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Chapter 1
Management Information &
Information Technology Ibrahim Sameer (MBA - Specialized in Finance,
B.Com – Specialized in Accounting & Marketing)
Management Information
• The purpose of management information is to help
managers to manage resources efficiently &
effectively, by planning and controlling
operations & by allowing informed decision
making.
Management Information
• Eg: A company wishes to launch a new product.
The company’s pricing policy is to set the price at
total cost +20%. What should the price of the
product be?
Management Information
• In order to make the pricing decision, management
need information about the cost of the product.
• The prime purpose of management information
is planning, control & decision making only.
Planning
• Planning involves establishing an objective or
identifying a problem and then choosing a
strategy to achieve the objective or alleviate the
problem.
• Objective is the aim or goal of an organization.
• A strategy is a possible course of action that
might enable an organization to achieve its
objectives.
Control
• Control is the action of monitoring something in
order to keep it on course.
• Most companies will set out a plan for a future
period (for eg, a budget) & then compare the
actual results during the period with the budget.
Any deviations from the budget can then be
identified & corrected as necessary. Such
deviations are know as variances.
Decision making
• Decision making mean choosing between
various alternatives. Decision making & planning
are linked: you decide to plan in the first place and
the plan you make is collection of decisions.
The Qualities of Good
Management Information
• Good management information should be:
• Accurate
• Complete
• Cost beneficial
• User targeted
• Relevant
• Authoritative, Timely & Easy to use.
Sources of Management
Information
• There are many sources of management
information. Management information can come
from sources internal or external to the
organization & can be both financial and non-
financial.
Sources of Management
Information
• The main internal sources of management
information within an organization include the
following:
• Accounting records – including the cost &
management accounts.
• Personal records.
• Production department records.
Sources of Management
Information
• The main external sources of management
information within an organization include the
following:
• Primary source of information is, as the term
implies, as close as you can get to the origin of
item of information: the eyewitness to an event, the
place in question, the document under scrutiny.
Sources of Management
Information
• Secondary source, again logically enough,
provides ‘second-hand’ information: books,
articles, verbal or written reports by someone else.
Recording Management
Information
• Financial accounts are prepared for individuals
external to an organization whereas management
account are prepared for internal managers of an
organization. There are a number of differences
between financial accounts & management
account.
Recording Management
Information
• Cost accounting produces information that is used
for both financial accounting & management
accounting.
Financial Accounting & Cost &
Management Accounting
Financial Accounting & Cost &
Management Accounting
• Cost Accounts
• 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.
Financial Accounting & Cost &
Management Accounting
• Cost accounting is concerned with the following:
• Preparing statement (eg: budget, costing)
• Cost data collection
• Applying costs to inventory, product and services.
Financial Accounting & Cost &
Management Accounting
• Management accounting
• It is concerned with the following:
• Using financial data and communicating it as
information to users.
The Role of the Trainee
Accountant
• Cost of operating a business.
• How much revenue has been generated.
• Coding invoices.
• Calculating cost variances.
Cost unit
• A cost unit is a unit of product or service to
which cost can be related. The cost unit is the
basic control unit for costing purpose.
• Eg: room (in hotel), Barrel (in the brewing industry)
Cost centres
• A cost centres are the essential ‘building blocks’ of
a costing system. They are a production or service
location, function, activity or item of equipment.
They act as a collecting place for certain costs
before they are anlaysed further. OR
Cost centres
• A production or service location, function, activity
or item of equipment for which costs are
accumulated.
• Cost centres may include a department, a
machine, a project.
Cost centres
• A cost centres is also known as a responsibility
centre.
• A responsibility centre is a function or department
of an organization that is headed by a manager
who has direct responsibility for its
performance. (OR)
• It is an organization unit for which a manager is
made responsible.
Profit centres
• A profit centre is any section of an organization to
which both revenues and costs are assigned, so
that the profitability of the section may be
measured.
• Remember that there can be several cost centres
within a profit centre.
Profit centres
• Some examples of profit centre:
• A sales division selling products to customers.
• A service division providing after sales service.
• Individual shop in a retail chain.
• Local branches in a regional or nationwide
distribution business.
• A geographical region. Eg: a country
Revenue centres
• Revenue centres are similar to cost centres and
profit centres but are accountable for revenue
only.
• Revenue centre managers should normally have
control over how revenues are raised.
Investment centres
• An investment centre is a profit centre whose
performance is measured by its return on
capital employed.
Overheads
• Overheads (indirect cost) cannot be identified with
any one product because they are incurred for the
benefit of all products rather than for any one
specific product.
• Eg: Rent of the factory.
Fixed Costs & Variable Costs
• A fixed cost is a cost which is incurred for a
particular period of time and which, within certain
activity levels, is unaffected by changes in the
level of activity.
• Eg: Rent, Annual salary of senior manager
Fixed Costs & Variable Costs
• A variable cost is a cost which tends to vary with
level of activity.
• Eg: Direct materials, sales commission
Product Costing
• Job, Batch & Process costing are methods used
to cost end products.
Cost Codes
• Once costs have been classified, a coding system
can be applied to make it easier to manage the
cost data, both in manual systems and in
computerized systems.
Cost Codes
• Feature of a good coding system
• The code must be easy to use and
communicate.
• Each item should have unique code.
• The coding system must allow for expansion.
• The coding system should be brief.
• The likelihood of error going undetected should be
minimized.
Types of Codes
• Sequential (or progressive) codes
• Numbers are given to items in ordinary numeral
sequence, so there is no obvious connection
between an item and its code. For example
• 000042 42cm nail
• 000043 office stapler
• 000044 hand wash
Types of Codes
• Block (or group classification) codes
• These are an improvement on simple sequence
codes, in that digit (often the first one) indicates the
classification of an item. For example
• 4NNNNN Nails
• 5NNNNN Screws
• 6NNNNN Bolts
Types of Codes
• Faceted codes
• These are a refinement of block codes, in that
each digit of the code gives information about
an item. For example
Types of Codes
• The 1st digit: 1 Nails
• 2 Screws
• 3 Bolts
• The 2nd digit: 1 Steel
• 2 Brass
• 3 Copper
Types of Codes
• The 3rd digit: 1 50mm
• 2 60mm
• 3 75mm
• A 60mm steel screw would have a code of 212
Types of Codes
• Mnemonic codes
• Under this type of coding the code means
something, it may be an abbreviation of the object
being coded. Most of the time airport use this type
of coding. For example
• SIN – Singapore
• LAX – Los Angeles
Types of Codes
• Hierarchical codes
• This is a type of faceted code where each digit
represents a classification, and each digit further to
the right represents a smaller subset than those to
the left. For example
• 3 = Screws
• 31 = flat headed screws
Advantages of Coding
• A code usually briefer than a description, thereby
saving clerical time in a manual system & storage
space in a computerized system.
• A code is more precise than a description and
therefore reduce ambiguity.
• Coding facilitates data processing.
Presentation of Management
Information
• Most information is likely to be presented to
managers in the form of a report.
• Main features of a report are as follows:
• Tile, Who is the report intended for?, Who is the
report from?, Date, Subject & Appendix.
Presentation of Management
Information
Role of Information Technology
• Computers are widely used for data processing
because they have certain advantages over
humans.
• Speed
• Accuracy
• Volume & complexity
• Access to information
Role of Information Technology
• Here is a very simple Eg: of data processing
model.
The Stages of Data Input
• Origination of data (transactions giving rise to
data which need to be recorded and processing).
• Transcription of data onto a paper document
suitable for operators to refer to while keying in
data.
• Data input.
Direct data entry with a keyboard
• The principal method of direct data entry is by
means of keyboard.
• A basic keyboard includes the following:
• Ordinary typing keys used to enter data or text.
• A numeric key pad for use with the built in
calculator.
• Cursor control keys (basically up/down/left/right
keys to move the cursor).
The VDU
• A VDU (or monitor) display text and graphics and
serves a number of purposes.
• It allow the operator to carry out visual check on
what he or she has keyed in.
• It gives messages to the operator.
• It helps the operator to input data by providing
‘forms’ on the screen for filling in.
Graphical User Interfaces (GUI)
• GUI have become the principal means by which
humans communicate with machines. Feature
include the following:
• Window
• Icon
• Mouse
• Pull down menu
Automatic Input Devices
• Document reading methods reduce the manual
work involved in data input. This save time &
money & also reduces error.
• Magnetic ink character recognition (MICR)
• Optical mark reading
• Scanner
• Bar codes
• EFTPOS system
Magnetic Ink Character
Recognition (MICR)
• MICR involves the recognition by a machine of
special formatted characters printed in magnetic
ink. The characters are read using a specialized
reading device. The main advantage of MICR is
its speed & accuracy, but MICR documents are
expensive to produce. The main commercial
application of MICR is in the banking industry –
on cheques & deposits slips.
Optical Mark Reading (OMR)
• OMR involves the marking of a pre-printed form
with a ballpoint pen or typed line or cross in an
appropriate box. The card is then read by an OMR
device which senses the mark in each box using
an electric current & translates it into machine
code. Applications in which OMR is used include
Lotto entry forms, & answer sheets for MCQ.
Scanner
• A scanner is device that can read text or
illustrations printed on paper & translate the
information into a forms the computer can use.
Bar Codes
• Bar codes are group of marks which, by their
spacing & thickness, indicate specific codes or
values.
• Large retail stores have Electronic Point of Sale
(EPOS) devices, which include bar code readers.
This enables the provision of immediate sales &
stock level information.
Electronic Funds Transfer at the
Point of Sale (EFTPOS)
• Many retailers have now introduced EFTPOS
system. An EFTPOS terminal is used with a
customers credit card or debit card to pay for
goods or services. The customer’s credit card
account or bank account will be debited
automatically. EFTPOS system combine point of
sale systems with electronic fund transfer.
Storing Cost & Management
Accounting Data
• Data can be stored on disk, tapes or memory
sticks.
Outputting Cost & Management
Accounting Data
• Data is usually output via printers or VDU
(monitor).
• Laser printers print a whole page at a time, rather
than line by line. The quality of output is very
high. Laser printers are relatively expensive to
purchase, but compared with inkjet printers,
running costs are relatively low.
Outputting Cost & Management
Accounting Data
• Inkjet printers are small and reasonably cheap.
They work by sending a jet of ink on to the paper
to produce the required characters.
Management Information
Systems (MIS)
• MIS is defined as a collective term for the
hardware and software used to drive a database
system with the outputs, both to screen and print,
being designed to provide easily assimilated
information for management.
Questions & Answers
Thank You
Ibrahim Sameer Seek knowledge from cradle to grave