COST MANAGEMENT Accounting Control HansenMowenGuan Chapter 13 The

COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan • Chapter 13 • The Balanced Scorecard: • Strategic-Based Control 1

Study Objectives 1. Compare and contrast activity-based and strategic-based responsibility accounting systems. 2. Discuss the basic features of the Balanced Scorecard. 3. Explain how the Balanced Scorecard links measures to strategy. 4. Describe how an organization can achieve strategic alignment. 2

Activity-Based versus Strategic. Based Responsibility Accounting • The activity-based system adds a process perspective to the financial perspective of the functional-based responsibility accounting system. • A strategy-based responsibility accounting system translates the strategy of the organization into operational objectives and measures. 3

Activity-Based versus Strategic. Based Responsibility Accounting • The Balanced Scorecard is a strategicbased performance management system that typically identifies objectives and measures for four different perspectives. – The financial perspective – The customer perspective – The process perspective – The learning and growth perspective 4

Activity-Based versus Strategic. Based Responsibility Accounting 5

Activity-Based versus Strategic. Based Responsibility Accounting 6

Activity-Based versus Strategic. Based Responsibility Accounting 7

Activity-Based versus Strategic. Based Responsibility Accounting 8

Basic Concepts of the Balanced Scorecard Strategy: • choosing the market and customer segments the business unit intends to service • identifying the critical internal and business processes that the unit must excel at to deliver the value propositions to customers in the targeted market segments • selecting the individual and organizational capabilities required for the internal, customer, and financial objectives. 9

Basic Concepts of the Balanced Scorecard Process value analysis – is fundamental to activity-based responsibility accounting – focuses on accountability for activities rather than costs – emphasizes the maximization of systemwide performance instead of individual performance. – is concerned with: • Driver analysis • Activity analysis • Performance measurement 10

Basic Concepts of the Balanced Scorecard 11

Basic Concepts of the Balanced Scorecard 12

Basic Concepts of the Balanced Scorecard Only financial measure among core objectives 13

Basic Concepts of the Balanced Scorecard Customer value is the difference between – Realization … what the customer receives and – Sacrifice … what the customer gives up 14

Basic Concepts of the Balanced Scorecard • Internal business process perspective – Describes the internal processes needed to provide value for customers and owners • Process value chain consists of three processes – Innovation process – Operations process – Postsales process 15

Basic Concepts of the Balanced Scorecard • Responsiveness: The time it takes a company to respond to a customer order – Cycle time (manufacturing) is the length of time it takes to produce a unit of output from the time materials are received until the good is delivered to finished goods inventory. – Velocity is the number of units of output that an be produced in a given period of time. 16

Basic Concepts of the Balanced Scorecard Conversion Cost Example A company has the following data for one of its manufacturing cells: Theoretical velocity: 40 units per hour Productive minutes available (per year): 1, 200, 000 Annual conversion costs: $4, 800, 000 Actual velocity: 30 units per hour 17

Basic Concepts of the Balanced Scorecard 18

Basic Concepts of the Balanced Scorecard 19

Basic Concepts of the Balanced Scorecard 20

Linking Measures to Strategy 21

Strategic Management 22

COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan • End Chapter 13 23