Cost Accounting: Value Chain Analysis, Cost of Goods Manufactured, Job Costing, and Activity Based Costing

Cost Accounting
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COST ACCOUNTING
PART A
(1) Value Chain Analysis and Supply Chain Management.
In The process of Value Chain Analysis firms identify the primary activities and their secondary
activities that add value to the final product. Firms analyses those activities to increase
differentiation or reduce costs. All the activities that a firm undertakes from procuring inputs to
converting them into output are a part of value chain analysis. It’s a strategic tool that a firm uses
to analyze its internal activities. The main goal is to identify the most valuable activities (i.e.
activities that can provide firm a cost or differentiation advantage over its competitors). If a firm
enjoys a competitive advantage then the firm is more likely to enjoy a better reputation in the
market, more trust of customers by performing those activities in a better manner than the
competitors. Whereas if a firm enjoys a cost advantage then, firm would be able to produce the
goods at lower cost than others and earn higher profits. (Jurevicius, 2018)
The techniques, tools and concepts of value chain applies to all the organizations that produce or
sell a product or provides any service.
As per Porter, for Value Chain analysis, business activities can be classified under two
categories:
A. Primary Activities.
1. Inbound Logistics, it includes warehousing and handling of materials.
2. Operations; conversion of inputs to final products.
3. Outbound Logistics; distribution and processing of order.
4. Sales and Marketing; pricing, channel management and communication.
5. Service; installation and repairs

COST ACCOUNTING
B. Support Activities.
1. Firm Infrastructure; includes, general management, finance, planning, legal and
accounting.
2. Human Resource Management; recruitment of employees, rewards and promotions of
staff.
3. Procurement; purchasing of supplies, raw materials, assets and other consumables.
4. Technology Development; Research and developments and know how.
Primary activities are incidental in the production of goods and providing services whereas,
support activities are indirectly linked to production but are necessary for a smooth functioning.
The entire connected network of people, resources, organization, technologies and activities
involved in the sale and manufacture of a product or service is known as supply chain. It starts
from delivering raw materials to a manufacture from the supplier and ends with delivery of final
product/service to the customer. Supply Chain management includes management of flow of
services and goods and all processes that convert raw materials to final products. Proper SCM
can decrease costs and increase the revenue.
KVK industries is a leading manufacturer of the product that it exports which provides KVK
industries a competitive advantage over others. But due to the lack of proper supply chain
management and value chain analysis the industry is losing a lot of money, which it needs to
investigate to reduce its costs. KVK has only created a proper network with its suppliers’
company but not with the distributors, which indicates that KVK is only focusing on one of its
supply chain management part and ignoring the other end of the chain. Which has led to increase

COST ACCOUNTING
in the costs. KVK needs to implement a complete value chain analysis so that the firm can
analyze its most valuable activity. Firms should follow the following steps :
1. Identify the activities of the firm as Primary and Support.
2. Identify the importance of every activity in total production cost.
3. Cost drivers of all the activities should be identified.
4. Links between all the activities should be identified.
5. Opportunities that reduce cost should be identified.