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Strategic Cost Management (Traditional Management Accounting Control…
Strategic Cost Management
Traditional Management Accounting Control Systems
Compare actual results to pre-set standards
Identifying and analysing variances
Preservation of status quo
Cost containment as opposed to cost reduction
Stifles innovation
Strategic Cost Management
Focus on cost reduction
Adding value
Continuous improvement
Higher efficiency and quality
Higher customer satisfaction
Life-cycle Costing
Understand cost consequences of developing products
Identify where cost reduction is most likely to be effective
Design, marketing, production, after-sales services
Target Costing
Manage costs during planning and design
Target price --> target profit margin --> target cost
Reverse engineering, value analysis, process improvement
Can we use discriminatory pricing?
Involves teamwork between designers, accountants, engineers and suppliers
Activity-based Cost Management
Major activities, cost pools, cost driver
Significant organisational changes required
Value added activities - customer perceives to be adding usefulness
Non-vale added activities - present opportunities for cost reduction
Kaizen Costing
Continuous improvement
Lots of small incremental changes
Applied during manufacturing
Improve efficiciency of production process
Employee empowerment and motivation
Just-in-time Systems
Eliminate non-value added activities (e.g. inventory warehousing costs)
Requires a good relationship with suppliers
Cellular flow lines
Higher frequency of deliveries
Disruptions to supply chain halts production
Total Quality Management
Continuous quality improvement
Less materials waste, inspection costs and product correction
Internal failure costs < External failure costs
External failure costs = reputational damage
Ensure zero defects
Value Chain
Work done by the organisation which creates value
Perform activities more efficiently
Benchmarking
Compare key activities to most effective practices
Avoid mistakes made by others in the past
External focus - how can similar internal activities be improved?
Internal focus - compare different divisions