10 Functions of Management Accounting You Must Know

Functions of Management Accounting.To be aware of the information needs of management, we must first understand the management function that accounting serves. Drucker (1974) suggests that management consists of the following functions: planning, controlling, organizing, communicating and motivating. Planning In the previous section we noted that planning has both short-term and long-term dimensions. The long-range plan summarizes management’s expectation of the future during the next three to five years, or perhaps even longer. The purpose of the long-range plan is to anticipate future needs or opportunities that require specific steps to be taken now or in the near future – for example investment in new facilities to increase capacity, and the development of new products or markets.

A company should not be taken by surprise by any developments that occur gradually over an extended period of time. It is essential that a firm systematically capacity, and the development of new products or markets. A company should not be taken by surprise by any developments that occur gradually over an extended period of time. It is essential that a firm systematically thinks ahead, since it is unlikely that its major product will be generating satisfactory profits in ten years’ time.

The planning process should provide answers to such questions as ‘What does the firm desire?’ and ‘When and how are the objectives to be accomplished?’ When management are agreed on the answers to these questions, a programme of action can be formulated consisting of long-term and short-term plans. The latter convert the firm’s long-range plans to the needs of the immediate future and consist of detailed plans in the form of the annual budget.

10 Functions of Management Accounting You Must Know

Control.

In our discussion of the decision-making process we noted that con-trol involves a comparison of actual performance with plans so that deviations from plan can be identified and corrective action taken. This may result in action to ensure that actual performance will conform with the original plans or, alternatively, a revision of the plans because they are no longer feasible. The control plotess enables management to assess whether or not the objectives included in the long-range plan are likely to be achieved. If the objectives are unlikely to be achieved, the control process provides the appropriate response for the review of the com-pany’s objectives and long-range plans. This process gives warning of potential problems and enables the objectives and commitments to be changed before any serious damage to the company’s future occurs.

Organizing.

Organizing is the establishment of the framework within which re-quired activities are to be performed, and the designation of who should perform these activities. In addition, organizing requires a clear definition of a manager’s responsibility and lines of authority. The process of organizing involves departmentalization by establishing divisions, depart-ments, sections, branches, and so on. These units are created to break organizational tasks into manageable parts, and it is essential that these tasks are satisfactorily coordinated if a company is to achieve its objectives efficiently.

The various departments or units are linked in a hierarchy, with a formal communication structure that enables instructions to be passed downwards and information to be passed upwards to senior management. An organization chart clarifies an organizational structure and assists in defining authority, responsibility and accountability. A partial organization chart for a manufacturing firm is presented in between the various managers. For example, the managers of the five major functions – marketing, production, finance, personnel, and research and development – are directly responsible to the managing director for their operations and performance; that is, they serve in a line relationship to the managing director.

Similarly, the managers of the machine, as-sembly, maintenance and distribution departments are directly respon-sible to the production manager, and thus a line relationship also exists here. Staff relationships, on the other hand, exist when one department provides a service to other departments. On most organizational charts, staff relationships are presented horizontally to the line functions which they serve, whereas line relationships between subordinates and their immediate supervisors are shown by vertical lines. The management ac-counting department performs a staff function by providing line managers and other staff managers with a specialized information service, which assists them in their decision-making, planning and control activities.

Motivating.

Motivation means influencing human behaviour so that the participants identify with the objectives of the organization and make decisions that harmonize with these objectives. The emphasis is on producing a drive or incentive that influences action towards meeting the objective. An important attribute of a good manager is to be able to motivate sub-ordinates to act in such a way that they strive to achieve the targets set by top management.

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