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The cost information required by business has changed over the years, with the industrial era giving way to the information age. The focus of cost management has now shifted from its traditional role of product costing and operational control to a broader strategic focus—to strategic cost management.
The information provided by cost accounting in the industrial era, traditionally catered to the requirements of industry, driven by the need to manufacture products for the purpose of utilizing capacity. Cost accounting focused on determining the cost of inventory and cost of goods produced. Costs were divided into functional categories and much time and effort went into the determination of manufacturing costs. Much of the information provided by the cost accounting system was driven by the need to provide information to the external stakeholders, shareholders, government agencies, etc., who did not require detailed and accurate cost information about individual products, but were satisfied with the aggregate information on costs. As long as a company's products were homogeneous and consumed resources at the same rate, such average cost information was acceptable. Any greater accuracy that was desired due to greater product diversity was prohibitively expensive and greatly exceeded the benefits. The above was primarily due to the nature of business during the early decades of the 20th Century where competition was local, product diversity minimal and customer requirements largely unchanged.
The industrial era gave way to the information age around the mid-70's and early 80's, which brought within its wake, competition, both local as well as global. No longer were people satisfied with the products given to them by local industry, but now they had the luxury of choice. The resurgence of customer demand based on a specific customer requirement and need forced the industry to rethink manufacturing strategies to cater to such specific customer requirements. The buzzwords for industry now were quality, product functionality and timely delivery and no longer could it rely on a captive market peopled by captive customers for their products. With such rapid changes being brought on by the advent of the information era, the need for information required by the industry also underwent a drastic change, qualitatively as well as quantitatively. |
