Strategic Management Accounting Essay Example | Topics and Well Written Essays - 1750 words

Strategic Management Accounting - Essay Example Historically the role of management accounting conferred to operational level budgeting, target setting and control with little or no influence towards strategy development. With the passage of time, this trend has been changed because of Strategic Management Accounting as nowadays this trend and focus has been driven towards strategy formulation and development (Kader et al, 2006). This strategy formulation and development makes management accountants to participate in formulating strategies within the organisation and this practise has been highly encouraged because these management accountants have a better operational level knowledge hence it helps in better goal congruence as well as proper implementation at the lower level of an organisation (Puolamaki, 2006). The most popular techniques that are used within Strategic Management Accounting are the Balanced Scorecard approach and the Activity Based Costing system. The Balanced Scorecard approach focuses on both the financial as well as non financial factors that may affect an organisation, besides these factors, it also looks upon the factors that have an external influence on to the organisation as well. The Activity Based Costing system on the other hand focuses on the financial aspects of an organisation in depth and this further helps in target setting, budgeting and variance analysis (Kaplan, 2006). There are many different techniques that are used within the strategic management accounting system. Each and every technique has its own unique approach, role and relevance. The applications of all these different techniques vary in accordance with the different situations that arise within the organisation. The more often used techniques and their particular significance and role is mentioned below. Cost Volume Profit (CVP) Analysis CVP analysis is affiliated with cost accounting. The main attribute of this technique is to compute break even in the break even analysis which would further help in calculat ing the targeted income sales. The basic assumptions that are involved in calculating the CVP analysis are the same as that of break even analysis. Although this technique is used by numerous companies, it has some limitations that are highly criticised. One of the major criticisms of using these techniques is that it uses different assumptions where it is deemed that the unit variable costs within any company’s production department are constant with the unit revenues. A proper CVP analysis would be required to assess the benefits gained from any particular deal, all the fixed cost and the variable costs would be summed up to assess the benefits that could be availed in more than one given scenario {(as illustrated in the Tani Kimura Company example (Choosing Plant Location)}(Horngren et al, Chapter 3, 2012). Job Costing and Process Costing Job and process costing are two methods that lie within the scope of cost accounting. Job costing involves the computation of costs in a construction or batch form. All the relevant costs that are incurred within a particular job are recorded within their respective ledgers and hence they are finally added up together to give the total