RELEVANCE LOST THE RISE AND FALL OF MANAGEMENT ACCOUNTING
In today’s world of management accounting information, emphasis paid on short term profits and monthly targets has drastically increased which leads to the ignorance of economic profit added and long term development of any organization. Managers are paying more attention on meeting short term goals and monthly/quarterly meetings which will lead to a downfall of company’s performance in the future to come.
The given article can be summarized in the following points:
1. The short sightedness of managers results in below mentioned consequences:
· Decrease in the efficiency and productivity of the operating managers, who mainly deals with the irrelevant factors like direct labor costs, and thus get distracted from the factors that are responsible for production efficiencies.
· Accurate product costs can’t be determined as the methods do not pay focus on demands of the individual products. This ultimately leads to incorrect pricing and wrong decision making by the management.
· The expenses like advertising, employee training, new system development, etc. that can add value in future are compromised in order to have positive good profit statement for the year.
2. The organization’s management accounting system should provide accurate and timely information in order to control the costs incurred and to improve productivity.
3. Appropriate signals and incentives should be provided to the managers in order to evaluate and motivate themand free flow of communication and information should be encouraged within the management of an organization in order to gain competitive success.
4. The evolution of automation and digitization and sophisticated electronic and software technologies has resulted in more accurate, efficient, timely and relevant information regarding the costing and demands of each product in a diverse line.
5. Accounting systems has advanced a lot starting right from bookkeeping techniques, to conversion costs, then to various financial ratios like operating ratio and then to geographical expansion due to improved transportation and communication services.
6. Use of return on investment (ROI) and DuPont analysis has helped the managers in proper allocation of the capital and resources and to evaluate the performance of the operating divisions which lead to the overall increase in efficiency.
7. It is true that the cash flowing in and out of the company forms a very important part but knowing the sources and uses of cash is also essential from a long term prospective
Hence, a management accounting system can be excellent if its success depends on efficient production and distribution systems, on products that satisfy consumer needs and on efficient marketing efforts. Proper knowledge should be gained along with the technological support in order to support the strategy and operations of the system. Managers should be able to increase the efficiency of internal processes along with the profits earned. Hence, in an efficient management accounting system, long term benefits should be the first and foremost concern of any manager along with providing the relevant information necessary for any organization to survive.