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Strategic Management Accounting - Term Paper Example

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Strategic Management Accounting

It does not really help the managers to assess what is best for the company (Bonaccorsi and Daraio, 2009). For example, the financial management of the company is able to indicate if it is appropriate to take more debt by considering the present liquid status of the company. The decision may not have any link with the short term or long term strategic objective of the company. Thus, financial management is not able to see beyond the limitations of the financial data. Strategic management on the other hand is equipped to see beyond and the cover the limitations of the basic financial management. The conclusion derived from the basic financial management techniques can be further modified if the same decision is taken in the light of the strategic objectives of the company. For example, the financial management indicates that the recourse to further debt financing is going to increase the debt burden f the company (Chrol, 2011). If the company considers going for a strategic alliance with another company then the financial condition of the company can improve. The revenue generation capacity will improve from the synergy gained from such strategic alliance. Strategic financial management considers these kinds of variables and factors to obtain the most optimal decision. Thus, though normal financial management analysis may conclude that the company should not use debt for financing the capital needs, though strategic management may recommend the use debt financing. The research paper discusses some of the uses of strategic management accounting like use of Return on Investment (ROI) and Economic Value Added (EVA), for long term decision purposes and different types of transfer pricing techniques. 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” The managers have a tendency of using both ROI and EVA for performance evaluation for short term purposes. Although when it comes to using the two techniques for long term decision purposes the managers face difficulties in doing the same. The two types of techniques are different from each other in various respects and thus both of them need to be discussed separately to indicate the way they can be used for long term decision purposes. ROI is actually a combination of two different accounting heads, one is the asset turnover and the other one is the return on sales (Clark and Mathur, 2011). Return on the sales is indicative of the fact of (that) how efficient are managers in generating revenue for every dollar and the ability of the managers to control the expenses and the increase in revenue generating capacity. While asset turnover indicates the ability of the company to generate profit for every dollar invested. In between the two accounting heads asset turnover and return on sales, the focus will be on asset turnover. If the managers are able to modify the asset turnover value then ROI can be used for long term decision purposes. In order to control the asset turnover value the managers need to re-evaluate the policies regarding the capitalization and depreciation. Both aspects like investments and income are affected by the choice of the asset life and the type of depreciation method ...Show more

Summary

Strategic Management Accounting Table of Contents Introduction 3 Part A 4 Part B 6 1. Market based transfer pricing 6 2. Full cost transfer pricing 8 3. Cost plus a mark-up transfer prices 9 4. Negotiated transfer prices 10 Conclusion 11 Reference List 13 Introduction Financial management and strategic management have a lot of difference in the way the two are applied (Bajaj, 2001)…
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Strategic Management Accounting essay example
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