management accounting is concerned with the provision and use of accounting information to managers within organizations, to facilitate the managers in their decision making and management control functions. Unlike financial accounting information (which, for the most part, is made publicly available), management accounting information is used within an organization and is usually confidential. (Jiambalvo) The distinction between traditional and innovative management accounting practices can be illustrated by reference to cost control techniques. Traditionally, management accountants’ principal cost control technique was variance analysis, which is a systematic approach to the comparison of the actual and budgeted costs of the raw materials and labor used during a production period.
While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with innovative techniques such as life cycle costing and activity-based costing, which are designed with specific aspects of the modern business environment in mind. Lifecycle costing recognizes that managers’ ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product life cycle (i. e. , before the design has been finalized and production commenced), since small changes to the product design may lead to significant savings in the cost of manufacturing the product. Activity-based costing recognizes that, in modern factories, most manufacturing costs are determined by the amount of ‘activities’ (e. g.
The Essay on Management Accounting 2
... business environment changes focusing on management accounting changes, technologies used management practices and its product life cycle. The Cost Management and Product Management Accounting Techniques adopted by Puma are ... model, so that when we have conference calls to discuss design and manufacturing issues, we are all on the same page. Each ...
, the number of production runs per month, and the amount of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these activities. Both life cycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive events (such as machine breakdowns and quality control failures) is of far greater importance than (for example) reducing the costs of raw materials. (Lawson) An alternative view of management accounting is that it is not a neutral or benign influence in organizations, but is instead a mechanism for management control through surveillance. This view locates management accounting specifically in the context of management control theory.
References: Jiambalvo, J (2004) Managerial Accounting. Issues in Accounting Education. 62 (1), p 61 Lawson, R. (2003) Organizing the implementation. CMA Management 77 (7) p 22-25..
