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Session Objectives

Topic 1
 Describe the purpose and role of cost and
management accounting within an organisation’s
The Nature and Purpose of management information system
Management Accounting  Compare and contrast financial accounting with
cost and management accounting.
 Distinguish between data and information
 Identify and explain the attributes of good
information

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Session Objectives Role of Accountants

 Outline the managerial processes of planning,


decision making and control
 Financial accounting
 Explain the difference between strategic, tactical  Management and Cost accounting
and operational planning.  Non-financial information
 Distinguish between cost, profit, investment and
revenue centres.
 Explain and illustrate the concepts of cost objects,
cost units and cost centres

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Financial Accounting
Accounting

 The classification and recording of


monetary transactions of an entity in
accordance with established concepts,
principles, accounting standards and
Cost and preparation of the final accounts
Financial Management
Accounting

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Insufficiency of Financial
Financial Accounting
Accounting Information: Example

 Much of the information is financial  Profit statement does not answer


 Maintain ledger systems of accounting questions such as:
records  Which product sells best?
 Financial accounts are a source of  How much profit do we earn from each
product?
management information but are
 Do we make a loss with any of our products?
insufficient for the management
 Are costs higher than expected and if so in
which area?
………and many more

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Management Accounting Management Accounting

 Application of principles of accounting  This involves participation of


and financial management to create, management to ensure proper:
protect, increase value so as to deliver
that value to the stakeholder  Strategic planning
 Budgeting / Profit planning
 Financial management
 Financial control
 Audit

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What is Cost Accounting What is Cost Accounting

 A system of recording data and  Cost accounting is a part of


producing information about costs, for management accounting
the products produced by the  Management accounting includes cost
organisation and or the services it accounting and extends to both financial
provides. as well as non-financial information
 It is also used to establish costs for  Cost accounting is historical while
particular activities or responsibility management accounting is forward
centres. looking

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Management Accountant vs.
Financial Accountant Functions of Management
Basis Management Accountant Financial Accountant

Information User Internal Use External Use

Purpose Aid planning, controlling, Record financial


decision-making performance in a
specific period
Legal requirements None Limited companies
must produce financial
statements
Formats Depends on the Prescribed
management
Nature Financial and non-financial Mostly financial

Time period Historical and forward- Historical


looking

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Why Does Management Need Information for Planning, Control


Information and Decision Making

 To make plans
 Monitor performance
Planning
 Take one-off decisions

Decision Controlling
Making

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Information vs. Data Qualities of Good Information

Gathered  Understandable
And Processed  Relevant and purposeful
Stored
 Timely
Facts Data Information
 Accurate
 Complete but not excessive
Data has no clear meaning until it is  Communicated to the right person
processed, analysed and organised into  Value of information > Cost of producing it
information  Communicated by appropriate channel

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Value of Information Assessing Value of


Information
 Value of information helps in:
 Who uses the information?
 Reducing unnecessary costs
 Adopting better marketing strategies  What is it used for?
 Better analysis of cost drivers  How often is it used?
 Optimising techniques  How often it is provided but not used?
 What is achieved by its use?

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Cost of Information Planning Hierarchy

 Cost of gathering data Strategic Planning


 Cost of processing data And Control

 Cost of storing data and information Tactical Planning


 Cost of providing information And Control

Operational Planning
And Control

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Examples: Strategic Planning


 A process
What is Strategic
Planning
 Of deciding on objectives of
the organisation  Selection of products
 On changes in these  Markets to sell the product in
objectives
 Required level of company profitability
 On resources used to attain
these objectives  Purchase and disposal of companies
 Policies that govern the  Purchase and disposal of major fixed
acquisition, use and assets
disposition of these resources
 Total manning needs
 Raising new funds

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Management Control Operational Control

 A process by which the  Also called operational


managers assure that planning
resources are obtained ad
 Process of assuring that
used effectively and efficiently
in the accomplishment of the specific tasks are carried
organisation’s objectives. out effectively and
efficiently
 Also called Tactical planning  Example: allocation of
particular staff to particular
 Examples: setting budgets for tasks, handling customer
sales, production etc. complaints etc.

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Type of Information Requirements Sources of Information

 Inside and outside the


organisation
Planning  Structured information
Information Strategic
systems
 Non-structured ways
Tactical
Control

Control
Operational
Information

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Structured Internal Information
System
Responsibility Accounting

 Gathers data within the organisation and A system of providing financial


then processes the data to provide information to management, where the
reports to management structure of the reporting system is
 All businesses have a structured system based on identifying individual parts of a
for financial accounting and financial business which are the responsibility of a
reporting single manager
 Many businesses also have cost
accounting system or management
accounting system

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Cost Cost Object

 A cost may be defined as a sacrifice or  Anything for which a separate measurement


giving up of resources for a particular of costs is desired.
purpose.  Cost of making a product
 Costs are frequently measured by the  Cost of service
monetary units that must be paid for  Cost of department
goods and services.  Cost of Sales Region
 Costs are different from expense

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Cost Driver Cost Units

 A unit of product or service in relation to


Any factor whose change causes a change in which costs are ascertained
the total cost of a related cost object  For an accountancy firm the cost unit might be
the hours of work provided to client

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Hierarchy of Responsibility Centres Impact of Responsibility


Accounting On Management
Investment Centres Information
Investment
Centre  A responsibility centre affects the nature
Manager of management reporting. Managers
need enough information to control their
Profit centres
Profit Centres responsibility centres.
managers

Cost Revenue
Cost Revenue
centres centres
Centres Centres
managers
managers
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Presenting Information to
Management Principles of Writing Reports

 Conciseness
 Structure
 Style
 Presentation
 Graphical

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Sample Exam Question Answer

 Which of the following is correct about  C


data and information?  Data can be discrete or continuous. A set of
data is said to be discrete if the values
A. Information collected from external sources belonging to it are distinct and separate.
cannot be classified as data
B. Strategic information deals with formulation
of short-term plans only
C. Data can be discrete or continuous
D. Non-financial data is classified as processed
information

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Sample Exam Question Answer

 Mark is a profit centre manager. What is C

he responsible for in his segment of the


A profit centre manager is responsible for both costs and
organisation? revenues of his centre.
A. Costs only
B. Revenues only
C. Both costs and revenues
D. Cost, revenue as well as investment

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