Principles: Management accountants can rely on Causality and Analogy
as foundational principles as they are grounded in decision science – the laws
of logic.
i) Causality Principle — the relation between a managerial objective's
quantitative output and the input quantities that must be, or must have been,
consumed if the output is to be achieved.
Principle
of Causality enables modeling the organization's costs based on the
relationship between the inputs and outputs of the resources involved in the
production of products and services it provides. Often this is straightforward
when dealing with strong causal relationships (i.e. raw materials to make
product A). However, where weaker causal relationships exist, costs need to be
attributed according to the concept of attributability, which maintains the
integrity of causality.
ii) Analogy Principle — the use of causal insights to infer past or future
outcomes.
Principle
of Analogy governs the user of management accounting information's ability to
apply the knowledge or insights gained from the causal relationships modeled
(e.g., in planning, control, what-if analysis) using inductive and deductive
reasoning about past and future outcomes for continuous optimization efforts.
Concepts: The
following concepts serve as operational guidelines and modeling building
blocks to the two main principles (causality and analogy) in developing a
reflective cause & effect model and then using the information the model
provides. These concepts are intended to cover a variety of assumptions that
would make up a model, their characteristics, and relationships and to provide
rational perspectives when modeling many managerial costing issues.
The first ten concepts support the Principle of Causality
the modeling of Cause&Effect-based modeling principles, while the remaining
four concepts are applicable to the Principle of Analogy and
informational in nature and supports managers with decision making guidelines.
Concepts
Applicable to Causality and Modeling:
1)
Attributability
2)
Capacity
3)
Cost
4)
Homogeneity
5)
Integrated
Data Orientation
6)
Managerial
Objective
7)
Resource
8)
Responsiveness
9)
Traceability
10)
Work
Concepts
Applicable to Analogy and Information Use:
1)
Avoid
ability
2)
Divisibility
3)
Interdependence
4)
Interchange
ability
Theory: A collection
of ideas
which set forth general
rules
on how to manage
a business
or organization. Management theory addresses how managers
and supervisors
relate to their organizations
in the knowledge
of its goals,
the implementation of effective
means
to get the goals accomplished
and how to motivate employees
to perform to the highest standard.
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