MANAGEMENT ACCOUNTING Cost accounting, no doubt, serves the internal management by directing their attention on inefficient operations and assisting in a day-to-day control of activities of the enterprise. But even costing information fails to meet informational needs for managerial functions. The costing data needs to be arranged, re-analysed and processed further for playing more effective role in the managerial process. In addition to costing and accounting data, managerial functions need the use of socio-economic and statistical data (e.g, population break-ups, income structures , etc. ) This information is beyond the scope of cost accounting and financial accounting which pave the way for emergence of management accounting. Management accounting provides all possible information required for managerial purposes. MEANING AND EMERGENCE OF MANAGEMENT ACCOUNTING Management Accounting is comprised of two words ‘Management’ and “Accounting”. It is the study of managerial aspect of accounting. The emphasis of management accounting is to redesign accounting in such a way that it is helpful to the management in formation of policy, control of execution and appreciation of effectiveness. It is that system of accounting which helps management in carrying out its functions more effeciently.The term “Management Accounting’ is of a recent ori; of accountants visiting U.S.A. under the auspices of Anglo-Americ of cost accountancy had no reference to the word management group. The complexities of business environment have necessit planning, co-ordinating and controlling functions of manageme This term was first used in 1950 by a team an Council on Productivity. The terminology accountancy before the report of this study tated the use of management accounting for nt, : A small undertaking with a local character is generally managed by the owner himself. The owner is in touch with day-to-day working of the enterprise and he plans and coordinates the activities himself. The use of simple accounting enables the preparation of profit and loss account and balance sheet for determining profitability and assessing financial position of the enterprise. All informational needs for managerial purposes are met by simple financial statements. Since the owner is both the decision-maker and implementer of such decisions, he does not feel the necessity of any communication system and no additional information is required for managerial purposes. The evolution of joint stock company form of organisation has resulted in large-scale production and separation of ownership and management. The introduction of professionalism in management has brought in the division of organisation into functional areas and delegation of authority and decentralisation of decision-making. The decision-making no more remains a matter of intuition. It requires the evolution of information system for helping management in planning and assessing the results. The accounting information is required as a guide for future. The management is to be fed with precise and relevant information so as to enable it in performing managerial functions efficiently and effectively. DEFINITIONS OF MANAGEMENT ACCOUNTING 1, Anglo-American Council on Productivity : “Management Accounting is the presentation of accounting information in such a ways as to assist management in the creation of policy and the day-to day operation of an undertaking.” Management accounting deals with the presentation of information so that it is helpfull to management. ‘Management will like to base its policy decisions on some information and the information should be presented according to the needs of management, The main emphasis of this definition is on presentation of information and it does not include in its purview the collection of it. 2. Robert N. Anthony : “Management Accounting is concerned with accounting information that is useful to management.”" ‘Anthony associates management accounting with accounting information and its utility to management. The financial information should be collected, complied and presented to management in such a way that it is helpful in solving various problems. 3. T.G. Rose : “Management Accounting is the adaptation and analysis of accounting information and its diagnosis and explanation in such a way as to assist management.” According to this definition, management accounting adapts financial information. The information is selected, classified and analysed in such a way that it helps the management in carrying out various operations systematically and efficiently. The information is made more useful by giving details and explanations. 4. J. Batty : “Management Accounting is the term used to describe the accounting methods, systems and techniques which, coupled with special knowledge and ability, assist management in its task of maximising profits or minimising losses.”* Batty has given a wider definition of management accounting, He uses the word Accountancy. instead of accounting so as to give a wider meaning to the subject, Various accdunting systems and techniques are designed to meet the needs of the management. The information should be revorded and presented in such a way that management is able to arrive at right conclusions. The ultimate aim of the management is to increaseCHARACTERISTICS OR NATURE OF MANAGEMENT ACCOUNTING The task of management accounting involves furnishing of accounting data to the management for basing its decisions on it. It also helps, in improving efficiency and achieving organisational goals, The following are the main characteristics of management accounting 1. Providing Accounting Information. Management accounting is based on accounting informatio ‘The collection and classification of data is the primary function of accounting department. The information so collected is used by the management for taking policy decisions. Management accounting involves the presentation of information in a way it suits managerial needs. The accounting data is used for reviewing various policy decisions. Management accounting is a service function and it provides necessary information to different levels of management. . Cause and Effect Analysis. Financial accounting is limited to the preparation of profit and loss account and finding out the ultimate result, ie., profit or loss Management accounting goes a step further. The ‘cause and effect’ relationship is discussed in management accounting. If there is a loss, the reasons for the loss are probed. If there is a profit, the factors directly influencing the profitability are also studied. The figures of profits are compared to sales, different expenditures, current assets, interest payables, share capital etc. So the study of cause and effect relationship is possible in management accounting. 3, Use of Special Techniques and Concepts. Management accounting uses special techniques and concepts to make accounting data more useful. The techniques usually used include financial planning and analysis, standard costing, budgetary control, marginal costing, project appraisal, control accounting, ete. The type of technique to be used will be determined according to the situation and necessity4. Taking Important Decisions. Management accounting helps in taking 2 ae eke da 1 supplies necessary information to the management which may base itso us alternative decisiong a is studied to see its possible impact on future decisions. The implications of vario ions are also taken into account while taking important decisions. ae eee 5. Achieving of Objectives. In management accounting, the Se Rae Such a way that it helps in achieving organisational objectives. Historical dae Targa Mae Setting up objectives. The recording of actual performance and comparing it wil nested Tze WT ean the ete the management about the performance of various departments. In ease there are ¢ vations been the standards set and actual performance of various departments corrective measures can be take at once. Aj) this is possible with the help of budgetary control and standard costing. CHARACTERISTICS OR NATURE OF MANAGEMENT ACCOUNTING Providing Accounting Information. Cause and Effect Analysis Use of Special Techniques and Concepts. Taking Important Decisions Achieving of Objectives. No Fixed Norms Followed Increase in Efficiency. Supplies Information and not Decision. Concemed with Forecasting 29} 26] a} | | A] v9) 19} =] 6. No Fixed Norms Followed. In financial accounting certain rules are followed for preparing different accounting books. On the other hand, no specific rules are followed in management accounting. Though the tools of management accounting are the same but their use differs from concern to concern, The analysis of data depends upon the person using it. The deriving of conclusions also depends upon the intelligence of the management accountant. Every concern uses the figures in its own way. The presentation of figures will be in the way which suits the concern most. So every concern has its own rules and by-rules for analysing the data. 7. Increase in Efficiency . The purpose of using accounting information is to increase efficiency of the concem. The efficiency can be achieved by setting up goals for each department or section, The performance appraisal will enable the management to pin point efficient and inefficient spots, An effort is made to take corrective measures so that efficiency is improved. The constant review of working will make the sail cost-conscious. Every one will try to control cost on one’s own part. 3 8. Supplies Information and not Decision. The management accountant supplies information to He management. The decisions are to be taken by the top management. The information is classified in the mantet in which it .is required by the management. Management accountant is only to guide and not to ao decisions. The data is to be used by management for taking various decisions.*How is the data to be wild will depend upon the calibre and efficiency of the management. F, 9. Concerned with Forecasting, The management accounting is concerned with the future. a the management in planning and forecasting, The historical information is used to plan future course of 8 The information is supplied with the object to guide management for taking future decisions. SCOPE OF MANAGEMENT ACCOUNTING ati ‘ 5 interpret Management accounting is a new approach to accounting . It provides techniques for ms rma F of accounting data. It also helps in developing realistic approach to future course of action. :ei, ar Sls a Nature and Scope of Management Accounting 115 to help management in its functions of planning, directing and controlling. Management accounting is related to a number of fields. At the Seventh International Conference of Accountants held in Amsterdam in 1957, the main emphasis was on Cost Accounting, Budgetary Control, Materials Control, Interim Reporting, Determination of the most efficient and economical accounting system, Special cost and economic studies and assisting management in interpreting financial data, The following facts of management accounting are of a great significance and form the scope of this subject. 1. Financial Accounting, Financial accounting deals with the historical data. The recorded facts about an organisation are useful for planning the future course of action. ‘Though planning is always for the future bbut still it has to be based on past and present data. The control aspect too is based on financial data. The performance appraisal is based on recorded facts and figures. So management accounting is closely related to financial accounting. 2. Cost Accounting. Cost accounting provides various techniques for determining cost of manufacturing products or cost of providing service. It uses financial data for finding out cost of various jobs, products or processes. The systems of standard costing, marginal costing, differential costing and opportunity costing are all helpful to the management for planning various business activities. Cost accounting also helps in finding out economical and non-economical fields of production. The efficiency of different departments is judged by setting up standards and finding out variances. So cost accounting is an essential part of management accounting. 3. Financial Management. Financial management is concerned with the planning and controlling of the financial resources of the firm. It deals with raising of funds and their effective utilisation. Its main aim is to use business funds in such a way that earnings are maximised. Finance has become so much important for every business undertaking that all managerial activities are connected with it, Financial viability of various propositions influence decisions on them. Although, financial management has emerged as a separate subject, management accounting includes and extends to the operation of financial management also. 4, Budgeting and Forecasting. Budgeting means expressing the plans, policies and goals of the enterprise for a definite period in future. The targets are set for different departments and responsibility is for achieving these targets. The comparison of actual performance with budgeted figures will give an the management about the performance of different departments. Forecasting, on the other hand, is a prec of what will happen as a result of a given set of cifcumstances. Forecasting is a judgement whereas budgeting is an organisational object. Both budgeting and forecasting are useful for management accountant in planning various activities. 5, Inventory Control. Inventory is used to denote stock of raw materials, goods in the process of manufacture and finished products. Inventory has a special significance in accounting for determining correct income for a given period. Inventory control is significant as it involves large sums. The management should determine different levels of stocks, i¢., minimum level, maximum level, re-ordering level for inventory control. The control of isventory will help in controlling costs of products. Management will need effective inventory control for controlling stocks. Management accountant will guide management as to when and from where to purchase and how much to purchase. So the study of inventory control will be helpful for taking mans decisions rial 6. Reporting to Management. One of the functions of management accountant is to keep the management informed of various activities of the concern so as to assist it in controlling the enterprise. The reports are presented in the form of graphs, diagrams, index numbers or other statistical techniques so as to make them easily understandable. The management accountant sends interim reports to the management and these reports may be monthly, quarterly, half-yearly. ‘The reports may cover profit and loss statement, eash and fand flow statements, stock reports, absentee reports and reports on orders in hand, ete, These reports are helpful in giving a constant review of the working of the business. 7. Interpretation of Data, ‘The management accountant interprets various financial statements to the management. These statements give an idea about the financial and earning position of the concern. Thesea statements may be studied in comparison to statements of earlier periods or in comparison withthe of mila other concerns. The significance ofthese reports is explained tothe management ina simp Ey IF the statements are not properly interpreted then wrong conclusions may be drawn, So inerpes S"8pe ing of financial statements. ton important as compi SCOPE OF MANAGEMENT ACCOUNTING .] Financial Accounting. Z| Cost Accounting. 3. | Financial Management Z| Budgeting and Forecasting 3. | Inventory control 6. | Reporting to Management. 7.| Interpretation of Data 8 | Control Procedures and Methods. 9.[ Internal Audit 10, | Tax Accounting Office Services. 8. Control procedures and Methods. Control procedures and methods are needed to use vario eee : ; 1s Factors of production in a most economical way. The studies about cost, relationship of cost and profits are wef for using economic resources efficiently and economically. 9. Internal Audit. Internal audit system is necessary to judge the performance of every depanment The actual performance of every department and individual is compared with the pre-determined standarés Management is able to know deviations in performance. Internal audit helps management in fixing esponsbiliy of different individuals. 10. Tax Accounting. In the present complex tax systems, tax planning is an important pat of ‘management accounting. Income statements are prepared and tax liabilities are calculated. The managements informed about the tax burden from central government, state government and local authorities. Various tx returns are to be filed with different departments and tax payments are to be made in time. Tax accounting coms under the purview of management accountant’s duties. 11. Office Services. Management accountant may be required to control an office. He will be expec to deal with data processing, filing, copying, duplicating, communicating, etc, He will also be reporting abot the utility of different office machines. OBJECTIVES OF MANAGEMENT ACCOUNTING ‘The primary objective of management accounting is to enable management to maximise profi minimise losses. This is done through the presentation of statements in such a way that management is to take correct policy decisions, The following are the important objectives of management accounting 1. Planning and Policy Formulation, ‘The object of management accounting is to supply nee data to the management for formulating plans. Planning is essentially related to taking decisions for fut also includes forecasting, setting goals and deciding alternative courses of action, Management i _ prepares statements of past results and gives estimations for the future. He also gives his assessment 0! 7 facets and gives his preference for a particular alternative. The figures supplied and opinion give" management accountant help management in planning and policy form: ol 2. Helpful in Controlling Performance. Management accounting devices like standard a ol budgetary control are helpful in controlling performance, The work is divided into. different units anNature and Scope of Management Accounting hry goals are set up for each unit. The performance of every unit is made the responsibility of a particular person. The required authority for getting the work done is also delegated to the concerned persons. The actual results are compared with predetermined objectives. The management is able to find out the deviations and take necessary corrective measures. Different departmental heads are associated with preparing budgets and setting up goals. The management accountant acts as a coordinating link between different departments and he also monitors their performance to the top management. The management is able to control performance of ‘each and every individual with the help of management accounting devices. 3. Helpful in Organising. Organisation is related to the establishment of relationship among different individuals inthe concern, It also includes the delegation of authority and fixing of responsibility. Management accounting is connected with the establishment of cost centers, preparation of budgets, preparation of cost control accounts and fixing of responsibility for different functions. All these aspects are helpful in setting up an effective and efficient organisational framework 4. Helpful in Interpreting Financial Information. The main object of management accounting is to present financial information to the management in such a way that itis easily understood. Financial information is of a technical nature and managerial personne! may not be able to understand the significance and utility of various financial statements. Management accountant explains these statements to the management in a simple language. If necessary. he uses statistical devices like charts. diagrams, index numbers. etc. so that the nformation is easily followed. Motivating Employees. Management accounting helps the management in selecting best alternatives of doing the things. Targets are Inid down for the employees. They feel motivated in achieving their targets and further incentives may be given for improving their performance, OBJECTIVES OF MANAGEMENT ACCOUNTING Planning and Policy Formulation Helpful in Controlling Performance Helpful in Organising = Helpful in Interpreting Financial Statements Motivating Employees Helpful in Making Decisions 7 | Reporting to Management & | Helpful in Co-ordination 9. | Tax Administration a} a] a] ef} | @ Helpful in Making Decisions. The management has to take certain important decisions. A decision may have to be taken about the expansion or diversification of production. There may be question of Taplacement of labour with machine or introduction of latest technological devices. Management accountant prepares a report on the feasibility of various allematives and makes an assessment of their financial Implications. The information provided by the accountant helps management in selecting a suitable alternative and taking correct decisions 7. Reporting to Management. One of the primary objectives of management accounting is vo Keep the management fully informed about the latest position of the concern, This helps management in taking Propet and timely decisions. The management is kept informed through regula’ financial and ether reports. The performance of various departments is also regularly communicated to the top management 8. Helpful in Co-ordination. Management accounting provides tals which ate helpful in coordinating the activities of differem sections or departments, Co-ordination is Jone through functional budgeting. Management accountant acts as a co-ordinator and reconciles the activities of different sections.ACCU, 9. Helpful in Tax Administration. The complexities of tax system ate increas Management accounting helps in assessing various tax liabilities and depositing correct at the concerned authorities. Various tax returns are to be filed under different tax laws. Tax ads on with the advice and guidance of the management accountant. FUNCTIONS OF MANAGEMENT ACCOUNTING Management accounting is a part of accounting. It has developed out of th and more use of accounting for taking managerial decisions. Management accounti of classifying presenting and interpreting data in such a way that it helps manageme the enterprise in an efficient and economical manner. Some of the functions of ma as follows : @ Planning and Forecasting. Management fixes various targets. to be achieved near future. Planning and forecasting are essential for achieving business objectives. On functions of the management accounting is to help management in planning for short-t periods and also in making forecasts for the future. Management accountants use various budgeting, standard costing, marginal costing, fund flow statements, probability and trend r targets. These techniques are useful in planning various activities. So management accoun in planning and forecasting, 1S eve, mount of taye, net 3 Iministration ig ang le need for makin ng is assigned the fincige nt in controlling and run’ tunni agement accounting a by the business iq of the importan, frm and long term techniques such ag ratios, etc, for fx ting tools are uses @) Modification of Data, Management accounting helps in modifying accounting data. The information is modified in such a way that it becomes useful for the management. If sales data is required, it can be cawifey according to product, area, season-wise, type of customers and time taken for getting payments, ete. Similarly, if production figures are needed, these can be classified according to product, quality, time taken by the ‘manufacturing processes, rate of production. etc. The modification of data in Similar groups makes the dala hore understandable and useful.(Management accountant classifies and modifies information according to te requirements of the management™ Gi) Financial Analysis i Interpretation, Management accountant undertakes the job of presenting financial data in a simplified way. Financial data is generally collected and presented in a technical way. Top managerial executives may lack technical knowledge. Management accountant analyses and interprets financial data in a simple way and presents it in a non-technical language. He gives facts and figures about various policies and evaluates them in monetary terms. He gives his opinion about various alternative courses of action 50 that it becomes easy for the management to take a decision. (i») Facilitates Managerial Control. Management accounting is very useful in controlling performance. All accounting efforts are directed towards control of the enterprise. The standards of various departments and individuals are set-up. The actual performance is recorded and deviations are calculated. It enables th management to assess the performance of everyone in the organisation, Performance evaluation is posse through standard costing and budgetary control which are an integral part of management accounting ) Communication. Management accounting establishes communication within the organisation with the outside world, The management accountant prepares reports for the benefit of different eee management and employees. The activities of the concer, are communicated to outsiders such as bal = investors, creditors, government agencies, etc. The filing of various tax returns is also entrusted to the aunt (i Use of Qualitative Information, ‘The field of management accounting is not restricted © a of monetary data only. It collects and uses qualitative information also. While preparing a production O s management accountant may not only use past production figures, but he may rely on the assess Persons dealing with production, productivity reports, consumer surveys and many other business docu The use of qualitative information is as helpful as monetary information. Management can assess aspects of a plan before finalising it (ii) Co-ordinating, The co-ordination among different departments is essential for smooth i of the concern. Management accountant acts as a co-ordinator among different financial departments # nibudgeting and financial reports. The targets and performances of different departments are communicated to them from time to time. It helps to increase the efficiency of various sections thereby increasing profitability of the concern. (viti) Helpful in taking Strategic Decisions. Management accounting helps in taking strategic decisions. It supplies analytical information regarding various alternatives and the choice of management is made easy. These decisions may be regarding seasonal or temporary stoppage of production, replacement decisions, expansion or diversific: d a cor cision is taken. (x) Supplying Information to Various Levels of Management. Every management level needs accounting information for decisions making and policy execution. Top management takes broader decisions and leaves day-to-day decisions for the lower levels of management, Management accounsant feeds information to different levels of management so that further decisions are taken. The supply of adequate information at the proper time will increase efficiency of the management.RELATIONSHIP BETWEEN COST AND MANAGEMENT ACCOUNTING ‘The purpose of cost accounting is not merely ascertainment of cost, it is also performance evaluation and management decision-making, Management uses cost data to minimise the costs and evaluate the performance as a basis for decision making. It is for this reason that most of the cost accounting concepts are also used in management accounting. Although there is some overlapping in the areas of cost accounting and management accounting, the two are not synonymous. Management accounting connotes a much wider field than cost accounting. The function of management accounting is much more than simply the accumulation of cost data. However, both cost and management accounting systems are complementary in nature. In the absence of a well established costing system the cost data will not be available and management accounting system cannot function efficiently. The following are the main points of distinction between cost and management accounting: 1. Object. The object of cost accounting is to record the cost of producing a product or providing a service. The cost is recorded product wise or unit wise. Besides recording, it deals with cost control, matching of costs with revenue and decision-making. The purpose of management accounting is to provide information to the management for planning and co-ordinating the activities of the business. 2. Scope. The scope of management accounting is very wide. It includes financial accounting, cost accounting, budgeting, tax planning, reporting to management and interpretation of financial data. On the other hand, cost accounting deals primarily with cost ascertainment, 3. Nature. Management accounting is generally concerned with the projection of figures for future. ‘The policies and plans are prepared for providing future guidelines. Cost accounting uses both past and present figures.4, Data used. In cost accounting only those transact mis are taken which can be expressed in figures. Only quantitative aspect is recorded in cost accounting. Management accounting uses both quantitative and qualitative information, 5. Development. The development of cost accounting is related to industrial revolution. Financial accounting could not satisfy information needs of management. Cost accounting was thus evolved as a supplementary accounting method. Cost accounting was able to provide information not only about cost structure but also for planning and decision-making. Management accounting has developed only in the last thirty years. Management accounting and cost accounting are both complementary subjects. 6. Principle followed. Certain p ciples and procedures are followed for recording costs of different products. The same rules are applicable at different times too. No specific rules and procedures are followed in reporting management accounting, The information is prepared and presented as is required by the management.19 one technique can satisfy all managerial i i i . as follows: gerial needs, The tools and techniques used in management accounting a Hiasnelel Polley ail Accounts, Every comer bara nko a dcnion abut the sources of raising funds. 1° sed either through the issue of share capital or through the raising of loans. Again decision isto be taken about the type of capital, ie, equity share capital or preference share capital. Preference share capital can be sub-divided into a number of types. The second decision concerns the raising of loans. Whether the loans should be long term or short-term is again a matter of policy. The proportion between share capital and loans should also be decided. All these decisions ae very important and management accounting provides techniques for financial planning ‘Tax planning is another aspect where management is helped by the management accountant. He tries to use various rules and regulations for the benefit of the organisation. 2. Analysis of Financial Statements. ‘The analysis of financial statements is meant to classify and present the data in such a way that it becomes useful for the management. “The meaning and significance of ire data is explained in a nion-technical language. The techniques of financial analysis include comparative financial statements, ratios, funds flow statements, trend analysis, ete. 3, Historical Cost Accounting. ‘The system of recording actual cost data on or after the date when it has been incurred is known as historical cost accounting. The actual cost is compared 10 the standard cost and it gives an idea about the performance of the concer. Though costing is important but by itself its utility is limited. : 4. Budgetary Control. It is a system which uses budgets as a tool for planning and control. The budgets of all functional departments are prepared in advance. The budgets aft based on historical data and future possibilities. The actual performance is recorded and compared with the pre-determined targets. Management is able to assess the performance of each and every person, if the organisation. The timing of ts and_ fi out deviations is an_important tool for planning and controlling. 5, Standard Costing. Standard costing is an important technique for cost control purposes. In standard costing system, costs are determined in advance. The determination of standard cost is based on a systematic analysis of prevalent conditions. The actual costs are recorded and compared with standard costs. The variances, if any, are analysed and their reasons are ascertained. Standard costing helps to enhance the efficiency of the concern and also ‘management by exception’. 6. Marginal Costing. This is a method of costing which is concerned with changes in costs resulting from changes in the volume of production. Under this system, cost of product is divided into marginal (variable) and fined cost, The latter part of cost (fixed) is taken as fixed and is recorded over a level of production and every additional production unit involves only variable cost. Marginal costing is helpful for measurement of profitability of different lines of production, different departments and divisions of an enterprise. The decisions sre chor. term utilisation of capacity are also assessed with the help of marginal costing. 7. Decision Accounting. An important work of management is to take decisions. Decision taking involves.” choice from various alternatives. There may be decisions about capital expenditure, whether to make or buy, what price to be charged, expansion or diversification, etc. Management accounting, calculates financial implizations of each alternative course of action and enables management to select the best course of action. Revaluation Accounting, ‘This is also known a Replacement Accounting, The preservation of capital in the business is the main object of management, ‘The profits are calculated in such a way that capital is preserved in real terms. During periods of rising prices, the value of capital is greatly affected. According to Batty, “Revaluatign gis denote the methods employed for_overcoming_the_problems conngeted with fixed asset replaceansnt in « period of rising prices ” pee Control Accounting, cone eco ans Separate accounting system. Different systems Ras eco dessa F 1 accounting. Standard costing and budgetary control rough variance analysis reports. In control accounting we can use internal check, internal statutory audit and organisation and methods for control purposes.10. Mi 3 i classifying data, eeement Information Systems. With the development of electronic devioe® for recording and z porting to mai i i lanning co-ordination and Control is supplied mnagement has considerably improved. The data planning techniques. ie’ % the management. Feed back of information and responsive actions can Pe used as control NEED AND IMPORTANCE OF MANAGEMENT ACCOUNTING ecome an integral part of ep. The increase in scale ent in analytical and els of management Guage! beset complex industrial world, management accounting has Of operations be genment Accountant guides and advises management at every st Sere eased the significance of management accounting also. Improvem tes ae fechniques of management accounting and information needs of various levels of management efficiericy of th ly Management accounting not only increases efficiency of the management, it also increases icy of the employees. The following are the advantages of management accounting * é 1. Increases Efficiency. Management accounting increases efficiency of business operations. The gets of different departments are fixed in advance and the achievements of these goals is a tool for measuring their efficiency. 3 2. Proper Planning. Management is able to plan various operations with the help of accounting information, The technique of budgeting is helpful in forecasting various activities. Budgets are prepared department wise firstly and then a master budget is prepared for the whole organisation. The work load of each and every individual is fixed in advance. The activities of the concern are planned in a systematic manner. 3. Measurements of Performance, The systems of budgetary control and standard costing enable the measurement of performance. In standard costing, standards are determined and then actual cost is compared with standard cost. It enables the management to find out deviations between standard cost.and actual cost. The performance will be good if actual cost does not exceed the standard cost. Budgetary control system too helps in measuring efficiency of all employees. 4. Maximising Profitability The thrust of various management techniques is to contro! cost of production and increase efficiency of each and every individual in the organisation. The steps of controlling costs are able to reduce cost of production. The profits of the enterprise are maximised with the help of management accounting system. Every unit of the organisation tries to contribute its maximum which enables the best use of all factors of production. The return on investments also goes up. 5, Improves Service to Customers. The cost control devices employed in management accounting enable the reduction of prices. All employees in the concern are made cost conscious. The quality of products becomes good because quality standards are pre-determined. The customers are supplied good quality goods at seasonable prices. The increase in production of goods also enhances supply of goods to consumers. 6, Effective Management Control. The tools and techniques of management accounting are helpful to the management in planning, co-ordinating and controlling activities of the concern. The setting of standard wo cgeessing actual performance regularly enables the management to have “management by exception.” Ferybody assesses his own work and immediate actions are taken in case of deviations in performance. LIMITATIONS OF MANAGEMENT ACCOUNTING Though management accounting is helpful in providing guidelines for planning, directing and controlling functions sil is effectiveness is limited by a number of reasons, Limitations of nears ‘accounting are explained as follows : 1. Based on Accounting Information, Management accounting is based on data supplied by financial and cost accounting. Historical data is used to make fiture decisions. The correctness and effectiveness of managerial decisions will depend upon the quality of data on which these decisions are based. If financial data Fraraeeeliable then management accounting will nt provide correct analysis. Because management accounting is not rgepend upon te information collected by other sources, its effectiveness is limited tothe reliability of those sources. oe2. Lack of Knowledge, rented subjects. Management sho management, ete..and only then manage ——Srany of these subjects limits the wat 3 ics, economics, principles US of maneneseeCuntng can be effectively u cnowied will be useful if persons connected management accounting but also of . Intuitive Decisions, siwations and enables decision tilised. Deficiency in knowledge ation of management accounting nt accounting. So the applic 1B Process have proper understanding not only of With decision-makin related subjects, es scientific analysis of various there is a tendency to make decisions thy ae y ey course of deciding things and may take an easy course of arriving, of management accounting. igement accounting does not provide an alternative to inistration, Mana; | ques of management accounting provid i i \ isions. Decisions a i provide only information and not decisions. Decisions are to be taken by the management and their implementation i aloy Jere by management. So management accounting has supplementary or in their implementation, Service function and has no final say either in taking decisions 5. Top Heavy Structure, _s The installation of a management accounting system needs an elaborate organisational system. “A large number of rules and regulations are also required to make this system workable. and effective. Introduction of management accounting system is a costly affair and can be used by big concerns only. Smaller units cannot afford to use this system because of heavy cost. 6. Evolutionary Stage. Management accounting reached a final st only in a developmental stage, it has not yet ‘age. The techniques and tools used by this system give varying and differing results. The conclusions taken from analysis and interpretation are not the same. It will take some time before management accounting takes a final shape. 7, Personal Bias. The interpretation of financial information depends upon the capability of interpreter as one has to make a personal judgement. There is every likelihood of personal bias in analysis and interpretation. Personal prejudices and bias affect the objectivity of decisions. 8. Psychological Resistance. The installation of management accounting involves basic change in organisational set up. New rules and regulations are also required to be framed which affect a number of personnel and hence there is a possibility of resistance from some quarters or the other. LIMITATIONS OF MANAGEMENT ACCOUNTING Based on Accounting Information Lack of Knowledge Intuitive Decisions Not an Alternative to Administration Top Heavy Structure Evolutionary Stage Personal Bias 1 2 3, ry o 6 7. 8 Psyschological ResistanceMANAGEMENT ACCOUNTANT Any person responsible for the supply of accounting information to management is known as Se accountant. He feeds informational needs of different managerial levels. He is known by different names in different organisations, i. , Controller, Comptroller, Chief Accountant, Financial Adviser, Financial Controller, etc. It is essential to determine the status of management accountant in the organisation. It is also necessary to determine his scope of work and responsibility. If management accountant provides the facts as accurately as are needed and are presented in a manner which allows proper analysis and interpretation then he cannot be held responsible for any wrong judgment by the management. On the other hand, if the information is biased, inaccurate or then responsibility will lie on the management accountant. t is not presented properly Another important factor is to determine whether management accounting is a line function-or a staff function, Whether he is a manager like other functional managers ? These questions can be answered after considering his place in the organisation. If he participates in planning and execution of policies, he is equal to other functional managers. In most of the industries, management accountant performs only of staff function. He supplies information and gives his views about the data and leaves the final decision making to functional departmental heads. In America, controller has been given a top position in managerial hierarchy. He is associated with controlling finances and costs and providing data for decision making, This is no doubt, a combination of staff and line function. As the management accounting is of recent origin the role of controlleror management accountant has not been finally settled. He is associated according to the needs. ang requirements of the organisation. But one thing is certain that he is given an important role in the organisation, Functions of Management Accountant The functions of management accountant depend upon his status in the organisation, needs of the enterprise and personal capabilities of the persons. But still some functions are commonly performed by management accountants. The Financial Executives Institute, America has specified the functions of the controller as follows : 1. Planning for Control. Management accountant establishes, co-ordinates and maintains an integrated plan for the control of operations, Such a plan would provide cost standards, expense budgets, sales forecasts, capital investment programmes, profit planning and the system to effectuate the plans. 2, Reporting. Management accountant measures performance against given plans and standards. The results of operations are interpreted to all levels of management. This function will include installation of accounting and costing systems and recording of actual performance so as to find out deviations, if any. 3. Evaluating, He should evaluate various policies and programmes. The effectiveness of planning and procedures to attain the objectives of the organisation will depend upon the calibre of the management accountant. 4. Administration of Tax. Management accountant is expected to report to Government agencies as required under different laws and to supervise all matters relating to taxes. 5. Appraisal of External Effects. He is to assess the effect of various economic and fiscal policies of the Government and also to evaluate the impact of other external factors on the attainment of organisational objects. 6. Protection of Assets. The protection of business assets is another function assigned to the management accountant. This function is performed through the maintenance of internal controls, auditing and assuring proper insurance coverage of assets.