The The role of Strategic Analysis of Operating Income (SAOI) in improving financial performance under the traditional costing method and Resource Consumption Accounting (RCA)

Abstract

The research examines the role of strategic analysis of operating income (SAOI) in enhancing financial performance under different costing methods. It highlights SAOI's impact on cost reduction and its transformative role in setting and sustaining competitive prices in today's dynamic business environment. SAOI is structured into four components – productivity, price recovery, growth, and capacity utilisation. These components serve as effective tools for evaluating the efficiency of strategies and assessing improvement in financial performance. They also provide a framework for determining whether a company's cost leadership or product differentiation efforts are successful. The study emphasises how integrating resource consumption accounting (RCA) with SAOI supports cost-cutting objectives and strengthens competitive positioning through strategic pricing. Empirical application to Mass Iron and Steel Industry Company is intended to validate the hypothesis that SAOI under RCA yields superior financial performance compared to the traditional costing method. Furthermore, the research estimates SAOI's positive influence on cost reduction and its broader implications for competitive pricing, material input control, manufacturing capacity management, and optimal capacity utilisation. Collectively, these outcomes contribute to sustained improvements in financial performance.