| Management accounting is concerned with the | | | | While some form of variance analysis is still used |
| provisions and use of accounting information to | | | | by most manufacturing firms, it nowadays tends |
| managers within organizations, to assist | | | | to be used in conjunction with innovative |
| management making decisions and managerial | | | | techniques such as life cycle cost analysis and |
| control functions. | | | | activity-based costing, which are designed with |
| Management accounting is also concerned with the | | | | specific aspects of the modern business |
| process of identification, measurement and | | | | environment in mind. |
| accumulation of product and service costs; | | | | Life cycle costing recognizes that managers' ability |
| preparation of statements relating to materials, | | | | to influence the cost of manufacturing a product |
| labor and overheads; standard costs; budgeting | | | | is at its greatest when the product is still at the |
| for decision-making; and the communication of | | | | design stage of its product life cycle, since small |
| information used by management to plan, | | | | changes to the product design may lead to |
| evaluate and control an entity to assure | | | | significant savings in the cost of manufacturing |
| appropriate use of and accountability for its | | | | the product. |
| resources. | | | | Activity-based costing (ABC) recognizes that, in |
| Management accounting also comprises of | | | | modern factories, most manufacturing costs are |
| preparation of financial reports for non- | | | | determined by the amount of 'activities' and that |
| management groups such as shareholders, | | | | the key to effective cost control is therefore |
| creditors, regulatory agencies and tax authorities. | | | | optimizing the efficiency of these activities. |
| In the late 1980s, accounting practitioners and | | | | Activity-based accounting is also known as Cause |
| educators were heavily criticized on the grounds | | | | and Effect accounting. Both life cycle costing and |
| that management accounting practices (and, even | | | | activity-based costing recognize that, in the typical |
| more so, the curriculum taught to accounting | | | | modern factory, the avoidance of disruptive |
| students) had changed little over the preceding 60 | | | | events is of far greater importance than reducing |
| years, despite radical changes in the business | | | | the costs of raw materials. Activity-based costing |
| environment. | | | | also deemphasizes direct labor as a cost driver |
| Professional accounting institutes, perhaps fearing | | | | and concentrates instead on activities that drive |
| that management accountants would increasingly | | | | costs, such as the provision of a service or the |
| be seen as superfluous in business organizations, | | | | production of a product component. |
| subsequently devoted considerable resources to | | | | Management accounting plays a very vital role in |
| the development of a more innovative skills set | | | | the determination of product and service costs; |
| for management accountants. | | | | the preparation of statements; budgeting; |
| The distinction between 'traditional' and 'innovative' | | | | decision-making; and the communication of |
| management accounting practices can be | | | | information. |
| illustrated by reference to cost control techniques. | | | | To be successful in this field, we must address |
| Traditionally, management accountants' principal | | | | issues on product rates, causes of quality |
| technique was variance analysis, which is a | | | | problems, profitable market segments, higher |
| systematic approach to the comparison of the | | | | profit margins, delivery of goods and the costs of |
| actual and budgeted costs of the raw materials | | | | introducing new products. |
| and labor used during a production period. | | | | |