Professional Qualification - Managerial Level
Management Accounting Performance Evaluation
Examined for the first time in May 2005
Syllabus outline
The syllabus comprises:
Topic |
Study
weighting |
| A |
Cost
Accounting Systems |
25% |
| B |
Standard
Costing |
25% |
| C |
Budgeting |
30% |
| D |
Control
and Performance Measurement of Responsibility Centres |
20% |
Learning aims
Students should be able to:
- apply both traditional and contemporary
approaches to cost accounting in a variety of contexts and evaluate the impact
of “modern” data processing and processing technologies such as MRP, ERP and
JIT;
- explain and apply the principles of standard
costing, calculate variances in a variety of contexts and critically evaluate
the worth of standard costing in the light of contemporary criticisms;
- develop budgets using both traditional and
contemporary techniques, evaluate both interactive and diagnostic uses of
budgets in a variety of contexts and discuss the issues raised by those that
advocate techniques ‘beyond budgeting’;
- prepare appropriate financial statements for
cost, profit and investment centre managers, calculate appropriate financial
performance indicators, assess the impact of alternative transfer pricing
policies and discuss the behavioural consequences of management control
systems based on responsibility accounting, decentralisation and delegation.
Assessment strategy
There will be a written exam paper of three
hours, with the following sections.
- Section A - 50 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
Six compulsory short answer questions, each worth 5 marks. A short scenario
may be given, to which some or all questions relate.
- Section C - 20 marks
One question, from a choice of two, worth 20 marks. Short scenarios may be
given, to which questions relate.
Learning outcomes and syllabus content
A - Cost Accounting Systems – 25%
Learning Outcomes
On completion of their studies students should
be able to:
- compare and contrast marginal and absorption
costing methods in respect of profit reporting and stock valuation;
- apply marginal and absorption costing
approaches in job, batch and process environments;
- prepare ledger accounts according to
context: marginal or absorption based in job, batch or process environments,
including work-in-progress and related accounts such as production overhead
control account and abnormal loss account;
- explain the origins of throughput accounting
as "super variable costing" and its application as a variant of marginal or
variable cost accounting;
- apply standard costing methods within
costing systems and demonstrate the reconciliation of budgeted and actual
profit margins;
- compare activity-based costing with
traditional marginal and absorption costing methods and evaluate its potential
as a system of cost accounting;
- explain the role of MRP and ERP systems in
supporting standard costing systems, calculating variances and facilitating
the posting of ledger entries;
- evaluate the impact of just-in-time
manufacturing methods on cost accounting and the use of ‘back-flush
accounting’ when work-in-progress stock is minimal.
Syllabus Content
- Marginal (or variable) costing as a system
of profit reporting and stock valuation.
- Absorption costing as a system of profit
reporting and stock valuation.
- Throughput accounting as a system of profit
reporting and stock valuation.
- Activity-based costing as a potential system
of profit reporting and stock valuation.
- The integration of standard costing with
marginal cost accounting, absorption cost accounting and throughput
accounting.
- Process accounting including establishment
of equivalent units in stock, work-in-progress and abnormal loss accounts and
the use of first-in-first-out, average cost and standard cost methods of stock
valuation.
- MRP and ERP systems for resource planning
and the integration of accounting functions with other systems, such as
purchase ordering and production planning.
- Back-flush accounting in just-in-time
production environments.
- The benefits of just-in-time production,
total quality management and theory of constraints and the possible impacts of
these methods on cost accounting and performance measurement.
B - Standard Costing – 25%
Learning outcomes
On completion of their studies students should
be able to:
- explain why and how standards are set in
manufacturing and in service industries with particular reference to the
maximisation of efficiency and minimisation of waste.
- calculate and interpret material, labour,
variable overhead, fixed overhead and sales variances;
- prepare and discuss a report which
reconciles budget and actual profit using absorption and/or marginal costing
principles;
- calculate and explain planning and
operational variances;
- prepare reports using a range of internal
and external benchmarks and interpret the results;
- discuss the behavioural implications of
setting standard costs.
Syllabus content
- Manufacturing standards for material,
labour, variable overhead and fixed overhead.
- Price/rate and usage/efficiency variances
for materials, labour and variable overhead. Further subdivision of total
usage/efficiency variances into mix and yield components. (Note: The
calculation of mix variances on both individual and average valuation bases is
required.)
- Fixed overhead expenditure and volume
variances. (Note: the subdivision of fixed overhead volume variance into
capacity and efficiency elements will not be examined.)
- Planning and operational variances.
- Standards and variances in service
industries, (including the phenomenon of "McDonaldisation"), public services
(e.g. Health), (including the use of "diagnostic related" or "reference"
groups), and the professions (e.g. labour mix variances in audit work).
Criticisms of standard costing in general and in advanced manufacturing
environments in particular.
- Sales price and sales revenue/margin volume
variances (calculation of the latter on a unit basis related to revenue, gross
margin and contribution margin). Application of these variances to all
sectors, including professional services and retail analysis.
- Interpretation of variances:
interrelationship, significance.
- Benchmarking.
- Behavioural implications of setting standard
costs.
C - Budgeting – 30%
Learning Outcomes
On completion of their studies students should
be able to:
- explain why organisations prepare forecasts
and plans;
- calculate projected product/service volumes
employing appropriate forecasting techniques;
- calculate projected revenues and costs based
on product/service volumes, pricing strategies and cost structures;
- evaluate projected performance by
calculating key metrics including profitability, liquidity and asset turnover
ratios;
- describe and explain the possible purposes
of budgets, including planning, communication, co-ordination, motivation,
authorisation, control and evaluation;
- evaluate and apply alternative approaches to
budgeting;
- calculate the consequences of "what if"
scenarios and evaluate their impact on master profit and loss account and
balance sheet;
- explain the concept of responsibility
accounting and its importance in the construction of functional budgets that
support the overall master budget;
- identify controllable and uncontrollable
costs in the context of responsibility accounting and explain why
“uncontrollable” costs may or may not be allocated to responsibility centres;
- explain the ideas of feedback and
feed-forward control and their application in the use of budgets for control;
- evaluate performance using fixed and
flexible budget reports;
- discuss the role of non-financial
performance indicators and compare and contrast traditional approaches to
budgeting with recommendations based on the "balanced scorecard";
- evaluate the impact of budgetary control
systems on human behaviour;
- evaluate the criticisms of budgeting
particularly from the advocates of techniques that are ‘beyond budgeting’.
Syllabus Content
- Time series analysis including moving totals
and averages, treatment of seasonality, trend analysis using regression
analysis and the application of these techniques in forecasting product and
service volumes.
- Fixed, variable, semi-variable and
activity-based categorisations of cost and their application in projecting
financial results.
- What-if analysis based on alternate
projections of volumes, prices and cost structures and the use of spreadsheets
in facilitating these analyses.
- The purposes of budgets and conflicts that
can arise (e.g. between budgets for realistic planning and budgets based on
"hard to achieve" targets for motivation).
- The creation of budgets including
incremental approaches, zero-based budgeting and activity-based budgets.
- The use of budgets in planning: "rolling
budgets" for adaptive planning.
- The use of budgets for control: controllable
costs and variances based on ‘fixed’ and ‘flexed’ budgets. The conceptual link
between standard costing and budget flexing.
- Behavioural issues in budgeting:
participation in budgeting and its possible beneficial consequences for
ownership and motivation; participation in budgeting and its possible adverse
consequences for "budget padding" and manipulation; setting budget targets for
motivation etc.
- Criticisms of budgeting and the
recommendations of the advocates of the balanced scorecard and ‘beyond
budgeting’.
D - Control and Performance Measurement of
Responsibility Centres – 20%
Learning Outcomes
On completion of their studies students should
be able to:
- discuss the use of cost, revenue, profit and
investment centres in devising organisation structure and in management
control;
- prepare cost information in appropriate
formats for cost centre managers, taking due account of
controllable/uncontrollable costs and the importance of budget flexing;
- prepare revenue and cost information in
appropriate formats for profit and investment centre managers, taking due
account of cost variability, attributable costs, controllable costs and
identification of appropriate measures of profit centre "contribution";
- calculate and apply measures of performance
for investment centres (often "strategic business units" or divisions of
larger groups);
- discuss the likely behavioural consequences
of the use of performance metrics in managing cost, profit and investment
centres;
- explain the typical consequences of a
divisional structure for performance measurement as divisions compete or trade
with each other;
- identify the likely consequences of
different approaches to transfer pricing for divisional decision making,
divisional and group profitability, the motivation of divisional management
and the autonomy of individual divisions.
Syllabus content
- Organisation structure and its implications
for responsibility accounting.
- Presentation of financial information
including issues of controllable/uncontrollable costs, variable/fixed costs
and tracing revenues and costs to particular cost objects.
- Return on investment and its deficiencies;
the emergence of residual income and economic value added to address these.
- Behavioural issues in the application of
performance measures in cost, profit and investment centres.
- The theory of transfer pricing, including
perfect, imperfect and no market for the intermediate good.
- Use of negotiated, market, cost-plus and
variable cost based transfer prices. "Dual" transfer prices and lump sum
payments as means of addressing some of the issues that arise.
- The interaction of transfer pricing and tax
liabilities in international operations and implications for currency
management and possible distortion of internal company operations in order to
comply with Tax Authority directives.
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