Advantages and Objectives of Management Accounting
There are many objectives of but the prime objective is to assist the management team of an organization in improving the quality of their decisions. Purpose of management accounting is to help the managerial team with financial information so that they can execute business operations and activities more efficiently. Following is the list of all benefits of management accounting:
- Decision Making
- Controlling business operations
- Understanding financial data
- Identifying business problem areas
- Strategic Management
Managerial accounting involves collecting, analyzing, and reporting information about the operations and finances of a business. These reports are generally directed to the managers of a business, rather than to any external entities, such as shareholders or lenders. The functions of managerial accounting include:
- Margin analysis. Determining the amount of profit or cash flow that a business generates from a specific product, product line, customer, store, or region.
- Break even analysis. Calculating the mix of contribution margin and unit volume at which a business exactly breaks even, which is useful for determining price points for products and services.
- Constraint analysis. Understanding where the primary bottlenecks are in a company, and how they impact the ability of the business to earn revenues and profits.
- Target costing. Assisting in the design of new products by accumulating the costs of new designs, comparing them to target cost levels, and reporting this information to management.
- Inventory valuation. Determining the direct costs of cost of goods sold and inventory items, as well as allocating overhead costs to these items.
- Trend analysis. Reviewing the trend line of various costs incurred to see if there are any unusual variances from the long-term pattern, and reporting the reasons for these changes to management.
- Transaction analysis. After spotting a variance through trend analysis, a person engaged in managerial accounting might dive deeper into the underlying information and examine individual transactions, in order to understand exactly what caused the variance. This information is then aggregated into a report to management.
- Capital budgeting analysis. Examining proposals to acquire fixed assets, both to determine if they are needed, and what the appropriate form of financing may be with which to acquire them.