ACC804 Advanced Management Accounting

Tutorial Activity Sheet

Week 4 Some possible answers

Question 1

Discuss the implications of strategy on the design and implementation of management

accounting and control system.

Management accounting systems should clearly distinguish between two types of information:

1. Strategic profitability (costing) information; and

2. Administrative control information

The first type of information relates to the strategic variables that create value for an
organization. This requires identifying what each product or service contributes to
profitability over the long term. The strategic support tools are information required for target
costing (discussed in Week 5 Lecture), and activity based costing and analysis (Week 5
Lecture)

The second type of information relates to generating relevant information for controlling
operational activities and processes. This component must also provide a control feature that
can protect assets, document transactions and provide a reliable source of verification.

The design and implementation of management accounting and control systems should help
managers create, manage and protect value (having strategy in mind while designing and
implementing such systems)

Question 2

Explain in some detail how value chain analysis can assist firms in achieving cost leadership and
product differentiation strategies. Give examples.

Value chain analysis creates a view of the organization and its industry as a complex web of
interrelated activities. Effective management of the organization entails enacting the most value
from each activity, and organizing the value chains of each products and market in the most
effective way. This requires:

- Reconfiguring existing value chains;

- Eliminating non-value adding activities;
- Introducing new activities; and
- Enhancing the efficiency of the existing activities.

These require management accountants to identify:

 - Significant activities;
- Inputs (costs/resources) and outputs of activities in both financial and non-financial
terms;
- Value created by an activity;
- The value driver of an activity;
- Linkages between value-creating activities within the organization; and
- Linkages between value-creating activities that cross organizational boundaries (with
suppliers and customers e.g. quality control)

Hence, value chain analysis and management accountants in this position can provide
management with performance measures and advise that can aid important activities, value
driver and linkages.

Hence management is in the position to determine its cost leadership and product
differentiation strategies in light of the crucial analysis and data available.

Question 3

Explain why it is important for organisations to create collaborative relationships with suppliers.
Search the web page of a local Company and explain why it has created such relationships.

Read the supplier chain management article from the webpage link below:

http://www.achilles.com/en/about-achilles/industry-insights/1301-the-importance-of-supplier-
management

Question 4

Select a local Company of your choice. Evaluate its strategic position using Porters Five Forces
Framework.

Company choice depends on the students choice which must include the following:

- Threat of entrants in industry;

- Power of buyer;
- Power of supplier;
- Substitutes available; and
- Intensity of competition.