-
introduction.
Management accounting aims to collect
and analyse financial information and
then communicate this information to
decisions makers. (Mclaney and Atrill,
2012) During the past few decades,
management accounting played a more
important role in decision making for
the managers because it gives them
usefulinformationsin targets setting,
performance monitoring
andsystematically improve the
efficiency and effectiveness of the
organizations in reaching its goals
persistently andcreate operations and
process to add value within the
organization (Prit, 2009).Nowadays, with the
development of era, the techniques of
management accounting have changed
in
many ways. for example,before the age of
globalization,we consider the
planning,
controlling, and decision making processesat a
nation sate level. But
under the
globalization environment, the limitations of
traditional techniques
have rendered.
Thus, the new techniques were generated and the
role of
accountants have also changed
as a result. In this essay, I will critically
examine the contribution of traditional
management accounting techniques in
an
organization and state the reasons why modern
management accounting
techniques are
moresatisfied with today?s market then
explain the role of accountants in the
implementation of modern techniques in
an organization.
History
and
contribution
of
traditional
management
accounting techniques
management accounting has been proposed
under the principles of financial
accounting
and
bookkeeping
and
developed
since
fourteenth
the
new
accounting
methods
were
developed
in
nineteenth
century,
the
techniques
used
by
accountants
is
called
traditional
techniques.
Thus
traditional management accounting
techniques include the use of performance
measures
like
ROI,
budgeting
systems
for
planning
and
control,
divisional
profit
reports
and
cost-profit-
volumerelationship
and
breakeven
analysis
for
decisions. (Chenhall and
Langfield-Smith, 1998)
1.
cost-profit-volume relationship and
breakeven analysis
CVP
analysis
is
a
methodwhich
can
helps
the
managers
to
make
better
business decisions.
It provides the information in a very detailed and
objective
way.
Since
it
is
an
analysis
technique
based
on
statistical
models,
it
helps
decision
makers
by
breaking
down
the
decisions
into
probabilities
which
is
very
quick
and
easy
to
use.
By
using
this
method,
the
manager
can
easily
evaluate
and
predict
the
business
development
route
for
the
company.
For
example, the analysis of breakeven
points can demonstrate how the spending
and production
in the future
will have
contribution
on
company?s
success
or
failure.
As
for
a
manager
who
knows
the
breakeven
points,
he
can
adjust
spending
and
increase
effort
of
production
to
make
profitability
increasing.
CPV analysis is
also benefit for managers to determine
specifically what the
future will hold
if variables are altered. Because it shows a
detailed snapshot of
company?s
activity.
However, there is
also some limitation of this methods. For
instance, much of
the
analysis using
this
method
is based on a
single product.
So
it
would
be
very difficult and complicated to solve
multi-product business by this approach.
Another shortage of CPV is that it is
not always accurate since it based on the
assumption that all costs in the
company are completely fixed or completely
variable. In fact, there are many mixed
costs which have a fixed and variable
component. In such situation, CPV
analysis would not deal with these cost in
an accurate way.(Freedman, 2016)
2.
Budgeting
There
are
five
main
benefits
of
budget
to
the
business
which
is
promoting
forward thinking
and identification of short-term problems,
providing a basis for
a
control
system,
provide
a
authorisation
system,
help
co-ordinate
the
business?s
various
sections
a
nd
motivate
managers
to
better
performance.(Atrill,
McLaney and Atrill, 2005).
There
are
also
many
limitation
of
budgeting.
For
example,
it
is
difficult
to
realisticallyestimate revenues and
expenses in a business enterprise. And to
communicate and distribute the goals,
policies and guidelines of the company
to all the supervisors is not realistic
3.
return on investment
measure
“The
ROI
measure
was
used
to
assists
new
proposals
for
building
manufacturing
facilities and thereby facilitated the allocation
of
funds among
competing
product lines”
(Kaplan, 1984)In
business, the purpose of the ROI is
to
measure rates of return on money invested in an
organisation per period.
Using the results to decide whether or
not to undertake an for
a project
portfolio, it is also used as indicator to compare
different investment
project.
The main shortage of ROI
isit is difficult to find satisfactory definition
of profit
and investment. Since the
concepts of profitsand values are diversified. And
when
many
companies
are
compared
using
ROI,
they
must
use
the
similar
accounting principle and methods.
The
change
business
environment
and
development
of
modern management
accounting techniques
With
time past by requirement and development, the
business landscape has
changed
in
many
ways:
the
growth
of
the
service
sector,
the
emergence
of
new
industries,
the
growth
of
e-commerce,
the
development
of
auto
manufacturing
and
lean
manufacturing,
the
request
of
greater
product
innovation
and
faster
response
time.
Such
changes
have
presented
the
challenge of management
accounting.
The management accounting
faces few
challenges
over
environmental
changes
as
well
as
internal
process
within
organisations.
Therefore,
management
accounting,
must
response
to
these
changes
by
adapting
new
techniques
and
concepts
(Wickramasinghe
and
Alwattage, 2007).
Whether
the
traditional
techniques
can
provide
benefits
in
contemporary
manufacturing
settings has been questioned . The traditional
techniques try to
adapt and many of
them has rendered obsolete.
In
the
nineteenth
century,new
accounting
methods
were
developed
such
as
activity-based costing, balanced
scorecard and total quality management etc.
Those techniques are called modern
management accounting techniques.
1.
Activity-based costing
(ABC):
“Activity
–
based costing in a method that is
projected to provide managers on
cost
information for strategic and other conclusions
that potentially affect
the
capacity and therefore ?fixed' costs”
(Ray et al.2000:322).
Benefits related to activity
–
based costing (ABC) are
many. In ABC, the aim is
to
understand
the
overhead
and
profitability
of
the
products
and
customers
(Garrism and Eric,
2000). ABC works mainly in the large cost drivers
related
with a decision to be sure of
or a process being studied (Wiley, 2001).
In
developing
countries,
the
manufacturing
industries
started
adopting
new
techniques,
to
maintain
relationship
between
the
market
development
and
technological
innovation
to
archive
the
long-term
success.
Seemingly,
ABC
developed
as
an
accounting
technique
to
provide
applicable
information
for
advanced
manufacturing
firms
producing
various
products
in
a
competitive
environment (N.
M. Panda, 1999).