Strategic management accounting

Question 1

What are the strategies?

Answer 1

Life cycle costing
Just in time (JIT)
JIT purchasing
Kaizen

Question 2

What is life cycle costing?

Answer 2

Focuses on costs over the products entire life cycle to determine whether profits earned during manufacturing will cover costs incurred during pre + post manufacturing.

• DRAW DIAGRAM

Includes these costs:
- R&D
- design
- planning and concept
- testing
- advertising
- production
- distribution and customer service

Question 3

What is life cycle costing good?

Answer 3

Good because it records costs over entire asset life, decisions made optimises asset usage at lowest cost to entity.

• Assess profitability over full life
• Good if developing products with a short life
• Can take action to increase revenue and cut costs
• Better decision making
• Encourages long term view

Question 4

What is JIT?

Answer 4

JIT aims to reduce waste by producing required items at required quality in required quantity at the precise time required.

Features:
- Production cells (families of similar products, each family manufactures in production cells, machines placed in order they are required, reduces work in progress inventory, reduced set up times)
- TQM (A continuous process that aims to improve the quality of a company’s products and services. TQM focuses on customer focus, employee empowerment, and data-driven decision making)
- JIT purchasing
- Product costing must match JIT production systems

Question 5

What are benefits and disadvantages of JIT?

Answer 5

Benefits:
- reduces work in progress inventory
- highlights problem areas

Disadvantages:
- any problems halt entire production

Question 6

What is JIT purchasing?

Answer 6

Where materials and goods are delivered immediately before being used.

Requires strong supplier partnership

+ves:
- reduced admin costs from fewer suppliers
- savings from fewer negotiations with suppliers
- less investment in inventory
- less waste as don’t order what don’t need

Question 7

What is Kaizen?

Answer 7

A Japanese business philosophy encouraging continuous improvement through small gradual changes.

Employees
- Involves employees at all levels
- Improvements initiated by any employee at any time
- People who perform tasks know the most about them, empowering people to effect change is best strategy for improvement

Advantages:
- Greater efficiency
- Higher quality
- Less waste
- Increased productivity
- Better management of resources
- Better safety
- Lower costs
- Greater customer satisfaction
- Better cooperation and communication
- Higher employee satisfaction + morale