Advanced Management Accounting Assignment - Doc

Advanced Financial Accounting &
Advanced Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. BALANCE SCORE CARD.........................................................................................................1
1.1 Advantages of Balance Score Card.......................................................................................2
1.2 Disadvantages of Balance Score card...................................................................................2
1.3 Success case of Balance Score card......................................................................................3
1.4 Failure case of Balance Score card.......................................................................................3
1.5 Perspectives of Balanced Score Card....................................................................................4
2. ACTIVITY BASED COSTING ................................................................................................6
2.1 Advantages of Activity Based Costing ................................................................................7
2.2 Disadvantages of Activity Based Costing.............................................................................8
2.4 Success case of activity based costing..................................................................................9
2.5 Failure case of activity based costing....................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is referred as frequent accounting method which is used for
offering and supplying various data for process of decision making. The present report will
discuss about two essential management accounting method that is balance Score card system
and Activity based costing. It will provide critical analysis of both systems with statement of
“Management accounting techniques have no limitations”. In the same series, it will justify
Balance score card with its advantages and limitation. It will specify failure and success stories
associated with BSC. Further it will classify about Activity based Costing along with merits and
demerits as well. The quality devices and systems of management are associated by company
under various circumstances. Without a bona fide thought to the suggestions on the whole deal
advancement of the change philosophy and process, the devices and systems are associated in an
aimless route at the outset times.
In this report management accounting methods are frequently viewed and determined as
an essential device which could be used for supplying data and information n order to take
decision. In addition, it also cultivates particular sorts of conduct in a company. There are lot of
up to date method that are developed in these few years and shares a solid spotlight on exercise
of forms at a level of point in the firm. While on the other hand, some methods have generally
more grounded centre around the control such as balanced scorecard.
This paper will create understanding of the modern as well as conventional methods
which are; balance score card and activity based costing respectively. Furthermore, it will
provide with some success and failure cases of each methods.
1. BALANCE SCORE CARD
The balance score card is referred as very important tool of performance measurement
system. The system helps in institutionalize different aspect for understanding organization's
management nature. It integrates social and technical view if BSC. This view with context of
performance measurement is appropriate but it does not qualify each radical kind of approach
given by BSC (Abadi, Sari and Widiyarto, 2018). The ultimate goal behind balanced scorecard
theory is to measure the factors that create value for an organization and directly influence its
ability to prosper. For accomplishing success in the future, it is very important to implement the
use of BSC as it helps in attaining corporate objectives. As per the views, this concept is closely
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related and innovative aspect of analysing performance. In the present scenario, it is complex and
complicated as well as it provides scrutiny solution (Akkermans and Van Oorschot, 2018).
The organizational success could be achieved with application of balance score card as it
lays emphasis on full matter of concept. If BSC could be understood in perfect and appropriate
aspect, then for accomplishing organizational success is very easy through appropriate
measurement (Amaratunga, Baldry and Sarshar, 2010). The whole vision, mission has been
translated along with organizational strategy. According to this system BSC is into 4 elements
that is customer, financial, organizational learning and growth with process of internal business.
According to Angeline, Boon and Teng (2015), elements of BSC provides brief description
about performance measurement metric.
1.1 Advantages of Balance Score Card
As per Dudin and Frolova, (2015), it gives strong framework for communicating and
building strategy. The business model which directly visualised with strategy maps as managers
are forced to think with effect and cause relationships. The consensus is ensured with setting
interrelated strategy objectives. In the similar aspect, strategy communication is improved and it
has presence of interrelated objectives which are mapped and communicated externality and
internally. The understanding of strategy has been facilitated which helps in involvement of staff
and external stakeholders for reviewing and delivering strategy. According to Kaplan and et.al.
(2010), organisations are forced for designing key performance indicators with context of
strategic objectives.
Generally, organizations with BSC tends for reporting high quality of information of
management along with raising benefits with application of information for guiding management
insights and strategic decision making. As per views of Lipe and Salterio (2010), performance
reporting is improved with application of Balance score card and it is communicated in better
form with absence of structured approach to performance management. In the similar aspect, if
clear management reports are created along with dashboards increases requirements and need for
transparency in both internally and externally as well (Syahdan, Munawaroh and Akbar, 2018).
1.2 Disadvantages of Balance Score card
According to Lueg and Vu (2015), BSC is not perfect it comprises various limitations as
well. It has huge need of high investment with long term perspective as it is long termed instead
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of solution for short term perspectives. The organization must be capable for managing its
system in constant and active manner which is originated from financial and time cost. As per
views of author, BSC must be purchased through all employees for working in efficient aspect.
In the similar aspect, if all employees are not capable for understanding its method of operation
then its benefits would be invisible (Martello, Watson and Fischer, 2016). These particular
resistant for alteration might incur problem with accepting innovative system. It has been stated
that effective BSC helps in aligning strategic objectives and separating in various measurable
metrics. If this information is not communicated and planned in proper aspect, then it will not
generate desired outcome. Moreover, it has been analysed that the scorecard is not a decision
making tool, it just assist the firm in performance evaluation (Kaplan and et.al., 2014).
According to Keyes (2016), measurements and control are not consistent then it might
produce similar benefits across whole business. If special emphasis is laid on metrics, then it
could divert overall strategic direction. The useful information had been provided through BSC
on major areas for improvement aspect, then it might create ability for spotting these indicators
and for implementing proper strategy on its own (Hansen and Schaltegger, 2016). This could
directly prompt for work on various areas without requirement of improvement and to avoid
them as well.
As per views of Niven (2002), it might provide broad internal focus but with absences of
full external picture. Generally, customers are considered but without factor of key performance
indicators like competitors or alterations in business environment. In the similar aspect, it leads
for focussing on internal performance and deficient of awareness of external performance which
has influenced operation of organization.
1.3 Success case of Balance Score card
AMEDD extracted direction in strategic planning
The Army Surgeon General and Commander of US Army Medical Command champion
had implemented BSC as principal tool for improving fiscal and operational effectiveness for
meeting requirements of stakeholders and patients as well (Ramli and et.al., 2018). It has been
contributed with mission and vision of organization along with ways and methods for focusing
on performance to attain the ending objective (Voelker, Rakich and French, 2010).
1.4 Failure case of Balance Score card
Balance Score Card in China
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With movement of BSC in Chinese social setting, barriers are confronted with extent of
social changes along with Chines culture shapes individual’s administrations conduct and
practices as well (Ayoup, Omar and Rahman, 2015). The appropriate optimisation of BSC is
expensive and tedious. If strife has been caused through BSC, Chinese workers might not be
preference with tolerating content in US style with immediate decisive and complaint bargaining
(Papalexandris and et.al., 2015). It has been fully advised with whole life for non-self-assured
and critics for dealing with other contentions. With context of execution related to money is not
enhanced in short duration. The question of Chinese supervisor has initiated question for
efficient BSC along with 4 budgetary perspectives.
1.5 Perspectives of Balanced Score Card
Basically there four perspectives that have been briefly discussed below:
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1. Financial perspectives: Financial perspectives such as; return on investment, net income
are used in balanced score card, as all profit organizations make use of them. These
performance measures provide organizations with a common language through which
analysing and comparing could be done for company (Shen, Chen and Wang, 2016).
Financial institutions and shareholders which provide company with funds, rely heavily
on these financial resources, as it helps in deciding whether to invest funds or lend them.
Organization's success could be shown aggregately by properly designing these financial
resources (Perspectives in Balanced Scorecard (4 Perspectives), 2018).
2. Customer Perspective: This measure of customer perspective give its main emphasis to
identification of customer and market segments by managers in which the business unit
will compete and the measures of the business unit's performance in these targetted
market segments (Tan, Zhang and Khodaverdi, 2017). It also includes several kinds of
core or generic measures of the successful outcomes from a well formulated and
implemented strategy (Syahdan, Munawaroh and Akbar, 2018).
3. Internal Business Process Perspective: In this, internal processes are identified
critically evaluated in which the organization must excel. This process enables the
business organizations to deliver the value propositions that will attract and retain
customers in targeted market segments and it also satisfies shareholders expectations of
excellent financial returns (Kaplan and et.al., 2011).
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Illustration 1: Four perspectives of balanced score card
Source: (Perspectives in Balanced Scorecard, 2018).

4. The Learning and Growth Perspective: This type of perspectives focuses on the
capabilities of people for the purpose of incentive generation. For developing employee
capabilities, managers would be responsible. As key measures for evaluating managers
performance would be employee satisfaction, employee retention and employee
productivity (Hladchenko, 2015).
 Employee Satisfaction: It recognises the importance of employee morale for
improving productivity, customer satisfaction, quality and responsiveness to
situations (Balanced Score Card: Concept, Advantages and Limitations, 2018).
 Employee Retention: To assure employee retention firms have recognised that
employees develop organization in the way of specific intellectual capital and provide
a valuable non financial asset to the company (Zhao and Li, 2015).
 Employee Productivity: It recognises the importance of output per employee.
2. ACTIVITY BASED COSTING
Activity based costing was firstly defined by Robert S. Kaplan and W. Bruns in 1987.
Activity based costing is an accounting method which assigns cost to the overhead activities by
identifying them and afterwards those costs are assigned to the products (Anzai and et.al., 2017).
Activity based costing system identifies the relationship between cost, overhead activities and
manufactured cost. This relationship helps in assigning the product's indirect cost which is less
arbitrarily compare to traditional methods. By the traditional costing system, the management
cannot determine accurate cost of the product or service which helps managers in making
inaccurate decisions based on inaccurate data in case where number of products are available
(Babad and Balachandran, 2013).
It is extremely important for the management to assign indirect cost to the product or
service especially in the case of downsizing or outsourcing. Since it gives reliable cost data, it is
mostly used in manufacturing industries. Activity based system traces the activities which is any
event like unit of work, task with a particular goal, designing of products, for production setting
up of machines or operating machines, distributing finished goods (Bennett and James, 2017).
This system helps in identify and eliminate the products and services which are unprofitable and
the products and services which are ineffective. It is mainly used to support strategic decisions
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like pricing, outsourcing, identification and measurement for the initiatives of process
improvement. In the activity based costing system, there are two type of categories which
measures activity first one is transaction drivers, stands for counting an activity how many times
occurs and second one is duration drivers, stands for period taken by the activity for the
completion (Bergeron, 2017).
Besides traditional cost measurement system, it is depending on the volume count. Five
broad levels of activity are classified under the activity based costing system. These level consist
batch level activity, unit level activity, customer level activity, organization- sustaining activity
and customer level activity (Brimson, 2015). This system is focus on cost allocation in
operational management. Simply Activity based costing is used to identify-
 Target costing,
 product costing,
 product line profitability analysis,
 Customer profitability analysis, and
 Service pricing (Turney, 2011).
2.1 Advantages of Activity Based Costing
According to CLlarke, Hill and Stevens (2010), activity based costing gives benefit of
accurate cost of the product. It helps in find the activities which cause cost, not product and also
helps to bring the accuracy and reliability of the product cost. It increases the understanding
about cost drivers and overheads. Where we need that the product cost will be more realistic we
use ABC system. It allows us to find costly and non-value adding activities which improves
analysis of product profitability and customer profitability. Garcia and et.al. (2017) stared that,
activity based costing determines the actual nature of the cost behaviour which helps us to reduce
the cost of production /services and make more visible that activities which add the value to the
product.
So in this order activity based costing gives information about cost behaviour. As per the
view of Henderson and et.al. (2015), this activity based costing system uses number of cost
drivers which are based on transaction not on the volume of the product. This information on
transaction volumes can be used for either the designing of new products or existing products.
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This system discovers the cost of the areas such as managerial responsibility, customers,
processes in addition of the product cost. As we can use more reliable cost data of the product, it
improves making manger's decision. Klychova and et.al. (2015) said that, it helps in fixing
product's selling price. Compare to traditional costing system, activity based costing system
provides reliable and accurate cost data of the product, because traditional costing system using
arbitrary apportionment and absorption methods whereas activity based costing system is based
on information of transaction volume and in the cost occurrence, focus on cause and effect
relationship Tappura and et.al. (2015).
As per the view of Maas, Schaltegger and Crutzen (2016), activity based costing enables
us to calculate more accurate cost of the product with the mechanism of managing costs. This
system provides a platform in which resource relationships are identified that are used in future
resource requirements of the project.
2.2 Disadvantages of Activity Based Costing
According to Macve (2015), the advantages of the activity based costing it is clear that
the system provides accurate and more reliable data and better information compare to the
traditional costing system, but still activity based system is not useful for the all managerial
problems. This system requires multiple number of cost pools and cost drivers which leads it to
be more complex and more costly than the traditional costing system. Malmi (2016) stated that,
in the implementation of the activity based costing system some difficulties rises like selection of
cost drivers, common cost of assignments, varying rates of the cost drivers etc. Also it requires
significant amount of cost and time for the implementation. Those firms which are depends on
cost-plus pricing that can take more benefits from the activity based system rather than the firms
which based on market price (The Disadvantages & Advantages of Activity-Based Costing,
2018).
Nitzl (2018) demonstrated that, for different organizations, this system has different
levels of utility so firms at large scale can use it more useful than the firm at small scale. For the
implementation of the activity based system it requires accurate measurement. It requires
management the estimate cost of the activity which helps to identify and measurement of cost
drivers, act as cost allocation bases. According to Ray and Gupta (2010), the basic system of the
activity based costing requires many calculations to find the cost of the product and services. For
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understanding some non traditional techniques like new terminology, concepts and performance
measurement system requires employees and managers must be educated. Activity based costing
system requires additional time to analyse activities which are taking place in activity centres
(Schniederjans and Garvin, 1997).
2.4 Success case of activity based costing
As per the view of Renz (2016), many of the activity based costing systems are said to be
a failure, as use of ABC for surveillance by the group management leads to propose the claims
on ABC failure result from assessing the use and value of ABCs from the decision making
perspective. It is possible that the decision making perspective may be insufficient for capturing
the multiple use of ABC which are put in practice.
2.5 Failure case of activity based costing
Ross (2017) stated that, it is also recognised that ABC is a procedure which improves the
accuracy of product costing and also assists managers in understanding and evaluating the use of
resources across a firm's value chain in delivering strategic outcomes.
CONCLUSION
From the above study it had been concluded that advanced financial and management
accounting are very important for business entity. It had been articulated that there are various
management techniques for measuring performance. It is shown that activity based costing and
balance score card plays very important role with context of corporate and each organization.
Generally, every organization has face success and failure on basis of implementation and
evaluation with example of BSC in China and AMEDD. Further, it has been concluded that
management accounting techniques have presence of advantages and limitations as well which
helps in accomplishing success. Balanced score card makes it simple simpler for upkeep
employee and manufacture employee who are actually arranged to talk with the upper level
administration in the dialect that supervisors comprehend. Therefore, by utilising the correct
economic components, they can appraise the reserve funds estimated from the efficiency change.
Recommendations that could be given are; speculations required and should settle on a
monetarily astute decision.
By setting up balance score card, the organizational performance will not enhance and
upgrade. Basically, it will provide firm's managers with some comments to recognize the firm's
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efficiency in accomplishing the strategic decision. However, its beginning from a distinct
characterized technique and with the utilization of balanced score cards have produced chances
for the methodology to delineate and convey one of the most ideal method.
For the balance score card in China, it is recommended and suggested that they should
train together into comprehensive likewise direction and courses which are expected to be
enhancing worker capability and accomplish satisfactory balanced score card application. To
appropriately assess performance, upper level administrative should use both normal and
extraordinary measures.
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