Managerial Accounting in Complex Organizations Research Proposal

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Managerial Accounting in Complex Organizations

Management accounting involves activities like budgeting, costing, and much more which are focused to achieve organizational planning and control. Management accounting systems include both financial and non-financial measures which can assist organizations in achieving organizational goals by way of measures and reports that can help in the evaluation and motivation of managerial efforts to enhance quality and decision-making. (Drury, 2005); (Bhimani, 2006, p. 41) the information provided by managerial accounting systems include budgets, performance reports, information regarding the costs a company's products and services, and other reports like information on sales backlogs, demands on capacity resources, unit quantities, and revenues on the company's products and services. The basic difference between financial accounting and managerial accounting is that 'managerial accounting' offers information to key people responsible for controlling and directing operations within the organization whereas financial accounting provides information to stockholders, creditors and others out the organization. (Geense, n. d.)

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The traditional approaches to management accounting have undergone changes in recent years and most of the current debate regarding management accounting concerns maintaining its relevance in steering a company towards achieving its overall and all-encompassing mission in a resource-conscious manner. Experts have called for management accountants to adopt increasingly strategic types of cost analysis involving supplier- and customer-linked adjacencies in addition to internal processes and activities, and placing planning and control within the framework of the value chain of the organization. The arguments put forward by many in favor of abandoning traditional budgeting has been contradicted by others who have demanded that traditional budgeting be rejuvenated by implementing "continuous forecasting and performance evaluation regimes," and rolling budgets. (Drury, 2005, p. 442); (Bhimani, 2006, p. 42)

TOPIC: Research Proposal on Managerial Accounting in Complex Organizations Assignment

One of the components of management accounting which has not changed much in the last seventy years is the nature of cost allocation. Cost allocation comprises tracking and allocating costs to particular cost objects to aid internal reporting and helping in decision making in the organization. The criterion for these allocations is generally a cause-and-effect relationship between variations in activity level and their costs. (Riahi-Belkaoui, 2001, p. 2) Considering the rapid changes that are taking place in businesses and business environments including technological advances, globalization, and so on, organizations can no longer afford to remain fixed on traditional costing techniques. Every product has a life-cycle and costing techniques must include life-cycle costing approach to make sure that the costs over the products entire life-cycle are taken into account. (Drury, 2005, p. 447) Traditional managerial accounting systems had been basically designed to gauge the efficacy of a firm's internal processes. However, there have been several new approaches in recent times to come up with innovative approaches. A standardized and highly structured cost accounting systems method may be considered ideal only for line-manufacturing or production industries but the marketing and services industries which require timely and flexible decision-making techniques need new accounting practices. Such innovative practices include bottleneck accounting, balanced scorecard and activity-based costing. (Geense, n. d.); (Lewis, 1995, p. 3)

Using direct labor during allocation of factory overhead has been found to be unsuitable since it lowers the share of overall manufacturing costs. Direct labor is not always proportionate with the output and accounts for a large percentage of overhead in comparison to other activity factors. As the ratio between machine and direct labor increases, these fixed costs are not likely to disappear. Thus, activity-based costing removes the emphasis from raw material or direct labor as cost drivers and shifts the focus to activities as cost drivers. This gives the key decision makers of a company a clear idea of the nature of the cost drivers and the measures to reduce such costs. (Geense, n. d.); (Lewis, 1995, p. 4)

An 'activity-based' costing system detects the chief activities taking place in an organization and categorizes them into batch-level activities, unit-level activities, facility-sustaining level activities and product-sustaining level activities. The basic aim of activity-based costing is detect the causes for the incidence of cost of indirect activities in an organization and their connection with the production of particular products. The diversity of cost drivers that an organization can choose from gives this technique a lot of flexibility. (Geense, n. d.); (Lewis, 1995, p. 7) Other new costing techniques include target costing and life time costing. (Epstein, 2004, p. 290) Target costing is a management accounting tool used to lower the life-cycle costs of new products. An assessment of revenues and costs throughout the life-cycle of a product is called life time costing. (Smith, 2005, p. 87)

Earlier, the chief performance report used by management accountants was variance analysis which refers to the methodical approach to the difference between the budgeted and actual expenditures and revenues within a particular production period. Many firms have now started using new techniques like balanced scorecard in conjunction with variance analysis. A balanced scorecard can be defined as a group of operational and financial measures which could be used to gauge the internal workings of a company's improvement and innovative activities, as well as customer satisfaction. This performance measurement system can react to the increasing complexity of a firm's activities and environment. The balanced scorecard gives an insight into the relationship between the expected activities and the expected financial outcomes through performance indicators and critical success factors in order to give organizations ways and means to control performance. The balanced scorecard combines many disparate perspectives into a single report. These perspectives may include improving quality, reducing response time, becoming more customer-centric, emphasizing teamwork, and so on. (Drury, 2005, p. 451); (Geense, n. d.); (Epstein, 2004, p. 296)

The balanced scorecard combines both financial as well as non-financial measures in order to provide a balanced idea of overall performance. (Smith, 2005, p. 93) Using non-financial measures to gauge and improve a company's performance definitely enhances the competitive position of the company. Targeting non-financial measures if more like keeping an eye on the ball, which obviously is more important, and not on the score-card in tennis matches. (Davis; Lukomnik; Pitt-Watson, 2006, p. 152) Another alternative to variance analysis is throughput or bottleneck analysis. A process which has a low output and restricts overall sales is known as a bottleneck. A variance analysis cannot detect the specific bottleneck which causes an undesirable discrepancy in the actual and budgeted sales. Bottleneck accounting systems can help to detect the bottlenecks in a company and the amount of money lost as a result of each bottleneck. Profits can be maximized if a company is able to concentrate its energies in making the bottleneck as efficient as possible. Focusing on any other activities would simply be a waste of time and money since sales would still be limited by the bottleneck. In case, efforts are concentrated on improving other activities, those activities will step up production resulting in a piling up of materials in the bottleneck activity which will ultimately lead to a waste of resources. (Geense, n. d.); (Bragg, 2009, p. 192)

Other innovative and strategic managerial accounting systems include benchmarking, customer account profitability, gap analysis, BCG or Boston consultancy Group's product portfolio matrix, attribute costing, total quality management, non-financial indicators, value-added management and quality costing. Strategic management accounting practices are not strictly concerned with conservative financial measures involving profit and cost but also apply traditional management accounting practices of comparing, valuing, measuring and analyzing information to a more wider and strategic set of indicators of a company's performance. (Davis; Lukomnik; Pitt-Watson, 2006, p. 158); (Open University Course Team, 2002, p. 58); (Chadwick, 1998, p. 171) Interactive management systems can help to create competitive pressure in a company which allows it to adapt and innovate in response to changes in the environment. (Heidmann, 2008, p. 53)

Despite a growing need for development and implementation of new and innovative managerial accounting systems in view of… [END OF PREVIEW] . . . READ MORE

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