Management Accounting System and Its Techniques for Multinational Manufacturing Companies

This report discusses the management accounting system and its techniques used by multinational manufacturing companies to improve their operations. It analyzes the tools of management accounting and compares findings from two journal articles. The report covers activity-based costing, balanced scorecard, and just in time approaches. It also discusses the relevance of the functionality of the system and its importance in tactical decision making.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
September 16
2019

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Abstract
The aim of this report is present the discussion related to the management accounting system
and its methods used by the business to improve the operations. The paper is comprised of a
detailed analysis of the tools of the management accounting and the findings of the two
journal articles. The journal articles are related to the management accounting system and its
techniques used by the manufacturing companies. Both articles have represented that
methods or techniques of management accounting are very useful and supporting business in
reducing the cost of business operations.

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Table of Contents
Abstract......................................................................................................................................1
Introduction................................................................................................................................3
Types of Management Accounting........................................................................................3
Activity-Based Costing......................................................................................................3
Balanced Scorecard............................................................................................................4
Just in Time........................................................................................................................5
The relevance of Management Accounting System to the Organization...............................5
Tactical Decision Making..................................................................................................6
The relevance of the Functionality of the System..............................................................7
Compare and contrasting of the findings of the Article.........................................................8
Conclusion................................................................................................................................11
Specific Outcomes...................................................................................................................12
Article 1................................................................................................................................12
Article 2................................................................................................................................12
References................................................................................................................................13

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Introduction
Management accounting is considered to be a course of creating reports and accounts that
provide timely as well as precise financial data to the executives of the business for making
long-term and short-term decisions (Juras, 2014). It recognizes, evaluates analyses, interprets,
and communicates the data for allowing an organization to chase its objectives. Many
businesses use management accounting in order to adapt its cost control devices as it helps in
reducing the prices of the products (Merchant, 2012). This concept helps the business in
increasing efficiency. The intent of this report is to identify the three methods of management
accounting discussed in the presented case with the title "Newly Implemented Modern
Management Accounting System in a Multinational Manufacturing Company". The paper is
also being presented to highlight the concept of management accounting and its relevance
with the multinational company specified in the case study. Besides this, the paper is
comparing the findings of the case study with another article with the title Management
Accounting and Organisational Change: An Exploratory Study in Malaysian Manufacturing
Firms in order to identify the significance of management accounting techniques and
methods.
Types of Management Accounting
Activity-Based Costing
ABC is the technique of costing that allocated the overhead and indirect costs to the
associated services and products. This costing accounting method identified the connection
between the manufactured products, overhead activities, and cost, allocating direct costs to
the products less randomly in comparison to the approaches of traditional costing (Garrison,
Noreen, Brewer and McGowan, 2010). But, few of the indirect costs, like the salary of the

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employees and management salaries are tough to allocate to a product. Activity-based costing
is majorly utilized in the industry of manufacturing because it improved the cost data
reliability, therefore, producing closely true costs and better categorizing the costs incurred
by the business in its procedure of production (Kim, 2017). This system of costing is utilized
in target costing, customer profitability analysis, and product costing. Activity-based costing
is utilized to gain better control over the cost, enabling the business to create a suitable
pricing strategy. The ABC system is the cost accounting is depending on the activities that
can be any event, task, or work unit with the precise objective, like arrangement of the
machines for the production, creating products, distributing the finished products, or
operating machines (Wagener, 2010).
Balanced Scorecard
A balanced scorecard is the widely used performances metric of the strategic management for
classifying and enhancing different internal operations of the business and their subsequent
external outcomes. This method is utilized in the business to evaluate and offer feedback to
the business (Cooper, Ezzamel and Qu, 2017). Data collections are considered to be vital in
order to get quantitative results since the gathered information is understood by the officials
of the company and utilized to make superior decisions for the business. In 1992, this method
was first presented in the Review Article of Harvard Business with the title "The Balanced
Scorecard- Measures That Drive Performance" (Kaplan, Norton and Rugelsjoen, 2010). The
BSC is utilized to strengthen good behaviour within the business by dividing four different
areas that have to be evaluated. These four areas are also called as the legs, comprised of
business process, finance, growth and learning, and customers. The balanced scorecard is
utilized to achieve the goals, measurements, edges, and objectives that results from the four
business primary functions. Businesses can simply recognize the factors that are impacting
the performance of the business and outline the changes in the strategies followed by future

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scorecards. The balance scorecard technology of management accounting can offer
information related to the company as a whole when inspecting the objective of the business.
A business can also use it to execute the strategy mapping in order to see at what area the
value is added in the organization. In addition to this, this technology is also used to design
strategic objectives and initiatives (Cokins, 2010).
Just in Time
Just in time approach is also called as just in time inventory, is used by the business to reduce
the cost of inventory in the manufacturing system. This kind of system is known as a "pull"
system. The aim of this system is to confirm that the mechanisms and sub-assemblies utilized
to make finished goods are properly delivered to the manufacturing unit timely. Adopting this
helps in reducing a reasonable inventory amount, hence, decreasing the needs of the working
capital of a business (Lasry, Dugdale and Charles, 2014). Just in time approach is also known
as the management system that brings into line material orders from the suppliers directly
with the schedules of the production. Businesses make use of this strategy of inventory is for
augmenting the efficiency and reducing the waste by receiving products because they require
them for the procedure of production that decreases the cost of inventory (Weetman, 2019).
In order to gain success through this strategy, businesses need to forecast accurate demand.
Just in time approach offer several advantages to the business over traditional models like it
helps to decrease the cost by minimizing the needs of the warehouse. Due to this, the business
also invests less money on the raw material since they only purchase those resources that are
needed to produce ordered products (Alcaraz and Macías, 2015).
The relevance of Management Accounting System to the Organization
As per the article, the structure of Company – A is a type under which the head office
remains under the control of every division on the strategic level. Every department of the
company works independently in relation to operational decision making. While determining

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the use of management accounting information, it has been exposed that all the level of the
management uses the system in different manner and different degrees to execute their
managerial tasks. During the interview section, the interviewee’s claims that the managers at
the lower level are very much involved with the system of management accounting use its
functionality to make operational decisions. Besides this, the middle management makes use
of the system in different ways, depending on the data in various arrangements and some
external data to take the strategic decisions. In addition to this, the senior management of the
company uses the system carefully and depend on noteworthy data from the external sources
to take decisions. This wide use of the system of the MA displays a degree of relevance but
most of it is concentrated at the operational and the tactical decision-making level (middle
managers) (Watts, Yapa and Dellaportas, 2014).
Tactical Decision Making
Managers of the company that are involved in the tactical decision making contribute in
making key performance indicators for the plants. These decisions are partly operational and
partly strategic, with the focus on a timeframe of 6-12 month (Watts, Yapa and Dellaportas,
2014). Under this, the tactical executives also make use of the information of the
management accounting as the main basis of the decision making procedure. In the same
manner, this management level has performance evaluated against its own key performance
indicators. Like operational managers, this management level also reports variances. As per
the exposed data by the Business Finance Manager, the company's tactical decisions majorly
depend on variances and external information, specifically related to the supply chain
management and the demand of the customer. At this organization level, the management
accounting information is considered to be one of the most important components of the
tactical decision making, but, few of the externalities are also taken into account. At the same
time, the management of the company starts giving importance to the external information

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along with the data delivered by the system of management accounting. Dealing with the
issues of customer and supply chain, this management level has very less choice but to
incorporate the external information in the procedure of taking decisions for the business.
Same like operational management, the tactical managers majorly depend on the information
gathered through the management accounting. This reflects that MAS is appropriate for the
Company-A (Watts, Yapa and Dellaportas, 2014).
The relevance of the Functionality of the System
Company–A, executed a system that comprises functionality encompassed with the range of
functions of the business however, it is the choice systems accepted by the organization that
will define the relevance of the system. The management of the company was dealing with
the confusion regarding which system of the management accounting has to be adopted. The
company decided to choose hedge and execute a variety of techniques. The company has
incorporated a management accounting system that is TQM, JIT, ABC, and BSC,
benchmarking and standard costing into its SAP R/3. All the user of the system is capable to
search for the information depending on any of the specified practices but was not fully
utilized which was initially planned (Watts, Yapa and Dellaportas, 2014). Company-A is a
manufacturing company with simple process incorporated with few raw materials and some
of the steps in the procedure of manufacturing. Eventually, they consider ABC/ABM is
complicated for the needs of the company. In the same manner, balance scorecard and Just in
Time approach is considered to be complicated for the business. While the management
accounting system enables the utilization of these methods interdependently of each other.
But, Company-A has generalized its procedure and used a few of the main aspects of every
system. This reflects that company makes use of few of the activity drivers for the allocation
of the overheads, operate few of the scorecards, do infrequent orderly benchmarking

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externally and internally, utilise some deliveries and supplies under the just in time and have
created its own repetition of total quality management, which is said to be safe.
Compare and contrasting of the findings of the Article
As per the analysis conducted in the Article “The Case of a Newly Implemented Modern
Management Accounting System in a Multinational Manufacturing Company”, it has been
identified that different authors have presented their point of view negative as well as
positive. However, overall has been noticed that the benefits of the techniques of the
management accounting are obvious, effective execution stays an essential and troubled issue
that obliges the benefits subsequent from the new techniques of the management accounting.
The recognition and analysis of how properly the system of management accounting needs to
be executed and consequently used in a multi-national business offer a concrete viewpoint on
the way industry notices the significance of the management accounting (Burns & Vaivio,
2001). The implementation of the system of the management accounting and the level to
which they are used is left and depends majorly on the individual firms. For instance,
Company-A is the manufacturing company that has its physical existence in the 27 nations
with operations in 100 countries. The head office of the company is established on the East
Coast of the United States but has its regional office in Melbourne, Australia. This company
has understood the importance and benefits of the MAS and its methods. However, at the
implementation phase, it realized that few of the techniques of management accounting like
activity-based costing, JIT, and balanced scorecard, etc. are complicated. Therefore, it has
generalized its procedure and used a few of the main aspects of every system. The company
makes use of few of the activity drivers for the allocation of the overheads, operate few of the
scorecards, do infrequent orderly benchmarking externally and internally, utilize some
deliveries and supplies under the just in time and have created its repetition of total quality
management, which is said to be safe.

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As per the statement of Chenhall and Langfield-Smith (1999), the reaction to the crisis is a
major factor in the contemporary MAS. But, Company-A was not been observed to be in
such a position. In place of a crisis, Company-A experienced a sequence of the dissimilar
systems of the management accounting and financial reporting owing to a strategic path of
the divestment and acquisition. The need to offer a single platform to include every division
of the business into a single instance system was considered dominant. The financial
reporting specific to site or location and internationally available or accepted information of
the management accounting was seen as the major advantage and therefore became a
significant change motivation. In consideration to the presented research question in the
study, the degree of the significance of this newly executed system of the applied
management accounting is inspected in two parts: (1) by examining the worth of the
information delivered to the executive in the procedure of the decision at every level; and (2)
the degree to which the system’s functionality required adaptation to fulfil the requirement of
the main users. In all the paper highlighted that the in spite of highlighting some of the
relevance of the information of the MA, the producer disabled some of the system
components that are considered to be inappropriate at a specific level of the business.
On the other hand, from the analysis of the article with the title "Management Accounting
and Organisational Change: An Exploratory Study in Malaysian Manufacturing Firms”, it has
been identified that the business environment of Malaysia has quickly altered due to
globalization. There has been a major change in the business due to Globalization that is
being operated in the emerging nations with the increase in the uncertainty, strengthened
rivalry in the industry and progressive technology. As per the argument presented by Kassim,
Md-Mansur, and Idris (2003), globalization has supported in the development of the
advanced technology and makes the developing nation open for intense competition. These
alterations can influence the management accounting practices choice in the business and

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firm needing to review its current organizational strategies and design to fit with the altering
environment. Besides this, as per the initial journal the choice of management accounting
system is dependent on the individual organization, but, this article discusses that the
globalization and the introduction of advanced technologies are impacting the choice of
techniques of management accounting. In addition to this, the ups and downs in the business
environment of Malaysia due to globalization are impacting the decision of the businesses
related to the management accounting system and information (Baines and Langfield-Smith,
2003). The information gathered through the management accounting tools can help business
in increasing learning and improving organization performance. In this article, it has been
identified that the local businesses in Malaysia majorly depend on the traditional methods of
management accounting in comparison to the foreign multinational companies who are
focused towards using advanced techniques. In the case of multinational companies,
Company-A identified that few of the techniques of the management accounting are
complicated like ABC, balanced scorecard, and just in time approach and therefore adopted
was experiencing some of the safe techniques such as total quality management and some set
of other techniques. Where, in the case of manufacturing firms of Malaysia, it was found that
where there is increased use of traditional techniques of management accounting, local firms
are also relying on the advanced management accounting techniques like TQM, customer
profitability analysis, and product profitability analysis. This has been identified that with the
increasing competition in the market due to globalization local companies are accepting the
advanced technologies (Tuan, Malcolm and Hadrian, 2010). Besides this, the local, as well as
foreign companies in Malaysia are using budgetary control as the management accounting
practices. Further, it has also been identified that both the foreign and local companies are
progressively adopting advanced and traditional techniques of management accounting for
reducing the irrelevant activities from the business and reducing the organization cost.

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In all, it could be said that the Company-A the manufacturing firm is using the management
accounting techniques at low level to eliminate the irrelevant activities from the business,
whereas, manufacturing firms in Malaysia (local and foreign) are increasingly using
traditional as well as advanced management accounting techniques for adopting the change
due to globalization.
Conclusion
The above report has provided a detailed analysis of the MAS and its methods that are
adopted by the businesses to reduce the operational cost. From the analysis, it has been
identified that there is a number of practices of management accounting adopted by the
business but in detail, this paper has highlighted only three techniques that as Activity-based
costing, balanced scorecard, and JIT approach. The analysis highlighted that in today's
competitive environment businesses especially manufacturing firms are adopting different
methods of management accounting in order to acknowledge the change in the environment.
In addition to this, not just local companies are adopting management accounting techniques,
in fact, foreign companies are making use of these techniques in order to get involve and
adopt the changing environment of the country and changing activities of the business. These
management accounting techniques are supporting businesses in not just improving the
operations of the company but also reducing the cost of the business by eliminating unwanted
activities form the system. Besides this, these techniques help businesses in encouraging in
only manufacturing limited stock or products that have been ordered by the customer and
avoiding the bulk manufacturing of products or bulk purchasing of raw material. This is
because it helps in reducing wastage from the business and reducing the cost of the operation.
Further, management accounting techniques do not show a financial perspective but also has

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a non-financial perspective that is followed to attain the goal of the business or implementing
strategies initiative.
Specific Outcomes
Article 1
The initial article helped in identifying that the management accounting tools can be used in a
modified manner that suits with the requirement of the individual firm and not as per the
industry or market.
The adoption of an unsuitable system can lead to the harmful impact on the operational
function and position of the business.
Article 2
Globalization has resulted in the introduction of new and advanced technologies that is
resulting in impacting the business environment for the local companies because competition
is increasing at high level.
In Malaysia, local and foreign manufacturing firms are making use of both traditional and
advanced MA tools for reducing the wastage, cost, and eliminating unwanted activities from
the business.

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References
Alcaraz, J.L.G., and Macías, A.A.M. (2015) Just-in-Time Elements and Benefits 1st ed.
Germany: Springer.
Baines, A., and Langfield-Smith, K. (2003) Antecedents to management accounting change:
a structural equation approach. Accounting, Organizations and Society, 28(7,8): pp. 675-698.
Burns, J. & Vaivio, J. (2001) Management Accounting Change. Management Accounting
Research, 12(2001), http://dx.doi.org/10.1006/mare.2001.0178
Chenhall, R. & Langfield-Smith, K. (1999) The Implementation of Innovative Management
Accounting Systems. Australian Accounting Review, 9(3).
Cokins, G. (2010) The promise and perils of the balanced scorecard. Journal of Corporate
Accounting & Finance, 21(3), pp.19-28.
Cooper, D.J., Ezzamel, M. and Qu, S.Q. (2017) Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp.991-1025.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A. (2010) Managerial
accounting. Issues in Accounting Education, 25(4), pp.792-793.
Juras, A. (2014) Strategic Management Accounting-What Is the Current State of the
Concept?. Economy Transdisciplinarity Cognition, 17(2), p.76.
Kaplan, R.S., Norton, D.P. and Rugelsjoen, B. (2010) Managing alliances with the balanced
scorecard. Harvard business review, 88(1), pp.114-120.
Kim, Y.W. (2017) Activity Based Costing for Construction Companies 1st ed. U.K: John
Wiley & Sons.

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Lasry, N., Dugdale, M. and Charles, E. (2014) Just in time to flip your classroom. The
Physics Teacher, 52(1), pp.34-37.
Merchant, K.A. (2012) Making management accounting research more useful. Pacific
Accounting Review, 24(3), pp.334-356.
Tuan, M.T.Z., Malcolm, S., and Hadrian, D. (2010) Management Accounting and
Organisational Change: An Exploratory Study in Malaysian Manufacturing Firms. Journal of
Applied Management Accounting Research, 8(2), 51-80.
Wagener, D. (2010) Activity-Based Costing and Its Later Development Into Activity Based
Budgeting and Management 2nd ed. Germany: GRIN Verlag.
Watts, D., Yapa, P.S., and 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), 121-137.
Weetman, P. (2019) Financial and Management Accounting 2nd ed. UK: Pearson.