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Evolution Of Management Accounting Essay

2312 words - 10 pages


Robert Samuel Kaplan was born in 1940. He is an American accounting academic, and a Professor of Accounting at Carnegie-Mellon University and Arthur Lowes Dickinson Professor of Accounting at the Harvard Business School. He had wrote a journal entitled “The Evolution of Management Accounting” in 1983. The purpose of this article is to summarize the development of management accounting, including the new demands for management information, and to develop a research strategy to meet these demands

(From Robert S. Kaplan point of view)

In his paperwork, he divided it into five sections.
• Section 1 - Development of cost ...view middle of the document...

In the first half of the 19th century, the demand for information for internal planning and control arose when firms(mainly textile mills and railroads) had to plan internal administrative procedures. For example, the conversion of raw materials into finished goods by textile mills and the transportation of passengers and freight by the railroads. They are mainly used to perform the basic activity and to determine revenue and expenses.

One example of cost accounting system that had been used in this stage is from Lyman Mills, a New England textile mills. The cost accounting system enabled the managers to monitor the efficiency of the mill’s conversion of raw materials into variety of finished goods. The company used double-entry book accounts and provided information on the cost of finished goods, workers’ productivity, impact of changes in plant layout, and as a control on the receipt and use of raw cotton (Johnson, 1972). Other than that, U.S. Railroads used cost accounting system to help them in planning and controlling. They record and summarize big amount of cash transactions as this business was involving a lot of money. Statistics such as cost per ton-mile and operating ratio were reported.

In this stage, cost behavior such as direct labor, direct material and overhead cost are identified. The cost accounting system were used to measure efficiency of the operation, set pricing to the goods and control and motivate worker performances.

In 1880s, enterprises were implementing the internal accounting reporting system to their business. They produced detailed data on sales turnover. In 1880s, they focused on prime or direct costs and little attention was paid to overhead and capital costs. For example, Andrew Carnegie’s steel company. They estimated administrative overhead and sales expenses roughly. Thus, cost accounting in 1800s did not include the allocation of fixed costs to products nor periods.

The further development of cost accounting practices were actually majored by engineers. They detailed job analyses and time and motion studies and determining standard for amount of labor and material required to produce a given unit of output. These standards were used to push workers to work as it provided basis for paying workers and to determine bonuses. The ‘scientific management’ also started to allocate overhead costs to products.


The DuPont Powder Company is the developer of managerial accounting system(Chandler and Johnson). Information provided by the system enabled managers to allocate new investment among competing economic activities and financing of capital requirements.

One innovation was to develop functional or unitary form of organization. Firms were separated to different departments, for example manufacturing, sales, finance and purchasing. Then, managers of each department will be focus solely on their department and pursue strategies...

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