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Management Accounting Performance Evaluation. Examples of different exam answers.

Here are some example answers for this exam question. How would you grade them? What comments could you give to these students? How would you improve these answers if you had this question in the exam? QUESTIO !I"E

Strategic management accounting includes tec#ni$ues t#at are different from t#e traditional view. %riticall& evaluate t#e use of target costing and lifec&cle costing in a mo'ile p#one manufacturer. () Mar*s

Example answer + Firstly the target costing is where the selling price of a product is set by the market and if the company wants to sell the product then they have to price the product as per the market. The lifecycle costing is the profiling of cost over a products life including the preproduction stage. Tracks and accumulates the actual costs and revenue attributable from inception to abandonment. nables a products true profitability to be determined at the end of it!s economic life. Traditional management accounting procedures have focussed primarily on the manufacturing stage. "ost management can be most exercised during the planning and design stage. #n the mobile phone manufacturer set the prices according from the market. $lso another one technique is the value chain. #t is the linked set of value creating activities all the way from basic raw material sources from component suppliers through to ultimate end use product or services delivered to the customer. #n the total quality management are used to describe a situation where all business functions are involved in a process of continuous quality improvement has been adopted by many companies. Finally in business process re%engineering examining business processes and making substantial changes to how the organisation on operates by focussing on improved quality and customer satisfaction & cost reduction and simplification. 'rade( ? "omments(

Management Accounting Performance Evaluation. Examples of different exam answers.

Example answer ( )trategic management accounting includes techniques such as balanced scorecard& business process re%engineering& activity based management& life cycle costing& target costing and customer profitability analysis. Target "osting Target "osting entails the management deciding upon a reasonable price that the customers are willing to pay& deducting the desired profit& leaving you with the total costs available in creating the product. Whereas kai*en costing looks at +ust the manufacturing stage& evaluating the processes with employee empowerment& target costing analyses the product producing innovative ideas and presenting finished products using tear down analysis or value analysis.

Target costing allows managers to decide upon which costs add value to the product& eliminating all unnecessary costs. ,eassurance is provided in knowing that the finished product will receive demand at an educated price. -sing target costing throughout a mobile phone manufacturer would prove useful as expectations as to what price they can place on a phone is provided. .rofit desired can be made on previous products or maybe an innovative model will create high expectations. The costs can then be prioritised& deciding upon the differentiation of materials& whether or not the mobile will come with other components& or the improved technology installed. The services in which the phone could entail including
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Management Accounting Performance Evaluation. Examples of different exam answers.

applications could be made limited charging small prices rather than downloading& making up an necessary costs which were teared down an example of this being blackberry. /iscretionary costs could be controlled therefore if costs allocated are being used up advertisement could be reduced so long as costs are kept to the budgeted amount. 0ife "ycle "osting 0ifecycle costing is another useful technique used in strategic management accounting. 123 of costs are incurred before the product even reaches the market therefore the analysis at the development stage is vital especially within a mobile phone manufacturer as competition is high and assurance of a profitable product is necessary before paying out committed costs. The life cycle costing diagram is shown by the following graph4

Within a phone manufacturer it is important for the managers to understand where the costs are going and to control these costs which are committed before any profit is made. The price of the phone on pay as you go should be familiar as well as negotiated contract prices whereby ensuring all committed costs are paid throughout the introduction and growth stage before reaching maturity.

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Management Accounting Performance Evaluation. Examples of different exam answers.

0ife cycle costing can prove difficult in a competitive market such as mobile phones& committing costs to a model which in many ways is similar to others& therefore if life cycle costing is used expert decisions must be made throughout the development stage. #nnovative ideas must be drawn and customer desires must be found otherwise costs will be committed to an unoriginal product and demand will remain adequate if not low. The elasticity of a mobile phone industry is not high as there is so much option and agents within the company cannot be expected to obey rational assumptions of neoclassical preference theory 56andler 78889. Therefore life cycle costing might not be the optimal method as the mobile phone industry is so unpredictable and various stages may not apply significantly with the fast moving technology life style. :y combining both Target "osting and 0ife "ycle costing management are able to decide upon reasonable pricing and profit& know how much costs are available before commitment and based on customer desires will receive a better idea on the expected growth and demand available revenue in comparison. :oth methods will help control costs and identify ob+ectives in order to prevent any unexpected occurrences and ensure management of budgeted and allocated costs to produce a produce of both quality & prioritising the value added factors and usefulness& an innovative product worth buying ; up to date and modern. 'rade( ? "omments(

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Management Accounting Performance Evaluation. Examples of different exam answers.

Example answer 6obile phones are ever changing. Within the past 72 years mobiles have gone from a device which made calls and messages to those smart phones with access to the internet& social networks& email& gaming and much more. .hones have decreased in si*e due to the processors becoming smaller. These factors are important where lifecycle costing occurs. The life cycle graph is below.

The lifecycle for a mobile phone is very short with the competition constantly changing and technology becoming outdated very quickly. The research and development stage is one where the most costs are incurred. #ndustry leaders have this process very easily as they had had many years experience so only minor technological advances are made. This is particularly visible with the apple market for iphones as the format of the phones from the original to the iphone<!s being similar but having a faster processor& more memory and a better camera being present in the later models. The growth of the mobile phone will depend on the reviews it has received. #f it has received bad press then the demand will be significantly affected. This occurred within the blackberry market late =277 when the ,#6 servers were down and the functionality of the phones greatly affected. This lead
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Management Accounting Performance Evaluation. Examples of different exam answers.

to a rapid decline in the sales of blackberrys& quicker than the companies have anticipated. The maturity stage is where there is a stable market base for the products and where the phone is the leading competitor so their sales remain constant. /ecline is prominent when new phones are released by the same company& however it is usually steady as the price for the older models cheapen attracting other customers. The cost for a mobile phone has to be competitive. Too high and the price is discriminating against those with less incomes. The target cost for the mobile phones initially skims the market so the customers that want the latest model will buy it whatever the price. This is a chance for the company to make as much profit as possible to reinvest in ,>/ for later models. The price will come down slightly as the growth of the product continues opening up to new customers who now can afford the product. The target cost will now be lower as the ,>/ costs are now recovered. Target costs for a mobile will be the price that the manufacturer wishes to receive for the product. The target profit is then deducted to give a target cost. #f the target cost is greater than the actual costs then this cost gap will have to be closed. )ome phone companies close this gap by outsourcing the manufacturing to countries with lower labour rates. #t was reported that $pple outsourced their manufacture to :ra*il where children were employed. The ethical consequences lead to a decline in sales and )amsung taking over as the market leader. This is also another consideration for the setting of the target cost. 'rade(? "omments(

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Management Accounting Performance Evaluation. Examples of different exam answers.

Example answer . Target costing is where the company sets up a price to what the customers want. Where the price is set at the initial stage and can be difficult to change once they have passed the ,>/ and production level. .rice penetration ; seeing what price the market will pay& .rice skimming where they start high and then reduce if not selling. conomics ; demand and supply. 0ifecycle "osting 50""9 This costs is from the start of a products life to the end of products life. )ix stages /eline 6ature 'rowth #ncline #ntroduction /evelopment > ,esearch $ll costs are included. /evelopment > ,esearch )tage 5#mplementation9 This is where mobile phone manufacturer perhaps do market research to discover what customers actually want. How can the outperform their rivals& finding new ideas being innovative. #ntroduction )tage ; With 0"" and target costing you can introduce a price for a limited time. What has to be remember is that all costs must be accounted for. $s you cannot sell a product at a loss. #f you have incorrectly priced it it may produce a negative figure at the end. With 0"" you can incorporate a cost that would allow for the introduction stage to go ahead. :ut with 0"" you can ad+ust the costs as much as you like. With target costing you work out all costs for example if your costs come to ?73 you can add a target profit of <83 @ 7223. The next stage is incline where the phone is out in the market and people want it but you have keep updating as your competitors are doing the same. Ar perhaps you have a niche market where you are targeting a certain individual. $gain costs need reviewing. $t the initial stage this is not viable as costs have been implemented such as marketing& design& planning and many other factors.
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Management Accounting Performance Evaluation. Examples of different exam answers.

-sing 0"" in the growth area allows you to compare costs and see if the product is still viable. Whereas target costing at the growth state your company have set the price. ,ather than reducing the price you could add extra benefits like applications 5apps9. The mature stage is where it has reached it!s best and new phones are now out. With target costing you can ad+ust accordingly whereas with 0"" this is not possible as it includes everything. An the decline scale target costing may sell these phones at a loss or find an alternative. 'rade( ? "omments( .

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