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Bob Scarlett responds to Tony Mock's article in the October issue, which questioned the value of a range of management practices and their associated management accounting techniques
CIMA's Stage 3 Management Accounting Applications paper involves the study of a range of management practices and associated management accounting techniques such as activity-based costing, throughput accounting, lifecycle costing and backflush costing which it is sometimes claimed are modern, new and radical. In an article in the October issue, Tony Mock questioned the value of these practices and techniques--and asked why they appear in the MAA syllabus. As one who played a modest role in the design of the MAA syllabus I feel obliged to offer a short response to his comments.
What follows is my own way of looking at things which might help readers to think about the status of 'modern' management accounting in the MAA syllabus.
Traditional cost and management accounting Product costing was the basic information need that lay behind the development of cost accounting. However, costing did not grow out of accounting. Up to the 1950s engineering companies typically had a cost office linked to the production management side of the business rather than the financial management side. Cost accounting technique was adapted in order to provide information for managers to assist the latter in making business decisions. It is this adaptation that gave rise to the body of technique known as management accounting-- product costing, cost-volume-profit analysis, resource allocation, budgetary control, performance evaluation and investment appraisal.
At the root of much traditional management accounting practice is the assumption of a simple model of cost behaviour. Costs are assumed either to vary in proportion with output volume or to be fixed. The student exploring traditional management accounting practices will encounter this assumption (explicitly stated or not) at almost every turn. To give one example, budgetary control is maintained by periodically reconciling budget and actual profit through the calculation of variances. Look closely at those variances and it is apparent that they only make sense if costs fall into simple variable/fixed categories and that fixed overhead can be meaningfully attributed to individual products using a simple overhead absorption base.
It may be that this simple model correctly represents the way things were in...