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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 1. Purpose of Mgmt info Planning mgmt info help mgmt plan the resource, how will be used - require the knowledge, available resources, possible time-scale for implementation 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 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 Overall performance measurement comparison against budget can be carried out Decision making involve choice between alternatives includes the activity of pricing, valuing stock, assessing profitability, deciding purchase of capital 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 output Sales mgr report of sales orders Question 1 The management accountant compares the profitability of two products, P and Q, and concludes that P is the best product to make. He writes a report of his findings for the board of directors. This report will primarily aid management in A. Decision-making B. Planning C. Controlling D. 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 the computer system 1

3.

4. 5. -

(i) (ii) (iii) (iv) (v) (vi)

Features of useful mgmt info - Reporting info required the active co-operation of end users, the accounts dept and info technology dept - Mgmt info might show: comparison between planned and actual results year to date (cumulative info) Comparison of co results and competitors results Comparison between current year and previous year result Profitability of product/service Value of stocks in store at the end of the period -Qualities of good information in the form of a mnemonic accurate Accurate Figures should add up, the degree of rounding should be appropriate, there should no mistakes Complete include all relevant info Cost-beneficial should not cost more to obtain the info than the benefit derived from having it User-targeted the needs of the user should be borne in mind, eg senior managers may require summaries Relevant Info that is not relevant should be omitted Authoritative the source of the info should be reputable and reliable Timely available when it is needed Easy to use clearly presented, not excessively long, and sent using the right communication channel. Question 2 Good Management information is A. Relevant, regular and reliable B. Timely, regular and sufficient C. Reliable, timely and relevant D. Relevant, convenient and material Question 3 Good information should be which of the following: i) Complete ii) Extensive iii)Relevant iv) Accurate A. (i),(ii) and (iii) only B. (i),(ii) and (iv) only C. (ii),(iii) and (iv) only D. (i),(iii) and (iv) only Sources and categories of information Internal and external source of information (i) Internal source of information eg. Reports from personnel dept (rate of pay for employees, detailed time record), Reports from warehouse (Goods Received Notes, material requisition notes), organisations policy manual (ii) External source of information eg. consumer price index statistics, health and safety legislation, financial reporting standard, suppliers price list, purchase invoices Question 4 : internal or external document? customer purchase order customer account balance 2

customer catalogue customer enquiries (i)

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Primary sources and Secondary sources primary sources data is gathered for a specific purpose(eg a co might interview its own customers directly to find out buying habits) advantage user knows where it come from, circumstances under which it was collected and any limitations in it. (ii) Secondary external sources data collected for general purposes, may be used in a variety of ways second hand information possible limitations user unaware of limitations, not suitable, out of date advantages convenient, can be valuable 4 main secondary external data sources: government (statistics), bank, newspapers, trade journals. 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 book Non routine information eg. Ad hoc report information in connection with one-off issue/problem Coding Structure info will be sorted and grouped through coding structured The accounting system normally contains codes to identify: the type of cost the responsibility centre the supplier Three features of an effective system of codes Each code should be unique codes should not be too complex New 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 01 172 301 Originating dept Type of cost/income End product/service cost centre/location Example: 01172301 Factory dept wage charged to product 301

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(i) (ii) (iii)

Computer systems and coding structures help to sort the information into the categories and formats required for both financial and management accounting. Types of code a) Sequential (or progressive) codes Numbers are given to items in ordinary numerical sequence, so that there is no obvious connection between an item and its code. Eg 00030 Office calculator 00031 Pencils 00032 Tools b) Block (group classification) codes: These are an improvement on simple sequences codes, in that a digit (often the first on) indicates the classification of an item. Eg. Fixed assets 1XXX 3

Current asset 2XXX c) Faceted codes : These are a refinement of block codes, in that each digit of the code gives information about an item. Eg.The first digit Type of asset 1 Fixed asset 2 Current asset Second digit 1 Office equipment 2 Furniture and fittings 3 Computer equipment Third digit 1 Account department 2 Sales and marketing department 3 Personnel department

A computer in personnel department would have a code of 132 d) Mnemonic codes Mnemonic 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 coding used for airports: LAX Los Angeles CAI Cairo SIN Singapore e) Hierarchical codes This is a type of faceted code where each digit repreasents a classification, and each digit further to the right represents a smaller subset than those to the left. For example: 1 = Fixed asset 13 = Computer 132=Computer in Personnel department Question 5 A computer coding structure is useful in A. Cost and management accounting B. Financial accounting C. Both cost and management accounting and financial accounting D. Neither cost and management accounting or financial accounting Question 6 Extract from code list Telephone numbers and locations Telephone expenses 5500-5599 020 7668 9923 Managing direct 5510 General administration 020 7668 9871 Marketing manager 5530 Sales and marketing 020 7668 9398 Factory floor 5570 Manufacturing 020 7668 9879 Accounts office 0879 6634 Salespersons mobile Which telephone lines would you charge to code 5510 A. Sales persons mobile and the marketing manager B. Managing director and accounts officer C. Factory floor and accounts office D. Managing director and marketing manager Financial accounting the recording and presentation of monetary transactions in accordance with statutory rules to provide the owners of the organization with an account of the financial position at a given date. Management accounting

an integral part of management concerned with identifying, presenting and interpreting information which is used for formulating strategy, planning and control, decision making and 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 1. distributed internally for use within a business only 2. recorded & presented in a way that is decided by mgmt 3. look at past data and also future data (planning purposes) 4. include both financial & non-financial info Financial Reporting 1. used for external and internal reporting 2. there is a legal requirement for limited co to prepare 3. concerned with past data only 4. include only financial info 5. detail the results of org over a defined period (usually a year)

1. 2. 3. 4. 5. 6. 7. 8.

Limitation of cost & Mgmt Accounting Info Affected by fluctuation in prices over time Costs have been coded to wrong products info on product profitability little use Info produced in wrong timing No communication between mgr and cost accountant info provided to mgr is not the type/format he required Comparison of figures over time based on outdated info Info might not complete Info with accounting jargon to non-accountant 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 cost accounting 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 5

Exam Style Questions 1. 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 information A. 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 mnemonic accurate? A. Accurate B. Communication C. Complete D. User-Targeted 6. Which one of the following sources of information would usually be an internal source of information for a business? A. The government B. Tax consultants C. The internet D. The receivables ledger 6

7. The cost accountant has produced a report showing the hourly output from the factory floor for the last week. Who in the organisation is most likely to require this information? A. The financial accountant B. C. D. The sales director The production manager 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 the materials 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 accounts department? 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 7

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. D. Produced periodically 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 management information 2. There are no external rules governing the format and content of financial information A. B. C. D. Are the above statement true or false? Both statements are true Both statements are false Statement 1 is false but statement 2 is true Statement 1 is true but statement 2 is false 15. Which one of the following questions would not normally be answered by the accounting technician? What has the cost of goods produced been? What have revenues been? What should our business strategy be for the next five years? 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 each name are followed by four digits. The letters of the name uses which type of coding? A. Hierarchical C. Mnemonic B. Block D. Sequential 17. Two statements follow about information: 8

A. B. C. D.

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 user B. The length of the report C. Confidentiality D. Neat handwriting 20. Which type of coding system uses an aid to memory in its code?

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