1. Accounting for management

a) Describe the purpose and role of cost and management accounting within an organization.[k]b) Compare and contrast financial accounting with cost and management accounting.[k]c) Outline the managerial processes of planning, decision making and control.[k]d) Explain the difference between strategic, tactical and operational planning.[k]e) Distinguish between data and information.[k]f) Identify and explain the attributes of good information.[k]g) Explain the limitations of management information in providing guidance for managerial decision-making.[k]

Cost Accounting and Management Accounting

Cost accounting and management accounting are terms which are often used interchangeably. It is not correct to do so. Cost accounting is part of management accounting. Cost accounting provides a bank of data for the management accountant to use.

Cost accountingis a process of collecting, analyzing, summarizing and evaluating various alternative courses of action.

Management accounting measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization.

Role of Cost and Management Accounting

The cost of goods produced or services provided. The cost of a department or work section. The profitability of a product, a service, a department, or the organization in total. Selling prices with some regard for the costs of sale. The value of inventories of goods(raw materials, work in progress, finished goods) that are still held in store at the end of a period, thereby aiding the preparation of a balance sheet of the company's assets and liabilities. Future costs of goods and services (costing is an integral part of budgeting (planning) for the future). How actual costs compare with budgeted costs.(If an organization plans for its revenues and costs to be a certain amount, but they actually turn out differently, the differences can be measured and reported. What information management needs in order to make sensible decisions about profits and costs.

Financial Accounting VS Management AccountingManagement AccountingFinancial Accounting

Users of informationManagement OnlyShareholders, banks, creditors, potential investors, Customs & Excise, Government, etc..

FormatCan take any formPresentation regulated by law and profession through accounting standards

ContentIncludes future predictionA summary of mainly historic information

Level of detailMore detailedAs prescribed by legislation

Frequency of preparationAnnually, Quarterly, monthly or weeklyUsually annually

Purpose of informationUseful to plan, control and make decisionStewardship and investment decision

Bases of valuationRelevant costsHistorical costs

Nature of informationFinancial and Non financialMostly financial

Legal requirementNoneLimited company most produce

Managerial process of Planning, Decision making and Control

Planning Planning is the setting of goals and selecting the means of achieving them. As business become large, these will need to be formalized. Planning can be either short term or long termDecision making Decision making usually involves using the information provided by the costing system to make decision. For decision to be optimal, management must be provided with information appropriate to their needs. Decisions are made at every step of managerial process.Control Strategic control compares the strength, weakness and limitations of the organization with other business in the same industry. Control mechanisms are to ensure that organizational objectives are achieved.Level of Planning Strategic PlanningLong term planning or Corporate planning Time period of planning is long-typically five or more years Decision taken are High Level Targets used will be broad Information used in planning will be mainly external

Tactical planning Planning the utilization of resources to achieve specific objectives in the most effective and efficient way. Time frame for planning is typically one year Tactical plans aim to contribute to the long term strategy Plans may be very formalized and detailed Information used in planning will be mix of internal and externalOperational planning Fully detailed specification by which individuals are expected to carry out the predetermined cycles of operations to meet sector objectives. Time frame for planning is very short-possibly one week or even one day ahead Targets set will be numeric targets The information used for planning will be mainly internalData and Information

Data are facts or pieces of information, which are recorded but not yet processed to make it suitable for use. Information is processed data. It is useful for supporting management in the decision making process.Processing may include: Summarizing Analyzing Filtering StoringAttributes of useful Information Accurate Complete Cost Effective Understandable Relevant Available Timely Easy to use

Limitation of Management Information External Information

2. Sources of data a) Describe sources of information from within and outside the organization (including government statistics, financial press, professional or trade associations, quotations and price list.[k]b) Explain the uses and limitations of published information/data (including information from the internet) .[k]c) Describe the impact of general economic environment on costs/revenue.[k]d) Explain sampling techniques (random, systematic, stratified, multistage, cluster and quota) .[k]e) Choose an appropriate sampling method in a specific situation.[s]

Sources of Information

Internal SourcesExternal Sources Marketing and sales information on performance, revenues, markets shares, distribution channels, etc. Production and operational information on assets, quality, standards, etc. Financial information on profits, costs, margins, cash flows, investments, etc. Internal documentation such as order forms, invoices, credit notes, procedural manuals. Payroll system census figures telephone directories judgments on court cases legislation, for example Data Protection Act national opinion polls trade journals Survey maps professional publications financial services agencies such industry standards the Internet Quotations

Limitation of Published or secondary data: Secondary data can be general and vague and may not really help companies with decision making. The information and data may not be accurate. The source of the data must always be checked. The data maybe old and out of date. The sample used to generate the secondary data may be small. The company publishing the data may not be reputable.Impact of Economic environment on Cost and Revenue: Future Economic Decision Disposable Income Investment Level

Strong EconomyWeak EconomyRevenue and cost both increase.Revenue will decline but cost will be same.

Sampling Methods Samplingis concerned with the selection of a subset of individuals from within astatistical populationto estimate characteristics of the whole population. Eachobservationmeasures one or more properties (such as weight, location, color) of observable bodies distinguished as independent objects or individuals. Asampling frameis the source material or device from which asampleis drawn.It is a list of all those within apopulation who can be sampled, and may include individuals, households or institutions. Aprobability sampleis a sample in which every unit in the population has a chance (greater than zero) of being selected in the sample, and this probability can be accurately determined. Non-probability samplingis any sampling method where some elements of the population havenochance of selection (these are sometimes referred to as 'out of coverage'/'under covered'), or where the probability of selection can't be accurately determined. Probability sampling includes:Simple Random Sampling,Systematic Sampling,Stratified Sampling, andClusterorMultistage Sampling. Non-probability sampling methods includequota sampling.Type of Sampling Random Sampling: In a simple random sample of a given size, all such subsets of the frame are given an equal probability.RS may also be bulky and tedious when sampling from an unusually large target population. "Stratified sampling" addresses this weakness of RS.

Systematic Sampling: Systematic samplingrelies on arranging the study population according to some ordering scheme and then selecting elements at regular intervals through that ordered list. Systematic sampling involves a random start and then proceeds with the selection of everynth element from then onwards. However, systematic sampling is especially weak to periodicities in the list.

Stratified Sampling: Where the population embraces a number of distinct categories, the frame can be organized by these categories into separate "strata." Each stratum is then sampled as an independent sub-population, out of which individual elements can be randomly selected.

Advantages over other sampling methods1. Focuses on important subpopulations and ignores irrelevant ones.2. Allows use of different sampling techniques for different subpopulations.3. Improves the accuracy/efficiency of estimation.4. Permits greater balancing of statistical power of tests of differences between strata by sampling equal numbers from strata varying widely in size.

Disadvantages1. Requires selection of relevant stratification variables which can be difficult.2. Is not useful when there are no homogeneous subgroups.3. Can be expensive to implement.

Multi-Stage Sampling: Use of Stratified Sampling for more than one time. This is applied where population is particularly large.

Cluster Sampling: Sampling is often clustered by geography, or by time periods. Clustering can reduce travel and administrative costs.

Quota Sampling: Inquota sampling, the population is first segmented intomutually exclusivesub-groups, just as instratified sampling. Then judgment is used to select the subjects or units from each segment based on a specified proportion. For example, an interviewer may be told to sample 200 females and 300 males between the age of 45 and 60.

KAPLAN BOOK: CH1(SOME PORTION), CH2(ALL)

1.1 Information isa. Datab. Processed Datac. Manipulated inputd. Computer output

1.2 Data by itself is not useful unlessa. It is massiveb. It is processed to obtain informationc. It is collected from diverse sourcesd. It is properly stated

1.3 For taking decisions data must bea Very accurateb Massivec Processed correctlyd Collected from diverse sources

1.4 Strategic information is needed fora Day to day operationsb Meet government requirementsc Long range planningd Short range planning

1.5 Strategic information is required bya Middle managersb Line managersc Top managersd All workers

1.6 Tactical information is needed fora Day to day operationsb Meet government requirementsc Long range planningd Short range planning

1.7 Tactical information is required by a Middle managersb Line managersc Top managersd All workers

1.8 Operational information is needed fora Day to day operationsb Meet government requirementsc Long range planningd Short range planning

1.9 Operational information is required bya Middle managersb Line managersc Top managersd All workers

1.10 Statutory information is needed fora Day to day operationsb Meet government requirementsc Long range planningd Short range planning

1.11 In motor car manufacturing the following type of information is strategica Decision on introducing a new modelb Scheduling productionc Assessing competitor card Computing sales tax collected

1.12 In motor car manufacturing the following type of information is tacticala Decision on introducing a new modelb Scheduling productionc Assessing competitor card Computing sales tax collected

1.13 In motor car manufacturing the following type of information is a Decision on introducing a new modelb Scheduling productionc Assessing competitor card Computing sales tax collected

1.14 In motor car manufacturing the following type of information is statutorya Decision on introducing a new modelb Scheduling productionc Assessing competitor card Computing sales tax collected

1.15 In a hospital information system the following type of information is strategica Opening a new childrens wardb Data on births and deathsc Preparing patients billd Buying an expensive diagnostic system such as CAT scan

1.16 In a hospital information system the following type of information is tacticala Opening a new childrens wardb Data on births and deathsc Preparing patients billd Buying an expensive diagnostic system such as CAT scan

1.17 In a hospital information system the following type of information is operationala Opening a new childrens wardb Data on births and deathsc Preparing patients billd Buying an expensive diagnostic system such as CAT scan

1.18 In a hospital information system the following type of information is statutorya Opening a new childrens wardb Data on births and deathsc Preparing patients billd Buying an expensive diagnostic system such as CAT scan

1.19 A computer based information system is needed because (i) The size of organization have become large and data is massive (ii) Timely decisions are to be taken based on available data (iii) Computers are available (iv) Difficult to get clerks to process dataa (ii) and (iii)b (i) and (ii)c (i) and (iv)d (iii) and (iv)

1.20 Volume of strategic information isa Condensedb Detailedc Summarizedd Irrelevant

1.21 Volume of tactical information isa Condensedb Detailedc Summarizedd relevant

1.22 Volume of operational information isa Condensedb Detailedc Summarizedd Irrelevant

1.23 Strategic information isa Haphazardb Well organizedc Unstructuredd Partly structured

1.24 Tactical information isa Haphazard System Analysis b Well organizedc Unstructuredd Partly structured

1.25 Operational information isa Haphazardb Well organizedc Unstructuredd Partly structured

1.26 Match and find best pairing for a Human Resource Management System (i)Policies on giving bonus (iv)Strategic information (ii)Absentee reduction (v)Tactical information (iii)Skills inventory (vi)Operational Informationa (i) and (v)b (i) and (iv)c (ii) and (iv)d (iii) and (v)

1.27 Match and find best pairing for a Production Management System (i) Performance appraisal of machines (iv)Strategic information to decide on replacement (ii)Introducing new production (v)Tactical information technology (iii)Preventive maintenance schedules (vi)Operational information for machinesa (i) and (vi)b (ii) and (v)c (i) and (v)d (iii) and (iv)

1.28 Match and find best pairing for a Production Management System (i) Performance appraisal of machines (iv)Strategic information to decide on replacement (ii)Introducing new production (v)Tactical information technology (iii)Preventive maintenance schedules (vi)Operational information for machinesa (iii) and (vi)b (i) and (iv)c (ii) and (v)d None of the above1.29 Match and find best pairing for a Materials Management System (i) Developing vendor performance (iv) Strategic information measures (ii) Developing vendors for critical (v) Tactical information items (iii)List of items rejected from a vendor (vi)Operational informationa (i) and (v)b (ii) and (v)c (iii) and (iv)d (ii) and (vi)

1.30 Match and find best pairing for a Materials Management System (i)Developing vendor performance (iv)Strategic information measures (ii)Developing vendors for critical (v)Tactical information items (iii)List of items rejected from a vendor (vi)Operational informationa (i) and (iv)b (i) and (vi)c (ii) and (iv)d (iii) and (v)

1.31 Match and find best pairing for a Materials Management System (i)Developing vendor performance (iv)Strategic information measures (ii)Developing vendors for critical (v)Tactical information items (iii)List of items rejected from a vendor (vi)Operational informationa (i) and (vi)b (iii) and (vi)c (ii) and (vi)d (iii) and (iv)

1.32 Match and find best pairing for a Finance Management System (i)Tax deduction at source report (iv)Strategic information (ii)Impact of taxation on pricing (v)Tactical information (iii)Tax planning (vi)Operational informationa (i) and (v)b (iii) and (vi)c (ii) and (v)d (ii)) and (iv)

1.33 Match and find best pairing for a Finance Management System (i)Budget status to all managers (iv)Strategic information (ii)Method of financing (v)Tactical information (iii)Variance between budget and (vi)Operational information expensesa (i) and (v)b (iii) and (vi)c (ii) and (v)d (ii) and (iv)1.34 Match and find best pairing for a Marketing Management System (i)Customer preferences surveys (iv)Strategic information (ii)Search for new markets (v)Tactical information (iii)Performance of sales outlets (vi)Operational informationa (i) and (iv)b (ii) and (v)c (iii) and (vi)d (ii) and (v)

1.35 Match and find best pairing for a Marketing Management System (i)Customer preferences surveys (iv)Strategic information (ii)Search for new markets (v)Tactical information (iii)Performance of sales outlets (vi)Operational informationa (iii) and (iv)b (i) and (vi)c (i) and (v) d (iii) and (v)1.36 Match and find best pairing for a Research and Development Management System (i)Technical collaboration decision (iv)Strategic information (ii)Budgeted expenses Vs actual (v)Tactical information (iii)Proportion of budget to be (vi)Operational information allocated to various projectsa (i) and (iv)b (ii) and (v)c (iii) and (vi)d (iii) and (iv)1.37 Match and find best pairing for a Research and Development Management System (i)Technical collaboration decision (iv)Strategic information (ii)Budgeted expenses Vs actual (v)Tactical information (iii)Proportion of budget to be (vi)Operational information allocated to various projectsa (i) and (v)b (iii) and (v)c (ii) and (v)d (i) and (vi)