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The solutions to the management Accounting responded to the changes in business operations is that by introducing new techniques and creating Strategic Management Accounting.
Here is a list of a few of the new techniques
a) Activity based techniques.
b) Customer account profitability.
c) Life cycle costing.
d) Target costing.
e) Variances/ Performance Measurement.
f) Balanced scorecard approaches.
h) Just in time.
i) Back flush costing.
The review of some of the current techniques and its relevance to a modern business environment
1. The traditional overhead apportionment method - its criticisms and alternatives
(a) Traditional overhead, apportionment and absorption methods were developed around the time of the Industrial Revolution when organizations were trying to determine the cost of their industrial production. Production processes at the time were:
—— Labor intensive
—— A low level of overheads compared to direct costs
—— A relatively non-competitive and local market
The characteristics of the modern production environment however are quite different:
—— Capital intensive and machine paced environment
—— A higher level of overheads compared to direct costs
—— A highly competitive global market
Due to the change in the environment traditional methods have been criticized as not producing useful or accurate information for decision-making.
Various theorists have argued against ABC. The following are some of the arguments against ABC:
Piper and Walley of the Loughborough Management Centre argue that whilst the cost driver approach may...