I need a Critical Analysis of Article Optimal decision making using cost account

Question

I need a Critical Analysis of Article Optimal decision making using cost accounting information.

Abstract:

The primary objective of this paper was to compare the results of using four

di. erent cost accounting systems (traditional cost accounting, activity-based costing,

direct costing, and throughput accounting) in a resource-constrained production

environment in order to make two categories of decisions that managers

frequently use cost accounting information to make. The research design includes

a survey of manufacturing managers to determine what decisions cost accounting

information is used to make, and a simulation model to determine the results of

the decisions. In addition, the results of the four cost accounting models are

compared with a linear programming solution. The study found that the throughput

accounting model in all cases made the same decision as the linear programming

model, but the other three cost accounting systems generally produced

suboptimal results. Our conclusion is that for a cost accounting system to provide

information for optimal decisions, it must (1) be aware of production constraints,

and (2) not use allocated costs.

Explanation / Answer

Analysis:

Traditional costing is the allocation of factory overhead to products based on the volume of production resources consumed. Under this method, overhead is usually applied based on either the amount of direct labor hours consumed or machine hours used.
Activity-based costing is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each.
Direct costing is a specialized form of cost analysis that only uses variable costs to make decisions. It does not consider fixed costs, which are assumed to be associated with the time periods in which they were incurred. The direct costing concept is extremely useful for short-term decisions, but can lead to harmful results if used for long-term decision making, since it does not include all costs that may apply to a longer-term decision.
Throughput accounting is a management accounting approach that focuses on the throughput of cash from sales and the truly variable costs of producing an additional unit of a product or service. It is designed to support management decision making. Throughput accounting is particularly useful for identifying products that are generating the most cash flow for each incremental unit of production.

These methods should be used after identifying the resources in constraint in the production environment and applying the best method as per the environment conditions which best suits to a particular method. It also involves the identification of the information used by the manufacturing managers to make decisions and model for determining the results. If you compare these 4 methods with linerar programming model,the results given by the throughput accounting method are mostly similar with the linear programming model because the approach in both are relatively same which is different in other 3 methods.

In order to make optimal decisions, one must consider the production constraints and not use allocated costs on which basis proper cost accounting method be identified and applied i.e throughput accounting which focuses on identifying products which make most cash flow and hence the resouces must be first utilised for that product which gives higher profitability.

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