Professional Documents
Culture Documents
1.4 (Examine the definition of management accounting provided in this chapter, and
explain what is meant by customer value and shareholder value)
Management accounting is defined as 'processes and techniques that are focused on the
effective and efficient use of organisational resources to support managers in their task
of enhancing both customer value and shareholder value'. Value creation is a central
focus for contemporary managers. Customer value refers to the value that a customer
places on particular features of a good or service (and which is what leads to them
purchase the product). Shareholder value is the value that shareholders, or owners,
place on a businessusually expressed in the form of increased profitability, increased
share prices or increased dividends.
1.7 (The Real life scenario on page 5 highlights the turbulent competitive environment
faced by many airlines. Explain how such events might impact the type of
information provided by management accountants in those organizations.)
The 'Real life' report of changes in the airline industry on page 6 illustrates the
increasing competition in the industry and the pressure to reduce fares. This pressure
makes the need to have a clear idea of the business's costs imperative. The article shows
a move from having few airlines servicing a particular route to having several airlines
servicing it. When there were few airlines flying from Sydney to Los Angeles they were
able to charge a premiumessentially it was a sellers' market where the seller could
have great influence over the price. With more providers on this route we move toward
a buyers' market where the buyer has great influence over price due to the ability to turn
to another airline with a lower fare. The balance between supply and demand has
changed on this route. The providers now need to keep a close eye on methods of cost
containment, their actual costs and what causes them and how long they can sustain low
fares. Without adequate information it is not unusual for a firm to struggle because it
charges prices below the product cost. This cannot be sustained for long.
The impact of cost cutting exercises needs to be analysed by the management
accountant. For example, most costs in an airline do not change with the number of
passengers. The cost of the aircraft, the fuel for a flight and the number of staff involved
in the flight are static. Once airlines were inclined to provide food for all seats but now
a last-minute passenger in business class or first class can be told that refreshments are
not guaranteed. You may also have seen a report in 2010 of how much an airline saved
by putting one olive fewer in a meal in first class!
The management accountant can also help by analysing the likely result if various
marketing approaches are adopted. Hence, ways to increase business class sales requires
analysis of the cost of providing more business class seats (and fewer economy seats)
and the fare that will provide the required profits. Other changes to remain competitive
may include better service in business and first class (for example, flatbeds and
complimentary pyjamas) and cost saving in economy (for example, not providing a
blow-up neck pillow on long haul flights and removing moisturiser from the toilet bags
provided on these flights). We have also seen an introduction of 'premium economy',
which provides more room than economy but less comfortable seats than business class.
The economic feasibility of taking that step would have been analysed by management
accountants with advice from marketing managers on the likely demand in all classes if
it were introduced.
1.14
would be of great value as a member of your SLT. Strategy underpins all that the
management accountant does. Management accountants are at the forefront of monitoring the
organisation's strategic advances and strategy development should be integral to my role.
I can bring to the SLT an understanding of financial and non-financial aspects of operations; a
breadth of knowledge of operations, as required to provide assistance across all departments;
and a depth of knowledge of operations as required to lead my team in our normal reporting
and supporting roles. Consequently I can contribute to the latest approaches that enhance
success in the modern competitive environment in the context of our particular operating and
strategic needs.
The control system that can be put in place may include monthly targets that should
derive from the yearly budget and longer-term plans, and a system that monitors areas
of key strategic interest. These targets will be used by employees and managers to
compare against actual performance. The targets may be financial, such as cost targets
and sales revenue. However, it will also be important to set non-financial targets, such
as those relating to quality and delivery performance. In selecting these targets the
company needs to decide which areas are of the most importance in managing the
company. Customer preferences are obviously crucial to this business. The company
needs to put systems in place to monitor any changes in customer preferences for
particular products. The company must keep track of what competing bakeries are
offering and try to anticipate changes in demand for its products by carefully
monitoring changes in sales mix.