Lecture 1 - Introduction

Question 1

What is management accounting?

Answer 1

Management accounting measures and reports financial information as well as other types of information that are intended primarily to assist managers to fulfil the goals of the organisation. Focus on internal

Question 2

What is the value chain?

Answer 2

The key activities engaged in by the organisation or industry.

Question 3

Industry vs organisational level value chain.

Answer 3

• Industry Value chain (generic)
  
  • E.g. Raw materials à WIP à Manufacturing à Marketing + Sales à After Sales Service
• Organisational value chain
  
  • Breaking down industry value chain to smaller components
  • E.g. Marketing: Facebook, Brand Management, Design Teams.

What role does the organisation play in the broader industry value chain?

Question 4

What is a supply chain?

Answer 4

The flow of resources from the initial supplier through to the delivery of goods and services to customers and clients.

Question 5

What is the difference between value added activities and non-value added activities?

Answer 5

Value added activity:

• Activities that a customer are normally prepared to pay for.
• Non-value added – is a wasteful (unnecessary) activity
  
  • E.g. duplication of the same advertisement.

Question 6

What is strategic cost management?

Answer 6

Intentional alignment of firm’s resources and infrastructure with long term strategy.

Involves 2 activities:

1. Structural cost management (drivers)

Executional cost management (drivers)

Question 7

What is structural cost management?

Give some examples.

Answer 7

Strategic in nature, not routine nor repetitive

• Deliberate choices of how we want the business to run?
• Each decisions effecting cost structure
  
  • E.g.
    
    • Scope of production in industry value chain (degree of vertical integration)
    • Sourcing and supplier selection
    • Product and process design

Question 8

What is executional cost management?

Give some examples.

Answer 8

Once the product design and process etc. is decided on, executionary cost management evaluates the performance of the decided-on supply chain.

• Monitors performance across the supply/value chain
• E.g.
  • Cost performance, level and volatility of costs, cost performance, quality initiatives and performance.

Question 9

4 advantages of vertical integration

Answer 9

1. Control
   
   1. Control over inputs
   2. Not dependent on market price fluctuations for components
   3. Reduced reliance on suppliers
2. Quality and barriers to entry (expertise)
   
   1. Reputation
   2. Goodwill
3. Streamline production
   
   1. Understand cost behaviours àcost reduction opportunities
4. Opportunity for spin-offs
   
   • Demand for wool pants à able to adapt supply chain to satisfy this new opportunity.