Question

assay in the importance of  managerial accounting in every day business life.

Answer 1

The Role of Management Accounting in an Organization

1. Helping Forecast the Future:

   Forecasting aids decision-making and answering questions, such as: Should the company invest in more equipment? Should it diversify into different markets? Should it buy another company? Management accounting helps in answering these critical questions and forecasting the future trends in business.

2. Helping in Make-or-buy Decisions:

   Is it cheaper to procure materials or a product from a third party or manufacture them in-house? Cost and production availability are the deciding factors in this choice. Through management accounting, insights will be developed which will enable decision-making at both operational and strategic levels.

3. Forecasting Cash Flows:

   Predicting cash flows and the impact of cash flow on the business is essential. How much cost will the company incur in the future? Where will its revenues come from and will the revenues increase or decrease in the future? Management accounting involves designing of budgets and trend charts, and managers use this information to decide how to allocate money and resources to generate the projected revenue growth.

4. Helping Understand Performance Variances:

   Business performance discrepancies are variances between what was predicted and what is actually achieved. Management accounting uses analytical techniques to help the management build on positive variances and manage the negative ones.

5. Analyzing the Rate of Return:

   Before embarking on a project that requires heavy investments, the company would need to analyze the expected rate of return (ROR). If given two or more investment opportunities, how should the company choose the most profitable one? In how many years would the company break even on a project? What are the cash flows likely to be? These are all vital questions that can be answered through management accounting.