ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Relevance of management accounting to an organisation

Updated on August 10, 2011

It is a tool of management that provides a detailed record of the costs relating to products, services, operations or activities. It is the process of determining and accumulating the costs of some particular products or services. This is a cost accumulation system concerned with calculation of costs for the purposes of stock valuation and profit measurement.  It also emphasises the controlling of costs so as to have high quality products at minimum cost.

Management accounting enables stock valuation and profit measurement. This is one of the cost objects of every cost accounting system. Something whose cost has been ascertained is a cost object for example lighting, rent, water, and unit of production. Whatever is produced must be valued and this can be achieved if the unit cost can be ascertained. Stock valuation is crucial for the preparation of financial reports. These reports are statements of comprehensive income, statement of financial positions and cash flow reports. This is because both sold and unsold items make part of financial statements. They influence the level of performance and financial position of the firm. What is sold is valued otherwise profit can never be measured. Therefore mangers use this accounting information to manage the different functional areas of the firm.

Management accounting can help functional areas of the organisation in cost control. Controlling cost is the crux of management and management accounting. It involves the comparison of the actual results against planned results. The major aim is to contain costs incurred in providing goods and services by being more efficient. An organisation can be more efficient by reducing factory overhead costs for example purchase up to date machinery which in turn can reduce on per unit cost and eventually the overall total cost. The firm can also control cost by employing suitable personnel for the jobs so as to minimise spoilage and damages which run up the total cost.

Setting goals

Measuring actual results

Action taken

Compare target against actual results

Management accounting helps in assessing the profitability of products and services. Every product’s viability is always evaluated before it is produced. It is important to ensure the product or service provided should increase the value of the business. The assessment can be achieved by comparing the product or service unit cost against the unit selling price in order to measure the unit contribution. For example if a kilogram of coffee was produced at 50/= per unit kg and sold at 150/= per unit kg, then the cost is compared to the selling price. In this case producing the coffee is profitable to the firm.

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      Mufaddal K 5 years ago

      I agree that management accounting is very important but the bigger issue is if key decision makers don't know what data is available or how to use it, the value that management accounting provides is really low. Most companies have tons of data being created internally and many non-Finance decision makers don't know that any of it exists. We see this all the time in our data analysis consulting work (I work for PanXpan - http://www.panxpan.com). We find for many of our clients they need us to integrate internal data and then offer them different types of analysis that can be run on internal data. Without this much of the data created using management account would be wasted internally.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)