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