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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
accountancy information (which, for the most part, is made publicly available), management accounting information is used
within an organization and is usually confidential.
In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that management accounting
practices (and, even more so, the curriculum taught to accounting students) had changed little over the preceding 60 years,
despite radical changes in the business environment. Professional accounting institutes, perhaps fearing that management
accountants would increasingly be seen as superfluous in business organizations, subsequently devoted considerable resources to
the development of a more innovative skills set for management accountants.
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 lifecycle 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 lifecycle (i.e., before the design has been finalised 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 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 lifecycle
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.
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.
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