The upcoming discussion will update you about the difference between Traditional Management Accounting (TMA) and Value Chain Analysis (VCA).

Difference # Traditional Management Accounting (TMA):

1. Focus – Internal

2. Perspective – Value added

3. Cost driver concept – Single cost driver (cost is function of volume). Application at the time overall firm level (cost volume profit analysis)

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4. Cost containment philosophy – Across the board cost reductions

5. Insight for strategic decisions – Limited.

Difference # Value Chain Analysis (VCA):

1. External

2. Entire set of linked activities from suppliers to end users

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3. Multiple cost drivers

i. Structural drivers

ii. Executional drivers

A set of unique cost drivers for each activity

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4. View cost containment as a function of the cost drivers regulating each value activity

5. Identify cost drivers at the individual activity level, develop cost differentiation advantage either by controlling those drivers better than competitors by configuring the value chain.

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