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An examination of the types of cost system used to obtain product costs in British manufacturing industry
Abstract
Kaplan has argued that a single accounting system should not be used to calculate product costs for use in decision making because it is not possible for a single system to satisfy the three different purposes of costs systems. Instead, he has suggested that operating units should use three separate systems to satisfy each of the three purposes or a database system from which information can be extracted to satisfy each purpose. This paper uses the results of 259 useable questionnaire responses and 55 interviews with British management accountants to examine which types of cost system are used to obtain product costs in British manufacturing industry and why these cost systems are used. The results reveal that single, separate and database systems are used to obtain product costs, with single systems being the most popular. Single systems are used for historical reasons and appear heavily institutionalised in British manufacturing industry. Although separate and database system are used they are not significantly different from single systems. The implication of this is that costs calculated using these two types of system might not satisfy the three different purposes of cost systems.
The purpose of this study is to direct interest in using the sound methodology in cost management and to choose a more effective approach to managing costs from a series of alternatives in order to obtain more accurate data on the cost of the product. Competition in the market, Clarifying the role of the time-based product life cycle costing technique in providing integrated information on resources and their costs and for each stage of the product life cycle, which would contribute to managing costs throughout the product life cycle. To achieve this goal, the time-based product life cycle costing technique was applied on data obtained from the laboratory records, the research sample, as well as the field experience. The research reached several conclusions, the most important of which is that the failure of traditional cost systems to meet the requirements and objectives of management as they are no longer able to provide accurate data that help the administration in making decisions as a result of changes and developments in the business environment, most notably the intense competition, which resulted in the emergence of modern techniques in the field of management Cost that is able to keep pace with these changes and developments. The most important of which is the time-based product life-cycle cost technique.
While empirical researchers in management accounting frequently address overlapping research issues using a variety of methods, there is little evidence of productive dialogue addressing the uncertainties and ambiguities raised within each stream of research. For example, survey researchers frequently call for deeper field-based insights into conflicting or ambiguous findings. Case study researchers convey rich organizational stories of management accounting in context. However, these field-based findings are rarely used to resolve the ambiguity in construct definition, measurement and inter-relationships that plague our empirical research bases. In this paper we seek to regenerate interest in a method that has been implemented in the past to promote productive field-based dialogue on issues related to complex constructs and their interrelationships. The method is best illustrated by the cross-sectional field study approach adopted by Merchant and Manzoni (1989) to study budget target achievability. By considering the Merchant and Manzoni study as well as two other examples (Bruns and McKinnon (1993) and Abernethy and Lillis (1995)) we identify the range of questions suited to this method and how the method contributes significant insights to the management accounting literature. We also articulate the design attributes of cross-sectional field studies by explicitly linking the rationale for these studies with the complexity of the phenomenon under study, sampling logic, instrument design and data analysis protocols. The insights produced from the relatively few published studies using a cross-sectional field study method suggest that opportunities for the application of this method may be underexploited.
This paper reports and comments on the findings from a questionnaire survey on the product costing practices used by 260 UK manufacturing companies. The aims of the paper are (1) to provide evidence to ascertain the extent to which recent criticisms of product costing can be judged and (2) to compare and comment upon the theory and practice of product costing. The survey findings indicate that product costs computed to meet inventory valuation requirements are widely used for decision-making and internal profit measurement. The majority of firms, however, used both full costs and variable costs for decision-making and the findings suggest that product cost information is used in a more flexible manner than that depicted by previous studies. The paper reports on the methods used by companies to compute full product costs. Most organizations used questionable overhead allocations that are likely to result in the reporting of distorted product costs. The concluding sections of the paper discuss the possible reasons why observed practices differ from conventional wisdom and suggest areas where further research is required.
Enterprise resource planning (ERP) systems, such as SAP, have become widely used in recent years, especially in large companies. Although a considerable amount has been written about them in the professional accounting and computing literature, somewhat surprisingly comparatively little attention has been given to them in accounting research journals. However, the field studies which are beginning to appear suggest that ERP systems are having only a relatively moderate impact on the character of management accounting and the work of management accountants. However, it is argued in this paper that as such studies adopt a relatively 'static' approach, they do not explore the processes of management accounting change or study how opportunities are opened up by the implementation of ERP systems. The paper reports a longitudinal case study of the implementation of SAP in the European division of a large US multinational, in which management accounting change is viewed as an evolutionary process. In this case, although there were no fundamental changes in the nature of the management accounting information used following the implementation of SAP, there were changes in the role of management accountants - in particular: (i) the elimination of routine jobs; (ii) line managers with accounting knowledge; (iii) more forward-looking information; and (iv) a wider role for the management accountants. However, it is not claimed that SAP was the driver of these changes; rather it is argued that the characteristics of SAP (specifically, its integration, standardization, routinization and centralization) opened up certain opportunities and facilitated changes which were already taking place within the company. The paper ends with a call for further longitudinal case studies of the implementation of ERP systems to study how these characteristics facilitate and reinforce processes of management accounting change in other companies.
This paper tabulates the field‐based research in accounting that was published in the period 1981–2004 and discusses the use of this method and its contributions. It shows that the number of field research publications has grown significantly over this period but that use of the method is primarily confined to management accounting topics. The paper describes the major impacts that field research has had on the management accounting field, particularly in identifying leading edge practices and enhancing their scholarly exploration, thereby contributing to our understanding of the phenomena we research and linking our research with practice. We also suggest that similar contributions might be made if researchers in other fields employed field research methods more.
One of the most striking features emerging from a review of the management accounting research literature during the past decade has been the increasing emphasis given to empirical studies of management accounting practice. These empirical studies have consisted of cross-sectional questionnaire surveys and more in-depth case study research that has focused on practices within a specific company. Recently, comprehensive questionnaire surveys of management accounting practices in several different countries have been published. The aim of this paper is to identify and comment on the major conclusions that can be derived from these surveys and to discuss some of the issues arising from them that require more intensive case study research.
The key elements of this study consist of management accounting, communication cultures, and people pursuing management accounting in companies. Based on our evidence, we argue that management accounting practice in Finland is tied to the national culture surrounding it, i.e., Finnishness, and that the Finnish management accounting culture is currently in a significant transition. The most prominent sign of such transformation is the emergence of the controller accountant as an important player in organisational decision-making. The background for this transition can be traced, among other things, to intense internationalisation of Finnish companies in recent years.
We argue that there currently is a global tendency for management accounting system designs and general ideas to converge. After offering examples of such homogenization, the drivers of this development are distinguished and analyzed. For this end a framework was developed including both economic and institutional perspectives. The basic explanation for the claimed tendency to converge appears to be that the drivers of convergence have started to dominate those of divergence. It also is argued that firms probably do not intend to gain unique competitive advantage through their management accounting systems, but instead intend to use them to improve their operational, not strategic, effectiveness.
Starting from the position that management accounting systems and practices constitute organizational rules and routines, this paper describes an institutional framework for the conceptualization of management accounting change. Drawing from (old) institutional economics, the framework explores the complex and ongoing relationship between actions and institutions, and demonstrates the importance of organizational routines and institutions in shaping the processes of management accounting change. The inherent stability and continuity of organizational life is discussed, and three categorizations of institutional change are explored. The framework is offered as a starting point for researchers interested in studying management accounting change, and through such studies the framework will be extended and refined.
Recent advances in managerial accounting have helped executives get the information they need to make good strategic decisions. But today's enterprise resource planning systems promise even greater benefits--the chance to integrate activity-based costing, operational-control, and financial reporting systems. But managers need to approach integration very thoughtfully, or they could end up with a system that drives decision making in the wrong direction. Operational-control and ABC systems have fundamentally different purposes. Their requirements for accuracy, timeliness, and aggregation are so different that no single, fully integrated approach can be adequate for both purposes. If an integrated system used real-time cost data instead of standard rates in its ABC subsystem, for example, the result would be dangerously distorted messages about individual product profitability--and that's precisely the problem ABC systems were originally designed to address. Proper linkage and feedback between the two systems is possible, however. Through activity-based budgeting, the ABC system is linked directly to operations control: managers can determine the supply and practical capacity of resources in forthcoming periods. Linking operational control to ABC is also possible. The activity-based portion of an operational control system collects information that, while it mustn't be fed directly into the activity-based strategic cost system, can be extremely useful once it's been properly analyzed. Finally, ABC and operational control can be linked to financial reporting to generate cost of goods sold and inventory valuations--but again, with precautions.
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