Strategic Management Accounting Analysis for Flyme Plc (AF6010)

This report provides a comprehensive analysis of strategic management accounting for Flyme Plc, a UK airline company. It begins by comparing three costing methods: marginal costing, absorption costing, and standard costing, to aid Flyme Plc in understanding and reducing direct costs. The report then critically compares two budgeting methods, activity-based budgeting and zero-based budgeting, with the current method used by Flyme Plc, aiming to reduce overheads. Finally, the report evaluates the potential uses of the Balanced Scorecard for improving the company's performance. The analysis emphasizes the importance of strategic management accounting in aligning with the company's strategic goals and improving its overall financial performance in the competitive airline market. The report concludes with recommendations for Flyme Plc to enhance its cost management and performance measurement strategies.

Running Head: STRATEGIC MANAGEMENT ACCOUNTING
STRATEGIC MANAGEMENT ACCOUNTING
Name of the Student
Name of the University
Author Note

1STRATEGIC MANAGEMENT ACCOUNTING
Table of Contents
a).................................................................................................................................................2
Introduction................................................................................................................................2
Background of Company.......................................................................................................2
Discussion..................................................................................................................................2
Comparison of Three Costing Methods.................................................................................2
Conclusion & Recommendations...............................................................................................5
b)................................................................................................................................................5
Introduction................................................................................................................................5
Discussion..................................................................................................................................5
Budgeting Methods................................................................................................................5
Comparison of Two Budgeting Methods...............................................................................6
Conclusion & Recommendations...............................................................................................8
c).................................................................................................................................................8
Introduction................................................................................................................................8
Discussion..................................................................................................................................9
Balanced Scorecard................................................................................................................9
Evaluation of Uses of Balanced Scorecard............................................................................9
Conclusion & Recommendations.............................................................................................12
Reference..................................................................................................................................13

2STRATEGIC MANAGEMENT ACCOUNTING

3STRATEGIC MANAGEMENT ACCOUNTING
a)
Introduction
Strategic management accounting is referred as form of the accounting, in which
emphasis is placed on information, which relates to external factors, internally generated
information as well as non-financial information of entity. Management accounting is the
internal function of accounting that is used for allocating costs of business towards services
or goods and preparing reports for the internal management decisions of business
(Abdelmoneim Mohamed & Jones, 2014). Hence, this assignment aims to compare critically
three methods of costing, which aid Flyme Plc for understanding and reducing their direct
costs. Further, critically comparison will be done on two methods of budgeting with current
method used at the Flyme Plc, which will aid reduction in the overheads. Lastly, evaluation
will be on the way Balanced Scorecard will be used by Flyme Plc for improving performance
of company.
Background of Company
The UK airline company, Flyme Plc is operating in mid of long haul market. The
company has become successful because of overall strategy of the company to offer excellent
service of customer for lower than the average prices of ticket. In recent years, the reputation
of company was impacted negatively by the mixed reviews of customers. Most often,
customers report inconsistent levels of the quality and service from flight to flight, for
instance numbers of cabin crew on the duty, availability of number of the in-flight movies
and various sixes of in-flight meals.

4STRATEGIC MANAGEMENT ACCOUNTING
Discussion
Comparison of Three Costing Methods
Costs is defined as resources or money that is associated with the transaction of
business or purchase or any other activity. Every companies are having various methods for
ascertaining the costs of products, depending upon nature of the production and types of the
output. Further, the main concern of company is reduction of gross and the net profit margins,
which is because of increasing costs (Chiarini & Vagnoni, 2015). The three costing methods
that can be used to aid Flyme Plc for understanding and reducing direct costs are as follows:
 Marginal Costing: In this method of costing, there is allocation of variable costs,
which includes direct expenses, direct material, variable overheads and direct labor to
the production. This does not include fixed cost of the production. The climate of
business is rapidly changing in the current scenario. Hence, management requires
accurate information every single day about costs incurred for taking all the wise
decisions to avoid the possible losses and wastages and to augment business
effectiveness. The business is recommended for considering good method of costing
because costing method adopted by business plays vital role in development of
business philosophies and advanced manufacturing technologies (Theriou 2015). In
comparison to other method of costing, marginal costing helps management for
understanding structures of cost and take appropriate decisions. This costing method
have various advantages, which includes effectiveness in controlling costs,
simplification in treatment of overheads, helpful for management, realistic and
uniform valuation and constant in nature. Marginal costing divides cost into two parts
that are fixed and the variable cost. Further, the fixed costs are excluded from the
product. Hence, with the help of this cost can be controlled by management
effectively (Maskell, Baggaley & Grasso, 2017).

5STRATEGIC MANAGEMENT ACCOUNTING
 Absorption Costing: This technique of costing absorbs variable and fixed costs to
production. In absorption costing, the full costs such as variable and fixed costs are
absorbed to production. It is sometimes referred as full absorption costing. It is the
method of managerial accounting to capture all associated cost with manufacturing of
particular product. It is required by the GAAP for external reporting. In comparison to
marginal costing, Flyme Plc should choose in between using the variable costing or
absorption costing in their system of accounting (Olchanski et al. 2015). One of the
major advantages of absorption costing is that absorption costing method complies
with the GAAP and it does better job to track profits accurately than the variable
costing. Further, this method also taken into account all the costs of production, unlike
the variable costing, in which there is only consideration of variable costs. Moreover,
this technique provides firm with more accurate picture of the profitability in
comparison to variable costing, if all products are not being sold, during same period
of accounting after its manufacturing (Schaltegger & Burritt, 2017).
 Standard Costing: When predetermined costs are based on the certain standards in
given set of the operating conditions, then it is known as standard costing. The system
of standard costing is consisting of estimation of required production process of costs.
However, before starting of accounting period, standards are determined and set
regarding costs and amount of required direct costs of direct material for process of
production (Bobryshev et al. 2015). Further, these standards are used for planning
budget for production process. In comparison to other two methods, standard costing
can be used for controlling the costs, costing of product and for the purposes of
decision-making. It is with the help of standard costing, more useful information for
the decision making and managerial planning can be done. Flyme Plc can gain greater
control of costs with the help of setting standards for each incurred cost type and then

6STRATEGIC MANAGEMENT ACCOUNTING
highlighting the variances or exceptions, such as where the things does not go as per
planning. The variances help in providing starting point for the judgement of
manager’s effectiveness in costs controlling for which responsibility is held with them
(Lowe, 2019).
Conclusion & Recommendations
Therefore, this section of report concludes that the function of management
accounting has been slowly transforming into the crucial function of strategic management.
The language of accounting makes it indispensable for the execution of strategic concept of
management. Further, it has been analyzed that the three methods of costing that may aid
Flyme for understanding and reducing their direct costs are marginal costing, absorption
costing and standard costing.
b)
Introduction
Budget is plan that is intended to figure out the expected revenue and expenses from
operations of entity for future period of time. It is the process to prepare detailed financial
results statements, which are being projected for certain time period (Réka, Ştefan & Daniel,
2014). Hence, this section of report will aim to compare critically two methods of budgeting
with current budgeting method used at Flyme Plc, which will aid in reducing overheads.
Discussion
Budgeting Methods
The budgeting for business plays vital role in system of management control. It gives
brief understanding of budgets, budgeting and its different methods. In the recent years, with
the increased level of uncertainty, the businesses are looking for the additional ways to cut

7STRATEGIC MANAGEMENT ACCOUNTING
down costs and improves the growth. The traditional approaches of budgeting begin with the
budget of previous year and looks for the areas to tweak. They don’t take necessarily the
ownership or time for the thoughtful reflection on impact of those expenditures. It is because
of these problems, new budgeting methods are introduced, which not only helps to reduce the
costs associated with business but it also helps in leading the organization strategically (Réka,
Ştefan & Daniel, 2014).
Comparison of Two Budgeting Methods
The two budgeting methods that can be compared with current method used at Flyme
Plc, which will aid in reducing overhead are as follows:
 Activity Based Budgeting: The budgeting method helps in determining cost of
activity, which will be occurred or the item that will be purchased. This method of
budgeting is having the biggest advantage that one should know exactly about the
purpose of their spending and the thing on which money is spent. This method is far
better than incremental budgeting method because of the fact that this method makes
the assumption that all the expenses required in former year are required also in
current year. The method of activity-based budgeting is carried out for bringing
efficiency in organizational activities (Talmon & Faliszewski, 2019). The preparation
of budget is done after justifying cost drivers. Therefore, activity-based method of
budgeting is not function oriented rather it is activity oriented. If Flyme Plc will use
this method of budgeting than that of traditional budgeting then it can be helpful in
evaluating each and every drivers of cost. All steps involved in the activity will be
taken into consideration. The activities that are irrelevant are eliminated and only
important activities forms part of business. Further, the system of activity-based
budgeting helps in eliminating all sorts of the unnecessary activities that will help
business for saving its costs of operations (Wnuk-Pel, 2014). The saved costs result in

8STRATEGIC MANAGEMENT ACCOUNTING
goods and services production at lower costs than that of the competitors. The entity
can be helped in gaining competitive edge in market. Moreover, the preparation of
budgets under the activity-based budgeting are done after all sorts of the bottlenecks
that are associated with the activity and functions of business can be smoothly carried
out. Lastly, system of activity-based budgeting helps in improving relationship
between organization and their customers. It indirectly enforces company’s
employees for serving customers in best possible way and helps to ensure customer
satisfaction. As a result of which, relationship among customers and organization
improves (Dwivedi & Chakraborty, 2015).
 Zero Based Budgeting: The budgeting method is complete opposite from traditional
form of budgeting. In traditional budgeting, one forms the basis of budget that is
based on budget of previous year. However, in zero-based budgeting, one can start
from scratch and could make the record of all the expenditures and income. The major
benefit of this kind of budgeting method is that one can remove or add items with
each of the new budget. Zero-based budgeting is methodology, which helps to align
the spending of company with their strategic goals (Popesko et al. 2015). The
approach of this method requires the entity for building their annual budget each year
from zero for helping to verify that all the annual budget components are relevant,
cost-effective and drives the improved level of savings. If the system of zero-based
budgeting is effectively implemented then it serves as a discipline of cost that can
help the businesses for improving employee engagement, resource planning and
collaboration of organization. It tests assumptions, solve the problem and ensures that
the spending is aligned with organizational growth objectives (Roncalli, 2016). In
case, if performance does not meet the expectation, the system of Zero-based
budgeting can help the businesses organization for identifying best course-correct for

9STRATEGIC MANAGEMENT ACCOUNTING
months ahead. It can help to translate into the cost saving, which can drive growth and
fund future strategic initiatives. Now, the question arises that how zero-based is
different from the incremental budgeting or traditional budgeting. The methodology
of Zero-based budgeting operates in the stark contrast to the approaches of traditional
annual budgeting. The traditional annual budgets are produced often by taking actuals
of previous year and adding points of few percentage to account for the rise in wage
and inflation (Yaskin, 2014). The simplified as well as incremental budgeting can lead
towards inefficiencies and it can miss the opportunities for greater amount of cost
savings. The Zero-based budgeting requires the entity for building their annual
budgets each year from zero for helping to verify that all the components of annual
budgets are relevant, cost-effective and drive improved savings (Popesko & Šocová,
2016).
Conclusion & Recommendations
Therefore, this section of report concludes that budgeting is essential for managing
money. If the budget is not established then one will not be able to know how much money is
spent or whether one can afford to purchase or not. Further, the method used by Flyme plc is
traditional and outdated, which cannot be used in present scenario of business as it can only
add costs. However, the other more competitive budgeting methods that can be used by
Flyme Plc includes Activity-based budgeting and Zero-based budgeting, as these techniques
can help the company in reducing overheads and making strategic moves for business.
c)
Introduction
Balance Scorecard is the metric of performance used in the strategic management for
identifying as well as improving different internal functions of the business organization and

10STRATEGIC MANAGEMENT ACCOUNTING
their resulting external outcomes. This is used for measuring and providing the feedback to
firm (Fooladvand, Yarmohammadian & Shahtalebi, 2015). Hence, this section of report aims
to critically evaluate the way balanced scorecard can be used by FlymePlc for improving
performance of company.
Discussion
Balanced Scorecard
Balanced scorecard is the framework of organization used for monitoring and
managing performance against the strategic goals. This helps in combining the measures of
strategic performance to traditional profit and loss for providing businesses with the balanced
view of the performance. Further, it is strategic system used for tracking and measuring
performance for helping businesses for managing growth of future. This is consisting of
traditional financial measures for indicating past performances and it complements them with
the operational measures. The balanced scorecard can be created by managers with the help
of translating their strategy and the mission statement into specific measures and goals.
Generally, it focusses on following set of areas, which includes finance, people, processes
and customer (Boscia & McAfee, 2014).
The balanced scorecard link measures of performance by answering following questions:
 “Customer Perspective”- How the customers will see us?
 “Internal Perspective”- What are the things we should excel at?
 “Learning Perspective”- Shall we continue towards improving ourselves and creating
the value?
 “Financial Perspective”- How do we treat our shareholders?

11STRATEGIC MANAGEMENT ACCOUNTING
Evaluation of Uses of Balanced Scorecard
The condition of Flyme Plc is deteriorating day by day. If company will use balanced
scorecard then it can help them for improving their performance. It can help Flyme in
following ways:
 Better Strategic Planning: If Flyme Plc adopts balance scorecard then it will be
providing influential framework for communicating and building strategy. Further,
the model of business will help managers for thinking regarding cause and the effect
relationship in between various strategic objectives. This process of strategy map
creation ensures reaching of consensus over set of the interrelated strategic objectives.
This means that outcomes of performance and key drivers or enablers of future
performance are identified for creating complete strategy picture.
 Improvement in Communication & Execution of Strategy: The strategy making
through balance scorecard will allow Flyme Plc for easily communicating strategy
externally and internally. The plan on page helps in facilitating understanding of
strategy and it helps in engaging external stakeholders and staff in reviewing and
delivery of strategy (Tan, Zhang & Khodaverdi, 2017).
 Better Initiatives and Projects Alignment: It helps the Flyme Plc for mapping their
initiatives and the projects to various strategic objectives that in turn helps in ensuring
that initiatives and projects are focused tightly on delivering of the most strategic
objectives.
 Better Management Information: If Flyme Plc will make use of balanced scorecard
approach then it will the company for designing key indicators of performance for
their different strategic objectives. It will ensure that the company is measuring what
matters actually. The adoption of balanced scorecard will help Flyme Plc in reporting

12STRATEGIC MANAGEMENT ACCOUNTING
higher quality management information as well as better making of decision (Senarath
& Patabendige, 2015).
 Improvement of Performance Rating: The approach of balance scorecard can be
used for designing performance dashboards and reports. It will help to ensure that
reporting of management focuses on most vital strategic issues and it help Flyme Plc
for monitoring plan execution.
 Better Organizational Alignment: The adoption of balanced scorecard by Flyme Plc
will enable the company for better align their structure of organization. For well
execution of plan, the company is require to ensure that all the units of business and
support function are working on the similar goals. The alignment of balance scorecard
into the business units will help in achieving goals and it will link strategy to the
operations.
 Better Alignment of Process: The good implementation of balance scorecards will
help to align the organizational processes of Flyme Plc, for instance analytics, risk
management and budgeting with the strategic priorities. It will help for creating truly
strategy focused firm (Kalender & Vayvay, 2016).
Following are the perspective, which can be applied by Flyme Plc for achieving their
strategic goals and regaining their loss reputation:
 Finances: It includes the way aspects such as expenditure, revenue and ROI, impacts
the financial performance and the way these can be tracked against financial targets.
In this perspective, focus of Flyme Plc should be on financial success and goals
should be for ensuring that measures should bring ROI and increase the turn over. The
uses of productivity and revenue variables will help as the activities indicators that
can generate good results for enterprise (Nørreklit, Kure & Trenca, 2018).

13STRATEGIC MANAGEMENT ACCOUNTING
 People: It includes the key drivers as well as barriers to the staff performance and the
way they are measured. This perspective helps to identify whether firm is delivering
results at satisfactory level to customer or not. It is important that firm should evaluate
its product, including quality, costs and performance of what it is actually delivering
(Muda, Erlina & AA 2018).
 Processes: This includes the question regarding improvement of internal performance
and the way improvement can be measured for creating more efficient and effective
processes. This perspective is in relation with optimization and identification of what
happens internally in company, particularly if these particular processes affects goals
of organization. The major focus of it is on needs for improving performance of
company.
 Market or Customer: It includes the way of improving and learning processes,
products, people and systems based on the customers or market. This can influence
overall performance and it can increase market share. This is the last perspective,
which can be applied by Flyme Plc. The major purpose of this perspective is
company’s growth. For achievement of the result, there should be investment in
processes of company such as research and development, machinery, team
improvement and others (Broccardo, 2015).
Conclusion & Recommendations
Therefore, this section of report concludes that balanced scorecard is the visual tool,
which is used for measuring effectiveness of the activities against the strategic plans of entity.
Flyme Plc can use balance scorecards for strategic planning and making sure the efforts of
company are aligned with the overall vision and strategy. Further, company will adopt this
then management will be able to focus on measures, which are more critical for company.

14STRATEGIC MANAGEMENT ACCOUNTING
Reference
Abdelmoneim Mohamed, A., & Jones, T. (2014). Relationship between strategic
management accounting techniques and profitability–a proposed model. Measuring
Business Excellence, 18(3), 1-22.
Bobryshev, A. N., El'chaninova, O. G. V., Tatarinova, M. N., Grishanova, S. V., & Frolov,
A. V. E. (2015). Management accounting in Russia: problems of theoretical study and
practical application in the economic crisis. Journal of Advanced Research in Law
and Economics, 6(3 (13)), 511.
Boscia, M. W., & McAfee, R. B. (2014, January). Using the balance scorecard approach: A
group exercise. In Developments in Business Simulation and Experiential Learning:
Proceedings of the Annual ABSEL conference (Vol. 35).
Broccardo, L. (2015). The balance scorecard implementation in the Italian health care
system: some evidences from literature and a case study analysis. Journal of Health
Management, 17(1), 25-41.
Chiarini, A., & Vagnoni, E. (2015). World-class manufacturing by Fiat. Comparison with
Toyota production system from a strategic management, management accounting,
operations management and performance measurement dimension. International
Journal of Production Research, 53(2), 590-606.
Dwivedi, R., & Chakraborty, S. (2015). An activity-based costing model for an engineering
department of an Indian university. International Journal of Accounting and
Finance, 5(1), 62-81.

15STRATEGIC MANAGEMENT ACCOUNTING
Fooladvand, M., Yarmohammadian, M. H., & Shahtalebi, S. (2015). The application strategic
planning and balance scorecard modelling in enhance of higher education. Procedia-
Social and Behavioral Sciences, 186, 950-954.
Kalender, Z. T., & Vayvay, Ö. (2016). The fifth pillar of the balanced scorecard:
Sustainability. Procedia-Social and Behavioral Sciences, 235, 76-83.
Lowe, E. A. (2019). On the idea of a management control system: integrating accounting and
management control. Management Control Theory, 63.
Maskell, B. H., Baggaley, B., & Grasso, L. (2017). Practical lean accounting: a proven
system for measuring and managing the lean enterprise. Productivity Press.
Muda, I., Erlina, I. Y., & AA, N. (2018). Performance Audit and Balanced Scorecard
Perspective. International Journal of Civil Engineering and Technology, 9(5), 1321-
1333.
Nørreklit, H., Kure, N., & Trenca, M. (2018). Balanced Scorecard. The International
Encyclopedia of Strategic Communication, 1-6.
Olchanski, N., Zhong, Y., Cohen, J. T., Saret, C., Bala, M., & Neumann, P. J. (2015). The
peculiar economics of life-extending therapies: a review of costing methods in health
economic evaluations in oncology. Expert review of pharmacoeconomics & outcomes
research, 15(6), 931-940.
Popesko, B., & Šocová, V. (2016). Current trends in budgeting and planning: Czech survey
initial results. International Advances in Economic Research, 22(1), 99-100.
Popesko, B., Novák, P., Papadaki, S., & Hrabec, D. (2015). ARE THE TRADITIONAL
BUDGETS STILL PREVALENT: THE SURVEY OF THE CZECH FIRMS
BUDGETING PRACTICES. Transformations in Business & Economics, 14.

16STRATEGIC MANAGEMENT ACCOUNTING
Réka, C. I., Ştefan, P., & Daniel, C. V. (2014). TRADITIONAL BUDGETING VERSUS
BEYOND BUDGETING: A LITERATURE REVIEW. Annals of the University of
Oradea, Economic Science Series, 23(1).
Roncalli, T. (2016). Introduction to risk parity and budgeting. Chapman and Hall/CRC.
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Senarath, S. A. C. L., & Patabendige, S. S. J. (2015). Balance scorecard: Translating
corporate plan into action. A case study on university of kelaniya, Sri
Lanka. Procedia-Social and Behavioral Sciences, 172, 278-285.
Talmon, N., & Faliszewski, P. (2019, July). A framework for approval-based budgeting
methods. In Proceedings of the AAAI Conference on Artificial Intelligence (Vol. 33,
pp. 2181-2188).
Tan, Y., Zhang, Y., & Khodaverdi, R. (2017). Service performance evaluation using data
envelopment analysis and balance scorecard approach: an application to automotive
industry. Annals of Operations Research, 248(1-2), 449-470.
Theriou, N.G., 2015. Strategic Management Process and the Importance of Structured
Formality, Financial and Non-Financial Information. European Research
Studies, 18(2), p.3.
Wnuk-Pel, T. (2014). The practice and factors determining the selection of capital budgeting
methods–evidence from the field. Procedia-Social and Behavioral Sciences, 156,
612-616.
Yaskin, D. (2014). U.S. Patent No. 8,700,508. Washington, DC: U.S. Patent and Trademark
Office.