management accounting basic level

7/29/2019 Management Accounting Basic Level

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Data:

Raw facts, figures, words and sentences which have no meaning for user.

Information:

Processed data is called Information which has meaning for user.

Data cannot be used as information but information can be used as data for further

processing.

For example:

A company decides to give bonus to its employs but criteria for this bonus is that

employ have been working for 3 years working in company and have age above 40

years.

Provided Data:

Mr. Joining Year

A 2006 Qualified

B 2008 Not Qualified

C 2003 Qualified

D 2004 Qualified

E 2009 Not Qualified

F 2005 Qualified

Information Obtained (Processing):

Mr. Age

A 45 Qualified

C 42 Qualified

D 39 Not Qualified

F 38 Not Qualified

Further Processing:


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Final information which has used to user is that:

Mr. A and Mr. C are qualified for company bonus.

We obtained this information with raw data, then we processed it and after more further

processing, we got our final results.

Management:

People in-charge of running a business is called Management.

In management, every person working for the sake of company is included from top

to bottom even sweepers and watchman also.

Management Information:Information required by management for running a business is called management

information.

For example:

Number of products produced.

Number of product sold.

Number of machines.

Number of employs.

Structure of the organization.e.g. In case of SKANS.

Principal

Coordinator

Assistant Coordinator

Purpose of Management:Planning, Controlling and Decision Making.

1. Planning:

Define a goal of the business

Main purpose of the organization

Main purpose should be for whole organization including sweepers and

watchman.

Maximum Profit

Best quality Products


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Low Price Products

For your main purpose, you can even choice combinations of different goals like

maximum profit and best quality product at a time.

Set Objectives

Sub-division goals at departmental levels (Divide small tasks and distribute it

in different department to achieve your goals). For example

Production Department has to reduce cost of product up to 5%.

Sale Department has to increase sales by 2%.

For each department.

A course of action (To fulfill your goal)

Reducing production costs by 5%, it can be done by following ways:

Labours should be replaced by Machines. Low price material purchase.

Skilled employs should be replaced by semi-skilled employs.

Evaluate, select and implement a strategy

We should evaluate good and bad points of a strategy like expelling labours

cause decrease in morale of other labours and similarly low price material can

be of low quality resulting in bad quality products. We can select few good

point from evaluation and then implement them.

Start Operation (business)

2. Controlling:

Compare actual results with plan

In this phase, we should compare our planned (theoretical value of different

parameters like cost) values with actual facts after starting business up to a

limit like a year or a month. For example

Planned Cost = $ 10,000

Actual Cost = $ 12,000Variance = $ 2,000

Variance is similar to difference, there is two type of difference like positive (our

planned values is greater than actual which results in profit or saving) and negative (our

planned value is less than actual which results in loss or spending), if it is positive then

we need to not worry about our plan but if it is negative just like above example then

we have to take some actions to control it.

We can take these kind of actions to reduce actual cost from above example:

We can negotiate with supplier to give us concession. We can purchase


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bulk quantity of material to get discount. We can ask for concession

because of old customer of supplier. We can rent our ware house in

non-commercial area.

Take corrective actions if required

3. Decision Making:

In this phase, we select one option on another, similarly like switching between

suppliers. We take our decisions on two different levels explained below:

At Planning Stage

At Controlling Stage

There is another possibility that if government of that country is not stable and switch

between your operating business and changes policies then you can compensate by

increasing product price or revision our plan and make changes in it.

Exams point of view:

1. If in the statement, there is sense or word of reporting then it will be decision

making phase.

2. If in the statement, there is a comparison of actual with planned values then it will

be controlling phase.

3. If statement is general like making future plans, considering of purchasing

anything then it will be planning phase.

Features of Management Information:

To take good and informed decision, there should be some qualities in information.

1. Reliable:

Source of information should be reliable.

2. Relevant:

Provide information which is required (to the point information) no too muchdetails. For example

Required: Product A sales information

Sales = $10,000

Cost = $7,000 -> if you start giving advertisement cost and other details and

similarly Profit = $3,000, this is not good way.

3. Complete:

Provide all information which is required. Provided information should be

complete in every way.


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4. Accurate:

Right information should be delivered to right person, like figures of sales.

Information can be rounded off, also it can not be absolute. For example

If small scale business,

$ 10,959.6$ 10,960

If large scale business,

$ 11,000

5. Clear:

Understandable language and avoid using accounting terms like break event etc., in

this way, your provided information will be clear.

6. Timely:

Provide information when required. It should be necessary because it take very

huge part in decision making. For example

If management of a company requires information of January profit then it is better

to deliver information either on 31st December or 1st February, so that management

can take appropriate steps if mandatory.

January Profit Report

Sale $ 10,000

Cost $ 7,000

Profit $ 3,000

7. Timeliness:

Mention time period to which information relate (Time period should bementioned when you gave report). For example

Sales = $ 10,000

(Time period not mentioned). So if we need yearly profit detail, we can conclude

from above information considering as one month profit then yearly profit will be:

Sales = $ 120,000 (per year)

So it is necessary to mention time period to avoid conflicts.

8. Cost effective:

Cost should be less than benefits. In during report generating information


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collection, compiling and providing to user cost should be less than its benefits.

Sources of Information:

From where to collect information. There are two types of sources:

1. Internal Source:

Internal sources mean information collected with in the organization. There are

further two ways for the collection of information:

Formal way: Calling meetings by higher authorities to communicate with

lower management.

Informal way: Staff to staff discussion like dinner parties by authorities.

2. External Source:

External sources mean outside of the organization like from sales department,

supplier, customers, newspaper and magazines.

Routine Information:

Such information which you used to get after regular intervals like tax

information, legal advices, health and safety etc. You get these information

from tax authorities, from legal advisors and law implementation

departments etc. Since there are chances of introduction of new laws by

government and new taxes implementations.

Non-routine Information:

Such information which you get from casual and going through from

different information sources like newspapers, magazines, industrial

magazines, libraries and Internet etc.

Management Levels:

There are three different levels of management:

1. Strategic Level:

It is most senior level (in rank) of management. It is the highest level ofmanagement. They used to do high level of planning, controlling and decision

making. This management defines goals, objective and control whether they

achieve goal or objective. This management do long term planning (5 to 10 years).

They have qualitative (quality - good or bad, colours and gender) and quantitative

(quantity - measurable data like 10 students) information. This management

consists of directors and chief executives officers (CEO).

2. Tactical Level:

It is middle-line management. It has department level managers. They do short


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term (maximum of 1 year) planning, controlling and decision making as compared

to strategic level management. They do medium term planning. They acts as

intermediate between upper and lower level management.

3. Operational Level:

It is low level management. It consists of workers and other staff. They do shortterm planning, controlling and decision making (maximum for 1 week). Labour

department included in operational level.

Strategic level makes decision, which are fulfilled by operational level. Strategic

level has most information about upcoming new plans and goals and tactical

level is little less and operational level has very least information.

management accounting basic level

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