MANAGEMENT ACCOUNTING

Management Accounting

Management Accounting

Cost, Price & Quantity Graph

The graph shows the relationship between the cost, price and the quantity. If only this firm discovers a technological breakthrough that lowers the variable cost of production what will happen to the following?

i. the price charged by the firm The price charged will remain the same as price is determined by the market and not the firm.

ii. the quantity produced by the firm The quantity produced will increase as costs are lowered and revenue remains the same, shifting the MC = MR intersection to a new, higher level of output.

iii. the profit of the firm Profits will increase as cost per unit is lowered and revenue per unit remains the same (AICPA, 1994).

(b) What will happen to each of the following if, in the long run, all of the firms in the industry adopt the new technology?

i. the price charged by the firm As new firms will enter the industry because of the economic profit, this will increase supply in the market and drive the price down.

ii. the quantity produced by the firm The equilibrium quantity will increase as supply has increased.

iii. the profit of the firm Profits of individual firms will return to normal (zero) as a new long-run equilibrium is established.

Strategic Management Accounting

Strategic Management Accounting has been defined as "a form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information (Armstrong, 2001)."

Back in 1981, Ken Simmonds, probably the pioneer writer on the subject, developed the above definition. He saw it as the collection of management accounting information about a business and its competitors for use in developing and monitoring the business strategy (Ansari, 2005). The emphasis was placed upon relative levels and trends in real costs and prices, volume, market share, cash flow and stewardship of the resources available to the business.

Role of Strategic Management Accountant

One of the main exponents of Strategic Management Accounting is the American M.E. Porter. As you progress in your studies at final level, you will become very familiar with that name. His 1985 text on strategic management is regarded as a corner-stone. Porter takes a two pronged approach.

First he assesses different industries in terms of their long-term profitability (Baker, 2003). He sees five competitive forces that will contribute to a strategic equation.

Again within the UK, the student needs to look no further than his local supermarket. There is intense rivalry between Sainsbury's, Tesco and ASDA for a bigger share of the grocery and food market. At the bottom end of the market, there are a number of smaller and possibly cheaper players, while at the top, the food departments of Marks & Spencer compete against Waitrose.

On the world scale, the volume automotive industry provides a classic example. Historically, they were somewhat nationalistic and fought each other for a share of the home market. Now, as major multinationals, Ford, Volkswagen, FIAT, Toyota and GM compete on a world stage (Carey, ...