Farm Financial Standards Council Model Case
Do you think that this case study with its proposed solutions will be useful to agricultural enterprises seeking to employ management accounting techniques? Why? Be specific in identifying benefits and possible drawbacks to the proposed solutions.
The case study of John and Mary Farmer and the designated proposed solution is in fact in line with management accounting techniques. The solution itself elucidates that it plans on giving the managerial accounting system a support cost center for equipment, shop and maintenance, not to mention general farm (Farm Financials Standards Council). Production cost center will exist for each land owner and for each separate level of production (Farm Financials Standards Council). The Farm Financials Standards Council further explains that "a profit center will be established for each commodity for each year. Additionally a cost center will be established for general, sales and administration as well as for financing." These plans and values reflect some of the basic core values of management accounting techniques. First of all, management accounting can help managers in planning and decision making, which this solution clearly does, and helps managers with general system control, making sure that the methods fulfill the objectives set (Atrill & McLaney, 1994). Thus, in this manner, one of the foundations of management accounting is upheld in this proposed solution: it constantly looks forward towards the future.
One way that this solution best reflects paragons of management accounting are via the allocation methods which allow everything from crop production, crop harvesting and processing to a cost driver based on hours. This is wise as the model has selected the most fundamental unit to assess the cost related to those issues. With the second choice of cost driver being left at the "management's discretion" also reflects wisdom as it leaves a majority of the power, control and autonomy up to the management, which is one of the main goals and values...
Using historical data for making future decisions may not always result in the best decision for one's business (Debarshi 2011). Thus, while it's useful to leave so much decision-making up to the management's discretion as it gives the clients the control that they desire and need, sometimes it's better to assign this power elsewhere. Also, the proposed solution is somewhat more complicated than what Mary and John are presumably used to and might be more intricate than what they're prepared to carry out. Furthermore, this proposed schema is juggling numerous elements of the farming journey -- storage, processing, sales, production, harvesting, and other areas. With such a wide scope, the solution begins to look more ambitious than practical: "It is really very difficult to develop such a Management Accounting System where all the related people are not well equipped with full knowledge of all these related areas" (Debarshi, 2011). Furthermore, while John is interested in getting a managerial accounting system up and running for the next generation, it's not completely clear how user-friendly this one will be for the present generation.
The suggested solution could benefit from the objectivity of an evaluation from an accountant not involved with managerial accounting, to make sure that there isn't a personal bias influencing the solution (Debarshi, 2011). Lastly, there is nothing in this proposed solution that acknowledges the love of community service that Mary and John have continually had in their lives. There's no reason that one part of the schema can't allot for the donation of excess crops to needy schools, churches, soup kitchens or community centers. Such an addition would reflect a real attention and acknowledgement of the desires of the client.
Discuss the assertions this author is making in terms of variable…
