Management Accounting Report: Cost and Value Chain Analysis

This report delves into the realm of management accounting, providing a detailed analysis of cost accounting and value chain concepts. The report commences with the computation of the cost of work in process and finished goods inventories, offering a practical understanding of cost allocation. Part 2 of the report introduces the value chain, defining its role in business operations and its function as a cost estimation tool. The report further explores the segments of the value chain, including primary and support activities, and provides examples of how the value chain is applied in real-world scenarios, particularly at BHP. The report concludes by emphasizing the importance of the value chain in providing a competitive edge and contributing to sustainable business practices.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Part 1:.........................................................................................................................................2
1: Cost of Work in Process.....................................................................................................2
2: Cost of Finished Goods Inventories:..................................................................................2
Part 2:.........................................................................................................................................3
Introduction:...............................................................................................................................3
Concept of value chain:..............................................................................................................3
Value chain as cost estimation tool:...........................................................................................4
Segments of Value of Chain:.....................................................................................................5
Primary activities:..................................................................................................................5
Support Activities:.................................................................................................................6
Value Chain at BHP:..................................................................................................................7
Conclusion:................................................................................................................................8
References:.................................................................................................................................9

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Part 1:
1: Cost of Work in Process
Computation of Work in Process
Particulars
Amount
($)
Amount
($)
Operating Inventory in Process 35000
Raw Materials Used 80000
Direct Labour 160000
Manufacturing Overhead (Notes 1: 40% of Total Manufacturing
Cost) 96000 371000
Less: Ending Inventory 55000
Cost of Work in Process 316000
Notes:
Direct Materials 80000
Direct labour 160000
Total Manufacturing Cost 240000
2: Cost of Finished Goods Inventories:
Computation of Finished Goods Inventory
Particulars Amount ($) Amount ($)
Beginning Finished Goods Inventory 55000
Cost of Goods Manufactured 240000
Less: Cost of Goods Sold 360000
Cost of Finished Goods Inventory 65000

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Part 2:
Introduction:
The notion of value chain is entirely based on the process view of the company, the
impression of viewing a manufacturing company as the system that are made up of the
subsystems each with the inputs, transformation procedure and outputs (Kaplan and Atkinson
2015). The activities of value chain are usually conducted to determine the cost and affects
profits. Majority of the organizations that are indulged in the hundreds of activities are
mainly engaged in the process of converting the inputs to outputs.
The corporate value chain, accounting and reporting standards enables the companies
to assess their whole value chain emission effect and recognizes where to place their focus.
The present report would be providing the useful framework of value chain and how the
concept of value chain is utilised to determine costs (Langfield-Smith et al. 2017). The report
would be describing each segments of value chain and would provide explanation regarding
costs in numerous segment of the value chain that are useful for managers. Additionally, BHP
has been selected to explain the main purpose of value chain in the manufacturing companies.
Concept of value chain:
Value chain is defined as the complete range of activities together with the design,
production, distribution and marketing conducted by the business to bring into the existence
the product and service from the concept to the delivery (Chak and Fung 2015). For corporate
firms that manufacture goods, the value chain beings with the use of raw materials to
manufacture their products and comprises of everything that is added prior to selling the
product to customers.

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The value chain management is referred as the procedure of organizing the activities
to properly assess them. The purpose is to facilitate communication between the leaders of
every stage to make sure that the product is placed in the hands of the customers flawlessly as
possible.
Value chain as cost estimation tool:
The value chain offers the business with the basic tool for analysing cost. The tool of
value chain is regarded as the procedure where the firms recognizes its main and provision
that adds value to the final product and then assess the activities so that it can reduce or
increase the cost differentiation. Value chain analysis is regarded tool that is used to assess
the firm’s internal activities (Eldenburg et al. 2016). The main purpose of value chain is to
identify which activities fetches higher valuable sources of cost or differentiation advantages
to the companies and which activities can be used to recognize the competitive advantage.
The initial point for analysing cost is to understand the value of the company’s value chain
and to allocate operational costs and assets to the value activities.
Two different approaches are involved in performing the analysis that is reliant on the
form of competitive advantage sought by the company to create cost or differentiation
advantage (Wouters et al. 2018). A business may use the cost advantage approach when it
tries to compete on costs and wants to understand the source of cost advantage or
disadvantage and factors that ascertain the costs. Cost advantage is used by the business by
identifying the primary and secondary supporting activities. A business usually establishes
the relative significance of every activity in the total cost of product by recognizing cost
drivers for every activity.
The tool of value chain is used to measure cost by producing the products or service
that must be broken down and allocated to every activity. The activities that comprises of

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major activities of costs or performed ineffectively are addressed initially (Gereffi and
Fernandez-Stark 2016). The concept of value chain is used to determine costs by
understanding what factors drives the costs and managers can place their emphasis on
improving them. Cost for labour intensive activities are driven by the working hours, rate of
wages and work speed.
The companies use the tool of value chain to identify the links between the activities.
It generally reduces the costs of one activity that might result in further reducing the cost in
subsequent activities (Mudambi and Puck 2016). For instance, lesser components in the
design of the product might result in lesser faulty parts and reduced cost of service. As a
result, recognizing the links between the activities would result in better understanding of
improving the costs improvements that would impact the entire value chain.
Alternatively, companies also use the differentiation advantage that strives to create
the superior products and services. The business uses the tool by identifying the customers
that create value activities. The value chain tool is useful in recognizing the strategies for
enhancing the customer value (Simatupang, Piboonrungroj and Williams 2017). The value
chain analysis is performed in a different manner when the firm competes on the
differentiation strategy instead of costs. The main reason is that the differentiation advantage
originates from creating superior products, adding more features and meeting the needs of
customers that leads to higher cost structure.
Recognizing the cost drivers and quantifying their impact on cost might not be easy
and numerous process can be engaged. However, at times the cost drivers of the value
activity would be intuitively clear for assessing the basic economics.
Segments of Value of Chain:
The segments of value chain are as follows;

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Primary activities:
The primary activities comprise of the following;
Inbound logistics: Under the activities inbound material movements are arranged or finished
inventory from the suppliers to the manufacturing or assembly plants are carried out.
Operations: This is related with managing the procedure that transforms the inputs into
outputs.
Outbound logistics: This process is associated to storage and movement of final products
and the associated flow of information from the end of production line to ultimate user.
Marketing and sales: This segment involves selling product and service for creating,
delivering, communicating and exchange offerings that creates value for customers.
Service: This comprises of the activities that is required to keep the product and service
working effectively for the buyers following the goods are sold and delivered.
Support Activities:
Infrastructure: This comprises of activities particularly, accounting, finance, legal and
general management.
Technological development: This comprise of equipment, hardware, software, process and
techniques that resulted in transformation of inputs into outputs.
Human resource management: This comprises of activities such as recruiting, selecting,
training and compensating the personnel.
Procurement: This consists of acquiring goods and services from the external source.
As evident from the above explained segment the purpose of the value chain is to
create value for each segments in order to exceed the total value against the total cost related

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with the product. A business can benefit from the competitive advantage for each segment in
its value chain (Robson 2015). For example, creating an outbound logistics which is highly
effective helps in lowering the shipping costs and allows a firm to either realise more profits
or pass on the savings to consumers through lower price.
The supporting activities on the other hand also facilitate effectiveness of the primary
activities in value chain. Increasing the effectiveness of the four supporting activities helps in
increasing the benefit to at least one of the primary activities (Lundvall, Jurowetzki and Lema
2015). The value chain management system helps in reducing the cost and complexity of the
manufactured process especially for the managers that uses several parts.
Value Chain at BHP:
The commercial value chain of BHP connects with all the commercial activities inside
the single function and locating them to its key markets that has the strategic view of its
whole value chain. This enables BHP to function on both the sides of the commercial coin. It
helps in creating the effective partnership with its communities through local procurement
that deepens its relation with BHP customers and suppliers internationally (Bhp.com 2018).
The value chain of BHP expands the view of company on how the markets may evolve. This
enables BHP to adapt strategy to take action in the ever changing market, together with
optimising its supply chains. The combined function enables BHP enabled the company to
quickly replicate the good practice and share the market insights across the teams.
The major purpose of value chain at BHP is to make sure that the long term
sustainability of its value chain is maintained in the global economy (Bhp.com 2018). BHP
continues to integrate and automate its value chain to unlock the resources and drive a step
towards change in volume and cost. BHP uses its value chain to work closely with its
stakeholders and to understand the opportunities that would make positive contribution

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towards the business. The company sets minimum level of requirement for its suppliers and
relevant contracts through its value and remains committed to work with its suppliers and
business partners in order to adopt the principles and standards that are similar to BHP.
Conclusion:
With the ever increasing competition for the invincible prices, excellent products and
customer loyalty, a business should constantly assess the value that is created by the
managers. On a conclusive note, value chain is the valuable tool and provides the business
with the advantage over their competitors. BHP uses value chain for sustainable and ethical
supply chain that considers both the human rights and environmental risks.

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References:
Bhp.com. (2018). www.bhp.com. [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed 9 Nov. 2018].
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Gereffi, G. and Fernandez-Stark, K., 2016. Global value chain analysis: a primer.
Hugos, M.H., 2018. Essentials of supply chain management. John Wiley & Sons.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
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Aalborg, Denmark.

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Mol, A.P., 2015. Transparency and value chain sustainability. Journal of Cleaner
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574.
Robson, W., 2015. Strategic management and information systems. Pearson Higher Ed.
Simatupang, T.M., Piboonrungroj, P. and Williams, S.J., 2017. The emergence of value chain
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