Strategic Management Accounting Flashcards
What is Strategy?
Concerned with the Creation and Maintenance of competitive advantage in all ares of the business (Porter, 1980)
SMA
“Is the process of identifying, gathering, choosing and analysing accounting data for helping the management team to make strategic decision and to assess organisational effectiveness’ (Hoque 2014)
The 12 Practices
Attribute Costing Brand Valuation Competitor Cost Assessment Competitor position monitoring Competitor Appraisal based on published financial statements Life Cycle Costing Quality Costing Strategic Pricing Strategic Costing Target Costing Value Chain costing
(ABCCC LQSS TV)
Attribute Costing
Refers to the cost of the package of attributes which constitute commodities that appeal to customers
Attributes differentiate products and determines a firm’s market share
Attribute costing is difficult to calculate, but it brings accounting and marketing closer.
Guilding et al (2000)
- Reliability and warranty arrangements
- Degree of finish and trim
- Assurance of supply
- After sales service
Brand Valuation
Potential measure for marketing achievements
Promotes a dialogue between market and accounting
Only used for companies with Branded products/services
Competitor Cost Assessment
Appraise competitors’ manufacturing facilities, economies of scale, governmental relationships and technology product design.
Indirect sources of competitor information:
- Physical observation
- Mutual suppliers
- Mutual customers
- Employees (particularly ex employees of competitors)
Competitor Position monitoring
Appraise major competitors sales, market share, volume, unit costs and sales.
Example:
- Increased cost per unit by a competitor is favourable
However, if it is due to advertising and brand strength development it is likely that the competitor will secure a stronger rather than weaker competitive position.
Competitor Appraisal of Financial Statements
Can be applied by traditionally-trained accountants
Considers monitoring trends in sales and profit levels as well as asset and movements
Can be used as part of competitor cost assessment.
Cannot be used in isolation as it is not possible to fully appraise competitors based on financial information only.
Life Cycle Costing
Considers product life: Design, introduction, Growth, Maturity, Decline
Appraise costs in relation to the relevant time frame in life cycle costing
Can balance short-termism management tendencies
Links R&D and accounting
Quality Costing
Quality of product or service can be a source of competitive advantage.
By increasing the cost or prevention companies can avoid/reduce the cost
Quality cost: Prevention, Appraisal, Failure costs (rework, scrap)
Limitation: cost of sales can be highly subjective to assess.
Strategic Costing
- Costs should be considered in the long term, not in the short term
- For a make-or-buy decision, cost information is important, but other information such as strategy, marketing and employee satisfaction should be taken into account.
- Differentiates traditional costing
- Too many variables make the decision more complex
- However, this is the best way to use cost information, in conjunction with information from other sources.
Strategic Pricing
Uses competitively - orientated analysis
Will result in better-informed pricing decision
might include: competitor price reaction price elasticity, projected market growth, economies of scale, and experience.
May also include target costing
Target Costing
Refers to the process where a product is designed to satisfy a consumer need and a target cost is determined for the product.
Implemented during development and design phases of the product lifecycle
market led costing rather than cost led pricing
However, it may put the quality of the product at check
Where a product is designed to satisfy a consumers need and a target cost is determined for the product in order to earn a target profit level.
Value Chain Costing
Builds on Porter’s Value Chain Analysis and the idea that competitive advantage derives from providing better customer value for equivalent cost, or equivalent customer value for lower cost
Views the series of activities taking place between a product’s design and distribution as links in a chain..
It should include not only the internal chain, but also the links with suppliers and customers in search for potential cost savings embedded in those links.
