Management Accounting Practices in Japan
Consequently, it is argued that management accounting systems have to change in response to the needs of this ewe environment (Bargeman and Salamander, 1995). However, in the recentness accountants In Western countries, particularly In the US, have been criticized for not being able to adapt their management accounting practices to the changing technology and methods of production in manufacturing enterprises operating in highly competitive markets (Tilts and Russell, 1985; Brimstone, 1986; Johnson and Kaplan, 1987; Silence and Sykes, 1995).
By contrast, several writers have hailed the Japanese management accounting practices as a major contributor to Japan’s success in achieving a dominant position in the global competitiveness. Furthermore, they have contended that Western organizations may become more competitive and ultimately more successful If they mimic more of the practices of prosperous Japanese (Suzuki, 1985; Johnson, 1988, 1993; Ho well, 1989; Morgan and Warrenton, 1989, Horopito, 1998; Jacaranda and Stalwartly, 1991; Howell and Karakas/1992).
Furthermore, many textbooks and other publications have dealt with the various aspects of Japanese management accounting practices (Monde ar-J Karakas, 1989; Lee, 1987; Hawkish, 199 I). However, empirical studies that have investigated the application of these practices are extremely sparse, particularly in recent years. Moreover, some of the studies done
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Findings of such studies/ while being useful to academics In. Their teaching and research, can provide helpful comparable information for manufactures in other countries for assessing their own strengths ND’ weaknesses. -Therefore, based on a questionnaire survey of Japanese empirical evidence on several important aspects of the management accounting practices in Japan. Questionnaire Survey The major objective of this study was to gain something into the current state of Japanese management accounting practices” through a survey of the perceptions to accountants operating in manufacturing companies in Japan.
To achieve this objective, a questionnaire covering major topics commonly used in standard management accounting textbooks was designed. Initially,-the draft questionnaire as pilot-tested on a small group of company accountants before it was revised* and finalized on the basis of their responses. The final questionnaire was mailed to the 1000 largest manufacturing companies in Japan, which were selected on the basis of their total assets. The addresses of these companies were taken from the 1995 Japan Company Handbook.
Since the names -of individuals were not available, the letter of request attached to the questionnaire was commonly addressed to the head of the accounting division in each company. Both the letter of request and the questionnaire were presented in the Japanese language. The survey was completed in 1997 and the usable answers received amounted to 217, giving a response rate of 21. 7 per cent. Given the low response usually associated with most mail surveys in Japan, this response rate was considered reasonably adequate for our exploratory Study.
When the sample companies were classified by firm size according to total assets 91 per cent of companies were within the asset structure ranging from 100 to 5,000 million dollars. As indicated by the respondents of our survey, all sample companies faced some degree of Management Accounting Practices in Japanese Manufacturing Firms… Competition, with 90 per cent of companies having strong toasters competition. Seventy-five per cent of the companies participated in the export trade?
However the export contribution of about three-fourths of these-companies was within the range of 1 to_25) per cent of their total sales. Ninety per cent of the companies had employees exceeding 500, with 63 per cent exceeding 1 employees. When the firm size was measured in terms of annual sales/ 96 per cent of the companies had sales over 100 million dollars. Forty-five per cent of these firms had an annual sales turnover exceeding 1,000 million dollars.
Results and Discussion hi four of the questions used in our survey, a five-point Liker scale ranging from “much less important” to “much more important” was utilized for obtaining the exponents’ views on the importance of various areas of management accounting. The responses to these questions were ranked in accordance with the coefficient of variation (C.V.). The other questions were intended Etc Tibetan factual information on the respondents’ companies and their management accounting practices.
The answers to such questions were analyses interim of percentages. Since some respondents failed to answer all questions, the percentages and averages used in the results were based on the total number of firms having responded to each question. The summarized results are given in Tables 2-13. The number of responses to each question is also shown in the tables. The remainder of this section presents an analysis of the results under several key areas covered in the survey.
Management accounting tools counterparts the Japanese manufacturers place much heavier emphasis on cost planning and cost reduction tools such as target costing and value engineering at the product planning and design stage (Berliner and Frisson, 1998; Howell, 1989; Hawkish et al. , 1989)’. In order to g-in some insights into this view, we asked the respondents to indicate on a five-point liker scale the degree of importance they attached to a set of major management accounting tools in planning and controlling product costs in their organizations.
The results based on their responses are presented in Table 2. Journal of Accounting & Finance Table 2 Importance of Management Accounting Tools I Mean I c.v. 10. 213 I Rank I Target costing I Cost-volume-profit analysis I I Budgets I Responsibility, accounting I Variable costing I Historical accounting statements I I Quality coos t reports I Ratio analysis- Standard coos ting I Transfer pricing I Activity-based costing I Responses: 209 companies | 4. 23 14. 05 14. 13 13. 82 14. 03 10. 228 10. 229 0. 36 10. 245 1. 2 13. 57 13. 48 14. 06 13. 30 13. 05 10. 246 10. 255 10. 257 10. 264 10. 313 10. 330 15 1. 7 110 The ranking of . Importance in this table indicates that the respondents placed heavier emphasis on target costing, cost-volume-profit analysis and budgets than on activity-based costing and standard costing. The heavy emphasis of Performances particularly target costing confirms the view that they pay greater attention to cost reduction at the planning and design stage of a new-product.
This observation is also consistent with the assertion of Howell and Karakas (1992) that “Japanese companies me to understand better than their Western counterparts that costs should be- managed and avoided during the product planning and development cycle rather than after products have entered full scale production. ” Target costing, which is commonly referred to as Genoa Kikuyu in Japanese, has been defined as a product costing system based on market-driven target’s/i.e. transliterations product is stationmasters thebe’s” of a long-range pro plan and market price estimates.
Usually, target costs are-?seeps bibbed comprehensibleness standard costs and allowable costs, which are determined by subtracting_a target profit margin from the argue price. Target price is the price that would provide the company with a competitive edge in the market (Martin et al. , 1992). Target costing is a collective team consisting of several persons such as product designers, (1988), 80 per cent of the suggested that target costing is the major management accounting tool that Japanese companies have used for competing with powerful Management Accounting international competitors (Worthy/1991).
According to Table 2, activity-based costing (BBC) has received the lowest ranking of importance. This is consistent with the view that BBC, which is increasingly popular mongo Western countries, is rarely used in Japan (Escapes, 1991). The reasons for the low popularity of BBC in Japan are said to be several. One of . The principal reasons seems to be that Japanese companies are interested in charging overhead costs directly to product lines rather than using the criterion of BBC because they prefer simple methods (to, 1993; Sickbay’s, 1993).
Use of cost accounting data The respondents of our survey were also asked to indicate their views on the use of cost accounting data for a series of managerial activities. The responses are summarized in Table 3. When taken together, cost management and product pricing have been raised by the responding companies as the most important uses of cost accounting data. This result supports the view that Japanese companies devote greater attention to cost management and product pricing as a strategy for gaining a competitive advantage in the international market . Lace (Karakas,-1991). On the other hand, the use of cost accounting data for performance evaluation has received the lowest ranking. In view of the nature of Japanese business and management accounting practices, it seems realistic to observe that cost accounting data are more important for the other activities listed in the above table. In this regard, it is also important to note the observation of Mooching et al. (1988) that Japanese firms use several different criteria for performance evaluation and some of them are not based on cost accounting data.