q
G
H
ACCA
Approved
Workbook
Foundations
in Accountancy/ACCA
Management
For
Accounting
exams
from
to 31 August
Free access
1 September
(FMA/MA)
2021
2022
to eBook & additional
digital content
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Foundations
in
Accountancy/ACCA
Management
Accounting
(FMA/MA)
G
H
Workbook
For
exams
from
September
August
2021
1st
to
31st
2022
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Firstedition2021
Anoteaboutcopyright
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Contents
Introduction
Helping you to pass
v
Introduction to the Essential reading
vii
Introduction to Management Accounting (FMA/MA)
ix
Essential skillsareas to be successful in Management Accounting (FMA/MA)
xii
1
Accounting for management
1
2
Data and presenting information
17
3
Cost classification and behaviour
41
4
Forecasting
65
5
Summarising and analysing data
99
Skillscheckpoint 1
127
6
Accounting for materials
135
7
Accounting for labour
167
8
Accounting for overheads
187
9
Process costing
223
10 Costing methods
251
11 Setting budgets
279
12 Implementing budgets
303
Skillscheckpoint 2
317
13 Project appraisal
325
Skillscheckpoint 3
353
14 Standard costing
359
15 Variance analysis
377
Skillscheckpoint 4
419
16 Target setting
427
17 Financial performance measurement
443
18 Assessing non-financial performance
463
Skillscheckpoint 5
479
Essential Reading
Accounting for management
485
Data and presenting information
489
Cost classification and behaviour
495
Forecasting
503
Summarising and analysing data
509
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Accounting for materials
517
Accounting for labour
523
Process costing
527
Costing methods
533
Setting budgets
543
Implementing budgets
549
Project appraisal
557
Standard costing
561
Variance analysis
567
Target setting
573
Financial performance measurement
577
Assessing non-financial performance
581
Further question practice
587
Further question solutions
615
Appendix1:Formulae sheet given in the exam
636
Glossary
643
Index
655
Bibliography
663
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Helping
you
to pass
BPP Learning Media – ACCA Approved Content Provider
Asan ACCAApprovedContentProvider,BPPLearningMediagivesyou the opportunityto use
study materialsreviewedby the ACCAexaminingteam. Byincorporatingthe examiningteam’s
commentsand suggestionsregardingthe depth and breadth of syllabuscoverage,the BPP
LearningMediaWorkbookprovidesexcellent,ACCA-approved
supportforyourstudies.
Thesematerialsare reviewedby the ACCAexaminingteam. Theobjectiveof the reviewis to
ensurethat the materialproperlycoversthe syllabusand study guideoutcomes,used by the
examiningteam insettingthe exams,inthe appropriatebreadth and depth. Thereviewdoes not
ensurethat everyeventuality,combinationor applicationof examinabletopicsis addressed by
the ACCAApprovedContent.Nordoes the reviewcomprisea detailedtechnicalcheckof the
contentas the ApprovedContentProviderhas its ownqualityassurance processesinplace inthis
respect.
BPPLearningMediado everythingpossibleto ensurethe materialis accurate and up to date
whensendingto print.Inthe eventthat any errorsare foundafter the printdate, they are
uploadedto the followingwebsite:www.bpp.com/learningmedia/Errata.
The PER alert
Beforeyou can qualifyas an ACCAmember,you not onlyhaveto pass allyourexamsbut also
fulfila three-yearpracticalexperiencerequirement(PER).Tohelpyou to recogniseareas of the
syllabusthat you mightbe able to apply inthe workplaceto achievedifferentperformance
objectives,wehaveintroducedthe ‘PERalert’feature (seethe nextsection).Youwillfindthis
feature throughoutthe Workbookto remindyou that what you are learningto pass yourACCA
examsis equallyusefulto the fulfilmentof the PERrequirement.Yourachievementof the PER
shouldbe recordedinyouronlineMyExperiencerecord.
G
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Management
Accounting
(FMA/MA)v
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Keyto icons
Keyterm
Centralconceptsare highlightedand clearlydefinedinthe Keytermsfeature.
Keytermsare also listedinboldinthe Index,forquickand easy reference.
Formulato learn
Thisboxedfeature willhighlightimportantformulawhichyou need to learnfor
yourexam.
PERalert
Thisfeature identifieswhensomethingyou are readingwillalso be usefulforyour
PERrequirement(see‘ThePERalert’sectionaboveformoredetails).
Realworldexamples
Thesewillgivereal examplesto helpdemonstratethe conceptsyou are reading
about.
Illustration
Illustrationswalkthroughhowto apply keyknowledgeand techniquesstep by step.
Activity
Activitiesgiveyou essentialpracticeof techniquescoveredinthe chapter.
Essentialreading
Linksto the Essentialreadingare giventhroughoutthe chapter. TheEssential
readingis includedinthe freeeBook,accessed viathe ExamSuccessSite(seeinside
coverfordetailson howto access this).
Atthe end of each chapter you willfinda Knowledgediagnostic,whichis a summaryof the main
learningpointsfromthe chapter to allowyou to checkyou haveunderstoodthe keyconcepts.You
willalso finda Furtherstudy guidancewhichcontainssuggestionsforwaysinwhichyou can
continueyourlearningand enhance yourunderstanding.Thiscan include:recommendationsfor
questionpracticefromthe Furtherquestionpracticeand solutions,to test yourunderstandingof
the topicsinthe Chapter; suggestionsforfurtherreadingwhichcan be done,such as technical
articles;and ideas foryourownresearch.
Introduction vi
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Introduction
to the
Essential
reading
Theelectronicversionof the Workbookcontainsadditionalcontent,selectedto enhance your
studies.Consistingof revisionmaterialsand furtherexplanationsof complexareas (including
illustrationsand activities),it is designedto aid yourunderstandingof keytopicswhichare
coveredinthe mainprintedchapters of the Workbook.TheEssentialreadingsectionof the eBook
also includesfurtherillustrationsof complexareas..
Asummaryof the contentof the Essentialreadingis givenbelow.
Chapter
Summary of Essential reading content
1
Accountingformanagement • Detailon strategic,tactical and operational
information.
2
Data and presenting
information
• Samplingexamples:randomsampling,stratified
sampling,systematicsampling,multistagesampling
3
Cost classificationand
behaviour
• Differenttypes of cost behaviour,eg non-linear,
curvilinearvariablecosts
• Linearequations
• Differenttypes of codingsystem
4
Forecasting
• Movingaverageswithan evennumberof results
• Adjustingseasonalvariationsusinga multiplicative
model
5
Summarisingand analysing • Advantagesand disadvantagesof differenttypes of
data
average
• Calculatingprobabilitiesusingz scores
6
Accountingformaterials
• Detailon the differenttypes of inventorycost
7
Accountingforlabour
• Labourrecords,eg timesheets
8
Accountingforoverheads
Thereisno essentialreadingforthischapter
9
Processcosting
• Howto deal withlosseswitha disposalcost
• Dealingwithdifferentrates of input
10 Costingmethods
• Illustrationof jobaccounts
• Illustrationof cost per unitcalculationinservice
businesses
• Accountingforby-products
• Howjointproductsare incorporatedintoprocess
accounts
11 Settingbudgets
• Administration
of the budget
• Detailon controllablecosts
• Preparingthe capital budget
12 Implementingbudgets
• Attitudesto budgeting
• Cost reductionprogrammes
• Detailon valueanalysis
13 Projectappraisal
• Calculatingdiscountedpayback
14 Standard costing
• Standard cost card activitiesusingabsorptionand
marginalcosting
• Illustrationof variancecalculationsusingflexedbudget
vii
Management
Accounting
(FMA/MA)
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Chapter
Summary of Essential reading content
• Detailon whenfixedand flexedbudgets are
appropriate
15 Varianceanalysis
•
•
•
•
Materialvarianceswhenthere is closinginventory
Reasonsforfixedoverheadvariances
Causes of sales variances
Informationon possiblecontrolaction
16 Targetsetting
• Governmentinfluenceon businesses
17 Financialperformance
measurement
• Managementperformancemeasures
18 Assessingnon-financial
performance
• Performancemeasuresforserviceindustries,
manufacturing,contract and processcosting
environments
G
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Introduction viii
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Introduction
to Management
Accounting
(FMA/MA)
Overall aim of the syllabus
Todevelopknowledgeand understandingof managementaccountingtechniquesto support
managementinplanning,controllingand monitoringperformanceina varietyof business
contexts.
The syllabus
Thebroad syllabusheadingsare:
A
Thenature, sourceand purposeof managementinformation
B
Data analysisand statisticaltechniques
C
Cost accountingtechniques
D
Budgeting
E
Standard costing
F
Performancemeasurement
Maincapabilities
On successfulcompletionof thisexam,you shouldbe able to:
A
Explainthe nature, sourceand purposeof managementinformation
B
Explainand analyse data analysisand statisticaltechniques
C
Explainand apply cost accountingtechniques
D
Preparebudgets forplanningand control
E
Compareactual costs withstandard costs and analyse any variances
F
Explainand apply performancemeasurementsand monitorbusinessperformance
H
Linkswithother exams
ThePerformanceManagement(PM)syllabusassumesknowledgeacquiredinManagement
Accounting(MA/FMA)
and developsand appliesthisfurtherand ingreater depth.
AchievingACCA’sStudyGuideLearningOutcomes
ThisBPPWorkbookcoversallthe ManagementAccounting(FMA/MA)
syllabuslearningoutcomes.
Thetables belowshowinwhichchapter(s)each area of the syllabusiscovered.
A
Thenature, sourceand purposeof managementinformation
A1
Accountingformanagement
Chapter 1
A2
Sourcesof data
Chapter 2
A3
Cost classification
Chapters 3, 17
A4
Presentinginformation
Chapter 2
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Management
Accounting
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B
Data analysisand statistical techniques
B1
Samplingmethods
Chapter 2
B2
Forecastingtechniques
Chapters 3, 4
B3
Summarisingand analysingdata
Chapter 5
B4
Spreadsheets
Chapter 2 (and Checkpoint
2)
C
Cost accountingtechniques
C1
Accountingformaterial,labourand overheads
Chapters 6, 7,8
C2
Absorptionand marginalcosting
Chapter 8
C3
Cost accountingmethods
Chapters 9, 10
C4
Alternativecost accountingprinciples
Chapter 10
D
Budgeting
D1
Natureand purposeof budgeting
Chapter 11
D2
Budgetpreparation
Chapters 11,14
D3
Flexiblebudgets
Chapter 14
D4
Capitalbudgetingand discountedcash flow
Chapters 11,13
D5
controland reporting
G
H
Chapters 12,14,15,17Budgetary
D6
Behaviouralaspects of budgeting
Chapter 12
E
Standard costing
E1
Standard costingsystem
Chapters 14,15
E2
Variancecalculationsand analysis
Chapter 15
E3
Reconciliationof budgeted and actual profit
Chapter 15
F
Performancemeasurement
F1
Performancemeasurement- overview
Chapter 16
F2
Performancemeasurement- application
Chapters 16,17,18
F3
Cost reductionsand valueenhancement
Chapter 12
F4
Monitoringperformanceand reporting
Chapters 16,17,18
Thecompletesyllabusand study guidecan be foundby visitingthe examresourcefinderon the
ACCAwebsite:www.accaglobal.com/gb/en.html.
Introduction x
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Theexam
Computer-based
exams
Computer-based
examinations
(CBEs)areavailable
foralloftheFoundations
inAccountancy
exams.
TheCBEexams
forthefirstseven
modules
canbetakenatanytime;thesearereferred
to
as‘exams
ondemand’.
TheOption
exams
canbesatinJuneandDecember
ofeachyear;these
arereferred
toas‘exams
onsitting’.
Formoreinformation
onCBEexams
andtoaccessSpecimen
exams
intheCBEsoftware,
please
visittheACCAwebsite.
Howdo CBEs work?
• Questions
aredisplayed
ona monitor.
• Candidates
enter
theiranswer
directly
ontothecomputer.
• Candidates
havetwohours
tocomplete
theexamination.
• Candidates
sitting
exams
ondemand
areprovided
witha Provisional
Result
Notification
showing
theirresults
before
leaving
theexamination
room.
• TheCBELicensed
Centreuploads
theresults
totheACCA(asproofofthecandidate’s
performance)
within
72hours.
• Candidates
sitting
theOption
exams
willreceive
theirresults
approximately
fiveweeks
after
theexamsitting
oncetheyhavebeenexpert
marked.
• Candidates
canchecktheirexamstatus
ontheACCAwebsite
byloggingintomyACCA.
Benefits
• Flexibility
– thefirstseven
modules,
exams
ondemand
canbesatatanytime.
• Resitsforthefirstseven
modules
canalsobetakenatanytimeandthereisnorestriction
on
thenumber
oftimes
a candidate
cansita CBE.
• Instant
feedback
fortheexams
ondemand
asthecomputer
displays
theresults
attheendof
theCBE.
Formoreinformation
oncomputer-based
exams,
visittheACCAwebsite.
www.accaglobal.com/gb/en/student/exam-entry-and-administration/computer-basedexams.html
xi
Management
Accounting
(FMA/MA)
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Essential
Accounting
skills
areas
to be successful
in Management
(FMA/MA)
Wethinkthere are three areas you shoulddevelopinorderto achieveexamsuccessinFMA/MA:
(a) Knowledgeapplication
(b) SpecificManagementAccountingskills
(c) Examsuccessskills
Theseare showninthe diagrambelow.
msuccess
skills
Exa
r plann
ing
swe
An
MA/FMA
ski
on
ecific
lls
Sp
ati
m
r
fo
in
g
Approach
to
Excel
and
gin
objective
test calculator
a
(OT)
questions skills
an
M
Co
of rrec
req tin
uir te
emrpr
en eta
ts tio
n
Project
Multi-task
G
appraisal
sis
questions
oo
questions
lny
d
a
tim
a
Variance
al
em
c
questions
i
an
mer
ag
u
em
ntn
ent
ie
c
Effi
Effectivewriting
andpresentation
H
Specific FMA/MAskills
Theseare the skillsspecificto FMA/MA
that wethinkyou need to developinorderto pass the
exam.
InthisWorkbook,there are fiveSkillsCheckpointswhichdefineeach skilland showhowit is
appliedinansweringa question.Abriefsummaryof each skillis givenbelow.
Skill1:Approachto objectivetest (OT)questions
TheFMA/MA
examcontainstwosections.SectionAconsistsof 35 objectivetest (OT)questions
worth2 markseach and SectionBcontains3 multi-taskquestionsworth10markseach. The
multi-taskquestionsare made up of OTquestionsand thereforebeingable to answerOT
questionseffectively,is extremelyimportant.
Astep by step techniqueis outlinedbelow.
Introduction xii
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GeneralguidanceforapproachingOTquestions
STEP1: Answerthe questionsyouknowfirst.
Ifyou’rehavingdifficulty
answeringa question,moveonandcomebackto tackleit
onceyou’veansweredallthequestionsyouknow.
Itisoftenquickerto answerdiscursive
styleOTquestionsfirst,leavingmoretime
forcalculations.
GeneralguidanceforapproachingOTquestions
STEP2: Answerallquestions.
ThereisnopenaltyforanincorrectanswerinACCAexams;thereisnothingto be
gainedbyleavinganOTquestionunanswered.
Ifyouarestuckona question,asa
lastresort,itisworthselectingtheoptionyouconsidermostlikelyto be correct
andmovingon.Flagthequestion,soifyouhavetimeafteryou’veansweredthe
restofthequestions,youcanrevisitit.
GuidanceforansweringspecificOTquestions
STEP3: Readthe requirementfirst!
Therequirementwillbe statedinboldtextintheexam.Identifywhatyouare
beingaskedto do,anytechnicalknowledgerequiredandwhattypeofOT
questionyouaredealingwith.Lookforkeywordsintherequirementsuchas
"whichTWOofthefollowing,"
or" whichofthefollowing
isNOT".
GuidanceforansweringspecificOTquestions
STEP4: Applyyourtechnicalknowledgeto the data presentedinthe question.
Takeyourtimeworkingthroughcalculations,
makingsureto readthrougheach
answeroptionwithcare.OTquestionsaredesignedsothateachansweroption
isplausible.Workthrougheachresponseoptionandeliminatethoseyouknow
areincorrect.
SkillsCheckpoint1coversthistechniqueindetailand highlightsthe differenttypes of OTquestion
that you are likelyto see inyourexam.
Skill2: Exceland calculatorskills
Thischeckpointcoverstwoareas - usingspreadsheetsand usingyourscientificcalculator.
Spreadsheetsare specificallymentionedon the FMA/MA
syllabusand you can expectto see
questionsthat requireyou to apply yourknowledgeof spreadsheetsto managementaccounting
questions.Forexample,questionsmay showyou an extractof a budget spreadsheetand ask you
to selectthe correctspreadsheetformulato calculatea particularfigure.
Youmustbe able to use yourcalculatorquicklyand correctlyinthe exam.Theabilityto calculate
the correctanswerefficientlyis a fundamentalskillinmanagementaccounting.Youwillhave
moretimeforthinkinginthe examifyou can makebest use of yourcalculatorto get the right
answer.Forexample,you mustbe able to use yourcalculatorto calculatethe correlation
coefficient,EOQformulaand standard deviation.
xiii Management
Accounting
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Hereis an exampleof a typicalscientificcalculator:
REPLAY
Thisallowsyouto changeanypartoftheseriesof
keysyouhavepressed
Thisletsyougo backto previouscalculations
COMPmodeistheusualsettingfor
calculations.
STATmodeletsyoudo
statisticalcalculations
SHIFT
Pressingthiskeyfollowed
bya secondkeyperforms
thealternativefunctionof
thesecondkey
RECIPROCAL
Thisrecalculates
the
numberdisplayedas1
overthatnumber 1
x
FRACTIONS
Thisletsyouputa fraction
intoa calculation
without
havingto convertitinto
a decimal
POWER
andROOT
PresstheSHIFT
button
beforethisbuttonif
youwantto finda root.
Thisisthesameas ,
yxor xy
NEGATIVE
Averyusefulbutton
forminusnumbers
DELETE
Usedwiththereplay
button,thisallowsyou
to go backandcorrect
yourcalculation
BRACKETS
Theseareusedjustlikeyou
writea calculation
sothatit
isdoneintherightorder
ANSWER
Thisstoresthelast
calculation
result
EQUALS
Inputthecalculation
expressions
astheyare
writtenthenpress=
to executeit
SkillsCheckpoint2 coversthe use of yourcalculatorindetailusingan exam-standardquestion.
Skill3: Projectappraisal questions
Thesyllabusstates that you shouldbe able to ‘calculateNPV,IRRand payback (discountedand
non-discounted)’.However,the MA/FMA
examiningteam reportrepeatedlysays that a common
problemforstudents,particularlyinSectionBquestions,is the calculationof payback, NPVand
IRR.Thischeckpointlooksat these calculationsindetailusingexamstandard questions.
Introduction xiv
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Skill4: Variancequestions
Variancequestionsare verylikelyto appear inyourexaminsomeform.
Inorderto answervariancequestionswell,you need to ensurethat you:
• Havelearntthe varianceformulae
• Understandthe differencesbetweenmarginalcostingsystemvariancesand absorption
costingsystemvariances
• Understandthe formatof an operatingstatement
• Understandthat variancescan be calculatedusinga flexedbudget to comparelikewithlike
SkillsCheckpoint4 coversvarianceanalysisindetailusingan exam-standardquestion.
Skill5: Multi-taskquestions
Multi-taskquestions(MTQs)inSectionBcomprise30%of yourexam(viathree 10-markquestions,
brokendownintosub-questionsof varyingmarkallocations).Itis thereforeimportantthat you
giveadequate revisiontimeto practisingthese questions.
ThebiggestdifferencebetweenSectionAOTQsand SectionBMTQsis the waythey are
presented.Forexample,an OTQis alwaysworthtwomarksand any fillinthe blankOTQsare
likelyto onlyneed a singleanswer.MTQsare made up of several‘tasks’and sometasks may be
worthmorethan others.Forexample,an MTQcouldcontaina task showinga table withseveral
fillinthe blankboxes,forsay, sixmarks,followedby twoOTQsworthtwomarkseach (totalMTQ
score=10marks).Evenifyou get one of the answersinone of the boxesincorrect,thiswillnot
affect yourabilityto scoreon the otheranswerboxes.Fillinthe blankquestionsrequireaccurate
calculationand carefulnumberentry, so it’sworthtakingyourtimeoverthese types of question
SkillsCheckpoint5 coversthistechniqueusingan exam-standardquestion.
Examsuccess skills
Passingthe FMA/MA
examrequiresmorethan applyingsyllabusknowledgeand demonstrating
the specific skills;it also requiresthe developmentof good examtechniquethroughquestion
practice.
Weconsiderthe followingskillsto be vitalforexamsuccess.TheSkillsCheckpointsshowhow
each of these skillscan be appliedinthe exam.
1 Exam success skill 1
Managinginformation
Itis easy forthe amountof informationcontainedina particularquestionto feela little
overwhelming.
Adviceon developingManaginginformation
Approach
Theexamis 2 hourslong.Thereis no designated‘reading’timeat the start of the exam,however,
one approach that can workwellis to start the examby spendinga fewminutescarefullyreading
throughallof the questionsto familiariseyourselfwiththe examand the topicsinSectionB.
Nextconsiderthe orderinwhichyou willattempt the questions;alwaysattempt theminyour
orderof preference.Forexample,you may wantto leaveto last the questionyou considerto be
the mostdifficult.
Ifyou findthat thisapproach doesn’tworkforyou, don’tworry– you can developyourown
technique.
Activereading
Activereadingis a usefultechnique.Itinvolvesfocusingon the requirementsfirston the basis
that, untilyou havedone this,the detailinthe questionwillhavelittlemeaningand willseemmore
intimidating.
Management
Accounting
(FMA/MA)xv
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2 Examsuccessskill2
Correctinterpretation
oftherequirements
Identify
fromtherequirement
thetypeofOTquestion.
Thisisespecially
important
withmultiple
response
options
(MRO)toensure
youselectthecorrect
number
ofresponse
options.
Itisalso
important
forfillintheblankquestions
astheymaytellyoutogiveyouranswer
toa certain
number
ofdecimal
placesortothenearest
thousand
dollars.
Adviceondeveloping
correct
interpretation
oftherequirements
Thisskillcanbedeveloped
byanalysing
question
requirements
andapplying
thisprocess:
Step1
Readtherequirement
Firstly,
readtherequirement
a couple
oftimes
slowly
andcarefully.
Step2
Readtherestofthequestion
Byreading
therequirement
first,youwillhaveanideaofwhatyouare
looking
outforasyoureadthrough
thescenario.
Thisisa greattime
saverandmeans
youdon’tenduphaving
toreadthewhole
question
in
fulltwice.Youshould
dothisinanactiveway– seeExamsuccess
skill1:
Managing
Information.
Step3
Readtherequirement
again
Readtherequirement
againtoremind
yourself
oftheexactrequirement
before
selecting
youranswer.
Thiswillcapture
anymisinterpretation
of
therequirements
andshould
become
a habitinyourapproach.
3 Examsuccessskill3
Answer
planning:
Priorities,
structure
andlogic
Answer
planning
isa skillthatyouwillneedwhenyoustudyhigher
levelexams
suchasPMor
APM.Itisnotquiteasrelevant
forthestyleofquestion
inFMA/MA.
4 Examsuccessskill4
Efficient
numerical
analysis
Thisskillaimstomaximise
themarks
awarded
bybeingcareful
inarriving
atyouranswer.
You
mustbecareful
withcalculations
because
distractors
(incorrect
answers
inMCQs)arebasedon
commonly
madeerrors.
Forfillintheblankquestions,
youmustenter
youranswer
carefully.
Ifyou
havecalculated
theanswer
tobe25andyouaccidentally
enter
52,youwilllosethetwomarks
for
thequestion.
Adviceondeveloping
Efficient
numerical
analysis
Youshould
makesureyoucanuseyourcalculator
efficiently
(asexplained
inCheckpoint
2)and
practise
takingcarewhenentering
fillintheblankanswers.
5 Examsuccessskill5
Effective
writing
andpresentation
Aswithanswer
planning,
thisskillismorerelevant
forhigher
levelexams
suchasPMandAPM.
Introduction
xvi
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6 Exam success skill 6
Good timemanagement
Thisskillmeans planningyourtimeacross allthe requirementsso that alltasks havebeen
attempted at the end of the 2 hoursavailableand activelycheckingon timeduringyourexam.
Thisis so that you can flexyourapproach and prioritiserequirementswhich,inyourjudgement,
willgenerate the maximummarksinthe availabletimeremaining.
Adviceon developinggood timemanagement
Theexamis 2 hourslong,whichtranslatesto 1.2minutesper mark.Thereforea 10-mark
requirementshouldbe allocatedabout 12minutesto completeyouranswerbeforeyou moveon to
the nexttask.
Keepan eye on the clock
Aimto attempt allrequirements,but be ready to be ruthlessand moveon ifyouransweris not
goingas planned.Thechallengeformany isstickingto plannedtimings.Beaware thisis difficult
to achieveinthe earlystages of yourstudiesand be ready to let thisskilldevelopovertime.
Questionpractice
Questionpracticeis a corepart of learningnewtopicareas. Whenyou practisequestions,you
shouldfocuson improvingthe Examsuccessskills– personalto yourneeds – by obtaining
feedbackor througha processof self-assessment.
G
H
xvii Management
Accounting
(FMA/MA)
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q
management1
Accounting
1
Learning
for
objectives
Oncompletion
ofthischapter,
youshould
beableto:
Syllabus
reference
no.
Describe
thepurpose
androleofcostandmanagement
accounting
within
anorganisation.
A1(a)
Compare
andcontrast
financial
accounting
withcostandmanagement
A1(b)
accounting.
G
1
Outline
themanagerial
processes
ofplanning,
decision
making
and
control.
A1(c)
Explain
thedifference
between
strategic,
tacticalandoperational
planning.
A1(d)
Distinguish
between
‘data’and‘information’.
A1(e)
Identify
andexplain
theattributes
ofgoodinformation.
A1(f)
Explain
thelimitations
ofmanagement
information
inproviding
guidance
formanagerial
decision
making.
A1(g)
Exam
context
Thecontents
ofthischapter
aremainly
toserveasanintroduction
totheManagement
Accounting
exam.
Although
thischapter
isanintroductory
chapter,
itisstillhighlyexaminable.
Youshould
expect
questions
oneverychapter,
including
thisone.
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1
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H
2
Management
Accounting
(FMA/MA)
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q
Chapter
overview
Accountingformanagement
Purpose
androleofmanagement
accounting
What
arecost
and
management
accounting?
Management
accounting
vfinancial
accounting
Themain
areas
of
management
accounting
Strategic,
tactical
and
operational
planning
Dataandinformation
Limitations
ofinformation
fordecision
making
Qualities
ofgood
information
G
H
1:Accounting
formanagement3
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1 Purpose
and role of cost
and management
accounting
1.1 What are cost and management accounting?
Costaccounting
andmanagement
accounting
areterms
thatareoftenusedinterchangeably.
It
isnotcorrect
todoso.Costaccounting
ispartofmanagement
accounting.
Costaccounting
provides
a bankofdataforthemanagement
accountant
touseandisconcerned
with:
• Preparing
statements
• Costdatacollection
• Applying
coststoinventory,
products
andservices.
Management
accounting
isconcerned
withtheprovision
andtheuseofaccounting
information.
Thisinformation
isusedbymanagers
ofthebusiness
toassistthemwhenmaking
decisions
to
achieve
theorganisation’s
overall
objective.
Theassumption
thatwillusually
bemadeinyour
studies
isthatcompanies
wishtomaximise
thewealth
oftheirshareholders.
Usually,
thiswillbe
achieved
bymaximising
profit.
Costaccounting:
Costaccounting
isthe‘gathering
ofcostinformation
anditsattachment
to
KEY
costobjects,
theestablishment
ofbudgets,
standard
costsandactualcostsofoperations,
TERM processes,
activities
orproducts;
andtheanalysis
ofvariances,
profitability
orthesocialuseof
funds’.
(CIMAOfficialTerminology)
Management
accounting:
Management
accounting
isthe‘application
oftheprinciples
of
accounting
andfinancial
management
tocreate,
protect,
preserve
andincrease
valueforthe
shareholders
offor-profit
andnot-for-profit
enterprises
inthepublicandprivate
sectors’.
(CIMAOfficialTerminology)
1.2 The main areas of management accounting
Management
accounting
canbebroken
downintofivemainareas:
(a) Costing
Whatisthecostofgoodsorservices
provided?
Weneedtoknowthistoassesstheprofitability
ofproducts
orservices,
tohelpsetpricesandto
valueinventory
inthestatement
offinancial
position.
(b) Planning
Planning
involves
defining
objectives
andassessing
future
costsandrevenues
tosetupa budget.
Planning
isessential
inassessing
thepurchasing/production
requirements
ofthebusiness.
It
forces
management
tothinkahead.
4
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The planning process
Theassessment
stage
Assessthe
external
environment
Assessthe
organisation
Assessthe
future
Theobjective
stage
Evaluatecorporate
objectives
Theevaluation
stage
Consideralternativeways
ofachievingobjectives
Thecorporate
plan
Agreea corporateplan
Production
planning
Resource
planning
Product
planning
Assess
expectations
Researchand
developmentplanning
m
sL
tor
antg
egtye
rp
la
nn
in
g
S
ho
rt
-t
er
m
pl
an
ni
ng
Detailedoperationalplanswhichimplementthecorporateplanona
monthly,quarterlyorannualbasis.Operationalplansinclude
short-termbudgets,standardsandobjectives.
G
H
(c) Control
Onceplans havebeen made, the businessmustensurethey are beingfollowedand address any
inefficiencies.Thereare twostages inthe controlprocess.
• Theperformanceof the organisationas set out inthe detailedoperationalplans is compared
withthe actual performanceof the organisationon a regularand continuousbasis.Any
deviationsfromthe plans can then be identifiedand correctiveactiontaken.
• Thecorporate plan is reviewedinthe lightof comparisonsmade and any changes inthe
parameterson whichthe plan was based (suchas newcompetitorsand government
instructions)to assess whetherthe objectivesof the plan can be achieved.Theplan is modified
as necessarybeforeany seriousdamage to the organisation’sfuturesuccessoccurs.
Effectivecontrolis thereforenot practicalwithoutplanning,and planningwithoutcontrolis
pointless.
(d) Decisionmaking
Thereare many decisionsmanagersmay haveto make,such as:
• Whatshouldweproduce?
• Howshouldwefinancethe business?
• Isa projectworthwhile?
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Decisionmakingprocess
Step1
Identifygoals,objectivesorproblems.
Step2
Identifyalternativesolutions/opportunities
whichmightcontributetowardsachievingthem.
Planning
Step3
Collectandanalyserelevantdataabouteachalternative.
Step4
Makethechoice/decision.
Statetheexpected
outcomeandcheckthattheexpectedoutcomeis
inkeepingwiththeoverallgoalsorobjectives.
Step5
Implementthedecision.
Step6
Obtaindataaboutactualresults.
Control
Step7
Compareactualresultswiththeexpected
outcome.Evaluateachievements.
(e) Performanceevaluation
Theperformanceof divisionsand employeescan be assessed by comparingtheirperformance
against budgets or divisionalor individualtargets. Sometimesperformanceevaluationis classed
as part of control(see(c)above).
Exam focus point
TheMA/FMA
syllabusspecificallymentionsthe managerialprocessesof planning,controland
decisionmaking.Makesurethat you understandthe meaningof each of these processes.
1.3 Strategic,
tactical
and operational
planning
RNAnthony,a leadingwriteron organisationalcontrol,has suggestedthat the activitiesof
planning,controland decisionmakingshouldnot be separated (Anthony,1965)sinceall
managersmakeplanningand controldecisions.Hehas identifiedthree types of management
activity.
(a) Strategicplanning:‘theprocessof decidingon objectivesof the organisation,on changes in
these objectives,on the resourcesused to attain these objectives,and on the policiesthat are
to governthe acquisition,use and dispositionof these resources’.
Long-termstrategicplanning,also knownas corporateplanning,involvesselectingappropriate
strategiesso as to prepare a longtermplan to attain objectives.Examplesof strategicplanning
includethe selectionof productsand markets,the requiredlevelsof companyprofitabilityand the
purchaseand disposalof subsidiarycompaniesor majornon-currentassets.
(b) Tacticalcontrol(alsoknownas managementcontrol):‘theprocessby whichmanagersassure
that resourcesare obtainedand used effectivelyand efficientlyinthe accomplishmentof the
organisation’sobjectives’.
Resourcesare oftenreferredto as the ‘4Ms’(manpower,materials,machinesand money).
Management
Accounting
(FMA/MA)6
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Efficiencyinthe use of resourcesmeans that optimumoutput is achievedfromthe inputresources
used. Itrelatesto the combinationsof labour,land and capital (forexample,howmuch
productionworkshouldbe automated)and to the productivityof labour,or materialusage.
Effectivenessinthe use of resourcesmeans that the outputs obtainedare inlinewiththe intended
objectivesor targets.
Tacticalplanningthereforerefersto the conversionof the long-termcorporateplan intoa seriesof
short-termplans,usuallycoveringone year, whichrelateto sections,functionsor departments.
Theannual processof short-termplanningshouldbe seen as stages inthe progressivefulfilment
of the corporateplan as each short-termplan steersthe organisationtowardsits long-term
objectives.
(c) Operationalcontrol:‘theprocessof assuringthat specifictasks are carriedout effectively
and efficiently’.
Itis importantto rememberthat operationalplanningoccursinallaspects of an organisation’s
activities,evenwhenthe activitiescannot be schedulednor properlyestimatedbecause they are
non-standardactivities(suchas repairworkand answeringcustomercomplaints).Thescheduling
of unexpectedor ‘adhoc’workmustbe done at short notice,whichis a feature of much
operationalplanning.Inthe repairsdepartment,forexample,routinepreventivemaintenancecan
be scheduled,but breakdownsoccurunexpectedlyand repairworkmustbe scheduledand
controlled‘onthe spot’by a repairsdepartmentsupervisor.
Illustration 1: Planning
Plan1
Seniormanagementdecidethat the companyshouldincreasesales by 5%per annumforat least
fiveyears.
Plan2
Thesales directorand seniorsales managersmakeplans to increasesales by 5%inthe nextyear,
withsomeprovisionalplanningforfutureyears. Thisinvolvesplanningdirectsales resources,
advertising,sales promotionand so on. Salesquotas are assignedto each sales territory.
Plan3
Themanager of a sales territoryspecifiesthe weeklysales targets foreach sales representative.
G
Required
State whethereach plan is strategic,tactical or operational.
Solution
Plan1:Thisis a strategicplan. Increasingsales by 5%per annumforat least fiveyears is an
overallobjectiveof the organisationand is thereforea strategicplan.
Plan2: Thisis a tactical plan. Thesales directorand seniorsales managersare ensuringthat
resourcesare obtainedand used effectivelyand efficientlyinthe accomplishmentof the
organisation’soverallobjectives.Thisis thereforea tactical plan.
Plan3: Thisisoperationalplanning.Individualsales managersare giventasks whichthey are
expectedto achieveand thisis thereforean operationalplan.
2
Management
accounting
v financial
accounting
Managementaccountingwilluse the same sourcedata as financialaccountingbut there are
someimportantdifferencesto understand.
Managementaccountingsystemsprovideinformationspecificallyforthe use of managerswithin
an organisation.
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Financial
accounting
systems
ensure
thattheassetsandliabilities
ofa business
areproperly
accounted
forandprovide
information
aboutprofits
andsoonforshareholders
andforother
interested
parties.
Financialaccounts
Managementaccounts
Financial
accounts
detailtheperformance
of Management
accounts
areusedtoaid
anorganisation
overa defined
period
andthe management
record,
planandcontrol
the
stateofaffairsattheendofthatperiod.
organisation’s
activities
andtohelpthe
decision-making
process.
Limited
liability
companies
must,bylaw,
prepare
financial
accounts.
There
isnolegalrequirement
toprepare
management
accounts.
Theformat
ofpublished
financial
accounts
is
determined
bylocallaw,byInternational
Accounting
Standards
andInternational
Financial
Reporting
Standards.
Inprinciple
the
accounts
ofdifferent
organisations
can
therefore
beeasilycompared.
Theformat
ofmanagement
accounts
is
entirely
atmanagement
discretion:
nostrict
rulesgovern
thewaytheyareprepared
or
presented.
Eachorganisation
candevise
its
ownmanagement
accounting
system
and
format
ofreports.
Financial
accounts
concentrate
onthe
business
asa whole,
aggregating
revenues
andcostsfromdifferent
operations,
andare
anendinthemselves.
Management
accounts
canfocusonspecific
areasofanorganisation’s
activities.
Information
maybeproduced
toaida
decision
rather
thantobeanendproduct
ofa
decision.
Mostfinancial
accounting
information
isofa
monetary
nature.
Management
accounts
incorporate
nonmonetary
measures.
Management
mayneed
toknow,
forexample,
tonsofaluminium
produced,
monthly
machine
hours,
ormiles
travelled
bysalespeople.
G
Financial
accounts
present
anessentially
historic
picture
ofpastoperations.
Management
accounts
arebothanhistorical
record
anda future
planning
tool.
Activity1:Financialv managementaccounting
Whichofthefollowing
statements
aboutmanagement
accounts
aretrue?
(1) There
isa legalrequirement
toprepare
management
accounts.
(2) Theformat
offinancial
accounts
islargelydetermined
bylaw.
(3) Management
accounts
serveasa future
planning
toolandarenotusedasa historical
record.
 (1)and(2)
 (2)and(3)
 (1)and(3)
 (2)only
8
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3
Data
and information
Data:Dataistherawmaterial
fordataprocessing.
Datarelates
tofacts,events
and
transactions
andsoforth.
KEY
TERM
Information:
Information
isdatathathasbeenprocessed
insomewaytomakeitmeaningful
totheperson
whoreceives
it.Information
isanything
thatiscommunicated.
Information
issometimes
referred
toasprocessed
data.Theterms
‘information’
and‘data’are
oftenusedinterchangeably.
Itisimportant
tounderstand
thedifference
between
thesetwo
terms.
Researchers
whoconduct
market
research
surveys
mightaskmembers
ofthepublicto
complete
questionnaires
abouta product
ora service.
These
completed
questionnaires
are
data;theyareprocessed
andanalysed
inorder
toprepare
a report
onthesurvey.
This
resulting
report
isinformation
andmaybeusedbymanagement
fordecision-making
purposes.
Activity2: Externalinformation
Whatexternal
information
maythemanagers
ofa business
need?
Source
Informationneeded
Competitors
Customers
Suppliers
Government
H
3.1 Qualities of good information
Goodinformation
should
berelevant,
complete,
accurate
andclear.Itshould
inspire
confidence,
beappropriately
communicated,
beofmanageable
volume,
timely,anditscostshould
beless
thanthebenefits
itprovides.
Illustration2: Qualitiesof good information
Abankstatement
provides
a company
withinformation.
Required
Whatarethequalities
ofa bankstatement
whichmakeita goodsource
ofinformation?
Solution
Accurate
Inaccurate
figures
would
mislead
thecompany
astoitscurrent
bank
balance.
Thismayresult
inthecompany
exceeding
itsoverdraft
facility.
Complete
Theinformation
inthebankstatement
willbeusedtoreconcile
andidentify
transactions
notincluded
intheaccounts.
Itistherefore
essential
thatall
transactions
arerecorded
thathaveoccurred
within
theperiod
ofthebank
statement.
Costbeneficial Acompany
willnotbewilling
topayanexcessive
amount
toviewthe
transactions
thata haveoccurred
though
itsaccount.
Thecostsofcollecting
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q
andpresenting
theinformation
should
therefore
beevaluated.
Usertargeted Thevolume
ofinformation
iskepttotheminimum
needed
forthecustomer.
Details
thataremeaningful
onlytothebankarelargelyexcluded.
Relevant
Thecustomer
isnotinterested
inallofthetransactions
thatoccurred
forthe
entire
bank.Therefore,
onlyinformation
relating
totheuserisincluded.
Authoritative Theinformation
within
thebankstatement
canbeusedforcontrol
purposes
asthebankisconsidered
a reliable
andauthoritative
source.
Timely
Inorder
tobeuseful,
theinformation
needstobeprovided
within
a sensible
timeperiod.
Manycompanies
havenowswitched
toonline
bankstatements
astheydon’twanttowaituntiltheendofthemonth
toreceive
information.
Easytouse
Itisalwaysinthesameformat.
Thequalities
ofgoodinformation
canberemembered
usingthemnemonic
ACCURATE.
Activity3: Good information
WhichTWOofthefollowing
aregoodinformation?
 Monthly
salesfigures
forAugust
received
inNovember
 Asummary
provided
atthefrontofa report
tosavesenior
manager’s
fromhaving
toreadthe
whole
document
 Adashboard
report
summarising
allthekeyresults
forthelastperiod
foruseatthenext
management
meeting
 Amonthly
report
showing
thatthechocolate
mixing
machine
wasadding1%toomuchcocoa
inthelastperiod
G
Essentialreading
SeeChapter
1Section
1oftheEssential
reading,
fordetailonhowinformation
canbeanalysed
usingAnthony’s
hierarchy.
TheEssential
reading
isavailable
asanAppendix
ofthedigitaledition
oftheWorkbook.
4
Limitations
of information
for decision
making
Alldecision
making
isconcerned
withthefuture
andsotherewillalwaysbesomedegree
of
uncertainty
surrounding
thepossible
outcomes
ofa decision.
Information
fordecision
making
should
therefore
incorporate
uncertainty
insomeway.Themethods
ofincorporating
uncertainty
areoutside
thescopeofthissyllabus,
butyoushould
realise
thatifcostaccounting
information
doesnottakeaccount
ofuncertainty,
itisunsuitable
fordecision
making.
Ifanattempt
to
incorporate
uncertainty
ismade,theinformation
should
bemoresuitable
fordecision
making
but
cannever
beriskfree.
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Activity4: Uncertainty
Canyouthinkofanyfactors
whichcontribute
totheuncertainty
anorganisation
mightface?
Solution
G
H
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q
Chapter
summary
Accounting for management
Purposeand roleof managementaccounting
Whatarecostandmanagement
accounting?
• Costaccounting
provides
bank
ofdataformanagement
accounting
• Management
accounting
=
provision
anduseof
accounting
information
• Management
accounting
=
assistsmanagement
toachieve
objectives
(egincrease
shareholder
wealth)
Themainareasofmanagement
accounting
• Costing
– whatisthecostof
goods/services
provided?
• Planning
–planning
resources
required
andhowtheywillbe
used
• Control
–control
overactivities
toensureplanscarriedout
• Decision
making
– using
information
tomakeinformed
decisions
• Performance
evaluation
–
comparing
performance
againsttargets/budgets
Managementaccounting
v financialaccounting
• Legalrequirement
–YesforFA,
NoforMA
• Users– External
andinternal
forFA,Internal
forMA
• Precision
–TrueandfairforFA,
Accurate
peruserneedsforMA
• Rules–GAAP
forFA,
Established
techniques
forMA
• Reporting
–PastdataforFA,
PastandpresentdataforMA
• Scope– Whole
organisation
forFA,Divisions
etcforMA
• Frequency
–Annual
forFA,As
required
forMA
• Format
–Companies
Actfor
FA,NosetformatforMA
Strategic,
tacticaland
operational
planning
• Strategic
planning,
ielongterm
objectives
• Tactical/management
control,
ieresources
usedeffectively
andefficiently,
4Ms
• Operational
control,
iespecific
tasksimplemented
G
Data and information
• Data=rawmaterial
egfacts,
transactions,
events
• Information
=datathathas
beenprocessed
soastobe
meaningful
12
H
Limitationsof information
for decisionmaking
Qualities
ofgoodinformation
• ACCURATE
–Accurate
–Complete
–Costbeneficial
–Usertargeted
–Relevant
–Authoritative
–Timely
–Easytouse
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Accounting
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•Information
shouldincorporate
uncertainty
q
Knowledge
diagnostic
1.Introduction
tomanagement
accounting
Purpose
istoassistmanagement
inrunning
theirbusiness
toachieve
anoverall
objective.
2. Roleofmanagement
accountant
Includes
costing,
planning,
control,
decision
making
andperformance
evaluation.
3. Management
accounting
andfinancial
accounting
Financial
accounting
systems
ensure
thattheassetsandliabilities
ofa business
areproperly
accounted
for.Management
accounting
systems
provide
information
specifically
formanagers.
4. Dataandinformation
Information
isdatathathasbeenprocessed
tobemeaningful
totheperson
whoreceives
it.
Qualities
ofgoodinformation:
ACCURATE
5. Limitations
ofinformation
fordecision
making
Information
maynotbeappropriate
forfuture
decision
making
because
ofuncertainty.
G
H
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formanagement
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q
Further
study
guidance
Question practice
Nowtry the followingfromthe Furtherquestionpracticebank (availableinthe digitaleditionof
the Workbook):
SectionAquestions:Q1- Q4
G
H
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G
q
Activity
answers
Activity1:Financialv management
accounting
Thecorrect
answer
is:(2)only
Statement
(1)isincorrect.
Limited
liability
companies
must,bylaw,prepare
financial
accounts.
Theformat
ofpublished
financial
accounts
isdetermined
bylaw.Statement
(2)istherefore
correct.
Management
accounts
doserveasa future
planning
toolbuttheyarealsouseful
asa historical
record
ofperformance.
Therefore,
statement
(3)isincorrect.
Activity2: Externalinformation
Source
Informationneeded
Competitors
Prices,
product
specifications,
markets
Customers
Needs
andwants
ofproduct,
priceprepared
topay
Suppliers
Products,
prices,
quality
ofsupplies,
financial
position,
delivery
time
Government
Taxrates,minimum
wageandotherlegislation
Activity3: Goodinformation
Thecorrect
answers
are:
• Asummary
provided
atthefrontofa report
tosavesenior
manager’s
fromhaving
toread
thewhole
document
• Adashboard
report
summarising
allthekeyresults
forthelastperiod
foruseatthenext
management
meeting
Monthly
salesfigures
forAugust,
received
inNovember,
aretoolateandtherefore
nottimely.
A
monthly
report
showing
thatthemixing
machine
wasadding1%toomuchcocoainthelastperiod
isnotcomplete.
Management
would
needtoknowhowthiscompared
toothermonths
and
whether
therewasa tolerance
level.
Activity4: Uncertainty
Herearea fewsuggestions.
Youprobably
thought
ofothers.
• Theactions
ofcompetitors
• Inflation
• Interest
ratechanges
• Newgovernment
legislation
• Possible
shortages
ofmaterial
orlabour
• Possible
industrial
disputes
1:Accounting
formanagement
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2
Data
and
presenting
information
2
Learning
objectives
On completionof thischapter, you shouldbe able to:
Syllabus
referenceno.
G
Describethe three maindata sources:machine/sensor,transactionaland
human/social.
A2(a)
Describesourcesof informationfromwithinand outsidethe organisation
(includinggovernmentstatistics,financialpress,professionalor trade
associations,quotationsand pricelists).
A2(b)
Explainthe uses and limitationsof publishedinformation/data(including
informationfromthe internet).
A2(c)
Describethe impactof generaleconomicenvironmenton costs/revenues.
A2(d)
Preparewrittenreportsrepresentingmanagementinformationinsuitable
formatsaccordingto purpose.
A4(a)
Presentinformationusingtables, charts and graphs (bar charts, linegraphs,
piecharts and scatter graphs).
A4(b)
H
Interpretinformation(includingthe abovetables, charts and graphs)presented A4(c)
inmanagementreports.
Producereportshighlightingkeyareas formanagementattentionand
recommendationsforimprovement.
F4(g)
Explainsamplingtechniques(random,systematic,stratified,multistage,cluster B1(a)
and quota).
Choosean appropriatesamplingmethodina specificsituation.
B1(b)
Describethe twotypes of data: categorical(nominaland ordinal)and
numerical(continuousand discrete).
B3(d)
Explainthe roleand featuresof a computerspreadsheetsystem.
B4(a)
Identifyapplicationsforcomputerspreadsheetsand theiruse incost and
managementaccounting.
B4(b)
Producereportshighlightingkeyareas formanagementattentionand
recommendationsforimprovement.
F4(g)
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Exam
context
Aswellascollecting
information
wealsoneedtoconsider
howbesttopresent
thatinformation
to
users.
Youshould
expect
questions
inSection
A oftheexamonthesetopics.
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2
Chapter
overview
Dataandpresentinginformation
Sources
ofdataTypes
ofdata
Internal
sources
ofdata
External
sources
ofdata
Impact
ofthegeneral
economic
environment
oncosts/revenues
Random
sampling
Nonrandom
sampling
Random
sampling
Quota
sampling
Quasi
random
sampling
Cluster
sampling
Systematic
sampling
G
H
Stratified
sampling
Multistage
sampling
Presenting
information
Spreadsheets
Writing
areport
Features
andfunctions
Tables
anddiagrams
Preparing
formulae
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1 Types
of data
InChapter 1wedefineddata as the rawmaterialfordata processing.Data relatesto facts,
eventsand transactionsand so forthand can be classifiedinthe followingways:
Primarydata: Primarydata is data collectedspecificallyfora particularpurpose.
KEY
TERM Secondarydata: Secondarydata is data whichhas already been collectedelsewhere,for
someotherpurpose,but can stillbe used or adapted forthe surveybeingconducted.
Numericaldata: Asthe name suggests,numericaldata is data that is expressedinnumbers.It
can be discreteor continuous.
Discretedata: Discretedata is data whichcan onlytake on a finiteor countablenumberof
valueswithina givenrange (egmonthof birth).
Continuousdata: Continuousdata is data that can take on any value.Itis measuredrather
than counted(egweight).
Categoricaldata: Categoricaldata is data that is descriptiverather than numeric.For
example,age, educationallevel,eye colour,satisfactionlevels,qualityratings.Itcan be
nominalor ordinal.
Nominaldata: Nominaldata can be thoughtof as a name or a labeland has no set order.You
can countnominaldata but you can’torderor measureit. Forexample,eye colour.
Ordinaldata: Ordinaldata has a set orderor scale.Forexample,levelsof satisfactiondata,
collectedon a scale of one to ten.
Sampledata: Sampledata is data arisingas a resultof investigatinga sample.Asampleis a
selectionfromthe population.
Populationdata: Populationdata is data arisingas a resultof investigatingthe population.A
populationis the groupof peopleor objectsof interestto the data collector.
G
H
Data
Numerical
(expressedinnumbers)
Discrete
(countablenumber)
Categorical
(descriptive)
Continuous
(anyvalue)
Nominal
(nameorlabel)
Ordinal
(setorderorscale)
Activity 1: Primary data
Whatare the keyadvantages and disadvantagesof usingprimarydata?
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Solution
2
Sources
of data
Machine/sensor
data:Thisisdatathatcomes
fromtheoutput
ofdevices
thatdetectinput
KEY
from
their
s
urroundings.
TERM
Transactional
data:Thisisdatathatcomes
fromthetransactions
ofanorganisation.
Human/social
data:Thisisdatafromhumans
andisoftennon-numerical.
Socialdata
sometimes
includes
dataaboutthesocialmedia
usersuchastheirlocation.
Human/social
datacanbemoredifficult
fordataanalysis
software
tohandle.
Examples
include
thefollowing:
Source
Examples
Machine/sensor
•
•
•
•
•
•
•
Transactional
• Salesorders
• Purchase
orders
• Returns
Human/social
•
•
•
•
Wearables
suchasfitness
trackers
Smartphones
Temperature
sensors
Distance
egparking
sensors
Touch
sensors
inelectronic
devices
Location
tracking
sensors
Gasexposure
detectors
Customer
queries
Handwritten
letters
Focusgroupfeedback
Socialmedia
posts
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Real life example
Supermarkets
thatoffera delivery
service
oftenhavelocation
tracking
sensors
inthelorries.
They
canbeusedtotrackdelivery
status
andcheckwhether
shopping
hasbeendelivered
ontime.
Information
maybeobtained
fromeither
aninternal
source
orfromanexternal
source.
2.1 Internal sources of information
These
include:
financial
accounting
records,
payroll
andhuman
resources
information,
production
information,
timesheets,
published
accounts
andhistorical
records.
2.2
External sources of information
These
include:
market
research,
interviews,
postal
questionnaires
(primary
external
data),data
fromgovernments
suchasstatistics
andindices,
banks,
newspapers,
tradejournals,
reference
manuals,
consultancies,
theinternet,
libraries,
adviceandinformation
bureaux
(secondary
external
data).
G
Source
Detail
Governments
Officialstatistics
aresupplied
bymanygovernments.
In
Britain,
official
statistics
aresupplied
bytheOfficefor
National
Statistics
(ONS).Statistics
published
by
government
departments
mayinclude
retailprices,
employment
figures,
population
data.
Banks
Dataonbanks,
themoney
supply,
government
borrowing.
Trade
journals
Dataonindustry
averages,
competitors’
products,
developments
intheindustry.
Financial
newspapers
Detailed
business
data.EgFinancial
Times,
WallStreet
Journal,Singapore
Business
Times,
Nikkei
Weekly.
2.2.1 Theinternetas a sourceofinformation
• Theinternet
isa globalnetwork
connecting
millions
ofcomputers,
allowing
a computer
witha
telecommunications
linktosendandreceive
information
toandfromanyothersuitably
equipped
computer.
• Awebsite
isa collection
ofimages
andtextthatprovide
information
whichmaybeviewed
on
theWorld
WideWeb.Mostorganisations
nowhavea website
andmanyareabletoprocess
transactions
(known
aselectronic
commerce
ore-commerce).
• Information
ontheinternet
itisnotnecessarily
goodinformation,
justbecause
itis‘published’.
Anybody
canputinformation
ontheinternet.
Thereliability
andreputation
oftheprovider
is
important,
egtheFinancial
Times
site,FT.com,
isa respected
source
offinancial
information.
3
Impact
of the general
economic
environment
on
costs/revenues
Thegeneral
economic
environment
willaffectthecostsandrevenues
ofa business.
Illustration1:Theeconomicenvironment
Consider
anaccountancy
training
business
andstatehowitmightbeaffected
bya recession
(ie
thegeneral
economic
environment).
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