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CIMA P2 · Management Level

A. Managing the costs of creating value

This section examines how organisations structure and manage costs to support strategic value creation, covering traditional and contemporary costing methods including activity-based costing, quality management, and target costing approaches. Students will explore both established absorption costing techniques and modern cost management strategies essential for competitive advantage.

  • 23 lessons
  • 3 modules
  • 4.2h of video
  • ~20% of the exam
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What you'll learn

By the end of A. Managing the costs of creating value.

  • Explain the principles of traditional absorption costing and identify its applications and limitations in modern business environments
  • Analyse activity-based costing (ABC) systems and evaluate their effectiveness in improving cost accuracy and decision-making
  • Describe total quality management (TQM) principles and identify the costs associated with quality management initiatives
  • Apply target costing techniques to support strategic pricing and product development decisions
  • Evaluate value chain analysis as a tool for identifying and managing costs across organisational functions
  • Compare and contrast traditional and contemporary costing methods to determine appropriate approaches for different business contexts

The lessons

23 lessons, module by module.

Analysing and managing costs

7 lessons
  1. 1 Traditional absorption costing 17m
  2. 2 Activity based costing - part 1 14m
  3. 3 Activity based costing - part 2 19m
  4. 4 Activity based costing - part 3 10m
  5. 5 Activity based management - part 1 5m
  6. 6 Activity based management - part 2 15m
  7. 7 Activity based management - part 3 15m

Quality management

9 lessons
  1. 1 Total quality management - part 1 15m
  2. 2 Total quality management - part 2 8m
  3. 3 Costs of quality 14m
  4. 4 Just in time (JIT) - part 1 14m
  5. 5 Just in time (JIT) - part 2 5m
  6. 6 Theory of constraints - part 1 15m
  7. 7 Theory of constraints - part 2 11m
  8. 8 Theory of constraints - part 3 12m
  9. 9 Theory of constraints - part 4 7m

Value management

7 lessons
  1. 1 Target costing - part 1 8m
  2. 2 Target costing - part 2 5m
  3. 3 Target costing - part 3 10m
  4. 4 Value chain - part 1 9m
  5. 5 Value chain - part 2 3m
  6. 6 Lifecycle costing - part 1 12m
  7. 7 Lifecycle costing - part 2 6m

Questions

About A. Managing the costs of creating value.

What does the 'Managing the costs of creating value' section cover?

This section examines how organisations structure and manage costs to support strategic value creation through both traditional and contemporary costing methods. It covers absorption costing, activity-based costing (ABC), total quality management (TQM), just-in-time (JIT) principles, target costing, and value chain analysis. Students will learn to evaluate different costing approaches and apply them to real-world business scenarios for improved decision-making and competitive advantage.

Is this section important for the P2 exam?

Yes, this section is highly important for the CIMA P2 exam. Managing costs and understanding costing methodologies form a core component of the P2 syllabus and are frequently tested through objective test questions. Mastery of activity-based costing, quality cost frameworks, and target costing is essential for achieving strong exam performance and developing practical management accounting competencies.

What is the difference between activity-based costing and traditional absorption costing?

Traditional absorption costing allocates costs using a single, volume-based cost driver (such as labour hours or machine hours), which can distort product costs in complex manufacturing environments. Activity-based costing (ABC) identifies multiple cost drivers and cost pools, allocating costs more accurately based on the activities that actually consume resources. ABC provides more granular cost information for strategic decision-making, particularly in businesses with diverse product portfolios or service offerings.

How do target costing and value chain analysis support strategic cost management?

Target costing works backwards from a target market price to determine the allowable cost for a product, ensuring profitability before development begins. Value chain analysis examines all stages of the value creation process - from procurement through production to delivery - to identify cost reduction opportunities and competitive advantages. Together, these techniques enable organisations to manage costs strategically throughout the product lifecycle and competitive value chain.

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