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level: Level 1 of Chapter 8: Strategic management accounting

Questions and Answers List

level questions: Level 1 of Chapter 8: Strategic management accounting

QuestionAnswer
What is the focuspoints of strategic mangement accounting?1. Future long-term orientation 2. Organization’s position relative to its competitors 3. Information about external factors 4. Non-financial information 5. Internally generated information
What are some common suggestions and dimensions of strategic management accounting?- Information on competitors, customers, market valuation of product characteristics. - Cost management over the whole value chain. - Competitive analyses of costs (cost drivers) - Strategic product costing considerations. - Long term performance measurement. - Long term assessment of organizational strategies.
What performance measures do we use to evaluate long-term economic performance?Features of good performance measures: - Goal congruence with organization objectives: Managers working in their own best interest take actions to accomplish the overall goals of the organization. - Comparisons across different subunits possible. Performance measurement in the long term: - Take level of investment into account. Resources/assets used to generate profits.
What is return on investment (ROI), and how is it calculated?Return on investment (ROI) is a financial metric that is widely used to measure the probability of gaining a return from an investment.
What is residual income? And how is it calculated?Residual income is the net operating income that is earned by the investment center. Residual income is the excess income earned on the return on investment. It is regularly referred to as "passive income" for individuals or businesses.
What is Economic value added (EVA)? And how is it calculated?Economic value added is a measure of a company’s financial performance based on the residual wealth of the company. It can do so in multiple ways: 1. Income measure = After-tax operating profit 2. Required rate of return = Weighted-average cost of capital 3. Investment level = Total assets – current liabilities
Why might economic value added be a better performance measurement in the long run compared to residual income?Performance is normally measured in a 1-year time-period, and actions which increase ROI in the short run (1 year and below) might decrease RI on the long run. ROI is calculated as operating profit / total assets. As total assets are depreciated over time, and if profit remains the same, ROI increases. BUT, this can harm the company long term if new investments are not made. ROI is also difficult to compare over time, as assets bought in different time periods might have different ages, units, and costs.
What is a balanced scorecard?The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes. Used to measure and provide feedback to organizations, balanced scorecards are common among companies in the United States, the United Kingdom, Japan, and Europe. Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information. Company personnel can use this information to make better decisions for the future of their organizations.
What is the main part of strategic management accounting in production firms?To enhance quality, as this is important in competitive markets. • Long-term effects on gaining or defending market shares and revenues. • Quality problems cause substantial costs. • Non-financial and qualitative effects of quality improvement.
What are the four costs of quality?1. Prevention costs - Costs related to prevent future issues with the product. Such as design costs. 2. Appraisal costs - Detecting units which do not confirm to specifications. 3. Internal failure - Non-confirming product is detected before shipping out. 4. External failure - Non-confirming product is detected after shipped out. Leads to customer service costs etc.
What are some non-financial measures of quality?Internal performance: 1. Number of defects for product lines 2. Process yield (Ratio good output to total output) 3. Employee turnover 4. Employee satisfaction External performance: Customer satisfaction
What are the 3 methods of identifying quality problems?1. Control chart 2. Pareto diagram 3. Cause-and-effect diagram
What is a control chart and how is it read?The control chart measures whether sampled products are meeting their intended specifications. The x-axis tracks samples tested, and y-axis chart tracks the variance to the expected level (The black line). Dots above black line means there are more errors that day, and below means less than expected that day. In the control chart below, it can be seen that there are more errors in the weekend.
What is a pareto diagram?A pareto diagram is a bar graph. The lengths of the bars represent frequency of occurrence and are arranged with the longest bars on the left and the shortest to the right.
What is a cause-and-effect diagram?A cause-and-effect Diagram is a tool that helps identify, sort, and display possible causes of a specific problem or quality characteristic. It graphically illustrates the relationship between a given outcome and all the factors that influence the outcome.
What is a bottleneck and how do we deal with them?Some operations in the value chain might bottleneck if the capacity cannot keep up with the rest of the production How to deal with bottlenecks Step 1: Recognize – Bottleneck resource determines whole throughput contribution. (See illustration above) Step 2: Find the bottleneck resource: Identify largest quantities of stock waiting to be worked on. (Is the large area to the left on illustration above) Step 3: Keep bottleneck resource busy: Subordinate all other non-bottleneck resources. The bottleneck operation can never be out of something to do! Step 4: Increase bottleneck efficiency and capacity
What are some specific things we can do to deal with bottlenecks?Specific things one can do to deal with bottlenecks: 1. Eliminate idle time, reduce set-up/processing time at the bottleneck operation 2. Shift products from bottleneck operation, if possible (to other operations, outsourcing), to increase capacity of the bottleneck operation. 3. Improve quality of products manufactured at the bottleneck operation.
What is a just-in-time production system, and why is it useful?Each component in a production line is produced immediately as needed. Demand-pull feature: Demand triggers each step of the production process. All stock levels are eliminated or reduced as far as possible. Reduces amount of stock in warehouse and amount produced, leading to increased quality.
What is the back-flush costing system and how does it relate to JIT production system?Costing system for Just-in-Time production systems. Main attributes of the backflush costing system: • Absence of stock makes bookkeeping easier. • Recording is delayed until produced goods appear. • Use of standard/budgeted unit costs (For direct materials and conversion costs). • No record of Work in Progress: No single WIP accounts. There are 3 different versions of backflush costing depending on when journal entries are made. These are also called trigger points. The 3 different trigger points: A. 2 trigger points: Purchase of material, completion of finished goods. B. 2 trigger points: Purchase of material, sale of finished goods. C. 1 trigger point: Completion of finished goods.
What is the Economic order quantity decision? And how is it calculated?EOQ is the optimal stock to order, as certain amount of stock can (and should) not always be avoided. It is always a trade-off between ordering costs and carrying costs.
What is a re-order point and how is it calculated?The re-order point is when we should order the optimal amount (EOQ).