History of Managerial Accounting:-

Managerial accounting has its roots in the industrial revolution of the 19th century. During this early period, most firms were tightly controlled by a few owner-managers who borrowed based on personal relationships and their personal assets.

Since there were no external shareholders and little unsecured debt, there was little need for elaborate financial reports. In contrast, managerial accounting was relatively sophisticated and provided the essential information needed to manage the early large scale production of textile, steel, and other products.

After the turn of the century, financial accounting requirements burgeoned because of new pressures placed on companies by capital markets, creditors, regulatory bodies, and federal taxation of income. Many firms needed to raise funds from increasingly widespread and detached suppliers of capital.

To tap these vast reservoirs of outside capital, firms’ managers had to supply audited financial reports. And because outside suppliers of capital relied on audited financial statements, independent accountants had a keen interest in establishing well defined procedures for corporate financial reporting.

The inventory costing procedure adopted by public accountants after the turn of the century had a profound effect on management accounting. As a consequence, for many decades, management accountants increasingly focused their efforts on ensuring that financial accounting requirements were met and financial reports were released on time. The practice of management accounting stagnated.

In the early part of the century, as product line expanded operations became more complex, forward looking companies saw a renewed need for management-oriented reports that was separate from financial reports. But in most companies, management accounting practices up through the mid-1980s were largely indistinguishable from practices that were common prior to World War I.

In recent years, however, new economic forces have led to many important innovations in management accounting. 

Historical Development:- 

Maher states: Management accounting has a short but exciting history: – While management accounting concepts can be traced back at least to the beginning of the Industrial Revolution, management accounting as a teaching discipline appears to have got off the ground in the late1940’s.

Parker concurs: – Management accounting has historical antecedents that stretch back longer than we might expect and certainly accounting historians have not yet concluded their investigations of its earliest genesis.

Cunagin and Stancil believe:

Management accounting before the First Management Accounting Revolution:- 

According to the International Federation of Accountants (IFAC), the period before the First Management Accounting Revolution is known as the “classical period” and ended in the late 1950s. Robles and Robles (2000:4) state that contributions to cost accounting during this period (especially from 1820 to 1885) were particularly barren.

After years of merely recording financial information, Johnson and Kaplan mention the emergence of hierarchical organizations that all created a new demand for accounting information. The Industrial Revolution during the 18th and 19th centuries presented new challenges to accountants. Business operations became more complex and information   was needed to facilitate those operations. Manufacturing activities multiplied, and according to Wyatt (2002:4), accountants were expected to provide information to control expenditure   and to price manufactured products.

The label “management accounting” was not used in the Anglo-Saxon world prior to the First Management Accounting Revolution. The term “cost accounting” was used to define processes for the computation of costs and for financial control. Although management accounting was not recognized before the 19th century when masses of financial information had to be recorded, it is quite possible that businessmen were already using management accounting concepts at the time.

In Parker’s (2002:1) address to the Chartered Institute of Management Accounting (CIMA) in March of 2002, he stated that there was strong evidence of a full range of cost management practices in the British extractive, iron and textile industries before the 1900s. Yamey, for example, stated that the records of Robert Loders’ farm accounts (1610-1620) showed evidence of calculations for business decision making (Parker 1969:15). Another example is found in the French mathematician, Augustin Cournot’s, records for 1838 in which he pointed out that  a monopolist   would   always stop production when the increase   in expenses exceeded the increase in receipts (Parker 1969:17). During this period cost accounting was evidently considered a necessary technical activity to pursue organizational objectives. Associations that were established during this period to disseminate the work performed by accountants emphasized the use of cost accounting.

The first North American organizations that developed cost or management accounting systems   were   the integrated cotton textile factories that were established after 1812. They used cost accounts to ascertain the direct labor and overhead costs of converting raw material into yarn and fabric.

One of the first publications on the principles of cost accounting, namely Factory accounts, written by the electrical engineer Emile Garcke and the accountant John Manger Fells, appeared in 1887. These   two writers would later be recognized as the founders   of marginal costing (Parker 1969:20). Another contribution to cost accounting during the period was that of Friederich von Wieser who first formulated the concept of opportunity cost in a paper entitled On the relation of cost to value (written in 1889, but published in 1929).

Among the earliest manufacturing cost records found by American historians were those of the Boston Manufacturing Company. Company records dated as early as 1815 reveal that remarkably sophisticated sets of cost accounts were used.

Overview of Management Accounting: –

states that management accounting practice extends to the following three areas:

· Strategic Management— advancing the role of the management accountant as a strategic partner in the organization.

· Performance Management— developing the practice of business decision-making and managing the performance of the organization.

· Risk Management— contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.

The Institute of Certified Management Accountants (ICMA)

· Planning and constructing business activities;

· Helps in making decision & Optimal use of resources;

·

The base objective of management accounting is to assist the management in carrying out its duties efficiently. The objectives of Management Accounting are: –

· The computation of plans and budgets covering all aspects of the business. Example: production, selling, distribution, research and finance.

· The systematic allocation of responsibilities for implementation of plans and budgets.

· The organization for providing opportunities and facilities for performing responsibilities.

· The analysis of all transactions, financial and physical, to enable effective comparison to be made between the forecasts and actual performance.

· The presentations of up to date information, at frequent intervals, to management in the form of operating statements.

· The statistical interpretation of such statements in a manner which will be of utmost assistance to management in planning future policy and operation.

The fundamental objective of management accounting is to enable the management to maximize profits or minimize losses. The evolution of management accounting has given an approach to the function of accounting. The main objectives of management accounting are as follows:

1. Planning and policy formulation:

Planning involves forecasting on the basis of available information, setting goals; framing polices determining the alternative courses of action and deciding on the program of activities. Management accounting can help greatly in this direction. It facilitates the preparation of statements in the light of past results and gives estimation for the future.

2. Interpretation process:

Management accounting is to present financial information to the management. Financial information is technical in nature. Therefore, it must be presented in such away that it is easily understood. It presents accounting information with the help of statistical devices like charts, diagrams, graphs, etc.

3. Assists in Decision-making process:

With the help of various modern techniques management accounting makes decision-making process more scientific. Data relating to cost, price, profit and savings for each of the available alternatives are collected and analyzed and provides a base for taking sound decisions.

4. Controlling:

Management accounting is a useful for managerial control. Management accounting tools like standard costing and budgetary control are helpful in controlling performance. Cost control is affected through the use of standard costing and departmental control is made possible through the use of budgets. Performance of each and every individual is controlled with the help of management accounting.

5. Reporting:

Management accounting keeps the management fully informed about the latest position of the concern through reporting. It helps management to take proper and quick decisions. The performance of various departments is regularly reported to the top management.

6. Facilitates Organizing:

“Return on Capital Employed” is one of the tools of management accounting. Since management accounting stresses more on Responsibility Centers with a view to control costs and responsibilities, it also facilitates decentralization to a greater extent. Thus, it is helpful in setting up effective and efficiently organization framework.

7. Facilitates Coordination of Operations:

Management accounting provides tools for overall control and coordination of business operations. Budgets are important means of coordination.

 

One of the most significant steps to improve managerial performance is the development of the new discipline. Management accounting it is still very much in a state of evolution. However, the following advantages are claimed for it:-

1. The main contribution of management accounting is the elimination of initiative management. With the help management accounting, the business activities are regulated systematically by means of efficient planning and organization thereby avoiding over working in busy periods and slackness in slump periods.

2. It enables the business to get the maximum return on capital by helping it in planning, distribution and controlling activities.

3. It helps the management to improve its service to its customers by resorting to a continuous method of comparing the results with the standards.

4. It helps in improving the relations between the management and labor by avoiding unreasonable standard of work which is the main cause of labor unrest.

 

Code of Conduct for Management Accountants: –

Practitioners of management accounting and financial management have an obligation to the public, their profession, the organization they serve, and themselves, to maintain the highest standards of ethical conduct. In recognition of this obligation, the Institute of management Accountants has promulgated the following standards of ethical conduct for practitioners of management accounting and financial management. Adherence to these standards internationally is integral to achieving objective of management accounting. Standards of Ethical Conduct for Management Accountants are:-

 

· Competence

· Confidentiality

· Integrity

· Objectivity

Competence:

 

· Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so.

· Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality

· Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

Integrity:

Resolution of Ethical Conflicts:

In applying the standard of ethical conduct, practitioners of management accounting and financial management may encounter problems in identifying unethical behavior or in resolving an ethical conflict.

When faced with significant ethical issues practitioners of management accounting and financial management should follow the established policies of the organization bearing on the resolution of such conflict. If these policies do not resolve the ethical conflict, such practitioner should consider the following course of action.

· Discuss such problems with immediate superior except when it appears that superior is involved, in which case the problem should be presented to the next higher managerial level. If a satisfactory resolution cannot be achieved when the problem is initially presented, submit the issue to the next higher managerial level.

· If the immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with a level above the immediate superior should be initiated only with the superior’s knowledge. Assuming the superior is not involved. Except where legally prescribed, communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate.

· Clarify relevant ethical issues by confidential discussion with an objective adviser to obtain a better understanding of possible course of action

· Consult your own attorney as to legal obligations and rights concerning the ethical conflict.

· If the ethical conflict still exists after exhausting all levels of internal review, there may be no other recourse on significant matters than to resign from the organization and to submit an informative memorandum to an appropriate representative of the organization. After resignation, depending on the nature of the ethical conflict, it may also be appropriate to notify other parties.

Every organization-large and small-has managers. Someone must be responsible for making plans, organizing resources, directing personnel, and controlling operations. Every where, mangers carry out three major activities-planning, directing and motivating, and controlling.

Planning:

Planning involves selecting a course of action and specifying how the action will be implemented. The first step in planning is to identify the alternatives and then to select from among the alternatives the one that does the best job of furthering the organization’s objectives. While making choices, management must balance the opportunity against the demands made on the company’s resources.

Management Accounting As a Profession

Profit is the yard-stick for evaluating performance of any business concern. Since ultimate profit depends upon plan and control, cost accounting plays a vital role for this ground. Cost accounting was mostly engaged in ascertaining costs of products or service on the basis of time-series analysis. Due to competition and technological development, the role has shifted under the managerial accounting to cost reduction which depends upon availability of relevant information well in time. No such restriction is imposed in case of costing accounting since it is used internally for decision making under managerial accounting.

Uses of different techniques: – Absorption, variable and throughput costing are alternative product-costing methods. The difference is treatment of certain cost elements-

Under absorption or full cost method, all manufacturing costs are treated as product costs.

Variable costing covers only variable costs while all fixed costs are treated as period costs. This type is more suitable for operational decisions as fixed cost, being committed, is irrelevant for most decisions.

In present high tech, environment, direct labor has disappeared. The only throughput costs vary with the change in production. This would reduce the incentive to over produce to cut down cost per unit. The only common feature among the various methods is the focus or stress on providing information for decision-making, since some techniques are used only internally.

The Role of Cost Accounting in Managerial Decision Making: –

There are various types of costing tools like – Contract costing, marginal costing/variable costing & how this tool helps in managerial decision making, it helps the business to know its BEP means help the business knowing the minimum output required to carry on the business to earn the profits.

· Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization.

Managers use cost accounting tools o support decision making to reduce a company’s costs and improve its profitability. As a form of management accounting, cost accounting need not follow standards such as GAAP, because its primary use is for internal managers, rather than external auditors, and what to compute is instead decided pragmatically.

Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as translating the Supply Chain into financial values. There are at least four approaches:

 

· Standardized Cost Accounting

· Activity-based Costing

· Throughput Accounting

· Marginal Costing – as a management accounting tool

Cost accounting has long been used to help managers understand the costs of running a business. Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs to help business owners and managers make decisions. In the early industrial age, most of the costs incurred by a business were what modern accountants call “variable costs” because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this as a rough guide for decision-making processes.

Some costs tend to remain the same even during busy periods, unlike variable costs which rise and fall with volume of work. Over time, the importance of these “fixed costs” has become more important to managers. Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments such as maintenance, tooling, production control, purchasing, quality control, storage and handling, plant supervision and engineering. In the early twentieth century, these costs were of little importance to most businesses. However, in the twenty-first century, these costs are often more important than the variable cost of a product, and allocating them to a broad range of products can lead to bad decision making. Managers must understand fixed costs in order to make decisions about products and pricing.

Standard Costing

A wide variety of accounting tools address that “why” and “how” of entity success or failure. Many tools are proactive, helping us make sound decisions, and some are predictive, peering into the future. When one develop an understanding of cost and revenue structure, the interaction of encounters with revenue and expenses, and the amount and rate of change from volume changes.

Contribution margin = fixed costs

As volume grows we get to leverage the fixed costs, revenue climbs but variable costs climb little and fixed costs not at all.

CVP is critical for decision making, for example adding a new service. Usually the only relevant numbers are the new revenue versus the new expenses, assuming adequate capacity. Understanding which numbers are relevant is the key to a sound decision. With a relatively low variable cost line, additional services require very little incremental spending.

Cost-Benefit Issues:-

Any business organization exists for one reason, to generate positive cash flow for the owners. The devil of business is in the details. Effective cash flow management is a key task for senior management, and anticipating cash flow ups and downs is critical.

 

With the competitiveness of today’s business world, several of new model going to developed for using many useful management accounting tools with human resource management, that create the challenges for management accounting tools as self-governing technique . For some insufficiency of management accounting technique, merging developed by following process:-

Step 1: Identifying relevant product profitability models. Product profitability models come in all shapes and sizes. The relevant product profitability models to use in human resource management should involve sales productivity as a key element in determining total profitability.

Step 2: Applying marginal profitability to actual sales results. Product profitability models that break down the product’s profitability on per unit of sales basis can then be applied to actual sales production.

Step 3: Using regression techniques to analyze trends and predict future sales. Historical sales and profitability information provide a basis for careful examination of trend. Regression analysis, especially represented in a graphical format, enables management to quickly grasp the true trend direction of sales production and efficiencies

Step 4: Comparing regression forecasts to management objectives. If the forecasted sales production developed by the regression analysis falls short of management objectives, then management needs to take pro-active steps to meet revenue objectives or revise their projections downward.

Step 5: Working with human resources to resolve projected revenue variances. Recognizing revenue variances using management accounting tools is one thing; identifying the cause of the variances is quite another.

Carefully analyzing the characteristics surrounding sales production trends could suggest reasons behind the variances. Different management accounting tools is used to help better understand business, but we shouldn’t limit using our tools to just management accounting. Many techniques used to other functional areas, but certainly not limited at one root, in fact, the applications are limitless. Taking the initiative to use these tools outside of the accounting and finance area can have a profoundly positive impact on the value of the management accounting profession.

Challenges for Managerial Accounting Research: –

With the continuing development of business processes, whether the change in various manufacturing processes, or the automation of most business activities, the cost accounting procedures that companies use to calculate for the cost of an individual product, service or activity have also become outdated.

From a managerial accounting perspective, the changes in the economy, in industries and individual firms alike, must be supported by the firm’s accounting and control infrastructure. Accounting is a financial model of business. When changes occur in the business, accounting should change to reflect them. Managers of companies that fail to make appropriate modifications in their accounting systems will find they have inaccurate product/service/activity cost figures and lack data for making decisions. They may lose their competitive edge because they do not have the necessary information for operating in the constantly changing business environment.

Systems for accounting for costs date back several centuries. Accounting for management – accounting done for management to meet its information needs. One basic difficulty in costing is that an individual product, service or activity does not drive all the company expenses. Even within a factory, there are many questionable costs, not directly driven by the type, number or volume of products.  In addition, there are costs that are driven by substantial material vendors and customers. How to go about calculating the cost of an individual product, service or activity, in par with the marked changes in the field of management accounting to maximize the benefits that effective costing has to offer.

New Challenges for Managerial Accounting Research:-  The traditional cost accounting model developed for mass production of standardized products needs to be updated to support new operating concepts such as just-in-time, zero defects, zero inventory, a cooperative workforce, flexible manufacturing systems, computer aided design and manufacturing, and computer – integrated manufacturing.

Management accounting must serve the strategic objectives of the company & emphasizes on financial measurements, needs to include an explicit recognition of the need for information and measurements in such soft areas as product quality, productivity, product innovation, employee morale, and customer satisfaction. If management accounting research is to progress, information needs to be collected from company various updated sources.

 

Fundamental objective of management accounting is to facilitate and support all the aspects of an organization’s decision making. To accomplish this objective, management accountants should be aware of the kinds and levels of problems and decisions involved in order to identify those particular areas where management accounting techniques and information would be most relevant and useful. For this purpose, different conceptual frameworks for viewing problems, decisions, and decision systems have been proposed in the management, accounting, and information systems literature. They provide a good basis for viewing the types of problems, decisions and decision systems, the types of information needed, and the useful role of management accounting.

It is a fact that accounting executives spend a great proportion of their time defining, formulating, classifying, and solving problems –

The concept of a problem in business, management accounting, or any other context lends itself to three major phases – Problem definition, Problem formulation, and Problem classification, which precede the problem solving. The way executives approach each of these phases can substantially affect information processing, decision making, and behavior.  A moderating effect on this impact is management accounting playing a crucial role of facilitator by providing the right information needed for the execution of each of the three stages. Without the right execution of three phases management accounting facing challenges to exist their acceptance. 

Faced with new wealth creation standard, triggered by technology and relentless globalization of markets, increasing number of companies are becoming knowledge-based enterprises.  Internet and e-commerce have changed forever the way companies conduct their businesses. Virtual enterprise and efficient supply chain management systems will shape the future of these enterprises. Organizations are trying to become agile enterprises with the help of strategic alliances of firms and integration using information technologies.

Five challenges are identified for management accounting, and in particular for planning and control-

· The first is to foster multiple perspectives

· The second is the coordination of complexity

· The third concerns competitor analysis and

· The fourth concerns resource allocation

· The fifth is to overcome centrifugal tendencies, developing a clarity of strategic intent, binding managers together worldwide and rewarding behavior in the corporate, as opposed to local interest.

Traditional performance and cost measures are no longer suitable for developing and managing enterprises in the so-called new environment. In order to remain relevant and to add value, cost and performance measures must be designed and systematically evaluated to reduce the often-unnoticed mismatch between strategic goals and operational tactics. Managerial accounting researchers and practitioners should develop new costing and Performance Measurement Systems (PMS) taking into account the new enterprise environment.

Pushing the Art of Management Accounting: –

Management accounting practice has developed substantially over the past century, but it suggests that the practice is no longer making the strides that it once did. Unless management accountants take a hard look at the effectiveness of current practice, this situation isn’t likely to improve. In some companies, radical changes are needed to the structure of the finance function, the nature of the interactions management accountants have with other managers and the performance metrics used to guide the function itself.

Today’s management accounting information, driven by the procedures and the cycle of the organization’s financial reporting system, is too late, too aggregated and too distorted  to be  relevant  for managers’ planning and control decisions. Management accounting reports are of little help to operating managers as they attempt to reduce costs and improve productivity.

Strategic cost management techniques, such as attribute costing, seem little known outside academia. The majority of firm’s measures apparently don’t use them significantly. Balanced Scorecard researchers have concluded that most users make little attempt to link their non-financial performance to strategy and that only a small minority attempt to validate the cause and effect linkages included in their models. Moreover, Balanced Scorecard practice seems to have developed an independent momentum, excluding the finance function altogether in some organizations. There is even pressure for management accountants to do less.

These indications of a slowing pace of management accounting change may be due to a range of factors. In some cases, new management accounting tools aren’t adapted to organizational strategy or structure and can’t be used. And in some cases, innovation has failed due to implementation-related factors. However, the main problems aren’t technical or structural; they lie in the need for a better management of the management accounting process itself.

Last the management accounting process requires new metrics. Most accounting functions measure timeliness, in terms of the delay between the end of the reporting cycle and the issuing of the report, and many measure the cost of the finance function relative to revenues. Few organizations measure the use or the usefulness of the management accounting information provided. The absence of such measures guarantees that things will remain the same.

Application of Inefficient Techniques in Decision Making: –

As time went on, standard cost lost its usefulness for management decision making due to a variety of reasons:-

The practice of paying workers on a set-piece basis changed in favor of paying on an hourly rate. Modern companies tend to have relatively low truly variable costs and very high fixed costs. Equipment has become more complex and specialized and may be a very significant proportion of total costs. Changes in the level of full cost inventory create swings in profitability that is difficult to explain or understand.

Management decisions are basically based on some measures/techniques traditionally designed based on quantitative data. However, in recent past to cope with global business environment, change in business, increase in competition and complexity of decision making some advanced quantitative techniques like Activity – based Costing and Target Costing and some improved programs like Just-in-Time (JIT), Total Quality Management (TQM), Process Reengineering and Theory of Constraints (TOC) have been introduced for application. Now both traditional and advanced management accounting techniques are shown in the following chart:-

 

Traditional Techniques	Advanced Techniques
Ø  Financial Statement Analysis Ø  Fund Flow Analysis Ø  Cash Flow Analysis Ø  Marginal Costing Ø  Absorption Costing Ø  Differential Costing Ø  Standard Costing Ø  Opportunity Costing Ø  Budgetary Control Ø  Inter-firm Comparison Ø  Cost-Volume-Profit Analysis Ø  Management Reporting	Ø  Activity-Based Costing Ø  Target Costing Ø  Just-in-Time (JIT) Ø  Total Quality Management (TQM) Ø  Process Reengineering Ø  The Theory of Constraints(TOC)

Chart Showing the Management Accounting Techniques

Extent of Use of Management Accounting Techniques

Against the background of identification of generally used management accounting techniques the following table shows the use of management accounting techniques in the sample manufacturing business firms in Bangladesh. A list of techniques was provided to the respondents and they were asked to point the techniques they use and which they do not use. The responses have been tabulated and the summarized picture is shown in the table.

The table shows the extent of use of different management accounting techniques in sample firms. It is seen that the traditional techniques like financial statement analysis, cash flow analysis, budgetary control and management reporting are being widely used (100%) by all types of firms followed by standard costing and absorption costing (80% in public, 90% in private and 100% in MNC). Marginal costing and cost-volume-profit analysis are used to some extent by the 50% in public sector enterprises, 60% by private sector and 70% by multinational corporations (MNC). Some enterprises of public (30%) and private (20%) sectors use fund flow statement analysis though it has now been almost replaced by cash flow statement analysis. Modern techniques yet to be introduced by Bangladeshi firm – both in public and private sector. Few MNC uses JIT (40%) and TQM (20%). None of public or private Bangladeshi enterprises or MNC found to use some traditional technique like differential costing, opportunity costing and inter-firm comparison as well as the modern techniques like activity-based costing, target costing, process reengineering and the TOC. Thus it is seen that management accounting techniques yet to get a firm footing in Bangladeshi firms and thus depriving these firms in better decision making.

Techniques	PB (N = 15)	PV (N = 15)	MNC (N = 5)
Financial Statement Analysis Cash Flow Analysis Budgetary Control Management Reporting Standard Costing Absorption Costing Marginal Costing Cost- Volume-Profit Analysis Fund Flow Analysis Just-in-Time (JIT) Total Quality Management (TQM) Differential Costing Opportunity Costing Inter-firm Comparison Activity-Based Costing Target Costing Process Reengineering The Theory of Constraints (TOC)	100% 100% 100% 100% 80% 80% 50% 50% 30% – – – – – – – – – – – – – – – – – – – – – – – – – – –	100% 100% 100% 100% 80% 80% 50% 50% 30% – – – – – – – – – – – – – – – – – – – – – – – – – – –	100% 100% 100% 100% 80% 80% 50% 50% 30% – – – – – – – – – – – – – – – – – – – – – – – – – – –
No sample (PL = Public enterprises, PV= Private enterprises, MNC = Multinational Enterprise)

“Table Showing the Summarized Picture of Management Accounting Techniques Used by the Sample Enterprises”

Now a discussion about the techniques in brief and extent of the use of the same is being examined below:

i) Financial Statement Analysis

Financial statement is essentially historical document which provides organized data according to logical and consistent accounting procedure and conveys an understanding of some financial aspects of a business firm. Careful analysis of financial statements can help decision makers to evaluate an organization’s past performance and predict its future financial health. Financial statement therefore, refers to such a treatment of the information contained in the Income Statement and the Balance Sheet so as to afford full diagnosis of the profitability and financial soundness of the business. This analysis is accomplished by examining trends in key financial data, comparing financial data across companies, and analyzing key financial ratios. All the sample firms use it.

ii) Fund Flow Analysis

Fund flow analysis does not carry any extra meaning basically after the implementation of International Accounting Standards (IAS)–7 in revised form. Nevertheless, some business organizations are still considering this as an important tool for managerial and financial decision making. Working capital being life-blood of the business, analysis of fund flow is thus extremely useful. Financial analysts also have an understanding of changes in the distribution of resources between two balance sheet dates by analyzing the fund flow statements. Few sample firms (30% in public and 20% in private sector) still use this statement.

iii) Cash Flow Analysis

Until recently, many decision makers focused primarily on the income statement and the balance sheet. But in the IAS-7 (revised), FASB has prescribed for compulsory reporting of another important statement, the statement of cash flows. A statement of cash flows reports the cash receipts and cash payments of an organization during a particular period. It is widely used as a tool for assessing the financial health of an organization. Other important purposes of maintaining this statement are to predict future cash flows, to evaluate management’s generation and use of cash and to determine a company’s ability to pay interest, dividends, and to pay debts when they are due. All the sample enterprises found to use it.

iv) Marginal Costing

Marginal costing is a technique where only the variable costs are considered while computing a cost of a product. The fixed costs are met against the total fund arising out of excess of selling price over total variable cost. This fund is known as ‘contribution’ in marginal costing.  Marginal costing system is however not a system of cost finding such as job, process or operating costing, but it is a special technique concerned particularly with the effect of fixed overheads on running the business. It is an important decision making tool. However, it is found not being widely used in sample enterprises. Over 50% of public and 60% of private sector enterprises and 70% of MNC found to use it.

v) Absorption Costing

Though absorption costing is a traditional approach for costing products for the purposes of valuing inventories and cost of goods sold, the vast majority of companies throughout the world use this technique for managerial accounting purposes. Absorption costing, which is also known as Total, or Full costing, treats all costs of production as product costs, regardless of whether they are variable or fixed. It allocates a portion of fixed manufacturing overhead cost to each unit of product, along with the variable manufacturing costs. It is found widely used in sample firms (80% in public, 90% in private and all MNC) followed by some traditional techniques like financial statement analysis, cash flow analysis etc.

vi) Differential Costing

In decision-making, the management always compares two or more alternative courses of action. Making or buying decision, accepting or rejecting certain orders, deciding whether to discontinue an existing product or launce new one, expanding the existing business etc. are the decisions required to be taken by the management. In such a case the best alternative that will maximize profit or minimize loss can be obtained by determining the differential costs and revenues. Differential cost (revenue) is the difference in total cost (revenue) between two alternatives.  The use of this technique found absent in sample enterprises.

vii) Standard Costing

A standard is a benchmark or “norm” for measuring performance. Standards are found everywhere and are also widely used in managerial accounting where they relate to the quantity and cost of inputs used in manufacturing goods or providing services. Standard costing is a budgetary control technique with three components: a standard, or predetermined, performance level; a measure of actual performance; and a measure of the difference, or variance, between the standard and the actual. All sample MNCs, 90% of private sector enterprises and 80% of public sector enterprises reported to use it.

viii) Opportunity Costing

Sometimes a proposed investment project may use the existing resources of the firm for which explicit, or adequate, cash outlays may not exist. The opportunity costs of such projects should be considered. Opportunity costs are the expected benefits which the company would have derived from those resources if they were not committed to the proposed project.  In addition to the accounting costs that are explicit as labor, raw materials, supplies, rent, interest and utilities, some implicit costs are also required for managerial decision making purpose. The objective in such case is to determine the present and future costs of resources associated with various alternative courses of action. Such an objective requires that one considers the opportunities foregone/ sacrificed whenever a resource is used in a given course of action. The implicit costs, however, consist of the opportunity costs of time and capital that the owner-manager has invested in producing the given quantity of output. But none of sample enterprises use it.

ix) Budgetary Control

Budgetary control is the system of management control in which all the operations, as sales, purchase, production etc. are forecasted in advance and the results, when known, are compared with the planned targets. The difference between the planned targets and actual results are analyzed and corrective steps are taken according to the original causes. By budgetary control attempts are made to make the best uses of resources under the circumstances and all efforts are coordinated by pin-pointing responsibility. The Budget Performance and Variation Reports act as communication in between top management and financial management as also in between functional management and sub-ordinate management. The system makes everyone conscious and responsible, and thus it is also termed as Responsibility Accounting. All the sample enterprises reported to use it. But some research report indicated that this technique is not rigorously followed and thereby the enterprises are deprived of its benefit.

x) Inter-firm Comparison (IFC)

IFC is another technique of Management Accounting which is made by some inter-firm comparison ratios based on the financial and other records of the business. Top management can make decision by applying this technique and comparing the performance of two or more similar types of industry. The idea of inter-firm comparison was felt in the year 1889 when the National Association of stove manufacturer in U.S.A introduced first the scheme of Uniform Costing. In order to know whether one business/firm is making sufficient profit or not; whether it is efficient in purchase, sales and production, it is required to compare its own performance with the performances of other similar concerns and it is easily possible by applying the technique IFC. But this technique is found not in use by the sample enterprises.

xi) Cost-Volume-Profit Analysis

The relationship between cost-volume-profit is ascertained by the technique “Cost-Volume- Profit Analysis”. This technique attempts to find out the impact of change in price, cost, and volume on the profitability of the business. It aids management to take its decision on planning and control. The CVP analysis is also termed as Break-even Analysis which determines the equilibrium point of cost and revenue. The equilibrium point indicates “no profit no loss” stage. 50% of sample public sector enterprises, 60% of private sector enterprises and 70% of MNC reportedly use the technique.

xii) Management Reporting

Management reporting acts as a ‘media’ which helps the management to take its decision accordingly. It is an organized method of providing each manager with all the data which he needs for his decisions. A good management reporting will include six factors:

a) Evaluation of each manager’s area of responsibility,

b) Proper flow of information,

c) Proper form & Proper time,

d) Cost benefit analysis, and

e) Flexibility. Large concerns found to have a separate Management Information Division.

This division may be headed by the Accountant himself or the Management / Cost Accountant or Information Manager, depending on the size of the business. All the samples reported to use it in the form of performance report. But the contents found to vary and in many cases one report includes a variety of information like production, procurement, sales, financial aspects i.e. these are not segregated and thus pin point reporting for specific responsible persons is being hampered. This adversely affects intent of the reporting.

xiii) Activity-Based Costing

Activity-based costing (ABC) developed to provide more accurate ways of assigning the costs of indirect and support resources to activities, business processes, products, services, and customers (Kaplan and Atkinson, 2001:97). Activity-based costing is a method of assigning costs that calculates a more accurate product cost by identifying all of an organization’s major operating activities. The goal of ABC is not to allocate common costs to products but to measure and then price out all the resources used for activities that support the production and delivery of products and services to customers. For this why, ABC is important to activity-based management. Since its introduction as a viable cost allocation technique, organizations in the United States and throughout the world have adopted ABC. This modern technique is found not in use by sample enterprises.

xiv) Target Costing

Target costing is a costing tool for decision making. Stratton defined target costing as a cost management tool for making reduction a key focus throughout the life of a product. They added that the target cost is based on the product’s predicted price and the company’s desired profit. Managers must then try to reduce and control costs so that the product’s cost does not exceed its target cost. Target costing is most effective at reducing costs during the product design phase when the vast majority of costs are committed. None of the sample firms use this modern technique.

xv) Just-in-Time (JIT)

One of the management-forged operating philosophies for the new manufacturing environment is JIT. The JIT approach can also be used in merchandising companies. The JIT operating philosophy requires that all resources, including materials, personnel, and facilities, be acquired and used only as needed. It has most profound effects on the operations of manufacturing companies, which maintain three classes of inventories – raw materials, work-in-process, and finished goods. That means according to JIT concept raw materials are received just in time to go into production, manufactured parts are completed just in time to be assembled into products, and products are completed just in time to be shipped to customers. Only 40% of sample MNCs use it and none of Bangladeshi sample firms found to use it.

xvi) Total Quality Management (TQM)

The most popular approach to continuous improvement is known as total quality management. There are two major characteristics of total quality management (TQM): (I) a focus on serving customers and (ii) systematic problem solving using teams made up of front-line workers. TQM is an approach to improving the competitiveness, effectiveness and flexibility of a whole organization. It is essentially a way of planning, organizing and understanding each activity, and depends on each individual at each level. TQM is also a way of ridding people’s lives of wasted effort by bringing everyone into the process of improvement, so that results are achieved in less time. The methods and techniques used in TQM can be applied throughout any organization. They are equally useful in the manufacturing, public service, health care, education and hospitality industries. Only 20% of sample MNCs reported to use it but none of Bangladeshi sample firms use it.

xvii) Process Reengineering

Process reengineering focuses on simplification and elimination of wasted effort. A central idea of process reengineering is that all activities that do not add value to a product or service should be eliminated. Basically, in process reengineering a business process is diagrammed in detail, questioned, and then completely redesigned in order to eliminate unnecessary steps, to reduce opportunities for errors, and to reduce costs (Garrison and Noreen, 2004-2005:20). None of sample enterprises use it.

xviii) The Theory of Constraints (TOC)

A constraint is anything that prevents one from getting more of what he/she wants. Every individual and every organization faces at least one constraint. The Theory of Constraint (TOC) maintains that effectively managing the constraint is a key to success (Garrison and Noreen, 2004-2005:22). In TOC, an analogy is often drawn between a business processes – the weakest option is always identified first and then improvement efforts are shifted over to that option in order to bring the biggest benefit. This simple sequential process provides a powerful strategy for continuous improvement. None of sample enterprises reported to use it.

The above findings reveal that some traditional techniques are being used by sample enterprises. Modern techniques are yet to be introduced. In the use of management techniques MNCs rank high followed by private sector and public sector enterprises. Due to utmost importance of use of modern techniques, concerned authorities need to pay attention to this. Against the backdrop of the extent of use of management accounting techniques, means status of management accounting practice in Bangladesh, now an attempt is made below to show the attitude of concerned management personnel, the reasons for low use and prospect of improving the situation in the following:

It was desired to know from the respondents as to whether management accounting information systems are satisfactorily used in Bangladesh, what are the problem of optimum use and suggestions they can offer for adequate use of the techniques. The summarized version of their opinion is tabulated below.

 

Quite Satisfactory	Satisfactory	Moderate	Unsatisfactory	Not at all satisfactory
–	15(14.28%)	30(28.57%)	45(42.85%)	15(14.28%

The table above clearly depicts that the respondents consider the use of management accounting techniques in our manufacturing business firms as very much unsatisfactory. Only 14.28% of them consider it satisfactory and 28.57% considers it moderately satisfactory and seemingly most of them belong to MNC group. The majority (42.85%) considers it unsatisfactory and 14.28% considers the position as precarious/worse. They put forwarded some reasons for low use of management accounting techniques.

Reasons for Low Use of Management Accounting Techniques

Respondents recognize the importance of the use of management accounting techniques in the factories. But they pointed out some reasons that act as barriers to this. The reasons pointed out by them are shown in the following table.

 

Reasons	N	%
Historical Information is given more importance Lack of awareness, understanding the benefit of its use Consider involvement of extra cost Lack of trained and experienced personnel Reluctant to use it and base decision on personal experience Lack of skilled personnel	20 25 20 15 35 22	26.67 33.33 26.66 20 46.67 29.33
(N=Frequency of the respondents) (%to total respondents)

The above table indicates that reluctance of use is the main cause. This contradicts the opinion as to considering the importance of management accounting as an important tool of decision- making. This indicates that actually our business firms do really not feel the importance of management accounting information for decision-making. Only lip service is given to it.

Suggestions to Overcome the Problem of Low Use

The respondents also offered some suggestions in the way to overcome the flaws and improvement of the positions. These are now shown in the following table.

Suggestions	N	%
Organizing seminar, symposium of professional bodies Creating awareness by respective Manufacturing Association  Ensuring training and skill development  Introducing management audit more extensively  Creating awareness among top management	70 40 40 30 30	93.33 53.33 53.33 40 40
(N = Frequency) (%= To total respondents)

Summary of the Findings:-

After the analysis and review the role of various management accounting costing technique  in various Bangladesh industries the following findings are observed during the study:-

· Rather than Textile & food manufacturing industries, the percentage of implementation of new management accounting technique in Bangladesh is very poor.

·

To enhance the management accounting technique practices and to gain competitiveness of the Bangladeshi companies the following recommendations have been made after analyzing all major and associated findings. The key results of this evaluation study regarding the application level of costing technique in various Bangladeshi industries can be show as follows:

· A higher percentage of firms in all sectors use cost plus principle for product costing but this costing is not useful for product costing. So it is suggested to use other new costing for product costing.

· The companies applying new costing or having a similar process have narrow market analysis and marketing information systems. They follow balanced competition strategies

· They must give more importance to determine the customer expectations before the product design, in order to fully provide the expected benefit from some new costing technique

· Their pricing of the new products by depending on cost usually poses an obstacle to the successful application of new costing technique.

· Rather than textile industries, over the fifty percent other industries such as food, cement etc use full costing for product costing, but this costing technique is not appropriate for product costing. So it is suggested to use target costing for product costing.

· The weak relationships between these companies and their suppliers are transformed to a more collaborative structure and if the integration degree of the design processes is increased, the benefits to be gained from the other costing process will increase evenly.

· Majority of these companies operate in competitive market conditions. New management costing technique should be used to increase the competitiveness of the firms within the industry and in the global market.

· Higher percentage of workforce in Jute, Paper, and Printing, Tannery, and Textile sectors implies that the factory is not automated enough. So, automation is recommended in order to reduce production costs and to increase profitability by implementing some new management accounting technique.

Conclusion:-

The world has become a global village. Competition has become serious. To survive and grow, every enterprise need to be cost conscious, and management must ensure better decision for all aspects of management. For better decision making adequate and timely information is sine qua non. Management Accounting techniques have been designed since long to provide relevant information.

Strategic management accounting is taking a more central role in companies’ decision making plans than ever before. The study shows that though privatization and authoritative pronouncement has contributed a lot in the  development  of management accounting in Bangladesh, the survey result of the present  practices  of  management accounting technique in listed manufacturing sector reveals that state of use of developed techniques (like throughput costing, life cycle costing, target  costing,) is not satisfactory.

Modern techniques are being used to face complex situation. Bangladeshi manufacturing business firms remain far behind the expected situation due to lack of awareness as to benefit of using the management accounting techniques for better decision making. All concerned people need to realize the situation and take appropriate action from every corner to overcome this unwarranted situation. To keep pace with the world changing management accounting environment, Bangladeshi firms should use the newly developed techniques such as target costing. The soon it is done, the better it will be, otherwise we shall perish in this competitive world.

 

· The Evaluation of Management Accounting Innovations – By Martijn Schoute & Eelke Wiersma”

· Accounting History Research: Traditional and New Accounting History Perspectives -By Salvador Carmona , Mahmoud Ezzamel & Fernando Gutiérrez

· Conceptual Foundations of Management Accounting -By Belkaoui

Internet:-

· www.accountingweb.co.uk

· www.icmab.org.bd

· www.cimaglobal.com

· www.focusmag.com.au

· www.scribd.com

· www.allbusiness.com

<span style=” 

• Communicate information fairly and objectively
• Disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented.