Page 141 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes private and valuable information that is kept secret from the external users because of competitive
concerns. Internal reports help answer questions like:

What are the manufacturing costs of a product?
What is the most profitable mix of products or services?
At what level the product should be priced at for different levels of sales?
What level of sales is necessary to break even?

What are the costs that the organisation has to bear whether the company produces or not
produces?
Is it better to manufacture or do the activity in-house or the activity should be outsourced?
Information that help answers these questions is very critical for the success of the organisation.
There are around seven functions that are common to most of the organisations as seen below.
Some of these functions may be irrelevant for a particular type of organisation (like production
function for banks). Bigger businesses usually have these operating functions as separate
departments but smaller units usually have one department involved in more than one of these
roles. For example, production department may also look after servicing in a small air-
conditioning assembling organisation. Very small organisations tend to have no departmental
break-ups at all.
Table 11.1: Seven Common Functions in Most Organisations

Function Information requirement
Research and Research & Development is aimed at creating or improving a company's
Development products or services. Managers need information about current and projected
costs and potential sales.
Purchasing Purchasing involves buying and managing materials needed for operations.
Managers need to know what, when and how much to purchase.
Production Production is the function concerning use of raw material and other activities
to produce products and services. Good production methods depend on
information for effectively planning their operations, to monitor cost and to
ensure quality.
Human Resources Human resources aim to locate, screen, hire, train, compensate, promote and
counsel employees. Managers require information about current and potential
employees, their backgrounds, payroll costs, employee benefits related and
other performance and compensation data.
Marketing Marketing is required to promote and advertise company's products or
services. Marketing people use accounting inputs about sales and costs to
effectively target consumers and set prices. Marketing also uses accounting to
monitor consumer needs, credit and price concerns.
Distribution Involves timely and accurate delivery of products or services. Relevant
information about how to minimise the costs of distribution is often key to
quality distribution.
Servicing Servicing customers after selling products is a key to success in today's
competitive world. Information is needed on both the cost and benefits of
servicing.

Both internal and external users rely on internal controls to monitor the company’s operations.
Internal controls procedures, set-up to protect assets and show reliable accounting reports,
promote efficiency and encourage adherence to company’s policies.

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