There are several methods for keeping the records of the transaction in the accounting sector of an organization. The system of traditional costing basically involves the prediction of profits. This also uses the cause and effect and its techniques which take its account for the taxes related to direct and indirect in the accounts of the costs and various expenses related to the matter of business. This is basically the allocation which is mainly the factory overheads to on the definite products and the production volume which has been already consumed. The systems have various problems with it as it is handled manually in organizations. This calculates everything in a different way which deals with overhead charges and all other basics of the company. In this method, the overhead is basically applied to the labor of direct which includes hours of the consumed and varied machines hours which are applied. Technology is not used in such accounting practices leading to further issues. These factors add the problem to the overall accounting issues of the concerned organization.
The main problem of such part is that factory overhead can have a higher basis on the specific allocation which includes in the changes of the resources and volume by the consumption of triggers which inculcates a huge change in the overall amount of the overhead. This issue is a common part of the traditional accounting method which is quite large and it also does not involve the direct labor as it is of nonexistent. As per Alles et al. (2018), in such cases, the traditional costing and its methods direct apply to the overhead of the factory which inculcates on the price of the products by hours of labor. As if there are slight changes in the overall process of production then there is an increase in the number of direct labors and the rate of the product also diminishes slightly. This is nonsensical and is directed to various relationships among the overhead of factory and the overall volume of production. This generally works in a culture where the statement based on the finances are mainly intended for applying the numbers which are generally the units produced for ending inventory. In such cases, there are basically no decisions from the end of the management perspectives. Such kinds of systems also include a traditional way of recording data of accounts which are being transacted in the concerned company every day.
According to the case study, Sam Walton and John Walton use the traditional methods of accounting which are generally being documented in the books or copies according to the transactions or the bank statements. These are having no technical records within themselves. In such cases, issues are coming up in the concerned company with the definite amount of cash flow. Issues also relate to the late payment of the labors and due payments from the customer’s end are also often not charged properly. All these issues arise from the method of traditional methods of accounting system without putting it on computers or any other technological methods. This also accounts with specific strengths and weaknesses. These are described below.
The strengths are as follows:
- Traditional accounting systems are basically simple in nature. This is because they are manually recorded on the basis of the carries transactions.
- The system is widely understood internally. As the records are subjected to the manual database and are basically performed by the internal members of the company, so there is no understanding issue arises.
- Traditional Method of Accounting is also easily explainable in the external sectors. No issues of explanation arise while the explanation of the transactions is carried out by the concerned organization.
- This is also cost-effective in nature as it does not include any budget issues with the inclusions of definite technologies in a definite manner. The traditional accounting systems are basically cost effective as it gives the manual transformation.
The weakness issues are as follows:
- The overhead recovery and various hours related to machines are basically used for costs which are indirect and related to overhead. Such part is highly achievable for the specific valuation of the stock and its costing which report on the systems of management related to the information and accounts. But the main part is that this is not at all useful for the implications of the decision for a long term of the year.
- Unrealistic part occurs when there is a splitting of cost into a fixed part and a variable part.
- Some forced decisions are being taken on the advertisements, promotion campaigns and sales, and technology processes, mixing of products, and decision s related to price are basic information related to costs. Such cases occur due to the difficulties in the allocation and methods of overhead recovery.
- If any kind of automation arises in the products then the total structure of the product changes. This is so because nowadays modern technology is used which basically reduces the overall cost which is increased. The most useful term is that mechanization of the manual work leads to more improvement other than following the traditional systems.
- There is basically a need for the degree of completion which works according to the incurred costs which are basically arisen in the products. This is not possible under the traditional accounting systems. As it cannot have innovation in itself, because the whole reservoirs are maintained manually.
- The traditional accounting system also contains limited accuracy within itself as it is handwritten or manually performed. Manual documents always possess inaccuracy with it.