The Dilemmas of Managerial Accountants
Managerial accountants face several dilemmas, some old, some new.
1. Managerial accountants must meet three, often conflicting objectives. They must
provide full costs for financial reporting purposes as required by federal
regulations. They must provide relevant costs to managers for decision-making
purposes and they must provide controllable costs for planning and control
purposes. Often costs derived for one purpose fail to satisfy the needs of another
purpose. Much of the course is devoted to addressing this problem.
2. Much energy is devoted in manufacturing companies to determining the full
manufacturing cost of a product. Yet in industries such as the drug business the
manufacturing cost might be a relatively small component with R&D prior to
manufacture and advertising subsequent to manufacture being more important.
Little is done in traditional cost accounting texts about the relationship of period
costs to the product. This reflects the period in which cost accounting was born i.e.,
that of heavy metal production. New methods are urgently needed to address the
accounting needs of the information age.
3. The traditional accounting system tracks in some detail the cost of material brought
into production and the wages of those who work directly on that raw material. It
traditionally adds all other product costs in one lump sum called manufacturing
overhead. Again this reflects the discipline’s origins where beating heavy metal
into shape was the primary task. Today the indirect costs in manufacturing
overhead vastly exceed the direct costs of manufacture. New accounting methods
are needed, and have been developed, to deal with overhead.
4. Managerial accountants in America face an additional dilemma, as manufacturing
expertise has been lost to Japan. Almost every new development in managerial
accounting in the past two decades has come from the Japanese. Americans have
been forced to try to catch up. This is particularly ironic in 2002 when the producer
of the world’s goods threatens to slide into a depression while the primary
purchaser of their goods, on credit since we have no cash to pay for these goods,
continues to enjoy relatively good times!
5. At a very practical level, accountants, along with all middle managers, face a threat
to their livelihoods as computers eliminate the need for layers of “squirrels” to
carry information from executives at the top of the managerial tree to workers at the
bottom. Much ink is currently being expended in MBA texts on why white-collar
workers, including managerial accountants, add value.