Managerial Accounting: Conceptual Framework
Chapter 1 Managerial Accounting Concepts and Empirical Evidence
Managerial Accounting
MANAGERIAL ACCOUNTING: Design and use of information systems for managerial planning and control
INFORMATION
DECISION MAKING (planning and control)
Planning and Control Framework
Setting Organizational Objectives
Planning and Control Framework
Setting Organizational Objectives
Identifying Opportunities and/or Problems
Planning and Control Framework
Setting Organizational Objectives
Identifying Opportunities and/or Problems
Selecting Course of Action and Allocating Resources
Planning and Control Framework
Setting Organizational Objectives
Identifying Opportunities and/or Problems
Selecting Course of Action and Allocating Resources Evaluating Accomplishments of Organizational Objectives
Three-Way Classification Scheme of Information
Nonfinancial
Internal Ex post
Three-Way Classification Scheme of Information
Financial
Nonfinancial
Ex post Ex ante
External
Internal
Data for Example
• MaLa Toy Corporation - Introduction of New Toy • Estimate of revenues = $2,000,000 • Estimates of costs of new toy = $1,000,000 or $2,500,000, with equal probabilities • Cost of developing specialized information system to help predict toy costs = $40,000 • Cost prediction is 80% accurate with specialized information system
Mala Toy Corporation
Information Economics
Prediction without Specialized Information System
Revenues = $ 2,000,000 Costs = $ 1,000,000 Probability (p) = 0.5
Revenues = $ 2,000,000 Costs = $ 2,500,000 p = 0.5 EV = ($ 2,000,000 - $ 1,000,000)*.5 + ($ 2,000,000 - $ 2,500,000)*.5 = $ 250,000
Mala Toy Corporation
Information Economics
Prediction without Specialized Information System
Revenues = $ 2,000,000 Costs = $ 1,000,000 Probability (p) = 0.5
Prediction with Specialized Information System
Low-Cost Signal, p = 0.8
High-Cost Signal, p = 0.2
High-Cost Signal, p = 0.8
Revenues = $ 2,000,000 Costs = $ 2,500,000 p = 0.5
Low-Cost Signal, p = 0.2
EV = ($ 2,000,000 - $ 1,000,000)*.5 + ($ 2,000,000 - $ 2,500,000)*.5 = $ 250,000
Mala Toy Corporation
Information Economics
Prediction without Specialized Information System
Revenues = $ 2,000,000 Costs = $ 1,000,000 Probability (p) = 0.5
Prediction with Specialized Information System
Low-Cost Signal, p = 0.8
Expected payoff
= (.5)*(.8)*($ 2,000,000 - $ 1,000,000) = $ 400,000
High-Cost Signal, p = 0.2
Do not Produce
High-Cost Signal, p = 0.8
Do not Produce
= (.5)*(.2)*($ 2,000,000 - $ 2,500,000) = $ -50,000 Expected Value (EV) = $ 350,000 Less: Cost of Specialized Information System - 40,000 Net EV $ 310,000 Since $ 310,000 > $ 250,000 (by $60,000), install Specialized Information System
Revenues = $ 2,000,000 Costs = $ 2,500,000 p = 0.5
Low-Cost Signal, p = 0.2
EV = ($ 2,000,000 - $ 1,000,000)*.5 + ($ 2,000,000 - $ 2,500,000)*.5 = $ 250,000
Decision Support Systems Overview
• Computer-based information systems designed to support managerial planning and control
User User
Decision Support Systems Overview
• Computer-based information systems designed to support managerial planning and control
Data base Management System
Data Base
User User
Decision Support Systems Overview
• Computer-based information systems designed to support managerial planning and control
Model base Management System Data base Management System
Model Base
Data Base
User User