## **Learning Outcomes**

After reading this article, you will be able to distinguish the main sources of data for management accounting, explain the difference between internal and external information, and clearly identify direct and indirect data capture costs in the context of information systems. You will also be able to assess how information costs influence decision-making, and apply these principles in exam scenarios.

## **ACCA Management Accounting (MA) Syllabus**

For ACCA exams, you are required to understand the nature of data sources and information costs as they relate to management accounting. Focus your revision on the following objectives:

- Describe the main data sources used in business, including machine/sensor, transactional, and human/social data.
- Identify internal and external sources of management information.
- Distinguish between direct and indirect data capture costs.
- Evaluate the uses and limitations of information from various sources.
- Explain the relevance of information costs to management decision-making.
- Recognise examples of direct and indirect data capture and processing costs.

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following is a direct data capture cost?  
   a) Time spent manually entering survey results  
   b) Payment for a database subscription  
   c) Salaries for staff interpreting reports  
   d) Delay in other projects due to new data system training

2. Give two examples each of internal and external sources of management information.

3. What is the difference between direct and indirect data capture costs in information systems?

4. True or false? All costs associated with using company data for decision-making are classified as direct costs.

## **Introduction**

Reliable data is essential for producing useful management information. Understanding where data comes from, how it is gathered, and the costs involved is a core skill for ACCA candidates. With growing digitalisation and increased sources of data, accountants must be able to distinguish the types of data available, evaluate the cost of capturing this information, and understand how these costs can affect business decisions.

## **Types of Data Sources**

Accurate management accounting begins with sound data. The main sources of business data can be grouped as follows:

### Machine/Sensor Data

Generated by devices measuring operational performance, such as sensors on manufacturing equipment, vehicle telematics, or smart meters. This data is typically collected automatically and can be used for process control and performance analysis.

> **Key Term: Machine/Sensor Data**  
> Data collected automatically by machines or electronic sensors about physical processes, usage, or environmental conditions relevant to business activities.

### Transactional Data

Created by recording day-to-day business transactions—such as customer purchases, supplier payments, inventory movements, payroll entries, and accounting entries.

> **Key Term: Transactional Data**  
> Data arising from business transactions, capturing key details such as price, quantity, date, parties involved, and transaction type.

### Human/Social Data

Obtained from human interaction, including manual input, feedback forms, surveys, social media posts, and emails. This is often qualitative and less structured, but can offer valuable observations about customer satisfaction and staff morale.

> **Key Term: Human/Social Data**  
> Data generated through human activity or interaction, including surveys, social media content, feedback, and observational information.

## **Internal vs External Information Sources**

Business decisions can be supported by internal information (produced within the organisation) and external information (sourced from outside).

- **Internal information** includes sales records, production reports, costing data, payroll, and other operational outputs.
- **External information** covers government statistics, industry benchmarks, supplier price lists, market research, news feeds, and data from trade bodies.

Both internal and external data have advantages and drawbacks related to relevance, timeliness, cost, and reliability.

### **Worked Example 1.1**

**Scenario:**  
You are asked to prepare a quarterly performance report for a manufacturer. List two examples each of internal and external data sources you would use.

> **Answer:**  
> Internal: Production logs, staff attendance records  
> External: Supplier catalogue prices, government manufacturing statistics

## **Information Costs**

Producing management information is never cost-free. Cost considerations influence the value and extent of data collection. Information costs can be classified broadly as _direct_ or _indirect_.

### Direct Data Capture Costs

Direct costs are immediately and solely attributable to obtaining specific data for information systems. Examples include:

- Cost of barcode scanners or other input devices
- Outlays for survey forms and online questionnaires
- Acquisition of specialist software for data entry
- Fees for third-party data sources used specifically for a project

> **Key Term: Direct Data Capture Costs**  
> Costs directly incurred to collect or acquire data for information systems, traceable to a specific data gathering activity.

### Indirect Data Capture Costs

Indirect costs are associated with data capture but cannot be traced to a single data activity. They arise as a result of the broader use of resources in information management. Examples include:

- Staff training on new data systems
- Loss of productivity during system changeover
- Time spent by multiple departments in data preparation
- Supervisory time overseeing the data entry team
- Reduced morale or extra workload due to new processes

> **Key Term: Indirect Data Capture Costs**  
> Costs connected to data collection that cannot be traced directly to a single data activity, often arising as side effects or shared resource usage.

## **Examples of Direct and Indirect Data Capture Costs**

### Direct Data Capture Costs – Examples

- Purchase of portable scanners for inventory management
- Payment to external contractors for targeted market research surveys
- License fee for a software tool used exclusively in one project

### Indirect Data Capture Costs – Examples

- IT staff time reconfiguring existing systems to integrate new data sources
- Employees’ overtime spent updating records for compliance
- Overhead costs related to maintaining data storage servers used by multiple areas

### **Worked Example 1.2**

**Question:**  
A retail company invests in a set of barcode readers for its warehouses at a cost of \$5,000. It also spends \$2,000 training warehouse staff and \$1,000 on IT support for installation. What are the direct and indirect data capture costs?

> **Answer:**  
> Direct: \$5,000 for barcode readers  
> Indirect: \$2,000 staff training, \$1,000 IT support

## **Processing and Other Information Costs**

Beyond data capture, costs are incurred to process, interpret, and use data:

- **Processing costs:** Running payroll, compiling financial statements, and generating analytical reports.
- **Indirect information costs:** Staff time spent interpreting reports, lost productivity during transition to a new system, and the need for compatibility upgrades.

### **Worked Example 1.3**

**Question:**  
A company pays \$500 annually for an industry database subscription. If several departments benefit from the data and must adjust work schedules during the yearly database upgrade, which costs are direct and which are indirect?

> **Answer:**  
> Direct: \$500 subscription fee  
> Indirect: Staff time for adjusting schedules, lost productivity during upgrade

## **Impact of Information Costs on Decision-Making**

Information costs must be justified by the benefits they provide. Excessive or poorly managed data capture and processing can outweigh the decision-making value gained. Management accountants must recommend information systems that balance cost and utility.

### **Exam Warning**

> Do not assume all information costs are direct. Many hidden or ‘knock-on’ costs, such as lost productivity or staff disruption, are indirect and must be considered in assessments and recommendations.

## **Summary**

Understanding data sources—machine/sensor, transactional, and human/social—is critical for effective management accounting. Data may be produced internally or come from external sources, with each bringing different costs, accuracy, and potential limitations. Information costs are either direct (clearly traced to specific activities) or indirect (arising as shared or side-effect costs). Carefully differentiating and evaluating these costs is essential for effective decision-making and for answering ACCA exam questions on information systems.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Distinguish machine/sensor, transactional, and human/social data sources.
- Identify and compare internal and external information sources.
- Define direct and indirect data capture costs with relevant examples.
- Recognise the impact of information costs on management decision-making.
- Apply knowledge to scenario-based questions, following ACCA exam requirements.

## **Key Terms and Concepts**

- Machine/Sensor Data
- Transactional Data
- Human/Social Data
- Direct Data Capture Costs
- Indirect Data Capture Costs

Data sources and information costs - Direct and indirect data capture costs