CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Management accounting techniques have in no small measure assisted different organizations especially manufacturing companies, in their decision making processes. It is a known fact that techniques change over the time largely because business themselves and the societies that they operate change as well. What was considered as a good management technique year ago may be considered ineffective in making decision in the future. Also, changing external business environment has resulted in further developments in the tools and techniques used for management accounting. Traditional management accounting techniques had certain limitations associated with them, for instance, absorption costing methods have been found to be inappropriate in the modern environment.
Similarly, standard costing suitability with respect to its general philosophy and detailed operations has come under severe criticism. It is believed that, traditional management accounting performance measures can produce the wrong type of response. However, the current techniques used by the management in making their decisions such as; make or buy, cost-volume-profit analysis, just-in-time, inventory management,budgeting,variance analysis, activity based costing, linear programming, relevant cost, incremental cost and opportunity cost are the techniques to be discussed in this write-up.Decision making may be simply defined as choosing a course of action from among many alternatives. If there are no alternatives, then no decision is required. A basis assumption is that the best decision is the one that involves the most revenue or the list amount of cost.
The task of management with the help of management accountant is to find the best alternative. From the descriptive model of the basic features and assumptions of the management accounting perspective of business, it is easy to recognize that decision making is the focal point of management accounting. The concept of decision making is a complex subject with a vast amount of management literature behind it. In management accounting, it is useful to classify decisions as:Strategic and tactical Short-run and long-run In any organization, whether a decision is good or acceptable depends on the goals and objectives of management. Consequently, a prerequisite to decision making is that management have set the organization’s goals and objectives. For instance, management must decide strategic objectives such as the company’s product line, pricing strategy, quality of product, willingness to assume risk, and profit objective. All these can be efficiently achieved when appropriate technique(s) is applied.
1.2 STATEMENT OF THE PROBLEM
It is more or less easy to notice the usefulness of management accounting techniques in decision making process. Therefore, there arise questions as;1.Does the management accounting techniques really useful on organization’s profit maximization decision making process? 2.What led to the dependence of the company on the use of techniques considered to be modern?3. Does application of management accounting techniques in organization decision making improve their performance? Indeed, all the above points would take me into a comprehensive research on the effectiveness of management accounting techniques on decision making process in manufacturing industry (CADBURY NIGERIA PLC).
