Providing Information

Managers have different responsibilities including:

• planning what the business does
  
• making decisions
  
• controlling business activity

They need information to plan, make decisions and/or control the business

What is management Information

Mangers will be interested in financial Information regarding:

• Income
  
• Costs

This information compromises:

• Financial Accounting: a record of transactions that have taken place and been entered in the accounts of the Business
  
• Management Accounting: summaries and analysis of what happened in the past and estimates of future performance

Preparing Management Information

A number of questions need to be asked when gathering data for presenting management information:

1. Who is the person who needs the information – Is it a supervisor, a departmental manager or a director
   
2. What is the nature of the information – does it relate to income (e.g. sales) or costs (e.g. Wages, expenses)
   
3. How is the information to be presented – in a standard report form (simply filling in figures), an e-mail ( quick and brief), a memo, or a letter?
   
4. How urgent is the request? Do you have to give it top priority and do it straightaway, or will later in the week be alright
   
5. What level of detail is required? Does the figure have to be broken down month-by-month and product-by-product
   
6. How accurate do the figures have to be ( nearest to 00, 000, 00000)or exact figure
   
7. How confidential is the information, does it has to be kept confidential

Budgets – Comparing Actual and Expected Costs

A budget is a financial plan for an organisation that is prepared in advance

It will be based on:

• The products that will be made (or services provided)
  
• The number of products that will be made (or services provided) and sold
  
• Will also calculate the expected costs of the organisation

What are the purpose of a budget?

• Useful tool for planning
  
• Can be used to communicate and coordinate the plans
  
• Can be used to monitor and control

Key futures to remember

• The budget helps with planning
  
• It can be used to monitor and control

Calculating Cost Variances

What is a “Variance”?

“It is the difference between a budgeted amount and an actual amount”

Two Type of Variances:

Favourable = where the actual cost is less than the budgeted cost

Adverse = where the actual cost is greater than the budgeted cost

Identifying significant Variances

Significant variance: Need to be investigated thoroughly by Managers

Two main methods of identifying significant variances:

• Is the variance greater than a given amount (e.g. variances over £5000 if it is adverse, and £7,500 if it is favourable)
  
• Is the variance greater than a given percentage of the expected figure (a variance greater than 5% of the budgeted figure could be considered significant)