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Management Accounting Objectives

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11 views4 pages

Management Accounting Objectives

Bba

Uploaded by

Tendai
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Course: BBA Part III

Paper: XVI

Topic: Management Accounting and Its Objectives

Teacher’s Name: Prof. (Dr.) Reyazuddin

School: Commerce and Management

Date: 15/08/2020

Management Accounting and Its Objectives


Management accounting also is known as managerial accounting and can be defined as a process of
providing financial information and resources to the managers in decision making. Management
accounting is only used by the internal team of the organization, and this is the only thing which
makes it different from financial accounting. In this process, financial information and reports such
as invoice, financial balance statement is shared by finance administration with the management
team of the company. Objective of management accounting is to use this statistical data and take a
better and accurate decision, controlling the enterprise, business activities, and development.

Objective # 1. Assistance in Planning and Formulation of Future Policies:

Management accounting assists management in planning the activities of the business. Planning
is deciding in advance what is to be done, when it is to be done, how it is to be done and by
whom it is to be done. It involves forecasting on the basis of available information, setting goals,
framing policies, determining the alternative courses of actions and deciding on the programme
of activities to be undertaken.

Thus, planning is making intelligent forecasting. This forecasting is based on facts. Facts are
provided by past accounts on which forecast of future transactions is made. Management
accounting helps management in its function of planning through the process of budgetary
control.
Objective # 2. Helps in the Interpretation of Financial Information:

Accounting is a technical subject and may not be easily understandable by everyone till the user
has a good knowledge of the subject. Management may not be able to use the accounting
information in its raw form due to lack of knowledge of accounting techniques.

Management accountant presents the information in an intelligible and non-technical manner.


This will help the management in interpreting the financial data, evaluating alternative courses of
action available and guiding the management in taking decisions and having the most desired
financial results.

Objective # 3. Helps in Controlling Performance:

Management accounting is a useful device of managerial control. The whole organisation is


divided into responsibility centres and each centre is put under the charge of one responsible
person. He will be associated with the planning and framing of the budgets and be required to
execute the plans and standards and deviations are analysed in order to pinpoint the
responsibility.

Thus, management accountant helps in controlling the performance of the different responsibility
centres and take suitable actions in order to correct the adverse deviations by revising the
budgets if need be.

Management accounting assists management in location of weak spots and in taking corrective
actions against such spots which are not in conformity with the budgeted performance. Thus,
management accounting helps management in discharging its control function successfully
through budgetary control and standard costing.

Objective # 4. Helps in Organizing:

Thus management accountant recommends the use of budgeting, responsibility accounting, cost
control techniques and internal financial control. This all needs the intensive study of the
organisation structure. In turn, it helps to rationalise the organisation structure.
Objective # 5. Helps in the Solution of Strategic Business Problems:

Whenever there is a question of starting a new business, expanding or diversifying the existing
business, strategic business problem has to be faced and solved.

Similarly when in a particular situation, there are different alternatives as whether labour should
be replaced by machinery or not, whether selling price should be reduced or not, whether to
export the item or not etc., a management accountant helps in solving such problems and
decision-making.

He provides accounting data to a management with his recommendation as to which alternative


will be the best. For such decisions, the management accountant may take the help of marginal
costing, cost volume profit analysis, standard costing, capital budgeting etc.

Management accounting provides feedback to the management such as what business to engage
in or diversify how to run that business efficiently. This is most important contribution which the
management accountant has made.

Objective # 6. Helps in Coordinating Operations:

Management accounting helps the management in co-coordinating the activities of the concern
by getting prepared functional budgets in the first instance and then co-coordinating the whole
activities of the concern by integrating all functional budgets into one known as master budget.
Thus, management accounting is a useful tool in coordinating the various operations of the
business.

Objective # 7. Helps in Motivating Employees:

The management accountant by setting goals, planning the best and economical course of action
and then measuring the performance tries his best to increase the effectiveness of the
organisation and thereby motivate the members of the organisation.

Objective # 8. Communicating Up-to-date Information:


Management accounting assists management in communicating the financial facts about the
enterprise to the persons who are interested in these facts so that they may be guided to a line of
action to be pursued. Management needs information for taking decisions and for evaluating
performance of the business.

The required information can be made available to the management by means of reports which
are an integral part of the management accounting. Reports are means of communication of facts
which should be brought to the notice of various levels of management so that they may be
guided for taking suitable action for the purposes of control.

Objective # 9. Helps in Evaluating the Efficiency and Effectiveness of Policies:

Management accounting also lays emphasis on management audit which means evaluating the
efficiency and effectiveness o£ management policies. Management policies are reviewed from
time to time to make an improvement in them so that maximum efficiency may be achieved.

Common questions

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Management accounting assists in solving strategic business problems such as business expansion, diversification, and optimal resource allocation. Tools like marginal costing, cost-volume-profit analysis, and capital budgeting are employed to recommend the best alternatives to management, aiding in sound decision-making .

In performance control, management accounting emphasizes internal decision-making through budgetary control and identifying deviations from standards to hold specific responsibility centers accountable. Financial accounting, on the other hand, focuses on historical financial data reporting for compliance and investor communication, which does not directly influence daily management decisions .

Management accounting supports planning and policy formulation by assisting management in forecasting and setting goals based on available information. It involves deciding on actions, programs, and policies, facilitated by budgetary control, which helps in intelligent forecasting based on facts provided from past accounts .

Management accounting enhances employee motivation by setting clear goals and planning economical courses of action, measuring performance against these goals. By demonstrating effectiveness and efficiency improvements, it motivates employees to contribute positively to organizational success .

Management accounting evaluates the efficiency and effectiveness of management policies through management audits. This involves the regular review and improvement of policies to achieve maximum efficiency. Methodologies could include performance audits, cost-benefit analysis, and variance analysis .

Management accounting transforms raw financial data into actionable insights by interpreting technical accounting information into a non-technical format that management can easily understand. This involves evaluating alternative courses of action, providing recommendations, and using statistical data to guide decision-making for desired financial outcomes .

Management accounting helps organize the internal structure by recommending budgeting, responsibility accounting, and cost control techniques, necessitating an intensive study of the organization structure. This rationalizes the structure, leading to clearer roles, responsibilities, enhanced efficiency, and streamlined operations .

Management accounting assists in controlling and coordinating operations through the use of functional budgets and master budgeting. By integrating various functional budgets into a master budget, it ensures that the different operations of the business are aligned and coordinated effectively, employing techniques like standard costing and responsibility accounting .

Management accounting aids in strategic decision-making by providing crucial accounting data and analysis for evaluating different alternatives such as whether to replace labor with machinery, reduce selling prices, or engage in exporting activities. Tools like marginal costing, cost-volume-profit analysis, standard costing, and capital budgeting are employed to assess these strategic alternatives .

Management accounting, unlike financial accounting, is exclusively used by the internal team of an organization. Its primary purpose is to provide financial information and resources to managers to aid in decision-making, planning, and controlling business activities. Financial accounting, however, is intended for external stakeholders and focuses on providing a true financial position of the company through standardized financial statements .

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