3 Flashcards
What is Strategic Management Accounting?
The process of identifying, gathering, choosing and analysing accounting data for helping the management team to make strategic decisions and to assess organisational effectiveness.
(Hoque, 2014, p.2)
What is the definition of strategy according to Porter?
Strategy is concerned with the creation and maintenance of competitive advantage in all areas of the business.
(Porter, 1980)
List the five steps in the Competitor Cost Assessment process.
- Choosing the competitor
- Data collection
- Cost estimation methods
- Analyse and compare
- Strategic implications
What is the purpose of Brand Valuation?
To appraise major competitors’ sales, market share, volume, and unit costs.
What is the significance of monitoring competitors’ market share?
It helps identify potential areas where a company is losing ground or where competitors are making significant inroads.
What factors does Apple monitor about Samsung?
- Market share growth
- Product features
- Pricing strategy
- Marketing & Advertising
- Customer reviews & brand perception
Fill in the blank: Brand Value = Brand earnings x _______.
[Multiplier (Brand strength and future potential)]
What are the two main types of quality costs?
- Cost of good quality
- Cost of poor quality
What does lifecycle costing consider?
- Design
- Introduction
- Growth
- Maturity
- Decline
What is Target Costing?
The process where a product is designed to satisfy a consumer need and a target cost is determined for the product.
True or False: Quality costing can be used for attention-directing.
True
What does Attribute Costing refer to?
The cost of the package of attributes which constitute commodities that appeal to customers.
What is the competitive advantage derived from according to Value Chain Costing?
Providing better customer value for equivalent cost, or equivalent customer value for lower cost.
What is the strategic goal for Apple with the iPhone 15?
Maintain brand image as a premium phone leader while expanding market share.
What does strategic pricing involve?
Uses competitively-oriented analysis for better-informed pricing decisions.
What is the importance of negotiating lower prices with suppliers?
It helps maintain quality while reducing costs.
What is the role of customer service in brand loyalty?
Excellent customer service encourages repeat purchases and upgrades.
How does Apple decide on pricing for the iPhone 15 Pro models?
- Maintain premium positioning
- Targeted price point for Pro models
What are internal failure costs?
Expenses incurred after a defect is identified, including catching defects before they reach customers.
What is the significance of competitor cost assessment?
It allows for the comparison of financial reports, such as between Nike and Adidas.
What are some metrics tracked by Samsung on Apple?
- Sales & Inventory Levels
- Technology Adoption Rate
- App Store Performance
- Retail Channel Strategy
What does strategic costing include?
- Competitor price reaction
- Price elasticity
- Projected market growth
What can increased cost per unit indicate about a competitor?
It may indicate investment in advertising for brand strength development.
True or False: Attribute costing is easy to calculate.
False
What are failure costs?
Expenses incurred after a defect is identified
What are internal failure costs?
Costs associated with catching defects before the product reaches the customer
Examples include scrapping defective shoes during production and reworking shoes that do not meet quality standards.
What are external failure costs?
Costs associated with defects reaching the customer
Examples include warranty repairs or replacements for defective shoes, product recalls due to safety concerns, customer returns due to poor quality, and loss of sales due to damaged brand reputation.
What should costs be considered in?
Long term, not short term
What is a relevant cost analysis?
An analysis that can lead to short term decisions
What factors should be considered in make-or-buy decisions?
Cost information, strategy, marketing, and employee satisfaction
What are prevention costs?
Proactive expenses aimed at preventing defects from occurring
Give an example of prevention costs
Quality training for factory workers
What is Design for Manufacturability (DFM)?
Designing products that are easier and less prone to errors during production
What are appraisal costs?
Activities that assess product quality throughout the production process
What is an example of an appraisal cost?
In-line inspections during various stages of shoe manufacturing
True or False: Quality costing is only about reducing short-term expenses.
False
What is the strategic approach to costing?
Differentiating traditional costing by using cost information in conjunction with information from other sources
Fill in the blank: Quality training for factory workers is an example of _______.
prevention costs
(1st)What is attribute costing?
Attribute costing refers to the cost of the package of attributes that constitute commodities appealing to customers, helping differentiate products in the market.
What are some examples of attributes in attribute costing?
Operating performance variables, reliability and warranty arrangements, degree of finish and trim, service factors like assurance of supply and after-sales service.
(Guilding et al., 2000)
How do attributes affect a firm’s market share?
Attributes differentiate products, influencing consumer choices and determining a firm’s market share.
What role does the degree of finish and trim play in attribute costing?
The degree of finish and trim refers to the final touches on a product, such as the quality of materials and craftsmanship, which impacts its appeal to customers.
What challenges are associated with attribute costing?
Attribute costing is difficult to calculate but helps bring accounting and marketing closer, enabling informed decisions on pricing and product appeal.
Why is it important to understand the cost of attributes?
Understanding the cost of attributes helps in making informed decisions on pricing, product development, and marketing strategies.
What is brand valuation in Strategic Management Accounting (SMA)? (2nd)
It’s the practice of assigning a monetary value to a brand—often called brand value budgeting & monitoring—to track how brand-building activities translate into financial worth.
How can brand valuation be used by marketers?
As a potential measure of marketing achievements, showing whether campaigns, positioning, and brand investments are boosting the brand’s financial value.
Which well-known consultancy is cited as an example for brand valuation?
Interbrand—they publish annual rankings and provide valuation services for major global brands.
What’s the core Interbrand formula for estimating brand value?
Brand Value = Brand Earnings × Multiplier (where the multiplier reflects brand strength and future potential).
Why does brand valuation encourage cross-functional collaboration?
It promotes a dialogue between marketing and accounting, aligning brand-building goals with financial metrics and budgeting decisions.
For what size/type of organisations is formal brand valuation mostly intended?
Primarily large organisations with well-established, high-impact brands (e.g., Coca-Cola, Google, Amazon).
3rd SMA Practice: Competitor Cost Assessment (and what indirect sources to use to gain information)
Assess competitors’ manufacturing facilities, economies of scale, governmental relationships and technology-product design
Indirect sources of competitor information:
Physical observation
Mutual suppliers
Mutual customers
Employees (particularly ex-employees of competitors)
Example of Competitor cost assessment steps:
Choosing the competitor
Data Collection (industry reports, fin statements)
Cost estimation methods
Analyse and compare for a cost advantage for one brand etc
Strategic Implications: why nike for eg has a lower cost per unit than addidas maybe due to attracting customers that are cost conscious
4th SMA Practice: Competitor Position Monitoring
Assess major competitors’ sales, market share, volume, unit costs.
Example:
Increased cost per unit by a competitor may seem favourable.
However, if it is due to advertising for brand strength development it is likely that the competitor will secure a stronger rather than weaker competitive position.
5th SMA Practice: Competitor appraisal based on published financial statements
Can be applied by traditionally-trained accountants
Considers monitoring trends in sales and profit levels as well as asset and liability movements
Can be used as part of competitor cost assessment
e.g. comparing Tesco with Sainsbury’s Financial Reports, Nike with Adidas’s Financial Reports, or Apple with Samsung’s Financial Reports.
SMA Practice: Lifecycle costing (6th)
Assess costs in relation to the relevant time frame in life cycle costing.
Considers costs through the product’s life:
Design
Introduction
Growth
Maturity
Decline
It can balance short-termism management tendencies.
Links R&D and Accounting
SMA Practice: Quality costing (7th)
Quality of product or service can be a source of competitive advantage.
By increasing the cost of prevention, companies can avoid (or at least reduce!) the cost.
Quality costs:
Prevention and Appraisal (Cost of good quality)
Internal failure cost (catching defects before product reavhes customer) and external Failure (costs with defects reaching the customer (warranty, customer returns) (Cost of poor quality)
Limitation: cost of lost sales can be highly subjective to assess.
But quality costing can be used for attention-directing.
What is strategic costing in Strategic Management Accounting (SMA)? (8th)
A costing approach that evaluates costs in a long-term, strategic context rather than focusing only on immediate, short-term figures.
Why shouldn’t cost analysis be limited to the short term?
Because short-term ‘relevant cost’ decisions can overlook longer-term consequences; strategic costing aligns cost decisions with sustained competitive advantage.
In a make-or-buy decision, which non-cost factors should accompany cost data?
Strategy, marketing considerations, and employee satisfaction—all influence overall value beyond the raw cost figure.
How does strategic costing differentiate itself from traditional costing methods?
It broadens the lens from pure cost efficiency to strategic impact, ensuring decisions support long-term goals and market positioning.
What is a potential downside of using strategic costing?
Incorporating many variables can increase decision complexity, making analyses more time-consuming and data-intensive.
Despite added complexity, why is strategic costing considered the best way to use cost information?
It integrates cost data with insights from other sources, enabling well-rounded, future-oriented decisions that balance financial and strategic objectives.
9th SMA Practice: Strategic Pricing
- Uses competitively-orientated analysis.
- Will result in better-informed pricing decision.
- Might include competitor price reaction, price elasticity, projected market growth, economies of scale, and experience.
- Might also include Target costing (market price – desired profit).
What is target costing?
A pricing‐driven process where a product is designed to meet a consumer need while achieving a pre-set target cost.
At which stages of the product life-cycle is target costing applied?
Primarily during the development and design phases, when specifications can still be altered to hit the cost target.
How does target costing connect to Kaizen costing?
After launch, Kaizen costing continues to seek incremental savings in production, complementing the up-front cost discipline of target costing.
Is target costing market-led or cost-led?
It is market-led: the expected market price minus desired profit margin determines the allowable (target) cost.
What potential drawback must firms watch for with target costing?
Aggressive cost targets can put product quality at risk / under close scrutiny, so quality controls are essential.
What is value chain costing and which framework underpins it?
A strategic costing method that traces every activity from design to delivery to uncover cost-saving or value-adding opportunities. It builds on Porter’s Value Chain Analysis, linking competitive advantage to delivering higher customer value for the same—or lower—cost.
How are internal and external links treated in value chain costing?
Each activity is viewed as a link in a chain—inbound logistics → operations → outbound logistics → marketing & sales → service. The analysis also extends to suppliers and customers to capture savings or value gains across the entire network.
Which support activities influence cost and value, and why are they important?
Firm infrastructure, human resource management, technology development, and procurement support the primary links; optimizing them reduces cost and enhances value throughout the chain, strengthening long-term competitive advantage.
