The advantages of management accounting are summarized below:
1. Helps in Decision Making: Management accounting helps in decision making such as pricing, make or buy, acceptance of additional orders, selection of suitable product mix etc. These important decisions are taken with the help of marginal costing technique.
2. Helps in Planning: Planning includes profit planning, preparation of budgets, programmes of capital investment and financing. Management accounting assists in planning through budgetary control, capital budgeting and cost-volume-profit analysis.
3. Helps in Organizing: Management accounting uses various tools and techniques like budgeting, responsibility accounting and standard costing. A sound organizational structure is developed to facilitate the use of these techniques.
4. Facilitates Communication: Management is provided with up-to-date information through periodical reports. These reports assist the management in the evaluation of performance and control.
5. Helps in Co-coordinating: The functional budgets (purchase budget, sales budget, and overhead budget etc.) are integrated into one known as master budget. This facilitates clear definition of department goals and coordination of their activities.
6. Evaluation and Control of Performance: Management accounting is a convenient tool for evaluation of performance. With the help of ratios and variance analysis, the efficiency of departments can be measured which assists management in the location of weak spots and in taking corrective actions.
7. Interpretation of Financial Information: Management accounting presents information in a simple and purposeful manner. This facilitates quick decision making.
8. Economic Appraisal: Management accounting includes appraisal of social and economic forces and government policies. This appraisal helps the management in assessing their impact on the business.