Managerial Accounting

This report analyses the importance of management accounting system in contemporary organisations through two case studies. It identifies specific examples of management accounting methods and compares the findings with the management accounting systems of the two cases. It also discusses the relevance of management accounting system in today’s competitive and uncertain business environment.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student
Name of the University
Author’s note

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Executive Summary
The sole objective of this report is to bring about an understanding about the
purpose of management accounting systems and the way the system can be applied
to different contemporary organisations. In this context, two different case studies
have been analysed. The first case deals with the management accounting system
applied in the multinational manufacturing firms. The second case deals with the
change of environment and the extent up to which the management accounting
system is changing with respect to the environment. It also focusses on the different
types of traditional and modern approaches to management accounting as used by
the different Malaysian companies. The report starts by identifying three important
example of management accounting techniques from one of the cases of the
companies. The report further provides a comparative study of this case with the
other case that is chosen for this paper. Finally, conclusions are drawn from the two
findings and suitable recommendations are provided for implementation of an
effective management accounting system for the companies.

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Table of Contents
Introduction...................................................................................................................2
Discussion....................................................................................................................2
Identification of three specific examples of the different types of management
accounting methods......................................................................................................2
Relevance of Management Accounting System to contemporary organisations.........3
Evidences from the case company..............................................................................3
Comparison the finding with the management accounting systems of the two cases.4
Relevance of Management Accounting System in today’s competitive and uncertain
business environment...................................................................................................5
Four specific outcomes or lessons learnt from the two articles that would be helpful
for the management accountants in Australian companies.........................................6
Conclusion....................................................................................................................7
References...................................................................................................................8

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Introduction
The main objective of this report is to bring about an analysis of the
importance of management accounting system in the different contemporary
organisations. In this context two examples are cited which are focussed on
evidences from real-life companies. The management accounting systems that are
followed in the two companies are identified with the help of suitable examples.
Along with this, the relevance of these systems to the companies are also
specifically highlighted. The case studies that have been used for the two companies
are compared and contrasted on the basis of the specific management accounting
system that is followed in their operations. Considering the next section of the report,
a general brief discussion is provided that would focus on the extent of relevance of
Management accounting system in the competitive and uncertain business
environment that is prevailing in recent days. At the last section of the report the
different specific outcomes that are derived from the two articles are specifically
stated. This would be helpful for the different management accountants belonging to
Australia. The outcomes or the lessons learnt from the two case-studies would help
the management accountants of Australia to develop a suitable system of
management accounting in the operations of their companies.
Discussion
Identification of three specific examples of the different types of management
accounting methods
The contemporary management accounting generally supports three kinds of
management accounting techniques. These techniques are Total Quality
Management (TQM), Balanced scorecard (BSC) and Just in Time (JIT). There are
also prevalence of other kinds of methods of management accounting such as
Activity Based Costing (ABC) and Value Chain Analysis (VCA). However, all these
techniques have not been suitably applied to the different organisations. This is
because the relevance of the application of these management techniques are still
under question to different business managers (Watts, Yapa and Dellaportas 2014).
The managers find it difficult to select an appropriate management system for their
organisations. This is because an inappropriate system might be detrimental to the
strategic as well to the operational activities of the firms and might affect their
positions in the market.
It becomes important for the business managers to identify and develop an effective
management accounting system that would in-turn provide a practical perspective
about the perseverance of the industry to management accounting. While facing with
the decision of a suitable management accounting system, the company chosen for
the above case has implemented a range of techniques such as Activity Based
costing (ABC), Balanced scorecard (BSC), Just in Time (JIT) and Total Quality
Management (TQM) (Watts, Yapa and Dellaportas 2014). Some other techniques
are also used by the managers of the company such as standard costing and
benchmarking techniques. It has been studied that the company has recently
generalised their process and has identified certain key factors which are associated

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with the above techniques. The company has used some key drivers for allocating
overheads which is useful for activity based costing. The company has also has
certain drivers for the running some scorecards for implementing balanced scorecard
system. It has done some system benchmarking both internally and externally and
also utilised some supplies for delivering just in time. An iteration of Total Quality
Management has been developed by the company for its own purpose which also
incorporates safety in it.
The higher authorities of the company has stated that the application of these
systems of management accounting have best suited the demands of the business
models of the company. However, there is a confusion regarding the implication of
Activity-based costing which is reported to be not completely flexible for the
organisation due to the current acquisition and divestment programs of the company.
The use of Balanced scorecard (BSC) technique has also seen to be fundamentally
unnecessary for the organisation as the manufacturing process of the organisation is
comparatively simpler than these methods (Hoque 2014). BSC technique has been
utilised sparingly by the organisation and only some of the scorecards are
specifically used by the company. As a contrast to this, the other two techniques that
is Just in Time (JIT) and Total Quality Management (TQM) have both been modified
according to the needs of the organisation and are implemented into the system of
operations (Goetsch and Davis 2014). According to the data collected from an
interview, it has been suggested that the new models introduced by management
system of the company might function effectively in an ideal environment but might
not be completely relevant in the practical environment. However, the company has
ideally incorporated these processes into its operations and has even succeeded
well from the results.
Relevance of Management Accounting System to contemporary organisations
Management accounting system plays a very significant role in the
contemporary organisations. The purpose of management accounting is to help the
management in taking complicated decisions in the competitive environment. This is
done through the collection, processing and communication of information that would
help the management in its business processes and its corporate strategies through
a proper plan and control function. (Schaltegger and Burritt 2017). It should be an
important ability for all the individuals to formulate and use a good management
accounting that includes function of many individuals, finance professions, top-level
executives and many others. Therefore, it can be said that the process of
management accounting is used for the creation of an information which is based on
cost, quality and time for the purpose of making effective decisions for the
organisation.
Evidences from the case company
The importance of management accounting can be attributed to the different
levels of decision making that are performed in the organisation. The different levels
of decision making as carried out by the organisation include operational decision
making, tactical decision making and decision making used for determining
strategies.

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At the operational level, the company formulates certain Key performance Indicators
for the productions facilities (Schaltegger and Burritt 2017).The different production
issues are handled through the managers. The key performance indicators are
generated with the help of benchmarking of the certain specific plan capabilities and
other mechanisms of supply chain. Both internal as well as external benchmarking
are used. In this process the scorecards are also utilised for setting up a
management based on the activities. However, Activity based costing is rarely used
in this process and is generally considered to be irrelevant.
At the tactical level, the management accounting information has been
considered to be a crucial element of decision making. Some of the other
externalities are also considered for the purpose of decision making in addition to
that provided by the management accounting system (Armstrong 2014). On the
whole, this entire level is solely reliant on the management accounting system for its
operation.
At the highest level, that is, at the strategic level, the relevance of management
accounting system has slowly decreased to a level that is not fully functional to the
company. At this level, the managers primarily rely on the external information as
they are faced with quite a lot of demands from the stakeholders (Armstrong 2014).
They mostly rely on the management accounting system for obtaining information of
the financial reports. Overall, the relevance of the management accounting system
slowly decreases as the decision making goes up to the hierarchical level.
Considering the above case, the management accounting system is fully functional
at the lower levels and the function decreases slowly as one moves up to the higher
level.
Comparison the finding with the management accounting systems of the two
cases
The second journal that has been chosen for comparing the management
accounting system of the another organisation discusses about the management
accounting practices in Malaysian manufacturing firms (Mat et al. 2010). In the
paper, a discussion is also provided regarding the different internal and external
changes that affect the organisation and the way the management accounting
practices are affected by these changes.The relevance of the adopted system of the
Malaysian companies can be used in this context (Mat et al. 2010). Due to
globalisation, the manufacturing industries of Malaysia are exposed to greater
competition and application of advanced manufacturing technologies. Taking into
account the importance of such a phenomenon, both the traditional as well as
advanced management accounting techniques have proved to have equally gained
importance for the manufacturing firms. Both these techniques have been used by
these firms for the purpose of coping up with the changes that are constantly taking
place constantly in the internal as well as in the external environment.
From the analysis of the case study of the Malaysian manufacturing firms, the
most popular and advanced management accounting techniques which are used by
the Malaysian manufacturing firms are Cost-volume-profit analysis, product
profitability analysis, Total quality management, Activity based costing, Value chain
analysis, product life-cycle analysis and benchmarking (Cooper 2017).
Benchmarking is a very common method used by companies of both the cases for

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the purpose of making appropriate decisions at all the hierarchical levels. Some of
the other techniques are also similar to those applied by the multinational
manufacturing company stated above (Darmawan, Putra and Wiguna 2014). The
techniques that are common to the two companies include activity-based costing,
total quality management and benchmarking. Total quality management is
considered to be a common technique in the two cases as both of them have tried to
put emphasis on quality and customer services. The multinational company used in
the first case has given importance to just-in-time technique of management
accounting which is not highlighted in the case of the second company (Darmawan,
Putra and Wiguna 2014).This can be one of the differences between the techniques
of management accounting of the two companies. Another difference could be the
use of balanced scorecard by the company of the first case which is not significantly
noted to be used by the second company.
However, it has been seen that ABC method is not very popular in the two
kinds of firms and has not been used widely by them. This is because both the
companies have thought their operational processes to be much simpler for adoption
of the proper activity-costing method (Ihemeje, Okereafor and Ogungbangb 2015).
The Malaysian companies have shown an increased amount of popularity for
product profitability analysis and benchmarking. The best suited method as
highlighted by the Malaysian companies are advanced management accounting
techniques such as product profitability analysis and Total quality management. The
local companies of Malaysia have developed such a strategy as a result of the
increased business competition (Ahmad 2014). This can also be attributed to the
increased change of the external as well as the internal organisational factors. It is
also found that most of the companies have retained their traditional management
accounting practices while some of them have chosen to replace their existing
techniques with advanced practices. For the purpose of implementation of a more
effective management accounting technique, changes are made to the accounting
techniques already in function. The firms are constantly searching for new
opportunities in the market and therefore they compete through new product as well
as market developments for improving their learning strategies (Jamil et al. 2015).
Therefore, management accounting system is designed for the purpose of
supporting the introduction of the innovative processes and technologies. The
organisation structure affects the design of management accounting system to a
greater extent. This is done for the purpose of achieving competitive advantage in
the market and also to regain a superior performance in the industry.
Relevance of Management Accounting System in today’s competitive and
uncertain business environment
Keeping the cases of the two manufacturing companies under purview, an
inference can be drawn regarding the relevance of the management accounting
system in the competitive and uncertain business environment that is prevailing in
recent days. In most of the organisations, the top accountant is regarded as the
controller (Son 2015). All the accounting functions such as tax accountants, internal
auditors, system support personnel are required to report to this controller.
Therefore, it becomes utmost necessary for all the decision makers to understand,
create and use good information on management accounting (Hiebl 2015). This is

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the situation when management accounting comes into play. Management
accounting is affected by improvements of computer technology. This is because
today’s far reaching technology allows the managers to track the performance
information that is beyond the cost-based information of the general ledger system
(Kaplan and Atkinson 2015). In this context, a good management accounting system
helps the managers in managing critical information of a wide range. The importance
of management accounting is not limited to manufacturing companies. The concept
and the system can be applied to other sectors as well (Ball, Grubnic and Birchall
2014). These sectors include companies of service and merchandising sector.
Historically, management accounting has been widely used by most of the
management accountants till the twentieth century. This is used with the combination
of the management accounting information with the general ledger system of
financial information (Witzel 2016). This combination worked until the job is only
restricted to tracking the cost information. In the recent environment, there is
emergence of Just in time technique that is coupled with the increased competition in
the market worldwide and has forced the organisations to compete on issues of
quality and timelines (Christ and Burritt 2015). As a result, improved management
accounting systems have been used by the companies for tracking information that
is qualitative in nature. Further, an example of DuPont can be an example which is
used for different sectors such as service and manufacturing industries. Overall, it
can be stated that the management accounting system is a combination of all the
other accounting systems, such as financial accounting, cost accounting and many
others. The controller works for bringing all the information of these accounting
systems together for the purpose of controlling, evaluating and making decisions
throughout the organisation (Curtis, Lewis-Western and Toynbee 2015). This is the
sole purpose of management accounting system.
Four specific outcomes or lessons learnt from the two articles that would be
helpful for the management accountants in Australian companies
In the first article highlighting the case of a multinational manufacturing
company, it can be judged that the management accounting system is fruitful for
making appropriate decisions about the company. For the management accountants
belonging to other companies, the utilisation of such a system in an effective manner
is utmost needed (Collier 2015). Each level of management is reported to have used
the system in various ways and degrees for improving the performance of their
managerial tasks. It is stated that the lower level managers are mainly using the
system for making the operational decisions (Maas, Schaltegger and Crutzen 2016).
The managers present at the middle in the hierarchy uses the system in a different
way for the purpose of improving their managerial decisions. It is noted that the
middle level managers are relying on the information that have been extracted from
these management accounting systems and also use certain other external
information for making tactical decisions.
At the last level, the senior management use the system very sparingly and
rarely as they rely primarily on the external data for the purpose of making strategic
decisions (Hiebl 2014). From this case, it is evident that the company fits neatly into
the paradigm that has come forward due to implementation of the accounting
techniques of the modern management. However, the simplicity in the process of

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manufacturing has not permitted the company to take up certain specific
management accounting techniques. This can be an important lesson for all the
other manufacturing firms (Taticchi et al. 2015). The evidence from this case
suggests that the company has provided alternate representation of the
contemporary virtues of the management accounting system as the company has
not fully utilised the system completely. It can be proved that the management
accounting system provides an argument for suggesting the management
accounting information of the company. Still the relevance of this system is under
question mostly at the strategic level of the company.
Considering the second case proposing the study of the Malaysian
manufacturing firm, it can be revealed that most of the companies have reacted
positively to the changes that have been constantly affecting the environment of
business and also the advanced manufacturing technology. From this study, the
accountants and the researchers would gain an insight about the changes in the
management accounting and the factors affecting the organisation that are prevalent
in a developing economic setting, that is, Malaysian manufacturing companies (Otley
2016). This study would help the accountants to know about the important
management accounting systems that are mostly followed in the manufacturing
companies of Malaysia and would also have a knowledge about the growing change
of the system in recent economies. The different factors, both external as well as
internal, that are responsible for bringing out such a change are also stressed upon
that would help the accountants in gaining awareness about the internal and external
business environment. It will help them to assess the uncertainties and the risks that
are required to be mitigated for developing an efficient management accounting
system.
Another point which is important in this context is the relation between
technology and the different implications of management accounting systems. In a
broader perspective, the study will help the accountants to relate technology to their
decision making purposes and the extent up to which the change in management
system is driven by technology (Fullerton, Kennedy and Widener 2014). It would
show a new direction to the strategies of the organisation and would help them in
looking after the customer related factors such as quality, flexibility, creation of
innovative products and dependability of supply of their products. In this respect, the
different appropriate structures of the organisations that would permit the usage of
such a system can also be learnt.
Conclusion
From the above report, an inference can be drawn about the importance
management accounting system in today’s changing business environment and it is
very important for the companies to adopt a correct method of management
accounting system. The use of management accounting system is completely
related to the decision making purposes of the companies. This decision making
procedure is conducted at all the hierarchical levels of the companies such as
operational level, tactical level and strategic level. Another important element of
management accounting system that is inferred from these cases can be the
relevance of the advanced management accounting systems on the changing
environment and the impact of the factors of the environment to these systems.

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