Management Accounting | Advantages, Merits, Uses or Utility
Table of Contents
Advantages 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.
