Financial accounting and reporting
Financial accounting and reporting

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Financial accounting and reporting

2.3 Planning and decision making

Business managers need to have financial information to enable them to make plans for future business activities and operations. For example, if a business plans to sell 120,000 units of a good it manufactures in the next year, it will need to know the quantity and price of raw materials required to make 120,000 units, the number of staff required and the hours each staff member can work and their rate of pay, the type and number of machines required, etc. There will, of course, be other costs associated with production. Such information is typically derived from on-going business activities and experience and reported financial information, combined with knowledge of future price increases for raw materials, wages and other known costs. Planning of this kind can be very difficult in practice if a business is aiming to increase or decrease production of an existing good, and becomes even more difficult in the case of producing any good which the business has not produced before.

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