Paulina Kwiatkowska1

NARZĘDZIA RACHUNKOWOŚCI STRATEGICZNEJ

WYKORZYSTYWANE W PROCESIE DECYZYJNYM
PRZEDSIĘBIORSTWA

STRATEGIC ACCOUTING TOOLS FOR COMPANY’S DECISION

MAKING PROCESS

Słowa kluczowe: koszty absorpcyjne, Apple Company, system pomiaru wydajności firmy, zrównoważona karta

wyników

Key words: absorption costing systems, Apple Company, performance measurement system,

Balanced Scorecard

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Paulina Kwiatkowska
Msc International Business and Management
Leon Koźmiński University in Warsaw
paulina.kwiatkowska5@gmail.com
STRESZCZENIE

Instrumenty rachunkowości strategicznej stanowią narzędzia wspierające tradycyjne systemy kosztów

absorpcyjnych oraz systemy pomiaru wydajności danej firmy. Zaliczyć do nich można rachunek kosztów
działań, rachunek kosztów docelowych, inżynierię wartości czy system redukcji kosztów Kaizen Costing.
Niniejszy artykuł ukazuje rolę wybranych narzędzi rachunkowości strategicznej na przykładzie firmy Apple. Są
to rachunek kosztów działań jako narzędzie wspierające systemy kosztów absorpcyjnych oraz zrównoważona
karta wyników jako narzędzie wspierające system pomiaru wydajności firmy Apple.

ABSTRACT

The strategic accounting tools are the supportive instruments for traditional absorption costing systems and
performance measurement system within the company. These tools may include activity-based costing (ABC),
target costing, value engineering as well as Kaizen Costing. This article reveals the role of chosen strategic
accounting tools within the Apple Company. These tools are activity-based costing as the supportive tool for
absorption costing systems and the Balanced Scorecard (BSC) method as the supportive tool for the performance
measurement system within Apple’s Company.

1.THE ROLE OF ACCOUNTING INFORMATION IN STRATEGIC AND

OPERATIONAL DECISIONS
Operational management requires information about performance effectiveness and
quality within the company. According to this, accounting information generates the quantity
of information with low grade. Traditional accounting systems used on this level are mainly based
on the absorption costing system [Management Accounting Research, 1996, s.25-26]. It is the cost
accounting system in which the overheads of an organization are charged to the production by
means of the process of absorption [A Dictionary of Business, 2006, s 35]. Strategic
management provides information through strategic accounting such as long-term financial
and nonfinancial decisions about competitive position, market conditions, consumers’
expectations and technological innovation. More and more important become information
about product’s quality, time of realizing particular processes and costs [Seal, 2001, s. 15].
The traditional absorption costing systems are widely used in financial reporting for
calculating the book value of inventory and cost of goods manufactured. There are two types
of absorption systems: job order systems and process cost systems. These systems are
designed to “absorb” all manufacturing costs into product costs. All costs incurred by the
factory are absorbed by products. The full absorption character of these systems cause some
complaints about them. In particular, it is claimed that absorption cost systems create
incentives to overproduce [Zimmerman, 2009, s.56]. Another limitation of absorption costing
is that it can produce misleading product costs. Supportive for such costing system could be:
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1.Activity-based costing (ABC) - is a costing model that identifies activities in an
organization and assigns the cost of each activity resource to all products and services
according to the actual consumption by each: it assigns more indirect costs (overheads) into
direct costs [Kaplan, Bruns,1987, s 37].
In this way an organization can precisely estimate the cost of its individual products and
services for the purposes of identifying and eliminating those which are unprofitable and
lowering the prices of those which are overpriced. In a business organization, the ABC
methodology assigns an organization's resource costs through activities to the products and
services provided to its customers. It is generally used as a tool for understanding product and
customer cost and profitability. ABC has mostly been used to support strategic decisions such
as pricing, outsourcing and identification and measurement of process improvement
initiatives (Consortium for Advanced Management-International).
2.Target costing - is defined as “product costing method in which a final cost is determined
after market analysis, and the product is designed or redesigned to meet it." 2 A target cost is
the maximum amount of cost that can be incurred on a product and with it the firm can still
earn the required profit margin from that product at a particular selling price [Bayou,
Reinstein,1997, s. 34]. For many products, once the product is designed, there is no more
opportunity to reduce the cost of the product. To redesign the product seems to be the only
way to reduce the cost. Opposite to traditional cost control systems, which do not control
costs until production begins, target costing requires aggressive cost management during
planning, product design, and production. Target costing focuses management’s attention on
cost control during the critical design stage when most costs are controllable
[Zimmerman,2006, s. 68-69].
3.Value analysis, value engineering (VE) - it is “an organized effort directed at analyzing the
function of goods and services for the purposes of achieving basic functions at the lowest
overall cost, consistent with achieving essential characteristics.” Using value engineering
guarantees a powerful proven methodology to: solve problems, cost reduction, improve
quality and performance. It means that VE helps the organization to: increase bottom-line
profits, use resources more effectively, save time, compete more successfully in national
and/or international markets, improve resource efficiency, reduce risk, increase potential from
improved return on investments [Younker, 2003, s. 76].
Value analysis is mostly focused on cost reduction. However, also improvements such as
customer-perceived quality and performance are also paramount in the value equation. VE
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http://www.businessdictionary.com/definition/target-costing.html 10.04.2010
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techniques can be applied to any product, system or service in any kind of business or
economic sector including industry, government, construction and service. VE focuses on
those value characteristics deemed most important by the customer [Younker,2003, s. 81].
4.Kaizen Costing – it is a system of permanent improvement by launching technological
process and new ways of work organization as well. The main aim of such an approach is to
reduce costs and also improve the work efficiency of particular appointment. This conception
of permanent improvement launching is coherent with the target costing goals. It can be
treated as a supportive method of management accounting [Cooper,Kaplan,1999, s. 55].
The Kaizen Costing is based on permanent improving technological processes, organizations,
information flow and any other areas of enterprise’s performance. As a result of such an
action is cost reduction, processes optimization and better efficiency [Imai, Masaaki, 1986,
s.31].
The above methods concentrate not only on setting the final product cost but also on the cost
of particular performance, setting target costs by the price or the cost possible to achieve,
value added client analysis or permanent improving conception.
A traditional accounting system used in companies is also the performance
measurement system. It measures directly or indirectly actions of individuals or groups of
individuals within the organization [Anthony, Govindarajan, 2004, s. 38]. The disadvantage
of this system is that mainly it is based only on financial measurements. The most important
limitations of this system are: poor information about firm’s performance which unable to
outline the crucial aspects that influence enterprise’s competitiveness, making managers think
in short-terms when making decisions, measuring the employees work effects only by
financial results, lack of clear view of company’s development, informing only about the
company’s results without causes [Michalak, 2008, s. 28].
In 1992 Robert Kaplan and Dawid Norton published the results of their research about
the new performance measurement system in Harvard Business Review. Four years later they
published their book “The Balanced Scorecard”.
Balanced Scorecard is a supporting tool for the enterprise management from the aspect of
planning, implementing, monitoring and controlling the new strategy. This method uses
system of financial and nonfinancial measurements of organization’s effectiveness which
enable controlling the future performance [Kaplan, Norton, 1996, s.87].

2. COSTING SYSTEMS IN APPLE COMPANY

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 The absorption costing system within the Apple’s company causes some problems
connected with number of products, the processes and their commonality to the products and
the overheads.
It is claimed that absorption cost systems create incentives to overproduce and that it can
produce misleading product costs [Zimmerman, 2006, 2009, s. 75, s. 38]. The second
problem is visible in Apple’s company as managers argue that the allocation system penalises
their products, leading to their production costs being too high. As absorption costing
“absorb” all manufacturing costs into product costs and all costs incurred by the factory are
absorbed by products, this system does not seem to be appropriate within this company.
Despite the fact that having these costs leads to satisfy the customers’ needs and develop the
distribution and market channels, the traditional system of evidence and costs calculating does
not allow to direct these costs to particular products and clients.
When it comes to products costs and customer service the absorption costing system within
the Apple’s company does not take into consideration the indirect costs which were
considered as overheads. This system plays its role if the considered costs comprise only the
small part of costs in general and when these costs are overheads in fact. However, many
companies come round to that indirect costs which were considered as overheads never been
as overheads and variable costs as well. These costs turned “extra variable” because they rose
faster than production and sales. The absorption costing system does not reflect marketing and
sales costs, distribution, research and development, distribution channels and company’s
department which were acknowledged as overheads. Therefore, using the traditional
absorption costing is useful for raising the performance and processes effectiveness and does
not allow to direct the overheads to particular products and customers. In addition,traditional
absorption costing does not take into consideration the actual number and time of realized
performances in product cost.
The more appropriate costing system than the traditional system for the Apple’s
company would be the activity-based costing (ABC). The activity-based costing was invented
in the middle 80’s as a solution for the problem of lack of information about using resources
and related to them costs. Those costs needed to be involved in particular products, customers
service and distribution channels [Glad, Becker,1997, s.39]. ABC enables the activity-based
management (ABM) development. ABM is a sort of decisions possible to make thanks to
improved information system which allows to achieve better results by the company by using
less resources and as a consequence reduces the costs [Innes, Mitchell, 1998, s. 54].

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ABC system outlines which products for what customers are the most profitable and which
products sold to concrete customers bring loses. The supervisors can change the structure of
performances into the profitable way. They can also use the information provided by ABC to
choose the resources suppliers who offer low costs, not only low prices [Cooper, Kaplan,
1999, s. 69].
What is more, counter to the traditional absorption costing ABC system in Apple’s company
will subordinate the product costs on cost and time of mixing, cooking and packaging the
particular products.
In general activity-based costing system:
- assumes that performances are responsible for costs which are finally “absorbed”
by products
- pays attention to costs behavior and shows precisely performances which are not
adding value to product
- focuses on the production’s variety by using the transactional cost-creating factors
which are not directly based on the production’s volume
- infallibly shows the products costs changeable in long-term
- is elastic enough to relate costs not only to products but also to other objects of
calculation as: processes, market segments, customers and responsible areas
- provides financial and nonfinancial measures of company’s performance
- enables precisely the analysis of overheads causes [Cokings, 1996, s. 73].

3. PERFORMANCE MEASUREMENT SYSTEM WITHIN APPLE’S COMPANY

The performance measurement system within the Apple company is based on the
managers’ division attaining a minimum required profit margin. Using the profit margin as a
way of measuring managerial performance proclaims that the performance of the divisions in
the company is measured only by financial measurements.
Profit margin is a surely easy in use motivation system, it is not laborious as it comes to
its current monitoring. However, profit margin’s value for particular managers depends also
on the price of selling products, on which managers not always have influence.
As the traditional absorption costing “absorb” all manufacturing costs into product costs all
costs incurred by the factory are absorbed by products. That is why production costs become
too high and it makes difficult for Apple’s managers to set competitive selling prices for their
products.

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Focusing only on financial aspects Apple’s managers think only in short-terms while decision
making process. The given information is only about the company’s results without
understanding their causes. In addition the employees’ work effects within the company
measured only by financial results unable creating the clear view of company’s development.
As a result the poor information about firm’s performance unable to outline the crucial
aspects that influence on enterprise’s competitiveness.
Scientists like Robert Kaplan and David Norton even claims that companies should stop using
financial measures as a performance perspective: “Some critics go much further in their
indictment of financial measures. They argue that the terms of competition have changed and
that traditional financial measures do not improve customer satisfaction, quality, cycle time,
and employee motivation. In their view, financial performance is the result of operational
actions and financial success should be the logical consequence of doing the fundamentals
well. In other words companies should stop navigating financial measures. (…)” [Kaplan,
Norton,1992, s.52].
The best supporting decision for performance measurement system in the Apple
company is the Balanced Scorecard (BSC) method. This system evaluates the scores not only
from the financial ratios point of view but from four different perspectives: financial, internal
processes, development and customer. Thanks to the balanced measurements company will
obtain expanding the financial measures with nonfinancial measures and will be able to
assume which measurements are vital in short term and in long term.
According to the above, the Balanced Scorecard forces managers to focus on the
handful of measures that are most critical. BSC is based on a four perspectives- ways of
enterprise’s functioning from its effectiveness point of view:
1.Financial perspective – it directly illustrates the result of accepted strategy.
2.Internal processes perspective – describes the internal mechanism of enterprises
functioning. Apple company must translate the customer-based measures into measures of
what company must do internally to meet its customers’ expectations.
3.Customer perspective – compresses the most important market issues on which the
enterprise is functioning. Customer’s concerns tend to fall into four categories: time, quality,
performance, and cost. Apple’s managers should establish general goals for customer
performance as: get products to market sooner, improve customers’ time to market, become
customers’ supplier of choice through partnerships with them and develop innovative
products tailored to customer needs.

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4.Development perspective – a company’s ability to innovate, improve and learn ties directly
to the company’s value. It can be performed by the ability to launch new products, create
more value customers, and improve operating efficiencies continually [Kaplan, Norton, 1992,
s. 63].
The Apple’s company allocation system by charging the amount of costs to divisional
managers’ products is leading to growing rivalry and tension between them and is affecting
the operations of the company. The Balanced Scorecard system contains simple and logical
ratios. The Apple’s leadership could receive vital for the company’s performance information
thanks to which the problem of “analytical paralyze” could be solved. Moreover, the cost of
the gained information is significantly lower. BSC by not concentrating only on financial
ratios forces managers to analyze the quantitative and qualitative data as well. Without that
sort of information company’s strategic goals can never be achieved [Kaplan, Norton, 1993, s.
83]. Balanced Scorecard helps in detailing the strategy for the whole organization. It can be
used in the whole company by department cards of performance and cards of individual
employees. It allows to synchronize departments and individual employees performances in
order to achieve the strategic goals of enterprise [Kaplan, Norton, 1996, s. 91].
Apart from Balanced Scorecard System there are some other available measurement
approaches/systems that may address the problems caused by the existing system within the
Apple’s company. Those are performance evaluation and reward systems. Performance
measures are very important because rewards are generally based on performance measures
[Zimmerman, 2006, s. 95]. Rewards for individuals within the Apple’s organization should
include wages and bonuses, prestige and greater decision rights, promotions and job security.
As a result individuals and groups in the company would be motivated to act to influence the
performance measures. The improved reward system within Apple’s company would
concentrate managers on new opportunities instead of pursuing to achieve the required
minimum profit margin. Consequently, the rivalry and tension between divisional managers
could decrease so that conflicts can be avoided within the organization and common efforts
can be put to achieve organizational goals.

CONCLUSIONS
The strategic accounting tools play a major role in a company’s decisions making process.
Within the Apple Company significant supportive role play the activity-based costing (ABC)
and the Balanced Scorecard (BSC) method. By the ABC improvements like getting more

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information about using resources, which product sold bring loses, costs reduction, choosing
the resources suppliers who offer low costs, not only low prices, are implemented while the
BSC enables to recognize which measurements are vital in short term and in long term, what
company must do internally to meet its customers’ expectations, the ability to launch new
products, create more value customers, and improve operating efficiencies continually. It also
forces managers to analyze the quantitative and qualitative data and allows to synchronize
departments and individual employees performances in order to achieve the strategic goals of
enterprise.

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