Management accounting methods for WCP. discuss.

Essay by bus4nsjpUniversity, Bachelor's March 2007

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Watson Circuits Plc. (WCP) operate in the circuit production industry: a market identified as competitive in terms of price and quality. In 2005, the market share price of WCP fell, the company lost £1.7 million, highlighting a potential recession in the market expected to last over a year. WCP receives 40% of annual orders from large contracts, 40% from repeat purchases and 20% from small orders. The company produces customised batches of electronic circuit boards for approximately 15 major customers in the defence, computer, electrical goods and automotive industries. The main recession impact for WCP will be the reduction in demand, due to the internalisation of circuit production by these large clients. Economists, and managers alike, have persistently argued: increased efficiency is the most suitable defence against recession. WCPs inability to establish an appropriate management accounting system, highlighted most dramatically in that "until 2004 only one qualified accountant was employed by" a company with an annual turnover of £26 million, resulting in no past data to analyse or identify inefficiencies.

Therefore, several potential management accounting methods are proposed, and evaluated in respect to their applicability, and suitability for WCP.

WCP have consistently invested in, and prioritised, technological enhancements to improve quality in circuit production. I argue that in order to be competitive in price and quality, thereby differentiating their product in the "highly competitive" market, WCP needs to be financially efficient. Kaplan argued the use of 'new management accounting' as a predictive tool rather than mere reporting, by representing a closer reality of organisational behaviour, can aid managerial activities (Kaplan, 1983). Enhancing this prospect, subsequent managerial accounting methods were developed: "activity-based costing, target cost management, quality costing, and renewed approaches to measuring performance" (Bhimani, 2003:3).

WCP should have financial representation at board level, and he/she needs support throughout the organisation.