Using Cost Accounting Information to Enhance Firm’s Competitive Position and Performance

Cost explanation governance in Theory The last two decades has seen a revolution in trouble proceedsion line relationship theory and practice due to the challenges of the free-enterprise(a) environment in the 1980s. Kaplan and Johnson (1987) identified the failings and obsolescence of existing price and work measurement systems, which guide to the re-examination of traditional represent accountancy and charge ascendence systems. Conventional fiscal and charge business relationship system system methods lose developed mainly as a result of incorporate legislation in the 1930s forcing companies to supply extraneously published pecuniary accounts. oversight write up is primarily foc mapd as a termination making prick for shed bloodning a business, hence they posit more flexibility. According to Kaplan, trouble accounts arouse become a subset of monetary accounts and that they consult more on the external or else than internal requirements of the ac f ederation. Most of the managerial decision-making and condition systems in use in the juvenile 1980s were described by Johnson and Kaplan as stagnant. As a result, they went onto research in recent accounting systems raising the write of internal accounting systems by use of fiscal and non-financial measures.Although their work was at scratch line seen as controversial, it is now considered of key brilliance for companies aiming to evoke their private-enterprise(a) go down and murder. The subprogram of appeal accounting is to ascertain the add upress of wargons and services. When mightily implemented, the price accounting hightail it go forth provide necessary education for pricing decisions, identify the profitability of apiece intersection, service, or job, abet counsel in maximizing profits by sight sources of wastages and excess capacity, and potentiometer influence oversight behaviour.In theory, approach accounting alleviate managers make decisions to fulfill an nerves goals. Cost chronicle in normal However, according to a July 2003 study through with(p) by the Institute of commission Accountants and Ernst and Young, 98% of managers turn over their exist info is misrepresent while almost 40% believe their cost data is significantly distorted. In practice, most companies still use the aforementioned(prenominal) cost accounting and counseling control systems that were developed decades ago in a private-enterprise(a) environment drastically incompatible from today.In the some cases worked on throughout the semester in business relationship Planning & Control, for drill Putz, Seligram Inc. and Zytec, there was an underlying problem of inaccurate be tuition that failed steering when making decisions. This was due to the traditional cost systems that these companies use despite the changing nature of their business environment. One of the main triggers that a gild go away need a new cost system is when change s occur in the organization and its environment. The article You need a new cost system when highlights the many signals in which a go with postulate to redesign or create a new cost system.This article proposes that a cost system must be up to date and functioning properly in order for the theory of cost accounting to be applied in practice. The problem with the state of the accounting professing is the skewed emphasis towards Financial business relationship, as identified by Kaplan. Financial Accounting is used to prep be financial statements for external users. These Financial Accounting reports ar for outsiders to esteem the business, but the reports focus on configuration with GAAP in broad totals and are not designed to support decision making.Despite this fact, 80% of organizations rely on the GAAP infallible Normal cost method to provide management with reports (Sharman and Mackie 12). When management reports echo standard financial reports, management loses. These r eports have no activity data and often require managers to prepare their throw ad hoc reports when they require decision analysis. These financial reports are difficult to understand by non-accountants and do lower-ranking to give managers the knowledge they should have at their fingertips to harmonize a company. The Management Accounting problem in this country does not seem to be as problematic in early(a) countries.According to the Sharman and Vikas article in the declination 2004 Strategic Finance German companies call just as many managerial Accountants as Financial Accountants The U. S. employs one-tenth the get along of practicing Management Accountants than the U. K. , Canada, and Germany. The weak emphasis on Management Accounting and providing data to managers to run a company is partly caused by the overwhelming requirements external parties place on corporations. Companies lose sight that the most Copernican viewers of company feedback are multitude inside the company.State- of the Art Cost Accounting nurture to Enhance Competitive property Companies realizing the importance of internal reporting win state-of-the-art, or up to date cost accounting techniques, straying away from financial reporting and normal be, in an endeavor to accurately measure the cost of acquiring or using resources. This state-of-the- art cost accounting teaching en fitteds management to add-value for the consumer, and to put up their upstandings free-enterprise(a) position and performance. In order for a company to compound their competitive position, they must have an effective competitive system.The competitive strategy describes how an organization will make do and the opportunities its managers should look for and pursue. There are two competitive strategies that companies can define to implement cost- leaders or product differentiation. When companies realize the cost-leadership strategy, they decide to have-to doe with a competitive receip ts in the food commercializeplace by providing the stovepipe value at the lowest price. When companies film the product differentiation strategy, they choose to uphold their competitive advantage by whirl unique products or services at higher prices than their competitors.According to the confrontation strategy, competitive advantage is not sustainable. This is a living view of competition by recognizing that competitors will quickly bring out akin products and match price changes. The underlying demarcation of the confrontation strategy is that firms must compete in terms of the pick triplet. The survival triplet consists of tierce strategic dimensions that remember a product price/cost, quality, and functionality. These three dimensions are bounded by a minimum and maximum acceptable train which defines the survival zone.In order for firms to brave and remain competitive, firms must operate in their survival zone. With that being said, companies face nonstop pressure to reduce the cost of the products or services they sell, or continuously upward(a) the consumers perception of quality as related to their competitors. To successfully implement much(prenominal) strategies, managers must have state-of-the-art cost accounting information that will vacate firms to adopt intent costing to leaven their competitive position.Being that managers have little influence over pricing, (the central rootage of economics states that prices are determined by supply and demand), management must ob attend to be to receive desired profits. hindquarters costing is the allowable amount of cost that can be incurred on a product and still earn the required profit from that product (Ansari, Bell, Klammer, Lawrence). The article bell ringer Costing proposes that commit costing is oddly important at the design stage, where 70-80 per centum of the costs of a product are committed.Hence, taper costing is more than just a cost accounting technique it is an inte gral part of the complete management process that aids management in reducing the overall products life-cycle costs, helping an organization to get going in an increasely competitive environment. Nonetheless, target costing is useful in pre- action as well as post production and has many advantages to allowing firms to uphold their competitive position. point costing requires analysis on competitors products and the guests perception of their products, and uses this information to rate which particular customer segment of the foodstuff to target.This analysis done in target costing allows for companies to create products that adds value, in the eye of the customer, while staying ahead of the competition by identifying areas of improvement based on the customers perceptions. Furthermore, target costing enhances a firms ability to uphold their competitive advantage. fall guy costing reinforces top-to-bottom commitment to process and product innovation and is aimed at identify ing issues to be resolved, in order to sustain competitive advantage. patsy costing helps to create a companys competitive afterlife with market-driven management for designing and manufacturing products to mate customer expectations and market price. Also, target costing identifies market opportunities that can be converted into real nest egg to achieve the best value kind of than just simply the lowest cost. can costing enhances competitive position in the ways aforementioned however, without state-of-the-art cost accounting information, target costing is unsurmountable to achieve.State-of-the-art Cost Accounting Information Enhancing Performance State-of-the-art cost accounting information can also enhance a firms performance in the marketplace. In measuring a firms performance, a state-of-the-art accounting technique was developed by Kaplan and Norton called the balance scorecard. The fit scorecard translates an organizations mission and strategy into a set of performance measures that provides the framework for implementing its strategy (Hongren). The balanced scorecard uses financial and non-financial measures to mensurate short-run and long-run performance.Key strategic nonfinancial and available indicators measure adjustments that a company is making for the long-run. For example, an improvement in quality, as measured by improvement in yields, signals a strong likeliness of higher gross revenue and income in the future. By balancing the mix of financial and nonfinancial measures, the balanced scorecard brings managements attention to short-run and long-run performance. In for profit companies, the main goal of the balanced scorecard is to improve a companys financial performance. Non-financial measures simply serve as leading indicators for hard-to-measure long run financial goals.Kaplan and Norton developed four berths that firms should analyze to achieve performance levels that are necessary to meet customer call for, compete effectively , and achieve financial goal the financial sentiment, the customer perspective, the internal-business-process perspective, and the learning and addition perspective. The financial perspective focuses on increasing shareholder value. Measures of the financial perspective accept ROI, ROCE, residual income, and EVA. By managing financial performance, managers are able to manage costs and unfermented capacity.This will enhance performance by increasing profitability of the firm. The customer perspective measures customer satisfaction and focuses on the importance of the customer on the business. This enhances performance by increasing the firms market share and overall customer satisfaction. This will enable firms to meet the future needs of customers and increase customer focus of sales on the organization. The internal-business process perspective focuses on the internal business processes that will meet the needs of customers. This area focuses on product design and innovation, modify efficiency and quality, and post-sales service.This perspective enhances performance by improving the customer-service process, identifying operational problems to improve quality, reducing delivery time, and improving manufacturing capabilities. The learning and growth perspective accepts employee training, system capabilities, and employee motivation. Measures of learning and growth perspective include employee satisfaction, and employee training programs. This enhances performance by empowering the workforce, growing employees process skills, and enhancing system capabilities.By implementing an effective balanced scorecard, for-profit companies are able to motivate managers to take actions that result in improvements in financial performance. When financial and nonfinancial performance measures are properly linked, nonfinancial measures serve as indicators of lagging future financial performance. These indicators can aid management in improvements in future performance. consequence State-of-the-art cost accounting information allows for the implementation of advanced cost accounting techniques.Such techniques include target costing and the balanced scorecard. Target costing enhances competitive position and uses state-of-the-art cost information to identify activities that do not add value to the customer. Without modern cost accounting information, there will not be a breakdown of activities and their respective costs to assist managers in analyzing non-value added activities. Target costing relies on state-of-the-art cost accounting information to identify these non-value added activities that managers will hand to reduce costs, and uphold their competitive position.The balanced scorecard uses state-of-the-art cost accounting information to motivate managerial behaviours and enhance performance. Managers rewards are based on the financial perspective, which metrics rely on cost accounting information. Analysis of operating income, a metric of the financial perspective, depends on modern cost account information that accurately separates material costs and conversion costs to identify spending variances and efficiency variances, which aid management in future financial performance.State-of-the-art cost accounting information enhances a firms competitive position as well as their performance in the future by allowing the implementation of modern techniques. Focusing on internal reporting, and not just financial reporting will allow companies to adopt continuous improvement in dynamic, super competitive environments, through techniques such as target costing and the balanced scorecard. work cited Sharman, Paul A. and Kurt Vikas. Lessons from German Cost Accounting Strategic Finance. 2004, December. 28-35. Cooper, Robin. You Need a in the raw Cost System When Harvard Business Review. 1989, January. 6 pages. Sharman, Paul and Brian Mackie Grenzplankostenrechnung (GPK) Notes from Institute of Management Accountants annual Conference. www. imanet. org. 1-58. Ansari, Bell, Klammer, and Carol Lawrence. Target Costing Management Accounting, A Strategic Focus. McGraw-Hill Companies Inc. , 1997. Hongren, Datar, Foster, Rajan, and Christopher Ittner. Cost Accounting A Managerial Emphasis. Thirteenth edition. Pearson Education, Inc. new Jersey 2009. 462-485. Print