F2 Management Accounting

Management Information
Data: is raw facts, figures, numbers and words relating to matters of an organization.

Information: is data processed to be meaningful and useful to an organization.

TYPES OF DATA
The data can be further classified as
➢ Primary and secondary data
➢ Quantitative and qualitative data

✓ Primary and secondary data

Primary data: is data collected for specific purpose; raw data is basically primary data. Example: list
of numbers
Secondary data: is data which have already been collected elsewhere for some other purpose, but
which can be used or adapted for the survey being conducted

✓ Quantitative data and Qualitative data

Qualitative data: is data that cannot be measured and expressed in numbers but may reflect
distinguishing characteristics. For example, the quality of labour used.
Quantitative data: is data that can be measured and expressed in numbers. Example: the standard
labour hours required to produce one unit of output.

Quantitative data can be further classified into discrete and continuous data
Discrete data: is data which only takes finite or countable number of values within given range. For
example, number of goals scored by a football player in last world cup, shoe size, etc.
Continuous data: is data, which can take on any value. They are measured rather than counted. For
example, height of all members of your family.

MANAGEMENT
▪ People in-charge of running the business
▪ For example Managers or Other Organization

M ANAGEMENT INFORMATION (MI)

• Information required by the managers for the purpose of planning, control and decision making
• Information given to people who run the business
• Information required varies according to responsibilities. For example a supervisor at a factory would
require a daily output report. A sales manager would require a weekly sales report etc.
• Information may be used for pricing, valuation of stock, determining profitability, deciding on purchase
of capital assets (fixed assets) etc.

Types of Management Information

Most organisations require the following types of Management information
➢ Financial information
▪ Measured in terms of money
▪ For example sales of $10,000 in May
➢ Non-financial information
▪ Not measured in terms of money.

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▪ For example customer satisfaction, trends, quality

➢ Combination of financial and non-financial information
▪ Increase sales by $2,000 due to good quality of product

PURPOSE OF MANAGEMENT INFORMATION

Major purpose of management information is
▪ Planning
▪ Control
▪ Decision-making

Decision making in a broader concept and the planning stage and control stage also includes decision
making in it
➢ Planning: Planning involves the establishment of goals and objectives. It also involves selecting
appropriate strategies to achieve that objective.
▪ The management has to plan and manage resources that will be required to achieve the
objectives. Plan what resources are required and how they will be used.
▪ Resources can be monetary (like cash required for business) or human resources (like
employees)
▪ Managing resources means how much would be spending on which project, how many people
will be working on that project etc.

Planning involves long term planning & short-term planning.

Long term planning

It is also known as Corporate Planning involves selecting appropriate strategies for preparing long-
term plans to achieve objectives.
▪ Time span depend on organization’s industry and its environment usually for 3, 5,7,10 years.
▪ Detailed planning.
▪ Lengthy process.
▪ Decisions are taken by senior management or top-level management and approved by Board of
Directors.

Short term or tactical planning

Long term plans should be sub-divided into short-term plans for operational purposes usually
converted it into one year’s planning.
▪ Time span is shorter usually one year like budgets.
▪ Planning at departmental or functional level.
▪ By achieving short-term plans, organization can achieve its long-term plans.

➢ Control: When the plan is implemented, it should be evaluated by comparing actual results with plan
so that to identify derivation if any and investigate it.

Controls are at two stages:

1. Detailed operational plans compared with actual results of organization regularly, report any
variance, and take corrective actions. Management control is the process by which managers
ensure that resources are obtained and used effectively and efficiently in the accomplishment of
the organization’s objectives.
● Effectively means that resources are used to achieve the organisation’s objectives.
● Efficiently means that the optimum (best possible) output is produced from the resources

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used.
2. Review long-term plan to assess whether the objective plan is modified if required to avoid
serious damage in future.

Note: Planning is required for good control and without control, planning is useless.
➢ Decision Making: Decision-making involves a choice between different alternatives. Management
accountant provide good information for each alternative so that managers take an informed
decision. Decisions are taken at planning & control stages.

LEVELS OF MANAGEMENT AND INFORMATION REQUIREMENTS AT EACH LEVEL

There are three levels of management
➢ Strategic level: Strategic or high level management is involved in strategic planning, control and
decision making. At this level of management, senior managers decide or change the goals &
objectives of the organization. Senior managers take decisions about profitability of different
segments of business, future market changes, capital requirements, and fixed assets requirement.
Chief executive officers and board of directors are example of this level.

Strategic information has the following features:

▪ It deals with the whole organisation.
▪ It is derived from both internal & external source.
▪ It is relevant to long term.
▪ It is summarized at a high level.
▪ It is both quantitative & qualitative.
▪ It is often prepared on an ‘ad hoc’ basis
▪ It is not completely certain because future is unpredictable.

➢ Tactical level: This is the middle level management. This level of management is involved in
making departmental decisions including decision making, planning and control about resources.
Departmental managers are best example of this level of management. They have to decide how
much resources should be required and how efficiently they are being employed. Decisions like
productivity measures, Efficient & Effective use of organization’s resources, variance report,
department’s profit, raw material purchase, labour scheduling.

Tactical information has the following features:

▪ It deals with a function or department.
▪ It is mostly derived primarily from internal sources.
▪ It is prepared regularly and routinely.
▪ It is relevant to short and medium term.
▪ It is summarised at a lower level as compare to strategic information.
▪ It is based on quantitative measures.

➢ Operational level: They are the front line managers such as foreman or head clerks. They
ensure that specific tasks are carried out effectively & efficiently as planned. Operational
management is involved in day to day decision making, planning and control for example can be
supervisor’s decision etc. Direct labour is usually the operational level management.

Operational information has the following features:

▪ It is task specific.
▪ It is derived almost entirely from internal sources.

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▪ It relates to the immediate terms (current).

▪ It is highly detailed about operations.
▪ It is prepared very frequently like weekly or daily.
▪ It is largely quantitative.

FEATURES OF MANAGEMENT INFORMATION

➢ Reliable: It should present a correct picture of what is happening. The source of the information
should be reliable. For example if questionnaires in a survey filled out by same persons, it will not
present the correct picture of the market demand
➢ Timely: It should be in time for the decisions to be made. Information should be provided when
required.
➢ Relevant: It should be relevant according to the needs of the management. Mostly senior managers
may require summaries. Unnecessary information should not be provided to the relevant person.
➢ Complete: It should have all required information for the job. Information that is correct but excludes
something important is likely to be of little value.
➢ Accurate: No unnecessary detail but should be accurate. In certain cases, figures may be rounded
off to make reports easier. There should be no mistake. Management information is not absolutely
accurate.
➢ Clear: Information should be in understandable form, communicated properly, clearly presented and
use right communication channel. Avoid accounting jargons.
➢ Timeliness: Time period covered by reports may vary for example monthly, weekly or daily
➢ Cost effectiveness: The costs of providing the information must not outweigh the 'value added'
benefits derived from its use.

Costs of information
▪ Cost of collecting data
▪ Cost of processing data
▪ Cost of storing data
▪ Opportunity cost of management time

Benefits of information
▪ Helps in decision making
▪ Values arising from good decision
▪ Reduces unnecessary cost
▪ Adoption of better marketing strategies

SOURCES OF DATA AND INFORMATION

Data and information come from many sources - both internal (inside the business) and external.

Internal Information: Accounting records are a prime source of internal information. They detail the
transactions of the business in the past - which may be used as the basis for
planning for the future (e.g. preparing a financial budget or forecast).

A lot of internal information is connected to accounting systems-but is not directly part of them. Example:
- Records of the people employed by the business (personal details; what they get paid; skills and
experience; training records)
- Data on the costs associated with business processes (e.g. costing for contracts entered into by
the business)

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- Data from the production department (e.g. number of machines; capacity; repair record)
- Data from activities in direct contact with the customer (e.g. analysis of calls received and missed
in a call centre)

External Information:
As the term implies, this is information that is obtained from outside the business. There are several
categories of external information:
➢ Information relating to way a business should undertake its activities: E.g. businesses need to
keep records so that they can collect taxes on behalf of the government. So a business needs to
obtain regular information about the taxation system (e.g. PAYE, VAT, Corporation Tax) and what
actions it needs to take. Increasingly this kind of information (and the return forms a business needs
to send) is provided in digital format. Similarly, a business needs to be aware of key legal areas (e.g.
environmental legislation; health & safety regulation; employment law). There is a whole publishing
industry devoted to selling this kind of information to businesses.
➢ Information about the markets in which a business operates: This kind of external information is
critically important to a business. It is often referred to as "market" or "competitive intelligence".

Most of the external information that a business needs can be obtained from marketing research.
Marketing research can help a business do one or more of the following:
1. Gain a more detailed understanding of consumers’ needs – marketing research can help firms to
discover consumers’ opinions on a huge range of issues, e.g. views on products’ prices, packaging,
recent advertising campaigns.
2. Reduce the risk of product/business failure – there is no guarantee that any new idea will be a
commercial success, but accurate and up-to-date information on the market can help a business
make informed decisions, hopefully leading to products that consumers want in sufficient numbers to
achieve commercial success.
3. Forecast future trends – marketing research can not only provide information regarding the current
state of the market but it can also be used to anticipate customer needs future customer needs. Firms
can then make the necessary adjustments to their product portfolios and levels of output in order to
remain successful.

TYPES OF SOURCE OF INFORMATION

▪ Journal: Journal articles are primary information resources. Journals are published on a regular
basis. Each journal title focuses on a specific area or discipline. They describe research - the
generation of new knowledge - and focus on very specific topics.
▪ Newspapers: Newspapers are primary sources of information. They are an excellent source when
looking for current and up-to-date information.
▪ Websites: Websites are useful sources of current information and for an overview on a topic. Check
our evaluating websites page to ensure the information you find is reliable.
▪ Statistics: Statistics are primary information. They can be very useful for looking at patterns and
trends.
▪ Trade association: A trade association, also known as an industry trade group, business
association or sector association, is an organization founded and funded by businesses that
operate in a specific industry. An industry trade association participates in public relations activities
such as advertising, education, political donations, lobbying and publishing, but its main focus is
collaboration between companies, or standardization.
▪ Government Authorities: Official states are supplied by many governments. For example, In UK,
The Annual Abstract of statistics, The United Kingdom National Accounts, Social Trends, etc.

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▪ Economic Environment: The economic environment has important influence on local and national
level. The forecast state of the economy will influence the planning process for organisations which
operates within it. In the time of boom, the overall planning problem will be to identify the demand,
whereas in times of recession, the emphasis will be on cost effectiveness, continuing profitability,
survival and competition.

M ANAGEMENT ACCOUNTING VERSUS FINANCIAL ACCOUNTING

Management Accounting:
To provide management with information to help them manage resources efficiently and make sensible
decisions. There are no specific rules for management accounting. Depends on needs of organizations

Financial Accounting:
To provide accurate financial information for the company accounts which will be used by the senior
management (Balance Sheet and Profit and Loss) and external parties (e.g. investors). Data used to
prepare management accounts & financial accounts are same but analysed differently.

Management accounts Financial accounts

• Internal user • External user
• It can be prepared daily, weekly, monthly or • Prepare after a defined period mostly yearly
periodically.
• No legal requirement to prepare it. • Companies have legal requirement to prepare
it.
• No specific format. Format is decided by • Have pre-determined formats. Format is
management. defined by IAS, IFRS, and Law.
• It is about activities of organization • It is about whole organization
• It includes financial & non-financial information • It is mostly financial information
• Historical, current & future planning of business. • Historical and current picture of business
• Help in planning, control & decision making

ROLE OF MANAGEMENT ACCOUNTANT

The role of a management accountant assists the managers to manage by
▪ Provide information for planning;
▪ Supplying performance reports for controlling;
▪ Tailoring the accounting system to the organisational structure and thus reinforcing the objectives of
the organizational framework;
▪ Preparing the budgets that assist in providing the motivation to employees.

Limitations of Management Accounting Information

1. If any feature of management information is not present then this will be limit the usefulness of
information.
2. It does not need to be accurate down to every penny/paisa. Management accounting information is
not absolutely accurate it is just accurate.
3. Decisions taken will depend on how frequently the reports are produced. For example of a report
comparing actual with budgeted is produced every month, information regarding any problems that
are found will be useful in the next month not in the current month.
4. If managers do not communicate with the cost and management accountant, the information provided
by the accountant might not be the type or of the format that the manager requires.

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5. When comparisons are being made between different time periods, care has to be taken that price
changes are taken into consideration.
6. Even if the information provided by the cost and management accountant is timely and reliable, if it is
incomplete, it will not be of any use.
7. Most managers are not accountants so the cost accountant should ensure that the information that
he/she is giving to the manager doesn’t contain any accountancy jargon and explains matters in non-
accountancy terms wherever possible so that it is understood by the manager
8. If the non-financial factors are not considered, a correct picture might not be obtained.

Sampling data: are the data arising because of investigating a sample. A sample is a selection from the
population. To gain as much information as possible about the population by observing only a small
proportion of the population such as observing a sample.

Population: The term population is used to mean all the items under consideration in a particular enquiry.

Sample: Groups of items are drawn from the population.

Census: In situation where whole population is examined is called census. This situation is rare.
Advantages of sample
▪ Time saving
▪ More questions can be asked to a sample.

Disadvantages of census
▪ More cost than benefits.
▪ Out of date when observation complete.
▪ May be population destroyed in the process like in testing (in order to check the lifetime of an electric
light bulb it is necessary to leave bulb burning until it breaks)

Sample frame
▪ A sampling frame is a numbered list of all items in a population.
▪ Once a list of population is prepared, it is easier to choose a sample from it.
▪ Sometimes it is not possible to draw a sampling frame because population size is very large like a list
of all persons in a country.

Characteristics of sample frame:

▪ Complete: All the members of a population should be included in it.
▪ Accuracy: Information about population should be correct.
▪ Adequacy: It should cover entire population.
▪ Up to date: It should always be up-to-dated
▪ Convenience: It is easily available for use.
▪ No duplication: Each item in population should include once.

Choice of sample:
One of the most important requirements of sample data is that they should be complete and represent all
the population in other words covers all the information.

Types of sampling: There are two methods of sampling

➢ Probability sampling
➢ Non- probability sampling

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✓ Probability Sampling: Probability sampling is a method in which there is a known chance of each
member of the population appearing in the sample. It includes:
➢ Random sampling
➢ Stratified random sampling
➢ Systematic sampling
➢ Multistage sampling
➢ Cluster sampling

❖ Random Sampling: Random sampling is a sample selected in such a way that every item in the
population has an equal chance of being included in a sample. Randomly choose sample. If random
sampling is used, a sampling frame has to be constructed.

Advantages
▪ It is free from bias (equal choice of being selected)

Disadvantages
▪ Might be expensive
▪ An adequate sampling frame might not exist.
▪ Can produce an unrepresentative sample
▪ It might be difficult to obtain the data if the selected item covers a wide area
▪ It might be costly to obtain the data if the selected item covers a wide area

❖ Stratified random sampling: Stratified random sampling is a method of sampling which involves
dividing the population into groups (strata) like males and females. Random sampling is then taken
from each group.

Advantages
▪ Representative sample selected (every important category will have an elements in the final
sample)
▪ The structure of the sample will reflect that of the population
▪ Influence can be made about each group

Disadvantages
▪ Requires prior knowledge of each item in the population

❖
Systematic sampling: Systematic sampling is a sampling method, which works by selecting every
rd th
nth item after random start like 23 , 26 . It is also called “Quasi Random” because it is not truly
random.

Advantages
▪ It is easy to use
▪ It is cheap

Disadvantages
▪ It is possible that a biased sample might be chosen if there is a regular pattern to the population
which coincides with the sampling method like population arrange in this pattern A B C D E A B C
D E A B C D …If every fifth item is selected in a sample then there is a sample of Es only.
▪ It is not completely random since some samples have a zero chance of being selected

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❖ Multistage Sampling: Multistage sampling is a probability sampling method, which involves dividing
the population into a number of sub-populations and then selecting a small sample of this sub-
population at random. Each sub-population is then divided further, and then a small sample is again
selected at random. This process is repeated as many times as it is necessary. Used where an entire
country is a population. In this kind of sampling country divided into number of areas, areas sub-
divided into small units and then choose a random sample.

Advantages
▪ Fewer investigators are needed
▪ It is not costly to obtain a sample
▪ Does not require a sample frame of the entire population

Disadvantages
▪ There is possibility of bias if only small number of region selected
▪ The methods not currently random once the final sampling areas have been selected the rest of
the population cannot be in the sample.
▪ If the population is heterogeneous, the area chosen should reflect the full range of the diversity

❖ Cluster sampling: Cluster sampling is a non-random sampling method that involves selecting one
definable subsection of the population as the sample, that subsection take to be representative of the
population in question. For example Cluster sample of all children at school in one country.

Advantages
▪ It is good alternative to multistage sampling if a satisfactory sampling frame does not exist.
▪ It is inexpensive to operate

Disadvantages
▪ The potential for considerable bias

✓ Non-probability sampling: is a method in which the chance of each member of the population appearing
in the sample is not known. There is only one method of such type of sampling.
❖ Quota sampling is commonly used by market researchers and involves stratifying the population and
restricting the sample to a fixed number in each stratum

Advantages
▪ It is cheap and administratively easy
▪ A much larger sample can be studied
▪ No sampling frame is necessary
▪ Only possible approach in certain situation such as television audience research
▪ Quota sampling yields enough accurate information for many forms of commercial market
research

Disadvantages
▪ The method can result certain biases

Presentation of information
➢ Presentation of information in Report writing
▪ The most formal way of communication.
▪ A formal report needed where a comprehensive/detailed investigation has taken place

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▪ Many organizations have standard set of regular reports in prescribed formats which make it
easier for employees to read and locate information.
▪ Use charts, tables and good report layouts to increase understanding.
Four stages approach to report writing
➢ Prepare
➢ Plan
➢ Write
➢ Review

➢ Prepare: Identify whether it is a detailed usual report, Ad Hoc report (unusual), short memo,
discussion notes. Identify the language, Brief explanations; Main relevant key terms should be given.
➢ Plan: Plan the structure of the report how to present the answer. The format of report is determined.
➢ Write: The language used in a report should be clear and spelling should be correct. Use clear
wordings and language.
➢ Review: Read again to ensure report is clear and complete.

The elements of a formal report are as follows:

▪ Title (subject of the report)
▪ Terms of reference ( clarify what has been requested)
▪ Introduction (who the report is from and to how the information was obtained)
▪ Main body (details about the issue discussed)
▪ Conclusions (summaries or findings)
▪ Recommendations (writer’s suggestions)
▪ Signature (of writer)
▪ Executive summary (summary of a detailed report to save manager’s time, it is not more than 1-
page)

Some tips
● avoid excessive long sentences
● avoid difficult words
● follow the professional manner
● if abbreviations are used explain them when they are first used in the report
● write correct English

➢ Presentation of information in Tables

Tabulation is a process of presenting numerical data or information in the form of table. Tables
consist of Rows and Columns. Table is capable of showing only two variables, one shown in the
columns and one in the rows. Each column should have proper headings. It is two-dimensional

Table requirements
The following points should be considered while presenting information in tables.
▪ Tables have proper title.
▪ All columns have clearly labeled.
▪ Make clear sub-totals.
▪ Information presented can easy to read.

➢ Presentation of information in Bar charts

A bar chart is a method of presenting information in which quantities are shown in the form of bars on
the chart, length of the bars being proportional to the quantities.

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It is a most commonly used method of presenting information in a visual form. There are three main
types of bar charts.

1. Simple bar charts: A simple bar chart is a chart consisting of one or more bars, in which the
length of each bar indicates the magnitude of the corresponding information

2. Component or percentage component bar charts: A component bar chart is a bar chart that
gives a breakdown of each total into its component

3. Multiple bar charts: A multiple bar chart is a bar chart in which two or more separate bars are
used to present subdivisions of information.

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4. Presentation of information in Line Graphs:

▪ Used to display a wide variety of information.
▪ Used in commercial context.
▪ Used for demonstrating trends.
▪ Trends are the progress of events or fluctuations over time of variables such as profit, prices,
sales, customer complaints.
▪ May also be used to compare the performance of various products, which are competing with
each other.
▪ May also be used for changes in share prices over time.

5. Pie Charts: A pie chart is a circular chart in which the circle is divided into sectors. Each sector
visually represents an item in a data set to match the amount of the item as a percentage or
fraction of the total data set. Pie charts are useful to compare different parts of a whole amount.
They are often used to present financial information. E.g. A Company’s expenditure can be
shown to be the sum of its parts including different expense categories such as salaries,
borrowing interest, taxation and general running costs (i.e. rent, electricity, heating etc.).

RESPONSIBILITY ACCOUNTING:
An accounting system under which responsibilities; like revenue and cost, are assigned to managers
(responsible persons);

Responsibility Centre: a function or department of an organization that is headed by a manager and the
manager has direct responsibility for its performance is known as a responsibility centre.

Responsibility centres are usually divided into different categories. Here describes cost centre, revenue
centre, profit centre and investment centre.

➢ Cost Centre: A cost centre is a production or service location, function, activity or item of equipment
for which costs are accumulated.
▪ A unit of an organization to which costs can be separately attributed
▪ If a manager is responsible for costs attributable to his area of business, it means that the
manager is responsible for a cost centre.
▪ Each cost centre will have a cost code and so all items of expenditure will be recorded according
to the correct cost code.

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➢ Revenue Centre
▪ A centre, which raises revenue and has no responsibility for costs.
▪ Manager of revenue centre is accountable only for revenues.
▪ For example department which obtains grants and donations for a charity, sales department

➢ Profit Centre: A profit centre is a part of a business accountable for both cost and revenue.
▪ If a manager is responsible for costs as well as income attributable to his area of business, it
means that the manager is responsible for a profit centre
▪ A profit centre manager is likely to be a senior person in the organization who influences over
both revenue and cost.
▪ A profit centre is likely to cover a large area of operations
▪ A profit centre might be an entire division within the organization or there may be a separate profit
centre for each product, brand, service etc.
▪ There are likely to be several cost centres within a profit centre.

➢ Investment Centre: It refers to a profit centre with an additional responsibility for capital investment.
▪ Manager of investment centre has the responsibility for profit in relation to capital invested in his
area.
▪ Mostly used in public sector organizations where the organization is required to make a particular
level of profit in relation to their fixed assets (return on capital employed)
▪ Several profit centres might share the same capital items e.g. same building, stores etc. So an
investment centre is likely to include several profit centres.

Cost codes: After classifying cost, a coding system can be applied to make it easier to manage the cost
data. It can be manual or computerized. Each cost is identified through its unique code. Some possible
characteristics on which costs are separated are:
▪ Nature of cost (material, labour, overheads), It is known as subjective classification.
▪ Type of cost (direct and indirect)
▪ Cost centre or cost units to which cost should be related (known as subjective classification)

Features of good coding system: An effective and efficient coding system should include the following
features:
▪ Code must be easy to use and well communicated.
▪ Unique code
▪ Coding system must allow for expansion
▪ Codes should be flexible
▪ It should be comprehensive system ( suitable code )
▪ Codes should be time-saving
▪ Codes should be error free
▪ Regularly updated codes
▪ Code numbers should be issued from a single central point ( standardisation)
▪ Dots, dashes. Colon etc. should be avoided in codes
▪ They should be uniform ( length or structure)
▪ Not confusing.

TYPES OF CODES
➢ Composite codes: In costing, the first three digits in the composite code 211392 might indicate the
nature of the expenditure ( subjective classification ) and the last three might indicate the cost centre
of cost unit to be charged ( objective classification).

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So the digit 211 might refer to 2 materials, 1 raw material, 1 timber

This would indicate to anyone familiar with the coding system that the expenditure was incurred on
timber. The digit 392 might refer to: 3 direct cost, 9 factory alpha, 2 assembly department.
This would indicate the expenditure was to be charged as a direct material cost to the assembly in
factory alpha.

➢ Sequence (or progressive) codes: Numbers are given to items in ordinary numerical sequence, so
that there is no obvious connection between an item and its code.
000042 4cm nails
For example:
000043 Office staplers
000044 Hand wrench

➢ Group classification codes: These are an improvement on simple sequence codes, in that a digit
(often the first one) indicates the classification of an item. For example:

4NNNNN Nails
5NNNNN Screws
6NNNNN bolts

NOTE: ‘N’ stands for another digit; NNNNN indicates there are five further digits in the code.

➢ Faceted codes: These are refinement of group classification codes, in that each digit of the code
gives information about an item.
➢ Significant digit codes: These incorporate some digit(s) which is (are) part of the description of the
item being coded. For example:
5000 Screws 5060 60mm screws
5050 50mm screws 5070 75mm screws

➢ Hierarchical codes: This is a type of faceted code where each digit represents a classification, and
each digit further to the right represents a smaller subset than those to the left. For example:
32 = round headed screws 3 = screws
322 = steel (round headed ) screws and so on 31 = flat headed screws

A coding system does not have to be structured entirely on any one of the above systems. It can mix
the various features according to the items which need to be coded.

Advantages of coding system

▪ A code is usually briefer than a description, thereby saving clerical time in a manual system and
storage in a computerised system
▪ A code is more precise than a description and therefore reduces a ambiguity
▪ Coding facilitates data processing

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