Improvements in Management Accounting System

Improvements in Management Accounting System

Introduction

Management accounting is a necessary process that ensures planning, directing, and organization of financial data is carried out effectively and efficiently.  When an organization has ineffective management in accounting, the possibility of the firm or the business to fail or decline is highly rated. Most of the enterprises strive to manage their economic agendas and the general operations to secure their market. Management accounting similarly evolves with time and generation. New improvements in value chains and value-added activities are implemented to ensure the firm meets the standard of production and win the competitive market. The management accounting process entails activity-based costing, activity-based management, target cost, and balance score approaches of the firm.

The present management requires modern techniques to operate the accounting operation for effective and efficient business operations. (Malina, 2018). These advanced techniques are mostly the standard mechanisms most of the companies apply to run their businesses. In this competitive age of business operation, standard methodologies should be primarily used to stay on top of the market. These conventional techniques are the modern contemporary techniques that the current businesses deploy to improve the accounting management process.

Thesis: The article emphasizes on how the modern management accounting techniques provide better performance on the accounting supply chain processes compared to the traditional methods.

Improved value chain and value-added activities.

The costing management in the traditional transactional processes promotes to the massive loss of resources and funds.

Most of the digital firms are implementing the new activity-based costing and activity-based management to trace object costs, allocation of cost objects, analysis of non-financial and financial operations, and rate the importance of employees in the firm.

Firstly, activity-based costing identifies all the overhead operations that are related to the production of each item or product. This methodology is different from the traditional costing, where overhead rates are being added to the direct cost of production of products. The conventional costing process is more comfortable and straightforward to understand, making it suitable for outsiders but not the internal account managers. The traditional costing capability of not being able to report accurate image of the cost of a product calls for the implementation of activity-based costing where it identifies particular products that are highly profitable and those that are not within the firm. In (Jittrapirom et al., 2017) example, it is determined that the supply chain accountants are presently using activity-based costing to estimate travel demands and the cost of each journey. A critical improvement the activity-based costing has facilitated against the traditional costing is the expansion of many indirect costs, which may be efficiently allocated to a particular product. (Mahal & Hossain, 2015). This activity gives the accurate price that is intended for each item or product. Most of the businesses that produce goods prefer the ABC/ABM approaches in their value addition activities compared to traditional costing, which is the best in-service evaluation.

Since the managerial accountants prefer better methodologies of improving the supply chain activities, they need accurate product cost preferring activity-based costing rather than traditional costing. Additionally, activity-based costing improves decision-making capability in the firm, a property that could not be easier when we consider traditional costing.

Activity-based management is the best method of improving processes and profitability in this dynamic business environment. (Plowman, 2017). The activity-based management manages cost by its functions when the entire project needs to be maintained — additionally, the system group workers into direct contributors and those that contribute indirectly. The most crucial activity the activity-based management performs to improve value chain activity over the traditional costing is the judgment of the departmental managers against their budget achievements and expectations.

The ABC/ABM has ensured supplier negotiation, product management phase, inventory optimization, resource allocation, strategic pricing, and customer servicing in the supply chain process.

Target cost.

The capability of reducing the operational cost and the control cost can be achieved and monitored by the target cost mechanisms. This methodology is different from the traditional process, where the total and the target cost was being estimated. The value-adding method requires an accurate target cost to be achieved for the account managers to distribute adequate funds for the project. The precise target cost estimation will provide transparency, loyalty, and trust for the project owner within the lean value supply chain. (Yu et al., 2019). The target cost is among the financial goal in which the full cost of an item is obtained from its estimate of the price of selling and the expected profit of that particular product.

Since the target cost is estimated using the data that are collected from the user, managers, and other employees, there is a need for data collection and analytical tools that will handle the growing population. The standard actions and existence of digital world generation of data, which offer tremendous opportunities to modern businesses to calculate the target amount of the company. (Pappas et al., 2018). This action call for modern businesses to access, analyze, and provide output using big data analytical tools. The traditional techniques like interviews and questionnaires cannot manage the vast information flow in the growing market. Most of the information is needed to plan, make decisions, and run the daily operations in the firm based on the set cost target. The cost target is set to reduce the cost of business operation and target ways of maximizing profit for the business.

Balanced scorecard

Before the introduction of a balanced scorecard, industries used traditional accounting techniques like return on investment (ROI) and earning per sale to generate financial data of the firm. These conventional data generation techniques were prone to misleading signals hindering the continuous improvements and the creativity of the firm. For the sustainability and effective management of modern firms, the company needs to apply a balanced scorecard to aid in the value chain improvements and production. (Falle et al., 2016).

Although the traditional financial performance was okay with its duties, the modern companies needed better skills and adequate competencies to compete with other firms in this competitive era. The application of the balanced scorecard was a significant contribution to the business and employees’ performance in the firm. (Gheith et al., 2017).

The balanced scorecard is advantageous compared to the traditional approaches because it can handle both the financial data and organizational operation at the same time. The balanced scorecard can be categorized into four essential perspectives like financial, customers, internal business, and innovation and learning perspective. (Rajaprakash and Ponnusamy, 2016).

From the financial perspective, the balanced scorecard measures the cash flow of the business, increments of the quarterly sales, operating income, and market share of the company.

The customer perspective measures the new product sales percentages, timely deliveries, accounts management, and the capacity of the cooperatives in the businesses.

Internal business perspectives measure the applicability of the technology in the firm, production performance, and product designs.

Innovation and learning perspectives measure transition duration, processing time, sales performances, and new product introduction against sales.

Conclusion

The modern techniques in the account management processes have eased the tasks of numerous account managers, especially in the value chain and value addition processes, to aid in the improved performance of the firm. Previously, all the budgetary and finance records were kept in files that can be easily lost or stolen, the modern techniques like a scorecard, activity-based costing, and activity-based management provided a solution to this tragedy. Similarly, the previous projects were characterized by project failures and mismanagement as a result of improper cost estimation. The introduction of the target cost strategy has boosted the performance of many projects and firms. Generally, these adopted value chains and value-added activities have ensured accuracy, effectiveness, and efficiency in business performance; hence, they can quickly boost the accomplishments of the accountant operations. The future trend in management accounting may contain more sophisticated systems that can handle intelligent operations to improve accounting operations further.

References

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