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Your list has reached the maximum number of items. Please create a new list with a new name; move some items to a new or existing list; or delete some items. Cost management : a strategic emphasis.
The balanced scorecard goes beyond simply monitoring financial performance. Because the four areas, financial performance, customer satisfaction, internal processes, and learning and growth have critical success factors which are monitored, management can thus determine how well the firm is attaining its strategic goals based on the measurements of these critical success factors.
Kaplan and Norton also explain in this article how ABC costing can be used to identify opportunities for cost reduction and process improvement. Jack has watched as many of his neighbors either have quit farming or have been consolidated into larger, more profitable farms.
The products are difficult to differentiate except by grade which can affect market prices to some degree. This strategy is also consistent with the financial problems facing some farms in the U.
Also, the case notes price pressures facing the Fowler farm. Further, the growth in importance of agriculture competitors in other countries around the world has to be a concern for Kelly. Here are some representative items.
Strengths Good sized farm in an established farming area Automated milking equipment Extensive experience Significant capital investment Weaknesses Future of tobacco as a crop?
The value chain should identify the elements or activities in the value chain in enough detail that Kelly can identify potential areas for cost reduction. One representative example of a value chain for the farm is as follows: Activity in the Value Chain Soil preparation Obtain seed, fertilizer, and supplies Planting Weed control and irrigation Harvesting Sort, clean, and package for sale. The answer below is representative of a balanced scorecard that would be a good fit for Fowler Farm.
This scorecard puts the operations internal processes and financial perspectives first, to emphasize their importance to the farm. What is the competitive strategy for Tartan Corporation? Answer: c Learning Objective: Feedback: The description of the company in the question points to differentiation based on innovation and quality. What recommendation would you make to the task force? Because of the emphasis in the case information on product quality and craftsmanship, the strategy for Tartan the reason it has been successful is best described as differentiation on the basis of quality.
In contrast, the company is most likely to succeed if it can continue to appeal to those customers looking for up-scale, higher quality lamps and lighting fixtures. The Classic line is critical to this strategy since it is the original product line for the company, and the most identified with quality and craftsmanship.
Since sales of the Classic line seem to be focused on the northeast states, it might be appropriate to obtain efficiencies by focusing manufacturing and distribution efforts in these states. However, the marketing of the Classic line should continue to be throughout all sales regions because of the strategic importance of the Classic line. There are likely to be a wide variety of answers.
Weaknesses Drop in demand for the Classic Line except in the Northeast states , the Modern line, and Contemporary line Capacity problems in the plant Opportunities Growth in demand in the Western and Stewart lines Threats Ability to replace skilled workers in the Classic line? Order backlog — effect on customer satisfaction?
The value chain provided below is a representative example. A solution such as this should include upstream, manufacturing, and downstream activities — all the way from product planning and research to customer service. Product planning Advertising and promotion Product design Develop bill of materials Source parts and skilled labor Scheduling production Cutting and trimming materials Assembly Finish and painting Preparation for shipment Invoice customer Customer service Warranty returns and allowances.
The value chain provides a basis for identifying those activities for which the firm is very competitive and those for which it is not competitive. Since manufacturing capacity is overall pretty tight, the value chain can be used to help identify those activities where the capacity is especially tight and those where there is some slack, to draw appropriate attention where it is needed. Is the capacity problem primarily in cutting and trimming, assembly, shipping, or elsewhere?
The value chain can be used to benchmark specific activities, perhaps against industry figures for manufacturing productivity, and so on.
As a member of the industry association, Tartan would have access to this type of information. Areas to benchmark would include manufacturing performance productivity, rejects for production defects, sales order lead times, customer service response time, etc. Internal Processes Cycle time Waste of materials Rework Productivity measures: hours per product, materials per product Inventory levels. Customer Lead time Retention Satisfaction in specific categories, quality Number of new customers.
Employee Training hours Retention Satisfaction as measured by employee survey New product development, as measured by number of new products or enhancements to existing products. Here is an example. Learning and Growth Training dollars per employee Number of emerging technologies evaluated Number of new manufacturing processes developed Number of new manufacturing processes under development. Internal Processes Product manufacturing time Raw materials inventory Order processing time Manufacturing defects.
Strategy Map for Dell Inc. This is one example of a possible strategy map, that can be inferred from the BSC in part 1 above. Performance Bicycles: The on-line retail industry is very competitive, so the competitive strategy is likely to be cost leadership since catalog shoppers can readily find the lowest price together with market standards for quality, speed of delivery, and quality of service such as flexible returns policy.
The critical success factors are likely to be quality of service, credit terms, quality and uniqueness of products, speed of delivery, and cost. Oxford Omni: Because the customers are primarily business and convention visitors, the Omni is likely to compete on differentiation, given a market-set price and therefore cost. The business traveler is not likely to look for the low-cost hotel, but is likely to be more interested in the features of the hotel, such as data and fax services and other conveniences.
Critical success factors are likely to be quality of service and special features. Orange County Public Health Clinic: A strategic goal for a public agency is compliance with the charter of the organization, including spending in approved ways.
Thus, a critical success factor for the Clinic is accurate accounting of expenditures and budget and management systems that ensure that expenditures are properly authorized. Also, cost management information is needed to assess the funding needs for increases in services or for offering any new services.
The cost management information can be used as the basis for requests for increased funding from governmental agencies, or for donations from foundations and other donors.
Harley-Davidson Motorcycle Co. The Japanese motorcycles were cheaper and of higher quality and performance. Harley-Davidson chose to meet this competition by staying with the style of cycle for which it had become famous, but to also work hard to increase quality and reduce costs.
Critical success factors are likely to be innovation, manufacturing efficiency, customer satisfaction, and market share. See also problem Merck pharmaceutical company: A manufacturer of pharmaceuticals such as Merck Company competes primarily on the basis of differentiation.
Cost management is used to assist the company in managing the costs of developing new drugs. The process of researching, developing, testing, and introducing new drugs is a very long and costly one. The life cycle of a drug will depend on the nature of patent protection, if any, and the availability of competing products.
Critical success factors are likely to be research and development accomplishment innovation , effective advertising, excellent results in clinical trials and reports, and recognition by key medical staff and institutions. The differentiation might be the nature of the programs offered, religious affiliation, location, or some other attractive feature of the college.
Cost leadership is not likely to be important, since colleges do not tend to compete directly on price tuition and fees , though there is a certain range of prices within which all colleges must compete. Thus cost management is important primarily to facilitate the strategic objective of differentiation, by providing a basis for analyzing the best methods to attain and retain the differentiation. Also, cost management is used to control expenses so that the college can be profitable at the prices given in the marketplace.
Critical success factors are likely to be measures of recruiting effectiveness number of applicants, quality of applicants,etc. What is the new competitive strategy for Dana Packaging Company? Answer: c Learning Objective: , Feedback: The description of the company in the question points to differentiation based on innovation, features, and quality. In response, Dana has decided to enter new markets where the competition is less severe.
The new markets are principally the high end of the packaging business for products that require more technological sophistication and better materials. Can Dana compete as effectively as a differentiator as it can as a cost-leader? Can the plant be re-oriented to small batch production quickly and efficiently, so that Dana can compete effectively on cost and quality in the new markets?
Has Dana done a careful strategic analysis of the new competitors in the new markets? How is competition in these new markets likely to change over the coming months? Outsource activities which might be more cheaply and efficiently done outside the company; for example, the coating process which is now occasionally outsourced might be effectively outsourced to a greater extent or entirely. For strategic reasons, then, Dana should retain the filling process entirely within its direct control.
For each activity at each step of the value chain, determine the outside price for the activity, and use this as a benchmark for identifying activities which need improvement. This should reveal competitive weaknesses and strengths, and perhaps opportunities for improvement. Use the value chain to evaluate vendor relationships; are any suppliers causing internal processing problems because of quality problems or late delivery, etc.? Has the manufacturing process been changed to facilitate the increase in setups and product variety?
It is likely that the firm will have to consider adding new production equipment, which will enable it to better handle the increased product complexity and variety. Are products being properly costed; do the more complex products bear the appropriate cost of their complexity? For example, if adding multiple colors to packaging material is very costly to manufacture, then the pricing should be higher to recapture these costs.
Identify those customers for which the cost of service and delivery is unusually high due to the care with which the material must be handled or to the weight, or distance, etc. Make sure that these costs are recaptured in the pricing of the products, or alternatively, the firm might seek more profitable customers. In particular, the seven categories could be considered for an expanded balanced scorecard.
As for the BSC, the Program focuses on the perspectives of customer, process, financial results, and workforce; the Baldrige program includes the additional perspectives: measurement and analysis, leadership, and strategic planning. By examining its own performance in these areas, and by showing how it measures progress in these areas, the organization is doing something very much like a balanced scorecard. Department of Commerce. All three of these companies are best described as differentiators because of the uniqueness of their products, and in the case of Harley-Davidson at least, the strength of its brand.
It is likely that Harley-Davidson faces some cost pressure because of the strong competition in bikes from Japanese manufacturers, but on the other hand, Harley has been able to meet this competition successfully over the years by innovative products and programs see for example problem For Harley-Davidson, the goal of the Thailand project is to expand the reach of the brand, and it does not appear that the move will affect the differentiation of the brand in the U.
In the case of MO, it appears the firm is looking to find the best manufacturer for its product, home or abroad, and the decision to go abroad for the best manufacturer is likely only to increase the value of the brand. For Harley-Davidson, the location of a plant in Thailand radically affects the downstream portion of the HD value chain as it relates to sales in Asia.
This move will reduce tariffs and probably also other costs such as transportation, and therefore reduce the price of the bikes in southeast Asia, making them more competitive with local producers, such as Hero made in India. For GAM, the relocation to the U. It may also help out downstream by making it easier to attract new customers in the U.
For Mobile Outfitters, the move offshore for the product they needed will likely complicate the upstream value chain as it relates to dealing with the transportation, contracting, and foreign currency fluctuation issues related to foreign sourcing of product. This means there might be added costs for transportation, for hedging foreign exchange risk, etc. Note: the coverage of global issues, as in this problem, is not comprehensive without the consideration of key issues in the decision to locate locally or in a foreign country.
Merchandisers use cost management information to control stocking, distribution, and customer service. Manufacturing firms use raw materials, labor, and manufacturing facilities and equipment to produce products. These products are sold to merchandising firms or to other manufacturers as raw materials for additional products.
These firms use cost management information to control production costs. Service firms provide a service to customers that offers convenience, freedom, safety, or comfort. Common services include transportation, financial services banking, insurance, accounting , personal services physical training, hair styling , medical services, and legal services.
These firms use cost management information to identify profitable services and to control costs incurred in providing services. Governmental and not-for-profit organizations provide services, much like the firms in service industries.
However, the service provided by these organizations is such that there is often no direct relationship between the amount paid and the services provided. Instead, both the nature of the services to be provided and the customers who receive the services are determined by government or.
These organizations use cost management information to determine and control the costs of the services they provide. The answers here can vary from large manufacturers such as Boeing to small retail stores.
Again, if the students have a hard time, the instructor might ask them to think of firms close to their homes, or to think of firms in a given industry, etc. Firms such as Amazon. Other firms such as Walmart use the Internet to achieve cost advantage by using Internet based systems for transactions processing, production scheduling, purchasing, employee recruiting, etc. The management accountant is a full business partner with management in Stage 4 of cost system development. Increased global competition, which means an increasingly competitive environment for all firms and thus the need for cost management information to become more competitive; the need for competitive non-financial information in addition to financial information in cost management reports; 2.
Lean manufacturing, in which companies reduce costs by using flexible manufacturing methods, statistical quality control, and many of the techniques developed by Japanese manufacturers; lean manufacturers adopt lean accounting to measure and sustain the improvements made from lean manufacturing. Use of information technology; cost management information is used to facilitate the introduction of new manufacturing and product technologies e.
A focus on the customer, which requires cost management reports to include critical information about customer satisfaction, changing customer preferences, etc. Changes in the social, political, and cultural environment of business, which requires an expansion of cost management reporting to include critical success factors related to the expectations of those beyond the ownership of the firm including employees, local government officials, and community leaders.
Low volume, short production run, focus on reducing inventory levels and other non-value-added activities and costs. Robotics, flexible manufacturing systems, integrated technology applications connected by network. Network-based organization forms; teamwork focus -employee has more responsibility and control; coaching rather than command and control.
Short term: short term performance measures and compensation; concern for sustaining stock price; short tenure and high mobility of top managers. Long term; focus on critical success factors, commitment to the long term success of the firm, including adding shareholder value.
The Strategy Map is a method, based on the balanced scorecard, which links the four perspectives in a cause-and-effect diagram. Value-Chain Analysis is a tool that helps the firm identify the specific steps required to provide a product or service. Activity-based Costing and Management: Activity-based costing is used to improve the tracing of manufacturing costs to products and therefore the accuracy of product costs.
Business Analytics is an approach to strategy implementation in which the management accountant uses data to understand and analyze business performance. Target Costing is a management method that determines the desired cost for a product upon the basis of a given competitive price, such that the product will earn a desired profit.
Life-Cycle Costing is a management method used to monitor the costs of a product throughout its life cycle.
Business Process Improvement is a management technique in which managers and workers commit to a program of continuous improvement in quality and other critical success factors. The Theory of Constraints is a strategic technique to help firms effectively improve the rate at which raw materials are converted to finished product. Some will argue that it is a cost-leader because the prices in fast food restaurants are typically low.
I ask them to focus on what brings in the customer: Is it price or some quality of feature? Then many of the students will say that for the most part fast food restaurants are differentiators. This question is set to get a positive response and that is usually what I get. Then I try to spend some time getting some examples of why a strong ethical climate would be beneficial, and note the increasing importance of an ethical climate since the Sarbanes-Oxley Act.
Like most beverage companies, there is a strong differentiation. Refer the students to the information in Problem which shows Coke as having one of the highest brand values of any company. Ask the class if they can come up with an example of a cost leader beverage, and some will mention low priced brands of cola or beer.
It is interesting to note that as many See cocacolacompany. A commodity is a product or service that is difficult to differentiate from competitors; gasoline and paper products are some examples.
You can ask the class to provide additional examples. The crucial point for a commodity is whether there is any reason you would pay more for this item? As such, commodities are natural cost leadership products or services. Most students will argue that they chose their bank because of service and location, thus differentiation. Others will say the rates are better, and then perhaps cost leadership. It is useful to distinguish the banking needs of say, a student, versus a small business like a car dealership which will rely more heavily on a variety of customer services and will likely see banks as more differentiated entities.
Smaller banks, in particular, focus on customer service to attract and retain customers. The main point of the question is that the cost leadership or differentiation classification applies across different types of firms in different industries. There are some industries particularly those with commodities which tend to be characterized by cost leaders and others e. Other industries may have a mix of different types of competitors.
I ask them to consider the automobile industry and to identify cost leaders and differentiators. Consider computers as an example. It is also possible that a cost leadership firm could shift to differentiation.
That could happen for example when the frim acquires or develops a patent that provides the firm access to a new market in which the patent provides a differentiated advantage. The steps in executing a strategic plan are considered in chapter 2. Management accounting is the process of gathering, reporting, and analyzing information for management decision making b. Management accounting is a profession that involves preparation and analysis of cost information, budgeting, performance measurement and analysis, to assist managers in decision making c.
Business events, data, information, analysis, decisions Business events, data, analysis, information, decisions Business events, information, analysis, knowledge, decisions Business events, data, information, knowledge, decisions. Answer d Learning Objective: Feedback: Business events, data, information, knowledge, and decisions is the correct sequence, as used by the IMA in the definition of management accounting.
Management accounting, as defined by the IMA, uses the expertise of the management accountant to a. Improve quality and reduce cost b. Implement a strategy of cost leadership or differentiation c. Implement a strategy of customer value and shareholder value d. Answer b is the only answer that fits the definition of management accounting and of strategy.
The management accountants in an organization probably report directly to the: a. Feedback: While answers a, b, and d are competitive features for any company, the key competitive success factor for cost leadership companies like Walmart, Costco, and Dollar General are low cost and low prices.
This means that cost managers are striving for this type of cost management system: a. Basic transaction reporting systems b. A system that focuses on reliable external financial reports c. A system that tracks key operating data and develops accurate cost information d. Stage 4, integral strategically relevant information, is the goal.
A management method in which managers and employees commit to a process of continuous improvement is best described as: a. Answer: b Learning Objective: Feedback: Answers a , c , and d are incorrect because: total quality management focuses on meeting customer expectations; lean accounting supports lean manufacturing, a method that uses value streams and a focus on inventory reduction and increasing the speed of manufacturing operations. Like lean manufacturing, the theory of constraints focuses on the speed of the flow of product through the manufacturing process.
Business process improvement is the correct answer as it is a management method in which managers and workers commit to a process of continuous improvement. To determine whether a particular action is professionally ethical or not, using the Institute of Management Accountants Statement of Ethical Professional Practice, it is necessary to know: a.
Whether the act is legal in your jurisdiction The intent and the business context of the act The amount of the fraud or theft that is involved Whether the management accountant is certified or not. Answer: b Learning Objective: Feedback: b is correct. Firms that want to grow quickly in the global marketplace often employ the cost leadership strategy because: a. This produces favorable customs rates and import duties b. Manufacturers around the world adopt lean manufacturing methods to bring their costs down c.
This allows them to employ and benefit from enterprise management systems d.
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