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Unformatted text preview: Chapter 1 Management Accounting: Information that Creates Value QUESTIONS 1-1 The three broad classes of organization decision making are planning, organizing, and controlling. Planning includes strategy development (which requires information about the organization’s competitive environment, including information about its target customers), production planning (which requires information about production capabilities and resources required for various products), and product planning (often based on prospective cost and revenue information). Organizing refers to activities that focus on how an organization will implement its plans by developing systems to develop, produce, and deliver the organization’s goods or services. Common information requirements include prospective data on costs, efficiency, and quality associated with alternative ways to produce or provide goods or services. Controlling activities focus on assessing how well the organization is achieving its objectives. Common information requirements include costs, quality, profitability, and timeliness measures. 1-2 A company’s operators, managers, and executives need information for their operational control and improvement activities, as well as on the performance of their individual processes, products, services, and customers. This information is important to direct managers’ attention to areas where improvement is needed, to provide feedback on activities, and to monitor and evaluate the performance of operators, departments, divisions, and business units and their managers. This information should be created and produced based on the internal need for operational and strategic information. Shareholders and external suppliers of capital are not involved in managing the business or establishing and validating the company’s strategy. Therefore, they do not need the timely and disaggregate information generated for internal managerial uses. External capital suppliers will receive less timely (typically quarterly for shareholders, monthly for creditors) and more aggregate information. Also the form and accounting procedures used to prepare these – 1 – Atkinson, Solutions Manual t/a Management Accounting, 5E external reports are constrained by regulation—such as by the country’s standard setting authorities and governmental regulatory agencies. This information may also have to be audited by independent accountants, whereas the data for internal uses do not have to be subjected to external auditing review. Another constraint on information supplied externally is the risk of competitors seeing and acting upon a company’s disclosed information. Therefore, while internal information should be highly relevant about the success of the company’s strategy, such information disclosed externally could harm the company....
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This note was uploaded on 09/07/2009 for the course FINC 5000 taught by Professor Adams during the Spring '09 term at Webster.
- Spring '09