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CMA Final Paper 15 study materials
CMA Final Paper 15 study resources

CMA Final Paper 15: Strategic Cost Management and Performance Evaluation

CMA Final Paper 15 · Work through your exam, one topic at a time.

All guide sections

Strategic Cost Management and Performance Evaluation

This domain examines how cost architecture supports strategy - value chain analysis, activity-based costing, target and lifecycle costing, throughput accounting, transfer pricing and the balanced scorecard - plus variance analysis that separates controllable from volume-driven effects.

Core rules

  • Target costing: allowable cost = target selling price − target margin. The cost gap must be closed by value engineering, design change or supplier renegotiation, not by wishful margin compression.
  • ABC assigns overheads via cost drivers (set-ups, machine hours, orders) and is most useful where overheads are high, products are diverse and volumes differ sharply.
  • Throughput accounting: throughput = sales − material cost; manage the bottleneck, keep buffer before it, and do not let a non-bottleneck's efficiency create inventory.
  • Minimum transfer price = variable cost + opportunity cost of the transferred capacity. With spare capacity, opportunity cost is zero; at full capacity it is the lost contribution per unit.
  • Balanced scorecard: financial, customer, internal process, learning and growth - each with objectives, measures, targets and initiatives.

Worked example

Division A makes a component with variable cost ₹60 and sells it externally at ₹140, earning contribution ₹45 per unit after variable selling cost. Division B wants 10,000 units. If A has spare capacity, minimum transfer price = ₹60 (no lost contribution), and any price above ₹60 makes both divisions better off. If A is at full capacity, minimum transfer price = ₹60 + ₹45 = ₹105; below that, A's divisional profit falls and goal congruence breaks. The divisional manager evaluated on ROI will resist ₹95 even though the group gains - a classic transfer-pricing conflict the examiner wants you to diagnose.

Traps

Using absorption cost as the transfer price floor; ignoring the lost contribution at full capacity; treating fixed costs as relevant in short-run throughput decisions; and confusing efficiency variances with price variances.