Strategic Management Accounting Report: CPU4U Case Study Analysis

This business report analyzes the case study of CPU4U, a company manufacturing hardware components. It focuses on strategic management accounting, particularly pricing strategies and cost management. The report explains both Activity-Based Costing (ABC) and traditional costing approaches, evaluating their application to CPU4U's product lines (FMC6, RAMX2, and FMCL3) and the allocation of raw materials. It addresses the challenges of new product pricing using a fixed mark-up approach and provides recommendations for strategic decision-making. The report also includes a comparison of strategic industry factors and potential synergies, offering recommendations for Matsuka. The study aims to help CPU4U maximize profits and minimize costs by choosing the appropriate costing method.

Running head: STRATEGIC MANAGEMENT ACCOUNTING
Strategic Management Accounting
Name of the Student:
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Author Note:

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Abstract
The main purpose of the assignment is to analyze the case study for the company named as
CPU4U. In this particular assignment, proper emphasis has been given on explaining both the
pricing approach (Activity-based approach and Traditional based pricing approach). CPU4U
manufacturers’ hardware components for computers, phones, automated manufacturing
equipment and electronic equipment. The business report elucidates the current situation of the
company that is needed for conducting strategic decision-making about pricing and control of
costs. Proper explanation had been made in this business report about how the raw materials are
allocated to three products (FMC6, RAMX2 and FMCL3) as computed under ABC approach.
The business report even focus upon specific difficulties that can be seen with new product
pricing by using fixed mark-up approach as part of the report.

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Table of Contents
Introduction......................................................................................................................................3
Discussion of the key aspects of the industry and current situation of CPU4U Ltd that is relevant
for strategic decision-making about pricing and control of costs....................................................3
An analysis of pricing and profitability that would be useful for decision-making using the two
costing methods and any other techniques......................................................................................5
An explanation on how the raw materials costs were allocated to the three products under the
ABC approach.................................................................................................................................6
Discussing the particular difficulties with new product pricing as part of the report and providing
an evaluation and recommendations that is appropriate for CPU4U Ltd........................................7
Making a comparison of relevant strategic industry factors and any potential synergies as a basis
for recommendation to Matsuka......................................................................................................8
Conclusion.......................................................................................................................................9
Reference List................................................................................................................................10

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Introduction
The case study is about the company CPU4U that engages in manufacturing hardware
components for computers, phones, automated manufacturing equipment and electronic
equipment (Theriou 2015). After completing the report, it will be easy to understand and explain
the concept of strategic management as used in the contemporary business environment. It will
even help in identifying the suitable objectives as well as strategies used by CPU4U in given
situations. The current segment or business report applies strategic management accounting tools
as well as techniques such as ABC costing and traditional costing pricing approach (Peppard and
Ward 2016). For this study, Lin had asked the team to conduct analysis of profitability and
pricing strategy adopted by CPU4U. This was done by using both traditional overhead allocation
as well as ABC costing approach. The business report had been written so that Lin can use as the
basis for a Board discussion on costing as well as pricing strategy (Rothaermel 2015). The
current segment properly recommends at the end as to which costing approach should be used by
CPU4U in their business operations so that they can maximize profits and minimize cost.
Discussion of the key aspects of the industry and current situation of CPU4U Ltd that is
relevant for strategic decision-making about pricing and control of costs
In this question, it is needed to discuss about the key aspects of the industry and then
portray the current situation of CPU4U (Renz 2016). This company belongs to manufacturing
industry where they are engaged in manufacturing hardware components for computers, phones,
automated manufacturing equipment and electronic equipment. Currently, the company has a
good reputation as they manage the business carefully. They have to further work upon

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maintaining relationships with big computer manufacturers as well as aim at delivering high
quality components within the stipulated time (Peppard and Ward 2016).
It is a known fact that good financial decisions are possible only from an effective cost
management strategy (Ginter, Duncan and Swayne 2017). This can be done by maximizing value
as well as minimizing both initial and ongoing costs. In this case, CPU4U faces challenge in
trying to balance the needs to serve the customers as well as meeting the long-term business
objectives at the time of controlling the cost of conducting the business and involving in strategic
decision-making process. Furthermore, strategic decision-making process started for discussing
about important elements such as pricing and control of costs within CPU4U (Peppard and Ward
2016).
Controlling cost within CPU4U is possible when they engage in either reducing or
avoiding certain relevant costs at the time of engaging in strategic decision-making process
(Ginter, Duncan and Swayne 2017). To discuss in detail about relevant cost, the cost starts by
identifying as well as eliminating sunk costs. Therefore, a relevant cost analysis help in
analyzing the total cost of ownership or in that case potential profit by making use of costs that
differ between two viable options. The main purpose of CPU4U is to engage in making decision
that proves to be fruitful to the company. It is important for the managers of CPU4U to evaluate
the alternatives at the time of conducting decision on matters relating to wide range of matters
(Messner 2016).

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An analysis of pricing and profitability that would be useful for decision-making using the
two costing methods and any other techniques
Two costing methods need to be discussed in this question and finally recommend the
suitable pricing approach for CPU4U (Ginter, Duncan and Swayne 2017). In the field of
accounting, there are two popular costing methods and these methods are Activity-based costing
and traditional costing. Both these methods actually estimate overhead costs that relates directly
with product as well as then assign these costs to product based on cost-driver rate. To explain
each of the method in detail, Traditional costing methods applies basically to any of the
identified indirect costs for the products that is based on a predetermined overhead rate. This
method is simple to computer and easy to implement as compared to ABC systems. It is also
important to understand that ABC costing is more accurate as compared to traditional costing
systems (Kozarkiewicz and Łada 2014).
Activity-based costing is one of the costing methods that help in evaluating all the
activities as it is linked with production as well as assign to a cost and then determine the cost of
the product. On the other hand, traditional costing is one of the costing methods that are assigned
to a cost to products as it is based upon average overhead rate (Kenworthy and Verbeke 2015).
Both the above-listed costing methods have its own set of benefits and limitations. It is all
about determining which form of costing will be best suited for the given project or selected
company by taking into account some of the specific needs and timeframe (Hopper and Bui
2016). It is recommended to apply ABC costing methods at CPU4U as it is more accurate and it
is necessary for the company to provide quality components within a given period. ABC costing
will be helpful for internal use as the managers can easily look at the spending as well as

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document all the indirect costs in an accurate way (Peppard and Ward 2016). ABC costing is
best suited for all the companies who belong to manufacturing sector (CPU4U in this case). By
using these costing methods, it will be easy to identify truly, whether the product is profitable or
unprofitable. It even helps in finding as well as eliminating unnecessary costs. This costing
methods help in identifying as well as differentiating between true values-add activities as well
as non-value add activities. Therefore, these costing methods should be used by CPU4U as for
the purpose of pricing the products so as to achieve acceptable margins (Ginter, Duncan and
Swayne 2017).
An explanation on how the raw materials costs were allocated to the three products under
the ABC approach
The ABC project team had compiled the data that shows percentage of each of the
activity driver as it was consumed by each of the three product lines of CPU4U named as FMC6,
RAMX2 and FMCL3. The raw materials cost allocated to three products (FMC6, RAMX2 and
FMCL3) by using the ABC approach are 25%, 69% and 6%. RAMX2 has highest percentage as
compared to other two products (Honggowati et al. 2017). The analysis shows that RAMX2 is
best for CPU4U as the raw materials cost allocated to this product is maximum and will help in
giving best results. The activity cost pool shown in the case study is about material handling
attributes where RAMX2 has the highest percentage as compared to other two products of
CPU4U (Ginter, Duncan and Swayne 2017).
The choice of raw material allocation depends upon how the managers decide to group
these raw materials for the three products. The grouping actually depends upon desired accuracy
of product cost information (Hill, Jones and Schilling 2014). CPU4U should use ABC costing

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method by focusing on simple operations and dealing with three main products. It is
recommended to allocate given raw materials cost for the three products of CPU4U as it help in
providing information at the time of conducting decision-making process (Ginter, Duncan and
Swayne 2017). It even helps in promoting efficient use of resources, complying with US
Generally Accepted Accounting Principles. There are various activities that need to be taken into
consideration for producing three products like purchase of war materials, inspecting final
product, setting up production machinery and repairing of defective products (Peppard and Ward
2016).
Discussing the particular difficulties with new product pricing as part of the report and
providing an evaluation and recommendations that is appropriate for CPU4U Ltd
From the case study, it is seen that Lin has been struggling to set a price for the new
products that she is not sure whether fixed mark-up approach will work or not (Goetsch and
Davis 2014). In this part, there will be proper explanation about the difficulties with new product
pricing as part of the report and providing an evaluation and recommendation that is suitable for
the company. Lin should adopt Mark-up pricing approach for setting price for the new products
introduced in the company (Peppard and Ward 2016). Fixed mark-up pricing method is one of
the methods where fixed amount is kept on the cost percentage for the newly added product price
in order to get the selling price of the product. It is important to understand the fact that fixed
mark-up pricing is common in manufacturing business where the manufacturers engages in
selling the product to earn profit in the upcoming financial years. By using this pricing method, it
will be easy for the company to calculate the profits as well as estimate the level of production
(Abdelmoneim Mohamed and Jones 2014). It is not possible to get proper information of both

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demand and costs but it actually provides the means by which fair prices can be accessible in
certain way. It is essential to understand the fact that prices are based on full cost, as it is morally
defensible. The costing methods allow revision of final prices as it is based upon changes in
price of raw materials cost. This particular pricing method reduces the cost at the time of
decision-making process (Ginter, Duncan and Swayne 2017).
Making a comparison of relevant strategic industry factors and any potential synergies as a
basis for recommendation to Matsuka
From the given case study, it is noted that Matsuka desire to take over another business in
an unrelated industry for diversifying risks present within the company (Ginter, Duncan and
Swayne 2017). It was known by Lin that the team has undertaken a strategic analysis of an ASX
200 company. It is even noted that CPU4U could not aspire to takeover such large business, but
Lin ask to include a comparison of the relevant strategic industry factors and any potential
synergies as a basis for a recommendation to Matsuka (Fullerton, Kennedy and Widener 2014).
The other industry that is listed under ASX 200 Company is Coles Limited as it operates
in retail sector. CPU4U operates in manufacturing sector so unrelated industry can be retail and
this is the reason why Coles Limited had been selected for this particular scenario (Ginter,
Duncan and Swayne 2017). It is recommended to CPU4U not to engage in taking over other
business, that too from unrelated business sector (Bergh et al. 2016). Coles Limited occupies the
topmost position in the retail sector and it will not work well as thought by Matsuka. It is
suggested to Matsuka that taking over business in other unrelated sector is not feasible because
CPU4U deals with manufacturing business and their motto should be maintaining good

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relationships with big manufacturing suppliers. The company should engage in providing best
quality products within given stipulated time (Armstrong 2014).
Conclusion
At the end of the study, it is concluded that CPU4U should apply ABC costing approach
in their operations so that they get accurate results as compared to any of the other pricing cost
approach. The above analysis properly discuss about current situation of CPU4U that are suitable
at the time of conducting strategic decision-making on matters relating to pricing as well as
control of costs. The study even analyzes pricing and profitability position as it is essential for
decision-making process. This was done by explaining both the costing approaches in detail
(traditional costing method and Activity-based costing method) and then recommending at the
end as to which one to use by CPU4U. Proper explanation had been drawn about how the raw
materials are allocated to three products as computed under ABC approach. The study even
highlights specific difficulties that can be seen with new product pricing by using fixed mark-up
approach as part of the report. It is even needed to provide an evaluation as well as
recommendations that are suitable for CPU4U. Lastly, Coles Limited had been selected as
unrelated industry that Lin Matsuka decided to take over business for managing the risks of the
company.

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Reference List
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Honggowati, S., Rahmawati, R., Aryani, Y.A. and Probohudono, A.N., 2017. Corporate
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