ACC107

MANAGEMENT ACCOUNTING

Lecture 1
Introduction
Chapter 1, 2 & 5

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• 4 Hours of class per week:
• 2 hours of lecture
• 2 hours of tutorial
• A minimum of 80% attendance is required

• Assessment
• Mid-term – 20%
• Assignment (individual) – 20%
• Final Examination – 60%

• Subject materials:
tiny.cc/acc107
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• Timetable
• Lecture: Monday 20:00 – 22:00 at Auditorium (for all)
• Tutorials:
• T1 – Thursday 16:00 – 18:00 at B3-21 Jeen
• T2 – Tuesday 08:10 – 10:00 at B2-17 (Jeen)
• T3 – Tuesday 20:00 – 22:00 at B3-21 ( Nizama)
• T4 – Thursday 20:00 – 22:00 at B3-23 ( Nizama)
• T5 – Wednesday 20:00 – 22:00 at B2-11 ( Nizama)

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 Chapter 1: Accounting for management
• Information
• Planning, control and decision making
• Financial accounting and cost and management accounting
• Cost accounting information and decision making

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 Information

• Information is data that has been processed in such a way

as to be meaningful to the person who receives it.
• Data is the raw material for data processing.
• Data relate to facts, events and transactions and so forth.

• Information is anything that is communicated

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Qualities of good information

• Relevance: Information must be relevant to the

purpose for which a manager wants to use it.
• Completeness: An information user should have
all the information he needs to do his job properly.
• Accuracy: Information should obviously be
accurate because using incorrect information
could have serious and damaging consequences.
• Clarity: Information must be clear to the user.
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Qualities of good information
• Confidence: Information must be trusted by the
managers who are expected to use it.
• Timing: Information which is not available until after
a decision is made will be useful only for
comparisons and longer-term control, and may
serve no purpose even then.
• Channel of communication: There are occasions
when using one particular method of
communication will be better than others.
• Cost: Information should have some value,
otherwise it would not be worth the cost of 7

collecting and filing it.

What type of information is needed?

• Financial information
• Non-financial information
• A combination of both

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 Objectives of organisations

• An objective is the aim or goal of an organisation.

• The objectives of an organisation might include one or
more of the following:
• Maximise profits
• Maximise revenue
• Maximise shareholder value
• Increase market share
• Minimise costs

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 Planning, control and decision-
making
• Information for management is likely to be used for
planning, control and decision making.
• Planning involves the following:
• Establishing objectives
• Selecting appropriate strategies to achieve those objectives

• Planning forces management to think ahead

systematically in both the short-term and the long term.

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Planning

• Long- term strategic planning

• known as corporate planning, involves selecting appropriate
strategies so as to prepare a long term plan to attain the objective

• Short term tactical planning

• Used to achieve the long term plans and this can be quarterly or
monthly based plans.

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 Control

• Two stages in the control process

• Performance of the organisation
• The corporate plan

• Effective control is therefore not practical without

planning, and planning without control is pointless.

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 Decision-making

• Management is decision-taking.
• Managers of all levels within an organisation take decisions.
• Decision making always involves a choice between alternatives
and is the role of the management accountant to provide
information so that management can reach an informed decision.

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Anthony's view of management activity

• Anthony divides management

activities into:
• Strategic planning: the process of deciding on objectives of the
organisation
• Tactical (or management) control: the process by which managers
assure that resources are obtained and used effectively and
efficiently to achieve the objectives
• Operational control: the process of assuring the specific tasks are
carried out effectively and efficiently”

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 Management Control Systems
• A system which measures and corrects the performance
of activities of subordinates in order to make sure that
the objectives of an organisation are being met and the
plans devised to attain them are being carried out.
• The basic elements of a management control system
are as follows:
• Planning
• Recording
• Carrying out
• Comparing
• Evaluating
• Corrective action 15
 Types of information

 Strategic information: used by senior managers

 Tactical information: used by middle management
 Operational information: is used by front line managers

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 Financial accounting and cost
and management accounting
• Financial Accounts
• Details of performance over a period of time
• Legal requirement
• Format dictated by IAS & IFRS
• Concentrates on business as a whole
• Monetary nature
• Historic by nature

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 Financial accounting and cost
and management accounting

• Management Accounts
• Control and manage the organisation
• Decision making
• No legal requirement
• No set format
• Can be used to analyse only one section of the company
• Can have qualitative information
• Can be used for future planning
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Cost accounts
Cost accounting is gathering of cost
information and its attachment to cost objects,
the establishment of budgets, standard costs
and actual cost of operations, processes,
activities or products; and the analysis of
variance, profitability or the social use of funds
Cost accounting is concerned with the
following:
• Preparing statements (eg: budgets, castings)
• Cost data collection
• Applying costs to inventory, products and services
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Cost accounts

Aims of cost accounts

• Cost of goods produced
• Cost of departments
• Calculating revenues
• Profitability of a product
• Selling prices
• Vale of inventories of goods (RM, WIP)
• Future cost
• How actual costs compare with budgeted costs
• What information management needs
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 Financial accounting and cost and
management accounting
Accounting

Financial Accounting
Management Accounting

Cost Accounting

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 Chapter 2: Sources of Data
• Types of data
• Sources of data
• Secondary data
• Sampling
• Sampling methods

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 Types of data

• Primary or secondary data

• Discrete data and continuous
• Sample and population data

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Source of data
• Internal sources of data
• The accounting records
• Other internal sources
- Data relating to personnel
- Much data will be produced by various departments
- Also by service businesses

• External sources of data

• Primary source
• Secondary source

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 Secondary data

• Data which have already been collected elsewhere

• Government
• Banks
• Newspapers
• Trade journals
• The internet

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 Discrete data and continuous

• Quantitative data may be classified as being discrete or

continuous
• Discrete data are data which can only take on a finite or
countable number of values within a given range.
• Example: 0, 1, 2, 3,. Such as 2 goals scored

• Continuous data are data which can take on any value.

They are measured rather than counted.
• Example: 1.524, 2.54, 1.954. Such as height is 5.4 feet.

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 Sampling
• Data are often collected from a sample rather than from a
population.
• If the whole population is examined, the survey is called a
census.
• In many situations, it will not be practical to carry out a
survey which considers every item of the population.

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 Sampling methods
• A probability sampling method is a sampling method in which
there is a known chance of each member of the population
appearing in the sample.
• Probability sampling methods
• Random
• Stratified random
• Systematic
• Multistage
• Cluster

• A non-probability sampling method is a sampling method in

which the chance of each member of the population appearing in
the sample is not known, for example, quota sampling.

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 Chapter 5: Presenting Information
• Written reports
• Planning a report
• The format of a report
• Presenting and interpreting information in tables
• Presenting and interpreting information in charts

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Written reports

• The purpose of a report must be clear, and certain general

principles should be followed in planning giving structure
to a report

• Stylistic qualities of reports include objectivity and

balance and ease of understanding

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What is a report?

• Reports are used to

• To assist management
• As a permanent record and source of reference
• To convey information

• Report’s purpose
• Control action
• Planning decisions – recommendation

• Report users
• Timeliness
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Planning a report

• Any report should be well planned and proper research

should be carried out to include the relevant information.
• Who is the user?
• What type of report will be most useful to him/her?
• What exactly does he/she need to know, and for what purpose?
• How much information is required, how quickly and at what cost?
• Do you need to give judgements, recommendations etc (or just
information)?

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The format of a report
• The format of the report contains the following
• Title
• Identification of report writer, report user and date
• Content page
• Terms of reference
• Source of information
• Sections
• Appendices
• Summary of recommendations
• Prominence of important items

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Presenting and interpreting tables
• A table is a matrix of information in rows and columns, with
the rows and columns having titles.
• Tables are a simple way of presenting information about
two variables.
• The table should be given a clear title.
• All columns should be clearly labelled.
• Where appropriate, there should be clear sub-totals.
• A total column may be presented
• A total figure is often advisable at the bottom of each column of
figures.
• Information presented should be easy to read.
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Presenting and interpreting charts

• Bar charts represents information in the form of bars on a

chart, the length of the bars being proportional to the
quantities.
• A pie chart is a chart which is used to show pictorially the
relative size of component elements of a total.
• Scatter diagrams are graphs which are used to exhibit data,
(rather than equations) in order to compare the way in
which two variables vary with each other.

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