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Major functions of Management Accounting

Major functions of Management Accounting

Major functions of Management Accounting

The major functions of management accounting are summarized below:

  1. Planning and Forecasting:

    Planning is an activity of the management that requires an efficient system of decision-making. In any type of enterprise, plan should be made to guide future operations of the business. Thus, one of the major functions of the management accountant is to help management in the selection of company’s goals and in the formation of policies and strategies to allocate resources to achieve these goals. Different accounting techniques are used by the management to discharge the function of planning efficiently The important among them are financial statements analysis, budgeting, direct costing, capital budgeting, standard costing, marginal costing, trend ratios, funds flow statement, probabilities, etc. These techniques are useful in planning various activities.

  2. Modification of Data:

    Management accounting helps in modifying accounting data. The information available is modified in such a way that it becomes useful for the management. If sales data is required, it can be classified according to product, area, season-wise, type of customers and time taken for getting payments, etc. Siinilarly, if production figures are required, the scan be classified according to product, quality, time taken by the manufacturing processes, rate of production, etc. The modification of data makes the data more understandable and useful. Management accountant classifies the data according to the need of the management.

  3. Financial Analysis and Interpretation:

    Management accountant performs the work of presenting financial data in a simplified way. Financial data is generally collected in a technical way. But, top managerial personnel may lack technical knowledge. So management accountant analyses and interprets financial data in a simple way and presents it in a non-technical form. Further, he gives his opinion about various alternative courses of action so that it becomes easy for the management to take a correct decision.

  4. Co-ordination:

    The co-ordination among different departments or units is essential for smooth functioning of the concern: The management accountant acts as the co-ordinator in this regard. The techniques such as budgeting, financial reporting and analysis and interpretation are commonly used by management accountants to co-ordinate efficiently the various activities of the business. The efficient co-ordination increases the efficiency of organization which in turn increases the profitability of a Concern.

  5. Communication:

    The management accountant prepares various reports to communicate the results to the different levels of management, to motivate the employees, to exercise effective control on their activities and to enable the management to take sound decisions. He also communicates with the outside world account the progress of the business through published accounts.

  6. Helpful in taking Strategic Decisions:

    Management accounting helps in taking strategic decisions. It supplies analytical information regarding various alternatives and the choice of management is made easy. These decisions may be regarding seasonal or temporary stoppage of production, replacement decisions, expansion and diversification of works, etc. with the help of management accounting, correct decisions are taken In this regard.

  7. Special Studies:

    Modern business is operating under such Dynamic conditions where even a minor change in business can have a significant impact on the business results. Therefore, management is always interested to know the area of business which can contribute to the stability and profitability of the concern. To meet this objective, management accountant undertakes various special studies such as sales analysis, economic forecasts, price spread analysis, etc.

  8. Information to Various Levels of Management:

    Every management level needs accounting information for decision-making and policy execution. Top management takes broader decisions and leave day- to-day decisions for the lower levels of management. Management accountant feeds information to different levels of management so that further decisions are taken. The supply of adequate information at the proper time will increase efficiency of the management.

  9. Helps in Managerial Control:

    Management accounting is very useful in controlling performance. For this, the standards of various departments and individuals are set-up. The actual performance is recorded and deviations are ascertained. It enables the management to assess the performance of everyone in the organisation and corrective measures are taken, if necessary. Performance evaluation is possible through standard costing and budgetary control which are an integral part of management accounting.

  10. Qualitative Information:

    Management accounting is not restricted to the use of monetary data only rather it is concerned also with the use of qualitative information. While preparing a production budget, management accountant may not only use the past production figures, but he may rely on the assessment of persons dealing with production, productivity reports, consumer surveys and may other business documents. The use of qualitative information is as useful as monetary information.

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