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Determine the Need and importance of management accounting:
1.Increasing efficiency: management accounting increases efficiency of business operations. The targets of different departments are fixed in advance and the achievement of these goals is a tool for measuring their efficiency.
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.
3. Measurements of performance: the systems of budgetary control and standard costing enable the measurements 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 to help in measuring efficiency of all employees.
4. Maximizing profitability: the thrust of various management techniques is to control cost of production and increase efficiency of each and every individual in the organization. The steps of controlling costs are able to reduce cost of production. The profits of the enterprise are maximized with the help of management accounting system.
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 standard are predetermined. The customers supplied good quality at reasonable prices. The increase in production of goods also enhances supply of goods to customers.
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 and assessing actual performance regularly enables the management to have management by exception.
Why might managers favour this ABC system instead of the older system that allocated all MOH costs on the basis of direct? labour?
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