Importance of Management Accounting

Importance of Management Accounting

The management required the quantitative information for the performance of planning, control, coordination, motivation, organizing, staffing and the like. The quantitative information should not be related to the past or present but should also be relating to future. Management Accounting has to play a vital role in all these areas.

Importance of Management Accounting

Importance of Management Accounting

Importance of Management Accounting in different levels of management

The corporate form of business organisation has three levels of management. They are

  1. Top level management,
  2. Middle level management and
  3. Lower level management.

The top level management consists of Managing Director and Board of Directors. Middle level management consists of functional managers such as sales manager, purchase manager, production manager etc. The lower level management consists of foreman and supervisor.

All the levels of management people are working about the effective performance of organizational as a whole. Hence, each level of management wants information relating to the efficiency of employees of concerned department so that they may improve their efficiency if required. This need of various levels of management can be fulfilled only through management accounting.

In other words, the management accounting system divides the entire unit into various sections, departments, divisions, on the basis of functions, products and the like. Cost centre or profit centre or responsibility centre is created and records all the business transactions in the relevant cost centre or profit centre or responsibility centre.

Management accounting helps to control business organization

There is a need of controlling the business organization if there is an increased scale of production, modernization and new technological changes. The management should fix the standard for every type of activity in order to exercise effective control system in an organization.

The control requires a comparison of actual with planned on a continuous basis. There is no meaning of exercise control if the control is exercised only after the completion of work. If so, the control is neither desirable nor profitable. Hence, the comparison of actual performance should be conducted on a continuous basis without any time break.

Moreover, complete and detailed information is collected in every aspect of business activities performed. This is not possible in the financial accounting system. But, this type of service is provided by the management accounting system.

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