Importance/Advantages of Management Accounting
In the context of a cutting-edge business environment, the role of Management Accounting may be very critical, as can be seen from the following:
1) Increasing Efficiency
Under the system of ‘Management Accounting’, every branch is brought under the purview of the ‘Performance Budgeting’ exercise; targets are prescribed in advance, and overall performance is monitored on an ongoing foundation. The performance of all of the departments is measured through the machine. There is extensive development in their performance. It is one of the main advantages of management accounting. Better overall performance of departments outcomes in overall progressed efficiency of the agency.
2) Proper Planning
The inputs and feedback acquired through the diverse strategies implemented through the gadget of Management Accounting substantially assist the organization’s management, especially in the vicinity of “Forecasting” and “Future Planning”.
3) Measurements of Performance
There is positive equipment beneath the ‘Management Accounting, via which the performance of departments of an organization may be measured. They are (1) Budgetary Control and (ii) Standard Costing.
4) Maximizing Profitability
Various techniques of ‘Management Accounting cognizance on controlling the charges concerned in one-of-a-kind steps of the production cycle. This results in a reduction in the cost of manufacturing and efficiency, boosting the appreciation of every department. The final result is the business agency’s ‘Maximization of Profit’.
5) Improves Service to Customers
Once the price of production is curbed through the strategies of Management Accounting, the employer unearths itself in a position to lessen the prices of completed items. Further, the quality of goods is also maintained because of the “Standard Costing technique ” application. As a result, the company can supply nice suitable products to its clients at an honest price without compromising its “Profitability. It is a ‘Win Win’ scenario both for the organization and its clients.
Disadvantages of Management Accounting
‘Management Accounting’ is essential as a guide gadget for controlling a commercial enterprise employer. However, it’s miles poor in positive recognize, some of that is as follows:
1) Based on Accounting Information
The whole gamut of Management Accounting is based on ‘Financial Statements, viz. ‘Profit & Loss Account’ and ‘Balance Sheet ‘organized underneath the machine of ‘Financial Accounting. The records supply through the ‘Financial Statements’ are dependable. In case of doubt in the authenticity of such data, the complete workout becomes meaningless and futile. It is one of the disadvantages of management accounting.
2) Lack of Knowledge
The employees who relate to the work referring to ‘Management Accounting’ expect to have proper knowledge of a wide range of subjects like ‘Accounting, ‘Statistics’, ‘Economics’, “Management’, and many others. Without such a circumstance, the remarks furnished to the management may not be helpful as they lack exceptional authenticity.
3) Intuitive Decisions
The information supplies through the Management Accounting’ is backed by facts, figures and a radical medical evaluation of the usage of diverse strategies. However, in some instances, the control tends to make decisions spontaneously (which may also involve an easy and handy route), ignoring the feedback received through the Management Accountant’ (which can also contain a long path with complications). Such a bent deprives the control advantages of “Management Accounting”.
4) Do Not Provide an Alternative to Administration
The information provided via the control accounting machine is typically advisory and isn’t always an alternative to Administration”.
5) Top Heavy Structure
A state-of-the-art and specified ‘Organizational Structure’ needs to be located for the gadget of Management Accounting to characterize correctly. Further, several policies and policies also add to ensure the machine worked efficiently and effectively.