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

2. 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.

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

4. 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. $ $

5. 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

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

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

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

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

10. 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.

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

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

13. 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

14. 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.

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

16. End of Chapter Thirteen