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ACCA Applied Knowledge · Management Accounting · Sources of data

A company spends 8,000 collecting extra detail on customer buying habits. Management estimates the improved decisions arising from it will increase profit by 5,500. Which quality of good information is NOT met, and by how much does the cost exceed the benefit?

Cost-effectiveness is not met, and cost exceeds benefit by 2,500. The information costs 8,000 to collect but is expected to add only 5,500 to profit, so the net shortfall is 2,500. Good information should give benefits at least equal to its cost.

  1. ARelevance is not met; cost exceeds benefit by 2,500
  2. BCost-effectiveness is not met; cost exceeds benefit by 2,500Correct
  3. CCost-effectiveness is not met; cost exceeds benefit by 13,500
  4. DAccuracy is not met; cost exceeds benefit by 2,500

Explanation

Information should be worth more than it costs to obtain. Cost 8,000 less benefit 5,500 gives a net shortfall of 2,500, so cost-effectiveness fails. Adding the two figures (13,500) is the wrong calculation, and nothing indicates relevance or accuracy problems.

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