' The average cost of production never could, and never will, be relevant for those classes of decisions where only the change in total costs and revenues are relevant. That is, the rough, average post calculations provided a guide for pricing unique one-off products or services, but were of no use for the other purposes (emphasis added) (Garner & Tsuji, 1995, p. 52). The strategic product decision function of management accounting described above is based on the strategic management accounting method; this approach serves to cause change in the management framework through various accounting devices designed to adapt effectively to the constantly changing external business environment (Garner & Tsuji, 1995). Strategic management accounting, though, should be managed by production people (including sales and engineering), rather than by accounting staff (Garner & Tsuji, 1995).

Under activity-based costing (ABC), Cooper and Kaplan (1990) suggest that "virtually all" of a business's activities are in place to support the production and delivery of today's goods and services and therefore should be considered product costs: "Nearly all factory and corporate support costs can be split apart and traced to individual products or product families. These costs include logistics, production, marketing and sales, distribution, service, technology, financial administration, information resources, general administration" (p. 38). "ABC systems are designed by first identifying the activities performed by each support and operating department and then computing the unit cost of performing these activities.... Once the unit costs of all activities have been determined, we can accurately assign support and indirect product costs based on the number of activities performed for each individual product" (Kaplan, 1991, pp. 209, 210).

Today, Denton (2003) suggests that what is needed by managers for product costing purposes is the ability to acquire real-time measurement of variables such as production rates, yield quantities, cycle time, reject rates, stockouts, and subjective issues and then a way to integrate or cross-reference these issues to achieve a more complete perspective of what is actually going on. "Concepts like activity-based costing (ABC)," he advises, "provided an initial effort to fix the inadequacies of our current system, but it, too, has limited usefulness" (p. 101). Furthermore, the activity-based costing literature has consistent references to instances in which there have been grossly different cost estimates that were provided by traditional and ABC-based cost accounting systems; these disparities may have led to inappropriate product pricing decisions being made (Neely, 2002).

There have been some other notable changes in product costing in recent years. For example, just 15 years ago, one industry analyst predicted that: "Attempting to meet these diverse -- even contradictory demands [of operational control and product costing] with a single system design seems well beyond the capabilities of any existing system. [A]t this time and with our present state of knowledge of what is possible and beneficial from newly designed operational control and activity-based costing systems I am skeptical that we can develop the detailed specifications for (a single fully integrated) system" (Kaplan, 1990, p. 25). Moore's law has held true over the years, though, and computer programs specifically designed for operational control and product costing applications are readily available. For instance, even by the 1970s, it became clear that technology was beginning to affect accounting practices; at first, these innovations provided increasing amounts and variety of data more frequently and placed stress on long-standing accounting practices (Cortada, 2004). By the turn of the 21st century, there were literally hundreds of computer applications on the market to help management accountants produce more frequent management reports with more information of higher quality than in years past (Cortado, 2004).

Changes in investment analyses.

According to Anthony, "Management accounting differs from the cost accounting that was used prior to that time in two important respects. Cost accounting, as the name suggested, dealt with the measurement of the cost of products, whereas management accounting deals with the activities of managers" (p. 249). As a result, the transition to management accounting has changed the focus of management accounting from a record keeping function to the actual people who are involved in the process itself. In this regard, Anthony reports that: "Its central theme was 'responsibility centers' -- that is, organization units headed by a responsible manager -- rather than products. Some responsibility centers were profit centers; they focused on revenues, expenses, and the difference between them. Other responsibility centers were called investment centers, which focused on profit as a percentage of investment"...

250). The following definitions of responsibility center, cost center, and profit center are provided by Lewis (1993):
Cost center. A cost center is a responsibility center that has control over costs only. A cost center may have costs allocated to it over which it has no control. It has no jurisdiction over revenues or investment funds. All budgetary units from the smallest to the overall company are cost centers.

Profit centers. A profit center is a responsibility center that has control over both costs and revenues. An example of a profit center is a product line division of a multiproduct company. The product line division generates revenue and incurs costs most of which are controllable, however, the division does not issue capital stock separate from corporate headquarters. Investment decisions such as new plants, major changes in product lines, and stock issues are made at the corporate level, not at the division level.

Investment center. An investment center is the corporate headquarters or any segment of the corporation that has control over costs, revenues and investment funds. Operating divisions that are given autonomy in making investment decisions, such as expansion of physical plant and changes in product lines, are investment centers. Operating divisions that are given autonomy in making operating decisions, but not in the use of investment funds are profit centers. The authority over investment funds remains with the corporate headquarters (Lewis, 1993, p. 219).

According to Neely (2002), the basic accounting approach to motivation and control is to divide an organization into "responsibility centers"; these responsibility center are organizational units that are as autonomous as possible, and which are responsible for specific aspects of organizational performance. "At the highest level," Neely says, "these are defined as investment centers, where managers have responsibility both for investing in business assets and in using the assets entrusted to them effectively. A typical performance measure for an investment center manager would be return on capital employed, as this involves both profit and asset value components" (Neely, 2002, p. 13).

At the lower organizational levels, profit centers are defined; at this stage, managers are responsible for generating sales revenue and for managing the costs involved in production or service delivery (Neely, 2002). As a result, profit represents an appropriate performance measure. Further, the lowest level of responsibility is the cost center; at this level, the results of the units of activity are unable to be assessed in terms of revenue earned, and managers are held responsible (in accounting terms) only for the associated costs. "Clearly," Neely says, "in performance management terms, cost centers require other (non-accounting) measures to be associated with them to capture the outputs that result from expenditure on inputs" (Neely, 2002, p. 14).

In order to operate control based primarily on accounting measures has meant that profit or investment centers had to be created. This author points out that there has been a trend toward the creation of so-called "pseudo-profit centers" recently wherein revenues are somewhat artificially attributed to responsibility centers in order to achieve the advantages that is typically associated with control of profit centers. According to Neely:

These advantages are primarily those of having only to consider accounting measures of performance, expressed as an overall profit measure and its components. In particular, if a profit center is indeed generating profits, it can potentially be left alone to continue the good work, with control exercised in a relatively decentralized manner. However, to construct profit statements for an organizational unit requires revenues as well as costs to be attributed to it. This is not an issue where products are sold to an external customer and sales revenues generated, but it is more problematic where intermediate products are transferred internally within a larger organization, or in the public sector where services may be provided at no cost to the immediate user (Neely, 2002, p. 14).

At this point, a value must be attributed to the transferred goods and services, the so-called "transfer price"; like other aspects of management accounting, this aspect of the discipline has been the focus of much attention in recent years in the accounting literature as to the establishment of appropriate transfer prices that will motivate managers to act in the interest of the overall organization while maximizing their own reported profit measure. Neely suggests that this optimum arrangement can be achieved under the right circumstances; however, it is more common for transfer prices to create more "heat than light":

If they are mis-set, there is considerable potential for managers to appear to be performing well in local terms, but to be acting…