Question

Distinguish between how managerial accounting would support the strategy of cost leadership and the strategy of product differentiation. Give 2 paragraphs and use examples when needed.

Answer 1

First we need to understand what is managerial accounting and cost accounting.then difference and the strategy of cost leadership and the strategy of products differentiation.

managerial accounting:-

  Managerial accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and the day -to - day operation of an undertaking. It is also called as management accounting.

Cost accounting:-

Cost accounting is the process of accounting of a cost, which which involves classification,recording, presentation and interpretation of the result of monetary transaction,so has to access the performance and financial position at the given data and monetary projection of future activity arising from the alternative planned course of action.

Difference between managerial accounting and cost accounting.

1.meaning

Manageria accounting is concerned with accounting information that is useful to management."

cost accounting refers to that branch of accounting which deals with cost incurred in the production of units of an organisation.

2.objective

​​​​​Management accounting help the management in designing plans and policies.

Cost accounting record by the firm in the purchasing a product or service.

3.periodicity

Managerial accounting it provides information when ever it is required by the management.

Cost accounting it prepaid its report weekly or monthly.

4.principles

Principles and procedures are not followed in management accounting.

It is compulsory to follow all the principle and procedures in cost accounting.

5.Nature

​​​​​ management accounting its deal with the future plans and policies.

Cost accounting its makes use of the historical data provide and outlines it.

support the strategy of cost leadership:-

The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:

• Increasing profits by reducing costs, while charging industry-average prices.
• Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Tip:

Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!

The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low-cost producers who may undercut your prices and therefore block your attempts to increase market share.

You, therefore, need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:

• Access to the capital needed to invest in technology that will bring costs down.
• Very efficient logistics.
• A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.

The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen  philosophy of "continuous improvement."

The strategy of product differentiation :-

Product differentiation (or just differentiation) is a marketing process of differentiating an offering (product or service) from others in the market, to make it more appealing to the target audience.

It involves defining the offering’s unique position in the market by explaining the unique benefit it provides to the target group. This may also be referred to pinpointing a unique selling proposition of the product to make it stand out from the crowd.

The increased competition has divided the demand among different players in the market. This has made it very important for businesses to make their customers understand what different they have to offer.

Besides making the product survive in the market, product differentiation is important for the following reasons:

• Product differentiation translates the product attributes into benefits.
• It answers the biggest question of the customers – ‘What’s in for me?’.
• It gives the customers a reason to purchase the brand’s product and repeat the purchase.
• It increases the recall value of the product.
• It increases brand loyalty and builds brand equity.
• Attribute-based differentiation is important for the brand to defend their price from levelling down to the bottom part of the price spectrum.

• Example:-

• Choosing an iPhone over an Android as the customer considers iPhone to be a status symbol and believes that it has an easier interface as compared to Android.
• Choosing a Tag Heuer watch over Titan as the customer prefers a Swiss watchmaker. Plus, he believes that Tag Heuer is a better brand than Titan.
• Choosing to order a product on Amazon than to visit Walmart as the customer doesn’t want to leave his house.