Advertisement

The evolution of management accounting

  • Robert S. Kaplan

Abstract

This paper surveys the development of cost accounting and managerial control practices and assesses their relevance to the changing nature of industrial competition in the 1980s. The paper starts with a review of cost accounting developments from 1850 through 1915, including the demands imposed by the origin of the railroad and steel enterprises and the subsequent activity from the scientific management movement. The DuPont Corporation (1903) and the reorganization of General Motors (1920) provided the opportunity for major innovations in the management control of decentralized operations, including the ROI criterion for evaluation of performance and formal budgeting and incentive plans. More recent developments have included discounted cash flow analysis and the application of management science and multiperson decision theory models. The cost accounting and management control procedures developed more than 60 years ago for the mass production of standard products with high direct labor content may no longer be appropriate for the planning and control decisions of contemporary organizations. Also, problems with using profits as the prime criterion for motivating and evaluating short-term performance are becoming apparent. This paper advocates a return to field-based research to discover the innovative practices being introduced by organizations successfully adapting to the new organization and technology of manufacturing.

Keywords

Management Accounting Transfer Price Residual Income Generally Accept Accounting Principle Financial Account Standard Board 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Anthony, R.N., ‘Accounting for Capital Costs,’ in R.N. Anthony, J. Dearden, and R.F. Vancil, Eds., Management Control Systems: Cases and Readings (Richard D. Irwin, 1965).Google Scholar
  2. Armour, H.O. and D.J. Teece, ‘Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis,’ Bell Journal of Economics (Spring 1978), pp. 106-122.Google Scholar
  3. Baiman, S., ‘Agency Research in Managerial Accounting: A Survey,’ Journal of Accounting Literature (Spring 1982), pp. 154-213.Google Scholar
  4. Beaver, W. and J. Demski, ‘The Nature of Income Measurement,’ The Accounting Review (January 1979), pp. 38-46.Google Scholar
  5. Bierman, H. and S. Smidt, The Capital Budgeting Decision (MacMillan, 1960).Google Scholar
  6. Brown, D., ‘Centralized Control with Decentralized Responsibilities,’ American Management Association Annual Convention Series: No. 57 (1927), reprinted in H.T. Johnson, Ed., Systems and Profits: Early Management Accounting at DuPont and General Motors (Arno Press, 1980).Google Scholar
  7. Buchanan, J.M. and G.F. Thirlby, Eds., L.S.E. Essays on Cost (London School of Economics and Political Science, 1973).Google Scholar
  8. Calvert, M.A., The Mechanical Engineer in America 1830–1910: Professional Cultures in Conflict (Johns-Hopkins Press, 1967).Google Scholar
  9. Chandler, A.D., Strategy and Structure: Chapters on the History of the Industrial Enterprise (M.I.T. Press, 1962).Google Scholar
  10. —, The Visible Hand: The Managerial Revolution in American Business (Harvard University Press, 1977).Google Scholar
  11. Christenson, C., ‘Construction of Present Value Tables for Use in Evaluating Capital Investment Opportunities,’ The Accounting Review (October 1955), pp. 666-672.Google Scholar
  12. Church, A.H., The Proper Distribution of Expense Burden (London: The Engineering Magazine, 1908) (Works Management Library).Google Scholar
  13. —, Manufacturing Costs and Accounts (McGraw-Hill, 1917).Google Scholar
  14. Clark, J.M., Studies in the Economics of Overhead Cost (University of Chicago Press, 1923).Google Scholar
  15. Coase, R., ‘The Nature of the Firm,’ Economica (November 1937), pp. 386-405.Google Scholar
  16. Cook, P.W., ‘Decentralization and the Transfer-Price Problem,’ Journal of Business (April 1955), pp. 87-94.Google Scholar
  17. ‘Cooking the Books,’ Dun’s Business Month (January 1983), pp. 40-47.Google Scholar
  18. Davidson, S., ‘The Day of Reckoning: Accounting Theory and Management Analysis,’ Journal of Accounting Research (Autumn 1963), pp. 117-126.Google Scholar
  19. Dean, J., Capital Budgeting; Top-Management Policy on Plant, Equipment, and Product Development (Columbia University Press, 1951).Google Scholar
  20. —, ‘Measuring the Productivity of Capital,’ Harvard Business Review (January/February 1954), pp. 120-130.Google Scholar
  21. —, ‘Decentralization and Intra-company Pricing,’ Harvard Business Review (July/August 1955), pp. 65-74.Google Scholar
  22. Dearden, J., ‘The Case of the Disputing Divisions,’ Harvard Business Review (May/June 1964), pp. 159-178.Google Scholar
  23. Demski, J., Information Analysis, Second Edition (Addison-Wesley, 1980).Google Scholar
  24. — and G. Feltham, Cost Determination: A Conceptual Approach (Iowa State University Press, 1976).Google Scholar
  25. — and, ‘Economic Incentives in Budgetary Control Systems,’ The Accounting Review (April 1978), pp. 336-359.Google Scholar
  26. Edwards, R.S.,’ some Notes on the Early Literature and Development of Cost Accounting in Great Britain — V and VI,’ The Accountant (September 4, 1937), pp. 313-316; (September 11, 1937), pp. 343-344.Google Scholar
  27. Epstein, M.J., The Effect of Scientific Management on the Development of the Standard Cost System (Arno Press, 1978).Google Scholar
  28. Feltham, G.A., ‘The Value of Information,’ The Accounting Review (October 1968), pp. 684-696.Google Scholar
  29. Garke, E. and J.M. Fells, Factory Accounts (New York: McGraw-Hill, 1887).Google Scholar
  30. Garner, S.P., Evolution of Cost Accounting to 1925 (University of Alabama Press, 1954).Google Scholar
  31. ‘General Electric Company, Background Note on Management Systems: 1981,’ HBS Case 9-181-111 (Boston: Harvard Business School).Google Scholar
  32. Habakkuk, H.J., American and British Technology in the Nineteenth Century: The Search for Labour-Saving Inventions (Cambridge University Press, 1962).Google Scholar
  33. Hirschleifer, J., ‘On the Economics of Transfer Pricing,’ Journal of Business (July 1956), pp. 172-184.Google Scholar
  34. —, ‘Economics of the Divisionalized Firm,’ Journal of Business (April 1957), pp. 96-108.Google Scholar
  35. Johnson, H.T., ‘Early Cost Accounting for Internal Management Control: Lyman Mills in the 1850s,’ Business History Review (Winter 1972), pp. 466-474.Google Scholar
  36. —, ‘Management Accounting in Early Integrated Industrial: E.I. duPont de Nemours Powder Company, 1903–1912,’ Business History Review (Summer 1975a), pp. 184-204.Google Scholar
  37. —, ‘The Role of Accounting History in the Study of Modern Business Enterprise,’ The Accounting Review (July 1975b), pp. 444-450.Google Scholar
  38. —, ‘Management Accounting in an Early Multidivisional Organization: General Motors in the 1920s,’ Business History Review (Winter 1978), pp. 490-517.Google Scholar
  39. —, ‘Markets, Hierarchies, and the History of Management Accounting,’ Third International Congress of Accounting Historians, London, England (August 1980).Google Scholar
  40. —, ‘Toward a New Understanding of Nineteenth-Century Cost Accounting,’ The Accounting Review (July 1981), pp. 510-518.Google Scholar
  41. —, ‘The Search for Gain in Markets and Firms: A Review of the Historical Emergence of Management Accounting Systems,’ Accounting, Organizations and Society (No. 2/3, 1983), pp. 139-146.Google Scholar
  42. Kaplan, R.S., ‘Application of Quantitative Models in Managerial Accounting: A State of the Art Survey,’ in Management Accounting-State-of-the-Art, Beyer Lecture Series (University of Wisconsin, Madison, 1977).Google Scholar
  43. —, ‘The Impact of Management Accounting Research on Policy and Practice,’ in J.W. Buckley, Ed., The Impact of Accounting Research on Policy and Practice (Arthur Young Professors Round-table, 1981), pp. 57-76.Google Scholar
  44. —, Advanced Management Accounting (Prentice-Hall, 1982).Google Scholar
  45. —, ‘Measuring Manufacturing Performance: A Challenge for Management Accounting Research,’ The Accounting Review (October 1983), pp. 686-705.Google Scholar
  46. Littleton, A.C., Accounting Evolution to 1900 (American Institute Publishing Co., 1933).Google Scholar
  47. Meadows, D., ‘New Targeting for Executive Pay,’ Fortune (May 4, 1981), pp. 176-184.Google Scholar
  48. Mintzberg, H., The Nature of Managerial Work (Harper & Row, 1973).Google Scholar
  49. —, ‘An Emerging Strategy of “Direct” Research,’ Administrative Science Quarterly (December 1979), pp. 582-589.Google Scholar
  50. —, ‘Organization Design: Fashion or Fit,’ Harvard Business Review (January/February 1981), pp. 103-115.Google Scholar
  51. —, Designing Effective Organizations (Prentice-Hall, 1983).Google Scholar
  52. Myers, S., ‘Finance Theory and Financial Strategy,’ Interfaces (January–February 1984), pp. 126-137.Google Scholar
  53. Parker, R.H., ‘Discounted Cash Flow in Historical Perspective.’ Journal of Accounting Research (Spring 1968), pp. 58-71.Google Scholar
  54. Peters, T.J. and R.H. Waterman, In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982).Google Scholar
  55. Pinches, G.E., ‘Myopia, Capital Budgeting and Decision-Making,’ Financial Management (Autumn 1982), pp. 6-19.Google Scholar
  56. Rappaport, A., ‘Executive Incentives vs. Corporate Growth,’ Harvard Business Review (July/August 1978), pp. 81-88.Google Scholar
  57. —,’ selecting Strategies that Create Shareholder Value,’ Harvard Business Review (May/June 1981), pp. 139-149.Google Scholar
  58. Reece, J.S., and W.R. Cool, ‘Measuring Investment Center Performance,’ Harvard Business Review (May/June 1978), pp. 28-46 and 174-176.Google Scholar
  59. Reich, R., The Next American Frontier (Time Books, 1983).Google Scholar
  60. Ridgway, V.F., ‘Dysfunctional Consequences of Performance Measurement,’ Administrative Science Quarterly (September 1956), pp. 240-247.Google Scholar
  61. Schwarzbach, H.R. and R.C. Vangermeersch, ‘Why We Should Account for the 4th Cost of Manufacturing,’ Management Accounting (July 1983), pp. 24-28.Google Scholar
  62. Scovell, C.H., Interest as a Cost (Ronald Press, 1924).Google Scholar
  63. Shillinglaw, G., ‘Old Horizons and New Frontiers: The Future of Managerial Accounting,’ in H.P. Holzer, Ed., Management Accounting 1980 (Department of Accounting, University of Illinois, 1980).Google Scholar
  64. Sloan, A.P., My Years with General Motors (Doubleday, 1963).Google Scholar
  65. Solomons, D., ‘Evaluating Divisional Performance by Return on Investment and Residual Income,’ in Divisional Performance: Measurement and Control (Financial Executives Research Foundation, New York, 1965), pp. 123–159.Google Scholar
  66. —, ‘The Historical Development of Costing,’ in D. Solomons, Ed., Studies in Cost Analysis, Second Edition (Richard D. Irwin, 1968), pp. 3-49.Google Scholar
  67. Spicer, B.H. and V. Ballew, ‘Management Accounting Systems and the Economics of Internal Organization,’ Accounting, Organizations and Society (March 1983), pp. 73-96.Google Scholar
  68. Steer, P. and J. Cable, ‘Internal Organization and Profit: An Empirical Analysis of Large U.K. Companies,’ Journal of Industrial Economics (September 1978), pp. 13-30.Google Scholar
  69. Stone, W., ‘Intracompany Pricing,’ The Accounting Review (October 1956), pp. 625-627.Google Scholar
  70. Teece, D.J. and S.G. Winter, ‘The Limits of Neoclassical Theory in Management Education,’ American Economic Review (May 1984).Google Scholar
  71. Tiessen, P. and J.H. Waterhouse, ‘Towards a Descriptive Theory of Management Accounting,’ Accounting, Organizations and Society (No. 2/3, 1983), pp. 251–267.CrossRefGoogle Scholar
  72. Umapathy, S., ‘Transfers Between Profit Centers,’ in R.F. Vancil, Ed., Decentralization: Managerial Ambiguity By Design (Dow Jones-Irwin, 1978), pp. 167-183.Google Scholar
  73. Vangermeersch, R., ‘The Wisdom of A. Hamilton Church’ (University of Rhode Island, August 1983).Google Scholar
  74. Waterhouse, J.H. and P. Tiessen, ‘A Contingency Framework for Management Accounting Systems Research,’ Accounting, Organizations and Society (August 1978), pp. 65-76.Google Scholar
  75. Wells, M.C.,’ some Influences on the Development of Cost Accounting,’ The Accounting Historians Journal (Fall 1977), pp. 47-61.Google Scholar
  76. —What’s Wrong with Management,’ Dun’s Business Month (April 1982), pp. 48-52.Google Scholar
  77. Williamson, O.E., Markets and Hierarchies: Analysis and Antitrust Implications (Free Press, 1975).Google Scholar
  78. —, ‘The Modern Corporation: Origins, Evolution, Attributes,’ Journal of Economic Literature (December 1981), pp. 1537-1568.Google Scholar
  79. Wolfson, M.A., ‘Tax, Incentive, and Risk-Sharing Considerations in the Design of Shared Real Estate Ownership Contracts’ (Graduate School of Business, Stanford University, September 1982).Google Scholar
  80. —, ‘Empirical Evidence of Incentive Problems and their Mitigation in Oil and Gas Tax Shelter Programs’ (Graduate School of Business, Stanford University, June 1983).Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 1984

Authors and Affiliations

  • Robert S. Kaplan
    • 1
    • 2
  1. 1.Carnegie-Mellon UniversityUSA
  2. 2.Harvard Business SchoolUSA

Personalised recommendations