Strategic Management Accounting Flashcards

Customer profitability analysis is primarily used to:

Answer: Identify which customers contribute most to overall company profitability

Customer profitability analysis allocates revenues and costs to individual customers or segments to reveal which relationships are most (or least) profitable.

Life cycle costing differs from period-based costing because it considers costs:

Answer: From initial design through end-of-life disposal

Life cycle costing captures all costs incurred across a product's entire life — R&D, production, marketing, after-sales service, and disposal.

Kaizen costing is best characterized as:

Answer: Applying continuous incremental improvements to reduce costs during production

Kaizen costing focuses on achieving small, ongoing cost reductions throughout the manufacturing process after a product has been launched.

The arm's-length principle in transfer pricing strategy requires that:

Answer: Transactions between related parties be priced as if conducted between independent parties

The arm's-length principle, endorsed by the OECD, mandates that intercompany prices reflect what unrelated parties would agree to in comparable circumstances.

Economic Value Added (EVA) is calculated as:

Answer: Net Operating Profit After Tax minus (Invested Capital multiplied by WACC)

EVA measures wealth creation by subtracting the cost of all capital employed (equity and debt) from after-tax operating profit.

Life cycle costing is most appropriate for industries where:

Answer: Costs are heavily concentrated in R&D and design phases before production begins

Industries like pharmaceuticals, aerospace, and software have high upfront R&D costs; life cycle costing ensures these are captured in total product cost.

A 'strategic gap' in management accounting refers to:

Answer: The difference between current organizational performance and defined strategic objectives

A strategic gap highlights the performance shortfall that must be closed through strategic initiatives to achieve long-term organizational goals.