Chapter 14 – Internal users, internal information, and planning and control
TRUE/FALSE
1. A major requirement of managers is to have detailed and timely information that enables them to
monitor results and compare with plans and budgets, in order to take appropriate action for the
future direction of the company.
2. A company’s results are judged against some expectations, which may be rough plans or detailed
budgets.
3. Bankers have a statutory right of access to internal accounting information.
4. The Customs and Excise Department and the Australian Taxation Office have a statutory right of
access to internal accounting information.
5. In order for a banker to make judgements about the future needs and prospects of an entity in
deciding whether to lend money, additional detailed information in the form of future cash flows
may be required.
6. Detailed financial information is only generally available to managers and a limited number of
external users, as it normally contains sensitive information that may be detrimental to the
company if made publicly available.
7. If bankers are to make judgements about the future needs and prospects of the entity, they are likely
to require information on projected cash flow statements, statements of comprehensive income and
details of any other loans the company may have.
8. In supplying external users with additional accounting information, there is a need to balance the
costs and benefits of supplying that information, but this does not apply to internal users such as
managers because the information is already available and does not incur any additional costs.
9. Organisational size and structure are major influences on the information needs of managers.
10. The determination of objectives and expressing how they are to be attained are together referred to
as the planning process.
11. A desired outcome of setting objectives in the planning process is to create criteria for assessing
alternative business options.
12. A major difference between strategic and operating decisions is that the former focus on the long-
term policies of the firm, whereas operating decisions focus on the short-term use of resources.
13. Strategic decisions are decisions that focus on the efficient use of the resources available to the
firm in the short term.
14. Short-term operating decisions can be translated into a budget, which is a plan of action expressed
in monetary terms that compels management to look ahead and coordinate their activities.
15. In a dynamic economic environment, there is often the need to revise operating decisions in order
to meet long-term objectives, but this will not impact on strategic decisions as these are related to
policy changes and are not affected by operating decisions.
16. The monitoring process allows corrective action to be planned and taken after comparing actual
performance with a predetermined plan.
17. A reporting system that supports the responsibility accounting approach will communicate relevant
information on the comparison between actual and budgeted performance. This report highlights
the cause of variances between actual and budgeted performance.
18. If actual costs were to exceed budgeted costs for a period, the variance would be considered
favourable.
19. On comparing actual performance with the budget, the Light Globe Company determined that
there was a favourable variance in sales and an unfavourable variance in the cost of goods sold.
This means that both actual sales and costs were higher than expected.
20. Planning and random variances can generally be controlled, but operating variances cannot be
controlled.
21. Operating, random and planning variances are all examples of divergence from actual performance
compared to budgeted performance.
22. A control system is limited in its application, as it depends on the motivation of individuals.
23. The efficiency and effectiveness of a control system can be affected by the costs associated with
running the system.
24. The cost–benefit approach is often used to evaluate the net benefits of alternative accounting
information systems.
25. Many benefits associated with an information system are qualitative in nature.
26. The contingency theory accepts that different types of organisation require different types of
accounting information for effective functioning.
MULTIPLE CHOICE
1. Which of the following is not an external user of financial information?
A.
Shareholders
B.
Management
C.
Suppliers of goods and services
D.
Government
2. The purpose of financial accounting is to provide information for decision making. What is the
purpose of management accounting?
A.
To enable managers to ask for higher salaries.
B.
To maximise a company’s profits.
C.
To provide information for decision making.
D.
To create a value chain.
3. The basic difference between management and financial accounting is that:
A.
the financial accounting system relies on accounting information, whereas management
accounting does not.
B.
financial accounting relies on information gathered from sources outside the business,
whereas management accounting relies on internally generated information.
C.
financial accounting is concerned with providing information to outsiders, whereas
management accounting is concerned with providing information to managers for their use
in directing the activities of the organisation.
D.
None of the above is correct.
4. How are financial accounting information and management accounting information similar?
A.
They are both used by managers.
B.
They are both used in decision making.
C.
They both involve quantitative and non-quantitative aspects.
D.
All of the above are correct.
5. Traditional management accounting information:
A.
gives managers the only information they need to make decisions.
B.
integrates production and marketing concerns with accounting.
C.
is the same in every company.
D.
assists managers in their roles.
.
6. Which of the following characteristics of information is desired by management?
A.
Regular
B.
Timely
C.
Detailed
D.
All of the above.
7. To be useful to management, accounting information must:
A.
be prepared in accordance with general-purpose financial reports.
B.
have the potential to affect decisions and influence behaviour.
C.
be completely accurate.
D.
be in the form of financial statements.
8. Which of the following factors influence the information available to the management of an
organisation?
A.
Size of the organisation
B.
Needs of management
C.
Organisation structure
D.
All of the above
9. Accounting information systems should be installed in an organisation when:
A.
the financial controller decides they should.
B.
benefits exceed the costs to an organisation.
C.
another organisation in the same industry installs such a system.
D.
the CEO decides they should.
10. The primary difference between planning and control decisions is that:
A.
the former must follow the latter.
B.
planning decisions involve investing decisions, whereas control decisions focus on
financing and operating decisions.
C.
planning is future-oriented, while control decisions are past and present-oriented.
D.
planning decisions involve components of the transformation process, whereas control
decisions do not.
11. Planning and control decisions are similar in that both:
A.
tend to have a short-run focus.
B.
focus on achieving the organisation’s goals.
C.
increase the risk to owners and creditors.
D.
involve the setting of goals.
12. Decisions that require managers to evaluate the accomplishments of their organisation, and to
make changes if the organisation is not meeting its goals, are usually referred to as:
A.
regulatory decisions.
B.
implementation decisions.
C.
planning decisions.
D.
control decisions.
13. Decisions that require managers to identify goals and to develop strategies are usually referred to as:
A.
authoritative decisions.
B.
performance decisions.
C.
planning decisions.
D.
managed decisions.
14. Which of the following is not true of the control process? The control process:
A.
is a part of the planning and control process.
B.
involves monitoring action.
C.
involves allocating resources for acquisitions of plant and equipment.
D.
contains a corrective activity.
15. The proper sequence for the planning and controlling process is:
A.
set objectives, set goals, develop plans, implement plans, evaluate performance, modify
goals or plans as needed.
B.
develop plans, set objectives, set goals, implement plans, evaluate performance, modify
goals or plans as needed.
C.
set goals, set objectives, develop plans, implement plans, evaluate performance, modify
goals or plans as needed.
D.
set goals, develop plans, set objectives, implement plans, evaluate performance, modify
goals or plans as needed.
16. Planning is the process of:
A.
ensuring that a reasonable profit is made each year.
B.
creating a map for achieving corporate goals and objectives.
C.
setting goals and objectives.
D.
ensuring that assets are properly used.
17. Which of the following is part of the planning process?
A.
Deciding on the objectives.
B.
Detailing how the plans are to be achieved.
C.
Ensuring that the plans will be achieved.
D.
All of the above.
18. Which of the following is essential for management before it decides whether the business is
succeeding or failing?
A.
Accounts receivable.
B.
A set of objectives.
C.
A large organisation.
D.
More current assets than non-current assets.
19. Decisions that require managers to evaluate the accomplishments of their organisation and to make
changes if the organisation is not meeting its goals are usually referred to as:
Planning decisions Control decisions
A.
No No
B.
No Yes
C.
Yes No
D.
Yes Yes
20. Strategic decisions are decisions that:
A.
relate to the efficient use of available resources.
B.
allow the determination of the long-term policies of the firm.
C.
result in huge amounts of profit for the firm.
D.
correct the current situation of the company.
21. Strategic planning differs from operational planning in that strategic planning:
A.
involves day-to-day activities.
B.
is done by middle management.
C.
often involves large investments.
D.
would be involved in determining production levels for the next week.
22. Operating decisions are undertaken to:
A.
optimise the use of resources available to the firm in the long term.
B.
compare actual versus predetermined performance.
C.
result in profits in the long term.
D.
identify efficient use of scarce resources in the short term.
23. Evaluation of performance involves:
A.
modifying goals and objectives to agree with actual performance.
B.
comparing planned performance results with actual results.
C.
determining who to blame if actual results are lower than planned performance results.
D.
determining which employees should be promoted.
24. The section of a business that has an individual in control of costs and revenues is:
A.
a division.
B.
a responsibility centre.
C.
a program budget.
D.
a control centre.
25. The identification of the origin of controllable costs and income allows at least one manager to be
responsible for the costs, and:
A.
results in minimising costs and maximising profits.
B.
results in more efficient operations.
C.
makes the manager accountable for each item on a performance report.
D.
all of the above are correct.
26. Under contingency theory, the degree of competition refers to the:
A.
environmental factor.
B.
technological factor.
C.
organisational factor.
D.
structural factor.
SHORT ANSWER
1. Distinguish managerial accounting from financial accounting. Your answer should include a brief
discussion of differences in the types of information provided to users as well as differences in the
identity of users of financial and managerial accounting information.
2. One important use of managerial accounting information is performance evaluation. List and
discuss the three major ways managers can identify and detect behaviour for performance
evaluation purposes. For each major way, suggest two specific examples within the context of a
consulting company.
3. Name three ways that accounting information can assist managers who make marketing decisions.
4. Name three ways that accounting information can assist managers who make production decisions.
5. Describe the four major stages involved in planning and controlling an organisation.
6. What is meant by responsibility accounting?
CASE
1. Ordinary Office Products, Inc., a retail office supply company, has a single outlet in a large
metropolitan area. The company has a policy of delivering any size order, even a bottle of Liquid
Paper, to any customer, regardless of the distance. Management believes that without this delivery
policy the company will not be able to maintain its market share. Since delivery costs are
considered a selling expense and not a product cost, the company has a positive gross margin. That
is, the company appears to be making money on its sales. The problem is that the company has
shown an operating loss for each of the past three years and is on the verge of having its bank
financing withdrawn. Management has been attempting to solve its profitability problems by
increasing sales of its delivered merchandise.
(a)
What recommendation would you make to the company’s management to attempt to
rectify this situation?
(b)
How would better managerial accounting information have helped Ordinary Office
Products?
profitability. The new policy could also include charging customers for deliveries of less
for delivered products which actually aggravated an already bad situation. The futility of
have been obvious if the total costs had been known.