Advantages of Management Accounting
Management accounting is the sourcing, analysis, communication and applies to decision-relevant financial and non-financial information to produce and protect value for organizations. It is required in business because it has the competence to change business performance and financial position. Following advantages from the management accounting system may enjoy by a business:
(1) Management accounting analyzes and interprets methodically the information collected from within and outside the business and communicates the result to the management. This will assist in implementing managerial strategy decisions efficiently. It contributes to striving for better performance by evaluating and comparing.
(2) It measures the real performance in assessment with the budgets and helps the management in such a method that the latter can maximize the rate of return on capital employed. All the business activities are planned well ahead base on the accounting information applying budgeting and forecasting techniques. As such, all the activities are expected to be interwoven and well-integrated to achieve the set goal.
(3) It also helps to improve the relationship between management and labor. The reasons because of which the management system seems reliable are the special tools and techniques. To form an accurate and valid report special techniques like budget controlling, marginal costing, control accounting, etc are used.
(4) These techniques help the business control its activities efficiently. It helps in utilizing its capital in an optimal way. Using management accounting’s budgetary control and capital budgeting tool, a company can simply succeed to decrease both operating and capital expenditures. After this, a company can decrease its price and then the company will receive super-profits.
(5) The management accounting often takes cognizance of the changes in the economic environment caused by government policies and other economic forces. This helps business combat and accommodate it to such changes. The use of the technique may differ according to the issue at hand. However, this technique makes it easier to make decisions in favor of the company.
(6) A management accounting system is of a flexible nature. It takes all the data and then presents it in such a way that a proper analysis of the feasibility and profitability of any business decision can be made. These reports do not require to be made yearly, monthly, or weekly. Therefore, the accountant gets enough time to prepare a perfect report.
(7) It facilitates coordination between different departments and helps in attaining the objectives of the business as a whole. It plays a significant role in organizing the business on a sound footing. It assists the management with the help of internal control and internal audit in fixing targets, responsibilities, appraisal of performance, problem and solutions of these cost and profit centers and executing overall control of business activities.
(8) It is proactive-analyses the governmental policies and socio-economic scenario which helps to assess the external environmental impacts on the organization. It becomes possible to achieve the goal due to the detailed information of the management accountant, which highlights the strong and weak points of the company.
Moreover, it helps in maintaining the emergency fund in case of any urgency. Further, it also helps in eliminating any source within the company that misuses the fund. This enables the managing officers to take up appropriate decisions for the betterment of the company.