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

2. Managerial Accounting
DECISION MAKING (planning and control)
INFORMATION
MANAGERIAL ACCOUNTING: Design and use of information systems for managerial planning and control

3. Planning and Control Framework
Setting Organizational
Objectives

4. Planning and Control Framework
Setting Organizational
Objectives
Identifying Opportunities
and/or Problems

5. Planning and Control Framework
Setting Organizational
Objectives
Identifying Opportunities
and/or Problems
Selecting Course of
Action and Allocating
Resources

6. Planning and Control Framework
Setting Organizational
Objectives
Evaluating Accomplishments
of Organizational
Objectives
Identifying Opportunities
and/or Problems
Selecting Course of
Action and Allocating
Resources

7. Three-Way Classification Scheme of Information
Nonfinancial
Internal
Ex post

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

9. 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

10. 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

11. 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

12. 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 ,000
Net EV $ 310,000
Since $ 310,000 > $ 250,000 (by $60,000), install Specialized Information System

13. Decision Support Systems Overview
Computer-based information systems designed to support managerial planning and control
User
User

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

15. 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