TABLE OF CONTENTS This chapter reviews professional literature pertinent to this explorative study which describes (1) the origin and intended purpose of management accounting, (2) the transition in the focus of financial reporting from internal to the business to external, (3) the difficulties presented to operations management, in regard to making operational improvements, by the current forms of financial reporting, and (4) literature defining the concepts and attributes of JIT and lean manufacturing. Also pertinent to this study is a review of recent research activities in the area of the interactions of various management accounting systems with the dominant production planning systems.
Prior to the Industrial Revolution, accounting was primarily record keeping of external transactions between businesses (Scott, 1931). During the period prior to the Industrial Revolution, manufacturing was essentially a system of artisans exchanging their output, or product, on an open market. It was not until the advent of the factory, where several manufacturing processes became linked, that measurement systems were developed to monitor exchange between units of an enterprise. Management accounting grew out of the need of large, integrated enterprises to track financial data between business units for purposes of administrative control. Johnson and Kaplan (1987) use the examples of the textile, steel, and railroad industries to further identify the evolution of managerial accounting practices. During the period of the Industrial Revolution, manufacturing management transitioned from a system of buying goods on the open market to one that employed internal contractors to supply manufacturing labor to...
