Strategic Management Accounting and Cost Control Methods

Cost Variabilization and Flexibility

Cost variabilization is the process of transforming fixed costs into variable costs in order to increase cost flexibility and reduce risk related to capacity utilization. It allows costs to better follow the level of activity. Examples: Outsourcing, use of agency workers, and contracting services instead of owning resources.

Rolling Budgets for Business Agility

A rolling budget is a continuously updated budget that always covers a fixed future period. When a period ends, a new period is added, and the budget is revised based on current information. This improves flexibility and responsiveness to changes in the business environment.

Operational Performance Measures

These are non-financial measures that are reported frequently (daily, weekly, or continuously). They are linked to the responsibility of employees and teams and show how to improve performance.

Zero-Based Budgeting (ZBB)

Zero-based budgeting is a method where all costs are justified from zero for each budgeting period. Each activity is evaluated based on its necessity and efficiency, and resources are allocated according to priorities. No costs are automatically carried forward from previous periods.

Activity-Based Costing (ABC) Steps

The process involves:

• Identification of major activities.
• Assigning costs to activity cost centers.
• Selecting appropriate cost drivers and calculating activity rates.
• Assigning activity costs to cost objects (products or services).

Example: Delivery activity costs are assigned based on the number of deliveries. Products requiring more deliveries receive higher delivery costs.

The Benchmarking Process

Benchmarking involves the following steps:

• Selection of costs.
• Identification of benchmarking partners.
• Collecting and comparing data.
• Analysis of differences.
• Implementation of improvements.

Contribution Margin Formulas

• Unit contribution margin: CM = Price – Variable costs per unit
• Total contribution margin: CM = Total revenue – Total variable costs

Functional Organizational Structure

Advantages:

• High specialization and efficiency.
• Clear authority and responsibility.
• Definite hierarchical relations.

Disadvantages:

• Poor communication between departments.
• Low flexibility.
• Slow reaction to changes in the business environment.

Value Analysis and Value Engineering

Value analysis and value engineering are systematic methods used to improve the value of goods or services by examining their functions.

Total Cost of Ownership (TCO)

The TCO method is used to evaluate all costs related to the acquisition, use, maintenance, and disposal of a product or service over its entire life cycle. It supports better purchasing and investment decisions.