Installation of management accounting system | Steps involved

The following steps have to be taken by the top management to install efficient and effective Management Accounting System.

1. Preparation of Organization Manual: The organization manual contains the duties, powers, scope and responsibilities of each executive in an organization. Moreover, it indicates the means and line of communication between the executives. This prevents the overlapping of functions.

2. Appointment and Training of Employees: Right candidates should be appointed and suitable training should be provided to them. If so, they can perform their work independently very effectively.

3. Preparation of Various Forms and Reports: The top management can design various forms and decide the contents of reports according to the needs of managerial decision making. The main objective of preparing various forms and reports is avoiding “Bureaucratization”.

4. Classification and Codification of Accounts: The financial accounting information is classified and codified for effective analysis and interpretation. The accounts are classified on the basis of nature of accounts. The codification accounts facilitates for easy identification of accounts.

5. Setting up of Cost Centres: There is a need of setting up of cost centre, profit centre, investment centre and budget centre. If so, only relevant information are collected and analysed in relation to each of them.

6. Integration of Cost and Financial Data: Both cost accounting data and financial accounting data are used in the management accounting. Hence, there is a need of suitable system to integrate both cost accounts and financial accounts. It avoids duplication of data. The integration system should be accurate and reliable.

7. Introducing Management Accounting Techniques: The needs of one business organization is differing from another. The top management can introduce various management accounting techniques on the needs of organization and practicability.

8. Setting up of Budgetary Control System: Every organization should prepare the budgets in order to achieve its objectives economically and efficiently. Hence, the management should establish suitable budgetary control system. Moreover, the proposed system should be flexible and accommodate the changes in future.

9. Using of Operations Research Techniques: Every business is running under fast changing economic, political and social environment. Everyday number of new types of problems may be encountered by the management. The Operations Research Techniques are highly useful to cope with the emerging problems.

10. Formulating Standard Costing Techniques: The top management can fix the standard for every business activity relating to cost and revenue. If so, the actual performance can be used to measure the deviations from the standard. Thus, standards are fixed at all levels. The standard should be one which can be adopted by a normal employee.

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