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ACCA Strategic Professional · Advanced Performance Management · Strategic management accounting

Orchid Pharma's board is concerned that its management accounting information focuses only on short-term profit and cost per unit, so managers underinvest in research and customer relationships. Which action BEST uses strategic management accounting to address this concern?

The best action is to add strategy-linked measures such as customer retention, innovation pipeline and long-run value alongside financial ones. This balances short-term results with the drivers of future value, countering short-termism, whereas cutting research, relying on statutory profit or tightening budgets would reinforce it.

  1. AIntroduce measures linked to strategy, such as customer retention, innovation pipeline and long-run value, alongside financial measuresCorrect
  2. BCut the budget for research to improve this year's reported cost per unit
  3. CSwitch from management reporting to reporting only the statutory profit figure
  4. DTighten annual budgets so that all variances are eliminated

Explanation

Strategic management accounting links measurement to strategy and balances short-term financial results with drivers of long-term value, such as innovation and customer measures. Cutting research worsens the short-termism, statutory profit alone is backward looking, and tighter budgets reinforce short-term cost focus.

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