Management Accounting Flashcards
Advantages of Activity-Based Management
- Should improve decision-making - eliminating/redesigning/substituting non-value-added activities.
- Aids pricing, avoiding losses.
- Adds value - focuses attention on value-added activities.
- Budgeting benefits - can be made on the basis of activities.
- Facilitates customer profitability analysis
Disadvantages of Activity-Based Management
- Causal relationships are based on arbitrary allocations (subjective).
- Difficulties in calculating cost drivers (lengthy + costly)
- Over-emphasis on cost management, rather than understanding organisational context of management systems.
- Emphasis on indirect costs - cannot be traced directly to cost objects - not exact.
Advantages of Strategic Cost Management over ordinary Cost Accounting
- More proactive - looking for early identification of costs.
- Long-term oriented.
- External focus - market, competitors, forecasting costs.
- Focusing on trade-offs between costs incurred and value produced.
- Relating costs to business drivers, not output level.
Advantages of Customer Profitability Analysis (CPA)
- Improves profitability by maximising sales to profitable customers.
- Considers the lifetime value of customers.
- Improves strategic decision-making - providing information for marketing, pricing etc.
Disadvantages of Customer Profitability Analysis (CPA)
- Not a lot of talk of CPA in Management Accounting.
- Success is contingent upon the successful indication of cost drivers.
- Difficulties in calculating costs attached to specific services/clients.
- All problems with ABC are relevant here.
- Customers may buy a combination of products/services - hard to distinguish specific costs.
What are the stages of a Product Life Cycle?
- Product Development
- Introduction
- Growth
- Maturity
- Decline (& disposal)
What is Kaizen Costing?
Continuous Improvement philosophy (key for Total Quality Management (TQM) and Just-in-Time (JIT) philosophies)
What is Value Engineering (in Target Costing)
A systematic evaluation of all aspects of the value-chain business function, with the objective of reducing costs while satisfying customers’ needs - BEFORE production.
What is Reverse Engineering (in Target Costing)
A close examination of competitors’ products.
Target Costing Process
- Market Research & Target Pricing
- Set Target Margins & Target Costs
- Iterative product design cycle - focused on customer value and costs.
- Value Engineering to reduce cost gap.
- When manufacturing starts - Kaizen Cost Management
Advantages of Target Costing
- Market-oriented
- Promotes cross-functional co-operation
- Cost advantage
- Pro-active
Disadvantages of Target Costing
- Uncertainties of Costs
- How do you target cost new products?
- Requires knowledge of customer requirements
- Employee burnout
- Organisational conflict
Discuss the concept of Inter-Organisational Relationships
- significance of IORs makes it necessary for managers to extend management control beyond the company’s borders.
- Important for tackling globalisation and the speed of technological development.
What are the Motives for Inter-Organisational Relationships?
- To exploit unique resources (Das & Teng, 1998) - knowledge, own technology, physical resources.
- To achieve specific outcomes (Glaister & Brickley, 1996)
Alliances - Economies of…
- Economies of Scale
- Economies of Speed
- Economies of Risks
- Economies of Skills
- Economies of Scope
What are Dyadic Relationships?
Take the industry and level of the value chain into consideration to create relationships.
- Vertical - in the SAME INDUSTRY
- Horizontal - same industry but different countries
- Diagonal - DIFFERENT INDUSTRIES
Issues with Inter-Organisational Relationships?
- Loss of proprietary/confidential information
- Management complexities - who manages the relationship & finances?
- Financial and organisational risks
- Risk of becoming dependent
- Loss of decision autonomy
- Loss of flexibility
- Long-term viability
Example of a Diagonal Alliance
McLaren & Deloitte (2017) - building data-driven products, focusing in healthcare, life sciences, retail and transport.
Example of a Horizontal Alliance
Quantas & Emirates (2012) - co-ordinated pricing, sales and scheduling, sharing airport lounges and integrated frequent-flyer programs.
Example of a Failed Alliance
Volkswagen and Suzuki
- VW acquired Suzuki in 2009 - agreement to share technologies.
- in 2011 - Suzuki claimed VW broke the contract - not handing over hybrid technology.
- DISTRUST undermined the entire relationship, so failed.
Definition of Trust
“The willingness of one party to relate with another in the belief that the other’s actions will be beneficial rather than detrimental to the first party” (Child & Faulkner, 1998)
Stats for Technological Adoption in Financial organisations (> 5,000 employees)
2022 Economist Intelligence Unit AI adoption study - 54% have adopted some form of AI technology
Why might intra-firm management control frameworks not fit in inter-organisational relationships?
- Separate (but overlapping) profit functions of partners.
- Absence of one central figure who provides conscious governance.
- The potential role of courts and third party arbitrators in settling disputes.
What is Relational Risk?
The probability & consequences of not having satisfactory co-operation.
(opportunistic behaviour, conflicts, unethical activities etc)