ORDER INSTRUCTIONS: Real World Application: Cost Management and Cost Systems 730
This assignment provides an opportunity to utilize knowledge of cost management tools and cost systems by applying a specific cost technique / concept to a selected organization. You will combine knowledge obtained from the textbook, peer-reviewed journal articles, and the Discussion: Cost Management and Cost Systems (see below) in applying the selected technique / concept to the organization and showing how it improves / impacts the organizations strategic allocation of financial resources.
Select 1 of the 2 techniques/concepts discussed in the Discussion: Cost Management and Cost Systems thread (see below) and develop a real-world application paper. Select a company (Philip Morris International or another if you feel more comfortable but it must be a well known American company). Show how the selected technique/concept would be applied to that particular business in its strategic allocation of financial resources. The paper must be in 7th Edition APA format and must include references from at least 7 peer-reviewed journal articles. The paper must be a minimum of 5 pages of work.
Cost Management and Cost Systems
The cost management systems enable the supply of cost information, useful in implementing the business strategic intent. Effective cost management strategies offer the company a competitive advantage. The cost management tools and systems used include the balanced scorecard, Activity Based Costing, the Value Chain, Business Analytics, Total Quality Management, and Business process improvement. The paper presents a discussion of the use of activity-based costing and value chain as tools and systems for cost management and their application in the strategic allocation of resources.
Activity-Based Costing (ABC)
ABC is a costing system that allocates resource costs to the respective cost drivers such as product line or customer, following the activity performed by the cost driver (Blocher et al., 2019). The system considers the existing relationship between the resource cost, activities, cost drivers, and the object costs to allocate costs to the activities and subsequently to the cost objects. When producing a product or service, the ABC system emphasizes assigning costs to the individual activities undertaken to produce the product, such as product design activities, materials handling, selling and distribution, and post-sale customer service costs (Horgren et al., 2012). Identification of the true costs of producing a product or service facilitates effective strategic allocation of financial resources in consideration of the resources consumed by each activity or cost pool (Kumar & Mahto, 2013).
Keller & Alsdorf (2012) recognized the need for competitive advantage in areas where there is competition. They assert that in a competitive environment, where participants need to win at all costs, there is a need to manage and lead by God’s plan. During the time where pastors cared much about the poor but failed to consider how the system, culture, and structure of the gospel industry contributed to the cultural fractures. Adoption of Keller and Alsdorf’s hypothesis justifies the need to understand the activities and systems of the business, based on which effective resource allocation may be made to aid the organization’s competitiveness, else, possible failure due to the competition.
Value Chain Technique
The value chain is a technique adopted by organizations in the identification of the required steps to provide competitive products and services to the customers (Blocher et al., 2019). Value Chain analysis exposes the strategic misalignments and misallocation of resources, thereby providing the management opportunity to improve and create value and economic sustainability (Fearne et al., 2012). The technique provides information for strategic financial resource allocation by identifying the steps and activities which are not competitive, where costs may be reduced. The more competitive activities may be allocated more resources to maximize the organizations’ overall competitive position (Hansen & Mowen, 2006). Keller & Alsdorf (2012) linked value to the Biblical gospel, which advocates for the quality value of service. They relate value to James’ perception, whose value derived from faith for years, was to make beautiful things of enduring value. Hartley (2004) added that value was biblical exegesis and the commentary of the sacred texts. Business leaders who have faith in the gospel should advocate for adding value to their products and services to stand out among their competitors.
Activity-based Costing and Value Chain Analysis are among the contemporary cost management techniques adopted by organizations today. The systems provide management with cost information, based on which strategic financial resource allocation is done. The resources are allocated in proportion to the costs consumed by each activity; hence effective allocation contributes to the organization’s strategic competitive position.
Blocher, E., Stout, D., Juras, P., & Smith, S. (2019). Cost Management: A Strategic Emphasis (8th ed.). Boston: MA: Richard D. Irwin Inc.
Fearne, A., Martinez, M. G., & Dent, B. (2012). Dimension of sustainable value chains: implications for value chain analysis. Supply Chain Management: An International Journal, 17(6), 575-581.
Hansen, D. R., & Mowen, M. M. (2006). Cost Management: Accounting and Control (5th ed.). Thomson South-Western.
Hartley, J. (2004). The value chain of meaning and the new economy. International Journal of Cultural Studies, 7(1), 129-141.
Horngren, C. T., Datar, S. M., & Rajan, M. V. (2012). Cost Accounting: A Management Emphasis (14th ed.). Prentice Hall.
Keller, T., & Alsdorf, K. L. (2012). Every Good Endeavor: Connecting Your Work to God’s Work . New York, NY: E.P. Dutton.
Kumar, N., & Mahto, D. G. (2013). Current trends of application of activity based costing (ABC): A review. Global Journal of Management and Business Research Accounting and Auditing, 13(3).
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