Management accounting is the process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions.
Management accounting has grown and become more important as a result of the following factors:
- The global market – with improvements in transportation and communication, the market for customers has expanded and so to have company operations. Management accounting enables cost information to be provided and analyzed across divisions, segments, and countries to support the overall activities of the company.
- Changing cost structures – in the past materials and labor comprised the highest production costs but this has changed, overheads are now more significant and need to be carefully monitored. Management accounting facilitates the monitoring and control of costs.
- Increased competition – it is now more important than ever to have accurate cost information as companies are competing not just in terms of product price but also other factors such as product quality and customer service. Access to accurate product cost information allows companies to focus attention away from pricing to other significant factors.
- Internet opportunities – the arrival of the internet has brought greater opportunity to buy and sell products and services more easily and to monitor competitors and consumer trends. Management accounting may be implemented to gather cost information from all sources easily.
- Changing customer needs – customers have become more discerning and it is now more important to have pertinent information relating to customers and their profitability to a business. Management accounting allows companies to use cost information and techniques to obtain data on the cost of providing services to customers.
- Changing product lifecycles – due to intense competition and changing customer needs product lifecycles are becoming shorter. Companies need to be ready and able to introduce new products quickly and management accounting can facilitate this process by providing essential information for costing and decision making.