for production, the first thing
to do is to plan a study, an analysis, or a proposal, but not a real plan. Planning
involves forecasting, that is, making decisions in advance. Planning is used to
further accomplish the objectives today and its relationship in the future. Although a
future business condition can seldom be predicted with accuracy, unforeseen
events may disrupt the best-laid plans. Furthermore, planning is thinking before
doing.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Figure 4. The Management Function

Organizing

Organizing is the grouping together of people, establishing relationship among

them, and defining the authority and responsibility that the personnel have in the use
of the company's material resources to attain predetermined goals and objectives. It
is the process of bringing together physical, financial and human resources and
developing productive relationship among them for achievement of organizational
goals. According to Henry Fayol, “To organize a business is to provide it with
everything useful or its functioning i.e. raw material, tools, capital and personnel’s”.
To organize a business involves determining & providing human and non-human
resources to the organizational structure. Organizing as a process involves:

1. Identification of activities.
2. Classification of grouping of activities.
3. Assignment of duties.
4. Delegation of authority and creation of responsibility.
5. Coordinating authority and responsibility relationships.

Staffing
It is the function of manning the organization structure and keeping it manned.
Staffing has assumed greater importance in the recent years due to advancement of
technology, increase in size of business, complexity of human behavior etc. The
main purpose of staffing is to put right man on right job. According to

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Kootz&O’Donell, “Managerial function of staffing involves manning the organization

structure through proper and effective selection, appraisal & development of
personnel to fill the roles designed un the structure”.
Staffing involves:
1. Manpower Planning (estimating man power in terms of searching, choose the
person and giving the right place).
2. Recruitment, Selection & Placement.
3. Training & Development.
4. Remuneration.
5. Performance Appraisal.
6. Promotions & Transfer.

Staffing involves filling and keeping filled the positions provided in the
organization structure. It delineates manpower requirements for the job to be done,
which includes recruiting and selecting candidates for position, compensation, and
training or otherwise developing both candidates and current job holders to
accomplish their tasks effectively.

Directing

It is that part of managerial function which actuates the organizational

methods to work efficiently for achievement of organizational purposes. It is
considered life-spark of the enterprise which sets it in motion the action of people
because planning, organizing and staffing are the mere preparations for doing the
work. Direction is that inert-personnel aspect of management which deals directly
with influencing, guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals.
Direction has following elements:
1. Supervision
2. Motivation
3. Leadership
4. Communication

 Supervision- implies overseeing the work of subordinates by their superiors.

It is the act of watching & directing work & workers.

 Motivation- means inspiring, stimulating or encouraging the sub-ordinates

with zeal to work. Positive, negative, monetary, non-monetary incentives may
be used for this purpose.

 Leadership- may be defined as a process by which manager guides and

influences the work of subordinates in desired direction.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

 Communications- is the process of passing information, experience, opinion

etcfrom one person to another. It is a bridge of understanding.

Controlling
Controlling is the process of measuring and correcting the activities of
subordinates and the company itself to assure conformity to plans. Thus, it measures
performance against goals and plans, shows where negative deviations exist, and,
by actions to correct deviations and help assure the success of plans. Although
planning must precede controlling, plans are not self-achieving. The plans guide
managers in the use of resources to accomplish specific goals. Activities are then
checked to determine whether they conform to planned action. Control activities
generally relate to the measurement of achievement. Such control devices as the
budget for expense, inspection records, and the record of labor hours lost are
generally familiar. Each has the characteristics of measuring; each showing whether
or not plans are working out. If abnormal deviations persist, correction is indicated.
Compelling events to conform to plans mean locating the person who is responsible
for negative deviations from planned action and then taking the necessary steps to
improve performance.
Controlling implies measurement of accomplishment against the standards
and correction of deviation if any to ensure achievement of organizational goals. The
purpose of controlling is to ensure that everything occurs in conformities with the
standards. An efficient system of control helps to predict deviations before they
actually occur. According to Theo Haimann, “Controlling is the process of checking
whether or not proper progress is being made towards the objectives and goals and
acting if necessary, to correct any deviation”. According to Koontz &O’Donell
“Controlling is the measurement & correction of performance activities of
subordinates in order to make sure that the enterprise objectives and plans desired
to obtain them as being accomplished”.
Therefore controlling has following steps:
1. Establishment of standard performance.
2. Measurement of actual performance.
3. Comparison of actual performance with the standards and finding out
deviation if any.
4. Corrective action.

3. MANAGEMENT AS A SCIENCE AND ART

Management is both art and science. It is an art because it results in the
accomplishment of objectives through the use of human efforts. It requires skill and
careful study in the management of any endeavor.
Management is a science because it is a systematic body of knowledge. It
gathers and analyzes facts and formulates general laws or principles from these
facts.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

As an art and as a science, therefore, management seeks to integrate into a

unified, coordinated whole the essential factors that make up an organization.
Management is a broad field of knowledge with its own areas of specialization -
personnel, finance, production, sales or marketing, purchasing and procurement,
administration, and advertising.

4. EVOLUTION OF MANAGEMENT THEORIES

You may be wondering how the different organizations exist and grow. Their
existence and growth as well as the modernity can be explained by some theories or
school of thought. But management is very broad in nature that studying is just like
going in the jungle to search for something on it. That’s why several theories came
out but none of these theories is considered acceptable and complete. Each theory
has its limitations and the field of management theory is in the process of evolving.
However, the various thoughts and views discussed can be included in four schools
of thought or theories. They are:
1. The Classical or Traditional School
2. The Human Relations School
3. The Management Science or Quantitative School
4. Modem Management

Classical or Traditional School

Management principles suggested through theories as presented by:
1. Mooney 5. Fayol
2. Reiley 6. Emerson
3. Urwick 7. Taylor
4. Guillick

Principles of management by Henri Fayol

Henri Fayolis a French industrialist who was the first to issue a complete
statement of general management, used until present. Hegraduated as mining
engineer.In1860 he worked as a janitor, and eventually became the executive of a
coal mining and iron foundry company.

14 Principles of Management by Henri Fayol

1. Division of work
This is the assignment of specialized jobs to various departments
and/or positions. It has been shown in many cases that when work is

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

specialized, people learn the task more easily and perform them more
effectively. This is the specialization which the economists consider necessary
to efficiency in the use of labor. Fayol applies the principle to all kinds of work,
managerial or technical.
2. Authority & responsibility
Henri Fayol finds authority and responsibility to be related and
inseparable. Fie sees authority as the power or the right entrusted to make
the work possible and responsibility as the duty or work assigned to a
particular position.
3. Unity of command
This means that employees should receive orders from one
superior/manager only.
4. Subordinate of individual interest to General Interest
The interest of one employee or group of employees should not prevail
over the interest of the business.
5. Remuneration
Remuneration and method of payment should be fair and afford the
maximum possible satisfaction to employees and employer. It is sometimes
called compensation. This principle is based on "equal pay for equal work."
6. Centralization
Without using the term centralization of authority, Fayol calls it the
extent to which authority is concentrated. It is a system of management
wherein major policies are made only by the top management. This is the
opposite of decentralization.
7. Scalar Chain
Fayol thinks of it as a "chain of superiors" from the highest to the
lowest ranks. This can be properly described by the use of the pyramid of
organization consisting of top management (president, vice-president, etc.);
middle management (department managers, supervisors, chiefs, etc.). (see
figure 5)
8. "Esprit de Corps"
This principle explains that "in union there is strength," as well as an
extension of the principle of unit of command. It emphasizes the need for
teamwork and the importance of communication in obtaining it.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Figure 5. The Organization Pyramid

9. Span of control
It refers to the specific and limited number of subordinates that a
manager can effectively handle and control. It is 48 Management for Filipinos
determined by the optimum level of effective supervision.
10. Simplicity
Unnecessary elements should be eliminated from all activities as well
as from the process and procedures established for carrying them.
11. Unity of direction
One boss and one plan for a group of activities having the same
objective.
12. Order
Ensures a place for everything.
13. Equity
Results from kindness and justice.
Fayolwas able to develop his own principles from his personal experiences and the
practices that he applied inhis own work. He used them as a broad and general
guidelines for effective management. His real contribution was not the 14 principles
themselves, but his formal recognition and synthesis of these principles.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Scientific Management by Frederick Taylor

Frederick Taylor writes the book “Principles of Scientific Management”. His
first job was an apprentice with Enterprise Hydraulic Works. After finishing his
apprenticeship he joined Midvale Steel Company as a common labourer. In just six
(6) short years, he became a chief engineer. There he found out that workers didn’t
exert more efforts in their work. He also found out that the wage control for wage
system was poor and standards are weak.Taylor believed a piece-rate system would
work if the workers believed that the standard had been fairly set and the
management would stick to it rather than to tradition and custom for setting work
standards. Taylor's efforts became the true beginning of scientific management.
Taylor relied primarily on the stopwatch, since he focused on the amount of time
required to complete a particular job. Thus, he is usually called the "father of time
study." In his writings, Taylor presented a balanced view of scientific management.
He believed that a "mental revolution" would have to take place before management
and workers could see that their positions were compatible. He pointed out that as
productivity rose, the Nature and Concept of Management 49 salaries of both
managers and employees would also arise. At the same time, he emphasized that
managers must avoid such practices as rates cutting, because they lead to
employee hostility toward management. Taylor even advocated the concept of units,
a worker would be paid a. higher rate per unit for any additional units he proceeds
and the rate per piece would increase after each succeeding level had been
reached.

Taylor's Four Principles of Scientific Management:

1. Develop a science for each element of a man's work, to replace the old rule-
of-thumb method.
2. Scientifically select and then train the worker. (In the past the worker had
chosen his own work and trained himself as best he could).
3. Heartily cooperate with the men to ensure that all the work done is in
accordance with the principles of the science develop for the work.
4. Divide the work and the responsibility equally between management and the
workers. Management should take over from the workmen all work for which it
is better fitted. (In the past almost all of the work and the greater part of the
responsibility had been thrown upon the workers.)

In essence, Taylor's scientific management stresses the need for developing the
best way of performing each job; training and preparing workers to perform that job;
and establishing harmonious cooperation between management and workers so that
the job is performed in the desired way. Taylor's ideas have led to two managerial
practices: piecerate incentive system and time-and-motion study.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Human Relation School

This emphasizes what was ignored by the
classical theory. Classical approach doesn’t account for
individual needs of employees, non-financial reward and
social interaction. In short it ignored the human element.
This school of thought founded by George Elton Mayo
together with his associates from Harvard University.
They conducted the Hawton Studies from 1924 to 1932
at the Hawton Plant of Western Electric Company in
United States. The primary objective of Hawton studies is
to figure out the determinant factors that influence
productivity and work performance of workers. And then,
they found out that employees are not motivated merely by money, but other factors such
as the social network in which every individual can interact with others in “a fun working”
environment

“Supervisor-employee human relations” influence the quality of employees’

productivity. The effective and supportive supervisors can bring about the workers’
satisfaction and also their better performance.
Finally, it is undeniable that informal work groups make a significant effect on
every employee’s attitude and the development of the organization. Therefore, to
create “a win-win situation” for both the managers and workers, the former need to
make the latter have fun because “a happy worker is a productive worker”
Human relation was pioneered by Elton Mayo and his two colleague
researchers F.J Roethlisberger and William J. Dickson. According to these scientists,
inter-relationships among members in the organization are the role of the manager
with the intention to successfully accomplish the organization’s objectives. Thus,
they believed that fulfillment of psychological needs will be the prime necessity of the
management. The purpose of the human relations movement was not to replace the
classical school but to reorient it’s thinking, from financial to human factor. This
approach underlines on teamwork and interactive communication between
supervisors and employees. What was the expected outcome was a conflict-free
inter-relationships as possible among members of the organizationanticipated the
manager to be a leader and supervisor of a rather democratic and participative style
where managers empathize their subordinates’ feelings and behaviors.
In human relation school of thought, Mayo concluded that workers are best
motivated by better communication between managers and workers, greater
manager involvement in employees working lives, and working in groups or
teams.The school also let people understand more clearly that the workplace is not
just a place to earn money, but a complex social system which affects their
satisfaction and productivity. Employees now recognize that they have a right to be
treated well and they deserve to have it. Therefore, businesses will reach high levels
of success if they take Google as a model to learn about human relationships, which
give support and productivity in the workplace.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Some critics stated that the human relations school as just a more indirect
and covert attempt at manipulation and exploitation. Worker's legitimate economic
interests were being subverted and emphasized, conflict was denied and
"managed", and the new manager roles were just another form of elitism.
Furthermore, business organization are not social welfare organization and to
survive in a highly competitive environment, they have to consider many other
factors besides human factor.

Management Science or Quantitative School of Thought

This school of thought stresses the use of quantitative techniques and
methods in decision making.It advocates a logical sequence of problem formulation,
gathering information and data, constructing mathematical models, exploring
tentative solutions, testing the suggested solutions, and executing them.
Quantitative tools commonly used:
a. Waiting line theory or Queueing theory
b. Linear Programming
c. Program Evaluation Review Technique(PERT)
d. Critical Path Method(CPM)
e. Monte Carlo Method
f. Decision Theory
g. Simulation Theory
h. Probability Theory

Queueing Theory
It is the mathematical study of waiting lines, or queues.Queueing model is
constructed so that queue lengths and waiting time can be predicted.Generally
considered branch of operations research because the results are often used when
making decisions about the resources needed to provide a service.

Linear Programming
It is a method to achieve the best outcome in a mathematical model whose
requirements are presented by linear relationships.A special case of mathematical
programming(also known as Mathematical Optimization).

Program Evaluation Review Technique (PERT)

It offers a management tool which relies on narrow and node diagrams of

activities and events.
Critical Path Method (CPM)
It is an algorithm for scheduling a set of project activities.
Decision Theory

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 Department of Accounting Education
Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

Some theorists attempted to describe the decision-making process, drawing

knowledge and skills heavily from economics and psychology.

Modern Management
There is no such theory as the modern
management theory since there is no one theory accepted by
all theorists in the field. It has taken different directions and it is
still in the process of evolving. The contributors to modern
management theory come from the behavioral sciences,
operations research, management science, and contingency or
situational theory. No compromise has been reached among
these contributions as to what constitutes the complete modern
Harold Koontz management theory.
Harold Koontz contends that the development of modem management theory has
led to a kind of destructive jungle warfare and the management theory looks like a
jungle. Let us briefly look at some significant views taken by theorists in developing
the modern management theory and finally, examine the attempt made by Scott to
integrate all these views and theories into one theory.

Modern Management Can Be Classified Into Three Different Levels

The term ‘levels of management refers to a line of separation between
different positions held by different persons in an organization.
Level of management depends upon the nature, size and functions of an
organization. Levels of management also expand with the expansion of
organization. There is a limit to the number of subordinates a person can supervise.
Levels of management are increased so as to achieve effective supervision. The
levels of management of an organization may be broadly be divided in to three parts
namely, top management, middle management and lower level or first line
management.

1. Top Level Management

Top level management of a company consists of the board of directors and
the chief executive or the managing director. Top management is the ultimate
source of authority and it establishes goals and policies for the enterprise. It devotes
more time for planning and co-ordination functions.
The role of top management will be further clear by studying its functions or
activities:
1. It lays down the objectives of the enterprise.
2. It prepares strategic plans and policies for the enterprise.

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 Department of Accounting Education
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Telefax: (084) 655-9591, Local 116

3. Develops and reviews long range plans and strategies.

4. It controls the activities of all departments with the help of reports,
memoranda etc. It also involves in the selection of key personnel
5. It builds and maintains relations with the outside public.
6. Evaluates overall performance of various departments and ensures
cooperation.
2. Middle Management
Middle level management generally consists of heads of functional
departments they are responsible to the top management for the functioning of their
departments. They devote more time to the organization and direction function of
management.
The role played by the middle level executives is stated below:
1. They execute the plans of the organization in accordance with policies and
directives of the top management.
2. They make plans for the sub-units of the organization.
3. They participate in the employment and training of the lower-level
management.
4. They attempt to achieve coordination between different departments.
5. Establishes departmental policies.
6. They evaluate the performance of junior managers.
7. They send the progress reports and other important data to the top
management.
8. Selects and recruits personnel.
3. Lower Level Management or Supervisory Level
Lower level management is also known as supervisory management because
it is directly concerned with the control of performance of the operative employees.
This level includes supervisors, foremen, accounts officers, sales officers, and so on.
They devote more time on the supervision of workers.
The important functions of a supervisor or lowerlevel executive are listed below:
1. To plan and organize the activities of the group.
2. To arrange for necessary materials, machines, tools etc. for the workers and
to provide them necessary working environment.
3. To provide training to the workers.
4. To supervise and guide subordinates.
5. To solve problems of workers.

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 Department of Accounting Education
Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

6. To communicate workers problems to the higher level management.

7. To maintain good human relations in the organization.
8. To send periodical reports about performance.
9. Makes specific task assignments.
10. Maintains close contact with operative employees.

Major Components and Related Major Events of Management Movements

 U.S. Industrial Revolution(prior to 1875)
 Captains of Industry (1875-1920)
 Scientific Management era (1895-1920)
 Period of solidification (1920 to early 1930s)
 Human relations movement (1931 to late 1940s)
 Management process period (early 1950s to early 1960s)
 Management theory jungle (early to late 1960s)
 Systems approach (late 1960s to early 1970s)
 Contingency approach (1970s)
 International movement (1970s-1990s)

Self-Help: You can also refer to the sources below to help

you further
*Iṅigo, C. E. (2014).Management for Filipinos. Manila: Gemini Phils. Graphic
Arts Corp.

Let’s Check
Questions:
1. Evaluate the concept of management as "getting things done through other
people."

2. Give a comprehensive definition of management and discuss its meaning.

How does your own definition differ from this?

3. Is management a science or an art?

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

4. What are the different organizational levels and what are the characteristics
of each?

5. State the four classifications of management theories and briefly describe

each purpose.

6. What is scientific management? Who proposed it? Discuss the four main
principles of scientific management.

7. Will all these schools of management ever be merged? Give your reasons.

8. What was Henri Fayol's major contribution to the management movement?

Let’s analyze
Questions:
1. How do Taylor's and Fayol's approaches to the management process differ
and how do they compare similarly?
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___________________________________________________________________.

2. Why have Taylor and scientific management been misunderstood by many

people as inhumane?
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___________________________________________________________________
___________________________________________________________________.

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

3. How does one decide who is and who is not a manager in a given
organization? For example, is the operator of a one-person business, such
as a comer grocery store, a manager?
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___________________________________________________________________.

In a Nutshell
Questions:
1. Discuss how you can make use of or apply the concept of management in
your routinary/daily activities.
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___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

2. Think of a concrete situation in which you can use the following principles of
Taylor and Fayol:
a. Scientific Management
b. Division of Work
c. Unity of Command
d. Remuneration Nature and Concept of Management
e. Stability of Tenure
f. "Esprit de Corps"
g. Span of Control
h. Centralization/ Decentralization

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

___________________________________________________________________
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___________________________________________________________________
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___________________________________________________________________.

Q&A List
Do you have any clarifications?
Questions Answers

Keyword Index
Communication Motivation
Controlling Organizing
Directing Planning
Leadership Straffing
Management Supervision

Big PictureB

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 Department of Accounting Education
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Telefax: (084) 655-9591, Local 116

Week 4–5: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to:
a. Explain the basic concept of marketing.
b. Describe the consumers’ behavior and the factors that influence it.
c. Define the goals of society, social issues affecting marketing and the social
responsibilities as well as the basic rights of consumers.

Big Picture in Focus: ULOa. Explain the basic concept of marketing.

Metalanguage
For you to demonstrate ULOa, you will need to have an operational understanding
of the following terms below.
1. Marketing. It is defined as exchange activities conducted by individuals or
organizations for the purpose of satisfying human wants with the view of
accomplishing individual or organizational objectives.
2. Exchange. It refers to the trade of things or service of value between buyer
and the seller.
3. Human needs. These are things or service required by human being for
the health and well – being of his body and mind.
4. Human wants. These refer to the needs shaped by culture and individual
preferences.

Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully understand
the following essential knowledge laid down in the succeeding pages. Please note that you
are not limited to exclusively refer to these resources. Thus, you are expected to utilize other
books, research articles and other resources that are available in the university’s library e.g.
ebrary, search.proquest.com etc., and even online tutorial websites.

1. MARKETING
Marketing is the process of getting people interested in your company's
product or service. This happens through market research, analysis, and
understanding your ideal customer's interests. Marketing pertains to all aspects of a
business, including product development, distribution methods, sales, and
advertising.
Modern marketing began in the 1950s when people started to use more than
just print media to endorse a product. As TV -- and soon, the internet -- entered
households, marketers could conduct entire campaigns across multiple platforms.
And as you might expect, over the last 70 years, marketers have become

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 Department of Accounting Education
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Telefax: (084) 655-9591, Local 116

increasingly important to fine-tuning how a business sells a product to consumers to

optimize success.
In fact, the fundamental purpose of marketing is to attract consumers to your
brand through messaging. Ideally, that messaging will helpful and educational to
your target audience so you can convert consumers into leads.
Today, there are literally dozens of places one can carry out a marketing
campaign -- where does one do it in the 21st century?

Marketing Concept Vs. Other Concepts

Product Selling Marketing

Concept Concept Concept

Product Concept
The company attempts to find interested buyers after producing products.

Selling Concept
The firm produces the product then adapts a selling strategy designed to
convince a group of perceived customers.

Figure 6. The Product Concept

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 Department of Accounting Education
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Figure 7. The Selling Concept

Marketing Concept
The firm defines its target market and determine the needs, wants, and values of
the market. The firm then adapts a strategy to satisfy those needs and wants more
effectively and efficiently than its competitors.

Figure8. The Marketing Concept

Factors of Marketing
For marketing to occur, these factors are necessary:
a. The presence of two parties with unsatisfied needs.
b. The desire and ability of the parties to be satisfied.
c. The existence of a way for parties to communicate.
d. Each party must have something to exchange.

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 Department of Accounting Education
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Telefax: (084) 655-9591, Local 116

Marketing Strategy
Marketing Strategy is an action plan designed to achieve the marketing
goal.A marketing strategy refers to a business's overall game plan for reaching
prospective consumers and turning them into customers of the products or services
the business provides. A marketing strategy contains the company’s value
proposition, key brand messaging, data on target customer demographics, and
other high-level elements.

Marketing Strategy Vs. Marketing Plan

The marketing strategy informs the marketing plan, which is a document that
details the specific types of marketing activities a company conducts and contains
timetables for rolling out various marketing initiatives.

Marketing strategies should ideally have longer lifespans than individual

marketing plans because they contain value propositions and other key elements of
a company’s brand, which generally hold consistent over the long haul. In other
words, marketing strategies cover big-picture messaging, while marketing plans
delineate the logistical details of specific campaigns.

Marketing Mix
It is the set of tools (4P’s) the firm uses to implement its marketing strategy. It
includes product, price, promotion and place.
1. Product
The tangible commodity or intangible service that the business firm
offers for sale to prospective customers.
2. Price
The amount of money paid by the customer to the selling firm so the
customer can use the product.
3. Promotion
The provision of required information to prospective customers so that
they are persuaded to buy.
4. Place
The location and time required by buyers to make the company’s
product available.

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Telefax: (084) 655-9591, Local 116

2. THE MARKETING ENVIRONMENT

Part of external environment of the firm is the marketing environment
consisting of variables confronting the firm. The company has little or no control
over these variables consisting of social forces, economic forces, technological
forces, competitive forces, and regulatory forces.

The Business Firm

and the Marketing mix
Variables

1. Product

2. Price

3. Promotion
Marketing Environment
Variables 4. Place
1. Social forces

2. Economic
forces

3. Technological
forces

4. Competitive
forces, and
5. Regulatory
forces.

Marketing
Objective

Figure 8. The Marketing Environment

Social Forces
It includes the following:
1. Characteristics of the people.
2. Its income.
3. Its values.

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Telefax: (084) 655-9591, Local 116

Economic Forces
Forces in the economy that affect marketing such as inflation and recession.
Technological Forces
Development in existing technology that affect consumer choices.
Competitive Forces
The effect of the firm’s competitors to the firm’s strategy formation.
Regulatory Forces
Government institutions are entities that constrain, direct, and influence
decisions that the business.

3. BASIC FORMS OF COMPETITION

Pure Competition
Market situation where there are many competitors offering for sale identical
products or services. In this competition, prices of products were determined by the
market and not by any individual buyer and seller.
Monopolistic Competition
A Market situation where many sellers exist, but less than those in pure
competition, in a particular market competing with each other. Manufacturers often
promote certain features of their products, then charge higher prices.
Monopoly
A market situation where there is only single seller in a particular market. In
this competition, the government regulates the prices for some monopolies like
public utility companies (e.g., electricity and water).
Oligopoly
A market situation where a few large firms compete in a given industry. The
products sold are homogenous or identical (e.g., gasoline steel and automobiles).
Prices are set by the oligopolist in collusion with one another.

Self-Help: You can also refer to the sources below to help

you further
*Medina, R. (2013). Principles of marketing. Manila, Philippines: Rex Book
Store.
*Kotler, P. (2016). Principles of Marketing. Singapore: Pearson Education ; South
Asia P&E Ltd.

39
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Let’s Check
Questions:
1. Do you consider marketing important as an human activity? Why or why not?

2. What happens when the business firm fails to sell its products?

3. What is a marketing concept?

4. What internal and external factors affect the marketing activities of the firm?

5. What variables are included in marketing mix?

6. What are included in the term “Product”?

7. What does the firm do when it emphasizes “the place” in the marketing mix?

8. How does recession affect marketing?

9. What are the basic forms of competition?

10. What basic form of competition is most conducive to the use of the marketing
mix?

Let’s Analyze
Questions:
1. Do you believe that prices should reflect the value that the customers are
willing to pay or should prices primarily reflect the cost involved in marketing
a product or service? Defend your answer.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

2. How do goods and services differ? Discuss marketing implications of service

characteristics and use examples.

40
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

In A Nutshell
Questions:
1. Define customer satisfaction. What are important considerations for marketing
managers when trying to achieve customer satisfaction?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

2. Satisfaction of consumer needs and wants is the focal point of the marketing
philosophy and the customer is considered to be king.’ Comment on this
statement and highlight the importance of the marketing philosophy to modern
business organizations.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

41
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Q&A Lists
Do you have any questions?

Issues/ Questions Answers

Keyword Index
Exchange Monopolistic Competition

Human Needs Monopoly

Human Wants Olipopoly

Marketing Product Concept

Marketing Concept Pure Competition

Marketing Plan Selling Concept

Marketing Strategy

42
 Department of Accounting Education
Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

Big Picture in Focus: ULOb. Describe the consumers’ behaviour and

the factors that influence the buying decision.

Metalanguage
Since there’s no essential terms that need to be defined, please proceed to
essential knowledge immediately.

Essential Knowledge
1. THE CONSUMER BEHAVIOR
Every consumer has a distinct characteristics in terms of buying. Each has
his own taste and preferences that affects his buying decision. To come up with an
effective marketing strategy, a marketer must identify the buying behavior of the
prospective customers and the factors that influence the buying decision of a
certain buyer.

Purchase Decision Process

Figure 9 shows the purchase decision process.

Post – Purchase
Evaluation

Purchase

Evaluation
ofAlternatives
Consumer
Information
Processing
Problem
Recognition

Figure 9. The Purchase Decision Process

Problem Recognition
It occurs when the buyer recognizes a problem or need triggered by internal
stimuli and external stimuli.

43
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Telefax: (084) 655-9591, Local 116

Consumer Information Processing

Internal search occurs when the customer scans his memory for experiences
with products he thinks will satisfy his need. External search occurs when the
attempt to generate information is outside of the customer’s personal experiences.
Evaluation of Alternatives
It is how the consumers processes information to arrive at the best decision.
Alternatives indicated will be evaluated with the use of a set criteria like price,
functions, quality, and the like.
Purchase
The act by the consumer to buy the product of his choice. The purchase
decision can be affected by attitudes of others and unexpected situational factors.
Post – purchase Evaluation
Marketers must determine the consumer’s behavior after a purchase is
made. Consumer’s satisfaction level is a result of comparing expectations about the
product against performance as perceived by the consumer. The larger gap
between expectation and performance, the greater the consumer’s satisfaction.

2. FACTORS AFFECTING CONSUMER BUYING BEHAVIOR

The buying behaviour of each consumer varies from each other. Each
consumer has distinct characteristics in terms of buying a certain products. The
following are the general factors that affect the buying behavior of the consumer:
a. Psychological Variables
b. Social Influences
c. Purchase Situation

Psychological Influence
The following are the specific psychological variables that can influence
buying decision of a certain customers.
a. Motivation
b. Perception
c. Learning
d. Attitudes
e. Lifestyle

Motivation
The motivation to buy is the result of “drive stimulus” which is the result of
unsatisfied need.

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Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

Unsatisfied Motivation to Decision to

Drive
Need buy buy

Figure 10. The Process of Motivation

Perception
Products, advertisements, packaging, and others are perceived differently by
different people. People are affected by the following selective process of
perception (please see figure 11).

Selective Selective
Selective Selective
Compre-
STAGE Exposure Attention hension
Retention

WHAT Pays Remember

attention to Interprets
Pays s only
THE information attention to selected
information
that supportive information
CONSUMER information
that
conforms to conform
and avoid conforms
DOES with his with his
contradictory with his
attitudes information.
attitudes
attitudes
and belief. and beliefs.
and beliefs.

Figure 11. Stages in Selective Process of Information

Learning
It is a change in behavior occurring as a result of past experience. When a
series of repeat purchases satisfied consumer, the probability of buying the same
product again is increased.
Attitudes
It is a person’s feeling about something. Attitudes do not form easily. It takes
many years to develop them through a learning process which are affected by:

45
 Department of Accounting Education
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Telefax: (084) 655-9591, Local 116

family influences;peer group influences; information; experience; and

personality.
Lifestyle
It is the individual’s mode of living. It may be identified by his activities,
interest and opinions. Lifestyle reflects on how people see themselves and how
they believe others see them.

Social Influences
The following are the social influences that can also affects the buying
behaviour of a certain consumer:
a. Personal Influence
b. Reference Groups
c. Family
d. Social Class
e. Culture

Personal Influence
The views, opinions, and behaviour of other persons oftentimes influence the
purchasing decision of the consumers. Personal influence that are important to
marketers comes from the opinion leaders and word-of-mouth.

Reference Groups
These are groups of people that are looked up upon by a concerned member
when forming an attitude about a particular topic.

Family
Consumer buying behavior is influenced by three sources related to the
family as a concern:
a. Consumer socialization
b. Family life cycle
c. Family decision – making

Social Class
It refers to a group of people who have approximately equal position as
viewed by others on the society. Social classes may be roughly subdivided into
upper, middle and lower class.

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Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Culture
A set of values, beliefs, attitudes and behaviour pattern shared by the
members of society and transmitted to the next generation through socialization.

Purchase Situation
1. Purchase Task
It is derived from the reason why the consumer is making a purchase and
this affects buying behavior.
2. Social Surroundings
Refers to the situation of the people present in the purchase area.
3. Physical Surroundings
The physical surroundings may also affect the purchase decision of the
consumer.
4. Temporal Effects
The time of the day the purchase is made and the time available for
shopping are temporal effects that may also affect the buying behaviour of the
consumer.
5. Antecedent States
It is like the consumer’s mood or the amount of money he has in his pocket
can affect his buying behavior.

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Davao del Norte
Telefax: (084) 655-9591, Local 116

Figure 12. The Consumer’s Buying Behavior

3. THE BUYING BEHAVIOR OF ORGANIZATIONAL MARKETS

Organizational Markets
Groups that buy goods for production purposes or reselling.
Categories:
a. Industrial Markets
b. Reseller Markets
c. Government Markets
d. Non-profit Organization

Industrial Markets
Organizations that require goods and services for the purpose of producing
goods or services. The production output of the industrial firms are sold for profit.
Reseller Markets
Organization that buy goods or services, which they later sell at a profit.
Government Markets

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Davao del Norte
Telefax: (084) 655-9591, Local 116

Government agencies that buy products and services for use in the
production of public goods and services. These include the national, regional,
provincial, and municipal governments.
Non-profit Organizations
Nongovernmental organizations that serve their clients but do not profits as
organizational goal.

Table 2
Contrasting Characteristics of Organizational and Consumer Markets

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Telefax: (084) 655-9591, Local 116

Organizational Markets

Figure 13. The Organizational Markets

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 Department of Accounting Education
Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

Organizational Buying Behavior

Organizational buying behavior has unique characteristics regarding the
following:
 Demand
 Potential buyers
 Buying objectives
 Buying criteria
 Size of order or purchase
 Buyer – seller interaction
 The buying center

Kinds of Buying Process

Straight rebuy
Is a routine repeat purchase. This happens when previous purchase is
satisfactory.
Modified rebuy
Is undertaken when the items purchased remain the same, but members of
the buying center are not satisfied with the product.
New task buying
This happens when the organization has a new and the buyer wants a great
deal of information.

Table 3
Kinds of Buying Processes

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 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Participants in Organizational Buying Process

Members of the buying centers and their individual roles:
 Users are those that will use the product or service.
 Influencers are persons who influence the buying decision.
 Deciders are persons who make decisions on product requirements
and suppliers.
 Approvers are the persons who authorize the proposed actions of
deciders or buyers.
 Buyers are authorized to select the supplier, and arrange the terms of
purchase.
 Gatekeepers have the power to prevent sellers or information from
reaching members of the buying center.

Purchase Decision-making Process

1. Recognition of a problem or need.
2. Search of information about products and suppliers.
3. Evaluation and selection of supplier.
4. The purchase.
5. Performance evaluation and feedback.

Recognition of a problem or need

Factors that must be considered in recognition of problem or need:
a. Organizational purchasing is a result of product or operational needs.
b. An organizations need can be identified by different employees of the firm.
c. Progressive firms are engaged in requirements planning.
d. The firm needs to determine product specification.

Search of information about products and suppliers

The following must be undertaken:

a. A listing of products or services that will solve the problem.
b. Make or buy analysis.
c. Information must be gathered about potential suppliers
d. Progressive firms are engaged in requirements planning.

Evaluation and selection of supplier.

Criteria used:
a. Quality of goods or services being considered for purchase.
b. Characteristics and needs of the buyer.
c. Supplier’s ability to meet quality standards.

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Davao del Norte
Telefax: (084) 655-9591, Local 116

d. Supplier’s ability to meet delivery schedules.

e. The price.
f. Technical capability of the supplier.

The Purchase
In support of the efficiency objective, organizations prefer to routinize their
purchases. The blanket purchase order effectively shuts other supplier until the
buyer is no longer satisfied with its relationship with the current supplier.
Performance evaluation and feedback
The following steps are undertaken:
1. Buyer inspects the delivered products.
2. User will determine the product performance.
3. Buyer evaluates the supplier’s performance on the promptness of delivery,
product quality, and after sales service.

Factors that Influence Organization Buyers

Economic factors:
 Price
 Service

Personal factor:
 Emotion

Self-Help: You can also refer to the sources below to help you
further
*Medina, R. (2013). Principles of marketing. Manila, Philippines: Rex Book
Store.
*Kotler, P. (2016). Principles of Marketing. Singapore: Pearson Education ; South
Asia P&E Ltd.

53
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Let’s Check
Questions:
1. What are organizational markets? How are they classified?

2. In what ways do organizational markets differ from consumer markets?

3. What is the buying center?

4. What are the kinds or organization buying process?

5. Who are the typical participants in the organizational buying process?

6. What role is performed by the “gatekeeper”?

7. In recognition the organization’s problem, what factors must be considered?

8. In the search for information about products and services, what types of
information must be gathered about potential suppliers?

9. What steps are undertaken when evaluating the performance of the product
and the supplier?

10. What general factors influence the organizational buyer?

Let’s Analyze
Questions:
1. How should marketing managers view the consumers, and how will this view
of the consumer help themto understand consumer purchasing behavior?

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

54
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

2. How relevant is the study of the consumer decision-making process?

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
________________________________________________________________.

In a Nutshell
Questions:
1. Classify and discuss the main influences on consumer buying behavior
and explain how marketing management can respond to these influences.

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

2. Identify the main influences on consumer buying behavior and explain how
marketing campaigns attempt to influence consumer behavior.

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

55
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

3. Describe the major influences on consumer buying behavior and explain the
approaches that can be used by marketing organizations in order to influence
consumer behavior.

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

4. Organizational buyers are subject to many influences when they make their
buying decisions. Describe the major influences on organizational buying
behavior and explain the approaches that can be used by marketing
organizations in order to influence organizational buyers.

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

56
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Q&A Lists
Do you have any clarifications?
Issues/Questions Answers

Keyword Index
Antecedent State Perception
Approvers Behavior
Attitude Personal Influence
Buyers Physical Surrounding
Culture Price
Deciders Psychological Influence
Emotion Purchase Situation
Family Purchase Task
Gatekeepers Reference Group
Government Market Reseller Market
Industrial Market Service
Influencers Social class
Learning Social Influence
Lifestyle Social Surrounding
Motivation Temporal Effects
Non-Profit Organizations Users

57
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Big Picture in Focus: ULOc. Define the goals of society, social

issues affecting marketing and the social responsibilities as well
as the basic rights of consumers.

Metalanguage
Since this ULO defines the goals of society, social issues affecting marketing
andthe social responsibilities as well as the basic rights of consumers, please
proceed immediately to essential knowledge.

Essential Knowledge
1. MARKETING AND THE SOCIETY

The Goals of the Society

An institution must be able to satisfy the needs of its intended clientele, if it
wants its own needs satisfied.
The society endeavors to raise the standard of living and the quality of life of
its constituents.

Social Issues that Affect Marketing

The Product
Typical complaints:
 Defective products,
 Low quality products,
 Poor service,
 School perceived as “diploma mills”,
 Unsanitary conditions, and
 Harmful chemical in products.

The Price
Cartels control the price to detriment of consumers. Another area of concern
is the price of electricity and telephone services. Customers complain about the
arbitrary and complicated manner of pricing in such service firms.
Distribution System
Too many middlemen involved in the selling of goods; thus unnecessary
jacking up the price of such commodities.

58
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Another criticism of marketing is its inability to move agricultural products from

places where they are abundant to other areas where they most wanted.

Promotional Activities
Intrusion of consumer’s policy. During elections, the physical landscape
becomes a place for garbage coming from political posters.

The Concept of Social Responsibility

Social responsibility may be defined as the idea that organizations are part
of a society and are accountable to society for their actions.

Consumerism
It refers to the activities undertaken by independent individuals, groups, and
organizations to protect their rights as consumers.
Basic Consumer’s Right
Consumer’s rights cover four (4) basic areas:
 Right to safety means firms must not knowingly sell anything that could result
in personal injury or harm to consumers.
 The right to be informed refers to the freedom of the consumer to review
complete information about a product before purchase is made.
 The right to choose means competition among firms must be free to flourish.
 The right to be heard covers the following:
a. The assurance that the interest of the consumers will receive full
consideration, and
b. The assurance of fair treatment of consumers

Environmentalism
It refers to the organized movement of concerned citizens and government to
protect and enhance people’s living environment.

Government responses
The government has attempted to provide protection to consumers and the
environment in terms of constitutional guarantees and specific laws enacted by
Congress.
Examples:
“The truth Lending Act”

59
 Department of Accounting Education
Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

“Food and Drugs Act”

“Clean Air Act”

Business Responses
Two options of business:
 Ignore the complaints, or
 Accommodate calls for improvement.

Self-Help: You can also refer to the sources below to help you
further
*Medina, R. (2013). Principles of marketing. Manila, Philippines: Rex Book
Store.
*Kotler, P. (2016). Principles of Marketing. Singapore: Pearson Education ;
South Asia P&E Ltd.

Let’s Check
Questions:
1. Discuss the relationship between business and society. Can one exist without
the other?

2. Relating its existing with society, what must a firm do to achieve its
objectives?

3. Why do the firm’s concern for the society’s present and future well – being is
of equal importance?

4. What social issues affect marketing?

5. Discuss the concept of social responsibility. How may this be applicable to the
marketing activities of large and small firms?

60
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

6. What is consumerism? Do you agree with issues raised by consumerists?

7. What is environmentalism? How do you think it will affect marketing?

8. What are the basic consumers right?

9. What responses are made by business and government to consumerism and

environmentalism?

10. Give an example of firm’s activities concerning social responsibility.

Let’s Analyze
1. Suppose the pollution caused by a company poisoned the Tsolum River for
decades afterward. The loss to society was a salmon-spawning river and a
safe place for recreation. Our current laws and system have so many
loopholes to make the question of corporate accountability really one of
ethics. Is this the price we pay for freedom? Explain.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

2. How can a commitment to corporate social responsibility (CSR) provide a

company with a competitive advantage on a global level?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

61
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

In a Nutshell
Question:
Explain why corporate social responsibility is gaining heightened importance for firms
operating with financial objectives.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

Q&A Lists
Do you have any clarifications?
Issues/Questions Answers

Keyword Index
Business Responses Price
Consumerism Product
Distribution System Promotional Activities
Environmentalism Social Responses
Government Responses Society
Marketing

62
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Big Picture C

Week 6–7: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to:
a. Explain the fundamental concept and the goals of finance.
b. Rationalize the concept of time value of money and compute the Present and
Future value of different types of cash flow stream.

Big Picture in Focus: ULOa. Explain the fundamental concept and the
goals of finance.

Metalanguage
Since the Unit Learning Outcome of this section is to define the fundamental
concept and goals of finance, please proceed immediately to the essential
knowledge section of this ULO.

Essential Knowledge
1. FINANCE
Financeis a body of facts, principles, and theories relating to raising and
using money by individuals, businesses, and governments.
Financemay be defined as the study of the acquisition and investment of
cash for the purpose of enhancing value and wealth.

Categories of Finance
1. Public Finance
Deals with the revenue and expenditure patterns of the government and their
various effects on the economy.
2. Private Finance
This category deals with the area of general finance not classified under public
finance. It is subdivided into the following:
1. Personal Finance
2. The finance of non-profit organizations; and
3. Business Finance.
• Provision of money for commercial use.

63
 Department of Accounting Education
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Telefax: (084) 655-9591, Local 116

• Concerned with the effective use of funds.

• It covers the financial management of private profit-seeking concerns
in the business.
With the foregoing requirements, business finance may be defined as the
procurement and administration of funds with the view of achieving the
objective of the business.

Figure 14. Categories of Finance

Goals of Business Finance

1. Maximizing profit;
2. Maximizing profitability;
3. Maximizing profit subject to cash constraints;
4. Maximizing net present worth ; and
5. Seeking an optimum position along a risk-return frontier.
Maximizing profit
Means realizing the highest possible peso or dollar income.A firm, for
instance, may seek to double its peso or dollar income for the current year.This
framework, however, is not very useful in making sound financial decisions.

64
 Department of Accounting Education
Mabini Street, Tagum City
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Telefax: (084) 655-9591, Local 116

Maximizing Profitability
Profitability can be measured by computing Return on Investment (ROI).

𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐼 =
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

Example 1: Calculation of ROI

Profitability can be maximized by obtaining higher rate of ROI.

Maximizing Profit Subject to Cash Constraint

The ideal set-up is to maximize profits, while at the same time maintaining a
cash balance that can take care of cash requirements anytime.This condition is
especially critical in the operation of banks.

Maximizing the Net Present Worth

Under the net present worth concept, the objective of the firm is to maximize
the current value of the company to its owners.The net present worth of the firm is
equal to the value now of the firm plus values arising in the future. This concept
considers the relevance of time value of money. This concept indicates that money
increases in value with the passing of time.
In financial management perspective, the primary goal of finance is not to
maximize the profit, but rather maximizing the shareholder’s wealth is of primary
concern.

Example 2: Calculation of Present Worth:

What is the value of today ofP100,000 to be received next year assuming that the
prevailing rate of interest is 10% per annum?

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Solution:

Seeking an Optimum Position along the Risk-Return Frontier.

A firm can set a goal of achieving the best possible combination of risk and return.

RISK RETURN

Figure 15. Risk – Return Frontier

A little more risk may be accepted, for instance, for an expected additional
rate of return.
Return on Investment is the net income generated by the use of investments
or the net worth of a firm. When it is expressed in percentage, it is called the rate of
return.Risk means uncertainty as to loss.When used in finance, the term applies to
the potential incurrence of loss of money or its equivalent.

Calculation of Expected Value Using Risk and Return Factors.

The expected value of a return on investment is equal to the return times the
percentage of probability that it will happen (called the risk factor).

Example 3. Calculation of Expected Value

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2. THE FINANCIAL STATEMENTS

Financial Statements are those that present financial information to various
interested parties.Two important financial statements in the point of view of
business finance: (1) the balance sheet; and (2) the profit and loss statement.
The Balance Sheet
The Balance Sheet shows:
1. Assets
a. Current Assets c. Fixed Assets
b. Trade Investments d. Intangible Assets
2. Liabilities
a. Accounts Payable
b. Loans and Notes Payable
c. Advances from Customers
d. Accrued Expenses
e. Mortgage Payable
f. Bonds Payable
3. Net Worth

The Income Statement

Represents the revenues realized form the sale of commodities and services
produced by the company, as well as the costs and expenses incurred in

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connection with the realization of said revenues.Also referred to as profit and loss
statement.

3. THE BUDGETS
Budget is defined as an estimate of income and expenditure for a future
period.
The Sales Budget
The sales budget is the starting point of company budgets. It shows an
estimate of sales in units and dollars or pesos for each major subdivision of sales.
The Materials and Purchases Budget
Refers to the estimate of the materials required by the firm, specified in
quantities, costs, timing of purchase, the required delivery dates, and other
requirements.
Production Budget
Is an estimate of the quantity of products that should be produced in
accordance with the sales budget.It also shows the monthly breakdown of
quantities to be produced for each product depending upon the firm’s seasonal
sales index.
The total units to be produced could be derived using the following equation:

Significance of Financial Statements and Budgets

Financial statement and budgets are significant in terms of decision making
of various users of information derived from these reports.
There are five distinct groups interested in knowing the financial standing of
the firm.
1. The owners

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2. The management
3. The creditors
4. The government
5. Prospective investors.

4. THE ANNUAL REPORT

The report sent out each year by the company to its stockholders or
members. It normally contains the following:
1. The balance sheet;
2. The profit and loss statement;
3. The auditor’s report; and
4. The chairman’s report.

In case the firm is part of a group, the report must also contain a
consolidated balance sheet and a consolidated profit and loss statement.

Self-Help: You can also refer to the sources below to help you
further
*Dela Cruz, M.(2011). Business Finance(Philippine Environment).Rex Printing
Company Inc.,Sta. Mesa Heights Manila
*Francisco, E. (2016). Fundamentals of business finance. Manila: Mindshapers Co.,
Inc.

Let’s Check
Questions:
1. What is finance? Explain how this field affects all of the activities in which
businesses engage.

2. What is the goal of the firm and, therefore, of all managers and employees?
Discuss how one measures achievement of this goal.
3. For what basic reasons is profit maximization inconsistent with wealth
maximization?

4. What is risk? Why must risk as well as return be considered by the financial
manager who is evaluating a decision alternative or action?

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Telefax: (084) 655-9591, Local 116

5. What is the difference of public finance and private finance in terms of its
purpose?

Let’s Analyze
Questions:

Asset A
Possible Outcomes Probability Returns (%)
Pessimistic 0.25 10
Most likely 0.45 12
Optimistic 0.30 16

1. Compute the expected value.

Investment 100,000
Return on Investment 20%
Return on Equity 25%
2. What is the net profit?

3. If you are a risk-averse financial manager, which asset would you prefer?

In a Nutshell
Question:
1. Why is the study of finance important to your professional life regardless of
the specific area of responsibility you may have within the business firm?
Why is it important to your personal life?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

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Telefax: (084) 655-9591, Local 116

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________.

2. Define the purpose of financial statement in the point of view of each group
interested on it.

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________.

3. Define and ellaborate the term “wealth maximization”.

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________.

Q&A Lists
Do you have any clarifications?
Issues/Questions Answers

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Keyword Index
Balance Sheet Return
Expected Value Return on Investment
Finance Risk
Income Statement Sales Budget
Materials and Purchases Budget Wealth Maximization
Production Budget

Big Picture in Focus: ULOb. Rationalize the concept of time value of

money and compute the Present and Future value of different types of
cash flow stream.

Metalanguage
For you to demonstrate ULOb, you will need to have an operational understanding
of the following terms below.
1. Principal. The amount of resources loaned or borrowed.
2. Interest. The cost of using money over time.
a. Simple Interest. It is the product of principal amount multiplied by
the period’s interest rate.
b. Compound Interest. It is the interest paid on both principal and
interest accumulated in prior periods.
3. Compounding. The process of determining future value when compound
interest is applied.
4. Future Value. It is equal to the initial principal amount compounded at the
interest rate for period.
5. Present Value. Is the current value of future amount of money, or series of
payments, evaluated at an appropriate discount rate.
6. Nominal interest rate. Is simply the stated interest rate in the contract.
7. Effective interest rate. Also called as annual percentage rate. It is the true
interest rate and may differ from the nominal rate depending on the
frequency of the compounding.
8. Discount rate. Sometimes called as required rate of return, is the rate of
interest that is used to find the present value.
9. Discounting. It is the process of determining the present value of the future
amount.

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10. Annuity. Sometimes called as fixed annuity, a stream of equal payments

made at a regular time intervals.
11. Ordinary annuity. Is one in which payments or receipts occur at the end of
each period. This type of annuity called regular or deferred annuity
12. Annuity due. Is one which payments or receipts occur at the beginning of
each period.
13. Perpetuity. It is an annuity with an infinite life; that is, the payments continue
indefinitely.

Essential Knowledge
1. THE TIME VALUE OF MONEY
The concept of time value money lies to the principle that “the value of your
money today may not be same in the future”. Because of some uncertainty ahead,
the businessmen of entities tend to circulate their money and earn interest. Money
that were just kept in the pocket will not grow and will lose its value due the decline
of its purchasing power. That’s why many businessmen or entities believe that by
investing and earning interest, they can cover up the possible decline in value of
their money and may earn more than what is necessary. To make your money
grow, you must invest it and earns additional money out of it. On the point of view of
the borrowers, the cost of using money over time is called interest. That’s why
some economists called the interest as the time value of money.
The time value of money involves two major concept: future value and present
value. Both concepts consider the three factors:
 Principal
 Interest
 Time period

Simple Interest Concept

I = P*i, where I is the interest, P is the principal amount, iis the interest rate.
Total Interest= I*n, where n is the time period.

Example 4:
ABC Company deposits P10,000 in a bank at 10%interest a year. One year later
the P10,000 will have grown to P11,000.Your money grows by 10% of the principal
amount. It earns P1,000
Solution:
I = P*i
I = P10,000*10%
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I =P1,000
Note:In the simple interest computation, only the principal amount will earn interest.

Compound Interest Concept

In this time value concept, the principal earns interest. The interest earn on the prior
periods becomes part of the new principal amount in the current period.
I = (P + I from prior periods) i

Example 5:
Now Suppose that ABC Corporation leaves its P10,000 on deposit for 2 years in a
bank paying 10% annual interest. At the end of the first year, the initial deposit
becomes P11,000. It grows by P1,000 or 10% of the principal. During the 2 nd year,
the firm will earn 10% on the P11,000, or it grows additional P1,100 in interest. The
firm is earning interest on the changing balance. Hence, at the end of 2 nd year, the
firm will have P12,100 in its deposit account.
1st year: I = 10,000*10% = 1,000; total account balance = 11,000
2nd year: I = (11,000)*10% = 1,100; take note that in this year the new principal is
P11,000 which is the P+ I on prior period.
Solution:

Principal 10,000
Interest – 1st year 1,000
Interest – 2nd year 1,100
Total Balance at the end of 2 nd year 12,100

*Note: When we compare the earning power of the two types of interest, the
compound interest will give larger interest earning compared to simple interest.

Future Value Concept

Single Sum or Single Cash FLow

Ordinary Annuity
Future Value Equal Cash FLows
Annuity Due
Series of Cash FLows

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Unequal Cash Flows

1. Single Cash Flow
 Simple Interest: FV = P+(I*n), where P is the principal, I is the interest and n is
the time period
 Compound Interest: FV= PVn (1+i) , where PV is the present value, iis the
interest rate and n is the number of years or time period.

Example 6:
The future Values of P1,000 compounded at a 10% annual interest rate at the end
of one year, two years, 5 years are computed as follows.
Substituting PV, P1,000 and i=0.10 for different values of n produces the following
results.
Solution:
Year Calculations Future Values

1
1 FV = (1,000)(1+0.10) = P1,100
2*
2 FV = (1,000)(1+0.10)
= (1,000)(1.21) = P1,210
5**
5 FV = (1,000)(1+0.10)
= (1,000)(1.61051) = P1,610.51

2
*(1.10) = (1.1)(1.1) = 1.21 This is called Future Value Factor
5
**(1.10) = (1.1)(1.1)(1.1)(1.1)(1.1) = 1.61051

Future Value with Intra-period Compounding

Compounding that occurs more than once a year is called intra-period compounding.

m
FV= PV { } i
1+ m , where I is the interest rate, m is the number of
compounding period
Example 7:
Instead of placing P1,000 in Atlanta Bank that pays 10% interest annually, the
finance manager decides to put the money in National Bank that pays 10% interest
compounded semi-annually. Between the two banks, there would be a difference in
the future value of your investment after one year.
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Solution:

Atlanta Bank National Bank

Annual Compounding Semi-Annual Compounding
(2)(1)
FV = (1,000)(1+0.10) 1 FV = (1,000)(1 + 0.10 )
= (1,000)(1.10) 2
= 1,100 = (1,000)(1.1025)
= 1,102.50
Observe the difference of the two compounding type. Is worth noted that the money
will grow faster when it has intra-period compounding than annual compounding.

Nominal Interest Rate vs. Effective Interest Rate

Again, nominal interest rate is the rate stated in the contract. Sometimes it is called
as conventional interest rate. Effective interest rate is the true interest rate.
m
Sometimes is called as annual percentage rate or APR. Some may call this as
Market interest or market prevailing rate. This APR shall be computed when there’s
Intra-Period Compounding.

APR = {1 +mi}– 1
Example 8:
Walnie Incorporated deposits money in a bank that pays a 10% nominal interest rate
and compounds interest semiannually.
2
Solution: APR = {1 + .10 }– 1 2
= (1.05) - 12
= 0.1025 or 10.25%
2. Series of Cash Flows
Unequal Cash Flows
When computing the future value ofmoney with unequal cash flows, you have to get
the future value of each cash flow then sum up all the future values computed from
each cash flow.

FVn = ∑n Pt (1 + i ) n-t
t=0

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FV1 = PV (1+i )n-1 FV3 = PV (1+i ) n-3 FV5 = PV (1+i ) n-n

t0 t1 t2 t3 t4 tn

FV0= PV (1+ i )n-0 FV2= PV (1+ i ) n-2 FV4= PV (1+ i ) n-4

Total Future Value of All Cash Flows = FV0 + FV1 + FV2 + FV3 + FV4...+FVn

Example 9:
Firm has to deposit P2,000 today and P1,500 one year from now at Mount Carmel
Rural Bank. No future deposits or withdrawal are made and the bank pays 10%
interest compounded annually. The future value at the end of four years is computed
to be:
Solution:
FV = (2,000) (1.10)4 + (1,500) (1.10)3
= (2,000) (1.464) + (1,500) (1.331)
= 2,928 + 1,996.5
= 4,924.50

Equal Cash Flows

a. Ordinary Annuity

i
[ ]
FV = A (1+ i)n – 1 where A is the Annuity or the annual equal cash flow.

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Example 10:
Diamond Corp. deposits P1,000 at the end of each three consecutive years in a
bank account paying 10% interest compounded annually. The value of account at
the end of 3rd year is computed by:
Y0 Y1 Y2 Y3
Time line:
Cash Flows 0 1,000 1,000 1,000
Solution:

[ ]
FV = 1,000 (1+0.10)3 – 1
0.10
= (1,000) (3.310)
= P3,310

b. Annuity Due

[ ](
FV = A (1+ i)n – 1 (1+i)
i
Example 11:
The firm makes an annual deposit of P1,000 each year starting at the beginning of
each year. Interest is compounded at 10%. How much will the firm have in account
after three years?
Solution:

[](
FV = 1,000 (1 + 0.10)3 - 1
0.10
(1 + 0.10)

= (1,000)(3.310)(1.10)
= P 3,641

Note that your money will grow faster when you make your investment at the
beginning of each year rather than at end. As you observe the Future Value of
Annuity Due is greater than the Present Value of Ordinary Annuity. Note also that the
higher the interest rate and the longer the time, the larger the future value.

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Present Value Concept

Single Sum or Single Cash FLow

Ordinary Annuity
Present Value Equal Cash FLows
Annuity Due
Series of Cash FLows

Unequal Cash Flows

When we compute the present value we will use the discount rate. The present value
determination discounts money that will be received in the future back in time to see
what it is worth in the present. The process of determining the present value is called
discounting.

PV FV
t0 t1 Time

1. Single Cash Flow

PV = FV (1 + i)-n

Example 12:
Danmar Company expects to receive P1,100 one year from now. What is the
present value of this amount if the discount rate is 10%?
Solution: PV = 1,100 (1 + 0.10)-1
= 1,100 (0.9091)
= P1,000.01

2. Series of Cash flows

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Unequal Cash Flows

To compute the present value of series unequal cash flows, simply calculate the
present value of each cash flows (future amounts)

n
PV = ∑ Pt (1 + i )-n
t=0

PV1 = FV (1+i )-1 PV3 = FV (1+i ) -3 PV5 = FV (1+i ) -n

t0 t1 t2 t3 t4 tn

PV0= FV (1+ i )-0 PV2= FV (1+ i ) -2 PV4= FV (1+ i ) -4

Total Future Value of All Cash Flows = PV0 + PV1 + PV2 + PV3 + PV4 ...+PVn

Example 13:
DM Company expects to receive payments of P1,000, P1,500, and P2,000 at the
end of first, second and third year respectively. Compute the present value using
10% discount rate.
Solution: PV =[ (1,000)(1+0.10)-1] + [(1,500) (1+0.10)-2] + [(2,000)
(1 +0.10)-3]
= (1,000)(0.909) + (1,500) (0.826) + (2,000) (0.751)
= 909 + 1,239 + 1,502
= P3,650

Equal Cash Flows

Unlike with the computation of present value of series of unequal cash flows, the
calculation if equal cash flows is very simple to compute. You can also compute the

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present value of each cash flow but it will be time consuming if you will do the same.
Just refer to the following formula for simple computation.
a. Ordinary Annuity

i
[]
PV = A 1 – (1+i)-n , where A is the annuity or annual cash flows, n is the
time period

Example 14:
Hot Corporation expects to receive P1,000 at year’s end for the next three years.
The present value of this annuity discounted at 10% is computed as follows.
Solution:
[]
PV = 1,000 1 – (1 +0.10) -3
0.10
= (1,000)(2.487)
= P2,487
Take note that Ordinary Annuity has equal cash flows and happened at every year
end only, otherwise this formula cannot be used to compute present value if the cash
flows are not equal.

b. Annuity Due
PV = A
i {[ ] }
1 – (1+i)-(n-1)
+1

Example 15:
The same information in example 11, except that the annual cash flow happens at
the beginning of each year.

Solution:
{[ ] }
PV = 1,000 1 – (1+0.10)-(3-1)
+1
0.10
= (1,000) (2.7356)
= P2,375.60

Present Value of Perpetuity

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PV of perpetuity = Annuity (A)

Discount Rate (i)

Example 16:
Babe Corporation want to deposit an amount of money in a bank account that will
allow it to withdraw P1,000 indefinitely at the end of each year without reducing the
amount of initial deposit. If a bank guarantees to pay the firm 10% interest on
deposits, the amount of money the firm has to deposit is computed as follows

Solution:
PV of perpetuity = P1,000
0.10
= P10,000
Note : In the present or future value problems, unless stated otherwise, the cash flow
is assumed to be at year end. In present value calculation, the higher the discount
rate, the longer the time, the smaller the present value.

Self-Help: You can also refer to the sources below to help you
further
*Cabrera, E. B. (2016). Financial management: Principles and application (Vol. 1).
Manila: GIC Enterprises & Co., Inc.
*Brigham, E., & Houston, J.(2013). Fundamentals of financial management (13th
ed.). Singapore: Cengage Learning Asia Pte Ltd.
*Dela Cruz, M.(2011). Business Finance(Philippine Environment).Rex Printing
Company Inc.,Sta. Mesa Heights Manila

Let’s Check
Questions:
Part I
1. Why does money have a time value?

2. What is the significance of time value of money in the business industries?

3. How the future value related to its present value of a single sum?

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4. How is the present value of single sum related to the present value of
annuity?

5. List 5 different financial applications of the time value of money.

Part II: Multiple Choice Questions

1. In future value or present value problems, unless stated otherwise, cash flows
are assumed to be
A. at the end of a time period.
B. at the beginning of a time period.
C. in the middle of a time period.
D. spread out evenly over a time period.

2. When the amount earned on a deposit has become part of the principal at the
end of a specified time period the concept is called
A. discount interest.
B. compound interest.
C. primary interest.
D. future value.

3. The future value interest factor is

A. always greater than 1.0.
B. sometimes negative.
C. always less than 0.
D. never greater than 25.

4. The future value of a dollar _________ as the interest rate increases and
_________ the farther in the future an initial deposit is to be received.
A. decreases; decreases
B. decreases; increases
C. increases; increases
D. increases; decreases

5. For a given interest rate, as the length of time until receipt of the funds
increases, the present value interest factor
A. changes proportionally.
B. increases.
C. decreases.
D. remains unchanged.

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6. The future value of $200 received today and deposited at 8 percent for three
years is
A. $248. B. $252. C. $158. D. $200.
7. The present value of $100 to be received 10 years from today, assuming an
opportunity cost of 9 percent, is
A. $236. B. $699. C. $ 42. D. $ 75.
8. The present value of a $25,000 perpetuity at a 14 percent discount rate is
A. $178,571. B. $285,000. C. $350,000. D. $219,298.
9. Bill plans to fund his individual retirement account (IRA) with the maximum
contribution of $2,000 at the end of each year for the next 20 years. If Bill can
earn 12 percent on his contributions, how much will he have at the end of the
twentieth year?
A. $19,292 B. $14,938 C. $40,000 D. $144,104
10. The present value of an ordinary annuity of $2,350 each year for eight years,
assuming an opportunity cost of 11 percent, is
A. $ 1,020. B. $27,869. C. $18,800. D. $12,093.
11. To pay for her college education, Gina is saving $2,000 at the beginning of
each year for the next eight years in a bank account paying 12 percent interest.
How much will Gina have in that account at the end of 8th year?
A. $16,000 B. $17,920 C. $24,600 D. $27,552
12. $100 is received at the beginning of year 1, $200 is received at the beginning
of year 2, and $300 is received at the beginning of year 3. If these cash flows
are deposited at 12 percent, their combined future value at the end of year 3
is _________.
A. $1,536 B. $ 672 C. $ 727 D. $1,245
13. The present value of $1,000 received at the end of year 1, $1,200 received at
the end of year 2, and $1,300 received at the end of year 3, assuming an
opportunity cost of 7 percent, is
A. $2,500. B. $3,043. C. $6,516. D. $2,856.
14. Janice would like to send her parents on a cruise for their 25th wedding
anniversary. She has priced the cruise at $15,000 and she has 5 years to
accumulate this money. How much must Janice deposit annually in an
account paying 10 percent interest in order to have enough money to send her
parents on the cruise?
A. $1,862 B. $2,457 C. $3,000 D. $2,234
15. A ski chalet in Aspen now costs $250,000. Inflation is expected to cause this
price to increase at 5 percent per year over the next 10 years before Barbara

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and Phil retire from successful investment banking careers. How large an
equal annual end-of-year deposit must be made into an account paying an annual
rate of interest of 13 percent in order to buy the ski chalet upon retirement?
A. $ 8,333 B. $13,572 C. $25,005 D. $22,109

Let’s Analyze
Kay and Arthur are newlyweds and have just purchased a condominium for $70,000.
Since the condo is very small, they hope to move into a single-family house in 5
years. How much will their condo worth in 5 years if inflation is expected to be 8
percent?
___________________________________________________________________
___________________________________________________________________
_______________________________________________________________
_________________________________________________________.

In a Nutshell
Fred has inherited $6,000 from the death of Barney. He would like to use this money
to buy Wilma a new rockmobile costing $7,000 for their 10th anniversary celebration
which will take place in 2 years from now. Will Fred have enough money to buy the
gift if he deposits his money in an account paying 8 percent compounded semi-
annually?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.

Q&A Lists
Do you have any clarifications?
Issues/Questions Answers

Keyword Index
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Telefax: (084) 655-9591, Local 116

Time Value Of Money Nominal Interest Rate

Principal Effective Interest Rate
Interest Discount Rate
Compounding Annuity
Future Value Perpetuity
Present Value

Big Picture D

Week 8–9: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to:
a. Explain and analyze the fundamental concept of economics.

Big Picture in Focus: ULOa. Explain and analyze the fundamental

concept of economics.

Metalanguage
For you to demonstrate ULOa, you will need to have an operational understanding
of the following terms below.
1. Economics. It is the study of how scare resources are utilized to satisfy the
human wants and needs.
2. Wealth. Anything that has functional value (usually in money) which can be
traded for goods and services.
3. Consumption. Direct utilization or usage of the available goods and
services by the buyer (individual) or consumer (household).
4. Production. As the formation or creation by firms of an output
(products/services.
5. Exchange. Process of trading or buying and selling of goods and services
for money and or equivalent.
6. Distribution. Allocating or apportioning scarce resources to be utilized by
the household

Essential Knowledge
1. ECONOMICS
Economics is a social science that facilitates the proper decision makings. It
focuses on scarcity. Economics came from the Greek work “oikos” means
household and “nomus” means management. “Oikonomus” means household

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management. Is the efficient allocation of scarce means of production toward the

satisfaction of human needs and wants.

Factors of Production or Economic Resources

1. Land
It broadly refers to natural resources, which are given and found in
nature and not man-made.

2. Labor
Any form of human effort exerted in the production of goods and
services. Termed as human resource.

3. Capital
Is man-made goods used in the production of other goods and
services. Termed as man-made resource.

4. Entrepreneurship
Refers to the ability in combining other factors of production.

Basic Economic Activities

1. Production

Defines as the formation or creation by firms of an output. It is basically the

process by which land, labor and capital are combined in order to produce goods
and services.
2. Distribution
The process of allocating or apportioning scarce resources to be utilized by
the household, the business sector, and the rest of the world. It also refers to the
process of storing and moving products to customers often through intermediaries
such as wholesaler or retailer.
3. Exchange
Is the process of trading or buying and selling of goods and/or services for
money and/or its equivalent.
4. Consumption
Is the direct utilization or usage of the available goods and services by the
buyer or the consumer sector. It is also the satisfaction obtained by consumers for
the use of goods and services.

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Basic Economic Questions

Tells us that an economy must

identify the goods and services that
WHAT TO PRODUCE? are needed to be produced for the
society’s utilization.

Tells us that there is a need to

identify the different methods and
HOW TO PRODUCE? techniques in order to produce
goods and services.

Identifies the quantity of goods and

HOW MUCH TO services needed to be produced in
order to address the demand of man
PRODUCE? and society as a whole.

Identifies the people or sectors who

HOW TO PRODUCE? demand for the commodities being
produced by society.

The Circular Flow Model

Figure 16 shows the circular flow model. It shows the relationship and the
exchange of transaction between the household and business firm. It also shows
how the resources flow between the two sectors.

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Figure 16. The Circular Flow Model

The 3 Es of Economics
Efficiency
Refers to productivity and proper allocation of economic resources. Being
efficient in the production and allocation of goods and services saves time, money,
and increases the firm’s or economy’s level of output.
Effectiveness
Means attainment of goals and objectives. Being effective will enable firms to
address the consumption needs of society and the rest of the world.

Equity
Means justice and fairness. Being in a state of equity avoids the disadvantage
in the employment of the factors of production.

Economic System
Refers to a set of economic institutions that dominate a given economy with
the main objective of solving the basic economic question.

Traditional

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Basically a subsistence economy. The decision on what, how, how much, and
for whom to produce are made by him or the family head, in accordance with
traditional means of production.
Command
The manner of production is dictated by the government. The government
decides on what, how, how much, and for whom to produce.
Market
Resources are privately owned, and that the people themselves make the
decisions. Factors of production are owned and controlled by individuals, and people
are free to produce goods and services to meet the demand of consumers.
Mixed
Is a mixture of the three aforementioned economic systems. However it is
more market-oriented rather than command or traditional.

2. BASIC ANALYSIS OF DEMAND AND SUPPLY

Demand Concept
Demandpertains to the quantity of a good or service that people are ready to
buy at given prices with a given time period.
Main points to consider:

 Desire to possess a thing

 The ability to pay or means of purchasing it.
 Willingness in utilizing it.
 Price and time are present.

The Law of Demand

The law of demand states that holding other factors constant or ceteris
paribus, if the price increases, the quantity demanded decreases and if the price
decreases, the quantity demanded increases

Demand Analysis
Demand Schedule
It is a table which shows the relationship of prices and the specific quantities
demanded at each of these prices.
Table 4
Hypothetical Demand Schedule for Rice per Month

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PRICE (P)/Kg. QUANTITY (Kg.)

P35.00 8 Kgs.

24.00 13

13.00 20

12.00 30

11.00 45

Demand Curve
It is a graphical presentation showing the relationship between price and
quantity demanded per time period.
Price
40
30
20
10
0
0 20 40 60
Kg./month
Figure 17. Hypothetical Demand Curve For Rice Per Month

Demand Function
It shows the relationship between demand for a commodity and the factors
that determine or influence the demand.
Demand function is basically express in a functional form. Base on the
demand schedule and demand curve, since price only affects quantity demanded
then the demand function:
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QD = f(P)
Where: QD is Quantity Demanded
P is Price
In Mathematical Form (Using Slope-Intercept Form or Regression Method):
QD = a – bP
Where: a is the intercept of the demand curve
b is the slope of the demand curve

Factors Affecting Demand (Non-price determinants)

Apart from price, quantity demanded is also affected by the following factors:
a. Income
b. Occasional/Seasonal Product
c. Population
d. Price of its Substitute or Complementary Good
e. Expectations of Future Price

Change In Quantity Demanded & Change In Demand

 “Change in Quantity Demanded is being referred if PriceONLY affects
Quantity Demand.”
 “Change in Demand is being referred if OTHER FACTORS affects Quantity
Demand.”

Supply Concept
Supply is the quantity of goods and services that firms are willing to sell at a
given price within a period of time, other factors being held constant.
Main points to consider:
 Product is present.
 Willingness to sell.
 Price and time are present.

The Law of Supply

The law of supply states that holding other factors constant or ceteris paribus,
if the price increases, the quantity supplied increases and if the price decreases, the
quantity supplied also deceases.

Supply Analysis

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Supply Schedule
It is a table listing the various prices of a product and the specific quantities
supplied at each of these prices at a given point in time.
Table 5
Hypothetical Supply Schedule for Rice per Month

PRICE (P)/Kg. QUANTITY (Kg.)

P35.00 48 Kgs.

24.00 41

13.00 30

12.00 17

11.00 5

Supply Curve
It is a graphical representation showing the relationship between the price of
the product sold and the quantity supplied per time period.
Price
40
20
0
Kg./month 0 20 40 60
Figure 18. Hypothetical Supply Curve for Rice per Month

Supply Function
It shows the relationship between supply for a commodity and the factors that
determine or influence the supply.

In Mathematical Form (Using Slope-Intercept Form or Regression

Method):
QD = a +bP

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Where: a is the intercept of the supply curve

b is the slope of the supply curve

Factors Affecting Supply (Non-price determinants)

Apart from price, quantity supplied is also affected by the following factors:
a. Optimization in the use of factors of production
b. Technology
c. Future Expectation of Price
d. Number of Sellers
e. Weather Condition
f. Government Policy

Change In Quantity Supplied & Change In Supply

 “Change in Quantity Supplied is being referred if PriceONLY affects
Quantity Supply.”
 “Change in Supply is being referred if OTHER FACTORS affects
Quantity Supply.”

Market Equilibrium
Market Equilibrium is the point where the quantity demanded is equal to
quantity supplied.

Qs = QD
Example: 17
Consider the following as the demand and supply function of candy per day.
Qd = 1200 – 200P
Qs = 200P

Solution:
Qd = Q s
1200 – 200P = 200P
-200P - 200P = -1200
-400P = -1200
-400 = -400
P=3 Equilibrium Price

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To get the equilibrium quantity:

Hint: Use either the Qd orQs function and then substitute the value of P or
equilibrium price in any of the function. Like;
For demand:
Qd = 1200 – 200P
= 1200 – 200(3)
= 1200 – 600
Qd = 600 units

For supply:
Qs = 200P
= 200(3)
Qs = 600 units
Therefore, the equilibrium quantity is 600 units.

Elasticity Concept
Elasticitymeans responsiveness or sensitivity to changes in certain factors. It
is defined as the ratio of the percent change in one variable to the percent change
in another variable.
Formula: ε = %ΔX / %ΔY

o ELASTIC ε> 1
o INELASTIC ε< 1
o UNIT ELASTIC ε=1
o PERFECTLY ELASTIC ε=∞
o PERFECTLY INELASTIC ε=0

Classification of Elasticity
1. Elasticity Of Demand. It is a measure of the degree of responsiveness of
quantity demanded of a product to a given change in one of the independent
variables which affects demand for that product. It is classified in to three,
namely:

a. Price Elasticity of Demand

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b. Income Elasticity of Demand

c. Cross Price Elasticity of Demand

2. Elasticity Of Supply. It refers to the reaction or response of the sellers or

producers to price changes of goods sold. It is a measure of the degree of
responsiveness of supply to a given change in price.

Elasticity Formulas:

FOR PRICE ELASTICITY OF

DEMAND AND SUPPLY

INCOME ELASTICITY OF
DEMAND

CROSS PRICE ELASTICITY

OF DEMAND

Note: Under Income and Cross Price Elasticity concepts, certain points need to be
considered particularly on the types of good their elasticity coefficient corresponds. That is:

Under Income Elasticity

if : εis POSITIVE, the type of good is NORMAL
ε> 1 LUXURY
ε< 1 NECESSITY
if : εis NEGATIVE, the type of good is INFERIOR

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Under Cross Price Elasticity

if : εis POSITIVE, the type of good is SUBSTITUTE
if : εis NEGATIVE,the type of good is COMPLEMENT

Note: The determination of its type of good SHOULD be done before taking the
absolute value of the elasticity coefficient.

Example 18:
Suppose the price of Good C increases from P24.00 to P30.00 which
corresponds to an increase in quantity supply from 120 units to 160 units.
Compute for the supply elasticity and determine its type.
Solution:

= = x = = 1.29

Interpretation:
For every 1% increase in price, quantity supplied will increase by 1.29%.
Example 19:
Suppose the price of Good A changes to P20.00 from P18.00. Due to price
change, the quantity demand of its related good which is Good B also
declines from 50 units to 40 units. Compute for the cross-price elasticity of
demand and determine if what type of good and elasticity.
Solution: ε = 2.11
Type of good: Complementary(Because it’s negative)
Type of elasticity: Elastic (Because it’s greater than one)
Interpretation:
For every 1% increase in price of Good A, quantity demanded for Good B
will decrease by 2.11%.

Note: When demand is greater than supply, there’s shortage, but when
supply is greater than demand then there’s surplus.

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Self-Help: You can also refer to the sources below to help you
further
*Azarcon, E.R et.al. (2008). Principles of Economics with taxation and agrarian
reform (2nd Ed.)Philippines, Baguio City: Valencia Educational Supply

Let’s Check
Questions:
1. Explain the circular flow model.

2. What is economics all about? How do you see economics relate to you in your
own life?

3. What is the demand and supply connection between the customer and the
companies?

4. What does "shortage" mean in economics?

5. What does “surplus” mean in economics?

6. Differentiate between shortage and scarcity.

7. What factors that cause the change in demand?

8. What factors that cause the change in supply?

9. In economic perspective, is money considered as capital?

10. What is market equilibrium?

Let’s Analyze
Question:
1. The following table shows information on the conditions of demand and
supply for bicycles, where the quantities of bicycles are measured in
thousands.

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a. What is the quantity demanded and the quantity supplied at a price of

$210?
b. At what price is the quantity supplied equal to 48,000?
c. Does the quantity demanded rise or fall as price increases? Briefly
explain this pattern.
d. Does the quantity supplied rise or fall as price increases? Briefly
explain this pattern.

2. Fred's income has just risen from $940 per week to $1,060 per week. As a
result, he decides to purchase 9 percent more steak per week. What is the
income elasticity of Fred's demand for steak?

3. The increase in the demand for widgets, shown in the figure above, is caused
by an increase in the price of McBoover devices from $9 to $11. What is the
cross-price elasticity for these two products?

4. Suppose that the quantity of root beer demanded declines from 103,000
gallons per week to 97,000 gallons per week as a consequence of a 10
percent increase in the price of root beer. What is the price elasticity of
demand?

5. A 10 percent increase in the quantity of spinach demanded results from a 20

percent decline in its price. What is the price elasticity of demand for spinach?

6. A rise in the price of cabbage from $14 to $18 per bushel, caused by a shift of
the demand curve, increases the quantity supplied from 4,000 to 6,000
bushels. What is the elasticity of supply?

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For items 7 & 8:

7. What is the equilibrium price in the above figure?

8. What is the equilibrium quantity in the above figure?

9. Let Qd stand for the quantity demanded, Qs stand for the quantity supplied,
and P stand for price. If Qd = 20 - 2P and Qs = 5 + 3P, then what is the
equilibrium price?

10. Let Qd stand for the quantity demanded, Qs stand for the quantity supplied,
and P stand for price. If Qd = 20 - 2P andQs = 5 + 3P, then what is the
equilibrium quantity?

In a Nutshell
1. How do you think economics relates to you in your own life? Provide an
example.

2. Explain what do economists mean when they say "ceteris paribus".

3. Do you think the price elasticity of demand for Ford sport-utility vehicles
(SUVs) will increase, decrease, or remain the same when each of the
following events occurs? Explain your answer. a. Other car manufacturers,
such as General Motors, decide to make and sell SUVs. b. SUVs produced in
foreign countries are banned from the American market. c. Due to ad
campaigns, Americans believe that SUVs are much safer than ordinary
passenger cars. d. The time period over which you measure the elasticity
lengthens. During that longer time, new models such as four-wheel-drive
cargo vans appear.

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4. The accompanying table lists the cross-price elasticities of demand for several
goods, where the percent quantity change is measured for the first good of
the pair, and the percent price change is measured for the second good.

a. Explain the sign of each of the cross-price elasticities. What does it imply
about the relationship between the two goods in question?
b. Compare the absolute values of the cross-price elasticities and explain
their magnitudes. For example, why is the cross-price elasticity of
McDonald’s burgers and Burger King burgers less than the cross-price
elasticity of butter and margarine?
c. Use the information in the table to calculate how a 5% increase in the price
of Pepsi affects the quantity of Coke demanded.
d. Use the information in the table to calculate how a 10% decrease in the
price of gasoline affects the quantity of SUVs demanded.

5. What can you conclude about the price elasticity of demand in each of the
following statements?
a. “The pizza delivery business in this town is very competitive. I’d lose half
my customers if I raised the price by as little as 10%.”
b. “I owned both of the two Jerry Garcia autographed lithographs in existence.
I sold one on eBay for a high price. But when I sold the second one, the
price dropped by 80%.”
c. “My economics professor has chosen to use the Krugman/Wells textbook
for this class. I have no

6. If the market is not in equilibrium (e.g., there’s surplus or shortage), what would
be the best government interventions to make it in balance?

Q&A Lists
Do you have any clarifications?
Issues/Questions Answers

Keyword Index
Economics Distribution
Wealth Land
Consumption Labor
Production Capital
Exchange Entrepreneurship

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Business Demand
Household Supply
Circular flow model Efficiency
Product Market Effectiveness
Resource Market Equity
Traditional Economic system Market Equilibrium
Command Economic System Shortage
Market Economic System Surplus
Mixed Economic System Elascticity

Course Schedule

WHERE TO
ACTIVITIES DATE SUBMIT

Big Picture (Week 1-3) ULOa: Let’s August 24, 2020 CF email /
Check Activity Quipper

Big Picture (Week 1-3) ULOa: Let’s August 24, 2020 CF email /
Analyze Activity Quipper

Big Picture (Week 1-3) ULOa: In a August 24, 2020 CF email /

Nutshell Activity Quipper

Big Picture (Week 1-3) ULOb: Let’s August 31, 2020 CF email /
Check Activity Quipper

Big Picture (Week 1-3) ULOb: Let’s August 31, 2020 CF email /
Analyze Activity Quipper

Big Picture (Week 1-3) ULOb: Lin a August 31, 2020 CF email /
Nutshell Activity Quipper

September 4, Quipper
FIRST EXAMINATION
2020
Big Picture (Week 4-5) ULOa: Let’s September 10, CF email /
Check Activity 2020 Quipper

Big Picture (Week 4-5) ULOa: Let’s September 10, CF email /

Analyze Activity 2020 Quipper

Big Picture (Week 4-5) ULOa: In a September 10, CF email /

Nutshell Activity 2020 Quipper

Big Picture (Week 4-5) ULOb: Let’s September 15, CF email /

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Check Activity 2020 Quipper

Big Picture (Week 4-5) ULOb: Let’s September 15, CF email /

Analyze Activity 2020 Quipper

Big Picture (Week 4-5) ULOb: In a September 15, CF email /

Nutshell Activity 2020 Quipper

Big Picture (Week 4-5) ULOc: Let’s September 17, CF email /

Check Activity 2020 Quipper

Big Picture (Week 4-5) ULOc: Let’s September 17, CF email /

Analyze Activity 2020 Quipper

Big Picture (Week 4-5) ULOc: In a September 17, CF email /

Nutshell Activity 2020 Quipper

September 18, Quipper

SECOND EXAMINATION
2020
Big Picture (Week 6-7) ULOa: Let’s September 24, CF email /
Check Activity 2020 Quipper

Big Picture (Week 6-7) ULOa: Let’s September 24, CF email /

Analyze Activity 2020 Quipper

Big Picture (Week 6-7) ULOa: In a September 24, CF email /

Nutshell Activity 2020 Quipper

Big Picture (Week 6-7) ULOb: Let’s September 30, CF email /

Check Activity 2020 Quipper

Big Picture (Week 6-7) ULOb: Let’s September 30, CF email /

Analyze Activity 2020 Quipper

Big Picture (Week 6-7) ULOb: In a September 30, CF email /

Nutshell Activity 2020 Quipper

THIRD EXAMINATION October 2, 2020 Quipper

Big Picture (Week 8-9)ULOa: Let’s October 12, CF email /

Check Activity 2020 Quipper

Big Picture (Week 8-9)ULOa: Let’s October 12, CF email /

Analyze Activity 2020 Quipper

Big Picture (Week 8-9)ULOa: In A October 13, CF email /

Nutshell Activity 2020 Quipper

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FINAL EXAMINATION October 15-16, Quipper

2020

Online Code of Conduct

1) All teachers/Course Facilitators and students are expected to abide by an

honor code of conduct, and thus everyone and all are exhorted to exercise self-
management and self-regulation.

2) Faculty members are guided by utmost professional conduct as learning

facilitators in holding OBD and DED conduct. Any breach and violation shall
be dealt with properly under existing guidelines, specifically on social media
conduct (OPM 21.15) and personnel discipline (OPM 21.11).

3) All students are likewise guided by professional conduct as learners in

attending OBD or DED courses. Any breach and violation shall be dealt with
properly under existing guidelines, specifically in Section 7 (Student
Discipline) in the Student Handbook.

4) Professional conduct refers to the embodiment and exercise of the

University’s Core Values, specifically in the adherence to intellectual honesty and
integrity; academic excellence by giving due diligence in virtual class
participation in all lectures and activities, as well as fidelity in doing and
submitting performance tasks and assignments; personal discipline in complying
with all deadlines; and observance of data privacy.

5) Plagiarism is a serious intellectual crime and shall be dealt with accordingly.

The University shall institute monitoring mechanisms online to detect and
penalize plagiarism.

6) All borrowed materials uploaded by the teachers/Course Facilitators shall be

properly acknowledged and cited; the teachers/Course Facilitators shall be
professionally and personally responsible for all the materials uploaded in the
online classes or published in SIM/SDL manuals.

7) Teachers/Course Facilitators shall devote time to handle OBD or DED

courses and shall honestly exercise due assessment of student performance.

8) Teachers/Course Facilitators shall never engage in quarrels with students

online. While contentions intellectual discussions are allowed, the
teachers/Course Facilitators shall take the higher ground in facilitating and
moderating these discussions. Foul, lewd, vulgar and discriminatory
languages are absolutely prohibited.

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9) Students shall independently and honestly take examinations and do

assignments, unless collaboration is clearly required or permitted. Students
shall not resort to dishonesty to improve the result of their assessments (e.g.
examinations, assignments).

10) Students shall not allow anyone else to access their personal LMS account.
Students shall not post or share their answers, assignment or examinations to
others to further academic fraudulence online.

11) By handling OBD or DED courses, teachers/Course Facilitators agree and

abide by all the provisions of the Online Code of Conduct, as well as all the
requirements and protocols in handling online courses.

12) By enrolling in OBD or DED courses, students agree and abide by all the
provisions of the Online Code of Conduct, as well as all the requirements and
protocols in handling online courses.

Monitoring of OBD and DED

(1) The Deans, Asst. Deans, Discipline Chairs and Program Heads shall be
responsible in monitoring the conduct of their respective OBD classes through
the Blackboard LMS. The LMS monitoring protocols shall be followed, i.e.
monitoring of the conduct of Teacher Activities (Views and Posts) with
generated utilization graphs and data. Individual faculty PDF utilization reports
shall be generated and consolidated by program and by college.

(2) The Academic Affairs and Academic Planning & Services shall monitor the
conduct of LMS sessions. The Academic Vice Presidents and the Deans shall
collaborate to conduct virtual CETA by randomly joining LMS classes to check
and review online the status and interaction of the faculty and the students.

(3) For DED, the Deans and Program Heads shall come up with monitoring
instruments, taking into consideration how the programs go about the conduct
of DED classes. Consolidated reports shall be submitted to Academic Affairs
for endorsement to the Chief Operating Officer.

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Course prepared by:

DANIBOY D. BALINAWA, CPA

Course Facilitator/Faculty

Course reviewed by:

MARY CRIS L. LUZADA, CPA, MSA

Accountancy Program Head

Approved by:

GINA FE G. ISRAEL, EdD

Dean of College

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