Strategic Management Accounting Flashcards
Strategic Management Accounting?
“the process of identifying, choosing and analysing accounting data about activities of an organisation and the changing external environment within which it operates for assessing strategic initiatives of the organisation” (Hoque, 2006).
Cost issues that can be addressed with cost management?
Design and production - reducing product complexity and increasing standardisation
Production approach - JIT and TQM
Building relationships with suppliers
ABC to reduce product’s use of high cost activities
Profit planning for new products - target costing may be useful
Manage costs over life cycle of product - life cycle costing
Just in Time?
Raw materials received just in time for production
Manufactured parts completed just in time for assembly
Finished goods completed just in time to be shipped
JIT ‘pulls’ the next stage in the line and ‘pushes’ production along at a constant rate
Cost savings as a result
Just in Time key elements?
Improves the plant layout - focused factories to improve flow
Reduced set up time - flow lines can produce small batches without the need to set up machinery each time
Zero defects - Production workers are responsible for checking quality, no quality control
Flexible workforce - Workers must be flexible and multi skilled, perform variety of different tasks
Quality?
Design - whether characteristics or functionality of the product meet customer expectations
Performance quality – whether the product performs as expected given specifications
Total Quality Management?
A strategy used to improve products and services by focusing on organisational process measurement and control
Key concept - quality is the responsibility of everyone involved in its creation/consumption
Leadership - top management vision, planning and support, employee involvement
Product/process excellence - product design quality and monitoring for continuous improvement (Kaizen), mistake proof mechanism that prevents defects from being produced, statistical process control
Importance of quality?
Lower product returns Lower inventory Lower manufacturing cost Better service delivery at lower cost Higher perceived value = more satisfied customers
Costs of conformance?
prevention costs and appraisal costs to prevent defects and measure conformity of products to specification
(Burns et al, 2013)
Costs of non-conformance?
internal and external failure costs to corrects defective processes or products
(Burns et al, 2013)
Porter’s value chain analysis?
Managers can:
Identify an area to achieve a cost advantage
Improve areas where less value is created
Identify areas to differentiate product/services
Porters value chain break down?
Support activities - Firm infrastructure, HR, Tech development
Primary Activities - Inbound log, outbound log, operations, marketing&sales, services
Target Costing?
Takes place during design phase of product life cycle
Identifies the target or allowable cost of a product - by identifying target selling price and target profit
Target costing 5 steps?
Calculate target price Calculate target profit Calculate target cost (price - profit) Value engineering - ways to reduce cost and achieve target Kaizen costing
Value engineering?
Used in target costing to reduce cost by analysing trade offs between types of product functionality and total product cost
Where features can be added or deleted to a product easily (electronics, cars), functional analysis is employed - where the performance and cost of function of a product is examined
When functionality is built into a product as opposed to an add on feature - design analysis is used
Life cycle costing?
Recognising and managing the costs a product/service occurs throughout its lifetime
Provides complete perspective of product/service long term profitability and aids strategic management
Life time costs - pre launch, production and sales costs, after sale/service costs (recycling, disposal, warranty etc)
Life cycle costs other uses?
Consider full life of products in terms of recycling, sustainable nature of products and services
‘whole life cycle’ approach to capital investments
Kaizen costing?
‘Kaizen’ = continuous improvement
Can be applied to costing, budgeting, targets etc
Can be employed in manufacturing stage of product life cycle, because value engineering has already taken place at design stage
Yx = aX^b a= time for first unit, X = number of units, b = log of learning rate.
MA and Sustainability?
Not just environmental reporting issues - much broader
All decisions should include sustainability input
- Consider all stakeholders
- narrow view on financial analysis techniques used for investment
- Broader definition of accounting - Carnegie et al etc
MA and Big Data?
Big data = larger more complex data sets, so voluminous that traditional data processing software cannot manage them
Characteristics = volume, velocity (may be real time), variety (text, audio, video, structured, unstructured, veracity (accuracy), value (is data capital, any value in analysing?)
Big data example = HMRC
How will MA be affected by big data?
The role of a MA - business partner, analyser etc
How will these roles be useful? Will there be new roles? Data sourcer/manager?
Does the management accountant’s role include adding value (characteristic V)
What skills will MA need to have for big data?
Analysis skills, business understanding Objectivity, ask tough questions Communication skills Dealing with ambiguity Some technical understanding e.g. of data sources/types
MA and Artificial Intelligence?
AI = theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.
Teaching computers to learn in the same way we do and interpreting data from the world around us, also learning from its successes and failures
How can AI be used in accounting?
- Automate data entry/coding
- Fraud detection
- Forecast revenues
- Analyse emails and contracts
- Inventory counting
- Payroll/tax returns
- Auditing
