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 accounting is 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 Accounting

Users of
information

Management
Accounting
Management Only

Format

Can take any form

Content

Includes future
prediction

Level of detail

More detailed

Frequency of
preparation
Purpose of
information
Bases of
valuation
Nature of
information
Legal
requirement

Annually, Quarterly,
monthly or weekly
Useful to plan, control
and make decision
Relevant costs
Financial and Non
financial
None

Financial
Accounting
Shareholders,
banks, creditors,
potential investors,
Customs & Excise,
Government, etc..
Presentation
regulated by law
and profession
through accounting
standards
A summary of
mainly historic
information
As prescribed by
legislation
Usually annually
Stewardship and
investment decision
Historical costs
Mostly financial
Limited 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 term
Decision 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.
Long

Level of Planning Strategic Planning

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 external
Operational 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 internal
Data 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
Storing
Attributes 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 Sources

External Sources

Marketing and sales information on

performance, revenues, markets shares,
distribution channels, etc.

census figures

telephone directories

Production and operational information on

assets, quality, standards, etc.

judgments on court cases

legislation, for example Data Protection Act

Financial information on profits, costs,

margins, cash flows, investments, etc.

national opinion polls

Internal documentation such as order

forms, invoices, credit notes, procedural
manuals.

trade journals

Survey maps

Payroll system

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 Economy

Weak Economy

Revenue and cost both increase. Revenue will decline but cost will be
same.

Sampling Methods

Sampling is concerned with the selection of a subset of individuals from

within a statistical population to estimate characteristics of the whole
population. Each observation measures one or more properties (such as
weight, location, color) of observable bodies distinguished as independent
objects or individuals.
A sampling frame is the source material or device from which a sample is
drawn. It is a list of all those within a population who can be sampled, and
may include individuals, households or institutions .

A probability sample is 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 sampling is any sampling method where some elements of
the population have no chance 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, and Cluster or Multistage Sampling.
Non-probability sampling methods include quota 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 sampling relies 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 every nth 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 methods
1. 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.
Disadvantages
1. 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: In quota sampling, the population is first segmented

into mutually exclusive sub-groups, just as in stratified 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 is
a. Data
b. Processed Data
c. Manipulated input
d. Computer output

1.2 Data by itself is not useful unless

a. It is massive
b. It is processed to obtain information
c. It is collected from diverse sources
d. It is properly stated

1.3 For taking decisions data must be

a Very accurate
b Massive
c Processed correctly
d Collected from diverse sources

1.4 Strategic information is needed for

a Day to day operations
b Meet government requirements
c Long range planning
d Short range planning

1.5 Strategic information is required by

a Middle managers
b Line managers
c Top managers
d All workers

1.6 Tactical information is needed for

a Day to day operations
b Meet government requirements
c Long range planning
d Short range planning

1.7 Tactical information is required by

a Middle managers
b Line managers
c Top managers
d All workers

1.8 Operational information is needed for

a Day to day operations
b Meet government requirements
c Long range planning
d Short range planning

1.9 Operational information is required by

a Middle managers

b Line managers
c Top managers
d All workers

1.10 Statutory information is needed for

a Day to day operations
b Meet government requirements
c Long range planning
d Short range planning

1.11 In motor car manufacturing the following type of information is

strategic
a Decision on introducing a new model
b Scheduling production
c Assessing competitor car
d Computing sales tax collected

1.12 In motor car manufacturing the following type of information is

tactical
a Decision on introducing a new model
b Scheduling production
c Assessing competitor car
d Computing sales tax collected

1.13 In motor car manufacturing the following type of information is

a Decision on introducing a new model

b Scheduling production
c Assessing competitor car
d Computing sales tax collected

1.14 In motor car manufacturing the following type of information is

statutory
a Decision on introducing a new model
b Scheduling production
c Assessing competitor car
d Computing sales tax collected

1.15 In a hospital information system the following type of information is

strategic
a Opening a new childrens ward
b Data on births and deaths
c Preparing patients bill
d Buying an expensive diagnostic system such as CAT scan

1.16 In a hospital information system the following type of information is

tactical
a Opening a new childrens ward
b Data on births and deaths
c Preparing patients bill
d Buying an expensive diagnostic system such as CAT scan

1.17 In a hospital information system the following type of information is

operational

a Opening a new childrens ward

b Data on births and deaths
c Preparing patients bill
d Buying an expensive diagnostic system such as CAT scan

1.18 In a hospital information system the following type of information is

statutory
a Opening a new childrens ward
b Data on births and deaths
c Preparing patients bill
d 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 data
a (ii) and (iii)
b (i) and (ii)
c (i) and (iv)
d (iii) and (iv)

1.20 Volume of strategic information is

a Condensed

b Detailed
c Summarized
d Irrelevant

1.21 Volume of tactical information is

a Condensed
b Detailed
c Summarized
d relevant

1.22 Volume of operational information is

a Condensed
b Detailed
c Summarized
d Irrelevant

1.23 Strategic information is

a Haphazard
b Well organized
c Unstructured
d Partly structured

1.24 Tactical information is

a Haphazard System Analysis
b Well organized

c Unstructured
d Partly structured

1.25 Operational information is

a Haphazard
b Well organized
c Unstructured
d 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 Information
a (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 machines

a (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 machines
a (iii) and (vi)
b (i) and (iv)
c (ii) and (v)
d None of the above
1.29 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 information
a (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 information

a (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 information
a (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 information
a (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 expenses
a (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 information
a (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 information
a (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
projects
a (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
projects
a (i) and (v)
b (iii) and (v)
c (ii) and (v)
d (i) and (vi)