ACCA PM (Performance Management) - Summary Notes
Cost Accounting Techniques
Absorption Costing:
- Allocates all production costs (fixed & variable) to units.
- Over/under absorption occurs if actual and absorbed overhead differ.
- Formula: Overhead Absorbed = Overhead Absorption Rate × Actual Activity Level
Marginal Costing:
- Only variable production costs are charged to units.
- Contribution = Sales - Variable Costs
Throughput Accounting:
- Focuses on bottleneck processes.
- Throughput = Sales - Direct Material Cost
Activity-Based Costing (ABC):
- Overheads assigned based on activities using Cost Drivers.
Decision Making Techniques
Relevant Costing:
- Relevant: Future, incremental, cash flows.
- Irrelevant: Sunk, committed, non-cash.
Make or Buy Decision:
- Compare Relevant Costs of making vs buying price.
Limiting Factor Analysis:
- Rank products by Contribution per Limiting Factor.
Pricing Decisions:
- Cost-Plus Pricing = Cost + Mark-up.
- Target Costing = Target Price - Desired Profit.
Break-Even Analysis:
- Break-even sales = Fixed Costs / Contribution per unit
- Margin of Safety = (Actual Sales - Break-even Sales) / Actual Sales
Budgeting and Control
Types of Budgets:
- Incremental, Zero-based, Rolling, Activity-based
Variance Analysis:
- Sales, Material, Labour Variances.
- Flexed Budget adjusts budget for actual activity.
Beyond Budgeting:
ACCA PM (Performance Management) - Summary Notes
- Criticism of traditional budgeting.
- Uses rolling forecasts, KPIs, decentralized planning.
Performance Measurement
Financial Measures:
- ROI = Profit / Capital Employed
- RI = Profit - (Capital Employed × Cost of Capital)
Non-Financial Measures:
- Customer satisfaction, Quality, Innovation
Balanced Scorecard:
- Financial, Customer, Internal Processes, Learning & Growth
Risk and Uncertainty in Decision Making
Expected Value (EV):
- Weighted average of outcomes.
Sensitivity Analysis:
- Analyzes how results change with assumptions.
Scenario Analysis:
- Best, worst, most likely cases.
Decision Rules:
- Maximin, Maximax, Minimax Regret.