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ACCA Applied Knowledge · Management Accounting · Accounting for management

A company spends $8,000 collecting and analysing additional market data. Management estimates that the improved decision it supports will increase annual contribution by $5,000 for each of the next 2 years, ignoring the time value of money. The data have no other use. Which statement is correct about the information?

The information is worthwhile because the total benefit of $10,000 over two years exceeds the $8,000 cost, giving a net benefit of $2,000. Information should be judged on whether its benefits outweigh its cost, not on first-year benefit alone or on accuracy alone.

  1. AIt is not worthwhile, because the cost exceeds the first year's benefit
  2. BIt is worthwhile, because the total benefit of $10,000 exceeds the cost of $8,000Correct
  3. CIt is worthwhile, because information is always valuable if it is accurate
  4. DIt is not worthwhile, because the net benefit is negative $3,000

Explanation

Information should have benefits exceeding its cost. Total benefit is 2 x $5,000 = $10,000 against cost of $8,000, giving a net benefit of $2,000. Comparing the cost to only the first year's benefit is the wrong period, and accuracy alone does not justify cost.

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