Management Accounting Essay - 2831 Words

The last several decades have been a turbulent period for management accounting in the United States. Many U.S. businesses failed in the international market, and the management accounting profession recognized that some of the blame rests upon shortcomings in the information provided to managers. A continuous flow of articles dating back to the mid-1980s such as Kaplan (1986) or Chalos and Bader (1986) has criticized contemporary management accounting systems. On the other hand, Reider and Saunders (1988) offered a defense of contemporary management accounting methods asserting that the methods are adequate but have not been used appropriately. Management accounting plays a crucial role in manufacturing competitiveness by supplying†¦show more content†¦In the past, the bases used for allocating overhead were either volume driven, such as direct labor hours and machine hours, or financial measures, such as direct labor costs and raw materials costs. These allocation bases are simple and easy to use since the information is readily available either from production or accounting reports, but they often result in mis-measurement of costs. As firms moved from labor driven manufacturing to automated manufacturing, old allocation bases proved even more inaccurate (Horngren et al., 1999). Products were either under- or over-costed because the bases used did not accurately reflect the activities consumed by the product. Another problem was that the bases did not accurately reflect the overhead triggered by either batches or product lines (Johnson, 1988), nor were all the production costs driven by these bases. Another source of inaccurate costing has been the mis-measurement or exclusion of relevant costs (Weisman, 1991). Since business firms are subject to a multitude of externally mandated accounting and reporting requirements (e.g., pronouncements of the SEC, FASB, GASB, IRS), management accounting has used these same costs to make business decisions. Though these costs satisfy external reporting purposes, they are incomplete for many internal purposes. For example, Ramp;D, distribution, and advertising costs are not considered as product costs for external reporting purposes and are therefore often erroneouslyShow MoreRelatedManagement Accounting1950 Words   |  8 PagesManagement in business and human organization activity, in simple terms means the act of getting people together to accomplish desired goals. Management comprises planning, organizing, -resourcing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpo se of accomplishing a goal. 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