Advantages and Limitations of Management Accounting
Advantages of Management Accounting:
- It measures the actual performance in comparison with the budgets.
- It helps the management in such a way that the latter can maximise the rate of return on capital employed.
- The business activities are managed better by the application of both budgeting and planning.
- No doubt it helps to increase the efficiency of the business.
- It also helps to improve the relation between the management and labour.
- It helps the management to chalk-out future plans of action on the basis of past results.
Limitations of Management Accounting:
Management Accounting renders various services to management. Still it has got some limitations.
- We know that Management Accounting derives its information from Financial Accounting and Cost Accounting. So, the conclusions arrived at by management accountants depend to a large extent on the accuracy of these two (Financial Accounting and Cost Accounting) records. Therefore, if the past data which are collected from the financial and cost records are found inaccurate, the decisions suggested by the management accountants—on the basis of the above—will also be inaccurate.
- For taking decisions, the management should have a thorough knowledge in different fields, such as Accounts, Economics, Statistics, Taxation etc. But, in practice, it is found that the persons entrusted with taking some decisions do not have such adequate knowledge.
- The introduction of Management Accounting system in a concern requires a large organisation as it is very costly. Therefore, small concerns cannot afford to adopt this system.
- The conclusions drawn by the management accountant should be implemented at various levels of the organisation. But this is often found impracticable.
- At present, Management Accounting is in the process of development, i.e., it is still very much in a state of evolution. So it has to face the problems of fluidity of concepts, improvement of techniques etc.
- We know that there are some problems which cannot be expressed in terms of money. As such, these cannot be interpreted for the future and cannot help the management unit as well.
- Sometimes there is a great scope of manipulation by the management accountant at its different stages; it may, therefore, lose objectivity and validity.
- The application of Management Accounting Systems which are applied by the Management Accountant are not alternate or substitute of good administration. Practically, it is a supplement of good administration and management and nothing else.