Professional
Qualification - Managerial Level
Management Accounting Decision
Management
First examined in May 2005
Syllabus outline
The syllabus comprises:
Topic |
Study
weighting |
| A |
Financial
Information for Short-term Decision Making |
30% |
| B |
Financial
Information for Long-term Decision Making |
25% |
| C |
The Treatment
of Uncertainty in Decision Making |
15% |
| D |
Cost Planning
and Analysis for Competitive Advantage |
30% |
Learning aims
Students should be able to:
- separate costs into their
fixed and variable components and use these in break-even
analysis and in decision-making under multiple constraints;
- establish relevant cash
flows for decision making and apply these principles in
a variety of contexts including process/product viability
and pricing including evaluation of the tension between
short-term, "contribution based" pricing and long-term,
"return on investment" pricing;
- develop relevant cash flows
for long-term projects taking account of inflation and taxation
where appropriate, evaluate projects using discounting and
traditional methods, critically assess alternative methods
of evaluation and place evaluation techniques in the context
of the whole process of investment decision making;
- apply learning curves in
forecasting future costs and the techniques of activity-based
management, target costing and value analysis in managing
future costs and evaluate the actual and potential impacts
of contemporary techniques such as JIT, TOC and TQM on efficiency,
inventory and cost;
- undertake sensitivity analysis
and assess the impact of risk in decision models using probability
analysis, expected value tables and decision trees as appropriate;
- discuss externally oriented
management accounting techniques and apply these techniques
to the value chain, “gain sharing” arrangements and customer/channel
profitability analysis.
Assessment strategy
There will be a written examination
paper of three hours, with the following sections.
- Section A - 20 marks
A variety of compulsory objective test questions, each worth
between 2 and 4 marks. Mini-scenarios may be given, to which
a group of questions relate.
- Section B – 30 marks
Three compulsory medium answer questions, each worth 10
marks. Short scenarios may be given, to which some or all
questions relate.
- Section C – 50 marks
Two questions, from a choice of three, each worth 25 marks.
Short scenarios may be given, to which questions relate.
Learning outcomes and syllabus
content
A - Financial Information
for Short-term Decision Making – 30%
Learning outcomes
On completion of their studies
students should be able to:
- discuss the principles of
decision making including the identification of relevant
cash flows and their use alongside non-quantifiable factors
in making rounded judgements;
- explain the particular issues
that arise in pricing decisions and the conflict between
‘marginal cost’ principles and the need for full recovery
of all costs incurred;
- apply an approach to pricing
based on profit maximisation in imperfect markets and evaluate
the financial consequences of alternative pricing strategies;
- explain the possible conflicts
between cost accounting for profit reporting and stock valuation
and the convenient availability of information for decision-making;
- explain why joint costs
must be allocated to final products for financial reporting
purposes, but why this is unhelpful when decisions concerning
process and product viability have to be taken;
- discuss the usefulness of
dividing costs into variable and fixed components in the
context of short-term decision making;
- apply variable/fixed cost
analysis in multiple product contexts to break-even analysis
and product mix decision making, including circumstances
where there are multiple constraints and linear programming
methods are needed to reach "optimal" solutions;
- discuss the meaning of "optimal"
solutions and show how linear programming methods can be
employed for profit maximising, revenue maximising and satisfying
objectives.
Syllabus content
- Relevant cash flows and
their use in short-term decisions, typically concerning
acceptance/rejection of contracts, pricing and cost/benefit
comparisons.
- The importance of strategic,
intangible and non-financial judgements in decision-making.
- Pricing decisions for profit
maximising in imperfect markets. (Note: tabular methods
of solution are acceptable).
- Pricing strategies and the
financial consequences of market skimming, premium pricing,
penetration pricing, loss leaders, product bundling/optional
extras and product differentiation to appeal to different
market segments.
- The allocation of joint
costs and decisions concerning process and product viability
based on relevant costs and revenues.
- Multi-product break-even
analysis, including break-even and profit/volume charts,
contribution/sales ratio, margin of safety etc.
- Simple product mix analysis
in situations where there are limitations on product/service
demand and one other production constraint.
- Linear programming for more
complex situations involving multiple constraints. Solution
by graphical methods of two variable problems, together
with understanding of the mechanics of simplex solution,
shadow prices etc. (Note: questions requiring the full application
of the simplex algorithm will not be set although candidates
should be able to formulate an initial tableau, interpret
a final simplex tableau and apply the information it contained
in a final tableau.)
B - Financial Information
for Long-term Decision Making - 25%
Learning outcomes
On completion of their studies
students should be able to:
- explain the processes involved
in making long-term decisions;
- apply the principles of
relevant cash flow analysis to long-run projects that continue
for several years;
- calculate project cash flows,
accounting for tax and inflation, and apply perpetuities
to derive "end of project" value where appropriate;(li)
apply activity-based costing techniques to derive approximate
‘long-run’ product or service costs appropriate for use
in strategic decision making;
- explain the financial consequences
of dealing with long-run projects, in particular the importance
of accounting for the "time value of money";
- evaluate project proposals
using the techniques of investment appraisal;
- compare, contrast and evaluate
the alternative techniques of investment appraisal;
- evaluate and rank projects
that might be mutually exclusive, involve unequal lives
and/or be subject to capital rationing;
- apply sensitivity analysis
to cash flow parameters to identify those to which net present
value is particularly sensitive;
- produce decision support
information for management, integrating financial and non-financial
considerations.
Syllabus content
- The process of investment
decision making, including origination of proposals, creation
of capital budgets, go/no go decisions on individual projects
(where judgements on qualitative issues interact with financial
analysis), and post audit of completed projects;
- Generation of relevant project
cash flows taking account of inflation, tax, and "final"
project value where appropriate.
- Activity-based costing to
derive approximate ‘long-run’ costs appropriate for use
in strategic decision making.
- The techniques of investment
appraisal: payback, discounted payback, accounting rate
of return, net present value and internal rate of return.
- Application of the techniques
of investment appraisal to project cash flows and evaluation
of the strengths and weaknesses of the techniques.
- Sensitivity analysis to
identify the input variables that most effect the chosen
measure of project worth (payback, ARR, NPV or IRR).
- Methods of dealing with
particular problems: the use of annuities in comparing projects
with unequal lives and the profitability index in capital
rationing situations.
C - The Treatment of Uncertainty
in Decision Making – 15%
Learning outcomes
On completion of their studies
students should be able to:
- evaluate the impact of uncertainty
and risk on decision models that may be based on CVP analysis,
relevant cash flows, learning curves, discounting techniques
etc.;>
- apply sensitivity analysis
on both short and long-run decision models to identify variables
that might have significant impacts on project outcomes;
- analyse risk and uncertainty
by calculating expected values and standard deviations together
with probability tables and histograms;
- prepare expected value tables
and ascertain the value of information;
- prepare and apply decision
trees.
Syllabus content
- The nature of risk and uncertainty.
- Sensitivity analysis in
decision modelling and the use of computer software for
"what if" analysis.
- Assignment of probabilities
to key variables in decision models.
- Analysis of probabilistic
models and interpretation of distributions of project outcomes.
- Expected value tables and
the value of information.
- Decision trees for multi-stage
decision problems.
D - Cost Planning and Analysis
for Competitive Advantage – 30%
Learning outcomes
On completion of their studies
students should be able to:
- compare and contrast value
analysis and functional cost analysis;
- evaluate the impacts of
just-in-time production, the theory of constraints and total
quality management on efficiency, inventory and cost;
- explain the concepts of
continuous improvement and Kaizen costing that are central
to total quality management and prepare cost of quality
reports;
- explain and apply learning
and experience curves to estimate time and cost for new
products and services;
- apply the techniques of
activity-based management in identifying cost drivers/activities
and explain how process re-engineering can be used to eliminate
non-value adding activities and reduce activity costs;
- explain how target costs
can be derived from target prices and describe the relationship
between target costs and standard costs;
- explain the concept of life
cycle costing and how life cycle costs interact with marketing
strategies at each stage of the life cycle.
- explain the concept of the
value chain and discuss the management of contribution/profit
generated throughout the chain;
- discuss gain sharing arrangements
whereby contractors and customers benefit if contract targets
for cost, delivery etc. are beaten;
- apply activity-based costing
ideas to analyse ‘direct customer profitability and extend
this analysis to distribution channel profitability;
- apply Pareto analysis as
a convenient technique for identifying key elements of data
and in presenting the results of other analyses, such as
activity-based profitability calculations.
Syllabus content
- Value analysis and quality
function deployment.
- The benefits of just-in-time
production, total quality management and theory of constraints
and the implications of these methods for decision-making
in the "new manufacturing environment".
- Kaizen costing, continuous
improvement and cost of quality reporting.
- Learning curves and their
use in predicting product/service costs, including derivation
of the learning rate and the learning index.
- Activity-based management
in the analysis of overhead and its use in improving the
efficiency of repetitive overhead activities.
- Target costing.
- Life cycle costing and implications
for marketing strategies.
- The value chain and supply
chain management, including the trend to outsource manufacturing
operations to Eastern Europe and the Far East.
- Gain sharing arrangements
in situations where, because of the size of the project,
a limited number of contractors or security issues (e.g.
in defence work), normal competitive pressures do not apply.
- The use of direct and activity-based
cost methods in tracing costs to "cost objects",
such as customers or distribution channels, and the comparison
of such costs with appropriate revenues to establish ‘tiered’
contribution levels, as in the activity-based cost hierarchy.
- Pareto analysis.
|
