CMA Final Strategic Cost Management Syllabus

Strategic Cost Management syllabus — full chapter and topic list

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

1. 1

   Cost Management Techniques

   3 topics

   • Activity-Based Costing
   • Target Costing
   • Life Cycle Costing
2. 2

   Cost Control and Cost Reduction

   3 topics

   • Cost Control Techniques
   • Cost Reduction Strategies
   • Value Analysis
3. 3

   Transfer Pricing

   3 topics

   • Methods of Transfer Pricing
   • Transfer Pricing Regulations
   • International Transfer Pricing

Strategic Cost Management flashcards for CMA Final

23 of 51 cards from the Strategic Cost Management deck — real questions with worked answers.

1. What is Activity-Based Costing (ABC)?

   A costing method that assigns overheads to products/services based on the activities required to produce them, using cost drivers to trace costs more accurately than traditional volume-based absorption.

2. In ABC, what is a 'cost driver'?

   A factor that causes a change in the cost of an activity (e.g., number of setups, machine hours, purchase orders). It is the basis used to allocate activity cost pools to cost objects.

3. Distinguish between a resource cost driver and an activity cost driver in ABC.

   A resource cost driver measures resources consumed by an activity (used to assign resource costs to cost pools); an activity cost driver measures how much of an activity a cost object consumes (used to assign activity costs to products).

4. Name the four levels of activities in ABC's cost hierarchy.

   Unit-level, Batch-level, Product-level (product-sustaining), and Facility-level (facility-sustaining) activities.

5. Give an example of a batch-level activity in ABC.

   Machine setups, material handling per batch, or purchase ordering — costs incurred each time a batch is produced, independent of the number of units in the batch.

6. What is the formula for an activity cost driver rate in ABC?

   Activity cost driver rate = Total cost of the activity cost pool / Total quantity of the cost driver.

7. State the main steps in implementing ABC.

   1) Identify activities; 2) Assign resource costs to activity cost pools; 3) Identify cost drivers for each activity; 4) Compute the cost driver rate; 5) Assign activity costs to products using driver consumption.

8. What is Activity-Based Management (ABM)?

   The use of ABC information to manage activities and business processes — eliminating non-value-added activities, improving efficiency, and supporting decisions on pricing, product mix and process improvement.

9. In ABC, distinguish value-added from non-value-added activities.

   Value-added activities increase worth of the product to the customer (e.g., machining, assembly); non-value-added activities add cost but no customer value (e.g., inspection, storage, waiting) and should be minimized/eliminated.

10. What key limitation of traditional absorption costing does ABC overcome?

    Traditional costing over/under-costs products by using a single volume-based rate; ABC reduces this distortion by tracing overheads via multiple activity drivers, important where overheads are large and product diversity is high.

11. Define Target Costing.

    A proactive cost management technique where the allowable (target) cost of a product is derived from a competitive market price minus the desired profit margin, and the product is designed to be produced within that cost.

12. State the basic Target Costing formula.

    Target Cost = Target Selling Price (market-driven) − Desired Profit Margin.

13. What is a 'cost gap' in Target Costing and how is it addressed?

    Cost gap = Estimated current cost − Target cost. It is closed through value engineering, value analysis, design changes, supplier negotiation and process improvements before production begins.

14. How does Target Costing differ from traditional cost-plus pricing?

    Cost-plus sets price = cost + markup (cost determines price). Target costing reverses this: the market sets price, the firm subtracts profit to get cost, then designs to that cost (price determines allowable cost).

15. At which stage of a product's life is most cost 'locked in' under Target Costing, and why focus there?

    At the design/development stage — roughly 70-80% of a product's lifetime cost is committed during design, so target costing concentrates effort before production starts.

16. List the main steps of the Target Costing process.

    1) Determine market-driven target selling price; 2) Set required profit margin; 3) Compute target cost (price − profit); 4) Estimate current product cost; 5) Identify cost gap; 6) Use value engineering to close the gap.

17. Define Life Cycle Costing.

    A technique that accumulates and manages all costs of a product over its entire life cycle — from research, design and development through production, marketing, use and final disposal/abandonment.

18. Name the typical stages of a product life cycle in Life Cycle Costing.

    Introduction, Growth, Maturity, and Decline (preceded by the development/design phase and followed by abandonment/disposal).

19. Why is Life Cycle Costing important for decision making?

    It reveals total costs (including pre-production and post-production costs often ignored by conventional costing), enabling better pricing, product profitability assessment and cost minimization over the whole life.

20. What are 'committed' vs 'incurred' costs in life cycle costing?

    Committed costs are locked in by early design decisions even though spent later; incurred costs are actually paid out over time. Most costs are committed early but incurred during production — hence early design focus.

21. What are the three broad categories of life cycle costs?

    Pre-production/upstream costs (R&D, design), production/manufacturing costs, and post-production/downstream costs (marketing, distribution, customer service, disposal).

22. Define Cost Control.

    The process of regulating actual costs to keep them within predetermined targets/standards/budgets, through measurement, comparison of actual with planned, and corrective action; it maintains performance at established standards.

23. List common techniques of Cost Control.

    Standard costing and variance analysis, budgetary control, inventory control (EOQ, ABC analysis), responsibility accounting, ratio analysis, and Just-in-Time (JIT).

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