Assignment

The Transition of Cost &

Management Practices in
India
Management Accounting 2
Prof. Imlak Shaikh
Term 2: Group Members:
SN Name

Roll No.

Email ID

1. Tanvi Sharma

27

pt16apr_tanvi_s@mdi.ac.in

2. Akhil Mangla

01

pt16apr_akhil_m@mdi.ac.in

3. Akshay Prakash

02

pt16apr_akshay_p@mdi.ac.in

4. Amit Dagar

05

pt16apr_amit_d@mdi.ac.in

5. Amit K. Yadav

07

pt16apr_amit_y@mdi.ac.in

6. Paramjit Lamba

19

pt16apr_paramjit_s@mdi.ac.in

1. Introduction
The Aim/ Scope / The Issue
Accounting is a discipline which can be traced to the beginning of civilization. This discipline
or field of work involves identifying, assessing, recording and communicating economic
information. This information should be capable of being expressed in monetary terms. The
main use of accounting information is its ability to reduce uncertainty. The characteristics of
such information include relevance, verifiability, quantifiability and free from any bias.
Before the industrial revolution, businesses used to be small in size and were characterised by
simple market exchanges between individuals as well as organisations. In those days, there
was a need for accurate book keeping. However, not a lot of cost accounting was indulged in.
The industrial revolution in the 18th century resulted in the development of large sized process
based industries which performed single activities. In this era, cost related information gained
increasing importance, as a tool for evaluating the efficiency of various processes. The
specific concept of Prime Cost was used around the year 1875, by certain industrialists.
Between the years 1880 and 1925, the world witnessed the development of complicated
product designs. Multiple activities emerged in diversified organizations such as Du-Pont and
General Motors, etc. During this time period, scientific management developed as an
emerging field. This caused accountants to convert physical standards into cost standards,
with cost standards being used for Variance analysis and control.
During World War II, as the defence expense of each country grew, the importance of the part
that cost accounting played, also grew. Since the industry was in nascent stages, the level of
competition was low. Most governments placed orders for equipment on a cost plus basis.
This meant that the price paid was the production cost plus a pre-agreed rate of profit. This
cost-plus method worked well after the World War II was over. In fact, many governments
award contracts based on this methodology.

Definitions
Certain definitions which are related to CIMA in India are given below for ease of
understanding:

Costing: This is the sum total of the resources given up in exchange for specific goods
and services. The Chartered Institute of Management Accountants, London defines
cost as the quantum of expenditure incurred on, or attributable to, a specific thing or
activity.

Cost Accounting: may be regarded as a specialised branch of accounting which

involves classification, accumulation, assignment & control of costs

CIMA: Chartered Institute of Management Accounting

The Broad Area: An evolved significance

Managements of organizations have realized the importance of cost accounting owing to the
limitations of financial accounting. Irrespective of the nature of business, it involves
expenditure on labour, materials & other items required for manufacturing and disposing of
the product. The management of any organization strives to avoid the possibility of waste at
each stage. It has to ensure that no machine remains idle, efficient labour gets due incentive,
by-products are properly utilised and costs are properly ascertained. A good costing system
not only benefits the management of an organization, it also is useful to the creditors as well
as employees of the organization. Cost accounting is seen to increase the overall productivity
of an organisation. It also serves as an important tool in bringing prosperity to the nation.

Methods of Costing
The general principles of ascertaining costs are the same in every system of cost accounting,
but what vary from industry to industry, are the methods of Analysis and Presentation of
costs. Since businesses vary in the nature and the type of products they produce are also
different, the costing accounting methods used, also vary.
Job Costing:
In this system, costs are ascertained in terms of specific jobs or orders, which are not
comparable to each other. Industries in which this method is applicable are printing
press and automobile repair shop among others.
Contract Costing:
In principle, contract costing is similar to job costing. However, it is convenient to
treat contract cost accounts separately. This is especially applicable in instances where

large scale contracts at different sites are carried out, such as in construction of
different buildings.
Batch Costing:
This method emphasizes the essential nature of job costing i.e. the cost can be
terminated at any point & allocated to another job.
Operation Costing:
This method is used when we want to ascertain the cost of carrying out a particular
operation e.g. welding. For large undertakings, it is frequently required to ascertain
the costs of various operations.
Process Costing:
In a production process, when a product goes through multiple stages and when the
input of one stage is the output from the preceding stage, organizations desire to know
the cost of each stage of the process. This is referred to as Process Costing.
Singe Output Costing:
This method is used where a single product is produced or if the service is rendered
by a continual activity. This method is suitable for brick making, flour mills, cement
manufacturing, etc.
Multiple Costing:
At times, certain the degree of complexity of certain products is so high, that no
individual system of costing can be applicable. This is seen where a variety of
components are produced separately, and are then assembled subsequently, in a
complex production process. The component costs are then computed, by job or
process costing method, and then aggregated through a single output system, to arrive
at the total costs. This method can be seen in manufacturing organizations which
produce cars, machine tools, etc.
Departmental Costing:
When costs are ascertained by a department, the costing method is referred to as
department costing. This method is used to determine the costs of goods & services
produced by the department. The total costs may be ascertained by using job costing
or unit costing.

Techniques of costing:
Standard Costing: This technique refers to the preparation of standard costs which are
then applied to evaluate the variations with actual costs incurred.
Marginal costing: It refers to the determination of marginal costs by differentiating
into fixed and variable costs and the effect of the variation in volume or type of
output, on the profit.

Absorption Costing: This technique involves charging all costs, whether fixed or
variable, to a particular product or process.
Activity Based Costing: This technique refers to assigning resource costs to products
or services, through activities. It includes identification of costs with individual cost
driver activity. It also includes making the cost driver activity as the basis of
apportionment of costs over different products or jobs. Basically the number of
activities required for their completion is taken as the basis. This technique may be
used in firms which have varying volumes of products and production complexities.

Role of Management Accounting

As compared with financial & cost, management accounting is a later development in the
field of accounting. Management accounting links management with accounting. All such
information which is useful to the management, or required for decision making, is the
subject matter of management accounting. It is related to the interpretation and presentation
of information which is used for:
a)
b)
c)
d)
e)
f)
g)

Formulating strategy
Planning and controlling activities
Decision taking
Optimising the use of resources
Disclosure to shareholders and others external to the entity
Disclosure to employees
Safeguarding assets

Evolution of management Accounting

Managerial accounting has its roots in the industrial revolution in the 19 th century. During this
early period most firms were tightly controlled by few owner managers who borrowed based
on personal relationships and using their personal assets. Since there were no external
shareholders and little unsecured debt. Hence there was little need for elaborate financial
reports. In contrast, managerial accounting was relatively sophisticated and provided the
essential information needed to manage the early scale production of textile, steel and other
products. After the turn of the century, new pressures began to be placed on companies by
capital markets, creditors, regulatory bodies and taxation authorities. Thus, Financial
accounting requirements grew rapidly.
Many firms needed to raise funds from increasingly widespread and remote sources of
capital. To tap these vast reservoirs of external capital, the managers in an organization had to
supply audited financial reports. Since external suppliers of capital relied on audited financial
statements, independent accounts & finance accountants had a keen motive and interest in
establishing well defined procedures for corporate financial reporting.
The practice of management accounting stagnated in the early part of the century. As the
product lines expanded, operations became more and more complex. Forward looking
companies saw a need for management oriented reports, which were distinct from financial

reports. In most companies, management accounting practices as late as the mid 1980s were
mostly same as the practices preceding World War II. In recent years, however, new
economic forces have led to many important innovations in management accounting.

SN Cost Accounting

Management Accounting

Objective: Assist management in cost Objective: Provide necessary information for

control.
planning, controlling, and performance
assessment to the management.

Uses quantitative data which can be Uses both quantitative & qualitative data.
measured in monetary terms.

Main purpose: Cost identification & Main purpose: Performance of organization.

control.

Success of Cost Acc not dependent on Success of Mgt Acc depends on sound cost
Mgt Acc.
acc system of company

These reports can be studied internally These reports can be studied only internally.
and by external stakeholders.

Statutory audit of cost accounting Statutory audit not required

reports required

2. Review of earlier studies

Review of reference article:

Cost Management Practices in India An Empirical Study
by Prof. Manoj Ananad,IIM Indore
Objectives of the study
The intention of this study is to capture the development in the cost management practices
such as accounting for overheads, applications of budgetary control and standard costing in
corporate India. The study plans to test the hypothesis that:
The firms using activity-based costing system are:
a) More likely to have
i) Better insight for benchmarking and budgeting;
ii) Clear structure of priorities of budget goal;
iii) Clarity of reasons for effective implementation of planning and budgeting process
in their organization;
b) Less likely to use
i) Department-wide budgeting systems,
ii) Absorption costing systems, and
iii) Variable costing systems as compared to the firms that use traditional costing
system.
It further plans to verify whether there is a significant difference in the managements
motivation for the implementation and the use of standard costing as a management control
tool between ABCM (Activity Based Costing Model) user firms and companies using
traditional costing systems.
Research Methodology
A nationwide survey was conducted to capture the issues in the design and applications of
contemporary cost management tools. The questionnaire was sent to the CFOs of the 579
companies consisting of the 500 private sector companies, 75 most valuable PSUs, and four
subsidiaries of multinational corporations in batches during October 30, 2002 to November 7,
2002.
Research Study Findings
Success with the present cost management systems

Table given below, shows the success of the existing cost management systems in terms of
capturing the accurate cost information for product pricing, inventory valuation, value chain
analysis, supply chain analysis and outsourcing decisions. 52.8% of the respondents have
achieved success in application of their present costing system in product pricing and
inventory valuation. The success ratio in the area of value chain analysis & supply chain

analysis and out-sourcing decisions is 22.7% and 28.3% respectively. 54.8% of the firms
were successful in accurate profit analysis by product, 24.6% by process and 30.2% by
department and customer.
The examination of responses conditional on ABC-adoption revealed that the firms who have
adopted ABC were significantly more successful in capturing accurate cost information for
value chain analysis and supply chain analysis, as compared to the firms who had not adopted
ABC.

Joint cost allocation

The physical measures based joint cost allocation methods were popular in India as marketbased estimated Net Realizable Value (NRV) method.
Cost method for product pricing
In contrast to the worldwide (Ireland, Japan, and the UK) trend, where market based factors
were starting point for product pricing decision, in India, the present study had found that the
cost based factors are equally important. The full cost-absorption costing (39.6% used it) was
found to be more widely used as compared to variable costing (30.2% used it), in accordance
with the international practice.
There was no significant difference between the ABC users and the traditional costing system
users in respect of use of full absorption costing and variable costing for product pricing
decisions.

Current usage of management tools

The most widely used management tool is Cost-Volume-Profit analysis (77.3% use it)
followed by MRP (41.5%), Activity Based budgeting (30.2%) and Value Engineering
(30.2%). This is demonstrated in the chart below.

Manufacturing overheads accounting

The use of direct method of allocation of overhead costs related to service departments,
amongst the production departments, is widespread. In India, too, the direct method was
found to be widely used (62.1%) to allocate support department overheads cost, amongst the
production department, in the first stage of cost allocation.
The department wide machine hour rate had been found to be more popular with corporate
India in comparison to department wide comprehensive machine hour rate (37.9% v/s 20.7%
used it) for absorbing the production departments' overheads to the final products or services
in the second stage of cost allocation. The practice of corporate India with respect to
treatment of under/over-absorbed overheads was in agreement with the generally accepted
cost accounting principles. The only exception was that 24.1% of the respondents had written
off substantial amount of over or under absorption of manufacturing overheads to costing
profit and loss account.

Standard costing
The standard costing technique, as a part of the management control systems, had been
widely used amongst corporate India. 77.36% of the respondents under study have used it as

compared to 53% in the Business Today (1999) survey of 113 large-sized companies. The
Indian practice is in agreement with that of the U.S.A.
There were not many differences in the use of standard costing amongst ABC users and nonABC users. The use of standard costing is popular worldwide. More than 75% of the firms
use it in USA, UK, Ireland, and Sweden.
Cost management (68.3%) and Budgetary Planning & Control (65.8%) have evolved over a
period of time, to be major motivations for implementation of standard costing in the
organizations (Fig. 11). The ABC users had indicated performance measurement, as
significantly higher motivation, for implementation of standard costing as compared to nonABC users.

Conclusions
The hypotheses in general, deals with the difference in the practices across sectors, stages,
and level of adoption of contemporary techniques. The results suggest that organizations have
better insight for benchmarking and budgeting with ABC cost system. Yet the consistency in
their priority of budget goals is lacking, unlike the firms who are using traditional costing
systems.
In contrast to the theory, ABC-users are using department-wide budgeting system.
The Indian firms use absorption costing and variable costing. Use of activity based cost
systems and standard costing is not mutually exclusive.

3. Data and Descriptive Analysis

Data Description
The importance of cost and management accounting practices have steadily increased. The
reasons for this are the domestic and global competition getting severer by globalization,
decreasing profit margins, increasing input prices due the tightening energy sources,
economic crises etc. Companies in developing countries have also started implementing Cost
and Management Accounting practices which were first adopted by companies operating in
developed countries. Parallel to these developments, research studies which have been
conducted in developed countries first, are followed by the studies conducted in developing
countries.
In the last few decades, Cost and Management Accounting has increasingly gained
importance in the corporate sector. Large industrial enterprises set up specific cost and
management accounting segments in accounting departments. Furthermore, curricula of
faculties of economics and administrative sciences included cost accounting and/or
management accounting along with financial accounting.
The data for this study was obtained by means of a survey questionnaire conducted face-toface with 61 randomly chosen manufacturing companies in A.P. from various industries. The
questionnaire includes multiple choice, open-ended, and Likert scale questions.

The data was based on an analysis of Transition of CMA with respect to career, with a view
of discovering the ground realities of CMA practices being used effectively in the Indian
economy. For this purpose data was collected online through a secondary source and
processed to obtain results. Table given below shows the data for respondents with salary
band after doing CMA certification, with a column dedicated to secondary data of pay band
for similar positions without CMA certifications in 1990.

Table 2. CMA Career Transition data

Job Title

Number

Of Salaries After CMA Salaries

Without

Respondent

Certification (X)

CMA Certification
1990-2000 (Y)

(Nr)
Finance Manager

34

3.6 To 20.0

1.20 To 8.00

Financial Analyst

32

2.0 To 8.2

.75 To 8.00

Financial Controller

20

3.7 To 32.0

2.2 To 15.00

Financial
Accounting
Manager

9.6

6.2

Cost Accountants

4.00

2.5

Plot 1:
Pyramid Plot to observe the high and low of transition to CMA Practices as a career.

Plot 2:
Scatter Plot to analyse Need For Regression

To observe the transition of CMA Practices in India it is necessary to view this from a career
perspective. This is analysed with the help of raw data obtained from secondary sources such
the pay scale website. This data is then plotted to observe the need to fit a regression analysis.
Following variables have been analysed.
Variables
Independent Variable: Number of Respondent (NR), people at various finance management
positions, who have benefitted from CMA certification and are using CMA practices.
Dependent Variable: Salaries after CMA certification (X).
Tertiary or Control Variable: Salaries without CMA Certification 1990-2000 (Y)

Regression analysis
The number of data points:
Weight
x

OK

Calculated y Error

1.

34

20

4.305042779

2.305042779

2.

32

12

2.937899321

1.062100679

3.

20

32

6.355757964

1.644242036

4.

10

2.596113457

3.403886543

5.

1.570755864

4.29244135910-1

Calculate

Result: y = 1.70892932210-1 x + 8.87184135510-1

Correlation Coefficient: r = 6.00118664510-1
Residual Sum of Squares: rss = 306.1301262
Coefficient of Determination: R2 = 3.60142411510-1
The regression analysis shows that there exists a positive correlation between CMA
certification and salary raise. Thus, marking a significant transition of cost management
accounting practices in India.
Accounting Calculation
Cost analysis on the manufacture 10,050 tons of SteelWindmill is shown in Table - 4 below :The above Cost Analysis is on Variable Cost basis, which brings out favourable variance to
the extent of 0.7% in variable cost which ultimately enhanced the Contribution to that extent
amounting to Rs. 657 per ton of the output. Thus the Additional contribution earned in the
Job card No. 2017/2009-10 amounts to Rs. 6.60 lakhs (10050 tons x Rs. 657). Individually
there is favourable variance in material cost by 2.5% amounting to Rs. 2349 per ton against
adverse variances to the extent of 1.8% and 0.2% in labour &direct expenses respectively; as
well as 0.1% in variable overheads. Had the adverse variance been arrested by proper
Monitoring, the additional Contribution could have substantial.
The Cost Analysis in Table 4 above also exhibits material item wise, labour operation wise as
well as direct expenses wise variances enabling exhaustive study and corrective action. These
Cost Studies not only enable corrective action, but the data accumulated thereon from time to
time are of importance as Historical ones which could be of much useful and guiding factor
for tendering in future. Hence the Industrial Houses in Small and Medium Sector have to go
in for CMA Practices such as Performance Monitoring. If they are unaffordable to employ
Cost Accountant, they can at least engage them on retainer basis, train its staff under them for
some time and then reap the benefits.

Product Costing
The respondents were asked to specify the methods they implement in product costing.
According to the answers, the most widely used costing method is Job Costing (21 firms),
followed by Activity-Based Costing (15 firms) and Process Costing (14 firms). In the table
given below, which shows the detailed responses to this question, the most significant points
are the usage of job costing widely by textile industry, and the usage of activity-based costing
largely by chemicals and plastics industry. Possible reason for the usage of job costing by
companies is that they manufacture distinct products.
Industry
Classification
Textile Paper
products and
publication
Chemicals
and plastics
Food
Miscellaneous
Total

Job
costing
12
4

Process
costing
6
3

ABC

Not
Specified

Total

4
1

22
8

10

2
1
21

2
2
14

2
1
15

6
4
50

Application of costing information

In another part of the survey, which was adopted from Van Triest and Elshahat (2007)s study,
respondents were asked to score the use and application of costing information on a Likert
scale of 1 (never use) to 5(always use). To evaluate the results, one sample t-test was
conducted (Table given below). The results showed that pricing decisions are the most
important area where costing information is used at an average of 4.25, followed by customer
profitability and activity analysis at 4.10. Performance measurement and make or buy
decisions with an average of 4.06 and 3.85 respectively are also important areas where
costing information is used. However, costing information is not used in product mix
decisions, and adding or deleting products as much as other areas.

Furthermore, the findings are compared with the results of Van Triest and Elshahat (2007).
The comparison indicated that two studies yielded parallel results. As seen in the Table given
below, first three items with the highest mean are the same. As seen from the table that, the
pricing decisions, customer profitability, and performance measurement are the most
prominent areas in which costing information is applied. In this study, Activity Analysis is the
fourth in ranking.

The ratio of overhead cost to total cost (OC/TC) in the questionnaire survey, was also
questioned. Overall mean for all industries is 34.15 percent. In addition, One-Way ANOVA
analysis (Table given below) was conducted to see the significant differences among
industries. The results showed that there is a significant difference among industries
(significant at 0.10). Duncan test from Post Hoc tests showed that food industry has the
highest OC/TC ratio and is significantly different than paper products and publication,
chemicals and plastics, and miscellaneous industries.

The group sizes are unequal. The harmonic mean of the group sizes is used. Type I error
levels are not guaranteed.
The reasons for the transition to cost accounting
The respondents were asked to score the reasons for the increased interest in cost accounting
on a Likert scale of 1 (completely disagree) to 5 (completely agree). A list of reasons was
provided for the respondents so that they evaluated each. The results of one-sample t-test in
Table given below, showed that decreasing profitability (4.22) is the primary reason which
increases the importance of cost accounting. Other reasons which increase the importance of
cost accounting are increasing costs (4.10), increasing domestic and global competition
(4.05), and economic crises (4.01). Actually, means of four items above 4.00 indicate that
they are all factors considered important for the increased interest in cost accounting. This
means profitability of companies is decreasing, possibly due to increasing costs, and
increasing domestic and global competition. Economic crises which hit companies from time
to time are also important reason for the increased interest in cost accounting.

Perceived importance of management accounting practices

The respondents were asked to evaluate the perceived importance of management accounting
practices that are utilized in the business organizations on a Likert scale of 1 (unimportant) to
5 (very important). The results of one-sample t-test in Table given below, indicated that the
most important management accounting practices in decreasing order are Budgeting (4.19),
Planning and control (4.16), Cost-Volume-Profit analysis (4.12), Target costing (4.11),
Quality cost reporting (4.08), Performance measurement and evaluation (4.05),
Responsibility accounting (4.02), Standard costing and variance analysis (3.60), and Strategic
planning (3.55).
Transfer pricing (3.42) is a unique practice that is significantly not important based on test
value of 3.42. These findings indicate that companies perceive traditional management
accounting tools as still important. For example, budgeting, planning and control, and costvolume-profit analysis are perceived the most important of all management accounting
practices. Quality costing and target costing are new management accounting practices,
utilized by the companies. However, strategic planning, and transfer pricing are perceived the
least important ones. This may be due to size of the sample firms.
Since the sample consists mostly of small and medium-sized enterprises, as per the number of
employees, some tools may be too sophisticated to be utilized. Szendi and Shum (1999) states
that the larger the firm, the more sophisticated the management accounting system, and the
more likely is the firm to utilize sophisticated management accounting techniques and
practices. Abdel-Kader and Luther (2008) also proved that large firms adopt more
sophisticated management accounting techniques and practices than small firms.

4. Main Results & Discussions

Main Observations of the study
The transition is occurring in a positive direction. The findings indicate that companies
perceive traditional management accounting tools as still important. However, new
management accounting practices such as strategic planning, and transfer pricing are
perceived less important than traditional ones. Therefore, they need to improve themselves in
this aspect. Transition of Cost & Management accounting involves concepts as under:
(i)

Planning & Budgeting

Operational budgeting

Standard budgeting

Capital budgeting

(ii)

Decision Support

Quantitative techniques

Break Even Analysis

(iii)

Production Costing

Traditional costing

Overhead allocation

Target costing

Life Cycle costing

(iv)

Performance evaluation

Benchmarking

Balanced Score card

Value Based Management

It is difficult to conduct surveys in a short time. Most part of data used here was secondary
data. Data from survey conducted by other researchers was analysed to obtain our findings.
The survey revealed the general Cost and Management Accounting practices of Indian
companies. The findings are expected to contribute to the existing literature about the subject,
especially in developing markets.
Main Findings
The major findings of the study are as follows:

1) The most widely used costing method is Job Costing. Earlier practices used a time
sharing method which was full of inefficiencies.
2) The complexity in production poses as the highest ranking difficulty in product
costing.
3) The most widely used overhead allocation bases are Prime Costs, Units produced, and
Direct Labour cost. Earlier this was done on an estimate margin mark-up basis.
4) Pricing decisions are the most important area where costing information is used.
5) Overall mean of the ratio of overhead to total cost is 34.48 percent for all industries.
The highest overhead cost/total cost ratio belongs to food industry.
6) Decreasing profitability, increasing costs and competition, & economic crises are
reasons which increased the importance of cost accounting.
7) The most important management accounting practices is budgeting.
An interesting finding is that there has been an increase in the CMA certification applicants.
Individual gains are almost twice to thrice in salary packages post certification. This is due to
the fact that CMA professional are found to be competitive decision makers. The limitation of
financial accounting has made the management realize the importance of cost accounting.
Cost accounting provides invaluable help to management. It is difficult to indicate where the
work of cost accountant ends and managerial control begins.

Some of the well known fortune 500 companies are known to have CMAs in their key
management roles. These include:
3M, Alcoa, AT&T, Bank of America,Boeing, Cargill, Caterpillar, ConAgra, Hewlett-Packard,
Johnson & Johnson, Microsoft, Procter & Gamble, KeyCorp, Whirlpool, Saudi Aramco,
Verizon, and Xerox, besides others.
Cost accounting helps the management in determining the cost of process, product, job,
contract, activity, etc., by using different techniques such as Job costing and Process costing.
By using demand and supply, activities of competitors, market condition to a great extent,
they also determine the price of product and cost to the producer, which plays an important
role. The producer can take necessary help from his costing records. Cost can be reduced in
the long-run when cost reduction programme and improved methods are tried to reduce costs.
Since it is now possible to know the cost of product at every stage, it is possible to check
various forms of waste, such as time and expenses and the use of machine equipment and

material. Unprofitable activities can now be identified with the help of cost accounting.
Thereafter appropriate / correct action may be taken. Cost accounting helps in checking the
accuracy of financial accounts. This is done with the help of reconciliation of the profit as
per financial accounts with the profit as per cost account.
Limitations
Measuring the economy remains a complex task. Moreover, data uncertainty is a fact of life.
Data revisions are a legitimate part of statistical compilation and dissemination. In India,
however, data revisions and systemic biases in data revisions are more frequent and common
place. Most economies have to contend with an uncertain future; here, in India, we are having
to contend with an uncertain past as well. Inflation Measurement is always an economic
issue. Cost accounting can assist in a limited capacity in tacking this as an integrated
challenge. There is need to obtain information on Leading Indicators for Business Cycles
Financial Soundness Indicators, such as Data on Employment, are necessary to observe
transitions in Indian economy. Globally, trends in employment are one of the most important
inputs in setting monetary policy response. Unfortunately, we do not have any reliable nationwide statistics on employment. Data on factory-sector employment are available from Annual
Survey of Industry, but with a large lag that makes it virtually useless for monetary policy
purposes. Farm sector employment data are also available at poor frequency and with long
lags. Non-farm pay rolls capture employment trends in some economies. But, in India, data
on organised sector employment, as obtained from employment exchanges, cover a very
small part of the workforce.
Critical Remarks
Management accounting practices may be traditional or innovative. Such traditional and
innovative techniques vary from one another by their cost control approaches. Cost control is
the main focus of management accounts.
In traditional methods, variance analysis is used to compare actual and budgeted costs. In
innovative techniques, lifecycle cost analysis and activity based costing are used to make
such comparisons.
A managerial accountant could control the cost of manufacture through lifestyle costing and
could make changes in the product with activity based costing. Lifecycle costing and activity
based costing also help to avoid situations of machine breakdowns and reduces cost of raw
materials.

5. Managerial Implications
Management Accounting Perspective
With increasing reach of globalization, the intensity of competition has increased. This in turn
combined with technological advancements, have increased the pressure to get information
almost on real time basis. In this scenario, Management Accounting now plays a bigger role

in various organizations. A management accountant not only plays the role of internal analyst
and consultant, but also participates in top level decision making.
Management accounting continues to focus on value creation through effective use of
resources. In other words, management accountants play an important role in preserving and
adding value to the organization by managing resources, activities and people to fulfil the
organizations' objectives.
Decision making process
Effective rules for maintaining cost accounting records and cost audit, encouraged use of
technology and scientific tools like quantitative techniques, technical/ benchmarked
standards, integrated software, etc. help prepare realistic budgets based on such tools.
Thereby, it helps identifying wasteful expenditure, underutilized resources, other
inefficiencies and frauds.
Organization problem and solution
The transition in Cost & Management Accounting needs infusion of qualified professionals in
this field. The curriculum of related institutions should be consistently upgraded to reflect the
changing business environment. The students emerging out of these institutions should be
equipped with capabilities to guide the organizations appropriately in the field of cost &
management accounting.

6. Summary & Conclusions

Benefits of an efficient costing system
a) It helps the management in fixing selling prices of product by providing detailed cost
information.
b) An efficient costing system benefits employees through incentives plan in their
enterprise. As a result both the productivity and earning capacity increases.
c) Suppliers, Investors, Financial Institutions and other creditors have a stake in the
success of the business concern and therefore are benefited by installation of an
efficient costing system. They can base their judgement about the profitability and
prospects of the enterprise upon the studies and reports submitted by the cost
accountant.
d) An efficient costing system benefits national economy by stepping up the government
revenue by achieving higher production. The overall economic developments of a
country take place due to efficiency of production.
e) Cost Accounting offers a thoroughly analysed cost data which forms the basis of
formulating policy regarding day to day business.

Summary
The CMA practices vary across sectors, stages, and level of adoption of contemporary
techniques.
Organizations are successful in capturing accurate cost and profit information from their ABC
cost systems for value chain and supply chain analysis. They have better insight for
benchmarking and budgeting with ABC cost system. However, these companies lack
consistency in prioritizing their budget goals. This is different from companies which use
traditional costing systems. However both the ABC and traditional cost system users have
clarity of reasons for effective implementations of planning and budgeting process in their
organizations.
The Indian firms do use absorption costing and variable costing irrespective of whether they
are using activity-based cost systems or not. There is no significant difference in the
application of standard costing between the ABC and the traditional costing system users.
This implies that the use of activity based cost systems and standard costing is not mutually
exclusive.
There is a widespread use of sales and material variances as compared to Labour &
Overheads cost variances (variable and fixed).
As per common perception, the most important accounting practices are listed in decreasing
order of importance:
i)

Budgeting

ii)

Planning & Control

iii)

Cost-Volume Profit Analysis

iv)

Target costing

v)

Quality Cost reporting

vi)

Performance measurement and evaluation

vii)

Responsibility accounting

viii) Standard costing & variance analysis

ix)

Strategic planning

x)

Transfer pricing

The above order of listing shows that companies today, still perceive traditional management
accounting practices as important.
It is suggested that the larger a company, the more sophisticated will be its management
accounting system. Thus, it will be more likely to use sophisticated management accounting
techniques and practices.

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