Advance Management Accounting

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Date Submitted: 03/11/2013 06:02 AM

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In the world of cost management different philosophers have come up with different methodologies which may be applied in the manufacturing industries. These philosophies mainly focus on cost allocation, managing overheads in the production process, performance management and hence profit maximization. The information resulting from the implementation of traditional costing techniques questions the relevancy of the accounting information when it comes to business decision and has been the subject of most criticism relating to the accuracy of product costing.

The publication of Relevance Lost: The Rise and Fall of Management Accounting by Johnson & Kaplan (1987) had brought about a new era to the concept of management accounting, the previously used techniques, traditional costing, were said to have been designed to meet the presentational purpose in financial reporting and as well as taxation needs and had failed to meet managerial decision making and control purposes. The proposed methodology in the book was meant to overcome barriers to decision making by providing relevant information for product costing during that time of rapid technological change and fierce competition.

Accounting information should be easily interpreted by its user according to the GAAP. Accounting systems should provide relevant information about their businesses, consumers, and environment to its end user (Drucker, 1992), the role of management accounting is not only to collect accurate cost information but also to analyse the information which is vital to managerial decisions. The result to which produced a more reliable cost system which was the Activity Based Costing and had claimed to have a more comprehensive ability to provide accurate cost information then prior used ones , Cooper (1988a & 1995), Cooper & Kaplan (1988 & 1998). The costing method enhanced managerial decisions concerning product mix and competitive strategies by marking out...