Accounting

• The process of identification, measurement and accumulation of product and service costs

• Preparation of statements relating to materials, labor and overhead

• Standard costs

• Budgeting for decision-making

• The communication of information used by management to plan, evaluate and control the entity as well as assure accountability over it’s resources and assure their proper use (the reporting function).

In addition management accounting is often responsible for ancillary reporting to non-management groups. This can take the form of shareholder reports, reports to creditors, regulatory agencies inquiries, and taxing authorities.

COST CONTROL

Management accounting has been around for a long time, even before it was identified as a separate accounting specialty. However it came under fire recently with the huge business scandals like Enron and Worldcom.

Working CPAs and educational institutes alike were criticized for conducting and teaching management accounting the same way they had for years, even though the business environment was rapidly changing.

As a result considerable resources were devoted to the development of more innovative and effective ways for the management accountant to serve the entity. One of the biggest changes is in cost control techniques.

Traditionally, the primary costing technique in a manufacturing concern was variance analysis. This is a systematic way of comparing the expected costs to the actual costs of materials and labor. This kind of analysis tool is far from obsolete and is still in use today by a majority of U. S. manufacturing concerns. But now it is often used in conjunction with more modern methods.

Life Cycle Costing attempts to identify cost savings at the times in the life cycle where they would bring the most benefit. For example, the largest focus on controlling costs in manufacturing is during the design stage. Small changes to the design can lead to significant overall cost savings for the plant.

Activity-Based Costing operates under the recognition that the key to effective cost control is optimizing the efficiency of the tasks and activities making up the cost. For this reason it is sometimes known as “Cause and Effect” accounting.

Both Life Cycle Costing and Activity-Based Costing recognize that avoiding disruptions in the manufacturing cycle is much more important to the overall financial health of the company than finding the best price on a raw material. Activity-Based Costing goes a step further and de-emphasizes direct labor as a cost driver. Instead it concentrates on the activities that drive the costs and finding ways to make them more efficient.

SUMMARY

To be successful, management accountants will be adept at addressing issues on product rates, researching quality problems, figuring how to get higher profit margins, helping to identify profitable market segments, and introducing new products.

If you are in accounting or studying accounting in school and are looking for a highly visible position in your company, take a look at management accounting.