Evolution of Performance Measurement Models in Management Accounting

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Evolution of Performance Measurement Models in Management Accounting


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2nd October 2010

Abstract Changes in management accounting have gone by unnoticed in the recent years. This article tries to explain by how much management accounting has altered through the years, since the 1950s to date, and the reasons that led to the changes. This work also focuses on various performance evaluation models, their applications and their effectiveness.

Introduction There was little advancement in accounting in the 1950s, as much of the effort was made towards finance and stock valuation. However, there have been material changes in the business environment over the past six decades, coupled with
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Through 1960s, focus shifted to providing information needed for management control of the business processes. In the framework, planning and control systems are composed of management control, strategic planning and technical control. In the 1970s, management accounting laid emphasis on planning and control, where the contingency theory influenced choice of accounting and control procedures depending on the circumstances surrounding the organization at the time (Ittner and Larcker 2001, 379). In the past, the traditional cost accounting model was developed for the mass manufacture of standardized goods. Ittner and Larcker (2001, 379) notes “need to improve the system arose that led new operating concepts such as just-in-time, zero defects and computer-integrated manufacturing could be supported.” The Japanese Management model focuses on just-in-time production, where suppliers make daily deliveries and finished products are immediately transferred to warehouses or shipped to customers. This could be the main reason behind Japan’s manufacturing’s success and competitiveness (Warren 2008, 87). Focus in management accounting then shifted to the reduction of waste in the mid 1980s, leading to the development of activity based costing (ABC) and activity based management (ABM). Warren (2008, 117)notes
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