Strategy And Quality

Question 1

Introduction to strategy

Answer 1

Many enterprises want to see their management accounting systems more closely aligned with their strategies.
Management accounting can assist managers in accounting for and managing quality.

Question 2

What is strategy

Answer 2

Strategy describes how an organisation matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives.
In formulating its strategy, an organisation must thoroughly understand the industry in which it operates.

Question 3

Strategic management accounting (SMA)

Answer 3

A form of management accounting which places emphasis on information which relates to factors external to the firm, as well as non-financial information and internally generated information.

SMA is orientated towards the future and the enterprises position relative to that of its competitors.

Question 4

Industry analysis focuses on

Answer 4

Five forces

Question 5

Competitors

Answer 5

Rescuing prices of products is critical to growth for any industry

Competition is severe along the dimensions of price, timely delivery and quality

Question 6

Potential entrant into the market

Answer 6

• Competition usually keeps profit margins small
• Existing companies are likely to have lower costs
• Existing companies also have the advantage of close relationships with customers

Question 7

Equivalent products

Answer 7

Technologies that allow customers flexibility reduce the potential for equivalent products or new technologies to replace existing products.

Question 8

Bargaining power of customers

Answer 8

Customers have bargaining power because they buy the products and can obtain the products from other potential suppliers.

Question 9

Bargaining power of input suppliers

Answer 9

Suppliers of high-quality materials have some bargaining power to demand higher prices.
Skilled engineers, technicians and manufacturing labour have some bargaining power to demand higher wages.

Question 10

Two generic strategies that organisations use are:

Answer 10

Product differentiation

Cost leadership

Question 11

Product differentiation

Answer 11

Refers to offering products and services that are perceived by customers as being superior and unique relative to those of its competitors.

• Apple in the mobiles industry
• Coca-Cola in the soft drinks industry

Question 12

Cost leadership

Answer 12

Is achieving low costs relative to competitors.
- achieve low costs through =
Productivity and efficiency improvements
Elimination of waste
Tight cost control

Question 13

Implementation of strategy

Answer 13

To be successful, a company must both formulate an effective strategy and implement it vigorously.
Management accountants have an important role to play in the implementation of strategy.
This role is designing reports to help managers track progress in implementing strategy.

Question 14

The balanced scorecard

Answer 14

Translates an organisations missions and strategy into a comprehensive set of performance set of performance measures.
Because the non-financial and operational indicators measure fundamental changes that a company is making.
The financial benefits of these fundamental changes may not be captured in short-run earnings.
Strong improvements in non-financial measures signal the prospect of creating condominium value in the future.

Question 15

The tableau de bord

Answer 15

A management tool that is very similar to the balanced scorecard.
TdBs are founded on multi criteria models of control that use both financial and non-financial indicators.
Each member of the management team of a company has a specified TdB - ranging from the managing director with a TdB dealing with the company’s objectives and attainments to individual plant managers, with much more specific microlevel details on plant production focuses.

Question 16

Quality Management

Two aspects of quality

Answer 16

1) Quality of design measures how closely the characteristics of products or services meet the needs and wants of customers.
2) Conformance quality refers to the performance of a product or service according to design and product specifications

Question 17

Costs of quality

Answer 17

Refer to costs incurred to prevent, or costs arising as a result of, the production of a low-quality product.
These costs focus on conformance quality and are incurred in all business functions of the value chain.

Question 18

Prevention costs

Answer 18

Costs incurred in precluding the production of products that do not conform to specifications.

Question 19

Appraisal costs

Answer 19

Costs incurred in detecting which of the individual units of products do not conform to specifications.

Question 20

Internal failure costs.

Answer 20

Costs incurred by a non-conforming product detected before it is shipped to customers.

Question 21

External failure costs

Answer 21

Costs incurred by a non-confirming product detected after it is shipped to customers.

Question 22

Non financial measures of customer satisfaction

Answer 22

Number of customer complaints
Detective units as a percentage of total units shipped to customers
Percentage of products that experience early or excessive failure
On-time delivery rate

Question 23

Non financial measures of internal performance

Answer 23

Number of defects for each product line 
Process yield (ratio of good output to total output) 
Employee turnover (ratio of the number of employees who left the company to the total number of employees)

Question 24

Techniques used to identify quality problems

Answer 24

Three methods that companies use to identify quality problems and to improve quality are:
Control charts
Pareto diagrams
Cause-and-effect diagrams

Question 25

Advantages of financial measures of quality

Answer 25

Focus attention on the costs of poor quality
Help to evaluate quality improvement programmes
Financial measures are helpful to evaluate trade-offs between prevention costs, appraisal costs and failure costs.

Question 26

Advantages of non-financial measures of quality

Answer 26

Often easy to quantify and understand
Direct attention to physical processes and hence focus attention on the precise problem areas that need improvement.
Provide short run feedback on quality success

Question 27

Financial benefits of JIT production systems

Answer 27

Lower investment in stocks.
Reduction in carrying and handling stocks
Lower investment in space for stock and production
Reduction in manufacturing costs
Reduction in waste and spoilage
Higher revenue
Reduction in paper work

Question 28

Product-costing benefits of JIT production systems

Answer 28

Reduction of overheads (e.g inspection)
Enables direct tracing of overhead costs
Easy to trace: costs of set-up, minor maintenance and quality inspection.
Multi skilled workers allow the cost of set up, minor maintenance and quality inspection to become easily traced, direct costs

Question 29

Enterprise resource planning systems

Answer 29

The enterprise resources planning systems comprises a single database that collects data and feeds it into applications supporting all of a company’s business activity.
Importance = it is essential to support JIT since it has an impact on time.
Challenge = Find the balance between systems across all business and geographical locations and unique systems.

Question 30

Sequential tracking

Answer 30

Entries in the same order of purchases and production.

Traditional system track costs

Question 31

Backflush

Answer 31

Delays the recording until the good is finished.
It is attractive to companies with low stocks - JIT
It may not adhere principles of external reporting for example recognition of WIP

Question 32

Adopting backflush costing

Answer 32

Management wants a simple cost system
Each product has a set of budgeted or standard costs
Backflush costing reports approximately the same financial results as sequential costs would generate.

Question 33

Purchasing costs - costs associated with goods for sale

Answer 33

Costs of goods + transportation

Question 34

Ordering costs - costs associated with goods for sale

Answer 34

Costs preparing and issuing an order

Question 35

Carrying costs - costs associated with goods for sale

Answer 35

Costs of holding stocks (e.g storage space, insurance)

Question 36

Stockout costs - costs associated with goods for sale.

Answer 36

When a company runs out an inter in demand.

It includes additional ordering costs + transportation.

Question 37

Quality costs - costs associated with goods for sale

Answer 37

Costs to comply with standards (e.g prevention costs)