Question

Explain how an organisation’s management accounting system (MAS) can contribute towards the development of a cost leadership strategy. (190 words)

Answer 1

Management accounting systems are vital in implementing a cost leadership strategy i.e. a strategy wherein the firm competes as a lowest cost producer in the industry. A management accounting system can help identify where the company can control costs, refrain from spending on too many expenditures and cut prices when selling products. Managerial accounting also help achieve economies of scale through reduction of input costs, better negotiations with labor unions which thereby help in reduce costs and increase profits. The primary emphasis of accounting this strategy is the focus on setting standards. Organizations tend to examine seriously any deviations from the budgeted costs. There is importance of flexible budgeting to achieve manufacturing cost control. They also can help in identifying deficiencies in the manufacturing process, suggest better technologies in order to improve the efficiency and allocate resources in the most productive manner. Organizations can use accounting techniques such as process costing (applied in case of high volume goods) , job costing( applied in low volume goods) or activity based costing depending on the product that is being manufactured or a combination to determine the product cost and price the products at a competitive rate.