Cost Management ACCOUNTING AND CONTROL

1. Cost ManagementACCOUNTING AND CONTROL HANSEN & MOWEN

2. 13 CHAPTER The Balanced Scorecard: Strategic-Based Control

3. 1 Activity-Based versus Strategic-Based Responsibility Accounting OBJECTIVE 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.

4. 1 Activity-Based versus Strategic-Based Responsibility Accounting OBJECTIVE The Balanced Scorecard is a strategic-based 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

5. 1 Activity-Based versus Strategic-Based Responsibility Accounting OBJECTIVE • Responsibility Assignments Compared

6. 1 Activity-Based versus Strategic-Based Responsibility Accounting OBJECTIVE • Performance Measures Compared

7. 1 Activity-Based versus Strategic-Based Responsibility Accounting OBJECTIVE • Performance Evaluation Compared: ABC versus Strategic-Based

8. 1 Activity-Based versus Strategic-Based Responsibility Accounting OBJECTIVE • Rewards Compared

9. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE Strategy is 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, and selecting the individual and organizational capabilities required for the internal, customer, and financial objectives.

10. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE Process value analysis is fundamental to activity-based responsibility accounting, focuses on accountability for activities rather than costs, and emphasizes the maximization of systemwide performance instead of individual performance. Process value analysis is concerned with: • (1) Driver analysis • (2) Activity analysis • (3) Performance measurement

11. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE • Strategy Translation Process

12. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE • Summary of Objectives and Measures: Financial Perspective

13. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE Only financial measure among core objectives • Summary of Objectives and Measures: Customer Perspective

14. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE Customer value is the difference between realization and sacrifice, where realization is what the customer receives and sacrifice is what is given up.

15. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE The time it takes a company to respond to a customer order is referred to as responsiveness. Cycle timeand velocity are two operation measures of responsiveness. 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. Velocityis the number of units of output that an be produced in a given period of time.

16. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE 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. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE • Conversion Cost Computations

18. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE • Summary of Objectives and Measures: Process Perspective

19. 2 Basic Concepts of the Balanced Scorecard OBJECTIVE • Summary of Objectives and Measures: Learning and Growth Perspective

20. Linking Measures to Strategy 3 OBJECTIVE • Strategy Map: Testable Strategy Illustrated

21. Strategic Alignment 4 OBJECTIVE • ABM Implementation Model

22. End of Chapter 13