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Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University:- we will provide complete details of Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

Management Accounting first emerged as a significant activity during the early industrial revolution, in the leading industries and enterprises of the day. As such, Management Accounting arose after financial accounting, which can trace its origins to its stewardship role in European merchant trading ventures beginning in the Italian Renaissance.

Two leading industries of the industrial revolution that played important roles in the early history of management accounting were textiles and railroads.

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

New trend and concepts in Management Accounting are as follows:

Just-in-time (JIT): During the last two decades of the 20th century, many companies implemented just-in-time programs designed to minimize the amount of inventory on hand. These companies identified significant benefits from reducing all types of inventories—raw materials, work-in-process, and finished goods—to the lowest possible levels.

Total quality management (TQM): Quality programs go by several names, including TQM, zero defect programs, and six sigma programs.

Theory of constraints: The theory of constraints is an operations management technique that decreases inventory levels and increase throughput in a manufacturing setting.

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

Lean production and the lean enterprise: In recent years, the term “lean” has been adopted by some organizations to describe the organization’s comprehensive effort to apply state-of-the-art management practices to improve quality and customer satisfaction, reduce costs and production lead-times, and increase value-creation.

Activity based costing: Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each

Activity-Based Budgeting: A method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships are defined and analyzed.

Throughput accounting: It is a principle-based and simplified management accounting approach that provides managers with decision support information for enterprise profitability improvement.

Balanced scorecard: It is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization.

Environmental Management Accounting: EMA is the generation and analysis of both financial and non-financial information in order to support internal environmental management processes.

Kaizen: Kaizen is the practice of continuous improvement.

Six Sigma: It can be defined as a methodology based on TQM to achieve very low defect rates.

EFQM model: It is a framework for management systems, developed by the European Foundation for Quality Management. It aims to assess performance; integrate and align existing tools, procedures and processes; introduce a way of thinking that encourages reflection and stimulates continuous improvement; and identify the key actions that are driving results.

Value chain analysis: VCA is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.

Business process re-engineering: BPR is the analysis and redesign of workflow within and between enterprises.

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University:-Abstract

The study examines how combinations of management techniques and management accounting practices enhance the performance of organizations, under particular strategic priorities. Companies were identified as emphasizing product differentiation, low price strategies or a combination of both. Management techniques included in the study were improving existing processes; quality systems; manufacturing systems innovations; integrating systems; team-based structures and human resource management policies. Management accounting practices important in assisting managers implement management techniques were traditional management accounting techniques; activity-based techniques; balanced performance measures; employee-based measures; benchmarking and strategic planning. A systems approach, using cluster analysis, was used to examine hypothesized associations between performance and a range of management techniques and management accounting practices, under various strategic orientations. This provided a method to examine the way in which the entire range of variables combined to affect performance.

What is a ‘Cost Approach’

The cost approach is a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land plus cost of construction, less depreciation. It yields the most accurate market value when the property is new.

BREAKING DOWN ‘Cost Approach’

The cost approach is one of three valuation methods for real estate; the others are the income approach and the comparable approach. The cost approach methodology requires certain assumptions, such as the availability of land. If comparable vacant land is not available, then the value must be estimated, which makes the appraisal less accurate. The lack of similar building materials also reduces the accuracy of the appraisal.

Two Main Types

There are two main types of cost approach appraisals. The reproduction method considers that a replica of the property is built and gives attention to duplication of original materials. The replacement method assumes the new structure has the same function with newer materials, utilizing current construction methods and an updated design.

Residential Real Estate

Most residential appraisals do not use the cost approach. An exception is if the property is under-improved or over-improved for its neighborhood. In this case, accurate estimation of the value of improvements adds to the precision of the determination of value, which is not possible using only the comparable approach.

Special Use Properties

The cost approach is required and sometimes the only way to determine the value of exclusive-use properties, such as libraries, schools or churches. These resources generate little income and are not often marketed, which invalidates the income and comparable approaches.


Insurance appraisals use the cost approach, as only the value of improvements is insurable and land value is separated from the total value of the property. The choice between depreciated value and full replacement or reproduction value is the determining factor for the evaluation.

Commercial Property

A commercial real estate appraisal usually uses all three valuation techniques. The income approach is the key. However, the cost approach is included in the case that design, construction, functional utility or grade of materials require individual adjustments.

New Construction

Construction lenders require cost approach appraisals, as any market value or income value is dependent upon project standards and completion. Projects are reappraised at various stages of construction to enable the release of funds for the next stage of completion.

Verifying Market Conditions

When a cost approach appraisal comes in below market pricing, it can be a sign of an overheated market. Conversely, regular evaluations above market pricing may signal a buying opportunity.

Emerging Costing Approaches for Managerial Accounting Mcom Delhi University

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