Journal Article Critique Assignment (30 Marks)
You are required to read the journal article by Watts, Yapa and Dellaportas (2014), “The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company”, Australasian Accounting, Business and Finance Journal, 8 (2), p. 121-137. The journal article is attached as a separate file in Blackboard under the folder <Assignment>.
Required: Critically evaluate the role of management accounting systems (MAS) and the provision of accounting information for the case company by answering the 4 questions below:
Questions:
1. Identify any three (3) specific examples of the different types of management accounting methods and/or techniques from the case. (3 marks)
2. Are MAS relevant to contemporary organisations? Discuss this with reference to:
i) What evidence is there from the case company? Include examples in your answer. (5 marks)
ii) Compare and contrast this finding with one other journal article you will need to find that has discussed about management accounting systems in another real-life company or companies. Did this second study have similar findings as the first chosen article, or mixed and/or different findings? Explain with examples. (5 marks)
3. What conclusions do you make about the relevance of MAS in today’s competitive and (in most cases) uncertain business environment? (4 marks)
4. Provide four (4) 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, and justify your answer [i.e., provide 2 outcomes from each of the two studies]. (8 marks)
The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company
Abstract
The study investigated the understanding related to the management-accounting system (MAS) and their application in different organizations. To achieve this objective, two articles relevant to management-accounting system (MAS) were selected and examined accordingly. The results of the examination suggested that management-accounting system (MAS) helps to improve the decision-making process in organizations. It also helps to increase the details related to data for better decision-making. Cost accountants are able to calculate an accurate cost per unit to formulate accurate reports for the management. It is important not to ignore the importance of employees’ skills regarding data analysis under the new management-accounting system (MAS). Appropriate training should be provided to employees for data analysis training in case they lack such skills. According to the 2003 list of Fortune 500, approx. 51% of the companies successfully implemented management-accounting system (MAS). The study also suggested that companies experienced an increase in the level of sales growth, ROI and operating income with the application of new techniques related to management-accounting systems (MAS).
1-Three Different Types of Management Accounting Techniques:
ABC Management Accounting Technique:
Activity-based costing (ABC) is considered to be one of the most significant management accounting techniques. Activity-based costing (ABC) technique help management of the organization to effectively achieve the Management Accounting related practices. Activity-based costing (ABC) technique is used by the management to allocate the available resources with relevant activities and activities are associated with relevant, cost-related drivers. Different studies have been conducted in the past related to advantages of implementing activity-based costing (ABC) technique in the organization. Most of the studies suggested that activity-based costing technique can remove distortions from traditional costing and accounting system, and it is able to provide more accurate and relevant cost-related information to management to make appropriate and better decision-making. Cost related information is considered one of the most significant aspects of decision-making in the management in any organization. Activity-based costing (ABC) technique also helps in managing to effectively formulate an efficient strategy related to operational performance of the organization.
As per 2003 list of Fortune 500 Company, approximately 51% of a company present in this placed vertically able to implement activity-based costing (ABC) technique in their respective organization. This clearly justifies the importance as well as the advantage of implementing activity-based costing (ABC) technique in the organization. Instrumentation of activity-based costing (ABC) technique not only helps the employees to improve their individual performance, but it also helps to improve the overall performance of the organization. Approximately, 18% of the company present in list successfully sustained the application of activity-based costing (ABC) technique for more than approximately four years. Previous studies have also suggested that application of activity-based costing (ABC) technique is considered to be a costly procedure for the organization and there are several issues associated with the application of this technique, especially related to selection of appropriate cost drivers and definition of appropriate relevant activities (Wats et al., 2014).
Just In Time Technique:
Another significant Management Accounting technique is just in time technique. This technique is implemented by the organizations, which are looking to fulfill specific orders on specific demand. In the case, an example related to the application of this technique has been given in which company-A a is associated with performing different types of business function, and it has the liberty of selecting appropriate Management Accounting technique according to need relevance of the system. The company is using SAP software to manage the business operations, and the software has the capability of generating reports based on activity-based costing (ABC) technique, balanced scorecard costing technique, just-in-time costing technique, total quality management, benchmarking, and standard costing. Just in time technique was selected for application mostly because of the fact that few Limited raw materials were involved in the manufacturing process and few steps were involved in the manufacturing process. According to the requirement of the manufacturing process and system, just in time is considered to be relevant management-accounting system (MAS) in this scenario.
This method of management-accounting system (MAS) is considered highly efficient for holding stock. With the application of this strategy, the company is not required to have significant warehouse space for holding the stock is manufactured on customer demand and raw material is purchased according to the ordered quantity. This technique has several advantages from a cost management perspective as cost reduces with the application of this technique. It also helps the cost accountants to accurately calculate the cost of production. Overall, just in time technique can be beneficial for the manufacturing concerns in several aspects as mentioned earlier (Mat et al., 2010).
Balanced Scorecard:
The balanced scorecard is considered another significant Management Accounting technique, which is formulated to implement as well as manage the formulated strategy of the organization. It is closely associated with the vision of the strategic objectives of the organization, targets of the organization, an initiative of the organization and related measurement. According to the example quoted in the case, company-A is involved in the process of manufacturing. Company-A has a utilization of Limited raw material and has a Limited manufacturing process to manufacture the desired end product according to the requirement of the consumers.
According to this scenario, application of just in time technique and total quality management technique is considered to be appropriate for the operations of the organization while application of activity-based costing (ABC) technique and balanced scorecard are not considered to be relevant by looking towards the operations of the organization. This clearly suggests that uses of the balanced scorecard with just in time technique and total quality management technique should be avoided to improve the overall efficiency of the system and operations in the organization (Wats et al., 2014).
2-Relevance of MAS Application in Contemporary Organization:
Different studies conducted in the past related to contemporary organization and management accounting techniques suggested that Management Accounting techniques are well regarded and accepted by every industry. According to the example provided in the case study, it has been concluded that there were some issues with components of the Management-accounting system (MAS) in the application of contemporary organization due to different challenges. According to the results of the case study, the company was not able to completely utilize the benefits of the Management-accounting system (MAS). It is the responsibility of the management to make sure that they fully utilize the available Management-accounting system (MAS) to extract maximum benefit from it. The case study further suggested that company wants to get back towards an old accounting system instead of moving ahead with modern Management-accounting system (MAS). One of the most significant determinants for this challenge is the complexity of the modern Management-accounting system (MAS) in contemporary organizations. Due to the complexity of the modern Management-accounting system (MAS), most of the organizations want to rationalize the system.
Identification of the exact reason for not selecting Management-accounting system (MAS) in the contemporary organization is very difficult to extract, but human element can never be ignored. It is because of the fact that human skills are required to analyze the available data inappropriate manner to make decision-making better for the organization. If the organization is lacking such human skills, then it might influence the performance of newly implemented Management-accounting system (MAS) in contemporary organizational. It is important that appropriate training should be provided to employees in the organization so that they could appropriately analyze the available data in order to make better decision-making. It is not possible to generalize the results of the case study on every contemporary organization because a study is relevant to the organization, which is significant in size and has a significant position with regard to its business operations (Wats et al., 2014).
Comparison of Results in both Studies:
According to the study conducted by (Mat et al., 2010), it has been concluded from the analysis that organizations are moving towards implementing new Management-accounting system (MAS) to make them more competitive by looking towards the current environment of business. Most of the organizations are implementing Management-accounting system (MAS) in order to improve their manufacturing technology as well as design and strategy of the organization. Management-accounting system (MAS) also helps the organization to maintain as well as improve their overall performance level. According to the case study, application of Management-accounting system (MAS) was not able to effectively improve the performance of Company-A mostly because of the fact that employees were working more focused towards application of old accounting system because of the complexity of new Management-accounting system (MAS). They were not in favor of implementing Complex and new Management-accounting system (MAS) as employees were facing challenges in dealing with new Management-accounting system (MAS) (Mat et al., 2010).
It can be suggested that the results of both studies are different from each other. Most of the studies in the literature review suggest that application of Management-accounting system (MAS) is better for the performance of the organization, and it also helps the management to improve their decision-making level. The results of the study conducted by (new) are totally in line with the relevant literature review. The results of the study suggested that there has been a significant increase in competition among the manufacturing company in Malaysia during last 5 years. Due to this fact, manufacturing company in Malaysia is required to continuously improve a manufacturing technology with appropriate application of Management-accounting system (MAS). It is helping the manufacturing companies in Malaysia to improve their overall performance level. The result of study further suggested that it is important for the organization to replace their current Management Accounting technique with modern accounting techniques to cope with competition not only at the domestic level but at the global level as well (Wats et al., 2014).
3-Conclusion: Relevance of MAS in today’s competitive and uncertain business environment:
With the passage of time, competition in the modern business environment is significantly increasing. Uncertainty levels are also increasing in business environments with the passage of time. It is important for the organization to improve its technological level to improve their overall performance level to compete with competitors in the market. The application of modern Management Accounting techniques is considered one of the most significant aspects in this regard. Modern Management Accounting techniques must replace old Management Accounting techniques to improve the performance level of the organization. The application of modern accounting techniques will also help the management in the organization to improve their decision-making process. By improving the decision-making process, managers will be able to manage the operation in a more efficient as well as effective manner.
It can be concluded by studying both articles that application of Management-accounting system (MAS) is very much important for especially manufacturing companies because it helps to improve the manufacturing process by providing detailed data and information to Management, which can be utilized in order to make appropriate decision-making. The literature review also suggested that most of the organizations have successfully implemented a Management-accounting system (MAS) in order to improve their competitiveness level with competitors in the market. It is a requirement of modern business environment to improve the business operations to compete with competitors in the market (Mat et al., 2010).
It is also relevant to the application of Management-accounting system (MAS) that employees working in the organization should provide provided with appropriate training related to utilization of data to make appropriate decision-making. The role of human factor can never be ignored during the application process of management-accounting system (MAS). It is important that employees working in the organization must have appropriate required skills related to data analysis. If the employees working in the organization lack appropriate data analysis skills, then it will increase the complexity for them, and they will tend to move to an old accounting system. To resolve the challenge of modern Management-accounting system (MAS), it is important to provide appropriate training to employees (Wats et al., 2014).
Organizations having a smaller manufacturing process and raw material consumption should consider adopting just-in-time techniques to increase the efficiency of their business. It will help them to reduce their expenses significantly to satisfy specific orders of customers. It is important to understand that just in time technique cannot be implemented in all the organizations because different organizations have different operational capacities and requirements. Some of the organization might be suitable for application activity-based costing (ABC) techniques while some of the organization may be relevant just in time management accounting technique (Mat et al., 2010).
Due to an increase in the level of globalization and increase in the level of uncertainty, it has become significantly important for most of the organizations to improve their operations to advanced technology and cope with the intensified competition level. This can be achieved with proper application of a Management-accounting system (MAS). To increase the level of uncertainty, it has become mandatory to implement new advanced accounting systems. The uncertain business environment needs an enhanced amount of data and information for improving the decision-making of the management.
Two Outcomes from Case Study:
Usage of ABC as Management Accounting Technique:
The case study suggests that the ABC technique should be implemented for companies having a smaller manufacturing process and limited raw material input to fulfill specific orders. The ABC management accounting technique is better than the traditional technique as it helps to provide more accurate cost per unit to cost accountant for the calculation of costing and related aspects. Costing is an integral and important part of the reporting because it is closely associated with the pricing, sales, performance management, strategy and decision-making in the organization. If the cost is not reported accurately, then it will influence the price of the products manufactured by the company, and it will eventually influence the sales and profitability of the company as well. For instance, approx. 51% of the companies listed in Fortune 500 in 2003 were successfully able to implement ABC management accounting techniques. This justifies the practical importance of this technique (Wats et al., 2014).
The complexity associated with New Management Accounting Techniques:
The study suggested that application of management-accounting system (MAS) is a complex and costly procedure. Employees must have appropriate skills to manage the data to formulate reports for the management. It is important not to ignore the aspect of human involvement in the application and usage of management-accounting system (MAS). The company must provide training to employees regarding usage of detailed data extracted from the application of a management-accounting system (MAS). If employees do not have appropriate skills for data analysis, then the newly implemented management-accounting system (MAS) might be complex for the employees, and they might prefer to revert to old management-accounting system (MAS). For Instance, the study highlighted that Company-A employee were not skilled enough to utilize extensive data extracted by using newly implemented management-accounting system (MAS) (Wats et al., 2014).
With an increase in the level of competition, the requirement for the installation of new technology companies is also increasing. It is important to implement management-accounting systems (MAS) to tackle the dynamic environment of modern business. Globalization is also increasing the complexity in business operations, which further requires application of management-accounting system (MAS) for the effective and efficient management of operations. Most of the operational decision-making is conducted at low management level while strategic decisions are made at high management level. To make these processes fluent and effective, management-accounting system (MAS) is necessary.
4-Two Outcomes from Journal Articles
Better Performance:
The results of the study suggested that application of management-accounting system (MAS) is favorable for the organization as it helps to improve operational performance. This improvement in the operational performance of the organization can be achieved with appropriate growth in competition capability and technological advancement. Application of management-accounting system (MAS) helps to increase the availability of data with the management and cost accountants. Cost accountants can utilize the available data to formulate better and informed decisions for the organization and business (Wats et al., 2014). Decision-making is considered one of the most significant aspects of the progress of any organization. According to the analysis results in the study, it has been concluded that application of management-accounting system (MAS) helped to improve the operating income of the organization, sales growth of the organization and return on investment for the organization. Application of management-accounting system (MAS) is specifically important for manufacturing concerns, according to the results of the study.
For example, the operating income of manufacturing concerns in Malaysia without application of management-accounting system (MAS) was 4.9%, while it increased to 19.5% after the application of management-accounting system (MAS). Sales growth was 7.3% without application of management-accounting system (MAS) and 12.1% after its application. ROI was 7.3% without application of management-accounting system (MAS) and increased to 14.7% after its application (Mat et al., 2010).
Management-accounting system (MAS) better for Decision-making:
To improve the Individual performance of management accountants and efficiency of management accountants, it is important to increase level of data availability (Wats et al., 2014). Application of management-accounting system (MAS) is a key source of this objective. The results of the survey conducted in the study suggested that almost 40% of the companies have not implemented changed management-accounting system (MAS) and they are following the same traditional system. 18.3% suggested that they have implemented new management accounting techniques as a replacement. This suggests that approx. 40% of the companies are not able to provide detailed data to cost accountants. Cost accountants work mostly dependent upon the availability of data level. With significant and high-level data, cost accountants are able to formulate better and informed reports for the management for better decision-making (Mat et al., 2010).
Conclusion:
In the end, it is concluded that both studies suggested the application of new management accounting techniques helps to improve data availability which eventually improves the decision-making process. New management accounting techniques are directly important for management accountants to accurately calculate the cost per unit to improve the calculation of sale price, strategy formulation, and reporting. Approx. 51% of the companies from 2003 Fortune 500 list successfully implemented management-accounting system (MAS). Companies which implemented management-accounting system (MAS), experienced increases in the level of operating income, sales growth, and ROI. These achievements can be achieved with appropriate skills of data analysis with cost accountants and employees working in the organization.
References
Mat, T.Z.T., Smith, M. & Djajadikerta, H., 2010. Management Accounting and Organisational Change: An Exploratory Study in Malaysian Manufacturing Firms. Journal of Applied Management Accounting Research, 8(2), pp.51-80.
Wats, D., Yapa, P.W.S. & Dellaportas, S., 2014. The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company. Australasian Accounting, Business and Finance Journal, 8(2), pp.121-37.
