There will always be a trade-off in data gathering between the cost of acquiring additional data and the benefit of these data. A system becomes too expensive when it produces more reports than management can or will use. This also has a detrimental effect on the morale of the employees who have prepared the reports. They cannot feel pride in their work when they see that it is not fulfilling a purpose. Accountants should strive to strike an optimum balance between the cost of the information and the benefits of this information.

Required:

Discuss the types of information needed for controlling a company.

Solution to Problem The following classification summarizes the various types of information needed in controlfor Self-Study ling companies:

A. Progress reports indicating how efficiently various divisions are performing. The feedback loop in the company’s accounting system helps answer questions relating to the level of efficiency.

B. Information that directs attention to areas where problems are developing.
C. Information that helps evaluate which one of several alternatives to decisions or ways of performing jobs is best. Problem-solving questions that fall into this classification can be related to the response function or the area in which action variables are linked with environmental variables.