The Subjective Nature of Management Literature Review

Introduction Management practice is often assumed to be the execution of pre-set and pre-determined action plans which fall into place smoothly during actualisation. Managers are probably looked at as a group of professionals whose roles and responsibilities only mean turning strategies into reality.Advertising We will write a custom essay sample on The Subjective Nature of Management: Literature Review specifically for you for only $16.05 $11/page Learn More Their work seems cut-out and only awaiting simple procedural implementation by those with the right technical know-how. However, in real life scenario, managers actually face more challenging tasks than simply executing what is written on paper. Organisations undergo a lot of challenges and obstacles, all of which seems to be conspiring to rebuff the attainment of such pre-set goals and objectives. This paper analyses in detail the subjective nature of management and explains how flexible the manage ment role should be if any tangible results have to be attained. Role Transitions in Management Any managerial role or duty undergoes a transition or change because of numerous reasons. The transition cycle of a manager can be thus summarised into 4 easy phases: Preparation All managers must have prior preparations about their anticipations and targeted goals and objectives. This process involves extensive and comprehensive planning where a manager lays out a number of alternative strategies to aid him in execution. The alternative strategies come about as a result of anticipated problems which may affect the entire running of the organisation. The future is shrouded in a lot of uncertain situations and conditions and therefore managers must give room during their planning in order to accommodate such uncertain scenarios (Atkinson, 1984). Encounter During this phase, managers are emotionally concerned about the task or challenge that lies ahead. Practically, managers at this phase e ngage in a lot of sense making activities in order to try and shape up and align the psychological state of their workers.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The understanding is that there are possibilities of encountering person-job misfit due to various reasons. It is not so obvious that a perfect match will be realised at 100 percent. There could be some individual shortcomings at the individual level which could limit their effectiveness and overall performance (Barley, 1989). Adjustment This phase directly builds from phase 2 which is encountering. The manager, after realising and noting misfits in his team, must make arrangements to correct the mistakes. Thus, adjustments will be done accordingly which will involve development of roles that perfectly matches personal capabilities such that any possibilities of misfit are addressed. The occurrence of an unanticipated busi ness situation must be addressed through a perfect readjustment of strategy because the company has to find a way out of the situation. Strategy readjustment is a very crucial stage because it could either make or break the organisation. If the adjustments are done in a perfect manner and in good time, the organisation will be able continue with operations without too much effect. However, delays in implementing readjustments may turn out to be costly to the firm even if the strategy itself is the best. Stabilisation The manager assumes that finally, the transition will attain stability where there is a perfect person-role fit. However, in actual sense, stabilisation is never permanent. It is a temporary state which managers should never sit back and enjoy. This is attributable to the fact that management is dynamic and is actually dictated with a lot of forces, some of which are external and the company has little control over. Therefore, as soon as things begin appearing stabilise d, the management should quickly think of restarting the entire process again because this is an endless life cycle. A stable condition, although is good and most preferred, must be constantly be observed to ensure deviations are not encountered. Transition challenges The transition process may not be an easy smooth ride for the manager as it may appear on paper. In some instances, the manager will face counter actions from the workers who do not approve or agree with the entire process. In some other instances, the transition could be taken positively which will ultimately result in a positive gain for both the worker and the organisation.Advertising We will write a custom essay sample on The Subjective Nature of Management: Literature Review specifically for you for only $16.05 $11/page Learn More A worker who positively accepts the transition will often develop expectations that are positive and helpful. He will be more confident in coping with the e xpectations and enjoy in sense-making. Additionally, such a worker will target developing relations within the organisation through sustained trust, commitment, as well as effectiveness with tasks (Bauer Morrison Callister, 1998). On the other hand, workers who regard transition in bad light will often be fearful and express a lot of reluctance and lack of preparedness. During the encounter phase of the transition, managers will have a problem because such workers will always tend to be shocked. They feel dejected, and full of regrets. Trying to adjust such workers would only turn out to be disastrous as they will never fit in any role, they will generally be degraded and grieving. The imminent result of this scenario is failure to attain objectives as the worker may never reach the stabilisation stage (Coupland, 2002). Transition cycles and their implications The general understanding that success breeds success should be what governs managers in their roles to steer the organisat ion towards objectives and roles. Individuals in organisations are more likely faced with the possibility of being ‘locked in’ in their own assumptions of transition cycles. It is, however, possible to break this pattern following the intervention of numerous factors. Managers who themselves suffered from a terrible career mistake could occasion a very difficult work role transitions. For instance, the preparation stage of a transition cycle is meant to be a time to develop anticipation through modelling expectations, feelings, and motives. However, erroneous expectations will cause a highly negative mismatch thus resulting into an encounter phase that will be more consistent with a transition cycle that is only but negative (Jones, 1986). The switch from either transition could occur at any particular stage although it is more likely that it be witnessed during the encounter stage. Thus, managers need to ask themselves whether they really understand whatever they are p ursuing and whether the strategy they are planning to employ is the best suited.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Mistakes in management and decision making put the entire organisation at a very precarious position as it could mean loss of resources and time. Misapprehension right at the planning and preparation phase makes it difficult for the encounter stage to have any positive (Agyris Schon, 1978). Forming expectations Rousseau (2001) opines that workers in possession of high experiences in their roles and duties will most often have schemas that are more developed. Comparatively, experienced workers readily understand why they are working in a given organisation than fresh graduates from school. The latter care more about what it means for them to be employed in the organisation. Managers, on the other hand, determine a number of experiences which they consider as basic in helping with their decision making. These experiences build up right from childhood through to the time of making that actual decision. Managers who undertook responsibilities in their childhood, such as watching over s iblings, are more likely to draw their decisions from as far as such escapades. Influences to the manager in his or her early childhood life from role models, like teachers, also bear a lot of influence to their decision making process (Berger Luckmann, 1967). These experiences model the development of role schemas and self-schemas in managers. It is possible, therefore, that discernible experiences to the manager could be part of his decision making process. Decisions may also be affected by such variables as age, gender, and social class among many others (Hill, 2000). The proposals of these differences are not as a result of ‘individual difference’, such as traits or styles. Instead, their formation is based on commonality of experience which may result in individuals depicting similar schemas. A manager who has changed jobs has already undergone several transitions in terms of his occupation as well as in terms of organisational structure. Individuals who began wor k, changed organisations, got promoted, and studied for professional qualifications, for instance, can be grouped as experienced newcomers. Managers are poised to have high and elaborate schemata in as far as matters concerning their identity as professionals, as well as their roles are concerned. This will have a bearing on whatever work-role transition they undergo. Newcomers, on their part, will have their biographies and other past experiences influencing their initial experiences. It is of significant importance for both managers and organisations to give this issue a deeper thought. A new manager who has just joined the organisation may have different existing role schemas to those held by the workers in the organisation. Such a scenario is more likely to occur in cross-cultural management, where a manager from a different country may be posted to another country. Overly, representing the schemas’ content such that a mutual understanding of the organisation or individua l is realised could be a difficult thing (Mankiw, 1998). Issues for consideration by mangers during expectation A managerial role performance is inextricably connected with knowledge or understanding of how the organisation is set. Managers must understand the operations of an organisation for it to be able to attain desired results and objectives. Thus, managers should be fairly sophisticated in their field and also understand what the organisation’s construct and way of operation is. However, it is also thought that managers could be most useful at such a time of unfamiliarity. This is because they will look at the organisation and its existing workers in a different way. It thus makes it easier for them to question practices and operations that exist and change them for the getter (Louis, 1980). For managers, role expectation is a particularly challenging area because of the complexities that are involved. Organisations sometimes hire managers for the simple reason that th eir recruitment is against the grain of what exists in terms of individuals and organisational culture. The reason behind such hiring of new managers is to bring change I the organisation. It is important to point out, however, that such appointments often set the manager to a very complex work-role transition. It is common knowledge that all organisations would wish to have workers who will comfortably fit into the organisational structure. The presence of an ill-fitting individual, nonetheless, is done deliberately so that the individuals could encounter a tinge of discomfort. Encountering reality All organisations encounter a clash between their anticipations with what the real life situation offers. Such deviations are what enable managers to become aware of the real organisation environment. In other words, schemas will often be changed in such a way that they match the environment more accurately. Managers will find themselves in very unfamiliar position whenever their plans f ail to match the expectations. They are expected, in such a scenario, to get the organisation around the unfavourable condition or obstacle. Managing through such an unfavourable condition would call for introduction of drastic measures which are very different from the original ones that were being pursued by the organisation. The manager, therefore, has to spend time studying the unfavourable condition and determine what counter strategies could be more appropriate. This crisis planning is done within very limited time constraints as continued delay could further hurt the organisation’s prospects. A manager, therefore, has to revisit the transition cycle and rearrange it such that it would be possible for the results to reflect positively on the organisation. Planning should identify new aims and objectives that are different from the ones that existed before the uncertain condition occurred. Roles of the workers must also be swiftly rearranged depending on their individual strengths, experience, and capabilities. Workers must accurately be selected for their specific roles because the organisation has little time to gauge their performances. Although general theories about management could still be applied to help solve out the matter, the scenario becomes more subjective and requires that action be taken depending on what the challenge is like (Watson, 2001). Management knowledge and changing scenarios Management perspectives that were postulated by early scholars, including Marslow and Lewin, were never linearly related but rather recursive in nature. In other words, knowledge of management moves in different directions, allowing managers time and freedom to manipulate changes that could result in better performance. Management knowledge in itself is an epistemological chain of facts and thought. In pursuing the organisation’s goals and objectives, managers are free to use or even create tools that they deem relevant in the performance of th eir roles. They do this through transforming the complex epistemological theories that were postulated by early scholars, instead turning them into ontological heuristic that are more simplified (Rousseau, 1995). Paradoxically, the artifactual heuristics become atheoretical, where they are removed from the original theories that formulated them and applied by the managers. Managers must be able to derive independent constructs of a particular theory and employ its direct knowledge in order to enable him make proper judgement as pertains a realistic situation in his managerial duties. The key source of a manager’s next course of action when faced with a complex situation is a past experience. The selection process is also a key source of expectation which the manager relies on. The external forces upon which the organisation acts are continuous and managers should never sit back without thinking about how to react in case an unfavourable condition occurred. Currently, the glob al economic crisis continues to ravage economies across the world without basing on specific countries. The world economy is closely knitted and therefore whatever happens in one corner of the world is more likely to affect other areas either directly or indirectly. This realisation eliminates the need to focus on rigid frameworks because the organisation has to flexibly react on environmental changes. Some of the reactionary measures that managers undertake to mitigate the effects of the unsavoury situation includes laying workers off and cutting down on expenditure costs. These drastic measures means the organisation may not be within means of actualising the original objective or target of the organisation. However, it settles for a fallback objective that may overly not leave the organisation injured. When managers make drastic changes to the organisational goals and targets, their decision is mainly influenced by the firm’s profitability. Such expenditures as on workersà ¢â‚¬â„¢ salaries and other additional operations costs such as power and water bills are often targeted in ensuring that unnecessary spending is completely done away with. In dealing with the ongoing global economic crisis, some multinational firms have decided to close down their subsidiaries which are located in hard hit areas. Some other companies have shut down operations in their numerous divisions which seem to have low profitability levels while maintaining operations in divisions that are comparatively profitable enough (Chell, 1998). Career transition in management Expectations by managers transform over time as they gain experience in their performance. Managerial roles are intricate and the extensive work experience makes managers to have more elaborated schemas. The manager’s role, nonetheless, is shaped up by the numerous environmental mixes which, together, influence the activity and operations of organisation (Allen Meyer, 1990). Conclusion Organisations often identify their goals, aims, and objectives in advance before employing strategies that would enable the attainment of these set targets. Managers are charged with the responsibility of ensuring the organisation moves towards attaining these goals. Their knowledge and expertise is particularly very important in ensuring the organisation stays within course as it focuses on the goal. However, the environment within which organisations operate is not certain and a lot of factors affect the smooth running of the organisations thus making their initial targets unachievable. Managers are forced to readjust their actions in order to ensure that the targets could be achievable. One of the tools that managers use to try and realign the organisation is the transition cycle. This cycle enables managers to put plans across that the also anticipate changes along the way. Once the manager has planned, there needs to be an emotional and sense making process whose objective is to ensure all worker s within the organisation are perfectly arranged to perform roles. Where a mismatch may occur for one reason or the other, the manager needs to readjust his strategy so that it may fit within the objectives. Readjustment leads to stabilisation where the organisation maintains its performance within the parameters of the objective determine. This cycle is continuous and should never stop at any stage even if it appears as though the organisation is stable. List of References Agyris, C Schon, DA 1978, Organizational learning: A theory of action perspective, Reading, MA: Addison-Wesley. Allen, NJ Meyer, JP 1990, ‘Organizational socialization tactics: A longitudinal analysis of links to newcomers’ commitment and role orientation’, Academy of Management Journal, Vol. 33, pp. 847-858. Atkinson, J 1984. ‘Managing strategies for flexible organizations’, Personnel Management, Vol. 16 No. 8, pp. 28-31. Barley, SR 1989, â€Å"Careers, Identities and Institut ions: The legacy of the Chicago School of Sociology†, In M.B. Arthur, D.T. Hall B.S. Lawrence (Eds), Handbook of career theory, Cambridge University Press, Cambridge. Bauer, TN Morrison, EW, Callister, RR, 1998, ‘Organizational socialisation: A review and directions for future research’, Research in Personnel and Human Resource Management, Vol. 16, pp. 149-214. Berger, PL Luckmann, T, 1967, The social construction of reality, London: Penguin. Chell, E 1998, â€Å"Critical incident technique,† In Symon, G. and Cassell, C. (eds), Qualitative methods in organizational analysis and research: a practical guide, Penguin, London Coupland, C 2002, ‘Graduate trainees’ career narrative: fractured or flexible?’ Proceedings of the British Psychological Society Occupational Psychology Conference. Hill, RC 2000, ‘The case of the missing organizations: Co-operatives and the textbooks’, Journal of Economic Education, Vol. 31 No.3, pp. 28 1-296. Jones, GR 1986, ‘Socialisation tactics, self-efficacy, and newcomers’ adjustment to organizations’, Academy of Management Journal, Vol. 29, pp. 262-279. Louis, MR 1980, ‘Surprise and sense making: What newcomers experience in entering unfamiliar organizational settings’, Administrative Science Quarterly, Vol. 25, pp. 226-251. Mankiw, NG 1998, ‘Rethinking economic principles: Critical essays on introductory textbooks’, Eastern Economic Journal, Vol. 24 No.1, pp. 117-120. Rousseau, DM 1995, Psychological contracts in organizations: understanding written and unwritten agreements, Sage, Newbury Park, CA Rousseau, DM 2001, ‘Schema, promise and mutuality: The building blocks of the psychological contract’, Journal of Occupational and Organizational Psychology, Vol. 74 No.4, pp. 511-542. Watson, TJ 2001, ‘The emergent manager and processes of management pre-learning’, Management Learning, Vol. 32 No.2, pp. 221-2 35 This essay on The Subjective Nature of Management: Literature Review was written and submitted by user Darth Maul to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

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REFERENCES 25-26 QUESTION 1 Calculate the total profit on each ScooterDrivers three types of product using each of the following methods to attribute overheads Absorption costing OAR = Budgeted production overhead Budgeted activity level OAR = RM2,400 000+RM6,000 000+RM3,600 000 200 000 + 220 000 + 80 000(direct labour hours) = RM12, 000 000 500 000(direct labour hours) = RM 24 per direct labour hours Product cost per unit RisingStar(RM) RoadRider(RM) FireRoll(RM) Direct material 400 600 900 Direct labour (RM5ÃÆ'-100hrs) 500 (RM5ÃÆ'-137.5hrs) 687.50 (RM5ÃÆ'-200hrs)1000 Prime cost 900 1287.50 1900 (+)Production (RM24ÃÆ'-100) 2400 (RM24ÃÆ'-137.5hrs)3300 (RM24ÃÆ'-200hrs) 4800 Overhead Production cost per unit 3300 4587.50 6700 Profit RisingStar(RM) RoadRider(RM) FireRoll(RM) Total(RM) Selling Price per unit 4000 6000 8000 (-) Production costs (3300) (4587.50) (6700) Profit per unit 700 1412.50 1300 (ÃÆ'-)Output Unit 2000 1600 400 Profit 1,400 000 2,260 000 520 000 4,180 000 Activity based costing OAR = Budgeted production overhead Budgeted activity level Deliveries to retailer = RM2,400 000 250 (100+80+70) = RM 9600 per deliveries to retailers Set- up costs = RM 6,000 000 100(35+40+25) = RM60000 per set up Purchase orders = RM 3, 600 000 800(400+300+100) = RM 4500 per purchase order Product cost per unit RisingStar(RM) RoadRider(RM) FireRoll(RM) Direct material 400 600 900 Direct labour (RM5ÃÆ'-100hrs) 500 (RM5ÃÆ'-137.5hrs) 687.50 (RM5ÃÆ'-200hrs) 1000 Prime cost 900 1287.50 1900 Production overhead [ Deliveries to retailers 480 480 1680 [ [ Set up costs 1050 1500 3750 [ [ [ Purchase order 900 843.75 1125 Production cost per unit 3330 4111.25 8455 Profit RisingStar(RM) RoadRider(RM) FireRoll(RM) Total(RM) Selling Price per unit 4000 6000 8000 (-) Production costs (3330) (4111.25) (8455) Profit per unit 670 1888.75 (455) (ÃÆ'-)Output Unit 2000 1600 400 Profit 1,340 000 3,022 000 (182 000) 4,180 000 To : ScooterDrivers director From : Management Accountant Evaluate the labour hour and the activity-based costing methods in the circumstances of ScooterDriver. ABSORPTION COSTING METHOD During the most of the 1900s, almost all companies used traditional costing systems that those do not accumulate or report costs of activities or processes (Anderson, 1995). Traditional absorption costing methods attribute production overheads to units of output without attempting to allocate administration, selling or distribution overheads and many activities are not directly related to production volume(e.g. ordering, delivery, transportation, equipment set-up, machining and administration) (Miller and Vollman, 1985). These require non-volume based cost drivers if costs are to be appropriately traced and provide the motivation for the development of activity based costing (ABC) systems(Hilton, 1994). Direct material and direct labour costs can be easily be traced to jobs and processes, but manufacturing overhead may bear no obvious relationship to individual units of product and assignment of overhead made through a volume-based activity base (or cost driver), attempt to ensure that products which cause large amounts of overheads costs correspond with those which require large amounts of the cost driver (Sizer, 1989). The allocation of manufacturing overhead (indirect manufacturing costs) to products on the basis of a volume metric such as direct labour hours or production machine hours(Sizer, 1989). As manufacturing becomes more sophisticated the manufacturing overhead costs usually increase while the direct labour hours or production machine hours decrease therefore, the direct labour or machine hours are unlikely to be the root cause of the manufacturing overhead(Hilton, 1994).   ABC (ACTIVITY-BASED COSTING) ABC (Activity-Based Costing) arise in the 1980s from the increasing lack of relevance of traditional cost accounting methods (Weetman,2006). The traditional cost accounting methods were designed around 1870 1920 and in those days industry was labor intensive, there was no automation, the product variety was small and the overhead costs in companies were generally very low compared to today, from the 1960s particularly 1980s this changed rapidly (Whitehead and Upson, 1982). For these reasons, and more, traditional cost accounting has been called everything from number 1 enemy of production and questions whether it is an asset or a liability have been raised (Innes and Mitchell, 1998). ABC has been promoted by Johnson(1988), Kaplan(1988) and Cooper (1988), among others, as a means of improving the quality of management accounting information when traditional methods of allocation overhead costs might be misleading to the users of product cost information (Smith, 1995). Harvard Business School Professor Robert S. Kaplan was an early advocate of the ABC system, while mainly used for private businesses, ABC has recently been used in public forums, such as those that measure government efficiency (Cooper, 1990). ABC recognizes that many significant overheads are related to activities which are independent of volume and identifies those cost drivers which consume resources to determine process and product costs (Innes and Mitchell, 1998). ABC is an alternative to traditional accounting where business overhead (indirect costs such as lighting, heating, and marketing) provided in the percentage of direct costs of the activities but this is not satisfactory because the two activities that absorb the costs are directly can use very different amounts of overhead (Izhar, 1990). An industrial robot is a large scale, for example, can use the same amount of labour and materials as a robot. But the specific robot uses far more time (overhead) engineers from a mass production company (Johnson and Kaplan, 1987). ABC is an accounting method that allows businesses to gather data about their operating costs and they are assigned to specific activities such as planning, engineering, or manufacturing and then the activities are associated with different products or services (Jones and Dugdale, 2002). In this way, the ABC method enables a business to decide which products, services, and resources are increasing their profitability, and which are contributing to losses (Johnson and Kaplan, 1987). Managers are then able to generate data to create a better budget and gain a greater overall understanding of the expenses that are required to keep the company running smoothly (Izhar, 1990). Generally, activity-based costing is most effective when used over a long period of time, as opposed to shorter-term solutions such as the theory of constraints (Smith, 1995). ABC is a method of allocating costs to products and services (Izhar, 1990). It is generally used as a tool for planning and control and it was developed as an approach to address problems associated with traditional cost management systems that tend to have the inability to accurately determine actual production and service costs, or provide useful information for operating decisions (Hopper, Northcott and Scapens, 2007). With these defiencies managers can be exposed to making decisions based on inaccurate data. The higher exposure is for companies with multiple products or services (Innes and Mitchell, 1998).   DIFFERENCES BETWEEN TRADITIONAL AND ABC SYSTEMS There is a basic philosophical difference between the traditional and the ABC approaches. Traditionally sees overheads as rending a service to cost units, the cost of which must be charged to those units (Atrill and Laney, 2007). ABC sees overheads as being caused by activities, and so it is the cost units that cause the activities that must be charged with the cost cause (Drury, 2005). It is not always easy to see how and why some overheads costs have arisen (Atrill and Laney, 2007). This has traditionally made them more difficult to control that direct labour and materials costs, if, however an analysis of overheads can identify the cost drivers, question can be asked about whether the activity driving certain costs is necessary at all, and whether the cost justifies the benefit (Warren, Reeve and Fess, 2005). Adopting ABC requires that most overheads can be analysed and the cost drivers identified (Drury, 2005). This means that it might be possible to gain much cleaner insights about the overheads costs that are caused, activity by activity, so that fairer and more accurate product costs can be identified, and costs can be controlled more effectively (Warren, Reeve and Fess, 2005). Under ABC, an overheads cost pool is established for each cost driver in which all of the costs caused by that driver are placed (Atrill and Laney, 2007). All costs associated with this activity would be allocated to that cost pool and the total costs in that pool would then be allocated to output, using the cost driver identified, according to the extent to which each unit of output drove those costs (Warren, Reeve and Fess, 2005). Allocating overheads costs to cost pools, as is necessary with ABC, contrasts with the traditional approach, where the overheads are normally allocated to production departments (cost centers) (Atrill and Laney, 2007). In both cases, however, the overheads are then charged to cost units (goods or service) (Drury, 2005). With the traditional approach, overheads are apportioned to product departments (cost centers) (Dyson, 2007). Each department would then derive an overhead recovery rate, typically overheads per direct labour hour (Weetman, 2006). Overheads would then be applied to units of output according to how many direct labour hours were worked on them (Abraham, Glynn, Murphy and Wilkinson, 2008). With ABC, the overheads are analysed into cost pools, with one cost pool for each cost driver (Drury, 2005). The overheads are then charged to units of output, through activity cost driver rates, and these rates are an attempt to represent the extent to which each particular cost unit is believed to cause the particular part of the overheads (Abraham, Glynn, Murphy and Wilkinson, 2008). ADVANTAGES AND DISADVANTAGES OF ABSORPTION COSTING AND ABC ABSORPTION COSTING ADVANTAGES DISADVANTAGES It assumes all the costs that contribute to the final product in some way(Atrill and Laney, 2007). This includes both direct costs and indirect costs(Atrill and Laney, 2007). Direct costs refer to the costs that can be detected directly to the product itself, such as direct materials or direct labor(Atrill and Laney, 2007). Indirect costs refer to costs which cannot be detected directly to the products and allocated to products, such as property taxes or factory manager wage(Atrill and Laney, 2007). A disadvantage of absorption costing involves pricing decisions(Drury, 2005). When a company has excess capacity and it considers various business opportunities, it may deny business that would generate profits for the company(Drury, 2005). The company evaluates each business opportunity using absorption costing as its base cost(Drury, 2005). The company accepts business opportunities that provide revenue above the absorption cost and rejects business opportunities that provide revenue below the absorption cost(Drury, 2005). Some of the business that the company rejects may contribute additional profits to the company when it has excess capacity (Drury,2005). Generally accepted accounting principles (GAAP) represents the standard that most corporations pursue for financial reporting(Johnson and Kaplan, 1987). Generally accepted accounting principles need corporations to use absorption costing for external reporting(Johnson and Kaplan, 1987). Companies that use different forms of product costing for internal analysis is still necessary to maintain a system of absorption costing to GAAP(Johnson and Kaplan, 1987). Companies that use absorption costing for all the valuable products have the advantage that the cost of the same can be used for all purposes(Johnson and Kaplan, 1987). Another disadvantage of absorption costing involves skewing the results of decisions made to discontinue business segments(Izhar, 1990). When the company uses absorption costing in the decision, the analysis includes fixed costs that will remain whether the company eliminates the segment or not(Izhar, 1990). Absorption costing identify fixed costs in the cost of the product(Izhar, 1990). Because it is suitable to determine the price of the product(Izhar, 1990). Pricing based on absorption costing ensure that all costs are covered. (Izhar, 1990) Absorption costing does not help in cost control and planning and control functions(Johnson and Kaplan, 1987). It is not useful in determining the responsibility for the occurrence of cost(Johnson and Kaplan, 1987). It is not practical to hold the manager responsible for the cost of which he / she does not control(Johnson and Kaplan, 1987). Absorption costing will show the proper calculation of the profit of variable costing in situations where production is carried out to have a sale in the future (e.g., seasonal production and seasonal sales) (Izhar, 1990). Some costs can be removed from the product during the income statement for the inventory issue(Johnson and Kaplan, 1987). Therefore, managers evaluated on operating income can temporarily increase profit by increasing production(Johnson and Kaplan, 1987). . ACTIVITY-BASED COSTING ADVANTAGES DISADVANTAGES The advantage of activity-based costing is the accuracy in the process of costing with regards to the product line, the end-users of the product, the stock-keeping units employed by the management and the channel and category which streamline the flow of the product from the producer to the end user(Dyson, 2007). The process of data collection for this system is very time consuming(Smith, 1995). This system helps in the process of better understanding the concept of resource allocation overhead costs business as common as they used by specific product line and their relationship to specific cost drivers(Dyson, 2007). The system is so transparent that some managers will not approve because they want to keep a few things from the viewpoint of owners(Smith,1995). This process is for   cost of unitary, or the marginal cost calculations based on the contrast with the traditional method of cost accounting that uses the total cost(Dyson, 2007). Capital expenditure on systems based on the following activities and running costs can be a road block for the firm(Smith, 1995). The system is easy to understand and interpret it can be accessed, use and functional implemented throughout all forms of business set-up(Dyson, 2007). The system helps in the process of benchmarking which is part of the quality control system(Dyson, 2007). The system works very well will increase the quality and up gradation program(Dyson, 2007). The implication of activity based costing The finance director argued that I very much doubt whether selling FireRoll is viable but I am not convinced that activity-based costing would tell us any more than the use of labour hours in assessing the viability of each produt. From my opinion, I not agree with what finance director told because in activity-based costing use cost driver. Cost driver is a factor that can cause a change in the cost of an activity. An activity can have more than one cost driver attached to it. For example, a production activity may have the following associated cost-drivers such as a machine, machine operators, floor space occupied, power consumed, and the quantity of waste and/or rejected output. In ScooterDriver they used three type of cost driver such as deliveries to retailers, set-up costs and purchase orders. So we can see how much each cost driver cost for the product and choose the product fairer and more accurate product costs can be identified, and costs can be controlled more effectively. Other than that, activity-based costing not only using labour hours for assessing the viability of each product, it also use machine hours. The marketing director argued that I am in the process of negotiating a major new contract with a motorcycle rental company for the RisingStar model. For such a big order, they will not pay our normal prices but we need to at least cover our incremental costs. I am not convinced that activity-based costing would achieve this as it merely averages costs for our entire production. From my opinion, I not agree with what marketing director told because activity-based costing shows average cost better than absorption costing. Absorption costing is more simplistic and less accurate than activity-based costing, and typically assigns overhead costs to products based on an arbitrary average rate. Activity-based costing is more complex and more accurate than absorption costing. This method first assigns indirect costs to activities and then assigns the costs to products based on the products usage of the activities. The managing director argued that I believed that activity-based costing would be an improvement but it still has its problems. For instance, if we carry out an activity many times surely we get better at it, and costs fall rather than remain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver. From my opinion, I not agree with what managing director told because the definition of fixed cost in activity-based costing is a cost element of an activity that does not vary with changes in the volume of cost drivers or activity drivers. For example The deprecation of machine may be direct to a particular activity, but it is fixed with respect to changes in the number of units of the activity driver. Same goes to ScooterDrivers product the cost is fixed over a given time not all time or period. And the designation of fixed cost can also vary depending on the extent which the volume of production , activity drivers or cost drivers may change. The chairman argued that I cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no differences to me. For my opinion, I agree with what chairman argued that both method gave same profit but from my point of view, I think that activity-based costing more benefit than the absorption costing. The profit of ScooterDriver company is RM4180000. For what I said that activity-based costing more benefit because absorption costing mostly utilizes volume related allocation bases while activity-based costing. uses drivers at various levels. Activity-based costing is a method that allocates a cost to various activities which then enable an organization to make informed decisions regarding products and/or services. Once the costs have been determined, they can be input into computer applications designed to analyze the costs. Management can then modify the budget and help the company become more profitable by decreasing inefficient activities. So activity-based costing is more advantage to a company to make profit. Question 2 Explain how the business environment that businesses face has changed over the past decades and discuss how this has had impact on management accounting. INFORMATION TECHNOLOGY (IT) The so called new media boom of the 1980s failed to live up to expectations because the underlying technologies never became widespread(Drury, 2004). In contrast, technological advances on two fronts which are digitization and networking have become indispensable components of todays society(Drury, 2004). Digitization is enabling the fusion of different media based on technologies for processing and transmitting huge volumes of data(Drury, 2004). Networking is creating virtual communities on networks (cyberspace) centered on the Internet(Drury, 2004). With the advance of technology, electronic networks are revolutionizing structures and processes in the business world(Hilton, 1994). To improve processes, businesses are introducing e-mail and intranets. But of even greater impact is the revolution in business contacts not only with other companies but with consumers. The infrastructure has grown as more consumers use personal computers and participate in networks, and technological advances are making communication more efficient. Whereas information technology in the past mainly focused on changing work processes inside companies, todays revolution in information and communications technology could potentially alter the model of communication between businesses and consumers. In the old economy information communication, and transactions are all physical things(Hilton, 1994). They include cash, stamps, invoices, stock certificates, reports, face to face meetings, analog telephones, radio and television broadcasts, receipts, blueprints, maps, photographs, books, newspapers, magazines, and direct mail advertising. In the new economy, all types of information transactions, and personal communication will increasingly be digitized-that is, compressed into bits, stored in computers and transmitted through networks at the speed of light. The quality of information will be much better than with analog transmission. Today our approach to daily life is centered on physical things(Hilton, 1994). For example, the act of shopping involves a process of going to a store, obtaining information on the desired product, making a purchasing decision, paying money, and receiving the product. With the emergence of mail order shopping, transactions could be carried out simply by exchanging information on a product or service, and credit cards and mail delivery eliminated the need to visit a store and talk to a sales clerk(Hilton, 1994). In other words, information on products and services could be dissociated from and distributed separately from the physical product or service, eliminating time and space restrictions of conventional physical communication. This implies a shift in management resources from land, labor and capital, to information. In the information network society, the conventional conditions for corporate success such as large cities, large markets, and large companies will no longer apply. Companies can operate from anywhere if they are connected to a network, and can plunge right into the global market rather than grow in the local market. Since the most important factor is the value of the information a company possesses, we predict that market entry and competition will intensify as size of capital becomes irrelevant to market entry. Application of IT in management accounting has major impact on the organizations profits. It is wrong to conclude that implementation of new technology in management accounting will improve companys profits. Implementation of new technologies may reduce companys income, as the implementation is costly depending on the technology adopted. There is a risk to the companies that if inappropriate technology is chosen, then the company is forced to incur unnecessary costs which lead to waste of resources. However, if the management and the accountants study the feasibility and the functionality of the systems before the implementation of IT in management accounting, then the above risk can be avoided. The skill and knowledge of accountants should be repositioned to support the application of IT in management accounting. The companies have to send their staff to IT related training to acquire and update their IT skills to use the system efficiently. The users of the system must be trained w ell in order to take advantage of the technology within the system. Selecting user friendly system is essential, as it require less IT skilled personnel to handle the system. Most of the systems available now are user-friendly and easy to use. Technology is changing fast and it is very difficult to keep track with the technology changes. The companys challenge is to adopt a technology that can be used for a long period which may not be achievable now. The new technology today will be obsolete within couple of months and will be replaced by more sophisticated technology. So the company has to select the technology that is upgradeable to meet the future technology requirement. GLOBALIZATION Globalization means  the reduction of the difference between one economy and another  so that trade within and between different countries is increasingly similar all over the world. Globalization has become a big buzz word in the last 10/15 years, but it has been going on for centuries, and especially since 1945. In the 17th Century new ship design allowed Europeans to start trading with the rest of the world in a much bigger way, although trade was still a tiny part of the economy compared to agriculture. Later developments in transport, steam ships, the railways and now aircraft, have all contributed to the development of trade. Aircraft also move people around quickly, so the sense of the size and distances of the world shrinks making us feel that far-away places are no longer so strange. The internet now allows international communication in a way that was not possible before; your favourite site could just as easily be in New Zealand as in London. The following main factors have fuelled the pace of globalization which are first is technological change, especially in communications technology.  For example, UK businesses and data by satellite to India (taking advantage of the difference in time zones) where skilled but cheaper data handlers input the data and return it by satellite for the start of the UK working day. Second is transport is much cheaper and faster.  This is not just aircraft, but also ships. The development of containerization in the 1950s was a major breakthrough in goods handling, and there have been continuing improvements to shipping technology since then. Third is removal of capital exchange controls.  The movement of money from one country to another was also controlled, and these controls were lifted over the same period. This allowed businesses to move money from one country to another in a search for better business returns; if investment in ones own country looked unattractive, a business could buy businesses in another country. During the 1990s huge sums of money, mainly from the US, have come into the UK economy. There are three impact of globalization on management accounting. First, management accounting deals with both financial and non-financial data to support a wide range of managerial decisions in contrast to financial accountings focus solely on financial data to support investors and creditors capital allocation decisions. For many companies, notes CareerBank.com CFO Douglas Banister, the real value-add is the integration of financial reporting with operational information. Second, management accounting looks forward as well as backward, whereas financial accounting is oriented solely towards history. Management accounting involves anticipating what will, could, or should happen, as well as figuring out what did happen. Forecasting, planning, and budgeting are typical management accounting activities. Third, management accounting looks outward as well as inward, whereas financial accounting is focused solely on what happens internally within an enterprise. Management accounting involves proactively seeking and identifying opportunities and threats that an enterprise faces from customers, competitors, suppliers, regulatory agencies, and other external parties. In short, management accounting is focused on enhancing business performance in a competitive environment, not simply on ensuring compliance with standards and regulations. MANUFACTURING ENVIRONMENT New manufacturing strategy commonly involves the use of new technologies, and changes in organizational structure and management practices, such as Just-in-Time (JIT) and Total Quality Management (TQM) that possible lead to a radical change in the way business is conducted. AMT applications include applications such as computer integrated manufacturing (CIM), computer-aided design (CAD), computer-aided engineering (CAE), flexible man

Gross National Product :: essays research papers

Gross National Product GNP Top 10 (2004) (currency exchange rate)   Ã‚  Ã‚  Ã‚  Ã‚  Country  Ã‚  Ã‚  Ã‚  Ã‚  GNP ($ mill) 1  Ã‚  Ã‚  Ã‚  Ã‚  United States 10,945,792 2  Ã‚  Ã‚  Ã‚  Ã‚  Japan 4,389,791 3  Ã‚  Ã‚  Ã‚  Ã‚  Germany 2,084,631 4  Ã‚  Ã‚  Ã‚  Ã‚  United Kingdom 1,680,300 5  Ã‚  Ã‚  Ã‚  Ã‚  France 1,523,025 6  Ã‚  Ã‚  Ã‚  Ã‚  China 1,417,301 7  Ã‚  Ã‚  Ã‚  Ã‚  Italy 1,242,978 8  Ã‚  Ã‚  Ã‚  Ã‚  Canada 756,770 9  Ã‚  Ã‚  Ã‚  Ã‚  Spain 698,208 10  Ã‚  Ã‚  Ã‚  Ã‚  Mexico 637,159 Gross National Product (GNP) is the total value of final goods and services produced in a year by domestically owned factors of production. Final goods are goods that are ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate goods used to make the final good. The same tires, if sold to a consumer, would be a final good. Only final goods are included when measuring national income. If intermediate goods were included too, this would lead to double counting; for example, the value of the tires would be counted once when they are sold to the car manufacturer, and again when the car is sold to the consumer. Only newly produced goods are counted. Transactions in existing goods, such as second-hand cars, are not included, as these do not involve the production of new goods. Income is counted as part of GNP according to who owns the factors of production rather than where the production takes place. For example, in the case of a German-owned car factory operating in the US, the profits from the factory would be counted as part of German GNP rather than US GNP because the capital used in production (the factory, machinery, etc.) is German owned. The wages of the American workers would be part of US GNP, while the wages of any German workers on the site would be part of German GNP. Gross Domestic Product GDP Top 10 (2004) (currency exchange rate)   Ã‚  Ã‚  Ã‚  Ã‚  Country  Ã‚  Ã‚  Ã‚  Ã‚  GDP ($ mill) 1  Ã‚  Ã‚  Ã‚  Ã‚  United States  Ã‚  Ã‚  Ã‚  Ã‚  10,435,284 2  Ã‚  Ã‚  Ã‚  Ã‚  China  Ã‚  Ã‚  Ã‚  Ã‚  5,409,852 3  Ã‚  Ã‚  Ã‚  Ã‚  Japan  Ã‚  Ã‚  Ã‚  Ã‚  4,326,444 4  Ã‚  Ã‚  Ã‚  Ã‚  Germany  Ã‚  Ã‚  Ã‚  Ã‚  2,400,655 5  Ã‚  Ã‚  Ã‚  Ã‚  United Kingdom  Ã‚  Ã‚  Ã‚  Ã‚  1,794,858 6  Ã‚  Ã‚  Ã‚  Ã‚  France  Ã‚  Ã‚  Ã‚  Ã‚  1,747,973 7  Ã‚  Ã‚  Ã‚  Ã‚  Italy  Ã‚  Ã‚  Ã‚  Ã‚  1,465,895 8  Ã‚  Ã‚  Ã‚  Ã‚  Canada  Ã‚  Ã‚  Ã‚  Ã‚  958,390 9  Ã‚  Ã‚  Ã‚  Ã‚  Spain  Ã‚  Ã‚  Ã‚  Ã‚  836,100 10  Ã‚  Ã‚  Ã‚  Ã‚  Mexico  Ã‚  Ã‚  Ã‚  Ã‚  626,888 Gross Domestic Product (GDP) is the total value of final goods and services produced within a country's borders in a year. GDP counts income according to where it is earned rather than who owns the factors of production. In the above example, all of the income from the car factory would be counted as US GDP rather than German GDP. To convert from GNP to GDP you must subtract factor income receipts from foreigners that correspond to goods and services produced abroad using factor inputs supplied by domestic sources. To convert from GDP to GNP you must add factor input payments to foreigners that correspond to goods and services produced in the domestic country using the factor inputs supplied by foreigners.