Zahirul Hoque

Strategic Management Accounting

Concepts, Processes and Issues

Contents
Foreword Preface to the second edition Excerpt from the preface to the first edition Acknowledgments List of abbreviations The author xiii xv xix xxi xxiii xxv

Accounting for strategic management: introduction and the conceptual framework Key learning objectives Introduction Strategic management accounting: what is it and what does it offer? Financial accounting, cost accounting, cost management, management accounting and strategic cost management: how do they relate? Two competing models of business: accounting and economic Broad-scope MAS information Theoretical perspectives (or viewpoints) of management accounting Chapter summary Key terms to learn Discussion questions Further reading 1 1 2 2

3 6 6 8 20 21 23 24

CONTENTS

Vision, mission, goals, objectives and strategy typology Key learning objectives Introduction What is a vision statement? What is a mission statement? Organisational strategy Goals/strategic goals Objectives Strategic decisions What is a strategic business unit? Types (or levels) of strategy Various types of strategy typology Strategy and environmental uncertainty Chapter summary Key terms to learn Discussion questions Notes Further reading

25 25 26 26 27 28 29 30 31 32 32 33 39 40 40 40 41 42

The basics of management control Key learning objectives Introduction Management control: what is it? T h e emergence of the concept of'control' Planning, strategic planning, strategic management and programme planning: how do they relate? Effectiveness of management control systems Economy, efficiency and effectiveness: what are they and how do they relate? Business unit strategy and management control systems: empirical evidence Competitive strategy and costing systems: empirical evidence Business unit mission and incentive systems: empirical evidence Chapter summary Key terms to learn

43 43 44 44 46

49 50 52 53 53 55 55 56

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Discussion questions Further reading

56 57

Cost allocations and activity-based costing and activity-based management Key learning objectives Introduction Cost allocation to products and services: how do organisations do it? Activity-based costing: what is it and what does it offer? Steps in the ABC methodology Classification of organisational activities for an ABC system Traditional cost systems and activity-based cost systems: how do they differ? Review example traditional cost allocation versus ABC Limitations of ABC Activity-based management: what is it and what does it offer? Chapter summary Key terms to learn Discussion questions Further reading

59 59 60 60 61 61 62 63 64 65 66 67 67 68 69

Advanced manufacturing technology, JIT, target costing and product life-cycle costing Key learning objectives Introduction Advanced manufacturing technology Production management strategies The just-in-time approach JIT versus traditional manufacturing The implications of production management strategies for the design and use of cost/management accounting systems JIT production and automation: how do they relate? JIT production and ABC: how do they relate? Automation and ABC: how do they relate? Target costing

71 71 72 72 73 74 74

75 77 78 79 80

CONTENTS

VII

Product life-cycle costing Chapter summary Key terms to learn Discussion questions Notes Further reading

80 83 84 84 86 86

Quality costing, total quality management and management accounting systems Key learning objectives Introduction What is quality? Dimensions of quality Quality costs Hidden quality costs (the Taguchi quality loss function) Quality reporting Total quality management defined Dimensions Kaizen management Management accounting data for T Q M programmes Chapter summary Key terms to learn Discussion questions Notes Further reading of TQM culture

89 89 90 90 91 91 93 96 96 97 100 101 103 104 104 104 105

Value-chain analysis and accounting Key learning objectives Introduction Value chain concept: what is it and what does it offer? Value-added analysis and value-chain analysis: how do they differ? Porter's value-chain framework: applying it to the business for excellence Corporate value chain: what is it and how does it differ from an individual product's value chain?

107 107 108 108 108 109 111

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A case study of the Porter value-chain framework Management accounting systems in the value-chain framework Chapter summary Key terms to learn Discussion questions Further reading

112 115 119 120 120 121

Customer profitability analysis/customer accounting Key learning objectives Introduction Keeping customers happy: a key to success Customer profitability analysis: what is it and what does it offer? The relation between CPA and ABM The implementation of CPA Profile of customers by sales revenues Profile of customers by order size Profile of customers by age group Income statement by customer Chapter summary Key terms to learn Discussion questions Further reading

123 123 124 124

124 125 126 127 127 128 128 129 130 130 130 131 131 132 132 133 134 136 136 137 137 138

Competitor analysis/competitor accounting Key learning objectives Introduction Importance of competitor accounting Basic steps of competitor analysis Ingredients of competitor analysis Sources of information for competitor analysis Problems with competitor accounting The management accountants role in competitor analysis Contingency view of competitor accounting: empirical evidence Chapter summary

CONTENTS

ix

Key terms to learn Discussion questions Note Further reading 10 Responsibility accounting, financial performance measures, and transfer prices Key learning objectives Introduction T h e role of a performance measurement system Responsibility centres/responsibility reporting Key financial performance measures Problems with conventional financial measures Transfer pricing systems Chapter summary Key terms to learn Discussion questions Further reading 11 Measuring non-financial performance Key learning objectives Introduction T h e importance of non-financial performance measures Key non-financial performance measures Building a strategic performance measurement system Performance measures in an uncertain environment Chapter summary Key terms to learn Discussion questions Note Further reading 12 The balanced scorecard Key learning objectives Introduction

138 138 139 140

141 141 142 142 143 144 148 150 153 154 154 155 157 157 158 158 159 161 162 164 164 164 165 165 167 167 168

STKA TEGIC MANAGEMENT ACCOUNTING

Balanced scorecard evolution The balanced scorecard philosophy Arguments for the adoption of the balanced scorecard Linking balanced scorecard measures to size and market factors: the Hoque and James (2000) study Balanced scorecard practices in the public sector Total quality management and balanced scorecard linkage Chapter summary Key terms to learn Discussion questions Further reading

168 169 170

173 176 176 181 182 182 183

13

Benchmarking analysis and management accounting Key learning objectives Introduction What is benchmarking? What does benchmarking analysis offer? Types of benchmarking The benchmarking process The relation between T Q M and benchmarking Management accounting for benchmarking Chapter summary Key terms to learn Discussion questions Further reading

185 185 186 186 186 188 188 189 190 191 192 192 193 195 195 196 196 197 197 197 198 199

14

Incentive plans Key learning objectives Introduction Objectives of an incentive plan What are the ideal conditions for an effective incentive system? Types of executive compensation schemes Forms of monetary compensation plans Gainsharing a group bonus plan Performance-related pay schemes

CONTENTS

XI

Agency view of incentive schemes Chapter summary Key terms to learn Discussion questions Further reading 15 Public sector management accounting and controls Key learning objectives Introduction Public sector reform and new public management Implications of public sector reform for accounting Planning programming budgeting system Zero-based budgeting Budgetary accounting Chapter summary Key terms to learn Discussion questions Further reading

201 202 203 203 204 205 205 206 206 207 209 209 210 211 212 212 212

Case studies A B D E F G H I T h e Boeing Company MosCo, Inc. Cost centre management at Air Command Target costing: when accounting and marketing collide Using EVA at OutSource, Inc. Dialysis Clinic, Inc. Tempest, Inc. East River Manufacturing Precision System, Inc.

215 217 243 269 291 313 321 337 347 367

References

375

Index

393

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