Importance & Advantages of Management Accounting
Advantages of Management Accounting:
- Proper 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.
- Effective management 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.
- Measurement of performance: The system of budgetary control and standard costing enable the measurement of performance. In standard costing,standards are determined in advance and then the actual cost is compared with the standard cost. It helps the management to know the deviation.
- Maximum profitability: 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.
- Good Industrial relations: Unacceptable standards,or sub-standards which are often responsible for unhealthy and bad relations between management and labour can be removed by the use of management accounting,industrial relations can thus improved. It creates a good climate for further investments in the business concern.
- Service to customers: The cost control devices employed in management accounting enable the reduction of prices. All employees in the concern are made cost conscious. Since quality of good is determined in advance the quality of products becomes good and hence the customers are provide quality goods at reasonable price.
- Helps in 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.