Managerial accounting

This essay has a total of 375 words and 2 pages.

managerial accounting

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 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
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