Section B

Question 1

What are the criticisms of Traditional MA Tools (e.g Budgeting, Absorption Costing, Standard Costs, Variance Analysis, ROI and RI)?

Answer 1

• Historical costs
• Internally focused; they are production and cost orientated => don’t take into account the market dynamics/competitors
• Focus on the ST => lack strategic alignment with companies goals e.g quality improvement, customer satisfaction

Question 2

How do changes in the business environment Impact traditional MA Tools?

Answer 2

• Globalisation
• Technological Advancements
• Change in nature of customers
• Product Life Cycles
• All involve analysis of market trends or aligning prices with shorter lifecycles or with customers

Question 3

What are the four key themes of Strategic Management Accounting (e.g Target Costing, Life Cycle Costing, Value Chain Analysis, Balanced Scorecard)?

Answer 3

• Product-focused and market orientated
• What are our competitors doing? i.e market share, pricing, costs
• Gaining competitive advantage i.e cost leadership, differentiation
• Match MA with strategic position => different business strats = different MA tools e.g aim to differentiate = need info on R&D, competitor analysis, customer satisfaction if aim to be a cost-leader = cost analysis, benchmarking

Question 4

What are some examples of Strategic Management Accounting (SMA)?

Answer 4

• Target Costing: determine market price, subtract required profit margin, and design the product so its cost meets the target => reflect customer demands, ideal for competitive industries
• Value-Chain Analysis: examine primary (marketing, finance) and secondary (HR, IT) functions to identify where value is added and where inefficiencies exist => focus resources on high-value processes and reduce waste across the chain
• Life Cycle Costing: captures cost over product’s life cycle => useful with long development cycles and environmental concerns; supports sustainable decision-making
• Balanced Scorecard: financial and non-financial KPIS => aligns performance measurement with strategic goals
• Benchmarking: compare against best practices and competitors => encourage continuous improvement and competitive analysis

Question 5

Outline a multidimensional/contemporary performance measurement

Answer 5

• Balanced Scorecard:
  1. Financial Perspective: Profitability, cost control, ROI
  2. Customer Perspective: Satisfaction, retention, market share
  3. Internal Business Processes: Efficiency, quality, cycle time
  4. Learning and Growth: Employee skills, innovation, culture
• HOWEVER, difficult to measure, complex and changing priorities in business

Question 6

What are the problems of using financial measures alone?

Answer 6

• Historical costs
• Focus on the ST => lack strategic alignment
• Doesn’t consider non-financial measures
• May encouragae unethical behaviour
• E.g low ROI discourage firm from investing

Question 7

What are the key features of a good Performance Measurement System?

Answer 7

• Align with strategic position
• Comprehensive
• Timely feedback
• Fair and achievable