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CHAPTER 2 PART 1: STRATEGIC MANAGEMENT ACCOUNTING - Coggle Diagram
CHAPTER 2 PART 1:
STRATEGIC MANAGEMENT ACCOUNTING
DEFINITION
CIMA:
the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy
a process of identifying, obtaining, & analysing accounting information for management team to develop strategic decision & evaluate organisational effectiveness
PURPOSES OF SMA
Support strategic decision making
Provides relevant & timely info to help managers make informed decisions
identify opportunity & threats. evaluate diff strategic options, asses potential impact of different decisions
Facilitate communication & collaboration
between different dept. and stakeholders
help to align goals & objectives
Support risk management
help managers identify & manage risk
identify & analyse potential risk, develop risk mgmt strategies, & monitor the effectiveness if risk mgmt activities
Improve resource allocation
allocate resource effectively
identify the most profitable products/services
Enhance organisational performance
identify areas for improvement & provide info to help make better decisions
identifyu cost saving opportunities, improve operational efficiency, enhance product/service quality
SMA TECHNIQUES
JIT & Backflush accting
-Theory of constraints (TOC)
TQM
TC
Lifecycle costing
Kaizen Costing
Value chain analysis
Business Process Reingeneering
Environmental Management Accounting
Activity Based Management
JUST IN TIME (JIT)
management strategy that aligns raw-material orders from suppliers directly with production schedules
reduce waste, increase efficiency
Advantages vs Disadvantage
Disadvantages
can require major overhaul of business system - expensive & difficult to introduce
risk of potential disruptions in the supply chain
Advantages
reduce wastage
improve efficiency
incerase productivity
optimise production
reduce cost
CHALLENGES
dependence on suppliers
quality control issues
lack of flexibility
risk oif stockouts
increas eoperational complexity
cost of implementation
need for cultural shift
example:
Toyota Motor Corporation, orders only when receive car orders
BACKFLUSH ACCOUNTING
product costing system used in JIT
records the cost associated with producing a good/service only after they are produced, complete, or sold
used by company who have short production cycles, comodiitsed products, low constant inventory
Advantages
avoid complexities associated with assigning costs to products and inventory
not logging costs during the production stages; save time and reduce expenses
can reduce bottom line
Disadvantages
challenging to implement, not an option available for all companies
lack sequential audit trail & may not always conform to generally accepted accounting principles
THEORY OF CONSTRAINTS
philosophy & methodology that helps org identify and overcome the constraints that prevent from achieving the goals
Steps
Identify the systems constraints
Exploit the systems constraints - maximise output & minimise downtime
Subordinate everything else to systems constraints- align activities to support constraints & maximise impact
Elevate the systems constraints - invest in resources to increase capacity of constraints & remove their limitations
Repeat the process - continuously mentoring & improving the systems performance by identifying new constraints and applying the same principles to overcome them
Advantages
improve efficiency
better decision-making
improive quality
Disadvantages
implementation challenges
limited applicability
potential for resistance - from employees who are resistant to change
TOTAL QUALITY MANAGEMENT (TQM)
continual process of detecting & reducing/eliminating errors in manufacturing
Disadvantages
high initial investment
resistance to change - in org culture
time-consuming
potential for employee burnout
over reliance on data
inflexibility
Advantages
improve customer satisfaction
increased efficiency & productivity
Enhanced employee involvement & motivation
better decicion-making
increase profitability
CHOOSING TOOLS
Identify business objectives
analyse business environment
evaluate the available techniques
consider business resources
test & monitor the chosen techniques
LIMITATION OF SMA
Subjectivity - subjective judgements & estimates - lead to bias and errors
cost
complexity
data availability
time horizon - primarily on longterm strategy
resistance to change