Chapter 1 - Accounting for management

Question 1

What is data?

Answer 1

‘Data’ means facts. Data consists of numbers, letters, symbols, raw facts, events and transactions which have been recorded but not yet processed into a form suitable for use.

Question 2

What is information?

Answer 2

Information is data which has been processed in such a way that it is meaningful to the person who receives it (for making decisions).

Question 3

ACCURATE

Answer 3

Accurate 
Complete
Cost effective
Understandable 
Relevant
Accessible 
Timely
Easy to use

Question 4

What does planning involve?

Answer 4

establishing the objectives of an organisation and formulating relevant strategies that can be used to achieve those objectives.

Question 5

What does it help to know when making plans? And why?

Answer 5

it helps to know what has happened in the past so that decisions about what is achievable in the future can be made. For example, if a manager is planning future sales volumes, he needs to know what the sales volumes have been in the past.

Question 6

Can planning be long term or short term

Answer 6

Planning can be either short­term (tactical planning) or long­term (strategic planning).

Question 7

What does decision making involve?

Answer 7

considering information that has been provided
and making an informed decision.

Question 8

What are the two parts of the decision making process?

Answer 8

The first part of the decision­making process is planning, the second part is control.

Question 9

3 parts to control

Answer 9

1. Gather information about critical results achieved
2. Compare actual results and expected outcome - evaluate outcome
3. Revise original objectives if necessary

Question 10

What is feedback?

Answer 10

Internally­sourced information, produced largely for control purposes

Question 11

What is an organisations mission statement

Answer 11

a statement in writing that describes the overall aims of an organisation, that is, what it is trying to accomplish. In other words it sets out the whole purpose of the business.

Question 12

What are the 4 elements to a mission statement?

Answer 12

Purpose
Strategy
Policies and culture
Values

Question 13

What should aims and objectives be?

Answer 13

SMART

Question 14

What is SMART?

Answer 14

Specific
Manageable
Attainable
Relevant
Timed

Question 15

What is strategic planning also known as?

Answer 15

Strategic planning’ can also be known as ‘long­term planning’ or ‘corporate planning’.

Question 16

What term is strategic planning and how long?

Answer 16

Long term (5years plus)

Question 17

What part of the organisation does Strategic Planning consider?

Answer 17

The whole organisation

Question 18

What does tactical planning do to strategical planning?

Answer 18

Tactical planning takes the strategic plan and breaks it down into manageable chunks

Question 19

What term is tactical planning and how long?

Answer 19

short to medium term plans for the next year.

Question 20

What level of management formulate strategic planning

Answer 20

Senior management

Question 21

What level of management make tactical planning?

Answer 21

Senior and middle management

Question 22

What area of the organisation does tactical planning consider?

Answer 22

individual areas of the business to enable the strategic plan to be achieved

Question 23

What term is operation planning?

Answer 23

Day to day decision, they deal with problems as they arise

Question 24

What level of management is involved with operational planning

Answer 24

All managers

Question 25

What is responsibility accounting based on?

Answer 25

identifying individual parts of a business which are the responsibility of a single manager.

Question 26

What is a responsibility centre?

Answer 26

Is an individual part of a business who’s manager has responsibility for its performance.

Question 27

What are the main responsibility centres?

Answer 27

• cost centre
• revenue centre
• profit centre
• investment centre.

Question 28

What would the cost centre for an accounting firm be?

Answer 28

For an accountancy firm, the cost centres might be: audit; taxation; accountancy; word processing; administration; canteen. Alternatively, they might be the various geographical locations, e.g. the London office, the Cardiff office, the Plymouth office.

Question 29

How is the performance of a cost centre manager judged?

Answer 29

on the extent to which cost targets have been achieved.

Question 30

What information does cost centre managers need?

Answer 30

about costs that are incurred and charged to their cost centres.

Question 31

What is revenue centre?

Answer 31

is a part of the organisation that earns sales revenue. It is similar to a cost centre, but only revenues, and not costs, are recorded.

Question 32

What is a revenue centre generally associated with?

Answer 32

selling activities, for example, a regional sales managers may have responsibility for the regional sales revenues generated.

Question 33

What is a profit centre

Answer 33

is a part of the business for which both the costs incurred

and the revenues earned are identified.

Question 34

Where is profit centre often found?

Answer 34

in large organisations with a divisionalised structure, and each division is treated as a profit centre.

Question 35

What are management of investment centres responsible for?

Answer 35

Managers of investment centres are responsible for investment decisions as well as decisions affecting costs and revenues.

Question 36

How is performance of an investment centre measured?

Answer 36

It is measured in terms of the profit earned relative to the capital invested (employed). This is known as return on capital employed (ROCE)

Question 37

What is the formula of ROCE

Answer 37

ROCE = Profit/Capital employed

Question 38

What is financial accounting?

Answer 38

Financial accounting involves recording the financial transactions of an organisation and summarising them in periodic financial statements for external users who wish to analyse and interpret the financial position of the organisation.

Question 39

What are the main duties of financial accounting?

Answer 39

maintaining the bookkeeping system of the nominal ledger, payables control account, receivables control account and so on and to prepare financial statements as required by law and accounting standards.

Question 40

Is the information created for financial account sufficient for management accounting?

Answer 40

No it’s not usually sufficient