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)
What is Performance Risk?
The probability & consequences that the alliance’s objectives are not achieved.
How do Trust and Control relate to each other?
Das and Teng (2001) - “trust and control are two separate routes to risk reduction in alliances”
Trust is more of an INTRINSIC source for lowering the perception of risk, whereas Control is more OVERT and active.
The 3 types of Trust
Sako (1992):
1. Contractual Trust - belief that the other partner will honour the terms of the contract (minimum level of trust).
2. Competence Trust - the other partner is capable and has the required capabilities to achieve the purpose of the alliance.
3. Goodwill Trust - belief that the other partner comes with the best intention - they will honour the relationship.
Which aspects of Risk join with which type of Trust?
- Goodwill trust will reduce its perceived relational risk, but not the performance risk.
- Competence trust will reduce its perceived performance risk, but not the relational risk.
What did Varoutsa & Scapens (2017) say?
Relating to Trust
“The relationship between trust and control can shift over time as the supply chain matures”
- this is open to debate - seen different circumstances in different organisations.
What is Open-Book Accounting?
The exchange of internal information & accounting data between the supplier and buyer in order to achieve benefits for both partners.
3 types of Controls
- Outcome/Results Controls - integrated information systems, target costing, value chain analysis, Open Book Accounting (performance risk will be reduced more).
- Behaviour/Action Controls - policy documents, procedures, regulating employment & training (relational risk will be reduced more).
- Social/Cultural Controls - selection of a partner - ‘matching’ culture (reduce both performance and relational risk).
Inter-organisational Performance Measures
- mix of financial and non-financial measures
- joint reward system
Inter-organisational Behaviour Controls
- policy documents, procedures
- joint meetings
- alliance board
Inter-organisational Cost Management (IOCM)
- co-ordination of activities seek to reduce their shared costs
- open-book accounting
- jointly developed target costing
- value chain analysis
Definition for Digital Economy
“the pervasive use of IT in all aspects of the economy, including internal operations of organisations; and transactions between individuals, acting both as consumers and citizens and organisations” (Atkinson & McKay, 2007)
Definition for Digital Transformation
“Digital transformation is not just a matter of updating and upgrading information technology systems, but rather making the best use of technology to establish how, when and where your organisation does business” (AICPA & CIMA, 2020)
Definition for Information Systems (IS)
“a set of connected technologies and resources that collects, transforms and disseminates information” (Burns et al, 2013)
Tacit and Explicit Knowledge
- Tacit knowledge = silent knowledge, just kept between managers.
- Explicit knowledge = clear, quantified knowledge seen as the output of the information system.
Examples of Stand-Alone Systems
- Spreadsheets (Nestle - 20 prices for vanilla)
- Best-of-Breed (BoB) - specifically to enable an ability.
- Sales systems example - independent from accounting/inventory systems.
Examples of Integrated Systems
- Enterprise Resource Planning Systems (ERP) - one large system, with highly coupled subsystems specialised in particular functions.
- Systems with high communication - e.g., when a sale is made, the accounting system tells the warehouse system, may even invoice the supplier.
- can have different levels of integration.
Key ideas of ERPs
- Integration
- Incorporate ‘best practices’
- Enable better control and affect organisational performance positively
The 5 V’s of Big Data
- Volume
- Variety
- Velocity (very fast - 30,000 tweets every minute)
- Veracity (cannot look at everything, have to pick a small section)
- Value (convert big data to meaningful data)
General ADVANTAGES of Cloud Computing
(Marston et al, 2011)
- IT costs drop drastically
- Reduce IT maintenance & support issues
- Scalability
- Increase agility & flexibility
- Made technology more approachable, particularly for small businesses.
ADVANTAGES of Cloud Accounting - for the Finance function
- Dissemination of financial information
- Easier consolidation and development of a central finance view
- Supports collaborative work
- Makes ERP advantages more accessible - CERP (cloud-based ERP)
What are the 5 essential characteristics of cloud computing?
National Institute of Standards and Technology (NIST), 2011:
1. On-demand self-service - do not need human interaction with a service provider.
2. Broad network access
3. Resource pooling
4. Rapid elasticity - resources can be elastically provisioned and released.
5. Measured service - resources are monitored and controlled.
Important quote for Integrating Sustainability Development Goals with Management Control
Beusch et al (2002)
Simply adapting performance measurement systems such as Balanced Scorecard is insufficient, sustainability needs to be embedded into organisational strategy.
Benefits of Life-Cycle Cost Management
- Long-term Perspective
- Risk Mitigation - potential cost escalations/savings can be anticipated and planned for.
- Sustainability - considering environmental & social costs over product’s life-cycle.
