Cost Accounting Case Study

The majority of the management accounting developments between the origins of cost accounting and the 1970s were of a functionalist nature, whilst during the period between 1970 and 2000, several approaches that can be categorised as interpretative or radical came to the fore.

The long economic depression of the 1870s brought a continuing decrease in demand, results in spare capacity and decreasing prices. Many builders new avenues of increased efficiency and gave their attention from technology to upgrade management of operations (Chandler 1977:272, Chatfield 1977: 160). During this period the operations became intensively capital intensive and whereas previously, initial capital costs were low and output generated sufficient funds for expansion,

Cost accounting now became mainly an accounting task, which until then had predominantly been developed by industrial engineers (Chatfield 1977,163). In 1889 Towne (in Chandler 1977:274) described a gain-sharing plan that had been employed by his company since 1884, to the Society of Mechanical engineers. In terms of this plan any reduction in unit costs achieved through improved equipment and plant size, more effective scheduling, improved utilisation of machines and materials and more productive labour, would be shared equally between the company and its workers (Chandler 1977:274). In 1895 Frederick Taylor delivered a paper in which he pointed out that savings such as mentioned by Towne should not be based on past experience but rather on a standard time and output. This should be determined "scientifically" through detailed job analysis and time and motion studies of the work involved. He also suggested a differential piece rate, in terms of which the workers who failed to comply with the standard would be paid a reduced rate, while those who excelled would be rewarded accordingly (Chandler

He also stressed the importance of distinguishing between controllable and uncontrollable variances for purposes of control, an idea that is still contained in much of today's literature on responsibility accounting. In 1911 Harrison designed the earliest known complete standard costing system and in 1918 published the first set of equations for the analysis of cost variances, which are also still found in today's literature on standard costing (Drury 1996, Chatfield