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While the traditional management accounting techniques may have contributed to planning, controlling and decision making processes at the nation state level, the requirements of globalisation in which nation states now compete for survival in the global market rather than state market, has rendered traditional techniques obsolete and therefore calls for the mobilisation of modern techniques of management accounting. It also calls for the service of accountants with modern management accounting techniques for a successful implementation.
Critically examine the above statements by analysing the contribution of traditional management accounting techniques in an organisation, the necessity for modern management accounting techniques and the role of accountants in the implementation of the modern management accounting techniques in an organization.
Students should first and foremost examine the contribution of traditional management accounting techniques. They should thereafter advance some reasons why the traditional techniques may no longer cope with the global competition and the necessities for the services of modern management accountants equipped with modern management accounting techniques.
The answer should be in essay form, making suitable use of sub-headings. Please do not rely solely on the internet for research
Traditional Vs. Modern Managerial Accounting
Length: 7 pages (2286 Words)
Accounting has been a concept that has been in existence for millions of years. It can be traced back to the time when human started trading. That was the beginning of accounting. However, their records used to be engraved on tablets for record keeping. Evolution of accounting began around 500 years ago when Luca Pacioli, a monk well known for his mathematics, emphasized the basics of double entry record keeping system. Ever since civilized community has been using accounting as an organizational tool to manage their business. During the industrial revolution, a lot of processes were transferred to large companies from individuals. The making of products from one stage to the next used to involve a lot of transactions within the factory instead of selling the final outputs in the market (Ball, p. 20). As time went by, these mega factories came to establish an accounting system that would control and regulate the work done in the companies. Also, they wanted efficiency measures that would control the cost of production in these factories. It was at this time that traditional managerial accounting was born.
Using traditional management techniques, it changed how companies used to operate. Companies started making the profit because of how the accountings were used. However, the accounting system they used was not as efficient as they would expect. The traditional accounting systems would track how a business performed by evaluating how long the business had been in practice and the systems they used. In the real sense, accounting shows the daily performance of a company or business, but in traditional accounting, they failed to capture the daily performance of the enterprise because of the lack of tools to capture all the aspects involved in manufacturing.
Early cost accounting systems
For accountants to calculate the cost of a final product, they used to add the total cost of direct material and direct labor. However, by the end of the nineteenth century, accountants saw that there were still missing portions in how they determined the price and as a result added indirect costs in the final price. The number of overhead costs determined at a certain percentage of the overall cost of direct costs. Summing up of overheads into am small percentage was used for several years, however, in the book of expenses. Most of them did not even relate to each other hence making the percentage formulae misleading. It could not tell much about the product or the costs that product specifically incurred.