Management Accounting: Information for Decision-making

Management Accounting Information for Decision- induceManagement account statement reading should approve with a image of criteria including verifiability, objectivity, judgment of conviction termss, comparability, dependability, understandability and relevance if it is to be utile in plan, control and conclusiveness-making.Explain the meaning of to by the piece one of the criteria named preceding(prenominal) and give a specific example to illustrate each.Give a brief explanation of how the criteria detailed in (a) faculty be in contravention with each some another(prenominal)wise, giving examples to illustrate where such(prenominal) conflict might arise. skepticism 2 (Information for s netping point-making)The overriding feature of training for end-making is that it should be pertinent for the decision cosmos pursuen. However, decision-making varies considerably at unalike takes within an organization, and so posing a particular thornyies for the direction restrainer.Describe the signs of decision-making at several(predicate) trains within an organization.Explain how the worry comptroller must(prenominal) tailor the reading provided for the various train.Question 1 (a)Management explanation selective study should comply with a various number of criteria including verifiability, objectivity, time overseas telegramss, comparability, reliability, understandability and relevance if it is to be physical exertionful in planning, control and decision-making. Below we argon discussing just well-nigh the criteria needed to hand its natural reason which is for planning, control and decision- making.The origin criteria of focus account statement development is verifiability. It fashion the ability by means of consensus among measurers to ensure that the training represents the purposes and the right manner of measurement has been utilize without whatever errors or bias. It in some(prenominal) case means that it is patent to outsiders, in the context of model of study. Verifiability refers to the ability of accountants to ensure that accounting information is what it is meant to be. The outsiders cannot see the accounting informations and the references to those variables in a contract between the two parties cannot be enforced by outside authorities. An example of verifiability is that of two accountants spirit at the same information like inventory valuation and approach pathing to similar conclusions. There atomic number 18 troika key persuasions in verifiability. The rootage aspect is consensus among observers. The second nonpargonil is the assurance of correspondence to economic things and steadyts. The ordinal key aspect is direct verification versus indirect verification.Besides that, objectivity is another criteria that is besides another useful aspect in planning and making decisions. Most accountants these days rely on verifiable evidence. lesson of verifiable evidence argon invoices, deli actu whollyy notes, receipts, physical counts or even monetary statements. By practicing objectivity, it is now possible to comp be monetary statements of various firms with an assurance of reliability and also uniformity. In another words, when the conductment accountant is providing information to the extend-level wariness, they should provide the accurate result without altering or changing anything so that the manager testament be able to limit a accurate decision without being forged by both bingle.Moreover, Timeliness is one of the definitive parts for management to balance the relative merits of by the way enshrouding and the grooming of reliable information. Timeliness is concerned with having information to fill up necessarily of decision coiffers before it loses its capacity to influence decisions. More accurate information whitethorn take a longer time to produce. Thus, to provide information on a timely base of operation s, it may often be necessary to report before all aspects of management accounting proceeding or all other event. Example, a firm may test-market a potential sweet-sprung(prenominal) product in a city. Despite a long endure for the accurate marketing report may cause a tenuous delay in the managements decision to launch the new product across the nation and the information will be useless to the decision making address. Thus, it is one of the managerial accountants role in the decision-making process which will decide what information is applicable to each decision job and provide accurate and timely data. Not for postulateting that its a conflicting criteria. Delaying information can significantly influence decisions and can rob information of its potential usefulness. Timeliness can afford a direct impact on stock prices. Late fall into placeage can represent bad news or a veto forecast. If the delay is great, it allows the fortune for more than(prenominal) infor mation to be reported and to be supplied or maybe even speculated on by other sources.The undermentioned criteria is comparability. This criteria helps us to compare the financial statement of an entity through time in localize to target trends in its financial position and performance. At the same time, this criteria also helps to evaluate and compare the financial statements of different entities. It provides information active a particular entity that can be compared with information about other entities and with similar information about the same entity for some period or some other point of time. For an example, the management accountant should prepare the accounting information in a tenacious way using historical concept for every year so that it will be overmuch easier for the society to move over comparison with the past accounting information or related entities. The heads of the company must de stipulationine if they want comparability to be driven by the grammat ical case of instrument or other factors such as management intentions and industry segments. For an example, financial service, software and also manufacturing.another(prenominal) criteria which is also needed is reliability. It is the quality of information that assures that information is sound on the loose(p) from any errors and are bias and faithfully represents what it purports to represent. It related to faithful representations and verifiability. An aspect in the context of reporting for financial instruments is the reliability of measurements including applicable disclosures about such reliability. For example, the staff has observed that many constituents seem to equate reliability with verifiability, not representational faithfulness. For purposes of discussion at this meeting, the staff plans to collect those sub-characteristics into three groups. The first one is, Faithful representation, including completeness and substance over form. The second one is verifiability , including precision and uncertainty. The last one is neutrality, including freedom from bias, prudence, and conservatism.The second last criteria is understandability. It relates to the exploiters stance and financial informations that are useful. It could be increased by reducing complexities for users through reporting information that represents the underlying economics, or by reducing the number of alternative accounting methods applicable to a subset of asset. Informations that increases the understandability are unquestionably very useful. understandability is known as when the users befool a reasonable friendship of business and economic activities and accounting and a willingness to know more the information with reasonable diligence. Information about complex matters that should be include in the financial statements because of its relevance to the economic decision making needs of users should not be excluded merely on the grounds that it may be too difficult for ce rtain users to understand. For the example, management accountant should prepare the accounting information or summarize of the report and analysis that easily tacit to the decision maker in order to let them easy to make final decision. One other noteworthy aspect of the inter action of the financial statements and Management translation is the understandability of the information provided in the financial reports. Understandability can be adversely impacted by placing related information in different parts of a report and not providing the user with a cross reference. If the IASB does add guidance on Management Commentary to its existing guidance on financial statement disclosures, this would provide an opportunity to better integrate related information.The last criteria is relevance. It is also very master(prenominal) in the planning, control and decision-making. relevance is the capacity of informations that are needed to make a difference in a decision by parcel the users to form predictions about the outcomes of the past, present and future events or even to hold or correct prior expectations. Relevance may be delineated by de full termining which values assigned to financial instruments allows user to make better decisions ground on the information provided to them. Informations may be deemed more or less relevant based on which measurement basis is being used. Different decisions basically will require different type of data. For example, an analysis on a project should not birth any information on indirect comprises because it is not relevant for making decision of the project and should include any prime cost because it is relevant cost for the decision-making.Question 1 (b)Management accounting information is used to satisfy the management needs. Those informations are useful for planning, controlling and decision making. However, these criteria also face conflict amongst one another. Conflict simply refers to the incompatibility or interf erence of ones idea, event, or activity with another. In this case, the conflict between criteria will happen when satisfying a criterion affects another criterion being difficult to fulfill as they are in collision with each other. They are few types of conflicts involved. Below are the conflicts.Relevance vs ReliabilityRelevance and reliability are two historic criteria which are needed eyepatch making a decision. However, often there are some conflicts choke because of these two conflicts, requiring a trade-off between various point in times of relevance and reliability. A forecast of a financial variable may possess a high degree of relevance to investors and creditors. However, a forecast necessarily contains subjectiveness in the estimation of future events. Therefore, because of a low degree of reliability, for the most part brooked accounting principles do not require companies to provide forecasts of any financial variables. Reliability and relevance often impinge on each other. Reliability may suffer when an accounting method is changed to gain relevance and vice versa. Some times, it may not be clear whether there has been a loss or either on relevance or reliability. The entranceway of accredited cost accounting will illustrate the point. Proponents of current cost accounting believe that current cost income from continuing operations is a more relevant measure of operating performance than is operating gain computed on the basis of historical cost. They also believe that if holding gains and losses that may have accrued in past periods are separately displayed, current cost income from continuing operations better portrays operating performance. The uncertainties environ the determination of current costs, however, are considerable, and variations among estimates of their magnitude can be expected. Because of those variations, verifiability or representational faithfulness, components of reliability, might diminish. Whether there is a n et gain to users of the information obviously depends on the relative weights attached to relevance and reliability (assuming, of course, that the claims make for current cost accounting are accepted). compare vs ConsistencyComparability is another important criteria for planning control and decision making. Comparability which enables users to identify similarities in and differences between economic phenomena should be distinguished from consistency the consistent use of accounting methods. Concerns about comparability or consistency should not preclude reporting information that is of greater relevance or that more faithfully represents the economic phenomena it purports to represent. If such concerns arise, disclosures can help to compensate for change magnitude comparability or consistency.Timeliness vs verifiabilityTimeliness and verifiability is needed all times for decision making. Information is useful when it is timely. To be timely, the information must be available when needed to define riddle or to be buzz off to identify possible solutions. Those criteria might conflict with verifiability. It is because when needed verifiability information, it may take time to calculate or to get it aft(prenominal) production process is end. Verifiability is the useful information when it is accurate. Before relying on information to make decisions, it is important to ensure that the information is correct. For example, a production manager has to decide the authentic amount of litchi to be used in produce of ten thousand units of lychee drink. But, because of the time given is limited, he has to prepare the report to the covering management by forecasting the amount of lychee that will be used. Although he has meet the criteria of timeliness, he is might not meet the criteria of verifiable. This is because, he did not use the actual amount of lychee that will be used. This might cause some problems to occur during the production process. The cost of lyc hee is lower or others factors. When the production has come to an end, he will be able to know the actual amount of lychee that was been used. So, there is a conflict between timeliness and verifiability.Timeliness vs reliabilityAnother conflict is between timeliness and reliability. Information is said to be reliable when they co-ordinated all aspects of a transaction as well as other events in order to facilitate users in deciding on any issue regarding the latter. However, most of the times in providing timely reporting, those aforesaid transactions or events are never taken into account as it occurs after the report is prepared and thus impairing reliability. In interest of timeliness, the reliability of the information is sacrificed, every loss of reliability diminishes the usefulness of information and as time pass, and either the reliability of the information drops or increase accordingly. For example, the material supplier decides to supply only one of the actual A. pa rticipation Y is very interested and is capable to buy the tangible A. The supplier is interested on mete outing the Material A to Company Y, but there is no contract signed between them. As time passes, the supplier certain an offer from Company Zs, with a higher price and shorter time compared to Company Y. Therefore, Material A is selling to Company Z and Y loses the Material A. Company Y is reliable on material supplier to get the Material A yet the supplier needed to sell the Material A in a shorter time to get the profit. So, supplier decides to sell it to Company Z. Thus, the criterion of timeliness is conflict with criteria of reliability.Question 2(a)The process identifying problems and opportunities and end them is called as Decision Making. Decision making is intertwined with the other functions such as planning, coordinating and controlling. Decisions are made in order to change the companys current status to a more desirable state of affair. Managers, teams, and ind ividual employees make company decisions, depends on the scope of the decision and the design and structure of the organization. Organizations which have decentralized structures will delegate more decisions to teams and front-line employees. Programmability, uncertainty, risk, conflict, scope, and crisis are the characteristics of decision making.Programmability is change integrity into two. They are programmed decisions and non-programmed decision. Programmed decision means identifying a problem and matching the problem with established routines and procedures for resolving it. Whereas, the non-programmed decision is the process of identifying and solving a problem when a situation is unique and there are no any previously established routines or procedures that can be used as guidelines.Uncertainty also has two types. They are certainty and uncertainty. Certainty is the narrow down when all the information is needed to make a decision. However, uncertainty is the pattern when the information available to make a management decision is incomplete. risk of infection is the level of uncertainty as to the outcome of a management decision. put on the line has positive and negative aspects too. Decision environment for risk vary depending on company size and culture. Those who work in entrepreneurial firm must be more comfortable with making risky decisions than those who work in large corporations with established procedures.Next characteristic of decision making is conflict. It is forever and a day hard to get everyone to agree about what to do. Conflict over opposing goals, utilization of scarce resources, and other priorities are often characterized in decision making.Decision scope is the effect and time horizon of the decision. The effect of a decision includes who is involved in making the decision and who is affected by it. The time horizon of a decision may range from a single day to five-spot years or more. There are three different level of manag ement. They are the pennant-level management, middle level management and the lower management. The crystallize-level management takes the strategic decisions. The middle level management takes tactical decision. And the lower level management takes the operational decision.The outgo level management who makes the strategical decisions encompasses a long term perspective of two to five years and affect the entire organization. Top level managers, or strategic manager are also called senior management and executives. They are those individuals who are at the steer one or two levels in an organization. Examples of top level management are The headland Executive military officer (CEO), Chief Financial Officer (CFO), Chief Operational Officer (COO), Chief Informational Officer (CIO), President, Vice President, Chairman and Board of Directors. They have the long-term vision for the company. They are not involved in day-to-day tasks need to possess abstract skill so as to set the goals for the organization as a whole. For example, Jerry Yang, the former chief executive of YAHOO, was criticized when a $44.6 billion acquisition frolic from Microsoft failed under his watch. They frame the organizational policy. They are also obligated for(p) for mobilisation of resources. They generally make large budgetary decisions for the company and are responsible to the shareholders and the general public. The success or failure of the organization rests on the shoulders of the top level management.Middle level managers are those in the levels below the top managers. Middle level management makes Tactical decisions which have a short perspective of one year or less and focus on subunits of the organization, such as departments or project teams. Tactical decision is the mixed bag of strategic decision and operational decision. Example of middle management is worldwide Manager (GM), Plant Manager, Regional manager and Divisional manager. Middle level managers are res ponsible for carrying out the goals set out by top management with setting goals for their departments and other business units. Tactical decisions, the medium term decisions about how to implement strategy, are delegated to middle managers. Middle management decisions might include marketing a new product, communicating with and managing lower management and determining what issues need to be addressed with top level managers. to each one individual middle management department develops a strategy to meet its inner departmental goals.Lower level management makes Operational decisions which cover the shortest time perspective, generally less than a year. Operational decisions, short term decision or also called administrative decisions about how to implement the tactical maneuver affect daily tasks and generally handled by lower level managers. They are often made on a daily or periodic basis and focus on the routine activities of the firm such as production, customer service, an d handling parts and supplies. Office managers, shift supervisor, department manager, foreperson, ring leader and store manager, are responsible for the daily management of line workers. For example, supervisor may decide to reward the most productive employee with an employee of the calendar month award, or offer incentives such as gift certificates.The last characteristic of decision making is Crisis. Decision making during crisis is more challenging and difficult than under ordinary conditions. Making a decision in a crisis situation can make or break the career of a manager.Question 2(b)A management accountants duty is to provide information to users who are part of the organization from various levels. However, different level of management has different information needs. Thus, a management accountant has to tailor the information for them.The first step that should be taken before the management accountant provides any type of information is that he should be clear and under stand the company vision as the top, middle and piece of ass management of an organization. The top-level management is responsible for the long term strategis plan with strategic decisions for about 5 to 10 years time. Therefore the top management will create a mission, which will consist of a more specific goal that unifies companys efforts. So, the management accountant should prepare budgets for top management accountant to decide which projects have to undertaken to make the companys goals. Budget is a strategic plan that details the action that must be taken during the following year. It also pinpoint the certificate of indebtedness of achieving the budgets to respective managers inline the company policies. For example, management accountant prepare the imposed budgets to top management before imposed to middle management to achieve targets. In the top-level management, a management accountant should be responsible for all or a part of a companys financial status, actions and transactions. The management accountant should also maintain budgets, perform financial analysis, build business strategies and also manage their relationships with investors and auditors.In middle management, they are responsible for developing and carrying the tactical plans to make the organizations mission. Tactical plans specify how company will use resource, budgets and great deal to achieve company goals within its mission. In this level, management accountant will use various methods to decide the profit with minimum production costs. Profit peck analysis is one of the methods to calculate changes in cost and sales in determine the profit. Management accountant will calculate breakeven point where the level of sales of company needs to achieve at zero profit. afterward that, management accountant also prepared the report on intimidate resources which the supply of resources is limited by define the limit factor. Then, management accountant will produce the product t hat give higher contribution per constricting factor and take considerations of qualitative factors before final decisions is made. Final decisions is means whether to make or to buy the decision. It is situation where an organization is given a choice to produce by own resources or pay other organization to make the product. After management accountant prepare the information in form of cost volume profit, limiting factors analysis and decisions about activities either to buy or to make, middle management have to decide, carrying the tactical plans and delegating the responsibility of jobs to the operational management. In a summary, the types of information that a management accountant should tailor to middle-level management is like preparing financial statements, assess internal controls, supervise accounting staffs, complete and review value returns and also help to manage the general ledger.Lower lever management is responsible to carry the operational plans where it is rela ted to day to day plans in producing products or services. For example, management accountant will determine the economic order quantity for lower management to know the amount of inventory they should rank order to minimize ordering cost and holding costs. Therefore, lower level management will order the maximum order. In the lower level, the types of informations a management accountant should tailor are receivables and payrolls, financial statement and accord audit, help in the budget department and also prepare reports for the controllers department.Question 2(c)An example of a typical management decision is strategical Decision. Strategic Decision would normally be taken at first level which is top management.A top management approach is one where an executive, decision maker, or other person or body makes a decision. This approach is disseminated under their authority to lower levels in the hierarchy, who are, to a greater or lesser extent, bound by them. For example, a str ucture in which decisions either are approved by a manager, or approved by his or her authorized representatives based on the managers prior guidelines, is top to bottom management. Top management translates the policy (formulated by the board-of-directors) into goals, objectives, and strategies, and projects a shared-vision of the future. It makes decisions that affect everyone in the organization, and is held entirely responsible for the success or failure of the enterprise Strategic decisions are broad based, qualitative type of decisions which include or consult goals and objectives. Strategic decisions are non quantitative in nature. Strategic decisions are based on the subjective thinking of management concerning goals and objectives.Besides that, there are impact of mergers and acquisitions on top level management.Impact of mergers and acquisitions on top level management may actually involve a light touch of the egos. There might be variations in the cultures of the two or ganizations. Under the new set up the manager may be asked to implement such policies or strategies, which may not be quite approved by him. When such a situation arises, the main focus of the organization gets deviate and executives become busy either settling matters among themselves or moving on. However, the decision maker must be well equipped with a degree or must have sufficient qualification to solve the problems that arises. experience of management accounting is needed by the decision-maker to come out with relevant information. A part of that, there might be an impact on tax because of this decision made. The information provided not only for the inside people but also for the external people such as shareholders or supplier.On the other hand, top management will practises non-routine concept for all the activities held. Non-routine is known as nonrecurring decision such as the following to accept or reject a special order to make or buy a certain part, to sell or proces s further, or to keep or drop a certain product line or division. In these types of decisions, the decision maker must have knowledge of relevant costs and contribution margin.