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MY UNDERSTANDING OF COST AND MANAGEMENT ACCOUNTING VERSUS STRATEGIC COST MANAGEMENT.

Abimbola Ogunyemi Written by Abimbola Ogunyemi · 1 min read >

Cost and Management Accounting is from Management Accounting is introductory to Strategic Cost Management. 

Cost Accounting is a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and detail. It includes methods for recognizing, classifying, allocating, aggregating, and reporting such costs and comparing them with standard costs. It is often a subset of managerial accounting and its end goal is to advise the management on how to optimize business practices and processes based on cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plans.

(Source = Wikipedia)

Cost accounting information is also commonly used in financial accounting, but its primary function is for use by managers to facilitate their decision-making.

Conventional Cost and Management accounting, however, is inflexible to the emerging trends of new management styles which arises as a result of increased competition and the need to manage pricing /cost of doing business effectively. 

Strategic Cost Management, therefore, is an attempt to address the shortcomings of traditional Cost Management Accounting.

Management accounting aims to facilitate the development and implementation of business strategies. It provides knowledge of the multiplicity of roles that Management Accounting plays in developing and driving a business.

Cost in itself is what is sacrificed to get something done or to acquire a product. We will therefore agree that cost is very key in management accounting it is a major driver of profit, which is the aim of every business.

The Elements are Strategic Cost Management are:

  1. Strategic Positioning Analysis – this shows how a firm has chosen to compete and the roles that Management Accounting Information plays in either executing the strategy or in developing the same. The main recurring issue here will be the Competitive Strategy of the business, i.e:
  • Cost Leadership or Production Differentiation Competitive Strategy.
  1. Cost Driver Analysis – Understanding of the revenue and the cost structure of the business, the revenue and cost behavior as well as how to manage them to obtain sustainable competitive cost advantages. They involve the following:
  • Cost Control/Reduction.
  • Cost Cutting.
  • Corporate or Product Line Rationalization.
  • Revenue Potential optimization.
  1. Value Chain Analysis – starting from the suppliers through the various internal value-creating activities that are linked with the final product. The firm’s suppliers and customers are usually included in the cost analysis here. The key terms here are:
  • Production Resources and Input.
  • Capacity.
  • Make or Buy Opportunity Costs.
  • Sunk Cost.

Cost Analysis, also known as cost-benefit analysis, is the process of calculating the potential earnings from a situation or project, then subtracting the total cost associated with completing that situation or project. It offers a prediction of the profit gained from a project and compares the cost of the project versus the estimated financial benefits of the project.

I look forward to learning more as we dive into the modules of this coursework.

#MEMBA 11

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