Skip to content

ACCA Strategic Professional · Advanced Performance Management · Strategic management accounting

Harrow Retail's management accountant is asked to advise on the strategic value of a customer loyalty scheme costing $2.4m a year. Reported scheme profit is negative in the current year. Customer data show that members stay on average 8 years versus 3 years for non-members, and the accountant wants to evaluate the scheme using the lifetime value of customers. Which is the main reason this approach is more strategic than annual profit analysis?

Lifetime value analysis is more strategic because it captures long-term customer relationships and future cash flows, such as the longer retention of loyalty members, which a single-year profit figure ignores. It still relies on estimates and is not an accounting standard requirement.

  1. AIt considers long-term customer relationships and future cash flows rather than single-period resultsCorrect
  2. BIt removes the need to estimate any future customer behaviour
  3. CIt complies with the requirements of IFRS 15 for loyalty points
  4. DIt allocates the $2.4m cost over the scheme's members' useful lives as depreciation

Explanation

Customer lifetime value looks at the discounted future contribution from customers over the relationship, capturing benefits from longer retention (8 versus 3 years) that a single-year profit misses. It still needs estimates, so the second option is wrong. It is a management decision tool, not an IFRS 15 requirement, and it does not depreciate the cost.

Did you get it right without looking?

One question tells you little. A timed set on Strategic management accounting shows your real accuracy, how long you take and where you lose marks.

Practise Strategic management accountingFree diagnostic mock

More Strategic management accounting questions