| |
.In many companies, the traditional basis
for classification and recording accounting information (largely dominated
by external reporting requirements) provides a very poor basis for predicting
the outcomes of the types of decisions being taken in the contemporary
manufacturing environment. We shall turn our attention to two important
developments in management accounting systems that help to structure information
in a way that overcomes some of these deficiencies, and makes visible
and hence controllable, aspects of the organisation's operations that
are vital to successful cost control and efficiency improvement in the
current environment.
|
|
Activity Based Costing (ABC)
We have identified the type of financial information
that is 'relevant' for economic decision-making (future cash flows that
are affected by a decision), but have noted that there are often difficulties
in deriving relevant information from the traditional accounting reports
which tend to use absorption (full) product costs which attach manufacturing
overhead costs to products on the basis of an arbitrary rate per unit.
Non-manufacturing costs are not associated with products. For short-term
decision-making we have learned to restate absorption costing statements
in a variable costing format so that we can separate the fixed overhead
costs which remain unaffected by short-term changes in production, from
the sales and direct costs which we assume will vary in direct proportion
to output levels.
|
|
