c1 Mgmt Info

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Chapter 1 Introduction to Management Information (Mgmt Info)

Data - is a term for facts, figures, information and processing- raw material for data processing- eg. number of student in this class

Information processed data meaningful to the person who receive it

Data is collected processed meaningful information(running research)

Data collected processed report summarized the result

Management people in charge of running a business (managers)

Management information - info given to the people are in charge of running a business(report)

- can be financial info (in term of money) and non financial info

Purpose of Mgmt info1. Planning mgmt info help mgmt plan the resource, how will be used

- require the knowledge, available resources, possible time-scale forimplementation and the likely outcome under alternative scenario

2. Control once mgmt plans, need to control over business activity, make sure carrying

out the original plans- whether things are going to plan

3. Recording transaction - use as evidence in case of dispute- detailed info on production cost can be built up allowing a better

assessment of profitability.- legal required, eg accounting and audit purpose

4. Overall performance measurement comparison against budget can be carried out5. Decision making involve choice between alternatives

- includes the activity of pricing, valuing stock, assessing profitability, deciding purchase ofcapital assets

- info required by manager vary according to the nature of the organisation, and individual

responsibility

Info interested- Eg. Senior mgmt financial statement

Supervisor daily report outputSales mgr report of sales orders

Question 1The management accountant compares the profitability of two products, P and Q, andconcludes that P is the best product to make. He writes a report of his findings for theboard of directors. This report will primarily aid management inA. Decision-makingB. Planning

C. ControllingD. Implementing

Reporting information requires the active co-operation of the following groups

1. End user : managers and supervisors

2. The accounts department: which usually processes the information

3. The information technology department: which usually sets up and makes changes to thecomputer system

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Features of useful mgmt info- Reporting info required the active co-operation of end users, the accounts dept and infotechnology dept- Mgmt info might show:comparison between planned and actual resultsyear to date (cumulative info)

) Comparison of co results and competitors results

) Comparison between current year and previous year resultProfitability of product/service

) Value of stocks in store at the end of the period-Qualities of good information in the form of a mnemonic accurateAccurate Figures should add up, the degree of rounding should be appropriate, thereshould no mistakesComplete include all relevant infoCost-beneficial should not cost more to obtain the info than the benefit derived fromhaving itUser-targeted the needs of the user should be borne in mind, eg senior managers mayrequire summariesRelevant Info that is not relevant should be omittedAuthoritative the source of the info should be reputable and reliable

Timely available when it is neededEasy to use clearly presented, not excessively long, and sent using the rightcommunication channel.

Question 2Good Management information isA. Relevant, regular and reliableB. Timely, regular and sufficientC. Reliable, timely and relevant

D. Relevant, convenient and material

Question 3Good information should be which of the following:i) Completeii) Extensiveiii)Relevantiv) AccurateA. (i),(ii) and (iii) onlyB. (i),(ii) and (iv) onlyC. (ii),(iii) and (iv) onlyD. (i),(iii) and (iv) only

Sources and categories of informationInternal and external source of information(i) Internal source of information eg. Reports from personnel dept (rate of pay foremployees, detailed time record),

Reports from warehouse (Goods Received Notes, materialrequisition notes), organisations policy manual

(ii) External source of information eg. consumer price index statistics, health and safetylegislation, financial reporting standard, suppliers price list,purchase invoices

Question 4 : internal or external document?customer purchase order customer account balance

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customer catalogue customer enquiries

Primary sources and Secondary sources(i) primary sources

o data is gathered for a specific purpose(eg a co might interview its own customers directly to

find out buying habits)o advantage user knows where it come from, circumstances under which it was collected

and any limitations in it.

(ii) Secondary external sourceso data collected for general purposes, may be used in a variety of ways second hand

informationo possible limitations user unaware of limitations, not suitable, out of date

o advantages convenient, can be valuable

o 4 main secondary external data sources: government (statistics), bank, newspapers, trade

journals.o Other example: personnel records used to asses training needs

Routine and non routine information (can be used for short-term and long-run decisions)

Routine information eg. sales day book, purchase day bookNon routine information eg. Ad hoc report information in connection with one-offissue/problemCoding Structure

o info will be sorted and grouped through coding structured

o The accounting system normally contains codes to identify:

(i) the type of cost(ii) the responsibility centre(iii) the supplier

o Three features of an effective system of codes

Each code should be unique

codes should not be too complexNew entries should be able to be added to the coding structure in a logical way

cost code description of a cost using numbers, letters or a combination of both

A typical computer cost code structure

01 172 301Originating dept Type of cost/income End product/servicecost centre/location

Example: 01172301Factory dept wage charged to product 301

Computer systems and coding structures help to sort the information into thecategories and formats required for both financial and management accounting.

Types of codea) Sequential (or progressive) codes

Numbers are given to items in ordinary numerical sequence, so that there is no obviousconnection between an item and its code. Eg

00030 Office calculator00031 Pencils00032 Tools

b) Block (group classification) codes: These are an improvement on simple sequencescodes, in that a digit (often the first on) indicates the classification of an item. Eg.

Fixed assets 1XXX

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Current asset 2XXX

c) Faceted codes : These are a refinement of block codes, in that each digit of the codegives information about an item.

Eg.The first digit Type of asset1 Fixed asset

2 Current asset

Second digit 1 Office equipment

2 Furniture and fittings3 Computer equipment

Third digit 1 Account department2 Sales and marketing department3 Personnel department

A computer in personnel department would have a code of 132

d) Mnemonic codesMnemonic is a learning technique to aid the memory. This type of coding means

something, it may be an abbreviation of the object being coded. Eg three letters codingused for airports:

LAX Los Angeles CAI CairoSIN Singapore

e) Hierarchical codesThis is a type of faceted code where each digit repreasents a classification, and eachdigit further to the right represents a smaller subset than those to the left. For example:1 = Fixed asset

13 = Computer132=Computer in Personnel department

Question 5A computer coding structure is useful inA. Cost and management accountingB. Financial accountingC. Both cost and management accounting and financial accountingD. Neither cost and management accounting or financial accounting

Question 6Extract from code list Telephone numbers and locations

Telephone expenses 5500-5599 020 7668 9923 Managing direct5510 General administration 020 7668 9871 Marketing manager5530 Sales and marketing 020 7668 9398 Factory floor5570 Manufacturing 020 7668 9879 Accounts office

0879 6634 Salespersons mobile

Which telephone lines would you charge to code 5510A. Sales persons mobile and the marketing managerB. Managing director and accounts officerC. Factory floor and accounts office

D. Managing director and marketing manager

Financial accounting the recording and presentation of monetary transactions in accordance with statutoryrules to provide the owners of the organization with an account of the financial position ata given date.

Management accounting

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an integral part of management concerned with identifying, presenting and interpretinginformation which is used for formulating strategy, planning and control, decision makingand optimizing the use of resources.

Cost accounting (part of management accounting) the establishment of budgets, standard costs and actual costs of operations, processes,

activities or products; and the analysis of variances, profitability or the social use of funds.

Mgmt accounting & Financial Reporting

Mgmt accounting Financial Reporting

1. distributed internally for use within abusiness only

1. used for external and internal reporting

2. recorded & presented in a way that isdecided by mgmt

2. there is a legal requirement for limited coto prepare

3. look at past data and also future data(planning purposes)

3. concerned with past data only

4. include both financial & non-financial info 4. include only financial info5. detail the results of org over a defined

period(usually a year)

Limitation of cost & Mgmt Accounting Info1. Affected by fluctuation in prices over time2. Costs have been coded to wrong products info on product profitability little use3. Info produced in wrong timing4. No communication between mgr and cost accountant info provided to mgr is not the

type/format he required5. Comparison of figures over time based on outdated info6. Info might not complete7. Info with accounting jargon to non-accountant8. Non financial matters not included (eg. customer satisfaction) which are relevant to

planning, control & decision making

Accounting Technicians role in a cost accounting system

- Accounting technicians have access to a large amount of info recorded in the costaccounting records

- Role:1. providing info on future cost of goods & service (planning / budgeting process)2. highlight variance by comparing current cost and budgeted cost variance should be

investigated.3. producing regular performance statement with the use of accounting system

- cost accounting system capable of analyzing cost info quickly and easily

- Questions to be answered by accounting technicians(i) what has cost of goods produced or service provided been?(ii) what has the cost of operating a dept been?(iii) what have revenues been?(iv) ask to assess how profitable certain products/dept are(v) review cost of product to set selling price(vi) to value to stock of goods which are unsold at the end of a period

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Exam Style Questions1. How would facts and figures which have been processed and communicated to another

party to be best described?A. Data

B. Statistics

C. Information

D. Coding

2. Which of the following would be data rather than information?A. Sales increase/decrease per product in last quarter

B. Total sales value per product

C. Sales made per salesman as a percentage of total sales

D. Salesmens commission as a percentage of total sales

3. Two statements follow about data and information:

1. Data is a scientific term for facts, figures and information

2. Information is data which has been processed

Which one of the following is correct with regard to the above two statements?A. Both statements are false

B. Both statements are true

C. Statement 1 is true but statement 2 is false

D. Statement 1 is false but statement 2 is true

4. Which of the following combinations describe the purposes of management informationA. Planning, negotiating and decision making

B. Control, decision making and publication

C. Decision making, negotiating implementing

D. Planning, control and decision making

5. Which one of the following qualities of information does not appear in the mnemonicaccurate?A. AccurateB. Communication

C. CompleteD. User-Targeted

6. Which one of the following sources of information would usually be an internal source ofinformation for a business?A. The governmentB. Tax consultantsC. The internetD. The receivables ledger

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7. The cost accountant has produced a report showing the hourly output from the factoryfloor for the last week. Who in the organisation is most likely to require this information?A. The financial accountant

B. The sales director

C. The production manager

D. The human resources manager

8. Which of the following is not a quality of good management information?A. Clarity

B. Reliability

C. Accuracy

D. Computerised

9. The cost accountant has provided information about the actual and budgeted cost of thematerials used in production in the last month. This information will primarily aid

management in which of the following area?A. Planning

B. Implementing

C. Control

D. Decision making

10. Which of the following is not an example of internal information for the accountsdepartment?

A. Goods received note

B. Time sheets for employees

C. Materials requisitions from the factory

D. Purchase invoices from suppliers

11. Three statements follow about management accounting:1. Management accounts are a legal requirement for a company

2. Management accounts consider future data only

3. Management accounts include financial and non-financial information

Which of the statements above are true?

A. 1 and 3 only

B. 2 and 3 only

C. 2 only

D. 3 only

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12. Which of the following is not an attribute of management accounts?A. Based on historical data only

B. Produced for internal use only

C. Used for planning, decision making and control

D. Presented according to managements wishes

13. Which of the following could be considered to be a limitation of cost and management

accounting information?

A. Affected by changing prices over time

B. Includes non-financial as well as financial information

C. Produced periodically

D. Produced in the format required by management

14. Two statements follow about the format and content of information.1. There are no external rules governing the format and content of managementinformation2. There are no external rules governing the format and content of financial information

Are the above statement true or false?A. Both statements are trueB. Both statements are falseC. Statement 1 is false but statement 2 is trueD. Statement 1 is true but statement 2 is false

15. Which one of the following questions would not normally be answered by the accountingtechnician?

A. What has the cost of goods produced been?B. What have revenues been?

C. What should our business strategy be for the next five years?D. What has the cost of operating department A been?

16. A company uses a unique code top identify its customers: the first four letters of eachname are followed by four digits.

The letters of the name uses which type of coding?A. Hierarchical C. MnemonicB. Block D. Sequential

17. Two statements follow about information:

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1. Information is the scientific term for facts, figures and processing.2. Management information is information that is given to the person who is in charge of

running an organization

A. Both statements are false

B. Both statements are true

C. Statement 1 is true but statement 2 is false

D. Statement 1 is false but statement 2 is true

18. Which of the following is not usually considered to be one of the purpose of management

information?

A. Implementing

B. Planning

C. Control

D. Decision making

19. What is main factor to consider when designing a management report?A. The needs of the userB. The length of the reportC. ConfidentialityD. Neat handwriting

20. Which type of coding system uses an aid to memory in its code?

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