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Shillinglaw, G. 1989. Managerial cost accounting: Present and future. Journal of Management Accounting Research (1): 33-46.

Summary by James Cline
Master of Accountancy Program
University of South Florida, Summer 2002

History and Development Main Page

This article was not at the forefront of the changing ideas of managerial accounting, but being right in the middle of the changing process, it helped to get across the idea that change needed to be done more quickly. Shillinglaw explains the problems of the costing methods developed in the 1960’s used in management accounting and the most likely fixes to those same methods that were still used in the late 1980’s. He also attempts to identify ways to make managerial cost accounting a necessary part of the management process going forward.

Perceived Defects: Product Costing

For product costing to be reliable it must accurately reflect a few principle concepts: causality, traceability of costs, overhead apportionment rates, and activity costing. Causality has both short-term and long-term effects. Short-term causality refers to the use of capacity (the upper limit) on costs that are fixed in the short-run, and therefore, "attributable to a product if elimination of that product and others with similar requirements would lead to a reduction in the capacity that particular cost provides or supports. If the fixed cost is significantly divisible, then a portion of it is attributable to the product in question." Long-term causality complements this measurement with the costs of providing capacity. If this principle is not measured accurately then product costing will be incorrect and any managerial use will be skewed. The belief is that textbooks and systems in the 1980’s did not implement the causality principle correctly.

Traceability of costs became more difficult during the 1980’s with the increased ability of manufacturers to switch product lines more easily. The cost of measuring costs directly to products was too great, so costs were allocated to products indirectly after each job. A less costly method would be to assign these costs once a year in the form of estimates done ex ante (before production or the period). Management would only need to remeasure if events occurred that would significantly change the costs.

The use of cost drivers as allocation bases can increase the accuracy of reporting product costs; however, at the time the article was written, the allocation base most commonly used was direct labor hours. Using cost drivers, or cost centers, allows a company to have different apportionment rates at different stages of a products’ production. A major advantage of activity costing by use of cost centers is efficiency. By being able to record costs in areas, a company can see where it may be able to reduce costs and increase profits. Management does have viable explanations as to why activity costing would possibly not be beneficial: disrupt existing routines, add to costs, increase uncertainty, more expensive than systems with fewer rates, and added accuracy may not provide significant benefits. However, with greater understanding of activity costing and advances in computer technology, management will begin shifting its apportionment rates focus toward activity costing in the 1990’s.

Ex Post Product Costing

Ex post (after) product costing main managerial purpose is to update the database with "information that is new, specific to the product, and related to cost elements that are significant to management’s product-oriented decisions." By tracking the physical inputs to individual jobs or products, management can give more meaning to the ex ante planning of future jobs by reflecting more accurate costs.

Cost Control Performance Reporting

In this section Shillinglaw discusses the three developments that were believed to change the face of cost control reporting during the 1990’s. The first is downgrading departmental cost variances. If management is concerned about its department production and nothing else, then it could be producing inventory that won’t sell. What management should be looking at is the variance between the ex ante reporting, which will show expected results for inventory, expenses, and revenue; and ex post reporting, which will show actual results for inventory, expenses, and revenue. Management could then become more responsible by not wasting money on capacity.

The second development is a shift from cost control to cost reduction. In the changing business world there is no true accomplishment unless there is continuous improvement. The focus on cost reduction can occur by adopting costing methods that show where there is wasted time, money, or effort. One of these is to focus management’s attention on activity costs. Another is to estimate the nonvalue-added costs such as inspection time, set-up time, and waiting time. These costs have no perceived impact on performance, function, and quality.

Needed Research

The major research groups of management accounting are the National Association of Accountants, Financial Executives Research Foundation, and CAM-I. Their, among others, continued efforts to gather information in studies like the McNair-Mosconi-Norris study, will continue to break barriers to better management reporting. At the time this article was written, there were two main barriers to this. The first is that companies did not want their stories told in full. That has somewhat been replaced by "best practices" used in industries. The second is the lack of acceptability of case research to editors of academic journals and by those who make tenure decisions.


In the late 1980’s, managerial cost accounting was in the process of changing so as to become a vital part of business. This change was occurring in practice and in the classroom. The change during the 1990’s saw the United States once again become a leader in producing quality products more efficiently and economically.


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