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 techniques in business decision making.
14.0 LEARNING OUTCOMES
A candidate who passes this paper should be able to:
- Use cost estimation data in decision making
- Apply inventory management techniques to decision making
- Use financial and non-financial indicators to measure organisational performance
- Apply environmental management accounting concepts in practice.
CONTENT
14.1 Nature of management accounting
- Introduction to advanced management accounting
- Scope of management accounting
- Limitations of management accounting
- Ethical standards of management accountants
14.2 Decision theory
- Decision process
- Decision making environment – certainty, risk, uncertainty and competition
- Decision making under uncertainty – maximin, maximax, minimax regret, Hurwicz decision rule, Laplace decision rule
- Decision making under risk – expected monetary value, expected opportunity loss, minimising risk using coefficient of variation, expected value of perfect information
- Decision trees – sequential decision, expected value of sample information
- Limitations of expected monetary value criteria
14.3 Cost estimation and forecasting
- An overview of the methods of cost estimation and prediction; engineering, simulation and statistical methods, simple and multiple regressions, the statistical properties of regression
- Interpretation of ANOVA tables
- Learning curve and its application
14.4 Inventory control decisions
- Cost of holding and ordering inventory
- Stochastic inventory models
- Inventory models for perishable items
- Application of simulation models in inventory control
14.5 Pricing decisions
- External pricing methods
- Internal pricing methods (transfer pricing)
- Target costing
- Life cycle costing
14.6 Short-term planning and decision-making
- Overview of single product and multiple product cost-volume-profit analysis under conditions of certainty
- Single product and multiple product cost-volume-profit analysis under conditions of uncertainty
- Risk assessment
- Application of marginal costing: product mix decisions, special orders, make or buy decision, pricing decisions and other similar short-run decisions, relevant information in decision making
14.7 Budgetary control and advanced variance analysis
- Flexible and static budget, purpose of budgetary control; operation of a budgetary control system, organisation and coordination of the budgeting function
- Human aspects (motivational aspects) of budgeting, emerging trends in budgetary control; ERPS, ABB, ZBB, program budgeting
- Advanced variance analysis and performance evaluation; expost variances and opportunity costs in variances
- Variance investigation models
14.8 Performance measurement and evaluation
- Linkage between performance measurement and organisational vision
- Responsibility accounting and responsibility centres, segmented reporting
- Distinction between financial performance measures and non-financial performance measures
- Cost of information
- Methods of evaluating responsibility centre performance such as return on investment (ROI), residual income (RI) and economic value added (EVA) (mportance and limitations of the methods)
- Other financial/non-financial performance measures: balanced scorecard, performance pyramid, Fitzgerald and Moon’s building block model, performance prism
- Managerial incentive schemes
- Performance contracting
- Performance measures in the service industry
14.9 Environmental management accounting
- Role of accountants in environmental management accounting
- Using environmental management accounting to manage costs
- Opportunities for environmental awareness in management accounting
14.10 Emerging issues and trends
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