Strategic Management Accounting | Flyme Plc

Running head: STRATEGIC MANAGEMENT ACCOUNTING
Strategic management accounting
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STRATEGIC MANAGEMENT ACCOUNTING
Table of Contents
Essay 1:......................................................................................................................................2
Comparing three costing methods helping Flyme Plc to understand and reduce direct cost:....2
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Conclusion and Recommendation:............................................................................................5
Essay 2:......................................................................................................................................5
Comparing two budgeting methods with the current method used at Flyme Plc that will aid a
reduction in overheads...............................................................................................................5
Introduction:...............................................................................................................................5
Discussion:.................................................................................................................................6
Conclusion and Recommendation:............................................................................................8
Essay 3:......................................................................................................................................9
Critically evaluating the use of balance scorecard for improving the company’s performance:
....................................................................................................................................................9
Introduction:...............................................................................................................................9
Discussion:.................................................................................................................................9
Conclusion and Recommendation:..........................................................................................11
References list:.........................................................................................................................13

STRATEGIC MANAGEMENT ACCOUNTING
Essay 1:
Comparing three costing methods helping Flyme Plc to understand and reduce direct
cost:
Introduction:
Flyme Plc. is an airlines company that operates in the aviation industry and Operating
Costing is the correct method that should be followed by a firm operating within a service
sector. However, if the scenario is viewed from above, there are two more costing methods
that might be relevant in the service sector and those are target costing and activity based
costing method that would be discussed in the section below.
Discussion:
Operating Costing can be described as the method of costing applied especially by the
firms operating within the service sector or imparting services directly to the customers for
ascertaining the operating cost. Operating Cost can be illustrated as those expenses which are
incurred due to the normal propagation of the business. For an airlines company, Operating
Costing shows the carrying cost per passenger per kilometer or mile. Labor and fuel are the
two major costs that affect an airlines company the most. Labor costs are expenses that could
be fixed in the short-run but the fuel price cannot be fixed in the short-run. To reduce the loss
arising from fluctuations in the fuel price, the airline companies enter into future contracts so
that they could minimize and someway fix the future price and reduce risk of uneven oil price
fluctuations in the international market. The percentage of cost attributed to labor in the total
operating cost varies roughly between 30% - 35% while fuel costs around 10% - 12% of the
total operating cost. The other operating costs includes maintenance, luggage handling, taxes
paid, travel agent’s commission, advertisement and promotions and many more (Adler,

STRATEGIC MANAGEMENT ACCOUNTING
2018). There are multiple benefits of using the operating costing especially in the aviation
industry, they are as follows:
 It helps in the ascertainment of cost of operating the flights.
 It helps in ascertaining the price that should be charged from the customers for using
the service of the airlines.
 It helps the airlines for preparation and presentation of quotation price of the different
classes of tickets available for the passengers.
 It helps in effective managerial decision making by the top level management due to
availability of relevant data generated through operating costing.
 It helps in maintaining a proper check on the maintenance activities and thereby
helping management in getting a precise data on the maintenance costs.
 It helps the pricing department in getting fair amount of data for fixing accurate prices
that could fetch a considerable profit and at the same time keep help the firm in
attaining a competitive edge in the aviation sector.
 It helps ineffective cost control.
 It helps in the comparative analysis between the owned flights and the flights taken on
operated on lease. These information is very valuable for the top level management in
strategic decision making.
 It helps the management in taking effective decision regarding the payload carriage of
each flight and thereby allocating the empty flights with logistics carriage to balance
the loss.
Target costing method is the method under which the experienced person and experts
is responsible for ascertaining the cost price. That is the price points are determined in
advance and helps the business to achieve consistent profits. The target costing process
involves some step which comprise of conducting research on the costs incurred by the