advanced models for management

There has been a rich supply of management accounting in the last few decades (two decades or so) in most of the literature that is presently available. These developments have been viewed in management terms of accounting frameworks, which are often labeled with acronyms like SMA and ABC. Suppliers of these models have built them accordingly based on their tastes and industry importance. These versions are sometimes referred to as components or sets (Cadez & Guilding 2008, p.850). The main aim of this work is to thereof discuss the key elements of these innovations and the impact they have had on the current global business community considering the growth in technology surrounding the various businesses.

The success of these innovations has highly been dependent on the technological advancements we are experiencing in thus millennial age. Its therefore relevant for clear depiction of these innovations to be made so that those in businesses can know their merits and demerits and also be at liberty to choose which one suits their business demands well (Suddaby, Saxton & Gunz 2015, p.60). Knowing the reasons as to why the management accounting has adopted such techniques will also assist in understanding the effects they have on the global business world.

Models

Environmental accounting

This is where traditional accounting and financial principles are used in calculating the costs in which business decisions are supposed to have n the environment (Hopper et al., 2009, p. 510). For instance before one chooses to close down any manufacturing plant and resorting to the outsourcing of such functions to a corporation that is foreign this kind of business will use environmental accounting in determination of short and long term effects of the decisions that they may have made (Emiliani, 2007). Such evaluation includes the unemployment effects the plant will have on the locals this has therefore been championed as a component of corporate social responsibility. To implement environmental accounting three methods are often used by businesses i.e. national income, managerial and financial accounting (Gerdin & Greve 2008, p.998). For financial accounting the reports are prepared and presented to investors and even lenders (Beehr et al., 2009, p.17). In such situations the environmental estimates shall be presented as part of the financial accounting report.

The managerial accounting is meant for decisions that are to be made internally. Data is collected regarding what the senior management used to make decisions especially those surrounding procurement. Government agencies also use environmental accounting to make calculations on the gross domestic products of the nation and the effects of business decisions on the wellbeing of the country’s economy (Widener 2007, p.770). The implementation of environmental accounting can be done by any business regardless of its size or market value. Al the elements of a business need to be in place for any success to be felt whether it’s a small or big business. The employee needs to be communicated to by the managerial team regarding the benefits of environmental accounting if the business has to grow (Li et al., 2012, p.46). This technique has largely replaced the traditional way of doing business in the sense that traditionally financial accounting; managerial accounting and national income accounting were never grouped together as one to make up the environmental accounting (Richardson & Kilfoyle 2012, p.79). In this situation it’s clear that the three work in coordination to reflect environmental accounting.





ABC

Activity based costing is a method that managers have adopted for reporting of internal costs and making decisions. This system has not been allowed for external financing reporting but companies still find it useful to have it enacted so as to have a more effectively analyzed data. The excel of ABC is able to assign costs to products which are manufactured and many different activities support them (Poullaos & Sian, 2010). This system has replaced the traditional job order costing systems and they differ in how they are used. The use of traditional costing led to assignment of only costs related to manufacturing. With ABC all the costs that affect both manufacturing and non manufacturing activities are covered. Companies have now been able to make accurate costs of their products (Taipaleenmäki & Ikäheimo 2013, p. 333). Under traditional costing systems the warranty repair costs have never been considered as costs of production even if the warranty repairs may not be incurred by the company if it was not involved in the manufacture of the product. Under ABC the organizational sustain costs are excluded from product costs.

The costs of heating and cooling under traditional system are included in the costs of the products even if they will be incurred under large or small numbers (Weißenberger & Angelkort 2011, p.168). With ABC such costs are excluded and the management only looks at relevant costs. The overhead costs under traditional methods are assigned to products with the predetermined overhead rates of the plant (Solomon & Fullerton, 2007). With ABC only the activity pools are assigned such costs with separate rates being calculated for every activity. This therefore implies that if a company uses ABC its able to determine the various costs incurred in setting up a machine and also in the designing of the products. With the ABC systems management reports are produced which assists in internal decision making processes (Young 206, p.579). A lot of decisions are required in the implementation stages and therefore care needs to be taken for the effectiveness of this method to be felt.

Throughput accounting

This type of accounting is simplified basing on the theory of constraints principles. It makes management that is growth driven to be simpler as well as the decision making process. This becomes even understandable for anyone that is not familiar with the accounting that is traditional (Jennifer et al., 2016, P.371). This system also has an approach that is different compared to the traditional accounting. The traditional system always focuses on the control of cost and the minimization of the unit cost while with TA whatever it strives for is maximizing on profits. This accounting technique sets the basis for any throughput analysis thus assists in decision making in the theory of constraints way (Malmi & Brown 2008, P. 291). It however should be noted that it does not replace the traditional GAAP whether it’s in medium term or short term it however provides a set of KPI’s that are limited which are still sufficient in managing and making decisions in a way that is growth oriented and ToC.

This accounting technique also allows reporting to be faster and the management is near to real time figure based. People are also assisted in operations of understanding all the basics of accounting. A common base for controllers is set using this model where decisions and operations are discussed (Kilfoyle, Richardson & MacDonald 2013, P.390). When ones goal is to make money now and in the future this model assist one to use drivers that can assist them achieve such goals. It strives at maximizing throughput and at the same time minimizes the expenses for operating and investments. Its well known that throughput lacks limits unlike operating expenses and investments which have limits in which if a certain point is reached the same operations cannot be envisioned further. In any system that has capacity constraints throughput is controlled by the sole constraint (IMA, 2008). This accounting model has also set the base for any throughput analysis and this assist in decision making in the theory of constraints way.

Kaizen cost system

This is a continuous improvement cost used in the reduction and management of costs. This is simply the act of one making continuous improvement in small activities and not just making one large and major innovative improvement (Hemmer & Labro 2008, p. 1213). This replaces the target model and the main difference between the two is that with target costing its only applicable during the stages of designing unlike Kaizen which is used the manufacturing stages of a product’s life. Kaizen costing works with the objective of reducing the actual costs of manufacturing a product which is targeted to fall below the standard cost (Ratnatunga, Michael & Wahyuni 2015, p.30). The standard cost system aims at the achievement of the cost standards that are set by the management.

The potentials of cost reduction are usually smaller with kaizen costing and this is because the products are often already in the stages of manufacturing and therefore a significant proportion of the cost is already locked in (Balakrishnan, 2010). With this model the cost reduction plans are tracked on a monthly basis and its targets expressed in resource terms that are physical. Review by the senior management often starts if the head of the kaizen group does not achieve the costing target by even 1 percent. This ensures resource consumption is tight and well controlled (Bhimani 2009, p.4). All the cost reduction are planned and monitored through the Kaizen cost targets using the physical resources. Some of the rules to be observed while implementing this model include but not limited to identification of problems, grading of the problems into minor, difficult and major, selecting of the problem that is minor and dealing with it first (Chenhall 2003, p. 163). Among the steps also we have ensuring is a daily routine, refusing to accept status quo, always be open to ideas and trying them out, sharing of experiments and their outcomes with colleagues, eliminating experiments that have already been tried but failed and always highlighting the problems without hiding them

Life cycle costing

This model or tool was developed in assisting the asset managers to make good decisions based on carrying out a systemic assessment of the life cycle costs of any selected water and assets in relation to waste water (Dane 2016, p.380). The users, owners and managers are tasked with the role of making decisions on the acquisition and the use of different assets including that include items of equipment and the facilities under which they are housed. The initial cost for outlay capacity is often defined and a factor that is important in influencing the choice of asset is usually given. In making the right choices for investment in assets the initial capacity outlay cost is just a portion of the entire costs over the life of an asset which needs to be put into consideration in making of the right decisions (Beyer, et al., 2010, p. 300). The total cost involved in asset ownership is far much greater compared to the initial cost for outlay and vary significantly among alternatives to any operational need. Once the cost is considered over the whole life of any asset a sound basis is provided for good decision making.

This is because it’s possible for anyone to assess the future resource requirements, comparative costs of potential acquisition, decide on sources of supply, account for any resources used present and in the future and improve the design of the system. With this model also one is able to optimize on the operational and maintenance support using detailed understanding of input requirements in relation to the expected life cycle (Ahmed & Duellman 2013, p.28). This life cycle costing is therefore as simple a a table of expected annual costs or even be as complex as a model which allows creation of different scenarios based on some assumptions regarding future costs. Its effectiveness and use is therefore solely dependent on how you decide to design it. Provided it achieves its objective of analyzing a system or component over a given period of time in its life cycle.

Conclusion

From the discussion of these models it’s evident that they are far much improved versions of the traditional accounting models used by management accounting. They are designed in a way that any business which adopts them and uses them it’s more likely to feel greater and better impacts compared to the traditional means. Most of these models are cost effective and computerized requiring little human resource to operate them. This simply means that with advancement in technology and almost everyone going digital it will be difficult for any business to thrive in this competitive world if they do not adopt these models I running their businesses. A lot of profits are realized with these modern accounting techniques and the cost of input is worth the total profits the businesses make while using them. However just like any technology they come with their own expenses and whoever chooses to use them needs to be ready to pay the cost in order to realize their ultimate importance. Any computerized tool is vulnerable to loss issues if care is not taken and might cost the company a lot of money. But with well trained personnel to manage them the profits outweigh the expenses.





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