Managerial Accounting: Conceptual Framework

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Presentation transcript:

Managerial Accounting: Conceptual Framework Chapter 1 Managerial Accounting Concepts and Empirical Evidence

Managerial Accounting DECISION MAKING (planning and control) INFORMATION MANAGERIAL ACCOUNTING: Design and use of information systems for managerial 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 Evaluating Accomplishments of Organizational Objectives Identifying Opportunities and/or Problems Selecting Course of Action and Allocating Resources

Three-Way Classification Scheme of Information Nonfinancial Internal Ex post

Three-Way Classification Scheme of Information Financial External Nonfinancial Internal Ex post Ex ante

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 Low Costs High Costs 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 Low Costs High Costs Costs = $ 2,500,000 p = 0.5 EV = ($ 2,000,000 - $ 1,000,000)*.5 + ($ 2,000,000 - $ 2,500,000)*.5 = $ 250,000 Prediction with Specialized Information System Low-Cost Signal, p = 0.8 High-Cost Signal, p = 0.2 High-Cost Signal, p = 0.8 Low-Cost Signal, p = 0.2

Mala Toy Corporation Information Economics Prediction without Specialized Information System Revenues = $ 2,000,000 Costs = $ 1,000,000 Probability (p) = 0.5 Low Costs High Costs Costs = $ 2,500,000 p = 0.5 EV = ($ 2,000,000 - $ 1,000,000)*.5 + ($ 2,000,000 - $ 2,500,000)*.5 = $ 250,000 Prediction with Specialized Information System Low-Cost Signal, p = 0.8 High-Cost Signal, p = 0.2 High-Cost Signal, p = 0.8 Low-Cost Signal, p = 0.2 Expected payoff Do not Produce = (.5)*(.8)*($ 2,000,000 - $ 1,000,000) = $ 400,000 = (.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

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 Data base Management System User User

Decision Support Systems Overview Computer-based information systems designed to support managerial planning and control Model Base Data Base Model base Management System Data base Management System User User