Some functions of management accounting, such budgets, cost allocation methods and break-even analysis, are widely used in many businesses. Those functions are concerned with using the accounting information to facilitate the managers’ business decisions. As people can see, the globalization and Internet commerce bring out a more competitive environment for all companies, because they have to compete against businesses from all over the world. Although the management accounting is a useful tool, people gradually realized its limitations in making business decision response to today’s changing business environment, for instance, too much reliance on accounting data, highly expensive and lack of objectivity (Debarshi, 2011).

Considering such limitations, people endeavour to make management accounting more strategically relevant. Activity-based costing (ABC) is an attempt to modify the demerits of traditional standard costing systems, and it allocates manufacturing expenses based on the activities which are caused by a product. Attribute costing is also another development to accounting management. It ‘involves trying to assign a cost to a product/service attribute that is valued and appeals to customers, such as after sales service and operating performance’ (Chadwick, 1998). In addition, quality costing is also widely used to identify defects in terms of prevention costs and failure costs. Management could use the information to take measures to ensure the quality of the products or services.

Moreover, strategic management accounting (SMA), as a significant milestone in the development of accounting management, was put forward by many scholars in 1990s. Strategic management accounting, which goes beyond the traditional functions of management accounting, is highly focusing on external information which can improve the company’s operations. The changing environment forces the companies to ceaseless alter themselves to adapt the open and exoteric market. SMA is very outward looking and can help the firm to ‘evaluate the company’s competitive position relative to the rest of the industry’ (Drury, 2008). The analysis of environment is so important that the company who ignores this process will finally failed in today’s dynamic business world.

Strategic management accounting is able to provide a company with each major competitor’s cost structure and market share, so the company could seek to gain competitive advantages by pricing, focus or differentiation policy. Furthermore, the threats of new entrants into the market and substitute products or services are also analyzed by SMA. Thanks to the external information, the decision makers will turn their eyes to the whole business instead of their companies only. Moreover, the relationship between the strategic position and the companies’ competitive advantages is also concerned in the SMA. Today’s companies are striving to develop their core competitive advantages in order to gain more benefits. Through value-chain analysis, strategic management accounting could present the company’s relationships with suppliers and customers. Based on different analysis results, the company will be suggested to choose the most suitable competitive strategy. Therefore, it will finally cultivate the core advantages of the companies and it also will be absolutely helpful for the company to cope with the challenges from the changing business environment.



Chadwick, L. (1998). Management accounting (2nd Edition). Bedford Row, London: Thomson.

Debarshi, B. (2011). Management Accounting. New Delhi, India: Dorling Kindersley Press.

Drury, C. (2008). Management and Cost Accounting: students manual (7th Edition). Bedford Row, London: South-western Cengage Learning.

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