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1 Plagiarism Statement 2 Question 1 (a) ,(b) 3 Question 2 (a) ,(b) ,( c) 4 Bibliography 5 Marking Scheme

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School of Business Studies Plagiarism Statement

Read, complete and sign this statement to be submitted with your written work.

We confirm that the submitted work are all our own work and are in our own words.

Name Dinesh Kumar a/l Ponnusamy Ho Siew Mun Dharrshine

Registration No 09 WBD 06601 09 WBD 03861 09 WBD 06607

Signature

Khor Swee Yong 09 WBD 04357

Course

: 2 DAC 1

Tutorial group : Group 12 Date : 1 / 12 / 2010

Question 1 (Management Accounting Criteria)

( a) Explain the meaning of each of the criteria named above and give a specific example to illustrate each. Management accounting information comply with a few criteria which includes verifiability, objectivity, timeliness, comparability , understandability and relevance and useful in planning, control and decision-making. In the planning process, Objectivity is targets set by those who manage the entity at a senior level. For example, if the entity is a legal entity such as Limited Liability Company or public sector Company, objective will be set which will require high level corporate strategic planning. Within there will be major divisions of activities in key business areas, each with their own objective requiring business strategic planning. When it comes to decision making, the manager of profit-making business has to decide on ways to implement objective of the business, which may well relate to allocating resources so as to maximise profit. Verifiability is a quality that may be demonstrated by securing a high degree of consensus among independent measurers using the same measurement methods. Representational faithfulness, on the other hand, refers to the

correspondence or agreement between the accounting numbers and the resources or events those numbers purport to represent. An example is that an user must have the ability to understand and properly comprehend what is presented . Comparability is the ability to compare information of a company with another with similar information in similar industry group and make comparison of performance over time. Comparability between enterprises and consistency in the application of methods over time increases the informational value of comparison of relative economic opportunities or performance.

Reliability implies that the information which is presented truthful, accurate, complete and capable of being verified by the users of the information. The reliability of a measure rests on the faithfulness with which it represents what its suppose to represent, with an assurance for the user that it has that representational quality. To be useful, information must be reliable as well as relevant. An example on how it works is first the degree of reliability must be recognized. It is hardly ever a question of black or white, but rather of more reliability or less. Reliability rests upon the extent to which the information description or measurement is verifiable and able to be presented. Understandability implies the expression, with clarity, of management accounting information in such a way that it will be understandable to users who are generally assumed to have a reasonable knowledge of business and economic activities. For example, when a management accountant prepares a report he has to make sure it could be understood by various users of that information so that the information can be delivered with enough efficiency and effectively. Timeliness is having information available to decision makers before it loses its capacity to influence decisions. If information is not available when it is needed or becomes available so long after the reported events that it has no value for future action, it lacks relevance and is of little or no use at all depending on situation. For an example, information that reaches a decision maker after the decision is of limited use in the context of the decision making process. This because when a decision has been taken, the information that comes by after that might have little influence on decision makers as they would be reluctant to change the decisions that has been made , so its important to present an information time to time when its needed. Relevance implies that, to be useful, accounting information that must assist a user to form, confirm or maybe revise a view which is usually in the context of making a decision. There is always an objective to be fulfilled when a management accounting information is required.

For it to be relevant it should be relevant to the both objective and the intended user. For an example, an analysis of a prime cost of the project should not include the information on indirect cost. It is important that any figures or reports should stick to the point and not provide information that is not necessary because irrelevant information is seen as a waste of time and can increase the cost of information production.

( b) Give a brief explanation of how the criteria detailed in (a) might be in conflict with each other , giving examples to illustrate where such conflict might arise. Management accounting information with the three management functions of planning, decision making and control are all interrelated in the overall purpose of making judgements and decision making. Criterias which complies with management accounting information such as verifiability, objectivity ,timeliness, comparability, reliability, understandability and relevance might be in conflict with each other. Conflict is a situation that arises where two mutual party doesnt agree or doesnt collaborate with each other when making a decision. In the case of management accounting information, conflict arises when the criterias of management accounting information as were mentioned above doesnt collaborate with each other. A conflict can arise when criterias didnt meet their purpose which doesnt match with other criteria. First example is between understandability and relevance. Information cannot be useful to decision makers who cannot understand it, even though it may otherwise be relevant to a decision and be reliable. However, understandability of information is related to the characteristics of the decision maker as well as the characteristics of the information itself and, therefore, understandability cannot be evaluated in overall terms but must be judged in relation to a specific class of decision makers. When information which is presented has less relevant regarding to what the purpose of the information is required for, the degree of understandibility of the information will be low. Relevance and reliability are the two primary qualities that make accounting information useful for decision making. Subject to constraints imposed by cost and materiality, increased relevance and increased reliability are the

characteristics that make information a more desirable commodity that is, one useful in making decisions. If either of those qualities is completely missing, the information will not be useful. Though, the choice of an accounting alternative

should produce information that is both more reliable and more relevant, it may be necessary to sacrifice some of one quality for a gain in another. To be relevant, information must be timely and it must have predictive value, feedback value or both. To be reliable, information must have representational faithfulness and it must be verifiable. Verifiability is important because information must be able to understand when a user uses it to it to be relevant information and also a reliable source. A conflict arises when an information is not be able to be verified by user as it looks to have less relevance to a certain purpose when an information is required, hence loses its reliability. Comparability, which includes consistency, that interacts with relevance and reliability to contribute to the usefulness of information. Information can be useful and yet be too costly to justify providing it. To be useful and worth providing, the benefits of information should exceed its cost. For an example, if information of a company is not in the state of comparability with other company because of differential methods used in making those reports or preparing management accounting information, this could cause conflict with the relevance of the information and reliability of it which could also affect the objectivity which was set by decision makers. When all this doesnt come together and doesnt match with each and another, the timeliness will be distracted too because information cant be presented or finished within a specific time frame which could lead to waste of time and money in processing those information.

Question 2 ( Information for Decision- making )

( a) Describe the characteristics of decision-making at different levels within an organization . Decision making is central to the management of an enterprise. However, decision making varies considerably at different levels within an organization with different characteristics within each level of the organization. In an organization, there are three type of management which is divided to top management, middle management and lower management level. Each management level varies with its own characteristics and its relevant to an organization. For example, the top level management make decisions relating to the strategy of an enterprise, the middle level meanwhile will focus more on technical decision and the lower level are those who are involved in operational decision making. First well look at the top level management, which are top level managers making decisions affecting the entire firm. Example of top managers, are also called senior management or executives. These individuals are at the top one or two levels in an organization, and hold titles such as Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operational Officer (COO), Chief Information Officer (CIO), Chairperson of the Board, President, Vice president, Corporate Head. Top level management or top managers do not direct the dayto-day activities of the firm; rather, they set goals for the organization and direct the company to achieve them. Top managers are ultimately responsible for the performance of the organization, and often, these managers have very visible jobs. Their decision making is more relating to making strategies in carrying out the goal of a firm. Strategic planning is definition of goals, policies, objectives and general guidelines for an organization. The purpose of strategic planning is to develop strategies by which an organization will be able to achieve its objectives. These activities do not occur on a periodic basis, but data required for strategic planning are generally for processed summarized data for variety of sources.

Information system support can provide substantial aid to process of strategic planning. Next level of management in an organization is middle level management. Middle-level managers, or middle managers, are those in the levels below top managers. Middle managers' job titles include General Manager, Plant manager, Regional manager, and Divisional manager. Their role in the organization mainly relating to making tactical decision of an organization such as acquisition of resources, tactics, plant location, new products and establishment and monitoring of budgets . Middle-level managers are responsible for carrying out the goals set by top management. They do so by setting goals for their departments and other business units. Middle managers can motivate and assist first-line managers which are lower level management to achieve business objectives. Middle managers may also communicate with top management, by offering suggestions and feedback to top managers. Because middle managers are more involved in the day-to-day workings of a company, they may provide valuable information to top managers to help improve the organization's bottom line. As their work more relate to tactical planning, its important for them to develop a system required by managers of department, profit centers to measure performance, decision on control actions, formulate new decision rules and allocate resources. Summary information is needed and it must be processed so that trends may be observed, reasons for performance variation and solutions may be suggested. The third level of management is lower level management. Lower level management consists of first-line managers or supervisors. These managers have job titles such as Office manager, Shift supervisor, Department manager, Foreperson, Crew leader, Store manager. First-line managers are responsible for the daily management of line workers, the employees who actually produce the product or offer the service. There are first-line managers in every work unit in the organization. Although first-level managers typically do not set goals for the organization, they have a very strong influence on the company. These are the

managers that most employees interact with on a daily basis. To summarize their function to an organization, these levels are which more concerned with operational part of an organization. Operational planning and control is important to ensure the efficiency and effectiveness of use of existing facilities and resources to carry out activities. They also must monitor the employees below them who are important for the production of the organization and ensure them that that operational activities were carried out as it was required and meets the goals and objective that were set by top level management.

( b ) Explain how the management accountant must tailor the information provided for the various level . Management accountant tailor the information provided for the various level in four ways such as identifying and capturing relevant information, recording the information collected in a systematic manner, analysing and interpreting the information collected and lastly reporting he information in a manner that suits the needs of individual managers.

The first two stage are concerned with preparation, whereas the last two stages are concerned with using the information collected.

Firstly, the manager will have to identify and capture relevant information from the many information they have gathered for their purpose.

Second stage of tailoring the information is recording the information collected in a systematic manner which is the information should be expressed as clearly as possible and should be understood at whom the information is aimed.

Next, the manager will have to analyse and interpret the information collected. After arranging the information systematically, the manager must go through the information and give their opinion and also a write a report on it for a clearer perspective.

Lastly, manager must report the information in a manner that suits the need of individual managers. This means the manager that is reporting about the information must report it clearly so that other managers understand.

( c) Give an example of a typical management decision, state at what level this would normally be taken and what specific information should be supplied to the decision-maker.

Example of a typical management decision is develop new products and services such as a computer manufacturer developing a new range of computers.

This decision would normally be taken at developing plans and strategies level by the managers in top level management or marketing level.

Specific information that should be supplied to the decision makers are on how to develop the objectives and plan. Managers are responsible for establishing the mission and objectives and then developing to achieve those objectives. Managers must explain to decision makers their total idea about the new objective. For instance, in the case of computer manufacturer developing a new range of products, the managers must provide the specific information on what type of computers they want to manufacture and how they want to achieve their objective.

Next, specific information that should be provided to decision makers are information on performance evaluation and control. The decision makers must know how they will evaluate the process of achieving the objective and controlling it. Control need to be in place to ensure that actual performance conforms to planned performance. Actual outcomes will, therefore, be compared with plans to see whether the performance is better or worse than expected. Where there is significant difference, decision makers will command for some investigation to be carry out and corrective action taken where necessary.

Thirdly, supply information on allocating resources for developing new products and services. Resources available to a business are limited and it is the responsibility of managers to try to ensure that they are used in efficient and effective manner.

Lastly, specific information that should be supplied t the decision makers are determining costs and benefits. Many management decisions require knowledge of the costs and benefits of pursuing a particular course of action such as providing a service, producing a new product or even closing down a department. The management accountant can help decision makers providing details of particular costs and benefits.

Bibliography
1 ) Drury , Collin (2008) Management & Cost Accounting , 7th Edition , Thomson Learning ,UK. 2 ) Garrison , H.G , Noreen ,E.W. & Brewer (2008) Managerial Accounting , 12th edition , McGraw-Hill, New York. 3) http://bradley.bradley.edu/~simonp/atg383/concept2picture.html 4) http://www.microbuspub.com/pdfs/chapter2.pdf 5) http://en.wikipedia.org/wiki/Management_accounting 6) http://ezinearticles.com/?Management-Accounting&id=3552148 7) http://www.virtualsalt.com/crebook6.htm 8) http://en.wikipedia.org/wiki/Strategic_management 9)