Accounting Q&A · Cost and Management Accounting · Topic 30
Try each question before revealing the answer.
25 short-answer questions. Try each question before revealing its answer.
Worked example
A supplier redesign raises purchase cost by 4,000 but reduces inspection and rework by 7,500. Assuming all amounts change and quality is maintained, the redesign saves 3,500 before other effects.
Core concepts
1. What is strategic cost management?
Using cost information and competitive context to make choices that support long-term strategy.
2. What is value chain analysis?
Examine activities from sourcing to customer support to understand where costs and value arise.
3. What is a primary activity in a value chain?
An activity directly involved in creating, selling, delivering or supporting the offering.
4. What is a support activity?
An activity such as technology development or procurement that supports primary work.
5. What is a structural cost driver?
A long-term choice such as scale, technology or product complexity that shapes costs.
6. What is an executional cost driver?
How well activities are performed, such as quality, scheduling or capacity use.
7. Why distinguish structural from executional drivers?
They call for different actions, such as redesigning capacity or improving an existing process.
8. What is benchmarking?
Compare a defined process or measure with a relevant reference.
9. How can a benchmarking comparison be misleading?
Differences in volumes, service standards, accounting boundaries or product mix can explain the gap.
10. What is total cost of ownership?
The purchase price plus relevant costs of acquiring, operating, supporting and disposing of an item.
Worked applications
11. Supplier A charges 30,000 plus 7,000 support. Supplier B charges 32,000 plus 3,000 support. Which costs less?
B at 35,000 versus A at 37,000, assuming comparable scope and timing.
12. What is target costing?
Start with the expected price and subtract required profit to determine allowable cost.
13. A product can sell for 180 and needs profit of 45. What is its target cost?
135.
14. What is value engineering?
Improve the design to meet required functions at a lower total cost.
15. What does life-cycle costing add?
It captures relevant costs across design, delivery, support and end of life.
16. What is activity-based management?
Use activity cost and driver information to improve processes or resource allocation.
17. How can activity analysis reveal improvement opportunities?
It identifies costly activities, such as avoidable inspections or repeated order handling, for investigation.
18. What is a cost leadership strategy?
Compete through a lower sustainable cost position while meeting the market’s required value.
19. What is a differentiation strategy?
Compete through features, service or other attributes customers value.
Review and exam practice
20. Why test quality when reducing cost?
Savings can be offset by defects, returns or loss of customer demand.
21. What is a make-or-buy comparison based on?
Relevant internal and supplier costs, capacity opportunities and strategic factors.
22. Why assess supplier risk alongside cost?
A low price may accompany delays, disruption or dependence that changes the decision.
23. What is sensitivity analysis used for?
Test whether a recommendation changes when a key assumption moves.
24. Why track implementation after approving a change?
Compare actual savings and service results with the original assumptions.
25. What should a strategic cost proposal include?
State the objective, alternatives, relevant costs, customer effects, risks and review measures.