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BAO2204: Management Accounting. Assignment 1. Article: Ferrara, W.L, 1995, Cost/Management Accounting- The 21st century, Management Accounting (US), December, pp.30-36. The purpose of this report is to review the changes that Management accounting has undergone throughout the 20th century and how these changes will have an effect on Management Accounting in the 21st century, according to Ferrara. The article by Ferrara provides a comprehensive view as to how Management Accounting has been beneficial for organizations, which is divided into four separate areas and how it will continue to be as Management Accounting approaches the 21st century. These changes are all outlined below: The first paradigm that Ferrara outlines is Paradigm A, which consists of the turn of the 20th century until the 1940’s. This was the era of the Industrial revolution plus, and was a representation of the image of an early day industrial engineering type. As a result, the costs that were involved were direct materials, direct labor, manufacturing overhead, as well as marketing and administrative costs. All of these costs were joined together in order to form a total cost per unit of output. Therefore, in many ways, the total cost per unit excluded marketing and administrative costs, which were included as a factor of desired profit. This enabled the sum of the total cost and desired profit to generate a target selling price per unit. The second paradigm focused on the period from the 1940’s until the 1980’s, which was the era of cost-volume profit analysis as well as direct costing, and in which it was introduced through the distinction between fixed and variable costs. Therefore, variable costs per unit were determined by engineering standards and analytic techniques, which meant that the volume of activity primarily related to fixed costs.
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