CH 11 ACC 350 Study Guide

PRIVATE STRATEGIC COST MANAGEMENT Activity-based costing (ABC) was introduced in Chapter 4. ABC can significantly improve the accuracy of product costing. Yet, the value of traditional product cost definition is limited and may not be very useful in certain decision contexts. Strategic planning and decision making require a much broader set of cost information than that provided by product costs. Chapter 11 focuses on a value-chain framework with cost data to support a value-chain analysis. In addition, life cycle cost management and JIT are introduced. I. STRATEGIC COST MANAGEMENT BASIC CONCEPTS The most important strategic elements for a firm are its long-term growth and survival. Strategic decision making involves choosing among alternative strategies with the goal of selecting a strategy, or strategies, that provides a company with a reasonable assurance of long-term growth and survival. The key to achieving long-term growth and survival is to gain a competitive advantage. Competitive advantage is the process of creating better customer value for the same or lower cost than that of competitors or creating equivalent value for lower cost than that of competitors. Customer value is the difference between what a customer receives (customer realization) and what the customer gives up (customer sacrifice). The total product is the complete range of tangible and intangible benefits that a customer receives from a purchased product. A strategy can be defined as choosing the market and customer segments the business unit intends to serve, identifying the critical internal 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. Three general strategies for obtaining a competitive advantage Cost leadership Product differentiation Focusing A company is pursuing a cost