Business, 21.07.2020 16:01 Vauzh

Question 1 What forces have caused cost and management accounting systems designed decades ago to become less relevant and less valuable for organizational employees in today's globally competitive environment? Question 2 As a Cost and Management Consultant in the banking industry in Ghana, one of your highly esteemed clients, a top tier banking institution in Ghana has required of you to advise them as to whether target costing can be applied to the banking industry in Ghana. They further require you to advise them on what products or services can target costing be applied.

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Answer from: trevorhenyan51

Answer to Question 1:

The forces that had lessened the importance of the cost and management accounting systems in today's dynamic world are as under:

The ancient bookkeeping and the costing techniques were very time consuming and the accounting systems were also not integrated with the financial accounting systems. Today we have very robust and integrated systems which helps the management of the business operations nation wide with greater security and better performance than the previous old versions.The complexity of the organization operations have resulted in origination of additional management accounting techniques that were adapted in the form of automated software, that are used to produce management reports on daily, weekly, monthly and yearly basis. The examples include the Throughput costing, Activity based costing, Bench-marking techniques, etc.The activities automation has led to attaining of maximum efficiency possible in some areas which wasn't possible in the past. The robots management systems, activity automation, etc has increased the fixed cost share in the total cost and the variable cost has become a very minute share of the total cost of the activity. This variable cost which is often referred to as controllable cost, is very less in percentage share of total cost today than 10 years back. In the future, we will see it as a very very very small share of total cost. This makes the today's management costing techniques obsolete and requires new solutions, new techniques, new softwares, etc. to manage the companies operations.

Answer to Question 2:

The target costing is a costing technique that helps to reduce the cost of the company operations by setting cost targets for the operations. The first step under target costing is to set a selling price for the product and the second step is to set the target profit margin. Now at this position we are able to derive the target cost by taking the difference of profit margin and the selling price of the product. At this stage the actions and reforms required to achieve this target cost are determined and implemented in the current operating activities. The best part of the target costing is that it says that the pricing though matters but the main aspect of a product success is its cost controls. If the company is able to control the cost of the product then it can control the movement of prices in the market. So target costing specially focuses and stresses upon cost control procedures.

As Target costing is all about cost controlling and can be applied to any sector. In Ghana, target costing will help to control the cost of the services that the banking sector renders to its customers. This reduction in services cost can be achieved by automation, installation of new softwares, Investing in automated teller machines, etc. By gaining efficiencies, the banking sector will substantially reduce its cost thus achieving its target cost.

By achieving the target cost the bank will have to sell at the same rate as the bank had invested its time and money in efficiency gaining activities. There are a lot of activities and products that can be automated and that can help to achieve the target cost. For example, promoting internet banking will reduce the cost of ATM management, paper cost, management time, additional branch opening or extension of building, etc. We can see how easily internet banking will assist the banking sector to achieve its target costs.

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