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Chapter 1 Managerial Accounting Concepts and Empirical Evidence. Managerial Accounting: Conceptual Framework. MANAGERIAL ACCOUNTING: Design and use of information systems for managerial planning and control. INFORMATION. DECISION MAKING (planning and control). Managerial Accounting.

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managerial accounting conceptual framework

Chapter 1

Managerial Accounting

Concepts and Empirical Evidence

Managerial Accounting:Conceptual Framework

managerial accounting

MANAGERIAL ACCOUNTING:Design and use of information systems for managerial planning and control

INFORMATION

DECISION MAKING (planning and control)

Managerial Accounting
planning and control framework
Planning and Control Framework

Setting Organizational

Objectives

planning and control framework4

Identifying Opportunities

and/or Problems

Planning and Control Framework

Setting Organizational

Objectives

planning and control framework5

Identifying Opportunities

and/or Problems

Selecting Course of

Action and Allocating

Resources

Planning and Control Framework

Setting Organizational

Objectives

planning and control framework6

Identifying Opportunities

and/or Problems

Selecting Course of

Action and Allocating

Resources

Evaluating Accomplishments

of Organizational

Objectives

Planning and Control Framework

Setting Organizational

Objectives

three way classification scheme of information8
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

Data for Example
mala toy corporation information economics

Prediction withoutSpecialized Information System

Revenues = $ 2,000,000

Costs = $ 1,000,000

Probability (p) = 0.5

Low Costs

High Costs

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 CorporationInformation Economics
mala toy corporation information economics11

Prediction withoutSpecialized Information System

Prediction withSpecialized Information System

Revenues = $ 2,000,000

Costs = $ 1,000,000

Low-Cost Signal, p = 0.8

Probability (p) = 0.5

High-Cost Signal, p = 0.2

Low Costs

High-Cost Signal, p = 0.8

High Costs

Low-Cost Signal, p = 0.2

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 CorporationInformation Economics
mala toy corporation information economics12

Prediction withoutSpecialized Information System

Prediction withSpecialized Information System

Expected payoff

Revenues = $ 2,000,000

Costs = $ 1,000,000

Low-Cost Signal, p = 0.8

Probability (p) = 0.5

= (.5)*(.8)*($ 2,000,000 - $ 1,000,000) = $ 400,000

High-Cost Signal, p = 0.2

Low Costs

Do not Produce

High-Cost Signal, p = 0.8

Do not Produce

High Costs

= (.5)*(.2)*($ 2,000,000 - $ 2,500,000) = $ -50,000

Low-Cost Signal, p = 0.2

Revenues = $ 2,000,000

Costs = $ 2,500,000

p = 0.5

Expected Value (EV) = $ 350,000

Less: Cost of Specialized Information System - 40,000

Net EV $ 310,000

EV = ($ 2,000,000 - $ 1,000,000)*.5

+ ($ 2,000,000 - $ 2,500,000)*.5 = $ 250,000

Since $ 310,000 > $ 250,000 (by $60,000), install Specialized Information System

Mala Toy CorporationInformation Economics
decision support systems overview14
Computer-based information systems designed to support managerial planning and control

Data Base

User

Decision Support Systems Overview

Data base

Management System

User

decision support systems overview15
Computer-based information systems designed to support managerial planning and control

Model Base

Data Base

User

Decision Support Systems Overview

Model base

Management System

Data base

Management System

User