1. © Instituto Internacional San Telmo, 2012
GENERAL OBSERVATIONS ABOUT MANAGERIAL ACCOUNTING
INFORMATION

2. DIFFERENT NUMBERS FOR DIFFERENT PURPOSES
Each of the several purposes previously described requires a different accounting
approach. Since these different numbers may superficially resemble one another, a
person not familiar with them may easily get confused.
One of the most common sources of confusion is the word cost.
Cost could be defined as "... Everything a manager does, as well as many of the things he
does not do." Cost is a synonym of sacrifice and as such, controlling it and reducing it is a
great concern for managers.
In management accounting, there are historical costs, standard costs, overhead costs,
variable costs, fixed costs, differential costs, marginal costs, opportunity costs, direct costs,
estimated costs, full costs, among others. Some of these are synonyms; others are not
quite synonyms; still others, although not synonyms at all, are used by some people as if
they were.
Accounting numbers should always be interpreted within the context of the specific
problem they are intended to help solve, rather than in any abstract sense. Stating that
"the cost of such-and-such is $100" has literally no meaning, unless those who hear it do
clearly understand which of the several possible concepts of cost was referred to.

3. ACCOUNTING NUMBERS ARE APPROXIMATIONS
Users of accounting information must acquire an understanding of the degree of
approximation present in the data.
Some accounting numbers (such as the amount of cash in the bank account) may be
accurate within very narrow limits, whereas others are only rough approximations.
The degree of approximation is especially high in the case of numbers used for planning
purposes, because they are always estimates of what will happen in the future.

4. WORKING WITH INCOMPLETE DATA
In a management problem, we almost never have exactly the information we would like to
have. The person struggling with the problem usually can think of additional information
that, if available, would be helpful. There are many decision-making situations in which
pages of numbers are available but only a small portion of them is truly relevant to the
problem at hand and perhaps none of them is quite what one needs in order to solve it.
The problem must be solved, it is a fact of life.
Management decisions must be made and often cannot be delayed until all pertinent
information is available. We do the best we can with what we have and then move on to
the next problem.
On the other hand, a decision should not be made if a vital, obtainable piece of evidence
is missing. Deciding whether or not to act on the available evidence is one of the most
difficult parts of managerial decision processes.
"The art of business is the art of making irrevocable decisions on the basis of inadequate
information" Wallace B. Donham

5. ACCOUNTING EVIDENCE IS ONLY PARTIAL EVIDENCE
Few, if any, management problems can be solved solely by collecting and analyzing
numbers. Usually, there are important factors that cannot be, or have not been, reduced
to quantitative terms.
Some people act as if most problems could be solved by means of a numerical analysis.
At the other extreme are those who believe that intuition is the sure guide to a sound
decision and therefore pay no attention to numbers.
Although the correct attitude is clearly somewhere between those extremes, there is no
way to describe precisely where it is.
"The real trouble with this world of ours is not that it is an unreasonable world, nor even
that is a reasonable one. The commonest kind of trouble is that it is nearly reasonable,
but not quite. Life is nor an illogicality; yet it is a trap for logicians. It looks just a little
more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is
hidden; its wildness lies in wait." G.K.Chesterton.

6. PEOPLE, NOT NUMBERS, GET THINGS DONE
An obvious statement about organizations is that they consist of human beings. Anything
that an organization accomplishes is the result of human actions. Although numbers can
assist the people in an organization in various ways, the numbers by themselves
accomplish nothing. But numbers do not talk back; they give the appearance of being
definitive and precise. It is a comforting illusion to imagine that the construction of a set
of numbers is the same as acting on a real problem.
A management accounting system may be well designed and carefully operated, but it will
be of no use to management unless it results in action by human beings. For instance
three companies may use exactly the same system with entirely different results.
- In the first company, the system may be useless because management never acts based
on the information collected and the organization has become aware if this fact.
- In the second company the system may be helpful because management uses the
information as a general guide for planning, implementation and, control and has
educated the organization to use it in the same spirit.
- In the third company, the system may be even worse than useless. It may be damaging
because management overemphasizes the importance of numbers and therefore takes
unwise actions.

7. © Instituto Internacional San Telmo, 2012