Strategic Management Accounting Essay

Introduction This report has been written from the perspective of Strategic Management Accounting principles; discussing about a Multinational Corporation operating in about 20 countries over the world, with a diversified product and service range. As a Finance Director of the Multinational Corporation, the author has been assigned to find out ways to maximize profit for the organisation as a whole.

The first section of the report offers an overview of the various ways to measure the performance of individual managers. The discussion is based on the advantages and drawbacks of cost, profit and investment centre managers.

The second part emphasizes on the three costing approaches; Marginal, Absorption and Activity based costing for decision

Thus Strategic Management Accounting involves dealing with information produced by the management accountants of various Multinational Corporations; which assist them in the decision making process

2. The Multinational Corporation:

This report focuses on a particular Multinational Corporation and their decision making procedures from the view point of Strategic Management Accounting.

In today’s dynamic business world, it is indeed difficult to control organisations centrally. Considering the corporation operating in 20 countries, it is neither possible for central management to keep track of all the relevant information in particular countries/regions, nor to determine detailed plan for each of the portfolios. At this point the central management needs to decentralize the organisation by creating individual responsibility centres.

3. Responsibility

 Standard Cost centres are production units where the inputs (material. labour, machine hours) are specified and outputs can be measured in financial terms. The difference between the actual cost and standard cost is known as variance. (Carter, et al, 1997)

Example: Production units in factories of the MNC are standard cost centres.

 Discretionary expense centres are cost centres where output cannot measure in financial terms. (Drury, 2005)

Example: Includes departments such as HR, R&D, Marketing – advertising, etc.

A cost centre indirectly adds to the revenue of the business, for example money spent on R&D leads to innovative products, increasing the sales and therefore profit of the business.

Performance Evaluation: The performance of a cost centre manager is evaluated by a complex system of cost variances which compare actual to budgeted performance. (Please refer to Appendix 1)

3.2. Revenue Centres:

A Revenue centre is a responsibility centre where the manager is held responsible for selling the finished goods produced by manufacturing departments or services offered by discretionary expense