MANAGEMENT ACCOUNTING PROCESS 1
Changes in the Management Accounting Process from Traditional Business Environment to
Modern Era
Student’s Name
Institutional Affiliation
, MANAGEMENT ACCOUNTING PROCESS 2
Introduction
Towards the end of the 20th century and the onset of 21th century, there have been
tremendous changes in the corporate environment which has seen the development of new cost
accounting methods with the purpose of providing more information about management
concerning the effectiveness of specific activities, products, customers and projects. While
traditional cost accounting was due to the need for automation of production in the mid-20th
century and focused on manufacturing costs and management of manufacturing cost allocation
on both products and services, technological innovation, change in consumer preference and
global competition challenged businesses to find means of survival in the global market. This,
therefore, diminished the need for traditional cost accounting and as a result bore modern cost
accounting methods directed towards cost reduction and rationalization for companies to impact
market prices and also their costs, hence focusing on total costs in the entire product life cycle.
The paper will, therefore, therefore explain modern management accounting in the context of
cost accounting. It will discuss the digital economy and globalization and their effect on
management accounting while evaluating how the role of management accountants has changed
to adapt to the modern global business environment.
Traditional Cost Management and Theories
Costs of manufacture in the traditional costing systems were allotted to cost items
arbitrarily thus affecting the determination of product profitability. However, due to deficiencies
in the system, Activity Based Costing (ABC) was established with its primary objective being
providing accurate cost allocation and subsequent evaluation of product profitability
(Zimmerman & Yahya-Zadeh, 2011). ABC system took two main phases, with the first being
allocation of indirect costs to activity cost pools and the second phase is assigning indirect costs
Changes in the Management Accounting Process from Traditional Business Environment to
Modern Era
Student’s Name
Institutional Affiliation
, MANAGEMENT ACCOUNTING PROCESS 2
Introduction
Towards the end of the 20th century and the onset of 21th century, there have been
tremendous changes in the corporate environment which has seen the development of new cost
accounting methods with the purpose of providing more information about management
concerning the effectiveness of specific activities, products, customers and projects. While
traditional cost accounting was due to the need for automation of production in the mid-20th
century and focused on manufacturing costs and management of manufacturing cost allocation
on both products and services, technological innovation, change in consumer preference and
global competition challenged businesses to find means of survival in the global market. This,
therefore, diminished the need for traditional cost accounting and as a result bore modern cost
accounting methods directed towards cost reduction and rationalization for companies to impact
market prices and also their costs, hence focusing on total costs in the entire product life cycle.
The paper will, therefore, therefore explain modern management accounting in the context of
cost accounting. It will discuss the digital economy and globalization and their effect on
management accounting while evaluating how the role of management accountants has changed
to adapt to the modern global business environment.
Traditional Cost Management and Theories
Costs of manufacture in the traditional costing systems were allotted to cost items
arbitrarily thus affecting the determination of product profitability. However, due to deficiencies
in the system, Activity Based Costing (ABC) was established with its primary objective being
providing accurate cost allocation and subsequent evaluation of product profitability
(Zimmerman & Yahya-Zadeh, 2011). ABC system took two main phases, with the first being
allocation of indirect costs to activity cost pools and the second phase is assigning indirect costs
