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Strategic Management Accounting - Assignment Example

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Strategic Management Accounting

Strategic management helps the management to align the financial strategies of the company with other strategies namely the marketing strategies, operational strategies and human resource strategies (Bonaccorsi and Daraio, 2009). Financial management cannot connect with the external and internal requirements of the business, thus it is used only as a fact finding method. Whereas, strategic management helps to integrate the external impact on the business together with the internal strength and weakness of the organization and create new set of strategies. The paper presents a critical analysis between the use of return on investment and economic value added as means of measuring the performance. Both the techniques are used only for short term periods and not for achieving long term goals (Chrol, 2011). The discussion pertains to how the two different kinds of technique can be used for achieving long goals. Apart from that, the advantages and disadvantages of four different pricing techniques are discussed namely, market based transfer pricing, full cost transfer pricing, cost plus mark-up transfer prices and negotiated transfer prices. Part A Critical evaluation of the statement “Both Return on Investment (ROI) and Economic Value Added (EVA), when used as performance measures in an organisation, encourage managers to be short-term in their focus and decision making” Both ROI and EVA are used for performance evaluation but only for the short term purpose. The managers face problems if these two kinds of techniques are applied for evaluating the performance of the company for the long term purpose. In order to discuss how the two different types of techniques can be used for the long term purpose, both the techniques need to be discussed separately and in depth (Clark and Mathur, 2011). In order to understand how ROI can be modified to use for taking long term decision it is imperative to note that ROI actually consist of two different parts. One is the return on sales and the other one is the asset turnover. Returns on sales indicate the profit per sales dollar which measures the ability of the manager to control expenses and at same time increase the profitability by increasing the revenue. The other one is the asset turnover, which indicates the amount of dollar received for each dollar invested. It measures the capability of the manager to increase the rate of revenue generation with the increase in the rate of investment. If ROI is going to be used for taking long term decisions then the focus should be on the asset turnover value. If control is gained over the value of the asset turnover then the ROI can be used for long term decision purposes (Das, Quelch and Swartz, 2000). In order to gain better control over the asset turnover the depreciation policy and the capitalization policy need to be modified. The determination of the useful life of asset and depreciation method used has an effect on both the income and investment aspects. This in turn affects the ROI. It is seen that if the depreciation charges are kept unusually high then the ROI is reduced to larger extent. In computation of the return on investment, sales factor is the only constant value, whereas both income and investment are variables. By making the right adjustment in the depreciation policy the depreciation ...Show more

Summary

Strategic Management Accounting Introduction Strategic management differs a lot from the financial management accounting. The differences are with respect to the intent or purpose of evaluation. The strategic management helps to gain a company to gain a strategic edge, while financial management is concerned only with maintaining the financial soundness of the company (Bajaj, 2001)…
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