Strategic Management Accounting

1. Attribute costing

 considers that products are comprised by a package of attributes which constitute commodities that appeal to consumers. The addition of the costs of such attributes to the cost of the product constitutes attribute costing. Examples of product attributes include operating performance variables, reliability and warranty arrangements, the degree of finish and trim as well as service factors such as assurance of supply and after sales service. Attributes differentiate products and the matching of a product’s attributes with the tastes of consumers. The main advantage of using attribute costing is that its marketing orientation creates an approximation between accounting and marketing when defining the cost of products. However, the main limitation is the fact that it can be too complicated to calculate the cost of some attributes, such as the assurance of supply.  

1. Target costing

Refers to the Process where a product is designed to satisfy a consumer need and a target cost is determined for the product in order to earn a target profit level

Implemented during development and design phases of the product lifecycle

Relates to Kaisen Costing which requires continuing efforts to secure further cost savings during the production phase

Market-led costing rather than cost-led pricing

However, it may put the quality of the product at check

1. Quality costing

Quality of product or service can be a source of competitive advantage

By increasing the cost of prevention, companies can avoid (or at least reduce!) the cost

Quality costs:

1. Prevention
2. Appraisal
3. Failure costs – returns, rework, scrap, lost sales

Limitation: cost of lost sales can be highly subjective to assess. But quality costing can be used for attention-directing

1. Strategy costing

Costs should be considered in the long term, not in the short term (e.g., relevant cost analysis can lead to short term decision)

For a make-or-buy decision, cost information is important, but other information such as strategy, marketing and employee satisfaction should be taken into account

Differentiates traditional costing, leading to a strategic approach to costing

Limitation: Too many variables may make the decision more complex

However, this is the best way to use cost information, in conjunction with information from other sources

1. Strategic pricing

uses competitively-orientated analysis, instead of internally-oriented and historically based accounting information, for better-informed pricing decisions. It can include factors such as competitor price reaction, price elasticity, projected market growth, and economies of scale and experience. The key advantage is the improvement of pricing decisions. However, considering all the factors can be complex.

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