Advantages of Management Accounting

Advantages of Management Accounting

Advantages of management accounting can be express in terms of facilitation of planning, controlling cost, evaluate performance, efficient utilization of resources, setting price of product, setting volume and profitability targets and identification of internal control weakness.

1.    Facilitates future Planning

First advantage of management accounting is its facilitation in future planning. Budgeting is an example of future planning.

2.    Controlling Cost

Second advantage of management accounting is its facilitation in controlling the costs.  Difference types of variance analyses are performed to control the cost.

3.    Evaluate Performance

Third advantage of management accounting is its support in performance evaluation. Standard costing is used to establish expected cost and then actual cost is compared with standard cost for performance evaluation.

4.    Efficient use of Resources

Fourth advantage of management accounting is efficient use of resources. In this regard cost are allocated to different cost center under responsibility accounting, and then resource utilization is effectively monitored.

5.    Setting Price

Fifth advantage of management accounting is to provide information for price setting. Traditional costing system absorption costing provides full product price information for price setting.

6.    Setting Profit Target

In management accounting with the help of break even analyses, desired volume of sales can be set for the marketing team. These targets include both (break even target & desired profitability target). Break even target are more relevant for new business, while desired profitability target are set for established business.

7.    Internal Control Weakness

Management accounting also identifies internal control weakness to the management. For example an adverse variance without any explanation shows that, there is weak control over the budget setting.