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Main purpose of this essay is introducing to management accounting with modern management accounting techniques. That is a good formulates strategic directions to manage, to sustain competitive advantages.
Management accounting definitions stated that they are holding the main component of the overall skills base of professional accountant. The practical role of the management accountants is to increase knowledge within an organization that using techniques and practices which providing relevant information for managers such as the cost, productivity, etc. that to help them control effectively corporate and reduce risk associated with making decisions. The information generated by management accountant should report that make day-to-day, short-term and long-term decisions. Therefore, management accountants are required to consider several alternatives methods and then decided which one is best way to use. There are many modern accounting techniques are developed from the management accounting theories. As a result, to achieve and sustain competitive advantages, many corporations also use the modern management accounting techniques as best methods.
II. Toyota Motor Corporation
Toyota Motor Corporation has been a dominant name in vehicle manufacturing for several decades. Toyota always wants to give the best service to clients and helps expand, promote and develop their customer business. The business environment has been change and the company has reached a stage where they already had a best management of the accounting function. To choose the right one, managers need some guidance, which is partially provided by information of management accounting. They help company to record, plan and control organization activities and advice the decision makers in correct ways. The management accountants of Toyota are work effectively to give an analysis of accounting information and make appropriate managerial decisions. Moreover, to disseminate the information throughout the organization, Toyota's manager use reports which give by accountants to make the best decisions.
III. Definition and the role of strategic management accounting
Strategic Management Accounting (SMA) is a form of management accounting that emphasis is placed on information. It related to factors external to the firm, as well as financial and non-financial information.
The document shows that SMA should combines strategic costing and performance measurement, market analyses of company's product markets and competitor's market forces. Moreover, these evaluations should be created in long time.
Management accounting is a tool to provide information for supporting strategic decision making in the organization (Innes, Cooper & Kaplan). Strategic decisions have internal and external element, it leads them to have a long-term implications. Accordingly, SMA is going collecting and analyzing data on business and its competitors. Additions, it also consider the benefits that products offer to customers, and how these benefits to sustaining competitive advantage. Furthermore, Browich (1990) suggests that SMA might provides information on product profitability and helps to find out the rationale behind the profitability of each product.
2. The role of management accountants
Management accountants play some roles that provide managers to manage strategies effectively. First, a management accountant involved determining the information is necessary for the tools that can be used to provide to manager in decision-making. Managers need this information to create planning for the company's progress, control activities and see the impact of financial decisions that they may take. Moreover, management accountants are concerned with providing feedback information that has value for managers. It provides a number of general advantages such as creating more profitable. Thus, management accountants provide managers about financial and statistical information that help them carry out responsibilities. It is necessary them to control the resources that they have responsibilities and plan how to use more effective and decides what action they should take. With this information, manager can determine what parts if the company is working well and what need to be changed. Next, management accountant is to accumulate the cost of an organization's product and services that helps in management. This product-costing purpose helps managers to guide the setting prices. In addition, these product cost are used for inventory valuation and income. Information which provided by management accountants can help companies reduce their costs by finding ways to cut out efficiencies. Last, management accountant allocate costs between cost of goods sold an inventories cost that will be reported in external and internal reporting.
Toyota's management accountants use some modern accounting techniques such as Activity-Based Costing, Just-in-time, Total Quality Management and Balanced Scorecard to calculate efficiency.
IV. The key techniques of Management accounting
1. Activity-Based Costing
Activity-Based Costing (ABC) is a method that identifies the activities that a firm performs, and using cost drives to assigning to other cost objects for a product or service. ABC gives managers information about the pricing and product mix and development, more consistent data for management's decision-making. Besides, ABC helps in identifying the right contributors, products, channels and profitable customers. It also gives managers guideline on cost reduction as well as design decisions when analyze how its affect activities and costs. In addition, managers must concentrate ABC method as a basic for decision-making and in communication and agreements with other employees. By using this method, managers of Toyota can make decisions in determining the best competitive selling price compared with competitors. However, ABC method needs high time and recourse commitment to data gathering, validation and insertion into the system. Hence, before making any decisions by using the information of ABC methods, managers of Toyota must consider the appropriate level of information to make decision or not.
Competition is become more and more forceful, especially in manufacturing and technology. The costs of buying, storing and moving inventory are high, so companies use a just-in-time method. In 1970, Toyota is using JIT method to improve their performance and regain their competitive edge. Eiji Toyota and Taichi Ohmo have developed a new manufacturing concept which is known as the Toyota Production System. Just-In-Time (JIT) method is a modern accounting technique that aims to reduce in-process inventory and its carrying costs. Instead of wasted cost in inventory, managers can provide exact number needed to correct both the delivery time and the number of good needed. JIT aims to reduce unnecessary costs among processes. In the stage of production, all raw materials are met and accurate at the time needed. There are no storage conditions and material shortages. Each production step will produce the necessary quantity and the system only produces products that customers want. When time is reduced, companies can get potential output and give quicker response to customers. Thereby, items to produce have no inventory goods, and labor or equipment does not have to wait for materials to produce. This method has been reducing inventory costs and damage costs that due to lack of raw materials. In the JIT method, there are no specialized personnel. Workers are trained to handle all the jobs from the manufacturing process control, machine operation and maintenance, etc. The workers are not having responsible for checking the quantity of their work but also to observe the inspection of the quantity of others at the stage before them. In Toyota's manufacturing process, JIT is one of the best methods to minimizing inventory and damage. However, JIT required the incorporation between manufacturers and suppliers. Moreover, it requires an infrastructure system of social good. Any disruption could also cause damage to the manufacturer that will have to bear the loss incurred by stopping production.
3. Total Quality Management
Total Quality Management (TQM) is a management approach of an organization, based on the participation of all members and it want to bring about long-term and short-term success through customer satisfaction and benefit of all members of company and the society. The goal of TQM is improve quality of product and satisfy customer at best allowed. Therefore, TQM helps Toyota in the way to analyze customer requirements. Best feature of TQM compared to quality management methods that it provides a comprehensive system for the management and improvement of all aspects that related to quality. When using TQM, companies face with the disruption that existing in production flow. Besides, employees are required to take part in the implementation process that will resist these changes. Because they had already got used to what had been practicing for years.
4. Balanced Scorecard
Balanced Scorecard is a system planning and management strategies, it uses in business organizations, non-profits and government that to guide business operations and strategic vision of the organization. It also improves internal communications and external monitoring performance against business objectives (Kaplan and Norton, 1996a,b). This is a model of performance measurement is more integration not only the financial side of the traditional financial indicators. Balanced Scorecard evaluates company based on 4 points such as customer, financial, internal business processes and learning and growth. These points are evaluated both short-run and long-run performance in a single report.
In conclusion, managers and management accountants must understand that modern accounting techniques are no perfect. Each model has its own limitations. However, managers and management accountants must use the new techniques accounting to make good decisions and most importantly to gain and sustain competitive advantages.