The Strategic Use of Managerial Accounting Information Chapter 13 The Strategic Use of Managerial Accounting Information

Introduction Strategy refers to a set of policies, procedures, and approaches to business that relate to the long-term success of a business. Starts with the organization’s mission statement. The balanced scorecard helps operationalize the mission statement.

Strategy and Creating a Competitive Advantage Strategies for obtaining a competitive advantage: Cost leadership Differentiation of products and services Focusing by identifying market niches

Pricing of Products and Services Determining the selling price of a product is one of the most important decisions management will be required to make. $ $

Target Pricing Target Cost = Target Price - Target Profit Used to determine the maximum cost that can be incurred in order to earn a desired target profit. Target Cost = Target Price - Target Profit

Cost-Plus Pricing Target Selling Price = Base Cost + (Markup % x Base Cost)

Cost-Plus Pricing The Markup Percentage must be high enough to Cover costs not included in the product cost AND Produce an acceptable profit

Time and Material Pricing In service industries such as CPA firms, prices are often set based on time and material used.

Value Pricing Value Pricing is based on the perceived or actual value of the service provided to a customer. Example: Consulting Businesses

Cost Management and Strategy The Value Chain Upstream Costs Downstream Costs Research And Development Product Development Marketing Distribution Customer Service Production Long-term success through the attainment of a competitive advantage requires that managers understand and manage the organization’s value chain.

Cost Management and Strategy Structural Activities Organizational Activities Operational Activities Internal linkages External linkages Value-chain analysis

Customer Relationship Management (CRM) Identify your customers Differentiate your customers Interact with your customers Customize your business to your customers

Value-Added and Non-Value-Added Activities Non-value-added activities don’t add value to the finished product or service. Examples: Storage of inventory Moving of materials and parts from storage to the factory Idle time of employees while waiting for work

Successful Implementation of ABC and ABM Utilizing activity-based costing information to reduce costs, eliminate non-value-added activities, and manage more effectively requires the cooperation of all functional areas of business organization and top management.

Value-Added Focus (ongoing) The ABM Life Cycle Cost Focus (1-2 years) Performance Focus (1-2 years) Value-Added Focus (ongoing)

End of Chapter Thirteen