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The Evolution of Management Accounting

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Summary of: The Evolution of Management Accounting by Robert S. Kaplan

Almost all cost accounting practices currently in use had been developed by 1925. Over the last sixty years there has been considerable changes in the nature of the business environment. Despite this fact, there has been little change in designing and putting into action most cost accounting and management control procedures. For this reason it is pertinent for those in the business field to fully understand the source of those practices, as well as look for ways to improve those practices to better meet the needs of today's business environment.

There were many cost accounting developments made from 1850 through 1915. Some examples include the demands imposed by the introduction of the railroad and the effects on the steel industry, as well as the resultant activity from the scientific management movement. Two major factors impacting business during this time period was the DuPont Corporation in 1903, as well as the reorganization of General Motors in 1920. These two businesses furnished the opening for extreme changes in the management control in decentralized corporations such as the following: ROI standards for performance evaluation, formal budgeting, and incentive plans. The only three notable practices recently developed, includes the discounted cash flow analysis, the multiperson decision theory models, and also the application of management science.

Due to the dramatic changes undergone in today's business environment, the management and cost accounting practices that were developed in the earlier days need be further researched for planning and control of modern corporations. The old practices are outdated and worked fine for historical mass production, but are no longer acceptable for today's business environment containing Just-in-Time scheduling, zero defect, and zero inventory production systems. There are also apparent problems with using profits for motivation and short-term performance assessment. In closing, it is unlikely that current researchers can find solutions to today's business problems by reading journals, because the information contained is quickly becoming archaic in today's business environment. Research instead should focus on companies who are thriving in today's competitive and cut-throat environment, in order to use them for models for



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