Case Study 1

Until the late 18^th century, accounting was primarily to keep track of the amount of money and complex transactions. The industrial revolution in the late 18^th century provided a boost to the development of accounting practices around the world. It was observed in empirical research that it was during the late 19^th century that there existed a crucial need to calculate and be aware of product costs as competition. It was identified during this period that efficiency in production and managing its cost improves organizations performance. Because of the competitive pressure, organizations were forced to offer their product and services at a very competitive rate, which was possible through integrating a well-developed cost accounting practice. Cost ascertainment and cost control were recognized as major tools for organization efficiency. This also led to the emergence of systematic allocations, apportionment and cost/ financial integration.

In 1920s, ideas developed regarding allocation to products, accounting for waste and scrap, and how standard costing methods emerged in the 1920s. In all these periods, management accounting is seen as taking a very passive and reactive role. In 1962 Alfred Chandler drew attention to the importance of management accounting in the development of giant US firms. Management accounting is seen to have been a key factor in coordinating such firms wide activity ranges over large geographical areas. Firms became larger and more decentralized, and this increased the need for management accounting. Management accounting/costing was a necessary tool of the new industrial capitalism of the late nineteenth century, developing to evaluate a companys internal processes measuring efficiency in mainly single activity firms.

Although some of the management accountings key techniques and approaches were admittedly quite well established (i.e. old and taken from financial accounting and cost accounting), more tools and techniques emerged that highlight the significance of management accounting over the years.

Based on the above, answer the following questions

Question 1

What are the major roles played by management accounting in a modern corporate organization? Briefly explain. [5 Marks]

Question 2

1. Management accounting/costing was a necessary tool of the new industrial capitalism of the late nineteenth century, developing to evaluate a companys internal processes measuring efficiency in mainly single activity firms. In view of this statement, briefly explain how management accounting differ from cost accounting. (You may observe that both cost accounting and management accounting focus on similar tools and techniques). [3 Marks]
2. While financial accounting is focused on past, the management accounting is future oriented. Briefly explain this statement. [2 Marks]