Strategic management is a discipline in the business sphere that entails initiating, executing, and assessing policies to see that the business has met its intended objectives. Strategic management in its nature mostly involves the top management officials of the business. The top management is responsible for the decision-making, and hence they are the best fit for the players of the strategic management. Strategic management accounting is a branch of management that deals with providing important data about the operation of a business and its external competitors in the market. In their research, Chetty and Campbell (2004) have argued strategic management accounting not only takes into account evaluating the organization’s financial position to meet its objective but also puts into consideration other external information that will ensure that the firm has met its objectives (p.23). Therefore, creating a mutual relationship between management and the performance of a company.
Strategic management accounting is built on external market information like competition and demand which makes it a holistic approach that has been tested over time; it has proven to be among the ways organizations can put up strategies that will work towards meeting their targets. The balanced scorecard is one of the pillars that strategic management is built on; it is defined as a standard through which the managers of an organization can cross-check to see if the organization is headed towards meeting its objectives. A balanced scorecard considers both the financial and non-financial structures of the organization, and a balanced scorecard is focused on several factors like management and performance. As such, through the major, strategies applied the organization us able to increase its performance index. Therefore, the external market data plays a vital role in creating that relationship between management and market analysis.
The financial perspective is one of the pillars of the balanced score balance, and this pillar emphasizes the organization’s financial information. For example, earning per share is one of the pieces of information that the management uses to tell if the organization is walking towards meeting its objectives. Earning per share is the number of monies that the shareholders earn from the investment made to the organization per unit of the share; if the earning per share for the shareholders of the organization is increasing over time, it implies that the organization is performing well, and hence the organization is said to be performing towards meeting its objectives (Chetty and Campbell, 2004, p.67). The major target of every organization is to increase its share capital. An increase in the share price implies that better strategic management strategies have been applied. Hence, the financial structure of any organization outlines its essential objectives of an organization.
The balanced scorecard also focuses on an organization’s cash flow to determine whether financially it is doing well; if there is an increase in the cash flow made by the organization, it is an indication that the organization is doing well financially. Alternatively, the increase in cash flow implies that the firm has better management strategies that make the production process more efficient. Cashflow is spearheaded by the major structures in the sales department. Notably, the objectives and strategies which bring about better management in the organization. Thus, bringing the sense that all is headed well towards meeting the organization’s goals.
In addition, customers are the other pillar of the balanced scorecard whereby the metric seeks to determine whether the customers are satisfied. When customers are satisfied with the services offered by the organization, they tend to recommend their friends to the products offered by the organization, which makes the organization grow in terms of sales. Finally, the metric seeks to earn clients’ loyalty through the feedback they get from the clients; if the organization is guaranteed loyalty, it is assured that it will work towards meeting its objectives.
However, innovation is the other pillar of the balanced scorecard, which looks forward to realizing the organization’s growth. Organizations embracing technology enhance effectiveness in the production process and increase the quality of goods supplied in the market. The higher the quality, the higher the demand and income as well. Also, through the aspect of modernization, decision-making is simplified, which is a good attribute of performance. Technology is one of the key targets for the organization’s structure and further performance. Through technology and innovation, an organization boosts its performance. Therefore, it becomes easy for the organization to achieve its designed objectives and purpose.
Moreover, task costing is the other pillar of strategic accounting, which tries to understand the amount of money the customers are willing to buy the organization’s product. If an organization wants to maximize the sale of goods or services that it’s offering, it has to consider a price that its clients will feel comfortable purchasing their goods and services. Task costing calls the managers to study the market prices on the products they are offering and set up a price that the majority of its clients can afford. When the organization achieves this, it will enable the organization to meet its objectives since the implementation of task costing decisions will increase the organization’s sales. On the contrary, if the organization fails to make a sober decision on deciding the best price to be made, it will be far from meeting its targets as the organization’s sales will reduce.
Also, the internal aspect of an organization is another pillar upon which the balanced scorecard is built. This pillar looks to see that the manner in which work is done aims to realize the organization’s objectives. For example, the internal aspect of the business focuses on things such as how well-structured the business’ channels are, and it also addresses the quality of the organization’s product.
Moreover, activity-based management costing is the other pillar of strategic management accounting which sees that for an organization to meet its objectives, it has to be able to get rid of the loopholes that take money from the business. By coming up with policies that ensure that the organization does not lose its funds through expenses that do not earn the company revenue, it goes a long way to improve the organization’s performance. When organizations manage to evade money loss through activities that do not generate money for them, they can channel all their resources to assets that will result in the company’s growth and will increase revenue. Through the approach, the firm is able to channel its assets for a common future goal which is to improve its sales. The implication of this is that the organization works on meeting its objectives.
However, life cycle costing is another pillar upon which strategic management accounting is built. On this pillar, policies that ensure that the organizations of goods and services are always in check with the market prices ensure that the organization competes favorably with its competitors. The quality of the goods produced is also assessed based on this policy, Notably, based on the response given by customers in the external market.
However, having stated how strategic management accounting is structured, we will contrast it with the traditional approaches. The traditional approaches only focused on financial information such as return on investment, net profits, and earnings per share, among other financial ratios. The traditional approach relies on the internal information of the organizations to make policies, and this information may at many times fail to deliver the organization’s objectives. Among the reasons why the traditional approach is not effective is that the management may doctor the information; this would otherwise result in false predictions as the policies made do not reflect actual data.
Moreover, in the strategic approach, the decisions are based on marginal costing, which helps in enhancing test costing. Marginal costing emphasizes the cost of every input of any input incurred per unit during the production of a product; through this, the organization can account for and feel the impact of adding an extra input into the production process of a product. However, the traditional approach adopts the costing approach, which is meant for allocation. The approach requires money to be allocated for certain expenses even if it has not been determined that those expenses will be incurred; in the event where the expenses will not be incurred, money is carried forward to next year’s expenses. Contrary to the strategic approach where money meant for expenses is incurred when the need arises, in the traditional approach, expense money is incurred even when the expenses have not been incurred, which results in a lack of accurate financial information (De Toni and Tonchia, 2003, p.56).
In addition, the strategic approach is concerned more with external information, such as how the customers respond to the prices of the products offered by the company. On the contrary, the traditional approach is concerned with only the internal affairs that affect the organization’s performance. The traditional approach is concerned with attaining profits over a short period, while the strategic approach aims to make profits over a longer period. The traditional approach aims to set its price for goods sold for a short period, contrary to what the strategic approach aims to do; the strategic approach aims at settling prices that reflect the total market charges for that particular product.
Also, the strategic approach aims to ensure its policies are borrowed concepts from what the other players in the industry are doing so that they can compete fairly; however, the traditional approach is based on financial performance only (Fernandez and Fernandez, 2008, p.67).
However, organizations can reduce their costs to maximize their revenue by first identifying their fixed costs and variable costs. When an organization can differentiate between the two, it can know where to spend much and which area it can cut some costs to make more revenue. After the organization has identified the variable costs, it should be able to apply marginal costing to see that it has not suffered losses by spending a lot of money on expenses that will not translate into revenue (De Toni and Tonchia,2003, p.42).
Labor hours:
(102,000*120)/60=240,000
Machine hours:
36,000/800=45 hours
The job costing method is ideal compared to the process costing method because the method factors in the allocation method, which offers a relatively low cost.
Reference List
Chetty, S. and Campbell-Hunt, C. (2004) A strategic approach to internationalization: a traditional versus a “born-global” approach. Journal of International Marketing, 12(1), pp.57-81.
De Toni, A. and Tonchia, S. (2003) Strategic planning and firms’ competencies: Traditional approaches and new perspectives. International Journal of Operations & Production Management.
Fernandez, D.J. and Fernandez, J.D. (2008) Agile project management—agilism versus traditional approaches. Journal of Computer Information Systems, 49(2), pp.10-17.
Li, W. S. (2017) Strategic management accounting: A practical guidebook with case studies. Springer.
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