ACC804 Advanced Management Accounting

Tutorial Activity Sheet

Week 1 & 2
Some brief answers..

Reading: Lecture 1
Question 1

Outline the major processes that management accounting systems use to

create value and manage resources.

Management accounting is defined as processes and techniques that are

focused on the effective and efficient use of organisational resources to support
managers in their task of enhancing both customer value and shareholder
value. Value creation is a central focus for contemporary managers. Customer
value refers to the value that a customer places on particular features of a good
or service (and which is what leads to them purchase the product). Shareholder
value is the value that shareholders, or owners, place on a businessusually
expressed in the form of increased profitability, increased share prices or
increased dividends.

Question 2

Explain the concept of competitive advantage and provide examples of the

different types of business strategies that can be used to achieve it.

Competitive advantages

Strong branding

focused on market niches

focused on unique productsAles and Stoutsthat is, differentiation

strategy based on uniqueness of product offering

premium segment of the market

 family involvement and leadership

Question 3

What types of management accounting information might assist management

in a business that followed a strategy based on cost leadership?

Strategy implementation involves planning and managing the implementation

of strategies by putting in place systems and structures to support those
strategies, such as setting up new business units, implementing new
production processes, implementing new software packages, developing new
marketing approaches, and introducing innovative human resource
management policies.

Management accounting can provide information to help managers to

formulate strategies and to implement these strategies. In the design of the
management accounting system (MAS), it is important to tailor the information
it provides to support business or competitive strategy. If the strategy is cost
leadership the focus should be on accurate product costs and cost control. If
the strategy is differentiation the focus should be on controlling the sources of
differentiation such as quality, delivery, time, flexibility, environmental
responsibility and innovation. Techniques and measures associated with
activity analysis, quality management, environmental costs, time based
management, supplier costing, customer profitability and so on may be used to
support competitive strategy.

Question 4

You are recently appointed as the senior management accountant for a large
organisation. In your first meeting with the CEO you suggest that you should
be included in the strategic leadership team (SLT). The CEO is surprised by
this suggestion as the previous incumbent had been happy to submit monthly
financial reports to the SLT rather than being a member of the team. He asks
you to prepare a report making a case for your inclusion in the SLT.
Required:
Prepare the report for the CEO identifying the contribution that you could
make as a management accountant to the activities of the SLT.

The strategic nature of management accounting

To: Human Resources Manager

From: Financial Controller
Re: A strategic leadership role
As the new senior management accountant, I am eager to be a member of the
Strategic Leadership Team. A few decades ago management accountants were
educated and trained to provide financial reports and perform some analyses,
largely of financial information, as required. More recently management
accounting has developed beyond that role, such that management
accountants are equipped to make valuable contributions to the formation and
evaluation of strategies. It is common for management accountants to be part
of senior management teams, with our clear view of the big picture, a full
understanding of the business as a whole, and as a provider of information to
managers that can help them maintain a competitive advantage in order to
achieve corporate objectives.
Having developed techniques over the last century that assist in the creation of
shareholder wealth and customer value, we now also focus on analyses that
assist in risk management and sustainability reporting and have a greater
understanding of the drivers of stakeholder value. (A stakeholder perspective
recognises a wider range of influences over businesses than shareholders and
customers.) I have been educated and gained experience in these areas and
would be of great value as a member of your SLT. Strategy underpins all that
the management accountant does. Management accountants are at the
forefront of monitoring the organisations strategic advances and strategy
development should be integral to my role.
I can bring to the SLT an understanding of financial and non-financial aspects
of operations; a breadth of knowledge of operations, as required to provide
assistance across all departments; and a depth of knowledge of operations as
required to lead my team in our normal reporting and supporting roles.
Consequently I can contribute to the latest approaches that enhance success
in the modern competitive environment in the context of our particular
operating and strategic needs.

Reading: Lecture 2
Question 1

What are the main tenets of contingency theory? How do they influence MACS?

A contingency theory is an organizational theorythat claims that there is no

best way to organize a corporation, to lead a company, or to make decisions.
Instead, the optimal course of action is contingent (dependent) upon the
internal and external situation.

Application to MACS?

Question 2

Explain with an example the cybernetics notion of control.

Cybernetics is a transdisciplinary approach for exploring regulatory systems

their structures, constraints, and possibilities. Norbert Wiener
defined cybernetics in 1948 as "the scientific study of control and
communication in the animal and the machine."

Question 3

Critically examine the notion of goal congruence in large decentralized entities.

Goal congruence is defined as consistency or agreement of

individual goals with company goals. Everyone in the organization needs to be
rowing in the same direction.

Question 4

Identify management accounting information that could assist managers in

making each of the following decisions. Remember to consider non-financial
information where relevant.

1. A marketing manager is considering whether or not to launch a new

product.
2. A travel company is considering whether it should increase its staff
numbers by one-third
3. A production team leader is considering whether an important customer
order should be produced next week, or during overtime hours tonight
4. A fast-food chain is considering a site for a new store

1 Competitors products and prices; current market share; cost of

developing, producing and marketing the new product; likely profitability
of the new product; potential impact on sales of existing products; likely
sales volume of the new product; additional staff and equipment needs.
2 Availability of new staff; cost of hiring new staff; any effect on morale of
existing staff; additional office accommodation and vehicle requirements;
likely sales and profits generated by new staff; additional salaries cost.
3 Different costs of the two alternatives; any impact on customer
satisfaction from delaying production until next week; the cost of overtime;
delay to regular production if produced next week; availability of staff to
work overtime.
4 Cost of purchasing the new machine; proceeds from the old machine; cost
of maintaining and running the old and new machines; productivity of the
old and new machines; ability of staff to operate the new machine;
availability of funds to purchase the new machine; the expected life of the
new machine and the remaining life of the old machine.

Question 5

Use the internet to access the website and the annual report for any company.
Find the director's report (or chairman's review) and discuss how management
accounting information may have contributed to the management of the
company during this year.