General Objective

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply advanced management accounting tools and techniques for decision making in the context of organizational strategy.



A candidate who excels in this paper should be able to:

  • Use cost estimation data in decision making
  • Apply inventory management techniques to strategic decision making
  • Use financial and non-financial indicators to measure organizational performance
  • Apply environmental management accounting concepts in practice.



18.1     Strategic management accounting information

  • Sources of strategic management accounting information
  • Role of strategic management accounting in strategic planning and control
  • Governance and control of strategic management accounting information
  • Scope and limitations of management accounting
  • Ethical standards of management accountants


18.2     Cost estimation and interpretation

  • Ordinary least square (OLS) method. Single and multiple predictors; tests of significance (goodness of fit, ANOVA/P-Value, economic plausibility tests, significance of independent variable/t-test)
  • Specifications/assumptions of OLS (implications of serial correlation, multicolinearity etc)
  • Computer output and technical versus managerial interpretation of OLS results
  • Learning curve models and their application


18.3     Planning and decision making techniques

  • Cost volume profit analysis (CVP) for single and multiple products under conditions of uncertainty
  • Decision making under environments of uncertainty and risk, using conditional payoff tables and decision trees.
  • Expected value of perfect information
  • Relevant cost analysis
  • Application of marginal costing (Non-routine decisions): Limiting factor analysis, Throughput accounting, make or buy decision, continue or discontinue/drop decisions, special order decisions and other short term decisions.


18.4     Pricing decisions

  • External pricing methods
  • Transfer pricing in divisionalized companies: Domestic and international transfer pricing
  • Product life cycle costing, Target costing and Kaizen costing


18.5     Strategic performance measurement

  • Functional and divisionalised organizational structures
  • Responsibility accounting, responsibility centers and segmental reporting
  • Divisional performance measures such as profit margin, asset turnover, return on investment(ROI), return on capital employed(ROCE), residual income(RI), accounting rate of return(ARR) and economic value added(EVA).
  • Non-financial performance indicators.
  • Alternative performance measures such as balanced scorecard, performance pyramid, Fitzgerald and Moon’s building block model.


18.6     Inventory control decisions

  • Applications of certainty inventory models (EOQ and EBQ) in decision making
  • Stochastic inventory models with and without stock out cost
  • Marginal analysis for perishable stock items
  • Application of simulation models in inventory control (with and without backorders)
  • Application of strategic management decisions in inventory control: – Just-in-time purchasing(JIT), ABC analysis and material requirement planning(MRP)


18.7     Budgetary control techniques

  • Applications of budgetary control systems: – top-down, bottom-up, rolling, zero-based(ZBB), activity- based(ABB), incremental, feedback and feed-forward controls.
  • Use of operational variances in reconciling original budget with actual performance
  • Advanced variance analysis, planning and operational analysis(Ex-post)
  • Application of learning curve model and ABC in variance analysis
  • Investigation models for variances.


18.8     Environmental management accounting

  • Role of accountants in managing and accounting for environmental cost
  • Use of management accounting techniques in identification and allocation of environmental costs (Inflow / Outflow analysis, Flow cost accounting, Environmental lifecycle costing and Environmental Activity Based Costing).
1. Management and Cost Accounting Colin Drury 7
2. Advanced Management Accounting Robert S. Kaplan and Anthony A. Atkinson 3




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