Important uses of management accounting
The important uses of management accounting are briefly explained
1. Planning: The management can prepare the plan and execute the same for effective operation of business. In this context, various functional budgets are prepared and accounting information are rearranged in department wise, product wise, section wise and the like for proper planning.
2. Controlling: The actual performance of every business activity is measured and compared with the standard fixed or planned one. If the deviations are found that are controllable, the management can decide the course of action to exercise control. Both standard costing and budgetary control system are highly help the management in this aspect.
3. Service to Customers: Better and improved services by management to customers are assured by this system of accounting.
4. Organizing: The scope of authority and responsibility of key executives are properly defined and explained under management accounting system. Hence, everyone knows who is responsible for what and to whom? It helps for proper organizing the work in an organization.
5. Coordinating: It is the process of integrating the various work performed in an organization to achieve the objectives effectively. Thus, perfect coordination is required for among production, purchase, finance, personnel, sales and the like departments. This is achieved through preparing budgets and reports of performance.
6. Improvement of Efficiency: The management accounting system may eliminate various types of wastage, production, defectives and other work thereby the workers efficiency may be improved.
7. Motivating: It helps to maintain high degree of morale among the employees. The reports of business operation are periodically prepared and submitted before the top management periodically. Based on the report, the management can find out whom to demote or promote or to reward or penalize. In this way, the employees are motivated.
8. Communication: Two way communication is followed in an organization if management accounting system is followed. Modified accounting information and reports regarding performance are sent to top management for decision making. In another way, assignment of work and responsibilities over employees are communicated to lower level executives.
9. Regulation of Business Activities: Proper planning, organizing, coordination and motivation can bring systematic regularity in the business activities.
10. Maximization of Profit: There is a morale among the employees. Standards are fixed and measure the actual performance to find the deviations. If the causes for deviations are reasonable and controllable, proper action may be taken by the management. In this way, profit is maximized.
11. Reliability: The tools used in management accounting system are reliable. This procedure usually makes the data supplied to management accurate and reliable.