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The fact that the management accountants have an active role to play in facilitating the management in effective decision making process is highly agreed in the context of modern day complex business environment, where managers are highly demanding and needs to make timely decisions for organizational success. Thus, it has been agreed that the management accountant’s role has been extensively changed as compared to the past and they now have to play an active role in the management decision making process.
Changing Role of Management Accountants
There has been a severe debate among the existing scholars about the topic of changes in the role of management accountants. For instance, according to Batra (1998), traditionally, the management accountants were responsible for providing the financial and operating information to the management, but with the changing business environment and the shape of the organization, the expectations from the management accountant have increased significantly and they are being regarded as the integral part of ensuring organization’s success. Due to the changing business environmental conditions, management accountants are responsible for keeping themselves aware of their customers and competitors, of time, flexibility and continuous development (Batra, 1998).
With the rapid enhancement as achieved in the field of technology, the role of management accountants has been redefined as an analyst whereby they are required to participate in the decision of strategy formulation within the organization, so that the attainment of competitive advantage can be possible. In addition to this, the changing role of management accountants also involves the decision related to the allocation of resources such as finance, technology, processes, people, products etc in order to achieve the determined strategies. The redefined role of management accountant has a direct impact on the operations of the organization as they are likely to contribute towards the management of change in the world of uncertainty, complexity and speed. This implies that management accountant provides an opportunity to the management in effectively understanding the complex business environment and in turn, allows them for better decision making process (Batra, 1998).
According to Mahony & Doran (2008), the role of management accountants is certainly different, as the newer information system such as Enterprise Resource Planning (ERP) has provided enough time for analyzing the information rather than getting the bottom financial figures. As a result of this, managers are in a better position to make the most effective decisions after performing a critical analysis of the data and ultimately, improved business performance can be attained. Management accountants have the opportunity to influence the business, as they can identify the main drivers of spending and better control can be performed for achieving higher operational efficiency (Mahony & Doran, 2008). In a study conduced by Yazdifar & Tsamenyi (2005), it has been identified that management accountants are required to perform a number of additional tasks in the modern day business environment as compared to the role they used to perform traditionally. For instance, the major task of management accountant includes business performance evaluation, implementing business strategy, profit improvement, planning and managing budget, interpreting management accounts, operational decision making, productivity improvement, managing IT systems and many more (Yazdifar & Tsamenyi, 2005).
Thus, the analysis indicates that management accountants have a wider role to play in the modern day complex business environment, as compared to their traditional role of providing only the figures to the top management. They even participate in the formulation of strategies of the organization so that the overall effectiveness can be ensured and ultimately, a higher organizational growth can be achieved. However, the changing role of management accountants in the 21st century is fostered by a number of factors including the shift towards a service economy, application of advanced information system such as ERP, just in time management, enterprise risk management, global competition etc. Overall, their role and responsibilities have increased significantly and it ultimately has a positive impact on the business decision making process.
Cost Classification as a Necessity
Cost classification is an important process that involves the grouping of cost on the basis of common characteristics. However, the task of classifying the cost depends upon the purpose for which it has been classified. The task of classifying the cost is highly important because of a number of reasons. The major reasons are discussed as follows:
- Cost Ascertainment: The classification of cost is being performed for the purpose of ascertaining the cost associated with a project or a production process. For example, in case of manufacturing firm, the production process for a range of products is being performed together and as a result, it becomes difficult to identify the cost incurred for a particular product. As a result, cost classification on the basis of consumption of various resources can be traced to ascertain the cost incurred for a particular product.
- Cost Control: Cost classification also helps in controlling the cost in a most effective manner, as the cost for each particular area can be identified and the particular activity that incurs higher cost can be traced, that ultimately allows the management to take specific steps for controlling such higher cost.
- Price Fixation: As the cost for a particular product can be identified through a proper cost classification function, it can become possible for the management to fix the prices for its products in an effective manner (Mittal, 2006).
- Income Determination: The determination of income can also be possible through cost classification, because the differences in the selling prices of a product and the cost incurred in manufacturing such product can be used as a basis for the determination of exact level of income.
- Managerial Decision Making Process: Cost classification is highly useful in enabling the managers to make various kinds of important decisions. It is highly effective in setting prices for the products and thereby allows an opportunity to take important business decisions effectively (Mittal, 2006).
In this way, cost classification is highly useful for the purpose of facilitating managers to take important business decisions.
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