Chapter:2 Techniques and Functions of Management Decision

Techniques or Tools of Management Accounting

Management Accounting provides accounting services to the management.To present the accounting information in a systematic manner.The following are the methods or tools used in management accounting.

Financial policy and Accounting

It is essential for collecting the important information for management. The following things are determined under financial policy-

  1. How will be the financial management of a business?
  2. up to what quantity or limit the business will depend on long term loans?
  3. What will be the ratio of equity share capital and preference share capital?
  4. What will be the amount of capital required for the firm?
  5. What will be the policy regarding Dividened?

Financial Analysis

The important tool of Management accounting is financial analysis and interpretation of financial statements.To make the data meaningful , their proper analysis and interpretation is essential

For this,purpose the various techniques used are trend analysis,ratio analysis,fund flow,cash flow, and preparation of comparative financial statements etc.

Historical cost Accounting

The statement of actual costs after they have been actually incurred is called Historical cost Accounting.These statements of costs provide the information relating with the unit cost ,job cost, process cost, operation cost and product cost.

Standard costing

Standards regarding cost of raw material,labour cost expenditure are fixed on scientific basis .They provide a yardstick for measuring actual performance .Standard cost estimate what costs should be under ideal conditions?Standards costs are compared with actual cost to know the variances.

Marginal costing

Marginal cost is the cost which arises from the production of additional increments of output.”Marginal costing regards as product cost only those production cost which have a tendency to vary directly with the volume of output.

Budgetary Control

Budgetary Control is the primary requirement of scientific management .A budget is an expression of a business plan in terms of money for a specific period related to future.It is an estimate of the future needs calculated for a stipulated period.

There are also few techniques like Fund flow Analysis,Statistical and Graphical techniques,Financial Reporting,Decision-Accounting ,Revaluation Accounting and so on.

Functions of Management Accounting

The manner in which management accounting satisfies the needs of management for arriving at appropriate business decisions is given below-

Provides Data

Management Accounting provides valuable data to management for formulation of future policies and plans of business .

Modifies Data

Management Accounting properly compiles and classifies the accounting data for the purpose of managerial decision making.

Analysis and Interprets Data

It analyses and interprets the accounting data for effective planning and decision making.The data is presented in a comparative form with ratios for predicting the likely trends.

Facilitates Management Control

Management Accounting provides management control in the system of organisation so that the target of business can be acheived.It can be done by using standard costing,budgetary control,capital budgeting,ratio analysis,etc.

Serves as a means of communication

Management Accounting keeps all the parties informed well in time about the management plans.

Makes qualitative information

Usable by the enterprise such information that cannot be measured in terms of money are known as qualitative information. Part-2 is here

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