Calagui, Mary Joy M.

STRATEGIC COST MANAGEMENT

Boaquiña, Honeymay
Escopete, Debbie Jane L.

CHAPTER 3
Review Questions and Exercises

Questions:

1. How does a company determine and implement its mission?

2. How have firms responded to changes in business?

3. Contrast the use of strategic financial measures with the use of strategic nonfinancial measures.
Strategic financial measures uses information in determining success through growth of sales,
earnings and dividend, bond and credit ratings cash flow and increase in stock price. The only thing that
differs strategic nonfinancial measure to strategic financial measure is that they aren’t directly associated
with monetary signs or value. Strategic nonfinancial measure focuses on the use of information about

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customer satisfaction, brand recognition (growth in market share), customer service (e.g., based on
number of complaints), internal processes (high quality product, cycle time, product yield and reduction in

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waste), and learning growth of the firm.

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4. What are some of the factors in the contemporary business environment that are causing changes in

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business firms and other organization, and how are the changes affecting the way those firms and
organizations use cost management information?
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5. What are the implications of strategic analysis for cost management?
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6. The competitive environment for both manufacturing and service companies has become far more
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challenging and demanding in the last 25 years. Discuss the changes in competition and in the nature and
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type of the new requirements for management accounting information.

7. Explain how a customer focus can result in increased profits for a company.
If customers who provide a company with the most profits are attracted, satisfied, and retained,
profits will increase as a result.
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8. In most organizations, customer satisfaction is one of the top priorities. As such, attention to customers is
necessary for success. Briefly describe the four types of demands customers are currently placing on
organizational performance.
Cost – Organizations are under continuous pressure to reduce the cost of the products or services
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they sell to their customers.

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Quality – Customers are expecting higher levels of quality and are less tolerant of low quality than
in the past.

Time – Time has many components: the time taken to develop and bring new products to market;
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the speed at which an organization responds to customer requests; and the reliability with which
promised delivery dates are met. Organizations are under pressure to complete activities faster and to
meet promised delivery dates more reliably than in the past in order to increase customer satisfaction.

Innovation – There is now heightened recognition that a continuing flow of innovative products
or services is a prerequisite for the ongoing success of most organizations.

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 Exercises:

Exercise 1
Required: Analyze the choice Joel faces, based on competitive analysis.
The critical aspect of the analysis of this special order is how it will affect the brand image of Deaine’s
clothing. Deaine appears to compete on the basis of product differentiation, that is, its clothing is perceived to be
of higher quality, attractiveness, etc. De Castro Enterprises Inc. is thus able to sell its clothing in upscale designer
clothing retail stores, probably at a premium price. Sale of the same or similar clothing to department stores could
dilute the brand image, and thus hurt the sales in the upscale retail stores. Customers who are willing to pay the
premium to purchase the clothing in the designer stores may not be willing to do so if the same or similar clothing
is available in department stores. Thus, while the special order might be very profitable in the short run, in the long
run it is potentially very damaging for the company.
The main point of this case, and a pervasive theme of strategic cost management, is that cost analysis
from a strategic perspective can often provide a different answer from the cost analysis which has a short-term
point of view. In practice, many costs systems have a short-term focus, and the strategic emphasis of the strategic
cost management is used to bring the firm’s operations and decision making back to consistency with the firm’s
strategic objectives.

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Exercise 2
Required: Develop a strategic analysis for Jim’s new business plan. What should be his competitive position; that is,

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how should be choose to compete in the existing market for sailboat supplies and equipment? How is he likely to

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use cost management information in building his business?

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Jim’s new business is likely to face great competition, as there are already a number of firms in this

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market. What Jim must do to have a successful business is differentiate his business from the other internet firms.
Since the current competition is successful at low costs and fast delivery, Jim must seek other ways to differentiate
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his business. Because of his experience, it is likely that he can differentiate his business by finding and developing
unique products that are not available from competing sources. If Jim has been successful at racing, his racing
credentials can serve as a critical success factor, in addition to the unique products.
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The cost management information Jim is likely to need will be in planning and decision making, at least
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essentially. He will need carefully developed expense budget, to control his cash expenditures until a stable sales
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pattern emerges. He will also need cost management information for setting prices, evaluating product profitability,
and evaluating potential new products.

Exercise 3
Required: For each client, determine the competitive strategy and the related critical success factors for the
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organization or firm.
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Multiple Choice:
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1. The strategic approach to management requires integrative thinking, i.e., the ability to identify and solve
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problems:___
Answer: a. from a cross-functional view.

2. Firms have responded to the recent changes in business in all but which one of the following ways?
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Answer: c. outsourcing service function

3. The competitive strategy in which the firm succeeds by producing at the lowest cost in the industry is
termed:___
Answer: d. cost leadership

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 4. The competitive strategy in which the firm succeeds in developing and maintaining a unique value for the
product, as perceived by the customers is termed:___
Answer: a. differentiation

5. Skills or competencies that the firm employs especially well are called:___
Answer: b. core competencies

6. Which one of the following describes the type of information that cost management must provide that is
not provided by traditional cost accounting systems?
Answer:

7. Activities that firms in the industry must perform in the process of taking raw material and converting it
into final product are known as:___
Answer: c/d. production activities

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