Chapter 2

MANAGEMENT INFORMATION
Learning outcomes
• State the purpose of management information.
• Compare cost and management accounting with external financial
reporting.
• Distinguish between data and information.
• Describe the features of useful management information.
• Describe and identify sources and categories of information.
• Explain the limitations of cost and management accounting
information.
• Describe the role of a trainee accountant in a Cost and Management
Accounting System.
2a. The purpose of Management Information
• Key Mangement task
• Planning: directing resources to accomplish an objective in the
future
• Control: making sure resources are used and activities are
performed as planned
• Decision-making: choosing between different options
2a. The purpose of Management Information
Example
Questions
1. The management accountant compares the profitability of 2 products, P and Q and concludes that P
is the best product to make. He writes a report of his findings for Board of Directors. This report will
primarily aid management in:
A. Decision making
B. Planning
C. Controlling
D. Implementing
2. The basic purpose of an accounting system is to:
A. Develop financial statements in conformity with generally accepted accounting principles.
B. Provide as much useful information to decision makers as possible, regardless of cost.
C. Record changes in the financial position of an organization by applying the concepts of
double entry accounting.
D. Meet an organization’s need for accounting information as efficiently as possible.
Questions
3. Cost accounting information can be used for:
(There may be more than one answer)
A. Budgetary control and evaluation
B. Inventory valuation
C. Pricing and cost control
D. Setting of selling prices
 2b. Comparison between Financial and
Management Accounting
Differences in Financial and Management Accounting
Financial External use Specific Required by Standardized Historical data. Financial data
Accounting reporting time law format
Management Internal use When necessary Not required House style Historical data and future estimation.
Accounting by law Non-financial data included
Questions
1. All of the following are characteristics of managerial accounting, EXCEPT:
A. Reports are used primarily by insiders rather than by persons outside of the
business entity.
B. Its purpose is to assist managers in planning and controlling business
operations.
C. Information must be developed in conformity with generally accepted
accounting principles or with income tax regulations.
D. Information may be tailored to assist in specific managerial decisions.
2. Although accounting information is used by a wide variety of external parties,
financial reporting is primarily directed toward the information needs of:
A. Investors and creditors
B. Government agencies such as the Internal Revenue Department
C. Customers
D. Trade associations and labour unions
Questions
3. Financial statements are prepared:
A. Only by publicly owned business organizations.
B. By companies, but not by sole proprietorships or partnerships.
C. Primarily for the benefit of persons outside of the business organization.
D. In either monetary or non-monetary terms, depending upon the need of
the decision maker.
4. In comparison with a financial statement prepared in conformity with
generally accepted accounting principles, a managerial accounting report is
more likely to:
A. Be used by decision makers outside of the business organization.
B. Focus upon the operation results of the most recently completed
accounting period.
C. View the entire organization as the reporting entity.
D. Be tailored to the specific needs of an individual decision maker.
2c. Data and information
• Data
• raw facts, figures, events and transactions which need processing
before being used in decision making.
• Sales figures, order volumes, etc.
• Information
• processed data, which are presented in meaningful forms or
media to make the necessary decisions.
• graphs and charts, trends of sales, etc.
2c. Data and information

Example
2c. Data and information
• DPC (Data Processing Cycle): continuous process of converting and
transforming data into more meaningful forms

• GIGO (Gabage in Gabage out): quality of output depends on the

quality of input
Questions
TRUE, FALSE
A. Data consists of processed information. F
B. Information consists of data which has been processed in a predefined way. T
C. Information consists of raw facts that have not been processed. F
2d. Features of Useful Management Information
• Sufficiently accurate
• Reliable (correct)
• Complete
• Relevant
• Understandable (clear)
• Timely
• Cost-efficient (Benefit > cost)
• Communication
Questions
1. Information is cost effective when:
A. The information aids management in controlling costs.
B. The information is based upon historical costs, rather than upon estimated market
values.
C. The value of the information exceeds the cost of producing it.
D. The information is generated by a computer-based accounting system.

2. Which one of the following is true with regard to management information?

A. It consists of only non-financial information.
B. It should be produced by a computer.
C. It should be completely accurate, regardless of cost.
D. It should be produced if its cost is less than the increased revenue it leads to.
2e. Sources and Categories of Information
• Internal sources
• Within the org., communicated internally
• External sources
• Outside of the org. (government, associations, newspapers, etc.)
• Primary
• Obtained directly from the source (survey, interview, converstion,
etc)
• Secondary
• Obtained from intermediaries (they has already collected the
information)
2e. Sources and Categories of Information
• Formal
• From formal activities: meeting, documentation, policies, etc.
• Informal
• From rumours, conversation, ideas, etc.
• Routine
• Non-routine (ad-hoc, on demand, when necessary)
Questions
1. Which one of the following is an EXAMPLE of internal information for the
wages department of a large company?
A. A Code of Practice issued by the Institute of Directors.
B. A new national minimum wage.
C. Changes to tax coding arrangements issued by Inland Revenue Board.
D. The company’s employees’ schedule of hours worked.

2. Data and information collected in a regular meeting with the manager can
primarily be considered as:
A. Informal.
B. Formal.
C. Financial.
D. Ad hoc.
2f. The Limitations of Cost and Management
Accounting Information
• Constantly changing prices of resources.(Difficult to estimate standard
cost)
• Management information has to satisfy many different needs and
purposes.
• Costs may exceed benefits.
• Management information are often based on forecasts or estimates.
• Management information is often highly technical and may contain
coding for specific departments. (ease of use)
• Different industries have different needs. Lack of uniform procedures.
2g. The Role of the Trainee Accountant
• Trainee Accountant process data and report relevant information to
users that need that information
• Make Sales report, COGS report, CVP report, sales/person report,
calculate the value of inventory, Gross margin, etc
• Trainee Accountant do not make decision
EXAM NOTE: questions on this topic often ask whether a particular
task is supposed to be done by a trainee accountant.
Questions
1. One of the fundamental roles of a trainee management accountant is:
A. To prepare year-end financial statements.
B. To value inventory according the international accounting standards.
C. To reconcile management and financial accounts.
D. To assist in profitability assessment of a product line.
2. Inventory valuation is a primary task of a trainee:
A. Management accountant.
B. Financial accountant.
C. Both financial and management accountants.
D. Neither financial and management accountants.
Summary
1. Management information enables management to plan, control and
make decisions more effectively and efficiently.
2. Financial accounting focuses on the financial statements which are
distributed externally, whilst management accounting focuses on
providing information to internal users so that its management can
operate the company more effectively.
3. Data refers to raw facts, figures, events and transactions while
information refers to processed data.
Summary
4. Key features of good data and information:
• Sufficiently accurate
• Timely/regular
• Complete
• Cost-efficient
• Communicated to right people
• Relevant
• Reliable
• Understandable/clear
5. Information could also be obtained from internal and external sources
but there will always be limitations to management information.