The Evolution of Managerial Accounting

Author : Dimas Bayu Pradipta

Management accounting will have to make significant changes to the way they operate within organizations in the next millennium. To keep up with the changes, new accounting models were created. One of it is the Activity Based Costing (ABC). ABC is one of the methods that have been hailed as the answer to the changing needs, and this has given to other applications such as activity-based management and shareholder-value analysis. Traditional management accounting systems aimed to offer neutral, objective and calculable financial information. These systems were expected to bring to light the facts of costing, to enable pursuit of efficiency and help better regulate management labor relations. ABC is, therefore, the generic term to describe an alternative paradigm to traditional volume-based cost models. Its advocates claim that it is an accounting approach aimed primarily at understanding causality and giving decision-makers the potential to manage costs at the root, rather than a focus on product cost only.

ABC focus on those activities, which cause costs, and by identifying the activities required developing products. It has the potential to highlight the cost implications of adopting alternative methods and cost benefits which are available through the removal of non-conformance. It is also able to focus costs on customers and therefore assists in the isolation of non-value adding processes. Although it is unlikely that ABC will provide a relevant cost for all decisions and situations, but it will often provide a closer approximation. Another successful enterprise that adds to quality component strategy, which initiates the quality improvement, is the Total Quality Management (TQM). TQM emphasizes on education, training and cross-training employees to do multiple tasks. TQM may be seen as a system of behavior, which includes everyone in an organization and aims to involve and motivate staff at all levels, with an organizational philosophy that “improvement is a way of life”. TQM is rooted in personnel and production management, where each person emphasizes a certain characteristic of TQM.

Source : A New Look At Management Accounting. The Journal of Applied Business Research – July/August 2010 Volume 26, Number 4. April 11, 2013.http://journals.cluteonline.com/index.php/JABR/article/viewFile/309/299