Management accounting provides information that enables a company's management to make decisions. If a new technology emerges or a supplier makes an offer, the management team can rely on this branch of accounting to calculate the effects of such factors on the business' spending and profitability. The possible costs associated with the purchase of this new technology are analyzed and alternative methods of achieving the desired results from this new technology are also considered. If the alternative is cheaper and provides the same result, the relevant costs are foregone. Decisions made with the backing of this type of information enable the business to remain relevant to the market and compete effectively with its competitors. This is done by combining the lowest costs with the utmost quality.
Analysis of relevant and alternative costs provides information necessary for management to make budgets and future plans, and to analyze departmental performance. This is true in the case of organizations that produce more than one product but have limited resources. A tool such as the cost volume analysis method provides insight into the combination of products that most profitably utilizes the resources available. This enables management to decide whether to keep using the same raw materials for production of its products or to forgo these materials and the costs related to alternative options.
Analysis of options provided by relevant and alternative costs helps in determining cost placement between sales and inventory for the next accounting period. This is for internal and external financial accounting purposes. It also helps the business owners assess the business' performance more effectively in each accounting period, factoring in the costs carried forward from previous accounting periods, as well as the costs carried forward to the next period.
Accountants use information provided by management accounting. This information, which includes detailed reports as to why one alternative is chosen over another, is used to create financial books of accounts that are a legal requirement for every business. They use the information as a base from which to draw the information they require. Auditors also use this information to conduct their audits. Management accounting records are also used as reference materials to verify financial reports.