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Strategic Cost

Management

Objectives
1. Explain what strategic cost management is and
how it can be used to help a firm create a
competitive advantage.
2. Identify the basic features of JIT purchasing and
manufacturing.
3. Describe the effect JIT has on cost traceability
and product costing.

Strategic Cost Management: Basic


Concepts
Strategic planning and decision making
requires a broad set of information
Information about customers, suppliers,
different product designs
Information should
Include information about the firms
environment and internal workings
Must be prospective and should provide
insight about future periods and activities

Objective
11-31

Value Chain Analysis

Objective
11-42

Life Cycle Cost Management


Product Life Cycle
the time a product exists - from conception to
abandonment
Revenue producing life: the time a product
generates revenue for a company
Consumable life: the length of time a product
serves the needs of a customer

Objective 3

11-5

Just-in-Time (JIT) Manufacturing and


Purchasing
JIT manufacturing is a demand-pull system
Object is to eliminate waste by producing a
product only when it is needed and only in the
quantities demanded by the customers
Parts and materials arrive just in time to be used
in production
JIT purchasing requires suppliers to deliver parts
and materials just in time to be used in
production.
Objective 4

11-6

Just-in-Time (JIT) Manufacturing and


Purchasing

COST REDUCTION STRATEGIES:


Cost leadership is a concept
developed by Michael Porter, used
in business strategy. It describes a
way to establish the competitive
advantage. Cost leadership, in
basic words, means the lowest cost
of operation in the industry.
Objective 5

11-7

Just-in-Time (JIT) Manufacturing and


Purchasing

COST REDUCTION STRATEGIES:


Differentiation strategy calls for
creating a product or service with
sufficiently distinctive attributes
that it sets your business apart
from the competition
Objective 5

11-8

Just-in-Time (JIT) Manufacturing and


Purchasing

(continued)

Objective 4

11-9

Just-in-Time (JIT) Manufacturing and


Purchasing

Objective 4

11-10

Just-in-Time (JIT) Manufacturing and


Purchasing

Objective 4

11-11

JIT and Its Effect on the Cost


Management System

Objective
11-125

Just-in-Time (JIT) Manufacturing and


Purchasing

Accounting for the cost accounting cycle is simplified


using backflush costing.
Backflush costing uses trigger points to determine when
manufacturing costs are assigned to key inventory and
temporary accounts
Trigger points are simply events that prompt the
accounting recognition of certain manufacturing costs
The purchase of raw materials and the completion
of goods
The purchase of raw materials and the sale of
goods
The completion of goods
The sale of goods
Objective 5

11-13

Just-in-Time (JIT) Inventory


Management

JIT practices are identical to lean practices


Elimination of wastes
Reducing non-value added activities
Control of inventory
Reduces setup and carrying inventory costs
Avoidance of shutdown (total preventive
maintenance and total quality control)
Discounts for holding inventories vs JIT
purchasing
https://www.youtube.com/watch?v=7tchKZiI
wIU
Objective 5

11-14

Just-in-Time (JIT) Manufacturing and


Purchasing

Group work:
Discuss how JIT can benefit the ff.:
1)The firm
2)Suppliers
3)Customers
4)Workers
Objective 5

11-15

End