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.
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