THE APPLICATION OF INNOVATIVE MANAGEMENT ACCOUNTING PRINCIPLES FOR
ENHANCING PROFITABILITY AND COMPETITIVENESS: AN EXPLORATORY STUDY OF
Phillip C. James
University of Technology, Jamaica
College of Business and Management
School of Business Administration
This study represents the first in management accounting research in Jamaica which seeks to
determine the extent to which innovative management accounting principles (IMAPs) are applied in
the manufacturing sector. The aim is to determine if manufacturers in Jamaica are using IMAPs to
improve export competitiveness and enhance profitability .The study also seek to determine the
factors that ...view middle of the document...
Arising from this realization, the need for a new menu of responsive management
accounting principles became an immediate necessity, and this led to the birth of innovative
management accounting principles (IMAPs).
The problem of the existing ineffective costing system was resolved by the development of innovative
management accounting principles such as: target costing, activity-based costing, activity-based
budgeting, theory of constraint, back flush costing and product life-cycle costing (Uyar, 2010).
The need for IMAPs was even more urgent when examined against the relevance of the existing
traditional volume-based cost allocation system which was strongly criticized by academicians,
practitioners and consultants. They argued that traditional cost allocation practices are simplistic and
arbitrary and that overhead allocations do not reflect the pattern of cost causation in firms using
advance manufacturing technologies (Basteki and Ramadan, 1998).
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International Journal of Business and Social Research (IJBSR), Volume -2, No.-6, November 2012
IMAPs have been shown to provide superior costing information to be used by management to
support its decision making process. Arising from this advantage, management now has better
information to be used in its price setting strategy which ultimately leads to a more competitive
product price which translates into increase profitability (Rehman, 2011).
The literature indicates two main reasons why companies should consider and adopt IMAPs. First,
IMAPs improves insight into cost causation which helps in cost control and cost reduction. Secondly,
IMAPs such as activity-based costing (ABC) lead to more accurate cost data by increasing the number
of cost pools used to accumulate overhead and thus changing the basis used to assign overhead to
products, it is therefore the combination of these two advantages of IMAPs that lead to export
competitiveness of manufactured products (Basteki and Ramadan, 1998).
It is against this background that this research seeks to examine the extent to which these IMAPs have
been adopted by manufacturers operating in Jamaica.
1.1. Problem Statement
Jamaican manufacturers have been for a number of years lamenting their low levels of profitability,
operating efficiency and export competitiveness and have constantly sought special waivers from
successive governments in order to remain profitable and internationally competitive. Various
presidents of the Jamaica Manufacturing Association complain that the business climate in which
manufacturers are asked to operate is anti-productive, hostile to productivity and is designed to
guarantee the demise of the productive sector. Manufacturers therefore argue that if the
government does not intervene in a significant way to address the current problems, then within ten
year’s time the entire manufacturing sector could be wiped out. It is therefore against this premise
that this study...