Management Accounting Systems

Old vs. New Management Accounting Systems

[Name of the Institute]

Old vs. New Management Accounting Systems

Objectives of the report

Management accounting system is mainly concerned with cost accounting and decision making. It is necessary for managers to derive an accurate cost for inventory valuation, product pricing and making informed decisions. Correct decision making is also very important for a business, as it differentiates between a successful and unsuccessful business. Therefore, management accounting system needs to be updated with the passage of time so that manager can make accurate decisions regarding valuation, pricing as well as various other issues related to the product.

Since businesses exist in a dynamic environment their system need to be constantly updated. Changes occur in almost every sector of the business, be it primary, secondary or tertiary sector. There has been a shift in technology in almost every business process. With these changes, there is a need to update the accounting system to make it more reliable and accurate.

This report focuses on outlining and critically analysing the differences between the old and the new management accounting system taking in to account various costing and decision making techniques. The analysis would be conducted by comparing and contrasting the old management accounting system with the new management accounting system.

Critical Argument of Old and New Management Accounting system



In order to critically analyse the new and the old management accounting system we will take an example of the changes in the manufacturing sector. Production process has shifted from a labour intensive environment to capital intensive environment. Consumers now demand a variety of products, hence the range of product have increased. The production process has also changed to cater to their demand. Along with the change in production process, there was a need to change the management accounting system so that accurate costing could take place. According to (Corkin & Hicks, 2007: p23) it is necessary to calculate relevant and accurate cost so that management can take correct decisions.

The traditional costing system is an old management accounting system was applicable at the time when the range of product was limited. The cost of labour and the cost of material accounted for a majority proportion of the total cost of production. Overheads were a very small part of the total manufacturing cost. As time passed by, there was a shift in the production technology. The production process shifted from labour intensive environment to capital intensive environment. Companies are now using highly automated manufacturing technology. Overheads now form a majority portion of total cost. With these changes there was a need to introduce a new costing system so that accurate cost of product can be determined. Hence, Activity Based Costing was introduced. This old system of management accounting was not applicable because it based the cost of products on only one or two cost drivers. That is machine hours and labour hours. Goods that are produced in large quantity absorb higher proportion of overheads while small quantity of goods absorbs lesser ...