Date: October 14, 2015
Managers at companies large and small must understand how revenues and cost behave or they risk losing control of the performance of their firms. Managers use cost accounting information to make decisions about research and development, budgeting, production planning, pricing, and the products or services to offer customers. Cost accounting provides information for both management and financial accounting professionals has its focus on the cost of acquiring or using resources in the organization. In Management Accounting, strategy play a vital role it decide the performance of the company. Strategy specifies how an organization matches its own capabilities with the opportunities in the market place. There are two broad strategies in the Management Accounting system called Cost leadership or product differentiation. Deciding between these two broad strategies is a critical part of what managers do. Management accountants work closely with managers in various departments to formulate strategies by providing information about the sources of competitive advantage, such as (1) their company’s cost, productivity or efficiency advantage relative to competitors or (2) the premium prices a company can charge relative to the costs of adding features that make its products or services distinctive.
Management accounting information helps managers formulate strategy by answering questions such as the following:
Who are our most important customers, and how can we be completive and deliver value to them?
What substitute products exist in the marketplace, and how do they differ from our own?
What is our most critical capability?
Will adequate cash be available to fund the strategy or will additional funds need to be raised?
Customers demand much more than just a fair price—they expect quality products delivery in a timely manner, therefore, creating value is an important part of planning and implementing strategy. Value is the usefulness a customer gains from a company’s product or service. The entire customer experience determines the value a customer derives from a product. In order to make delivery more effective companies have to follow the value chain. The Value chain is the sequence of business functions in which a product is made progressively more useful to customers.
Research and Development (generating and experimenting with ideas related to new products, services or processes)
Design of Products and Processes (detailed planning, engineering and testing of product and processes)
Production (procuring, transporting and storing, coordinating and assembling resources to produce a product or deliver a service)
Marketing (promoting and selling products or services)
Distribution (processing orders and shipping products or services to customers)
Customer Service (providing after-sales service to customers)
Production and Distribution are the parts of the value chain associated with producing and delivering a product or service. These two functions together are known as the Supply-Chain. The Supply Chain describes the flow of goods, services and information from the initial sources of materials, services, and information to their delivery regardless of whether the activities occur in one organization or in multiple organizations. To increase efficiency in these areas, in other words to increase performance and reduce costs, suppliers may be asked to deliver small quantities of materials frequently instead of one larger shipment.
The key success factors to improve performance are shown below here:
Cost and efficiency – understanding the activities that causes costs to arise and managing them allows managers to react to the continuous pressure to reduce costs
Quality – customers expect high levels of quality
Time – two important dimensions of time are new-product development and customer-response time
Innovation – a constant flow of innovation products or services is the basis for the ongoing success of a company
Sustainability – the development and implementation of strategies to achieve long-term financial, social and environmental goals.
Overall, in order to compete in today’s competitive environment companies have had to become more customer-driven and make customer satisfaction an overriding priority. Customers are demanding ever-improving levels of service in cost, quality, reliability, delivery, and the choice of innovative new products.