Determine the The tools and techniques used in management accounting
1. Financial policy and accounting: every concern has to take a decision about the sources of raising funds. The funds can be raised either through the issue of share capital or through the raising of loans. Again a decision is to be taken about the type of capital equity share capital or preference share capital. Preference share capital can be sub divided into a number of types. The second decision concerns the raising of loans. Whether the loans should be long term or short term is again a matter of policy. The proportion between share capital and loan should also be decided all these decisions are very important and management account provides techniques for financial planning. Tax planning is another aspect where management is helped by the management accountant. He tries to use various rules and regulation for the benefit of the organization
2. Analysis of financial statements: the analysis of financial statements is meant to classify and present the data in such a way that it becomes useful for the management. The meaning and significance of the data is explained in a non techniques language. The techniques of financial analysis include comparative financial statements ratios funds flow statements trend analysis etc.
3. Historical cost accounting: the system of recording actual cost data on or after the data when it has been incurred is known as historical cost accounting. The actual cost is compared to the standard cost and it gives an idea about the performance of the concern. Though costing is important but buys itself its utility is limited.
4. Budgetary control: it is a system which uses budgets as tool for planning for control. The budgets of all functional departments are prepared in advance. The budgets are based on historical data and future possibilities. The actual performance is recorded and compared with the pre determined targets. Management is able to assess the performance of each and every person in the organization. The timing of budgets and finding out deviations is an important tool for planning and controlling.
5. Standard costing: standard costing is an important technique for cost control purposes. In standard costing system costs are determined in advance. The determination of standard cost is based on a systematic analysis of prevalent conditions. The actual cost are recorded and compared with standard costs. The variances if any are analyzed and their reasons are ascertained. Standard costing helps to enhance the efficiency of the concern and also management by exception.
6. Marginal costing: this is a method of costing which is concerned with a change in costs resulting forms changes in the volumes of production. Under this system cost of product is divided into marginal and fixed costs. The latter part of cost is taken as fixed and is recorded as a level of production and every additional production unit involves only variable cost. Marginal costing is helpfcanul for measurement of profitability of different lines of production different departments and divisions of an enterprise. The decisions about short term utilization of capacity are also assessed with the help of marginal costing.
7. Decision accounting: an important work of management is to take decisions. Decision taking involves a choice from various alternatives. There may be decisions about capital expenditure whether to make or buy what price to be charged expansion or diversification etc. management accounting calculates financial implications of each alternative course of action and enables management to select the best course of action.