Management accounting or managerial accounting is the process of using accounting information by the management for taking the best decision possible. In management accounting analysis of business activities is presented in such a way that it helps management in decision making. It uses different methods and concepts to help managers in choosing between different alternatives by analyzing, evaluating and interpreting the performance of the business.
Management accounting is a very effective tool in the pocket of managers which helps them in almost every decisions. Its benefits can be listed as below:-
- Planning– Management accounting provides information like forecast, budgets, etcetera to the management on a regular basis, which is very useful for planning the business activities in advance.
- Decision making– Management accounting helps management in decision making by providing various analysis, reports, forecasts etcetera.
- Early warning– If any decision or product gives unwanted results it is identified through management accounting and if there are chances of recession it can also be identified with the help of management accounting.
- Strategic management– With the help of management accounting, management can make strategies of working in business and selling of products. Management can also have a separate deep analysis of areas where it finds the requirement.
Purposes of management accounting
Management accounting is used by management for many functions, out of which some of its general purposes is as follows:-
- Profitability– It helps management in finding out the profitability of various projects, investments, products etcetera.
- Forecasting– It warns the management of the hindrances that business has to face.
- New product analysis– Analysis of any new product is done using management accounting for finding its standard costs, actual costs and deviations in these and reason for deviations.
- Break-even analysis– It helps in finding break-even points and points where the firm should produce and sell.
- Stock valuation– It helps in finding costs of the products produced and types of costs, that is direct and indirect, incurred on it.
- Pricing– With the help of management accounting management decides the price that business should charge to get optimum profit.
- Capital budgeting analysis– Management accounting also helps in determining costs for acquiring funds for business and the best allocation of finances.
- Cost variations– Management Accounting helps in finding the cost and differences in it in.