Question

a)The sales director has suggested using Big Data collected from market research and consumer activity on social media. Critically evaluate the use of Big Data for sales forecasting

b) Critically evaluate the usefulness of learning curve theory in the setting of selling prices.

c) Critically evaluate the usefulness of management accounting techniques for decision making when future conditions are uncertain

Answer 1

Answer.

The learning curve also is referred to as the experience curve, the cost curve, the efficiency curve, or the productivity curve. This is because the learning curve provides measurement and insight into all the above aspects of a company. The idea behind this is that any employee, regardless of position, takes time to learn how to carry out a specific task or duty. The amount of time needed to produce the associated output is high. Then, as the task is repeated, the employee learns how to complete it quickly, and that reduces the amount of time needed for a unit of output.

That is why the learning curve is downward sloping in the beginning with a flat slope toward the end, with the cost per unit depicted on the Y-axis and total output on the X-axis. As learning increases, it decreases the cost per unit of output initially before flattening out, as it becomes harder to increase the efficiencies gained through learning.
The slope of the learning curve represents the rate in which learning translates into cost savings for a company. The steeper the slope, the higher the cost savings per unit of output. This standard learning curve is known as the 80% learning curve. It shows that for every doubling of a company's output, the cost of the new output is 80% of the prior output. As output increases, it becomes harder and harder to double a company's previous output, depicted using the slope of the curve, which means cost savings slow over time.

The use of cost data adjusted for learning effect helps in development of advantageous pricing policy.

The learning-curve relationship is important in planning because it means that increasing a company’s product volume and market share will also bring cost advantages over the competition.

2. Management accounting techniques usefulness in decision making

Management Accounting:

Management accounting is a key element of management. In particular it involves the identification, generation, presentation, interpretation and use of relevant information to help managers run their organisations.

As such it involves the application of accounting and financial management to create, protect, preserve and increase value for the stakeholders of the organisation concerned.

The managerial processes of planning, decision making and control

The main functions that management are involved with are planning, decision making and control.

Planning

• Planning involves establishing the objectives of an organisation and formulating relevant strategies that can be used to achieve those objectives. In order to make plans, it helps to know what has happened in the past so that decisions about what is achievable in the future can be made. For example, if a manager is planning future sales volumes, he or she needs to know what sales volumes have been in the past.
• Planning can be either short-term (tactical planning) or long-term (strategic planning).  

Decision making

Decision making involves considering information that has been provided and making an informed decision.

• In most situations, decision making involves making a choice between two or more alternatives. Managers need reliable information to compare the different courses of action available and understand what the consequences might be of choosing each of them.
• The first part of the decision-making process is planning, the second part is control.

Control

Information relating to the actual results of an organisation is reported to managers.

• Managers use the information relating to actual results to take control measures and to re-assess and amend their original budgets or plans.
• Internally- sourced information, produced largely for control purposes, is called feedback.
• The 'feedback loop' is demonstrated in the following illustration.

Illustration - The managerial processes of planning, decision making and control

Here, management prepare a plan, which is put into action by the managers with control over the input resources (labour, money,materials, equipment and so on). Output from operations is measured and reported ('fed back') to management, and actual results are compared against the plan in control reports. Managers take corrective action where appropriate, especially in the case of exceptionally bad or good performance. Feedback can also be used to revise plans or prepare the plan for the next period.

The management information system of an organisation is likely to be able to prepare the following:

• annual statutory accounts
• budgets and forecasts
• product profitability reports
• cash flow reports
• capital investment appraisal reports
• standard cost and variance analysis reports
• returns to government departments, e.g. Sales Tax returns.