management accounting l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Management Accounting: PowerPoint Presentation
Download Presentation
Management Accounting:

Loading in 2 Seconds...

play fullscreen
1 / 40

Management Accounting: - PowerPoint PPT Presentation


  • 139 Views
  • Uploaded on

Management Accounting:. A Road of Discovery. Management Accounting :. James T. Mackey Michael F. Thomas. A Road of Discovery. Presentations by: Roderick S. Barclay Texas A&M University - Commerce James T. Mackey California State University - Sacramento

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Management Accounting:' - ostinmannual


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
management accounting

Management Accounting:

A Road of Discovery

management accounting2

Management Accounting:

James T. Mackey

Michael F. Thomas

A Road of Discovery

Presentations by:

Roderick S. Barclay

Texas A&M University - Commerce

James T. Mackey

California State University - Sacramento

© 2000 South-Western College Publishing

chapter 10 should we start all over

Chapter 10Should we start all over?

Strategic cost management

key learning objectives
Key Learning Objectives

1. Discuss how industry-wide value chains and accounting information aid firms in identifying their core competencies.

2. Demonstrate the use of strategic partnering and activity-based management performance measures in managing suppliers.

4. Illustrate product line management with target costing, simultaneous engineering and quality function deployment, and life cycle costing.

3. Create activity-based management measures for customer satisfaction and explain the role of ABC in managing customer relations.

slide5

Part I

Strategic Value Chain Management

what business are we in
What Business Are We In?
  • Long-term value is
    • Created by our business choices and
    • Strategies we apply within our line of business.
  • Short-term value is
    • Created through the management of resources within the long-term plan and strategic value chain.
    • This is where traditional cost based accounting management is primarily applied.
  • An industry-wide value chain measures the provision of an industry’s goods or services from ‘cradle to grave’. The value chain identifies and defines the industry.
pizza s industry wide value chain

Farmers grow and harvest crops

Truckers ship to processing plants

Plants process and pack vege-tables and grains

Truckers ship to distribution cen-ters and retailers

Farmers maintain and milk dairy cattle

Truckers ship to processing plants

Plants process into cheese products

Truckers ship to distribution cen-ters and retailers

Farmers (ranchers) raise beef cattle

Truckers ship to processing plants

Plants process into meat products

Truckers ship to distribution cen-ters and retailers

Pizza restaurants purchase materials

Pizza restaurants prepare pizzas

Pizza restaurants serve customers and clean up

Refuse companies dispose of trash

Pizza restaurants deliver to customers

Pizza’s Industry-Wide Value Chain
slide8

Part II

Using Accounting Data to Identify Opportunities

return on investment ratios in the pizza industry

Farmers grow and harvest crops

Truckers ship to processing plants

Plants process and pack vege-tables and grains

Truckers ship to distribution cen-ters and retailers

Farmers maintain and milk dairy cattle

Truckers ship to processing plants

Plants process into cheese products

Truckers ship to distribution cen-ters and retailers

Farmers (ranchers) raise beef cattle

Truckers ship to processing plants

Plants process into meat products

Truckers ship to distribution cen-ters and retailers

Pizza restaurants purchase materials

Pizza restaurants prepare pizzas

Pizza restaurants serve customers and clean up

Refuse companies dispose of trash

Pizza restaurants deliver to customers

Return on Investment Ratios in the Pizza Industry

ROI = 3%-8%

ROI = 5%-10%

ROI = 10%-15%

ROI = 5%-10%

ROI = 10%-20%

ROI = 15%-30%

ROI = 10%-20%

using accounting data
Using Accounting Data
  • Using larger ROI as an indication of greater power and value, we can reconfigure the business by moving up and down the value chain.
    • Different combinations of activities allow companies to differentiate their goods or services to create more value.
    • In the pizza example, the objective was to capture the more profitable garbage disposal activity.
    • Different combinations of activities allow companies to differentiate their goods or services.
    • A larger ROI indicates greater economic power.
    • By absorbing sequential activities, efficiency can be created by combining core competencies and reducing redundant activities.
    • By focusing on our value chain, we can identify potential ways to increase value and decrease costs.
slide11

Part III

The Need for Cost Management Analysis Using CVP analysis

cvp analysis for pizza delivery cleanup and disposal

Sales revenues

$15

100%

$150

Less: Variable costs

5

33%

50

Contribution margin

$10

67%

$100

Less: Batch costs

Delivery

25

Return

25

Cleanup

10

Disposal

20

Total batch costs

$ 80

Net Income

$ 20

Break even point = 8 pizzas

CVP Analysis for Pizza Delivery, Cleanup,and Disposal

Cost-volume-profit analysis allows us to examine the projected costs and the benefits of moving into the clean-up and disposal business.

analysis of pizza business
Analysis of Pizza Business
  • The target sales price per pizza is $15.
  • Unit costs for each pizza are the variable costs which include labor and materials of $5.
  • The contribution margin per pizza is $10.
  • The batch costs include delivery, return, clean-up, and disposal of $80.
  • Each pizza sale with clean-up loses $70!
  • However, by covering only the clean-up with orders of ten pizza’s or more, the contribution margin per batch order increases to at least $20.
  • The PARTY PIZZA CLEAN-UP BUSINESS is born.
limitations on value chain analysis
Limitations on Value Chain Analysis
  • Truly comparable activities may be difficult to identify.
  • Information may be difficult to obtain.
  • ROI approximates profitability and power (accounting profitability is not necessarily economic value).
  • We need better measures that correlate better with firm value.
  • Successful differentiation and cost management will require detailed cost analysis.
slide15

Part IV

Using value Chains to Manage Multree Homes

where we are on the industry wide value chain
Sell houses

Build houses

Customer order-taking

1.1 Sales

1.2 Credit check (Finance)

1.3 Accounts receivable

Materials acquisition (inbound)

2.1 Scheduling

2.2 Purchasing

2.3 Receiving, inspection, storage

2.4 Delivery to factory

Where We Are on the Industry-Wide Value Chain

Industry goods and services (Exhibit 2-3)

Multree Homes value chain (Exhibit 2-5)

continued value chain
Build Houses

Manufacturing

3.1 Lumber sawing

3.2 Wall assembly (framing)

3.3 Rough wiring

3.4 Rough plumbing

3.5 Wall finishing (all inclusive)

3.6 Roof construction

3.7 Finish carpentry

3.8 Top-off plumbing

3.9 Finish electric

3.10 Carpeting

3.11 Inspection

Continued Value Chain
concluded value chain
Build Houses

Sell houses

Customer service (warranty)

Shipping (outbound logistics)

4.1 Packing

4.2 Shipping

4.3 Set up for dealer, customer

Close sales

5.1 Customer inspection

5.2 Bill customer

5.3 Collect and deposit cash

After sale customer services

6.1 Provide warranty work

6.2 Survey customer satisfaction

6.3 New product and service

advertising

Concluded Value Chain
value chain discussion
Value Chain Discussion
  • A process is the set of activities required to provide goods and services.
  • Exhibit 10-4 list the 6 processes that Multree needs to manage.
  • For example, customer order-taking has three activities — sales, credit checks, and accounts receivable.
    • Each activity becomes the cost objective for management accounting.
    • Activities are significant costs.
    • Activities are assigned cost drivers.
    • Often activities or processes can be outsourced.
core competencies
Core Competencies
  • Core competencies are activities or processes where companies excel.
    • They are the process that individual companies do better than their competitors.
    • Multree has identified six processes in Exhibit 10-4 illustrated previously.
  • Multree’s core competency is the management of activities in the Organization value chain.
  • Superior cost and earnings performance measures are ways to identify the relative advantage of core competencies. Multree’s advantage against a general contractor is in production costs — see Exhibit 10-6, p. 358.
core competencies in well known companies

Company

Core competencies

Products or services

AT&T

Technological leadership through Bell Labs

Telecommunications products

Honda

Small engine production

Motorcycles, snowmobiles, lawnmowers, snow blowers, chain saws

IBM

Research and development

Experienced sales force

Mainframe computers and software

Microsoft/

Apple

Imagination

New ways to use information technology

Proctor &

Gamble

Research and development

Marketing and distribution

Ivory, Tide , Folgers, Crisco, Pampers

Xerox

Information processing

Developed icons, pull-down menus, mouse

Core Competencies in Well-Known Companies
slide22

Part V

Value Chain Approach to Vendor Management

vendors
Vendors
  • Vendors costs are usually a major product cost.
    • Improving costs is dependent on improving vendor efficiencies.
    • I.E., if 70% of a company’s unit costs are paid to vendors, a 50% improvement in internal processes would only reduce costs by 15%.
  • Therefore, vendor management is a significant management consideration.
decisions regarding vendors and value chains
Decisions Regarding Vendors and Value Chains
  • Strategic partnering with selected vendors can result in significant competitive advantage.
    • By working with a small number of vendors, Multree has more influence over them.
    • Long-term relationships allow differentiated products to be developed to eliminate redundant activities and complement core activities.
let s look at multree
Let’s Look at Multree
  • Multree builds a standard 26-foot roof.
  • They bid for the standard 10-foot bundles of plywood on the open market to obtain the best price.
  • Each span requires three sheets.
  • Four feet must be cut off every third sheet and thrown away.
  • Using three sheets leaves two seams that must be sealed and forms weak points for leaks.
multree s solution
Multree’s Solution
  • By strategic partnering with the plywood mill, Multree can eliminate redundant activities between it and the mill.
  • Multree pays for an additional setup on the plywood saw to cut 13-foot sheets.
  • Exhibit 10-7a, p.362 and 7b, p. 363, summarize the costs before and after the process redesign.
  • Multree reduces it’s cost per roof by 35% or $141.38.
let s analyze multree s solution
Let’s Analyze Multree’s Solution
  • Multree’s core competency is manufacturing.
  • By strategic partnering it’s non-core activities in purchasing, shipping, and preparation, Multree can eliminate some less efficient activities and reduce unit costs.
  • Value-chain thinking leads to a shift in value creation focus from separate cost centers to maximizing the efficiency of the entire value chain.
  • The virtual company they formed can maximize its competitiveness by combining the core competencies of several organizations.
slide28

Part VI

Value Based Vendor Performance Measures

the vendor performance index vpi
The Vendor Performance Index (VPI)
  • VPI measures the cost of purchasing goods from a vendor.
    • The costs to work with a vendor are not limited to the invoice costs that are measured by GAAP.
    • Rather, the non-value added activities caused by the vendor’s produce and performance need to be considered.

VPI = Purchase Cost + Non-Value Added Costs

Purchase Cost

vpi calculations

Inspection

10

$100

Processing paperwork

2

20

Returning bad materials

3

30

Waiting for late deliveries

5

50

Totals

20

$200

Materials purchase cost

$1,000

VPI Calculations

Labor hours

Labor cost at $10/hr

Nonvalue added activities

Materials purchase cost

Nonvalue added costs

+

VPI =

Materials purchase cost

$1,000 + $200

$1,000

VPI =

VPI = 1.2

vpi components
VPI Components
  • On-Time Delivery — measures of delivery are useful when VPI is unavailable. On-time measures are easy, cheap, and meaningful to the shop floor.
  • Complete Order Filling — is an example of a quality of service measure.
slide33

Part VII

Managing Value Chain Relationships with Customers

exhibit 10 10 analysis
Exhibit 10-10 Analysis
  • The snake chart allows companies to monitor their product as viewed by the customer.
  • Customers identify and rank these attributes on a 1 (lease important) to 10 (most important) scale for their importance and the perceived quality Multree provides.
  • To improve value
    • Multree needs to improve where it is under performing (warranty service) — a 9 in importance and a 4 in performance.
    • They also may need to consider reducing the variety of homes (2 in importance vs. an 8 in performance).
  • These are non-financial measures and do not score on value. Further cost analysis is needed before decisions are made.
activity analysis of customer delivery costs
Activity Analysis of Customer Delivery Costs
  • First, review and analyze Exhibit 10-11, p. 370.
  • A firm can develop competitive advantage by matching their core competency to their customers.
  • Activity analysis of customer delivery activities allows companies to focus on customers with which they have a core competency advantage.
  • Different support resources have unique cost drivers.
  • Customers consume resources differently.
slide37

Part VIII

Product Line Strategic Cost Management

target costing
Target Costing

TARGET COST = REVENUE – DESIRED PROFIT

  • First, calculate the value of products to customers, then subtract the desired profit.
  • Customers set the cost standard that the company must reach.
simultaneous engineering using qfd analysis
Simultaneous Engineering Using QFD Analysis
  • There is a high cost of independent, functional specializations like design, manufacturing and sales.
    • Significant costs are locked in at the design stage.
    • These costs cannot be changed significantly after production begins.
  • Concurrent or simultaneous design means the design team needs to include members of, and cost data from, each activity in the life-cycle of the product.
  • Quality function deployment (QFD) starts with characteristics that the customer desires.
abc quality function deployment qfd analysis

Purchase glass

$500

$600

Purchase framing materials

50

50

Cut frame lumber

100

100

Package glass for shipping

25

25

Special installation labor

75

100

Extra sealing materials

0

25

Warranty work

250

0

Budgeted cost

$1,000

$900

Target costing allowance

$900

$900

Drift

($100)

None

Note: The chalet home is a purchased kit (package) assembled at the site.

ABC Quality Function Deployment (QFD) Analysis

Original ABC analysis

Revised ABC analysis

Picture Window Activities