Management Accounting Systems Dissertation
Management Accounting Systems (MAS) comprise of firms’ internal systems that are employed to evaluate and measure their accounting operations. Generally, companies employ accounting methods such as TQM, JIT, and ABC to monitor their financial transactions such as expenses, income and sales, accounts payable and funding. Further, MAS provide an opportunity for companies to generate various organization statistics that provide interested parties or management with a wide variety of information to assist in processes of decision making in an organization. Presently, both Company-A and Apple Inc. have integrated management accounting systems to foresee their accounting operations. The firms use computer-based or automated systems that use cloud-based or specialized services. This report; therefore, highlights the outcomes of two research articles covering application of MAS in manufacturing companies considering three key management accounting methods: TQM, JIT, and ABC.
The terms information and information system are viewed to have increasing effects on the enterprises, occupying model fields and management analysis. Economic information contains news from different fields and information as found in any other system. In most cases, this information is derived from the economic database. Resources are relatively scarce and limited and so management in most cases finds itself confronted with the decision-making problem.
In this regard, good accounting information should be accessible to offer suitable and precise decision-making that could lead to maximization of profitability of an organization and utilization of scarce resource optimally. Accounting is normally viewed as the language used in all businesses. In simple terms, it is a tool used by business enterprises to record, report, evaluating economic events & transactions that normally affect its operations (CONG, 2017).
Accounting takes the role of processing all financial performance documents from payroll, cost, capital expenditure and all other obligations of owner’s equity and sales revenue. Information is provided from accounting about how a business relates to the internal and external users, including, investors, managers, and others. One of the most important features that saturate organizations is management decision and it shows its failure or progress in achieving already set goals and objectives.
Identification of any three specific examples of the different types of management accounting methods and/or techniques from the case
Total Quality management (TQM)
According to Watts, Yapa & Dellaportas (2014), Total Quality Management is an accounting approach whose primary aim is to embed the awareness of quality in all the operations taken in a given organization. TQM is a philosophy of management that requires the change of organizational culture. It is a philosophy of management whose primary purpose is to strive in making the best utilization of opportunities and resources in a given constant environment.
TQM entails all the efforts in the organization in establishing a permanent accounting climate through which the organization can continuously improve its capabilities in ensuring there is the delivery of high-quality accounting to the organization. Skipworth (2018), pointed out that the support of management leadership and process of statistical control ensures participation and loyalty of employees. Likewise, focuses on planning and product design processes, quality control and involvement of customers and suppliers. Therefore, the major sphere of interest is organizational factors such as cultural change, leadership for change, employee training and cost of quality.
According to Hall & O’Dwyer (2017), organizations must be accounting focused rather than product focused. It also lays emphasis on the use of statistical methods, continuous training of workforce and top management commitment to constant improvement in quality. Therefore, Total Quality Management impacts the creation of systems in an organization that help in learning, cooperation and facilitating the implementation of different management practices to ensure performance is enhanced. This results in improved performance on products, processes and services and also the fulfillment of employees’ motivation in the organization.
Laureani & Antony, (2016), noted that the implementation of Total Quality Management in organizations creates improved performance by engaging activities of management leadership, strategic planning, engaging training programs and ensuring knowledge and process management are implemented.
According to Prakash & Chin (2014), Just-In-Time production and inventory refers to a wide-ranging system for guiding the production flow in a multi-stage manufacturing setting. It is an idea of total waste elimination. The simple meaning is “only what is needed, when it is needed, and in the amount needed” to eliminate waste, inconsistencies, and unreasonable requirements, resulting in improved productivity (Prakash & Chin, 2014).
A company’s values can be greatly enhanced by adopting JIT system especially in savings the inventory carrying costs, reduced storage and handling costs. Also, the chance of spoilage and obsolescence and theft and opportunities costs associated with having excessive inventories will be reduced. Besides, the pull method of JIT enables the needs of the customers can be addressed more quickly and effectively and therefore the market share will be increased directly.
JIT system can be performed by anybody in organization especially within the production line. For example, demand for new raw materials is signaled when there is a need in Work Cell Stage for more of these inputs. This triggers the purchasing activity. Demand for the production from Work Cell Stage is signaled when there is a need in Sub-Assembly Stage for more of these inputs.
This triggers the manufacturing activity in the Work Cell Stage (Nie, Bai, Jiang & Pang, 2014). Also, demand for the production from Final Assembly Stage is signaled when there is a need for the finished goods orders by customers. Therefore, noted that the involvement from the purchasing department to manufacturing department and finally until Sales and Marketing departments are greatly needed and proved that JIT system covers all aspects of the production process.
Activity Based Costing
Currently, business environment is changing due to the development of technology. The company’s management accounting system should find out a right accounting tool to dispose of an optimum cost control. The Activity-Based Costing (ABC) is known as the most popular management accounting tool of last twenty years and it is also known as the revaluation of managerial accounting in the circumstance of the development of techniques (Hoozée & Hansen, 2018).
This is because it could give more accurate, traceable cost information and simply by growing the number of cost drivers used in costing system while the traditional cost accounting system represent product cost distortion and it could lead to inappropriate strategic decisions.
The components of company-A’s management accounting system include; reports of income expenses and income, and sales analysis. These components are based on Activity costing that is determined by the organization production activities. In addition, the components provide an organization with the required information useful for making decisions and planning.
In addition, the company uses the components of a management accounting system to delete or add information from its product portfolio (Watts, Yapa & Dellaportas, 2014). Further, the company incorporates the components of the system to make a decision of the best production process or line that can be used for various products. The managers of the firm use these components to make an analysis of the major manufacturing processes in the organization. The components of the management accounting system for Company-A include budgets, reports about investments, and reports of standard costs.
According to Watts, Yapa & Dellaportas (2014), the firm uses these components to perform organization decision such as financial management, organization spending, total cost evaluation and many others. The company incorporates these components to estimate their total costs of production. The management calculates its cost values by measuring the rate of an activity and its drivers.
The components help an organization to overcome overhead expenses in business operations which may limit their labor input. Also, the organization incorporates the components with the intention of diversifying its products tastes. In addition, these components of management accounting systems help Company-A to obtain factual information or data that is in line with the organization’s budgeted and actual figures thereby allowing the managers and owners of the organization to incorporate the appropriate measures of controlling risks.
In addition, these components help an organization to attain timely feedback that is in line with the current activities of the organization thereby helping it re-evaluate its operational decisions. Therefore, these components of management accounting systems help the organization to make its financial decisions to monitor its business operations during the production processes.
ABC is especially useful for the complex environment organization. In this case, Company-A has nine divisions with different strategies. Therefore, ABC is a best management accounting tool for Wesfarmers in order to obtain their target. Based on the Wesfarmers’s strategies that was discussed above. The ABC model could have many benefits that could help the company to achieve their strategies. First, it could assist the top management of Company-A, in pricing, deleting and adding the products, selecting outsource and in-house items.
In this case, the ABC model is primary to support management decision or it is known as the strategic tool to help Wesfarmers to obtain the competitive advantage. This is because it could help the company identifies the elements that impact on the cost dynamics in long term and minimum the cost for particular job to improve Company-A’s competitive position (Watts, Yapa & Dellaportas, 2014). Subsequently, it will reduce the cost product due to better design and improvement of product process. Furthermore, it is easy for ABC to determine which overhead cost should be assigned in the product to minimum the price of product. Then, the buyers can be benefited from this strategies.
Additionally, ABC model can help Company-A in distribution cost. For example, the managers may rely on this model to choose the profitable channels or alter the distribution channels due to the overhead allocation. Another advantage of ABC is that it could help the top management of the company to identify the unprofitable product lines and accurate costs. Hence, it could improve the efficiency of operation as well as the profitability to build in competitive cost advantage and add value to its stakeholders and its customers.
Management Accounting Systems are relevant to contemporary organizations citing evidence from the case company
When the term MAS are mentioned most people think of manufacturing companies. This is because of their long association with giving management explanations for the intrinsic management functions, specifically in the manufacturing zone. This may have narrowed its utilization in the utilities industry as a tool to be used to improve financial performance where intrinsic and extrinsic trade advice could be required for strategic planning.
Other purposes of MAS in the contemporary organizations include organizing, controlling, motivating and decision making. Current ingenious MAS practices for example total quality management, performance evaluation furnish beneficial management accounting explanations for customer management and the improvement of a competitive advantage for an organization as it is revealed in Company-A. According to Karpova, Serikova & Tyschenko (2019), some MAS practices equip firms with strategies so that it can make a variety of clients to have eternal preference for an organization’s products and utilities.
The adoption of MAS practices and approaches can furnish an organization with continuous performance and growth. MAS’ practices in the contemporary organizations include ABC, total quality management, budgeting, variance analysis, advice for decision-making, strategic analysis, balance scorecard, among many others (Karpova, Serikova & Tyschenko, 2019).
In order for an organization to ensure effective creation of information and better organization, it is supposed to transmit new information by implementing management accounting systems. These management accounting systems contribute to t innovation process in a number of ways depending on the organization. First, owners of Company-A prompted to hire mid-career managers who can be in the position to ensure effective creation of information by creating diversity or counter-cultures within an organization.
By doing so, the company has been in the position to attain internal development of products. This has been as a result of making a “policy of hiring mid-career personnel from other firms” who recommend a firm to make diversification in various field such as “Plain paper copier”. Second, management accounting system helps Company-A proposer again with increased average growth of about 20 percent. With the help of management accounting system, the firm has become well equipped to overcome various challenges in the projects of product development as a result of using diverse and large staff.
Therefore, by using management accounting systems, the organization is in the position to ensure effective interaction and accumulation of this personnel with different technology potentials. In addition, management account provided Canon Inc. an environment that addressed tension in the business operation hence resulting into creation and synthesis of new information. For example, Company-A employs SAP in decision making process in regards to accounting operations. Also, Apple Incc. Has utilize MAS to come up with new products that are cost effective.
Comparison of this finding with one other journal article about management accounting systems in another real-life company or companies
From the findings of Watts, Yapa & Dellaportas (2014), MAS has helped the managers of Company-A to obtain information about their technological trend. By training information ion an organization, the company is in the position to prepare its self for battle with its competitors in the market. This helped the organization to build a new production line as an organizations innovation.
In addition, by adopting management accounting system, the company was in the position to make use of different features which supported their computer machines which were faster, expensive and smaller(Watts, Yapa & Dellaportas, 2014). Therefore, management accounting helped Company-A to realize its competitors and mistakes thereby designing new innovation processes such as designing new computer features.
In comparison to Nwogugu (2015), that highlights Apple Inc. management accounting system. MAS has enabled Apple to realize many business ideas which were very important were ignored as a result of limited information transmission. With the help of management accounting system, the company is in the position to understand vital business jobs that were not considered earlier.
For example, “in the decision regarding the use of the 5.25 inch or 3.5-inch floppy disk, Jobs wanted the slower, lower-capacity 5.25-inch floppy disk, even though the engineers insisted that the 3.5 inches would be better (Nwogugu, 2015).” The outcomes of the 2 articles provide similar findings on how the companies employ MAS in decision making and product invention. However, the second article emphasizes more the invention aspect of MAS while the first one provides the MAS techniques and their application in manufacturing thus, differing a little on the deeper side.
Conclusions about the relevance of Management Accounting Systems in today’s competitive and (in most cases), uncertain business environment
MAS avails schemes for both manufacturing and utilities zones. Utilization of MAS practices not only increase e management competency but it also increases employees’ competency. It also facilitates aim determination, helps in plan preparation, and facilitation of better services to customers, it makes it easy to take judgment, enhance performance measurements, furnish effective management control, and make it possible to maximize profits, safety and security from trade cycle. All of which are important in ensuring that the companies thrive exceptionally well in their processes.
Management accounting systems keeps advancing and its involvement in the management of the organization has increased. It is therefore essential that management accountants comprehend not only how to account for MAS practices for example ABC, but also how to be aggressive in their implementation and management in order to achieve maximum benefit for the organization. In their study they investigated if the thirty finance managers of the Company-A knew of the significance of adopting the MAS practices.
The study also sought to establish the type of link between strategic initiatives and advancement in the manufacturing sector. Any firm should aim to obtain and enhance financial benefits and having empiric facts of the effectiveness of MAS practices should be vital for any organization. The findings indicate that twenty six point eight per cent of the manufacturing firms use a minimum of one of the MA practices. Furthermore the evidence shows that there was a higher consciousness level of the value of using the MAS practices among the finance managers, although the high level was not liked with the usage level of those practices.
Their study revealed a strong affirmative association between using MAS practices and advancement in organizational performance. From the above the articles, it is clear that MAS practices affect the organizations in one way or the other. However, the variables considered are not similar for every organization. Internationally, the lack of adoption of advanced MAS practices as reported by the studies, but incompatible with respect to single techniques. Therefore, a strong affirmative alliance between using MAS practices and organizational activities results in innovation and maximum production.
Specific outcomes or lessons learned from each of the two articles’ research findings that will be useful for management accountants in Australian companies to learn from
According to the first article by Watts, Yapa & Dellaportas (2014), management accounting systems are important tools in the creation of new information in an organization that arises from social interaction. In addition, the article indicates that the firms are responsible for creating a process which provides their structure. The article also indicated the interactive nature of the two firms in project development composed of different people from various backgrounds operating in intense continuous communication.
Watts, Yapa & Dellaportas (2014), indicated that companies develop different products. In this case, the four major lessons or outcomes from the research findings of management accounting are explained below in accordance with every organization. First, the research on Company-A, indicated that an organization’s management is based on syntactic data or information like profit analysis and ROI which create meaning or emergency in the information.
In addition, this system is supposed to create an organization’s meaning made up of stagnant bureaucracy. Further, the research indicates that different channels that are created for syntactic information communication are not recommended for transmitting semantic information. Therefore, research indicates that “In a syntactic channel, semantic information is interpreted as merely “fluff” without pragmatic use.” This implies that Australian companies should have a well-visualized structure that helps in the flow or transmission of an organization’s information without meeting barriers. By doing so, companies will be confined as being Number One (or Two) in every business we are in” or “keeping ROI above some arbitrary number”(Watts, Yapa & Dellaportas, 2014).
Second, the research on Company-A Watts, Yapa & Dellaportas (2014), indicated that synthetic rules should not be miss taken by employees in an organization so as to achieve the business objectives and motivation of leaders. In case, Australian companies don’t put this issue into consideration, they will not be in the position to fix or minimize the risks that may arise in an organization’s rank and file. In addition, the situation may lower down an organization’s breakeven point hence limiting the creation of information which may affect the growth of a company. Therefore, Australian companies should consider these two findings obtained from the research concerning Company-A.
According to the other article by Nwogugu (2015), an organization’s leader helps in maximizing the creation of information for an organization. In addition, Nwogugu (2015), indicated that the leader of an organization not supposed to behave like a military commander but instead be a catalyst for better business performance. Further as per Nwogugu (2015), a leader in an organization is supposed to create a way of selecting useful people in an organization by at times making arguments with them and also assisting them to overcome different barriers thereby helping them attain their vision.
Therefore, leaders in Australian companies should be in the position to effectively perform their roles in the organization so as to ensure effective information transmission (Nwogugu, 2015). Finally, Nwogugu (2015), indicates that a small group of managers in an organization can create up a difference in the innovation processes. For example, Apple computing Inc., incorporated a small number of people to integrate the company’s software and hardware systems so as to ensure effective operations. With the help of intense interaction, the company was in the position to ensure effective information transmission. Therefore, Australian companies are supposed to ensure intense interaction between its members as a way of exhibiting their commitment.
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