HI5017 Managerial Accounting: Critical Evaluation of Journal Articles

This essay critically evaluates the practical application of managerial accounting systems in contemporary companies, drawing upon two journal articles. It examines the relevance of these systems to real-life managerial decision-making and the achievement of business goals, particularly within mu...Read More

Running head: MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Name of Student
Name of University
Author’s Note

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Executive Summary
This report states about the competitive business environment and the discusses about the
importance of the managerial accounting system. The report also provides the importance of the
managerial accounting technique by using two published journal on the use of managerial
accounting system in manufacturing multinational companies.

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Table of Contents
Management Accounting Techniques.............................................................................................3
Activity Based Costing....................................................................................................................3
Balanced Scorecard.........................................................................................................................3
Total Quality Monument.................................................................................................................4
Role of Management Accounting System.......................................................................................4
Differentiation between the Management Accounting System.......................................................7
Role of Management in Competitive Business Environment..........................................................9
Outcomes.......................................................................................................................................10
Conclusion.....................................................................................................................................12

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Management Accounting Techniques
Activity Based Costing
Activity Based Costing is the costing method, which is used to analysed the indirect costs
and overheads of products and services. This costing method relates the overhead activities,
manufactured products, costs and indirect costs. The indirect costs usually assigned to the
costing methods. The indirect costs like salaries are problematic to allocate. The usage of the
activity based costing mainly used for target costing, consumer profitability analysis, pricing of
the services rendered by the company and profitability of the product line (Appelbaum et al
2017). The activity based costing can be derived by dividing the cost pool by the cost driver. The
cost driver for the company can be found by analyzing the amount of overhead and indirect
costs, which are related with the particular activity.
Balanced Scorecard
The balanced scorecards, aids the business to identify the strategy of the company by
identifying and measuring the recital of the business, so that the internal functions and external
functions of the business develop. The company used to measure and provide the feedback for
the organizations. The most important part for the balanced scorecard is the data collection
method. The data collection helps the balanced scorecard to provide correct information, which
in later helps the business to develop. The balanced scorecard consists of four parts, which
comprises of business processes, learning and growth, financial data and customer perspective.
The four parts provides a vision to the strategy, which is made for increasing the performance of
the business. As the balanced scorecard assistances the business to develop the performance of
the business, thus it is considered as an integral part of the management tool (Appelbaum et al
2017).

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Total Quality Monument
Total Quality Management is the kind of organization tool, which helps to reduce the
errors in the manufacturing process. The total quality management technique also helps in the
supply chain management, increases the customer experience and helps the employees to get the
training. Total quality management technique helps all the members of the manufacturing
process to complete the process with utmost quality and finish the part in time. Total Quality
Management process is mainly the customer based process, which helps the business to increase
its everyday operations. Total Quality Management process also helps the business to improve
the production and service of the company by ensuring the employees of the company working
for same goals. Total Quality Management also ensures about the employees’ gets the sufficient
amount of training for preceding a particular work.
Role of Management Accounting System
The management accounting systems mainly provides the information about the
operations of the business to the managers of the company. This information helps the
management of the company to take firmed decisions. The scope of management accounting
consists of financial accounting and cost accounting. The cost accounting of the company deals
with the transaction that aims to record costs and financial accounting, on the other hand, deals
with the financial transactions and financial statements of the company. The management
accounting information also helps the managers to take the decision regarding the strategic
management, performance management and risk management of the company. There are several
tools of management accounting system, which help the managers to measure the performance
and risk of the company. Based on the risk and performance of the company, the managers tend
to take decisions regarding the going concern of the company that help the company to increase

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its profitability and sustainability. The managerial accounting also helps the company to assist in
directing and regulatory. The other advantage of the managerial accounting, which the managers
are tends to extract are measure the performance of individual employees, assessing the
company’s competitive position and also the process for motivating employees. The scope of
management accounting has increased from assessing the financial structure of the company to
production and marketing production department of the company.
As per the case study, it is evident that the company, which is taken for evaluation is
termed as Company A. The name of the company is not revealed. The company, based on which
the analysis has been performed is the multinational company. Company A is the manufacturing
firm who have a presence in 27 countries. The company do their business in 100 countries
around the world. To maintain its position in the highly competitive market the company
developed a well-defined strategic plan. The diversification and adoption of new technology in
the business operations are some of the few parts of the strategy. Company A even implemented
the strategy in its business operations. To expand itself the company even went for acquisitions,
which is also the part of the strategy. Owing to the strategic managerial accounting of the
company, the company tends to acquire and diversify easily because of the well-defined strategy,
which is made. The managerial accounting aids to advance the performance and operations of
the company (Gallemore and Labro 2015). The decision making of the company are mainly
depends on the results of the management accounting process. The advantage of the management
accounting also be traced in the financial reporting, customer resource of the company and
supply chain of the company. The company previously use to use separate system for every
department. After the improvement of the management accounting system, the company started
to use the homogeneous system. The company took three years for implementing the managerial

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accounting system in the business operations. Company A implements the financial reporting
and management accounting system in accordance with the SAP R/3 information technology
platform.
The implementation of contemporary management accounting system in the Company
A provided the ability to use any management accounting technique. The company were able to
adopt any technique for the system. Some of the management accounting techniques, which can
be implemented, are Activity-based Accounting System, Balanced Scorecard system, Total
Quality Management System and Just-in-Time technique. After analysing the management
procedure of the company it can be found out that the company did not use any management
accounting tool. The company used partial technique of Activity-based Accounting and partial
for Balanced Scorecard. As Company A use the partial of ABC costing and Balanced Scorecard,
so the whole process became cumbersome. The whole system was considered as the impractical
because the company uses very simple manufacturing process. As per the findings from the
journal, it is found out that contemporary managerial accounting will function in the ideal
environment function but it will not be there when the business environment is changing.
Moreover, all the managers of the company do not fully depend on the contemporary
management accounting system for the decision making process (Gallemore and Labro 2015).
Company A does not use the contemporary management accounting system for determining the
external factors like customers and suppliers. Company A only consider the basic information
coming from the external factors like macro-economic, micro-economic factors, international
events and global trends. Company A does not measure the information with the help of the
contemporary management information for creating the strategy to increase the profitability and
sustainability. The company does not focus on the information, which are emanating from the

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managerial accounting system. The company primarily depends on the external factors which
includes macro-economic and micro-economic factors. The company also tends to believe in the
technological trends and market indicators. The strategic manager hardly uses the management
accounting system for taking decision. Thus, Company A is not efficient in using the
contemporary accounting management system.
Differentiation between the Management Accounting System
In the article about the managerial accounting implementation in the Multinational and
Manufacturing Companies, the Company A has been considered. In this article the author
collected information using the interview process. It was observed that Company A has not
utilised the management accounting system for the decision making and strategy making.
Company A faced with the desperate financial reporting owing to the strategic path, which is
made for the acquisition and disinvestment. Company A enjoyed the benefits that management
of the company has to offer. The management accounting helped Company A in the area of
decision making and in the acquisition of the new technology. The financial reporting process
are also improved after the adopting the management accounting techniques (Warren Jr., Moffitt
and Byrnes 2015). The management accounting system helps the company to receive the
motivation for change. As per the analysis it can be stated that there are very few employees who
actually uses the management accounting process for decision making. Middle management uses
the information provided by management accounting technique in a very different way. They
tends to depend more on the external information than the information provided by the
management of the company. Thus, it can be seen that the management accounting information
are not utilised to its full extent by the managers for the decision making process. In the process
of operational decision making the company tends to focus more on external data for taking any

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internal business decision. The company tends to generate the data regarding the employees
using the fundamental process. The company does not consider the information, which fetch
from the management accounting system. Sometimes company uses Activity based costing and
Balanced scorecard system for developing the business operations. The use of such decision is
very rare. The management hardly use the management accounting tool. As per analysis it is
found out that the managers do not have any control over supply chain purchases. In strategic
decision making process the company also hardly use the management accounting system.
The case study, which has taken for the comparison, states about the management
accounting practices in Libyan Manufacturing Companies. As per the analysis it can be observed
that the Libyan manufacturing firms concentrates heavily on the management accounting
techniques. It is also evident that the adoption rate of the management accounting techniques is
much higher than other manufacturing countries around the world. The Libyan manufacturing
companies are not reluctant to change or adoption of new technology in the accounting system
(Gallemore and Labro 2015). The adoption rate is much lower in comparison to the other
companies. Libyan companies implement the technique of the management accounting for
controlling the finance of the company and even determine the cost of the company. These in
turn help the company to enjoy better corporate governance.
As per the calculation mentioned above, it can be observed that the Company A in the
article does not seem to use the management accounting technique. The managers of Company A
hardly use the managerial accounting tool for the formulation of the strategy and for analysing
the operations of the business. In the second article it is evident that the manufacturing
companies of Libya uses the traditional management accounting techniques but they are very

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reluctant to change into more advanced technique or tool. The companies uses the management
accounting technique for the improving the business operations and the decision making process.
Role of Management in Competitive Business Environment
The competitive business environment can be dealt by using the managerial accounting
tools and techniques. Managerial accounting techniques support the competitive business
environment by implementing new processes like collecting of data, communicating information
and processing that helps to improve the management control and to evaluate the company’s
strategies. The management accounting system uses different tools that strengthen the ground for
improvement of the business operations. There are few tools, which increases the importance of
the management accounting system like activity based costing and management, increasing
customer value, cross-financial perspective and total quality management. The other new tool are
being implemented in the management accounting techniques, they are just-in-time and
electronic business. All the tools help to classify the business operations from different
perspective. The activity based costing identifies the performance of the business and the
operations of the manufacturing process. This information aids the management of the company
to take decision regarding the costing and inventory. The management also formulates strategies
from the received information. The next tool of the managerial accounting tool is the customer
based accounting by helping the company to create the customer centric strategy, which helps
the business to meet the demand of the company. The customer value assists the operations of
the business to upsurge the customer realization and hence helps the business to decrease the
customer sacrifice. It also helps the business to have sustainable competitive advantage. The
company usually achieved these by implementing new strategies in the business. The
management accounting system aids the operations of the business to produce the information

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regarding the realization and sacrifice. Another tool which can be identified is that cross-
functional perspective. These perspective of the management accounting helps the business to
determine many functions like marketing, customer service and even in production of the
company. The analysis regarding every information are being provided for the information and
analysis The management accounting system influence the company’s operations by improving
the time reduction and increasing of the efficiency. The management accounting tools aids the
company to measure the cost for production and has greater efficiency (Nitzl and Chin 2017).
The effects of the continuous improvement help the business to take more revised decisions. The
technological advancement of the business has helped the business to improve the innovation for
many industries. The benchmarking is also one of the processes, which helps the company to
determine the position of the company in this competitive market. Thus, it can be concluded that
the companies tends to use the managerial accounting tools which benefits the company to
maintain the profitability and sustainability in the present globalised business world.
Outcomes
In the first case study, Company A had implemented modern management accounting
system in its business operations. The importance of the management accounting system are seen
to be increased in recent times due to its immense contribution in the present competitive
business environment. As per the case study it can be observed that the management accounting
systems have a greater importance in the operations of the business. In case of Company A, the
management accounting information has the ability to contribute the business operations by
helping the company to produce more efficient strategy. The management accounting
information tools like Activity based costing and Balanced Scorecard. These management
accounting information helps the business by analyzing the performance of the company, which

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takes both internal and external factors into account. The external factors like economic affect,
production of the company and internal factors like performance of the departments are being
analyzed. These help the business to provide better understanding of the business environment.
Managerial accounting system aids the business in tactical decision making. The managerial
accounting system helps the business to benchmark itself in the market in comparison to their
competitor. In this way the company can analyses the internal problem, which persist in the
business that develops the business path. The company can lead to create a business path, which
can increase the profitability in the business and also increases the sustainability of the business
in the market. In this way the management accounting system, helps even formulate the strategy
due to which the profitability of the company increases and the managers of the customer
satisfaction also increases (Mouritsen and Kreiner 2016). The functionality of the management
accounting is immense in every aspect mainly in the strategic management part. It is evident
from the case study that the management accounting system affects the management’s decision
making process by implementing the new managerial accounting technique like Business
Scorecard. The Business Scorecard helps the business to provide the information regarding the
performance of the business and also performance of the company’s employees in a single
period. The business performance considers both external and internal business information.
Thus, Business Scorecard helps the business to evolve more by analyzing the performance of the
company and the individual employee. This helps the business to strategize well and hence the
managers can formulate an idea to increase the profitability and sustainability of the company.
Thus, from the above case study it is evident that the managerial accounting system is an integral
part and plays a major role for the development of the company’s business performance.

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As per the next case study it can be seen that the manufacturing companies in Libya tends
to use the managerial accounting techniques for the development of the business. The
manufacturing companies in Libya only depends on the traditional managerial accounting
techniques but they are not reluctant to change in accordance to the expansion of the
management accounting process. From the case study the new managerial accounting system can
be determined. The new techniques like benchmarking. Benchmarking is the process where the
management accounting system can determine its states or levels or ranking among the
company’s competitor. The managerial accounting system helps the business to identify the
performance of the company depending on the internal and external factors. The external factors
like economic structure, competitor analysis helps the company to draw an idea and provide the
ranking on the basis of the data collected (Mihăilă 2014). The other outcome which can be
determined from the analysis of the second case study is the importance of the advancement of
the managerial accounting in the business. The acceptance of the advanced technique of the
managerial accounting helps the business to evolve more and provide better analysis to the
management of the company (Ismail and King 2014). The management of the company can
formulate better strategy for the company’s sustainability and profitability based on the
performance results which are provided by the managerial accounting tools. Thus, the
importance of the managerial accounting techniques in the business holds an immense
importance and without it, the company cannot survive in these competitive business
environments.
Conclusion
Based on the above discussion, the immense scope and importance of the management
accounting technique can be identified. The management accounting technique aids the

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company’s profitability and the sustainability. After comparing the two above mentioned article,
it is evident that the management accounting system not only aids in the strategic decision
making, but it also helps the management of the company to access the internal and external
situation. The management accounting helps the company to improve the daily operations of the
business. Thus, it is essential for the companies to adopt the management techniques, so that the
companies can survive in this competitive business world.

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Reference
Appelbaum, D., Kogan, A., Vasarhelyi, M. and Yan, Z., 2017. Impact of business analytics and
enterprise systems on managerial accounting. International Journal of Accounting Information
Systems, 25, pp.29-44.
Gallemore, J. and Labro, E., 2015. The importance of the internal information environment for
tax avoidance. Journal of Accounting and Economics, 60(1), pp.149-167.
Ismail, N.A. and King, M., 2014. Factors influencing the alignment of accounting information
systems in small and medium sized Malaysian manufacturing firms. Journal of Information
Systems and Small Business, 1(1-2), pp.1-20.
Mihăilă, M., 2014. Managerial accounting and decision making, in energy industry. Procedia-
Social and Behavioral Sciences, 109, pp.1199-1202.
Mouritsen, J. and Kreiner, K., 2016. Accounting, decisions and promises. Accounting,
Organizations and Society, 49, pp.21-31.
Nitzl, C. and Chin, W.W., 2017. The case of partial least squares (PLS) path modeling in
managerial accounting research. Journal of Management Control, 28(2), pp.137-156.
Warren Jr, J.D., Moffitt, K.C. and Byrnes, P., 2015. How Big Data will change
accounting. Accounting Horizons, 29(2), pp.397-407.