Three (3) Themes of Cost & Management Accounting

Companies’ increased competitive pressures have altered how managers manage, which has fundamentally altered the type of management information they need. For decisions on pricing, product, and customer mix, many sorts of information, including details on resource usage, are needed. Unfortunately, the traditional cost and management accounting systems are rigid (being somewhat regular) and unable to provide the necessary information. They also failed to take the firm’s strategy into account. In an effort to correct the flaws in traditional cost and management accounting methods, strategic cost management was created.

Cost & Management Accounting is developed on the central theme that management accounting exists within a business primarily to facilitate the development and implementation of the business strategy. As managers in business, this course aims to provide you with knowledge of the multiplicity of roles management accounting information can play in “driving” a business. In this regard the course has been divided into two segments Uses of Cost & Management Accounting Reports/Information and Design of Cost & Management Accounting Systems. This underlines the need for operating managers to have knowledge of the various uses to which cost & management accounting reports/information could be put. In addition, they should, being the operating officer, not only determine their need for reports/information, but also design the systems that produce the reports.

The three major themes of the cost & management accounting, which grew out of the central theme that cost & management accounting exists within a business primarily to facilitate the development and implementation of the business strategy, would be anchored on either Uses of Reports or Design of Systems, depending on the topic:

1. Value Chain Analysis: This focuses on the numerous internal value-creating activities or operations connected with the finished good or service that is provided to clients, starting with the suppliers. Here, cost analysis does not begin with purchases in order to not miss the connections with the company’s suppliers, nor does it end with sales in order to not miss the connections with the company’s clients. Production inputs and resources, capacity, make-or-buy opportunity costs, and sunk costs are a few of the concerns addressed here.

2. Strategic Positioning Analysis: This step focuses on how a company has chosen to compete and what function management accounting information plays in carrying out that strategy or in coming up with a new one. The company’s competitive strategy, such as its focus on cost leadership or product differentiation, would be the recurrent problem.

3. Cost Driver Analysis: This step explains about the revenue and cost structure of the company or the product, as well as the revenue and cost behavior, or the different revenue and cost drivers, and how to manage them to achieve a sustainable competitive cost advantage. Cost control/reduction, cost cutting, corporate or product line rationalization, and revenue potential optimization would be the reoccurring issues.

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