HI5017 Managerial Accounting: Evaluating Systems & Decision Making

This essay provides an in-depth analysis of managerial accounting systems, focusing on their practical application in contemporary organizations and their impact on managerial decision-making. It critically evaluates the relevance and challenges of standard costing and target costing, drawing on insights from two journal articles: one examining management accounting practices in small and medium-sized manufacturing enterprises and the other a longitudinal case study of target cost management implementation in a shipbuilding company. The essay compares standard costing and target costing, assesses the relevance of target costing in today's competitive environment, and offers recommendations for the use of these systems in modern organizations. It concludes by emphasizing the crucial role of management accounting in providing the informational requirements necessary for effective decision-making and achieving organizational goals. Desklib offers a wealth of resources, including solved assignments and past papers, to support students in their academic endeavors.

Running head: MANAGERIAL ACCOUNTING
Managerial accounting
Name of the Student
Name of the University
Author Note

MANAGERIAL ACCOUNTING
Abstract:
The objective of developing this paper is to gain an understanding of the usefulness
of the management accounting system in the contemporary organizations. The
practical use of the system if management accounting is critically analysed by
reviewing two journal articles presenting the real case company and the utilization of
the managerial, accounting practices to their projects and managers in the process
of decision making. Two articles that has been chosen for evaluating the challenges
and relevance of target costing and standard costing to the contemporary
organization are “Management Accounting Practices (MAPs) of Small and Medium-
sized Manufacturing Enterprises in The City of Tarlac” and “A longitudinal case study
of target cost management implementation at a shipbuilding company” respectively.

MANAGERIAL ACCOUNTING
Table of Contents
Introduction:..................................................................................................................3
Discussion:...................................................................................................................4
Evaluating the features of standard costing as a system of control and planning:......4
Evaluating the relevance of standard costing as a system of control and planning
based on the article:.....................................................................................................6
Comparing the system of standard costing and target costing:...................................8
Evaluating the relevance of target costing in today’s uncertain and competitive
business environment:..................................................................................................9
Recommendation on the system and its usage in the contemporary organizations: 11
Conclusion:.................................................................................................................12

MANAGERIAL ACCOUNTING
Introduction:
The study is conducted to have an insight into the systems of management
accounting to analyse its practical usage in the contemporary organizations. The
objective of this study is to describe the practices of management accounting in the
companies and evaluating its contribution to the management decisions making. For
the purpose of analysis, two journal articles have been chosen that identifies the use
of standard costing and target costing in real life companies. The challenge and
relevance of the standard costing and target costing is critically evaluated by
discussing various questions and examining the articles on the relevance of the
systems to the real life companies. Informational requirements of the management is
fulfilled by the systems of management accounting which facilitates decision making
and impacts the objectives and goals of organization.
Discussion:
Evaluating the features of standard costing as a system of control and
planning:
In order to understand the concept of standard costing it very important to
know that standard costing in the accounting records is actually substituting the
expected cost with actual cost. Accordingly, the variances are written down as an
indication of the difference in between the two that is the actual and the expected
cost. With is the method of cost layering system is much simplified by making use of
the techniques such as activity based systems and targeting system in which the
lump sum data information about the historical cost is supposed to be maintained
(Boyd and Pitre 2019).
The standard costing includes the making of the standard cost in regard to
any activity in the organization. As far as the actual costs is concerned, collection
and maintenance of the actual costs is very time consuming process, so in order to
avoid the hassle, standard costing comes into play where standard costing is taken
as a close value to the actual costs. The are several factors affecting the standard
cost including the labour costs, capital investments and the material cost, thereby the
accountant has to evaluate and calculate the variances brought about in the
standard cost by the above mentioned factors. The cost accountant keeps a track on
these factors which, directly impacts the standard cost and he/she has to break
down the difference brought about these factors. There are several features of
standard cost which play an important in planning and the controlling system
(Belhadi et al. 2018).
As it is already known that standard cost is pre planned cost because it pre-
determined even before the production is obtained, also it can be said that standard
cost is not an estimated cost. There is difference in between the cost which is
planned and the cost which is obtained. So, it is known that standard cost is very
close to the actual price of the product. The method of computing the standard cost
is by taking into consideration the efficient operation of the management. Hence, it is
considered upon the expectation of the efficiency to the assumed efficiency (Guinea
2017).

MANAGERIAL ACCOUNTING
Standard costing forms the basis of fixation of the price and the exercising the
control over the cost required. It is very essential to set the standard cost of all the
factor affecting the standard costing like the labour and the material costs and a very
carefully study is needs to be done before setting the standard cost of these factors
as it forms the heart of the standard cost. As incorrect cost setting of these factors
will consequently result in the defeat of the standard costing. The target of setting of
the standard cost and standard profit is very essential for comparing the standard
performance and the actual performance (Hosomi et al. 2017).
One of the most striking properties of the standard costing is to incessantly
record the actual performance against the standards as a result of which the
comparison in between the two can be easily accomplished. As far as the constant
need of making the comparison in between the standard and the actual cost is
concerned, standard costing is an insurance of the comparison in between the two of
them, also it helps us find out if there is major difference in between the two and
what needs to be done for lowering the difference in between them. So, if there is a
large variance it has to be analysed resolved by taking into consideration the
corrective measures which will immensely effect the overall performance of the
organization (Linder and Williander 2017).
Evaluating the relevance of standard costing as a system of control and
planning based on the article:
The article titled” management accounting practices in the small and medium
sized manufacturing enterprises in the city of Tarlac” conducts an analysis into the
practices of management accounting and its utilization into the business decision
making. Most of the participants in the research work that is most of the enterprises
practiced the management accounting system ranging to statistical analysis from
standard costing. However, standard costing was the most frequently implemented
tool of management accounting. It is so because homogenous products are
manufactured by most of the small and medium manufacturing enterprise and such
manufacturing is done by mass production or batches. It was imperative for the
production system to have some recipe, standard poor formula. The adoption of the
system of standard costing is maximum amongst the enterprises. Due to the
particularity of the standard production time, standard quantity of ingredients or
materials and the corresponding product costs, the percentage of adoption were
highest amongst the respondents. Classification of the standard costing is done by
the company into traditional stage and the computation of the standard costing is
done by the management after accounting for the efficient operation standard. For
the various elements of cost, this method of costing sets the standard and hence
standards are set for overhead cost, material cost and for the cost of labor (Rufino
2014). The findings from the research paper reveals the fact that standard costing
was always used by the organization.
Regarding the adoption of the standard costing, evaluation of small and
medium enterprises was done individually. Based on the analysis of results obtained,
it is inferred that the most used management accounting practice is standard costing
as it helps them in setting the standard cost for manufacturing their products. The
adoption of the management accounting system of standard costing was done by the
small and medium enterprises in the traditional stage as it focused on the variances,
costing of products and cost control. Entities who were the manufactures of food and

MANAGERIAL ACCOUNTING
beverages found the implementation of standard costing the most useful because of
setting standards of various elements of cost such as quantity of material or
ingredients and cost of labor. The cost of manufacturing food and beverage scan be
controlled and monitored by the adoption of standard costing. The features
discussed about the standard costing is satisfied by the adoption of the costing in the
industry. However, there is some variations from the features discussed above
because of the type of industry in which the enterprise operates. Outputs can be
conveniently cost in the batch or mass system of production and the managerial
decision making has been facilitated in the food and beverage enterprises due to the
determination of variances by estimating the cost of output and predetermining the
standard cost of producing the products. The usefulness and relevance of the
standard costing to the companies operating in food and beverage industry us
attributable to the single product environment that is manufacturing of homogenous
products that makes the standard costing easy to maintain and facilitating control by
producing meaningful reports (Rufino 2014).
Comparing the system of standard costing and target costing:
Another important costing method is the target costing where the cost directly
depends upon the factors which are dependent upon the conditions of the market.
There are several factors of market like the level of competition in the market,
homogenous products, and the low level of switching costs. As the management has
almost no control over the selling price of any good, it is these factors which the
management has to take measures to control. So, in the technical words it can be
said that target cost is basically the difference in between the selling price and the
profit margin. As defined by the CIMA, that target cost of any goods or products is
the product cost obtained from the competitive market price (Wouters and Stecher
2017).
Consequently, the difference in between the standard costing and the target
costing can be easily explained as the standard costing is based on the concept of
predetermined costs by estimated relating to the materials, labour and the overhead
costs under a specific set of condition in any organization, however the target cost is
the difference in between the price which is paid by the potential consumers and the
margin of profits. The most significant aim of standard cost is to get a probability of
the product price in future and it also is used to control the price products as far as
possible. However, as far as the target cost is concerned with the competition in the
market and how the firm can survive and also compete with the market situation in
the long run. It is a significant tool to reduce the cost in the existing level and also in
engaged in product designing in the various stages of the product life cycle. In even
simpler words one can differentiate in between target and standard cost as the price
which the customer is willingly ready to pay or can negotiate is the target cost
however the price is already fixed as per the market situation consideration. It should
also be mentioned that standard cost also has few disadvantages with it as at times
it involves inappropriate activities. There is also a chance that cost plus contracts
might arise in case there is a contract with a client under which he/she is pays for the
cost incurred, also the profit which is also termed as the cost plus profit of the
contract (Langfield et al. 2017). In such scenario, it is required to pay for the actual
accordingly to contract which is made as her the standard costing is not allowed.

MANAGERIAL ACCOUNTING
Evaluating the relevance of target costing in today’s uncertain and competitive
business environment:
Target cost is the management tool that intends to lower the total cost and
enabling business to reap the profits and enhance its sustainability in the competitive
business environment. The method of target costing is an established technique that
is used by Japanese companies for ensuring the profitability of the new products. It
is the process by which the resources of organization is allocated to the process of
product development and facilitates the process of decision making during the
product development. This system of costing intends to lower the products
manufacturing costs by placing importance on the design of the products in the stage
of product development (Oliver and Parrett 2018).
The relevance of technique of target costing can be assessed by evaluating
the research paper or the article titled “A longitudinal case study of target cost
management implementation at a Japanese shipbuilding company”. It has been
ascertained from the analysis of paper that some intended managerial activities
diffuses the technique of target costing and the case relates to controlling cost on the
implementation of the management of target costing. The case discussed in the case
study is about the failure of target cost management due to the inadequate and
proper control over the system. Nevertheless, there are some research projects that
discussed about the well managed implementation of the project of target costing
and that helps in deducing the steps that should be undertaken to adopt or
implement the method of target costing (Skryabin et al. 2018).
The article has evaluated the failure of success of the target costing system in
terms of financial or behavioural success or failure. The case study company
evaluate the costing implementation using a framework of diffusion of innovation and
the implementation is perceived to be an administrative innovation as per the
framework. Implementation of such target costing at the shipbuilding company was
actually an idea and it restructured the process of formally developing the product. A
target cost for the new ship was established for the initiation of the target cost
management and such cost has already been provided from the view point of the
project (Okano 2016). Target costing was adopted not only as a means of lower the
cost of manufacturing ships requiring minimal fittings but also its contribution to the
overall cost of the ships. Until the time of delivering the product, the target cost was
not achieved by the company as the actual cost of manufacturing the shop was more
than the targeted cost. The differences in the cost was due to the fluctuations in the
exchange rate and different in cost of materials. The cost of reworking ion ship had
to bore by the company because of change in the standard ship. The work flow of
the target cost management project required the project to be stopped if they fail to
achieve the target cost. However, the next stage of the project continued despite the
failure to achieve target cost. This implies that there were ignorance on the work flow
of target costing (Güçdemir and Selim 2018).
It is suggested from various other previous research papers that the system of
management accounting such as target costing can be implemented successfully
only when there is a full involvement and support of senior management. From the
research paper on the Japanese shipbuilding company, no evidence was obtained
regarding the involvement of the president in setting the design review. It is implied
from the findings of the case study that gas was identified between the reality of
committing to the actual activities and the support of top management. The failure of

MANAGERIAL ACCOUNTING
the target costing management at this shipbuilding company was due to the
inadequate and improper establishment of the linkages between the departments
that were involved in the projects. The different functional departments did not
cooperated well that resulted the failure of the project to achieve target cost and
actual cost exceeding such cost. In addition to this, estimations of cost could not be
done accurately because of the lack of information required on the process of
production. In the case company, the engineers working on the shop floor were not
directly controlled and therefore, they could not gathered adequate information on
then process of manufacturing. Therefore, the inadequacy of the information to the
department of product development on the work pressure related to the process of
production resulted in the estimating the costs inaccurately. Furthermore, the
implementation of failure can be explained by outlining three factors using Roger’s
theory (Yasukata et al. 2013). These factors involved complexity, compatibility and
trial ability. There are relative advantages of the target costing, however, it does not
implies that it has to be implemented. Nevertheless, the implementation failed due to
the lack of control and les involvement, the research paper underscore these factors
on the implementation of such costing method.
Recommendation on the system and its usage in the contemporary
organizations:
The findings generated from the literature on the two journal articles on the
implementation of the practices if management accounting system reveals the
successful implementation in one case and a failure to implement in other case. In
the first article, that talked about the successful adoption of the practice of standard
costing management accounting system by the small and medium manufacturing
companies in the traditional stage. Standard costing is mostly used by the business
involved in decision making regarding sales and marketing price decisions. On other
hand, implementation of target cost in one of the shipbuilding companies in Japan
was a failure as the actual cost of the project exceeded the target cost set under the
management of target costing. Based on the findings from the literature on the real
life companies, it is recommended that standard costing can be effectively utilized by
contemporary organizations for the purpose of controlling and planning (Viana et al.
2017). However, it is not suggested that target costing cannot be implemented at all,
there are some limitations to it associated with the complexities and the adequate
flow of information. It is inferred from the findings that the adoption of target costing
should be accompanied by altering the allocation of resources, flow of information
and goals of the companies.
Conclusion:
The paper discussing about the implementation of different management
practices systems in the contemporary organizations have evaluated the adoption of
such systems in terms of success and failure. It has been ascertained from the
analysis of the first article on the adoption of standard costing by the food and
beverage companies a successful practice as most of the company’s manufacturing
homogenous product were at advantageous position in terms of cost efficiency.
Utilization of different systems of managerial accounting with emphasis on standard
costing was done by the small and medium manufacturing companies because of
cost efficiency. Another article conducted the study on the implementation of target
cost management in the shipbuilding company of Japan underscored the fact of

MANAGERIAL ACCOUNTING
control establishment over the implementation of the costing technique which was
cited as the reason of the failure of target costing. Therefore from the overall analysis
of the facts illustrated in the articles, it can be concluded that the implementation of
standard costing is more effective in environment of manufacturing single product.
Nevertheless, despite some apparent weakness in the system of standard costing, it
is widely used by the manufacturing companies in Japan.
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