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STRATEGIC MANAGEMENT ACCOUNTING

STUDENT NAME:

TUTOR:

COURSE:

DATE:
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TASK 1.

Use Roslender's 2003 broad definitions of Strategic Management Accounting (SMA).

Critically assess whether SMA may give an economic advantage by supporting Strategic

Management for firms operating globally. (25marks)

Roslenders (2003), defines strategic management accounting as" an approach to accounting for

strategic purpose, which is Cleary defined by an attempt by the firm to integrate insights from

management accounting and marketing management within a strategic management framework."

According to Roslender's 2003 broad definitions of strategic management accounting; "strategic

management accounting is related to the provisions and use of accounting information by people

in the organization-organization such as the management and the managers, to make business

decisions that would allow them to have a competitive advantage and able to effectively control

the firm's activities."

Strategic management accounting is considered both financial and non-financial, and it is often

used for the purpose such as making of decisions, execution of judgments and controlling of

choices to ensure it does not go beyond the boundary of such decision. Specifically, the

accounting unit or department is responsible for providing management accounting information

that is necessary and required by the management.

Strategic management accounting may give an economic advantage to firms operating

globally by:

Impacting small and medium enterprises (SMEs) globally.

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Small and medium-sized enterprises (SMEs) are said to be the most important sector of a

nation’s economy based on their perceived and actual contribution to economic growth and

national development.

SMEs provide and create jobs; they harness individual creative effort especially during the time

of economic recession, and they generate competition and are the seedbed for businesses of the

future, and they keep a nation on a financial advantage. They are also the source of business

innovation and entrepreneurial spirit

Strategic Management Accounting INFLUENCES FIRMS PERFORMANCE

It helps the managers to" ascertain the success or failure of the firm and also acts as an indicator

to achieve sustainable improvement in entrepreneurial and business activities."

Strategic Management Accounting provides information.

SMA plays a significant role in providing information to investors and other potential

entrepreneurs in the nation and hence influencing the economic advantage of the country.

Strategic Management Accounting Influences the global trades

This is through the introduction of the quotas and tariffs.This will work towards improving the

current accounts to surplus and hence will lead to the raising of the living standards of the

citizens in the country.

SMA influences technology

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The managers in strategic management accounting predict the future and hence usually provides

for the advance in technology. This keeps the nation on a better side compared to countries

which do no embrace strategic management accounting.

TASK 2

QUESTION A

UTILIZINGUTILIZING THE INFORMATION PROVIDED IN APPENDIX 2 CALCULATE

THE FULL ABSORPTION COST THE BOOK

The target cost and the cost gap that needs to be closed

Solutions

Product costs $

D.Material xxx

D.Labour xxx

Variable overhead/hour xxx

Fixed overhead/hour xxx

Xxx

PRODUCT COST $
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DIRECT MATERIAL

Silk paper 4.2

150gsm papers 50sheets 1.50

Binding materials per book (Sewed) 2.32

Binding documents per book glued 3.34

Covers (6colors), per book 0.23

Covers (3colors), per book 0.38

11.97

DIRECT LABOUR

Binding and cutting labour (per hour) 5

Print process operation labour (per hour) 2=7

Prime cost 18.97

VARIABLE OVERHEAD PER HOUR

Variable overhead (per hour of print process operation) 1.83

FIXED OVERHEAD PER HOUR

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Fixed cost (per hour of print process operation 1.08

TOTAL COST 21.88

The calculation for direct material

Silk paper

3.50=100sheets

? =120 =4.2

150gsm papers 50sheets=1.50

Binding materials per book (Sewed) 1book=2.32

Binding materials per book glued= 1.02=3.34

Colours

Covers (6colors), per book=0.23

Covers (3colors), per book=0.15=0.38

Direct labour calculations

Binding and cutting labour (per hour) 15x0.33=5$

Embossing per book=nil

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Print process operation labour (per hour) 12x10/60=2

Overhead calculation

Variable overhead (per hour of print process operation)11.00x10/60=1.83

Fixed overhead (per hour of print process operation)6.50x10/60=1.08

II

The target cost is 21.88

The cost gap that needs to be closed

Is; 21.88-20=1.88$

Question 2 B

CLARIFICATION OF VALUE ENGINEERING

"This method is used when no previous records of costs exist. It is a very specific method that

goes into the nitty-gritty of what constitutes a product in terms of how much material or how

much labour. From this, a suitable level of activity can be determined. The result of the direct

observation of Physical quantities is then converted into a cost estimate. This approach can be

lengthy and expensive."(Cadez, S. (2002). It assimilates the element of motion study from the

"scientific theory of management. This method is based on a detailed study of each operation
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where the careful specification is made for Materials, labour and equipment necessary to produce

a product. It involves identifying the level of Input required of activity in the form of raw

material and labour, while total cost is based on the cost of each Input. This approach is

applicable where no past data exists. The main setback of the approach is that it requires a

complex analysis of all the constituents of activity and the requirements of an Activity in terms

of costs detailed into materials, labour, overheads and time."

QUESTION 2(c)

THE IMPLICATIONS OF TARGET COSTING

The target costing method works "backwards" from traditional cost‐plus methods and begins

with a targeted sales price for a product. This price is set based on what the customer is willing to

pay. It considers not only the preferred current selling price but also the later life cycle pattern of

prices. This technique has critical managerial implications. Examples of industries successfully

using target costing are included Bromwich, (1990).

Continuous Improvement and Involvement When using target costing, the entire supply chain is

seen as have considerably spread. Every single work on its activity to minimize its costs, and

hence end up reducing the total overall cost of the final product/commodity

QUESTION 3

QUESTION 3A
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Explain why the Financial Controller is suggesting that the use of the current "full cost-

plus "transfer price could be causing dysfunctional behaviour. (5marks)

The objective of the full-cost pricing method is to cover expenses and to derive a pre-determined

percentage of profit.

Some of the advantages of the current full price plus method is that; it is very cheap/economical

for decision making, full-cost pricing is the best while dealing with uncertainty and ignorance,

there is very minimal loss in export trade because all costs are fully recovered. Still, the price for

data collection can be avoided because all the costs data required for the calculation is available

with the exporting firm and the full-cost pricing is very simple in the calculation of the export.

Shortcomings

1. The full cost pricing method ignores the marginal cost and hence uses average cost instead.

This leads to doubting of its accuracy and hence raising questions.

2. In the full cost pricing method cost is seen as the only main factor influencing the price of the

commodity.it does not provide for some other non-financial factors influencing the price. The

full cost pricing should provide for those for those non-financial factors for example the

government policies which turns to be the main factor and still the forces of demand and supply.

3. The full cost pricing method is based on circular reasoning. This means that price determines

the quantity demanded; price charged is dependent upon cost per unit and the cost and whereby it

end up depending upon the quantity demanded.

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4. Full cost pricing method does not fully reflect the forces of competition. This means that this

method does not include the fact that competition influences price greatly. Competition is one

key factor that determines the price.

This is because different investors incurs defend cost in their production compared to other

producer depending on defend technology applied.

5. Full cost pricing ignores the influence of demand

Question 3b

Prepare a briefing paper which demonstrates the impact on the group’s financial

performance (after tax) and considers the potential reaction of the divisional managers, if

the proposal to change to a” marginal cost plus a lump sum “transfer pricing approach, is

implemented

A company's pricing strategy is never permanent. Business managers must continuously evaluate

their pricing plan and make adjustments to changes in consumer wants, competitor actions and

the economic climate.

The positive financial performance after tax impact of marginal cost plus can be termed as the

following:

1. Leads to firm earning additional profits.

By a firm attracting extremely price sensitive customers with occasionally offerings of low

prices leading to a firm earning extra/additional profits

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This will lead to a firm indicating higher profits and hence end up attracting many investors in

the company’s securities.

2. Marginal cost-plus led to an increase in market penetration.

This is in a non-existing market; marginal cost pricing can be used to gain an entry initially. This

is because it attracts new price-conscious buyers.

Most of the price-sensitive buyers can be easily enticed into the firm

3. Marginal cost-plus assists in eliminating excess inventory. This is because minimal cost plus

brings many customers into the firm, and hence this many buyers will assist in clearing the

inventory fast. The firms attain highest sales during this method

4. Marginal cost plus there are smooth fluctuations of demand. This is because if the

requirements slow down, a company can temporarily reduce prices to attract bargain hunters.

The firm's costs are flexible depending on the market demand.

5. Stay price-competitive in the short-term. This is one of the crucial tools, mostly when

competitors lower their prices in an attempt to gain market share. The firm flexibility with cost

plays a very vital role.

6. Marginal cost-plus method increase accessory sales. In very many cases, a company can sell a

product at a lower price and still earn more profits; this is mostly achieved by a company selling

related products that have higher profit margins to the consumer.

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The negative impacts of implementing marginal cost plus

The marginal cost-plus method cannot be sustainable for the long term. Company has to sell

enough products at sufficient price points to cover fixed expenses and produce a profit at some

point. Hence making it unsuitable for the long term.

1. If the marginal cost plus persist can be difficult to raise prices later .this is because the

consumers can come to expect lower prices and resist raising prices at alter date.

2. Marginal cost-plus usually ignores current market prices.

3. It is strictly based on variable costs and hence marginal cost pricing not considering

prevailing market prices.

4. Marginal cost-plus sues not to build customer loyalty. This is because those customers

who take advantage of marginal cost prices are usually price-sensitive and will not

become loyal, long –term purchasers

5. Marginal cost-plus may shift higher-paying customers; customers who used to paying

normal prices shift to the discounted price market and become reluctant to regular prices.

Instead of this happening price markets should be separated

QUESTION 3C

Suggest an appropriate transfer price for googles to be used in the five future if the South

Korean division receives an order from a customer from outside the group for 1000 units at

a special price of 175 per unit. 5mrks

Total transfer price

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Initial capital employed +annual unit’s purchased + maximum capacity-the total cost (variable

costs + fixed costs+ internal costs

The appropriate transfer price=total costs-current transfer price initial capital employed

Initial capital employed 500

Annual units purchased 3000

Total current cost 100

Current transfer price (150)

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QUESTION 4(A)

PREPARE A REPORT FOR GIANNA WHICH OUTLINES THE FOLLOWING

1) The concept of the multi-dimensional performance measurement model, but not limited

to, the Balanced scorecard, as a Strategic Management tool;

2) An explanation of the benefit and the problems, for sandcastle Diaries Ltd specifically,

of adopting a balanced Scorecard and conclude whether it would be appropriate, or not, in

their case with their current strategic goals

Rising awareness about the shortcomings of measuring organizational achievement, mostly with

financial factors, has raised interest in many performance measurements and managerial systems

such as the balanced scorecard of the company. Moreso, the increasing strategic importance of

the surrounding and the social dimensions as well as the related performance metrics have
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raised great debates about further extensions, mostly referred to as the sustainability balanced

scorecard (SBSC). In the Gianni and Rosa manufacturing company much-related knowledge is

widely spread among the firm, we conduct very crucial research on the sustainability of the

balanced scorecard using both background information and firm analysis.gianna, and Rosa firms

should be highly driven by the profit they are gaining from the firm, the care they are to take for

the successfulness of the firm and set a good organization role for the success of the firm and a

better stand in the market. This will enhance the firm's defence against any firm threat mostly

been the competitors, accommodation in the society and the probation before its proper growth

and a good foundation in the market

Benefits of sandcastle diaries of adopting a balanced scorecard

 Defence.

This is one of the greatest achievement of the firm adopting the balanced scorecard .the balanced

scorecard prevent the firm against all the externalities or any substantial threat it protects the firm

on the environmental integration .the environmental integration is mostly associated on the social

objectives of the firm for example by performing common social responsibility (CSR). It also

safeguards the firms on energy efficiency and the human resources generation

 Accommodative.

A balanced scorecard becomes so accommodative in the society and even in the competitive

environment .it accommodates the advances in the technological environment easily. This makes

it sustainable and easy to provide in the market. The balanced scorecards necessitate the firms

and companies to breakeven very fast. Its efficiency in its operation leads to improvement in firm
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operations. In many advanced approaches, the balanced scorecard has integrated into social

objectives and environmental objectives.

 Static

The balanced scorecard is more static and hence not providing room for any advancement to take

place.

Possible Limitations

 Profit-driven

The sustainable, balanced scorecard is perceived in the environment as of profit-oriented and

hence has no sense of the social welfare of the people. The flame or picture as societal unfriendly

because the main aim was profit UT would not work towards the good of the community and the

society.

The unfriendliness with the organization leads to improper treatment of the organization such as

environmental pollution through disposing of the waste gas in the air. The firm is only interested

in the breakeven of the firm and no other factors that may inhibit societal advancement.

 Care-driven (partial hierarchy).

Another "camp" criticizescriticizes cause-and-effect linkages because causal relationships are

not always linear and one-way, but are commonly a fuzzy mess of interactions and

interdependencies (Brignall 2002). These advocates also state that "companies aiming at higher

ambition levels of sustainability, particularly when sustainability becomes part of the product-

market mix, are overly constrained by the strict hierarchical architecture (van de Woerd and van
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den Brink 2004). Proponents of the care driven value system thus suggest a semi-hierarchical

architecture, where the top financial perspective is replaced either by a broader triple bottom line

perspective or by multiple top-level perspectives (e.g. a separate social/ environmental view next

to the economic outlook; -Systemic-driven (no hierarchy/network. "This end up to creating red

tapes in the organization.

4B

Draft a balanced scorecard from the scenario information

SANDCASTLE DIARIES LIMITED BALANCED SCORECARD AS AT 31 DEC 2019

ASSETS

NON-CURRENT ASSETSS135

RECEIVABLES 129

INVENTORY 142

INTEREST RECEIVABLE 45

BANK AND CASH 12

TOTAL ASSETS 328

CAPITAL AND LIABILITIES

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LONG TERM LOANS 21

PAYABLES 145

PROFIT AFTER TAXATION 18

RETAINED RESERVES 122

INTEREST PAYABLE -3

SHARE CAPITAL 19

TOTAL CAPITAL AND LIABILITIES 328

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REFERENCES

Bromwich, M. (1990). The case for strategic management accounting: The role of accounting

information for strategy in competitive markets. Accounting,

OrganizationsOrganizations, Society,

Bromwich, M., & Bhimani, A. (1989). Management accounting: Evolution not revolution.

London: Chartered Institute of Management Accountants Bromwich, M., & Bhimani,

A. (1994). Management accounting: Pathways to progress. London: Chartered Institute

of Management Accountants

Cadez, S. (2002). Strategic management accounting: Conceptual framework and empirical

evidence from Slovenian companies. Economic and Business Review

Cinquini, L., & Tenucci, A. (2010). Strategic management accounting and business strategy: A

loose coupling? Journal of Accounting and Organizational Change,

P. M. Hirsch, R. Friedman, and M. P. Koza, “Collaboration or paradigm shift? caveat emptor and

the risk of romance with economic models for strategy and policy research,”

Organization Science, vol. 1,

E. H. Bowman and D. Hurry, “Strategy through the option lens: an integrated view of resource

investments and the incremental-choice process,” The Academy of Management Review,

vol. 18,