ACCOUNTING

DECISION MAKING
NOTES
AND
QUESTIONS
 CONTENTS

TOPIC PAGE

SECTION ONE INFORMATION FOR DECISION MAKING ..... 2

Financial Information .............................................................................................. 2
Non-Financial Information ....................................................................................... 2
Exercise 1.1 .................................................................................................................. 3
Exercise 1.2 .................................................................................................................. 4
Exercise 1.3 .................................................................................................................. 5

SECTION TWO TYPES OF DECISIONS ................................. 6

Strategic Decisions ................................................................................................. 6
Routine Decisions ................................................................................................... 6
Exercise 2.1 .................................................................................................................. 7
Exercise 2.2 .................................................................................................................. 7
Exercise 2.3 .................................................................................................................. 8

GOALS CHECKLIST - ARE YOU ABLE TO DO THE

FOLLOWING? ....................................................................... 9

PAGE 1
SECTION ONE
INFORMATION FOR DECISION MAKING

 Managers of businesses constantly make decisions to achieve their

objectives.
 Managers use tools to help with decision-making, such as budgeting, cost-
volume-profit analysis and analysis and interpretation.
 In a small business the owner / manager will make the decisions on their own.
As businesses grow, managers can be specialists, in charge of different areas
e.g. sales or production.
 The accountant is also a very important part of the management team and will
co-ordinate the budgeting process.
 To make effective decisions, the managers need information.

FINANCIAL INFORMATION
Financial information is any information that can be measured in monetary terms i.e.
$ and cents.

e.g. Cost of assets (historical cost / current cost); Revenue (realisable value);
Expenses (historical cost).

NON-FINANCIAL INFORMATION
Non-financial information is any information that cannot be measured in monetary
terms i.e. $ and cents.

e.g. Location / quantity / quality / time.

Example:

A business decides to purchase a new machine. What financial and non-financial

information would you consider?

Financial information = cost of new machine, installation cost, cost of spare parts.

Non-Financial information = is there space for a new machine? Does the staff have
the skills to operate the machine? When will the machine be available?

Preparing a cash budget and cost-volume-profit (CVP) analysis involve using

financial and non-financial information.

PAGE 2
EXERCISE 1.1

The General Manager of Naidoo Printers Ltd. is considering a request from her
production manager to purchase a new printing machine so that they can meet an
increase in printing demands. The following information is provided:

The machine will require an investment of $100,000, have a useful life of five years
and no residual value. The machine has an output of 50,000 pages per week.

a) State TWO pieces of financial information that the management of Naidoo

Printers Ltd. should consider purchasing the machine.

b) State TWO pieces of non-financial information that the management of

Naidoo Printers Ltd. should consider purchasing the machine.

PAGE 3
EXERCISE 1.2

Chan Bathrooms Ltd., based in New Zealand, is a manufacturer of bathroom

accessories that are supplied to the Asian market. The firm has total assets of $2
million and a shareholders’ equity ratio of 0.6:1.

The factory has received a request from a large reputable company in Japan to
produce a new design of shower unit. The new design will require specialised
equipment to be purchased that will have limited use for any other activities that
Chan Bathrooms Ltd is involved in.

a) State TWO pieces of financial information that the management of Chan

Bathrooms Ltd should consider purchasing the machine.

b) State TWO pieces of non-financial information that the management of Chan

Bathrooms Ltd should consider purchasing the machine.

PAGE 4
EXERCISE 1.3

For each item below state whether the information is financial or non-financial by
ticking the appropriate column, and state which manager would require it – sales
manager, production manager or finance manager / accountant.

An example has been done for you.

Information Financial Non- Manager

Financial
Number of people to work over-  Production manager
time in the factory
Accounting system required to
produce the accounting reports
Cost of producing goods
Selling price per unit
Delivery time to customers
Delivery time of raw materials
Cost of borrowing to fund new
equipment
Quality of raw materials
Cultural considerations when
preparing a marketing plan to new
markets
Budgeted profit for the year
Cost of new equipment in the
factory

PAGE 5
SECTION TWO TYPES OF DECISIONS
Management generally make two types of decisions

STRATEGIC DECISIONS
These decisions have long term consequences and will affect more than one
accounting period. These decisions are made by senior management.

e.g. Purchase of non-current assets, changing onto a new computer system, new
method of advertising, producing a new product line.

ROUTINE DECISIONS
These decisions are regular on-going decisions of a business.

e.g. Use of existing resources, employing new staff, allow discount on sales.

PAGE 6
EXERCISE 2.1

Borich Ltd is a retail firm that specialises in the sale of outdoor furniture products. In
November 2024, at the start of the financial year, the firm makes a decision to
change its sales mix from outdoor furniture such as tables, chairs and umbrellas to
outdoor accessories such as barbeque equipment, outdoor lighting and outdoor
speaker systems.

State whether the decision to change the sales mix would be regarded as a strategic
decision or a routine decision. Explain why.

EXERCISE 2.2

Indicate whether these decisions indicate Routine or Strategic decisions (you need
only show an “R” or a “S”):

Work overtime on an order

Sell or process by-products
Export products
How much the business will advertise this month
Appointment of a General Manager
Interview job applicants
Write-off a debtors’ account
Close the factory

PAGE 7
EXERCISE 2.3

For each item below state whether the decision is strategic or routine by ticking the
appropriate column, and state which manager would require it – sales manager,
production manager, finance manager / accountant or general manager.

An example has been done for you.

Decision Strategic Routine Manager

Do the factory staff need to work  Production
over-time? manager
Selling in a new market
Ordering raw materials
Financing the business expansion
Choosing suppliers
Choosing the marketing plan to
implement
Implementing “green” policies to look
after the environment

Click here to watch a video about Decision Making

Have you checked out the activities on Language Perfect?

PAGE 8
GOALS CHECKLIST - ARE YOU ABLE TO DO
THE FOLLOWING?

1 Identify types of information as financial or non-financial.

2 Identify types of decisions as strategic or routine and explain why.
3 Identify the manager that would use given information or make a given
decision.

PAGE 9