Chapter 1 Management Information & Information Technology€¦ · special formatted characters printed in magnetic ink. The characters are read using a specialized reading device.

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.


• 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?


• 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


• 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.


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.


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.


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



• 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.



• Cost accounting is concerned with the following:

• Preparing statement (eg: budget, costing)

• Cost data collection

• Applying costs to inventory, product and services.



• 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.


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

Chapter 1 Management Information & Information Technology€¦ · special formatted characters printed in magnetic ink. The characters are read using a specialized reading device.

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