lOMoARcPSD|6536636
CPA Australia - SMA - M6 Summary
Strategic Management Accounting (Macquarie University)
,
, lOMoARcPSD|6536636
Module 6 TOOLS FOR CREATING AND
MANAGING VALUE
Part A: The value chain
Organisations create value by combining resources
to create desirable outcomes for stakeholders who
have diff interests:
• Employees / Wages, salaries and bonuses
• Trade unions / Workers rights, fair and
equitable employment practices
• Local community / Impact on quality of life
(eg, air quality)
• Advocacy groups / Safeguarding industry
value chain (eg, no child labour).
Michael Porter: organisational value chain -
customer are key stakeholder (because they are
source of value).
Example 6.1: value is created through primary and
support activities:
• Primary activities: required to create
product/services.
• Support activities: facilitate primary activities.
Upstream (with supplier) and downstream
(distribution channels and customer) in industry
value chain are most concern to an organisation.
1
, lOMoARcPSD|6536636
Part B: Strategic product costing
Product costing
The traditional approach: volume-based driver to
allocate indirect manufacturing costs and other
overheads.
Activity-based costing
ABC emerged from the work of Cooper and
Kaplan (1991). ABC draws on a hierarchy of costs:
• unit level: easily traced to an individual
product, like one ice cream9s material and
labor cost
• batch level: not as directly traced to individual
products, what drives these costs needs to be
understood
• product sustaining, costs are further removed
from an individual product type, like new
flavor ice cream design
• facility sustaining (or organisation sustaining),
like expensive factory location, fancy freezers.
Traditional method does not accurately capture
and allocate this cost to make ice cream. It
allocates a semi-related overhead that increases
the cost of making ice cream to the point that
competitors appear cheaper, and the
2
CPA Australia - SMA - M6 Summary
Strategic Management Accounting (Macquarie University)
,
, lOMoARcPSD|6536636
Module 6 TOOLS FOR CREATING AND
MANAGING VALUE
Part A: The value chain
Organisations create value by combining resources
to create desirable outcomes for stakeholders who
have diff interests:
• Employees / Wages, salaries and bonuses
• Trade unions / Workers rights, fair and
equitable employment practices
• Local community / Impact on quality of life
(eg, air quality)
• Advocacy groups / Safeguarding industry
value chain (eg, no child labour).
Michael Porter: organisational value chain -
customer are key stakeholder (because they are
source of value).
Example 6.1: value is created through primary and
support activities:
• Primary activities: required to create
product/services.
• Support activities: facilitate primary activities.
Upstream (with supplier) and downstream
(distribution channels and customer) in industry
value chain are most concern to an organisation.
1
, lOMoARcPSD|6536636
Part B: Strategic product costing
Product costing
The traditional approach: volume-based driver to
allocate indirect manufacturing costs and other
overheads.
Activity-based costing
ABC emerged from the work of Cooper and
Kaplan (1991). ABC draws on a hierarchy of costs:
• unit level: easily traced to an individual
product, like one ice cream9s material and
labor cost
• batch level: not as directly traced to individual
products, what drives these costs needs to be
understood
• product sustaining, costs are further removed
from an individual product type, like new
flavor ice cream design
• facility sustaining (or organisation sustaining),
like expensive factory location, fancy freezers.
Traditional method does not accurately capture
and allocate this cost to make ice cream. It
allocates a semi-related overhead that increases
the cost of making ice cream to the point that
competitors appear cheaper, and the
2
