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CMA Final · Strategic Cost Management · Introduction to Strategic Cost Management

Sundaram Auto Components Ltd, Coimbatore, is reviewing how its cost management is organised. Which of the following best distinguishes strategic cost management from traditional cost accounting?

Strategic cost management uses cost information to support the firm's competitive strategy, analysing the whole value chain and cost drivers, rather than only lowering unit cost inside the factory or meeting statutory cost record requirements.

  1. AIt focuses only on reducing the cost per unit within the existing production process
  2. BIt uses cost information to support the firm's choice and pursuit of competitive strategy, looking beyond the factory to the value chainCorrect
  3. CIt is restricted to preparing statutory cost records and cost audit reports
  4. DIt replaces budgeting with historical cost records for control purposes

Explanation

Strategic cost management applies cost information to strategic issues such as positioning, value chain and cost drivers, not only internal unit cost control. Option A describes traditional cost reduction, C is a compliance function, and D misstates its role since planning is forward looking.

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