CMA (Cost & Management Accountancy) Final: Strategic Cost Management, Audit and Performance Syllabus

Final: Strategic Cost Management, Audit and Performance syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Final: Strategic Cost Management, Audit and Performance in CMA (Cost & Management Accountancy), not a summary of it.

1. 1

   Strategic Cost Management

   4 topics

   • Strategic Cost Management Tools
     • Value chain analysis
     • Target costing and life cycle costing
   • Cost Control and Cost Reduction
   • Theory of Constraints and Throughput Accounting
   • Lean Accounting and JIT
2. 2

   Decision Making and Pricing Strategies

   3 topics

   • Transfer Pricing
     • Methods and conflict resolution
   • Pricing Decisions and Strategies
   • Linear Programming and Learning Curve
3. 3

   Cost and Management Audit

   4 topics

   • Cost Audit under Companies Act
     • Cost records and Cost Audit Report Rules
     • Cost auditor: appointment and duties
   • Management Audit and Operational Audit
   • Internal Audit and Internal Control
   • Auditing of Specific Industries and Reporting
4. 4

   Performance Management and Business Strategy

   4 topics

   • Performance Measurement Systems
     • Balanced scorecard
     • Divisional performance: ROI and residual income
   • Strategic Management and Competitive Analysis
     • Porter's five forces and generic strategies
     • SWOT and PESTEL
   • Business Valuation Concepts
   • Corporate Governance and Business Ethics

Final: Strategic Cost Management, Audit and Performance flashcards for CMA (Cost & Management Accountancy)

19 of 52 cards from the Final: Strategic Cost Management, Audit and Performance deck — real questions with worked answers.

1. What is Strategic Cost Management (SCM)?

   SCM is the application of cost management techniques that simultaneously improve the strategic position of a firm and reduce costs. It links cost information to the firm's long-term strategy (cost leadership or differentiation) rather than focusing only on short-term cost cutting.

2. Name the three key strategic analysis frameworks underlying Strategic Cost Management.

   (1) Value chain analysis, (2) Strategic positioning analysis (cost leadership vs. differentiation, per Porter), and (3) Cost driver analysis (structural and executional cost drivers).

3. Distinguish structural cost drivers from executional cost drivers.

   Structural cost drivers arise from a firm's economic structure choices (scale, scope, experience, technology, complexity). Executional cost drivers depend on operational execution ability (workforce involvement, TQM, capacity utilisation, plant layout efficiency, product configuration, linkages with suppliers/customers).

4. Define value chain analysis as used in strategic cost management.

   Value chain analysis identifies and analyses the linked set of value-creating activities (from raw material sourcing through to the end consumer) to find sources of competitive advantage and opportunities for cost reduction and value enhancement across the whole chain, not just within the firm.

5. List Porter's primary activities in the value chain.

   Inbound logistics, Operations, Outbound logistics, Marketing and sales, and Service. These are supported by support activities: firm infrastructure, human resource management, technology development, and procurement.

6. What is target costing and what is its core formula?

   Target costing is a price-led costing technique where the allowable cost is derived from a market-determined selling price less a desired profit margin. $$\text{Target Cost} = \text{Target Selling Price} - \text{Desired Profit Margin}$$

7. What is a 'cost gap' in target costing and how is it closed?

   The cost gap is the excess of the currently estimated (drifting) cost over the target cost: $$\text{Cost Gap} = \text{Estimated Cost} - \text{Target Cost}$$ It is closed using value engineering, design simplification, alternative materials, process improvement, and supplier negotiation.

8. Define life cycle costing.

   Life cycle costing accumulates and analyses all costs of a product over its entire life cycle (R&D, design, manufacturing, marketing, distribution, customer service and disposal), from inception to abandonment, to evaluate true profitability rather than period-by-period costs.

9. What are the typical stages of a product life cycle?

   Introduction, Growth, Maturity, and Decline. Each stage has different cost behaviour, pricing flexibility, and profit characteristics.

10. Differentiate cost control from cost reduction.

    Cost control aims to keep actual costs within predetermined standards/budgets (achieving targets, retrospective and preventive). Cost reduction is the permanent, real reduction in unit cost without impairing quality or suitability; it challenges the standards themselves and has no visible end point.

11. State the central premise of the Theory of Constraints (TOC).

    Every system has at least one constraint (bottleneck) that limits its throughput. To improve overall performance, management must identify and manage this constraint, since the system's output is governed by its weakest link.

12. List the five focusing steps of the Theory of Constraints.

    (1) Identify the system's constraint, (2) Decide how to exploit the constraint, (3) Subordinate everything else to that decision, (4) Elevate the constraint, (5) If the constraint is broken, return to step 1 (do not let inertia become the constraint).

13. Define throughput, and give its formula in throughput accounting.

    Throughput is the rate at which the system generates money through sales. $$\text{Throughput} = \text{Sales Revenue} - \text{Totally Variable Cost (mainly direct materials)}$$

14. State the Throughput Accounting Ratio (TA ratio) formula.

    $$\text{TA Ratio} = \frac{\text{Throughput per bottleneck hour}}{\text{Operating (factory) cost per bottleneck hour}}$$ A product/plant is profitable when the ratio exceeds 1.

15. In throughput accounting, how is return per factory hour (return per bottleneck hour) calculated?

    $$\text{Return per factory hour} = \frac{\text{Throughput per unit}}{\text{Time on the bottleneck resource per unit}}$$ Products are ranked for production priority by this measure.

16. What is Lean Accounting and what does it replace?

    Lean accounting is a costing and reporting system aligned to lean (waste-eliminating) manufacturing. It uses value-stream costing and plain-language reports instead of traditional standard costing and detailed variance analysis, which are seen as encouraging overproduction and inventory build-up.

17. Define Just-in-Time (JIT) and its primary objective.

    JIT is a demand-pull production/inventory system in which materials and goods are produced or procured only as needed, ideally with zero inventory. Its objective is the elimination of all waste (muda), especially inventory holding costs, while maintaining quality and responsiveness.

18. Name the seven wastes (muda) targeted by lean/JIT systems.

    Overproduction, Waiting, Transportation, Over-processing, Inventory, Motion, and Defects. (Often remembered as TIMWOOD.)

19. What is transfer pricing?

    Transfer pricing is the price at which goods or services are transferred between divisions/responsibility centres of the same organisation. It affects divisional profit, performance evaluation, and (for cross-border transfers) taxation.

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