Contemporary Management Accounting (part 2)

5. Total Quality Management Continuous improvement is crusial to establish a state of manufacturing excellence. Making products with little waste are the two objectives of world class firms. Manufacturing excellence is the key to survival in today’s world class competitive environment.

A philosophy of Total Quality Management in which manufacturers strive to create an environment that will enable workers to manufacture perfect products with zero defect, is replacing the “ Acceptable Quality “ of the past. This increased emphasis on quality has also create a demand for a management accounting system that provides financial and non financial information about quality.

Service industries also have to improve their quality in bringing their service. Service firms are emphasizing consistency through the development of systems to support employee efforts. Many financial services companies invested heavily in information technology for incoming documents such as applications, checks and appraisal are scanned electronically and stored on optional disks. When a customer calls, a service representative can check the customer’s file on the computer and answer the question immediately. This is in contrast to the old system which required a process that could take up to several days or weeks.

Quality cost measurement and reporting are the key features of the contemporary management accounting system for both manufacturing and service industries. The management accounting system should be able to provide operational and financial information about quality, including number of defects, cost reports and performance reports.

6. Time as a Competitive Element In all phases of the value chain, time is a crucial element. World class firms reduce time to market by compressing design, implementation and production cycles. These firms deliver products or services more quickly by eliminating non value added time and time of no value to the customers such as time a product spends on the loading dock. Decreasing non value added time appears to go hand in hand with inreasing quality. The overall objective of improvement in service quality that resulted from the management time, of course is to increase customer responsiveness.

The rate of technological innovation has increased for many industries and the life of a particular product can be quite short. Managers must be able to respond quickly and decisively to changing market conditions. The correlation between cost and time is the kind of information that should be available from a management accounting information system.

While quality and time are important, improving efficiency is a vital concern too. Both financial and non financial measures of efficiency are needed. Cost is a critical measure of efficiency. Trends in costs overtime and measures of productivity changes can provide important measures of the efficiency of continuous improvement decisions. For these efficiency measures, costs must be properly defined, measured and assigned. Production of output must be related to the inputs required and the overall financial effect of productivity should be calculated.

7. Advances in Information Technology Two significant advances information technology, automated manufacturing connected with computer and supplies tools such as personal computers, spread-sheet software and graphic packages.

With automated manufacturing connected with computers to monitor and control operations, a considerable amount of useful information can be collected and reported to managers about what is happening on the floor. It is possible to track products continuously as they move through the factory and report on the real time basis such as units produced, material used, scrap and product cost. The outcome information system that fully integrates between manufacturing, marketing and accounting. Managers can access the data, extract and analyze it quickly and efficiently.

Personal computer (PC) serves as a communication link to

  • Company’s information system
  • Spreadsheet
  • Graphics

It gives managers with informations to be analyzed and used by all types of organizations. PCs and user friendly software allow managers to do with their own analysis and to decrease their dependence on a centralized information system.

Managers can access information more quickly and prepare many reports. Management accountants have the flexibility to respond the managerial need for more complex product costing. The increased responsiveness of a contemporary management accounting system results cost savings by eliminating the huge volume of internally monthly reports.

 8. Advances in The Manufacturing Environment Improving technology and process is having effect on the manufacturing environment. These changes are effecting on

  • Product costing system
  • Control system
  • Cost behavior and traceability
  • Capital budgeting
  • Others

Traditional manufacturing systems are “ Push Through Systems “, it means that production is pushed through the system and efforts are made to sell as many units as are produced. If production greater than demand, the inventories of finished goods are created or increase. By using Demand Pull System such as Just In Time (JIT) to produce a product only when it is needed or demanded by customers. Demand pulls product through the manufacturing process, no production takes place until a signal from a succeeding process indicates the need to produce.

These might happen with JIT environment

  1. In JIT system, parts and materials arrive just in time to be used in production.
  2. JIT manufacturing reduces inventories to lower levels than in conventional systems.
  3. JIT also increases the emphasis on quality control and produces fundamental changes in the way production is organized and carried out.
  4. JIT manufacturing focus on continual improvement by reducing inventory costs and other economic problems.
  5. By reducing inventories capital, it can be used for more productive investment.
  6. By increasing quality enhances the competitive ability of the firm.

Changing a traditional manufacturing setup to JIT manufacturing allows the firm to focus on quality, productivity and more accurate assessment of what is costs to produce products. Increasing costing accuracy occurs because the ability to trace products in JIT system increases.

Along with JIT, automation of the manufacturing environment can produce a competitive advantage for a firm since automation of the manufacturing allow firms to

  • Reduce inventory
  • Increase productive capacity
  • Improve quality and service
  • Decrease processing time
  • Increase output

Implementation of automated manufacturing typically follows JIT to increase quality and shorter response times. As more firms automate will force other firms to do likewise to survival. There are three levels of automation

  1. Stand alone piece of equipment
  2. Cell
  3. Completely integrated factory

Any level of automation should produce a more focused and simplified manufacturing process. If automation is justified, installation of a computer integrated manufacturing (CIM) system must be implemented. The capabilities of CIM

  • Products designed by CAD (Computer Assisted Design)
  • Test to design by CAE (Computer Assisted Engineering)
  • Products manufacturing by robots or CAM (Computer Assisted Manufacturing)
  • Information system connects the various of automated components

A particular type of CAM is flexible manufacturing system, it is used to produce a variety kind of family products from start to finish using robots and other automated equipment under control by a mainstream computer.

9. Growth and Deregulation in The Service Industry Deregulation of many services such as airlines, financial services, telecomunications, etc, has increased competition in the service industry. Many service organizations are scrambling to survive. In deregulated environment, many of the same issues facing manufacturers began to emerge quality, productivity, cost efficiency, customer satisfaction and time based competition. These competitive issues have made managers of service companies more conscious of the need to use management accounting information for planning, controlling and decision making. The service sector will increase its demand for management accounting information to get better information and productivity.

The aim of description above to tell us that accounting continues to follow the demands of the information needs and development of management needs. It is also a proof that the accounting is always trying to present information that is accurate and reliable for planning, controlling and decision making process which done by managers in all levels of organizations.

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One Response to Contemporary Management Accounting (part 2)

  1. Anonim says:

    That’s a good article and I like it…^^

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