1.1 Introduction to Management Accounting

I finished taking an accounting class “Introduction to Management Accounting” at a business school where I have studied in the U.S. This class is about cost accounting, and covers Japanese cost accounting and industrial bookkeeping which many Japanese learn as the official business skill test in bookkeeping. Since I passed the 1st-grade bookkeeping test in Japan, I took the class with fundamental knowledge about cost accounting. However, I felt some difficulties in learning in the class because the class of the business school focused on how we can utilize its knowledge in real business situations.

Summary

-      - Cost accounting system is important in giving economic signals to decision-makers. Dropping off a division in red will transfer indirect costs to the other existing divisions, worsen that profitability, and increase indirect cost distribution ratio, resulting in the death spiral.

-      - Single cost pool makes its calculation easy, but generates a problem; cross-subsidization that part of indirect costs are allocated to not-relevant divisions. It is desirable to use relevant cost drivers.

-      - Quantitatively, high-quality cost accounting system can minimize both cross-subsidization and death spiral. Qualitatively, there are two problems, motivation problem, which triggers inter-departmental conflicts and impair the company’s profit, and coordination problem, which impairs usage of tangible or intangible assets at the right types, scales, places, and times. Decision-makers need to design employees’ compensation system and transfer prices to solve the two problems.

Textbook

Fundamentals of Cost Accounting by Lanen, Anderson, and Maher, McGraw-Hill Irwin, 5th edition.

Throughout the past classes I took including the cost accounting, many Japanese seem to struggle to study in the U.S. because there are no “absolutely correct answers” for problems (I think that is very common sense). In Japan, all of workers and students tend to ask questions like ‘What is the correct answer?.’ And if the person to be questioned cannot answer them, all questioners think ‘you are not eligible’ ‘What an ignorant guy to make a question?’. I recognize that pursuing a perfect answer is on the right track, but the problem is the degree to which we pursue the answer and improve the accuracy. In this sense, there is a significant difference between Japan and the other countries.