Following are the advantages and limitations of management accounting:
Advantages of Management Accounting
- It helps to increase the efficiency of all functions of management
- It helps in target-fixing, decision-making, price-fixing, selection of product-mix and so on
- Forecasting and Budgeting help the concern to plan the future and financial activities
- Various tools and techniques provide reliability and authenticity to carry out the business functions
- It is useful in controlling wastage and defects
- It helps in complete communication between all levels of management
- It helps in controlling the cost of production thus increasing the profit percentage
- It is proactive-analyses the governmental policies and socio-economic scenario which helps to assess the external environmental impacts on the organization
Limitations of Management Accounting
- It is concerned with financial and cost accounting. If these records are not reliable, it will affect the effectiveness of management accounting.
- Decisions taken by the management accountant may or may not be executed by the management.
- It is very expensive. Only big concerns can adopt this method of accounting.
- New rules and regulations are to be framed, hence there is a possibility of opposition from the employees.
- It is only in the developing stage.
- It provides only data and not decisions.
- It is a tool to the management and not an alternative of management.
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These are the advantages and limitations of management accounting.
Characteristics of management accounting
Following are the characteristic features of management accounting:
- First and foremost characteristic is that it provides the necessary information to the management. It might be any data- numbers, gross profit, net profit, comaparitive financial statements, profit and loss account etc.,
- It is purely analytical
- The interpretations help the management in timely decision-making
- It adopts a selective technique to arrive at the results
- Helps to chart-out the future course of action
- Also helps to know the present financial condition of the firm and the respective implications on the stake holders.
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Various tools of management accounting:
- MARGINAL COSTING
- STANDARD COSTING
- BUDGETARY CONTROL
- RATIO ANALYSIS
- FUND FLOW ANALYSIS
- CASH FLOW ANALYSIS