Question

Topic:

Management accounting practice has traditionally focused on techniques to assist organisational decision-making and cost control. In concentrating on the internal environment, the management accounting function has been criticised for not addressing the needs of senior management to enable effective strategic planning. In particular, the criticism has focused on inadequate provision of information which analyses the organisation’s exposure to environmental change and its progress towards the achievement of corporate objectives.

Requirement

Discuss (i) what Strategic Management Accounting is, (ii) in general how Strategic Management Accounting can provide information which meets the requirements of senior managers in seeking to realise corporate objectives, and (iii) specifically explain in what ways management accountants can adapt the services they provide to the new environment.

Answer 1

(i) Strategic Management Accounting ==>The term 'strategic management accounting' was introduced in 1981 and was defined as ‘the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy’.

(ii) Strategic Management accounting can provide information to meet the requirement of senior manager in seeking to realise corporate objectives are:-

a) Extension of traditional management accounting’s internal focus to include external information about competitors.

b) Relationship between the strategic position chosen by a firm and the expected emphasis on management accounting (i.e. accounting in relation to strategic positioning).

c)Gaining competitive advantage by analysing ways to decrease costs and/or enhance the differentiation of a firm’s products, through exploiting linkages in the value chain and optimising cost drivers.

iii) Some of the ways management accountants can adapt the services they provide to the new environemnt are:-

1. Target Costing

2. Kaizen Costing

3. Life Cycle Costing

4. Theory of constraints (TOC)

5. Bench Marking

6. Activity-Based Management (ABM)