This week’s Key Concept Overview changes direction and looks at management accounting information.

accounting

Description

  • Introduction 
This week’s Key Concept Overview changes direction and looks at management accounting information. This is needed for internal decision making within an organisation and, as such, is based upon a whole new set of characteristics and underlying theories. The aim of the Week 4 Key Concept Overview is to introduce you to these characteristics and theories.
  • Management and accounting information systems 
Traditionally, accounting information systems focussed solely on transaction processing because the primary concern was financial data and the reporting of accounting transactions. This rather narrow focus resulted in the creation of multiple systems, collectively known as the management information system, which gathered other data important to the organisation, but which did not appear in the accounting information system. As you might expect, the existence of multiple systems resulted in considerable inefficiency, data redundancy and data discrepancies from one system to another.


Enterprise resource planning (ERP) systems are intended to eliminate the problems of multiple systems. An ERP system integrates all of a company’s operations into a single information system that includes both financial and non-financial data. Data can thus be entered once and subsequently retrieved by any division of the entity requiring that data. For example, customer information can initially be entered by the sales force and then later used and updated by shipping and accounting (upon the occurrence of a sale). 


Cost structures and cost–volume relationships The first area that we need to consider in more detail is cost structures. At a simple level, costs can be regarded as either fixed or variable. Fixed costs are defined as those that do not vary as a result of the level of cost-driver activities undertaken, while variable costs change in direct proportion to this. 

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