Why We Need a Conceptual Framework for Managerial Costing

By White, Larry; Clinton, B. Douglas et al. | Strategic Finance, October 2011 | Go to article overview

Why We Need a Conceptual Framework for Managerial Costing


White, Larry, Clinton, B. Douglas, Merwe, Anton van der, Cokins, Gary, Thomas, Chuck, Templin, Ken, Huntzinger, Jim, Strategic Finance


IMA[R] recently established a seven-member task force to draft a conceptual framework for managerial costing that will define practical principles and concepts to improve cost modeling and decision support inside organizations. Managerial costing, a central area of practice in management accounting, will gain credibility, wider application, and greater visibility when a clear framework exists. The framework will support the practices and techniques for internal cost and operational modeling that create critical business information for managerial insights, analysis, and decision making.

This article introduces the topic to IMA members and seeks to increase awareness of the need for such an endeavor. The task force believes multiple benefits will accrue to the management accounting profession as a result of this pursuit (see "Benefits of a Managerial Costing Framework," p. 38).

The Need for a Managerial Costing Framework Is Here

Managerial costing is a subset of management accounting that focuses on connecting operational resources and processes with their monetary value to generate the information required for effective decision support and value creation. Management accounting is much broader than managerial costing and includes cost accounting to sup-port external financial reporting, behavioral issues, performance evaluation, and many other subject areas. Managerial costing satisfies what we believe to be the core purpose of management accounting--supporting decision making to achieve enterprise optimization. Managerial costing includes capacity costing, marginal and incremental costing, and costing for process optimization, to name a few areas of costing necessary to opera-tionalize strategic cost management.

Working within this scope, the task force constructed a conceptual framework and carefully defined principles and concepts that focus on managers and employees throughout the company as the primary customer of the information. Our main objective was to satisfy the needs of those seeking to understand the interaction of operational resources, their values, and outputs. The fulfillment of this objective will be a significantly improved ability to identify optimal decision alternatives and create sustain-able value. Given the growth of financial planning and analysis groups within CFO organizations, we believe this objective is of immediate interest.

A managerial costing framework will create a clearer path and minimize risk for decision makers as they evaluate the methods, practices, expertise, and technology tools needed to achieve their goals for decision-making information. Currently, no clear or accepted approach exists for differentiating the characteristics of a beneficial managerial costing approach from those that are deficient and potentially misleading to managers. A wide variety of managerial costing approaches, such as traditional standard costing, activity-based costing (ABC), throughput costing, lean accounting, German managerial costing (known as GPK), and resource consumption accounting (RCA), claim to provide superior information for cost modeling and decision making, but do they? All businesses would benefit from a clear benchmark that would help them evaluate the characteristics and effectiveness of cost modeling and decision support options. Selecting a costing and decision support approach is particularly challenging for smaller and midsize organizations because they have limited financial, IT, and personnel resources and expertise to invest in, implement, and operate a decision support system.

A conceptual framework for managerial costing also should more clearly differentiate the types, objectives, and purposes of costing (e.g., internal decision support from external financial reporting). Defining managerial costing principles and concepts clearly and concisely will increase the awareness of the significant differences and consequences of using costing information. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Why We Need a Conceptual Framework for Managerial Costing
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.