Issues in Management Accounting - AC313 Essay Example | Topics and Well Written Essays - 2000 words

Issues in Management Accounting - AC313 - Essay Example There was enormous resistance to change and tighten the cost control from the engineering side in all meetings as they feared that the cost control was merely to strengthen the accounting regime in the company. In 1980, Volvo representatives visited Renault plant to see their practices as their practices were taken as industry’s benchmarks. Volvo was facing very high costs in the initial stages of product development. Renault had competence in cost control and thus was taken as benchmark for the cost control drive by Volvo. There was a rapid change in the business environment that required Volvo’s management to implement cost management and control system. The business environment forced Volvo to be pro-active in their costing and to make their systems online to as to increase their efficiency in the intra-departmental and cross-functional accounting and costing. For cost effectiveness in the future, Volvo realized that they needed their cost control activities to be redirected to product development rather than manufacturing and production. This would reduce their costs in the initial stages of product development. The company used to be cost and budget driven whereas the need of the hour was to be customer oriented and delivering value to customers at minimum cost. Modular design and common parts were few major changes that Volvo introduced in their products. Process orientation was another major change that was being implemented in the industry. Instead of being function-oriented, organizations were moving towards process orientation. Redundant activities needed to be identified so that the processes could be streamlined and made more effective and cost efficient. Cost targets had become more critical and important. Timely formulation of realistic cost targets saved them huge investments which were not feasible and/or not affordable for their business. Calculations needed to be done in