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Chapter 2
Sources of data
When preparing for a budgeting exercise, management accountants must identify
internal and external sources of information. It is important to understand the impact
of the external environment on costs, prices, demand, availability of resources and
availability and cost of finance.
The external environment has a direct impact on sales demand, prices, availability of
resources and costs. Some costs, including taxes, are not within the organisation
control. Even material and labour costs are subject to economic pressures that may
not be quantifiable when budgets are constructed.
Management must monitor a wide range of external sources of information so that
their decisions on managing costs and setting prices fit in with the prevailing
environment.
Information may be quantitative or qualitative and financial or non-financial. It is
mainly needed:
to assist management in planning the most effective use of resources, such as
labour and materials
to assist management in decision-making (i.e. choosing between alternative
courses of action), for example whether to make a product or purchase it from
an outside supplier
to aid management in controlling day-to-day operations, for example by
comparing actual results with those planned.
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