Management Accounting - Accounting Technicians Ireland

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Management
Accounting
Course Text
Professional, Practical, Proven
www.AccountingTechniciansIreland.ie
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Table of Contents
FOREWORD ............................................................................................................................v
SYLLABUS: MANAGEMENT ACCOUNTING .......................................................................xi
PART 1 – INTRODUCTION
Chapter 1: Introduction to Management Accounting .............................................................. 3
PART 2 – COST CLASSIFICATION
Chapter 2: Classifying Costs ................................................................................................17
Chapter 3: Analysing and Predicting Mixed Costs ............................................................... 27
PART 3 – LABOUR COSTS
Chapter 4: Labour Costs ......................................................................................................37
PART 4 – MATERIALS COSTS
Chapter 5: Materials-Related Administration........................................................................47
Chapter 6: Managing Inventory Levels.................................................................................53
Chapter 7: Valuing Inventory ................................................................................................59
PART 5 – OVERHEAD COSTS
Chapter 8: The Traditional Approach to Overheads ............................................................. 75
Chapter 9: The Activity-Based Approach to Overheads ....................................................... 95
Chapter 10: Comparing the Two Different Approaches........................................................ 105
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Table of Contents
Management Accounting
PART 6 – COST MEASUREMENT SYSTEMS
Chapter 11: Overview of Cost Measurement Systems ........................................................ 115
Chapter 12: Job Costing Calculations .................................................................................. 119
Chapter 13: Recording Job Costs in the Accounting Records ............................................. 127
Chapter 14: Batch Costing ...................................................................................................133
Chapter 15: Process Costing ...............................................................................................141
PART 7 – BUDGETING AND STANDARD COSTING
Chapter 16: Introduction to Budgeting..................................................................................151
Chapter 17: Introduction to Standard Costing ......................................................................159
Chapter 18: Operational Budgets.........................................................................................167
Chapter 19: Budgeted Financial Statements........................................................................175
Chapter 20: Cash Budgets ...................................................................................................185
Chapter 21: Flexible Budgeting & Limitations of Budgeting ................................................. 193
PART 8 – MARGINAL COSTING FOR DECISION-MAKING
Chapter 22: Marginal Costing and Contribution ...................................................................203
Chapter 23: Single-Product Cost-Volume-Profit Analysis..................................................... 221
Chapter 24: Multi-Product Cost-Volume-Profit Analysis ....................................................... 231
PART 9 – RELEVANT COSTS FOR DECISION-MAKING
Chapter 25: Introduction to Relevant Costs .........................................................................241
Chapter 26: Special Pricing Decisions .................................................................................249
Chapter 27: Product Continuation / Discontinuation Decisions............................................ 257
Chapter 28: Make-or-Buy Decisions ....................................................................................265
Chapter 29: Limiting Factor Decisions .................................................................................271
PART 10 – STANDARD COSTING VARIANCE ANALYSIS
Chapter 30: Introduction to Variance Analysis......................................................................279
Chapter 31: Cost Variances – Calculations and Causes...................................................... 287
Chapter 32: Revenue Variances – Calculations and Causes............................................... 305
Chapter 33: Reconciling Budgeted Profit to Actual Profit ..................................................... 311
INDEX...................................................................................................................................323
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FOREWORD
Foreword
T
his text has been developed by Accounting Technicians Ireland for use by students participating in
our programme of study and preparing for our examinations based on the new syllabus published
for the Academic Year 2015-2016.
While every effort is made to ensure that the information outlined in this text is accurate, Accounting
Technicians Ireland cannot accept the responsibility for lack of, or perceived lack of, information
contained herein.
The text is intended to be a sufficiently detailed synopsis of the 2015-2016 syllabus material (and
knowledge level required thereof) in relation to this module.
Students should take particular note of the weighting attaching to this module, as clearly outlined in the
syllabus. It is on the basis of this weighting that students should prepare their own timetable for study.
This text also includes questions related to the topics for this module. These questions are part of a
larger database of questions that students (and also Lecturers) can access online for this subject. These
questions (and suggested solutions) are available through your “TouchPoint” portal in the MyRevision
area.
We recommend that students refer to MyRevision having completed each chapter or a section of this
module. This resource allows students to study and revise online through ‘self-test’ questions. Exam
standard questions are also available here.
We also recommend students refer to the past exam papers for this module. These papers are published
on our website (www.AccountingTechniciansIreland.ie) along with suggested solutions and comments
from the Examiner. Attempting these “under exam conditions” will help students to prepare for the
examination and plan their study time appropriately.
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Copyright
This text is issued by Accounting Technicians Ireland to students taking its examinations. It may not
be used in whole, or in part, for any course of study and/or examination of any other body whatsoever
without prior permission in writing from Accounting Technicians Ireland. This publication, or any part
thereof, may not be made available in any library, and it may not be reproduced, in whole or in part,
stored in a retrieval system or transmitted in any form or by any means – photocopying, electronic,
electrostatic, magnetic, pdf, mechanical, recording or otherwise, without prior permission in writing
from Accounting Technicians Ireland, 47-49 Pearse Street, Dublin 2.
Acknowledgement
This edition was reviewed and updated by Mr. Richie Hoare. Richie is a Senior Lecturer in Accounting
at Galway-Mayo Institute of Technology (GMIT) and a Member of CIMA.
Referencing
For the purposes of consistency, all references to “he” or “she” will be referred to as “he” in this
publication. No other implication whatsoever is implied from this policy.
For the purposes of presentation, all references to “euro” or “sterling” will be referred to as “euro” is
this publication. No other implication whatsoever is implied from this policy.
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SYLLABUS: MANAGEMENT ACCOUNTING
Module:
Management Accounting
Mandatory Module
SYLLABUS 2015-2016
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Syllabus 2015-2016 : Mandatory Module
Management Accounting
Management Accounting
Subject Status
Mandatory
Terminal Exam
100%
Module Pass Mark
50%
Learning Modes
Direct Lectures, Workshops, Online Tutorials, Self Directed Learning
Pre-requisite
Financial Accounting, Taxation and either Law & Ethics or Business
Management
Key Learning Outcome
The key learning outcome of this module is to provide learners with knowledge and technical
competency in the area of management accounting to support business functions, activities and
decision-making.
Key Syllabus Elements and Weightings
1. The Nature and Purpose of Management Accounting, Costing Terms and concepts .............10%
2. Cost Accumulation for Inventory and Profit Measurement ......................................................35%
3. Standard Costing, Budgetary Planning and Control................................................................30%
4. Information for Decision Making..............................................................................................25%
Learning Outcomes linked to Syllabus Elements
The Nature and Purpose of Management Accounting, Costing Terms and Concepts
On completion of this aspect of the module, learners will have acquired the following knowledge,
competencies and know-how: (a)
A knowledge of the role of management accounting in a business organization;
(b)
An appreciation of business and stakeholder objectives and goals;
(c)
An ability to contribute to business planning and control exercises through the use of management
accounting;
(d)
An understanding of principles and techniques used in management accounting.
(e)
An understanding of costing system terminology and the ability to discuss various elements of
a costing system;
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Management Accounting
Syllabus 2015-2016 : Mandatory Module
Module: Management Accounting
Specific Functional Knowledge and
Competencies
Understanding
Application
Analysis
NATURE AND PURPOSE OF MANAGEMENT ACCOUNTING, COSTING
TERMS AND CONCEPTS (10%)
Role of Management Accounting
The role of management accounting in
support of business decision making
l
Comparison and inter-relationship with
financial accounting
l
l
Management by objectives
l
l
Group and individual decision making
processes
l
Organizational control and performance
measurement
l
Business Planning and Control
Costing Terminology
Cost centres and drivers
l
l
Cost classification and coding systems
l
l
COST ACCUMULATION FOR INVENTORY & PROFIT MEASUREMENT (35%)
Costing Systems
Cost Behaviour (including fixed, variable,
semi-variable & stepped cost, and inflation)
l
l
Types of costing systems
l
l
Concepts of cost accumulation
l
l
Stores routines
l
l
Materials handling
l
l
Pricing of store issues
l
l
Purchasing procedures
l
l
Inventory control ratios
l
l
Stockholding calculations
l
l
Under and Over absorption of overheads
l
l
Administrative, selling and distribution
overheads
l
l
l
Costing of materials
l
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Syllabus 2015-2016 : Mandatory Module
Specific Functional Knowledge and
Competencies
Management Accounting
Understanding
Application
Analysis
Understanding and calculation of labour
remuneration systems
l
l
Remuneration and incentive schemes
l
l
Cost centre and cost units
l
l
l
Overhead apportionment and absorption
calculations
l
l
l
Service Department Costing
l
l
l
Under and Over absorption of overheads
l
l
Administrative, selling and distribution
overheads
l
l
Key principles and terminology of Activity
Based Costing (ABC)
l
l
Classification of costs using ABC
l
l
Transaction based cost drivers
l
l
Overhead absorption calculations using ABC
l
l
Advantages and disadvantages of ABC
l
l
Benefits and problems of traditional and
modern costing systems
l
l
Comparison of marginal and absorption
costing
l
l
l
Contribution and marginal costing
calculations and costing statements
l
l
l
Marginal costing in management decision
making
l
l
l
Job, Batch and Service costing calculations
l
l
l
Theory of process costing, including
equivalent units, normal and abnormal
gains/losses
(Note: Joint and by-products are excluded)
l
l
Labour costing
Overhead Costing
Activity Based Costing
l
Marginal Costing Techniques
Other Costing Techniques
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Management Accounting
Specific Functional Knowledge and
Competencies
Syllabus 2015-2016 : Mandatory Module
Understanding
Application
Analysis
STANDARD COSTING, BUDGETARY PLANNING AND CONTROL (30%)
Standard Costing – Theoretical aspects
Concept of Standard Costing – including
definition, types of standards, standard
setting, relationship with budgets
l
l
Advantages and disadvantages of standard
costing
l
l
l
l
l
– Materials price and usage
l
l
l
– Labour rate and efficiency
l
l
l
– Variable overhead expenditure and
efficiency
l
l
l
– Fixed overhead expenditure and volume
l
l
– Sales volume and price
l
l
l
l
Standard Costing – Practical Application
Standard cost per unit calculations using
absorption and marginal costing
Calculation of variances, including
Preparation and explanation of variance
analysis reports
l
Budgetary Planning & Control Processes – Theoretical aspects
Theory of budgetary planning and control
l
l
Budgetary factors
l
l
Budgetary processes
l
Budgetary techniques, benefits and
problems
l
l
Behavioural and motivational aspects of
budgeting
l
l
Budgetary Planning & Control –Practical Application
Preparation of operational budgets,
including
l
l
l
– sales
l
l
l
– production
l
l
l
– materials
l
l
l
– labour
l
l
l
– overhead
l
l
l
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Syllabus 2015-2016 : Mandatory Module
Specific Functional Knowledge and
Competencies
Management Accounting
Understanding
Application
Preparation of projected Statements of
Profit and Loss and Statements of Financial
Position
l
l
Cash Budgeting and flexible budgeting
l
l
Analysis
INFORMATION FOR DECISION MAKING (25%)
Management accounting for Decision Making
Cost-Volume Profit and Breakeven Analysis,
including
l
l
– margin of safety
l
l
– target profit
l
l
– contribution/sales ratio
l
l
Breakeven charts and formulae
l
l
Application of cost-volume-profit analysis to
multi-product scenarios
l
l
l
l
– product elimination
l
l
– consideration of limiting factors
l
l
– make or buy
l
l
– mark-up
l
l
– margin
l
l
– full price
l
l
l
l
Relevant Costing in decision making
Preparation of cost estimates for decision
making including relevant, opportunity and
sunk costs
Short term decision making calculations ,
including
Pricing decisions, including:
Preparation of management accounting
statements appropriate to typical decision
making situations
l
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Management Accounting
Syllabus 2015-2016 : Mandatory Module
Assessment Criteria
Assessment Techniques
100% Assessment based on the final exam.
Format of Examination Paper
The Paper Consists of SIX Questions which will examine all
key syllabus elements to ensure that learning outcomes are
achieved
SECTION A (Marks awarded per question may vary)
THREE Compulsory Questions. One question from each of
the three major syllabus areas.
SECTION B (All questions carry equal marks)
THREE Questions in total – Answer any TWO of these.
Sample Paper
Each of the 3 sample papers will examine appropriate parts
of this syllabus.
Essential Reading
Management Accounting (Second Year)
Author: Accounting Technicians Ireland
Web Resources
www.accountancymag.co.uk
Other Resources
Cost and Management Journal
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Part 1 – Introduction
In first year, you studied financial accounting – which is largely concerned with recording
transactions that have happened in the past and presenting a summary of those transactions in
the form of financial statements.
However, as running a business requires managers to continually make decisions that will
improve the future of their businesses, a different kind of information – management accounting
information - is required.
This part of the course will focus mainly on what kinds of information managers require,
how management accounting differs from financial accounting and the job of management
accountants / financial managers.
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Chapter 1:
Introduction to Management Accounting
CHAPTER 1
Introduction to Management
Accounting
CHAPTER OVERVIEW
A
ccounting is the ‘language’ used by businesses to communicate both financial information and
non-financial information to individuals and groups who have an interest in how the business is
performing.
This chapter considers how management accounting information is communicated and why managers
need this information.
LEARNING OUTCOMES FOR THIS CHAPTER
After studying this chapter, you should be able to:
1. Identify users of accounting information and their information needs
2. Understand the difference between management accounting and financial accounting
3. Appreciate the nature, purpose and uses of management accounting
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Chapter 1 : Introduction to Management Accounting
Management Accounting
USERS OF ACCOUNTING INFORMATION AND THEIR INFORMATION NEEDS
Users Of Accounting Information
Users of accounting information can be broadly classified into two categories:
•
Users who are external to the organisation (dark-shaded circles below).
•
Users who are internal to the organisation (light-shaded circles below).
Each user / user group has its own information requirements. Access to accounting information differs
according to the relationship between the business and the user / user group.
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Management Accounting
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USERS’ INFORMATION REQUIREMENTS
An organisation’s stakeholders, and their respective information requirements, include the following:
Stakeholder
Information Required
Equity Investors
Information on investment values and the potential return to be
earned from their investments
Managers
Information for decision-making, planning and control purposes
Employees
Information about the organisation’s ability to provide secure
employment and pay market-rate wages / salaries
Suppliers & Lenders
Information about the organisation’s ability to meet current and
future financial obligations
Governments & Regulators
Information to assess tax liabilities, for economic projections,
and for enforcement of legislation
Special-interest groups (such as
environmental groups, community
groups and lobby groups)
Information related to their specific interests
MANAGEMENT ACCOUNTING VERSUS FINANCIAL ACCOUNTING
Two branches of accounting have evolved to deal with the information needs of user groups - both
internal and external:
1. Financial accounting is primarily concerned with providing information to external users.
2. Management accounting is concerned with providing information to users within the organisation to
assist with effective decision making by managers.
Although there are many differences between management accounting and financial accounting, the
primary information used for the preparation of both management accounting reports and financial
accounting reports stems from the same source – costs incurred by the organisation and revenues
earned by the organisation.
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Chapter 1 : Introduction to Management Accounting
Management Accounting
The major differences between management accounting and financial accounting can be summarised
as follows:
Legal Requirements
Management Accounting
Financial Accounting
No legal requirements.
Legal and accounting regulations
requirements.
No audit requirement.
Statutory audit requirement
(for certain types and sizes of
businesses).
Frequency Of Reports
As required (normally monthly).
Annually, semi-annually, Quarterly.
Primary Users
Internal management.
External users.
Time Focus
Present and future.
Historic.
Format & Content Of
Reports
Detailed information in a format to
suit management requirements.
Summary information in a
format prescribed by accounting
regulations and law.
The above differences are discussed in more detail below:
Legal Requirements
Businesses have a legal obligation to produce financial statements every year. These financial
statements must be prepared in accordance with published accounting principles and, depending on
certain criteria, are subject to statutory audit. Although there is no legal requirement or obligation to
prepare management accounts, it is good business practice to regularly produce accounting information
as a useful tool to assist management in carrying out their duties in a proper manner. There is no
requirement to audit management accounts.
Frequency of Reporting
Financial statements must be prepared annually. There are sometimes regulatory requirements to
present less-detailed accounting reports on a semi-annual or Quarterly basis. Where there is benefit
to be gained from producing management accounts, the frequency of production is at management’s
discretion, typically ranging from daily, to weekly, to monthly, or ad-hoc, to suit management needs.
Primary Users
Financial accounting presents accounting information for use by a wide variety of external users, as well
as internal managers. Management accounts are solely for the use of the internal management of the
organisation.
Time Focus
Financial accounting reports focus on what has happened in the past. Management accounting uses
accounting information to project future trends and control, or attempt to control, current and future
business performance.
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Management Accounting
Chapter 1 : Introduction to Management Accounting
Format & Content of Reports
Both the law and accounting regulations provide templates for the presentation of financial statements
and instruction on minimum information disclosure. As financial accounting information is in the public
arena, there is an inherent acknowledgment by regulators of the sensitivity surrounding the disclosure
of certain information and the main focus of these disclosure requirements is on summarised financial
data. Financial statements focus on the business in its entirety. Management accounting operates
on the basis of meeting the needs of internal management. The format and content of management
accounts depend upon the specific requirements of management. Different businesses will have different
information requirements and their individual management accounts will reflect this. As internal reports,
management accounts will often contain business-sensitive information for a restricted audience and
can focus on both financial information and non-financial information, such as critical success factors
(measures of factors or aspects of an organisation’s performance deemed to be critical, or essential, to
its competitive advantage and thereby its success). In addition, management accounts will often present
very detailed information at a department level or product-line level.
THE NATURE, PURPOSE AND USES OF MANAGEMENT ACCOUNTING
Management accounting involves applying accounting and financial management principles to
the provision of information to managers within an organisation to help them plan and control the
organisation’s activities and to make business decisions.
Management accounting information for managers
1. What is the cost of making a product or delivering a service
2. How do actual costs compare to budget costs (control information)
3. How should the managers use scarce resources to get the best return for the company.
As a consumer, you may not pay much attention to these questions, but as a manager of a business,
you must pay attention to the factors, both financial and non-financial, that underpin these decisions.
Failure to do so may result in the failure of the business.
PLANNING, CONTROL AND DECISION-MAKING
Every organisation has managers. These managers have a responsibility to the organisation’s
stakeholders to manage the organisation in the most-effective and most-efficient way, to maximise the
organisation’s potential. This involves the managers undertaking adequate planning for the short-term
and long-term future of the business, ensuring that the business is being properly controlled to ensure
plans succeed, and making decisions that will enable the business to survive and grow in the future.
Management accounting equips managers with information required to carry out these tasks.
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Chapter 1 : Introduction to Management Accounting
Management Accounting
PLANNING
The fundamental objective of planning is to assist management in deciding how to allocate an
organisation’s resources.
There are 4 main types of planning:
1 - Strategic Planning
This establishes, for management, the shape and direction to be taken by the organisation. This type
of planning is normally ad-hoc and is driven by the recognition of a need for the revision / change of
priorities. This normally results from seeing actual results achieved and / or projected outcomes under
a variety of proposed strategies.
2 - Long-Range Planning
This covers periods of anything from 2-10 years which plans for the proper gearing of the organisation
to achieve its goals / objectives.
3 - Project and Situation Planning
This is normally to do with planning the short-term use of a segment of the organisation’s resources,
such as the investment of surplus cash or, if spare capacity was identified, how best to use it (say for a
once-off order).
4 - Short-Range Periodic Planning
This type of planning is concerned with deciding how resources will be used in the short-term and
predicting the financial outcome of these decisions (i.e. budgeting). Budgeting is a quantitative expression
of a plan. It shows the expected financial implications of decisions taken and proposed decisions and
helps identify the resources required to achieve goals set.
CONTROL
Control is a key feature of management accounting and follows on from planning. Control can be
exercised at a strategic and / or an operational level.
•
Strategically, the business plan of an organisation will be reviewed in light of developments to assess
if the objectives of the plan can be achieved.
•
Operationally, the performance of the organisation is reviewed in the context of detailed plans
(including budgets) so that corrective action can be taken, if necessary.
Control is not practical without initial planning and planning, without control, is somewhat pointless.
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Management Accounting
Chapter 1 : Introduction to Management Accounting
Types Of Controls
There are 3 main types of controls
1 - Action Controls / Behavioural Controls
These involve observing the actions of individuals as they go about their daily work (eg: work studies:
quality and quantity controls) to assess whether both quantity targets and quality targets are being met,
and, if not, to inform corrective action.
EXAMPLE
If a supervisor observes the workers on an assembly line and ensures that the work is done exactly as
prescribed, then the expected quality and quantity of the work should ensue.
2 - Personnel and Cultural Controls
Personnel and cultural controls involve establishing expected values, behaviours and norms which are
used to support the achievement of targets. These are controls which help employees do a good job, by
building on their natural tendencies. Cultural controls represent a set of values, social norms and beliefs
that are shared by members of the organisation and that influence their performance.
3 - Results / Output Controls
These involve collecting, analysing and reporting information about the outcomes of work effort. This
type of control is focused on quantitative information and can be most-closely related to management
accounting information produced. Such information may include variance analysis and other key target
statistics. Results controls require performance targets to be set, establishment of actual results,
measurement of performance and taking action accordingly. Management accounting controls are
mostly defined in mandatory terms such as revenues, costs, profits, or ratios. Organisations should
have a system of management reporting that produces control information in a specified format at
regular intervals.
Harmful Side-Effects Of Control
When controls motivate behaviour that is organisationally desirable, they are described as encouraging
“goal congruence”. However, when controls motivate employees to engage in behaviour that’s not
organisationally desirable, they can lead to a lack of “goal congruence”.
It is by achieving “goal congruence” that desired objectives are achieved.
DECISION-MAKING
The first stage in the decision-making process should be to specify the goals or objectives of the
organisation. These goals / objectives will vary depending on the type of organisation.
It is simplistic to say that the only objective of a business is to earn profit - and clearly this would not be
the case in a not-for-profit, or charitable, organisation.
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Chapter 1 : Introduction to Management Accounting
Management Accounting
In private-sector businesses, some managers might seek to establish a power base, build an empire, or
ensure security. However, a commonly-held view, supporting the profit objective is that profit maximisation
leads to the maximisation of overall economic welfare.
In a not-for-profit, or charitable, organisation, the driver is social / welfare principles, not profit. In the
public-sector, the primary goal / objective might be to provide a quality service to the public. Although the
driver in these organisations is not profit, it would be desirable that they would at least be self-financing
and not require government subvention.
The planning, decision-making, and control process
PERFORMANCE MANAGEMENT
Performance management is a term used to describe the various activities carried out to ensure that an
organisation’s goals and objectives are being met in an effective and efficient manner.
Performance management normally operates at 3 levels:
1. for the organisation as a whole
2. within departments or sections
3. in teams or for individuals.
Performance management is used both in businesses and, increasingly, in not-for-profit organisations
(eg: public service departments).
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Management Accounting
Chapter 1 : Introduction to Management Accounting
Performance management can involve a range of qualitative and quantitative activities, but a main
aim is to create ‘goal congruence’ within an organisation. Goal congruence means that the aims and
objectives of individuals match the aims and objectives of the organisation as a whole.
Performance management targets are likely to include:
Financial Targets
•
market share
•
manufacturing efficiencies
•
gross profit / net profit
Service Targets
•
customer satisfaction measures
•
service output measures
•
repeat business
•
innovative developments or improvements
The benefits of good control and performance management can include:
•
direct financial gains
•
improved motivation and employee satisfaction and
•
improved efficiency in systems and processes
The design of a performance measurement system is essential to allow a company achieve its
objectives. An organisation should identify the Critical Success Factors (CSF’s) that are key to the
achievement of the overall company objectives. For each CSF identified the management need to
identify a Key Performance Indicator (KPI). The KPI’s are then used as the basis for the development of
the performance measurement system.
Armstrong & Baron defined PM as “A strategic and integrated approach to increasing the effectiveness
of organisations, by improving the performance of the people who work in them and by developing the
capabilities of teams and individual contributors.”
Benefits of PM may include:
1. Direct financial gains, e.g. increase sales, reduce costs
2. Create transparency in cultivating goals, thus creating confidence in the process for determining
bonus payments.
3. Improved management controls
4. Achievement of long-term corporate objectives.
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Chapter 1 : Introduction to Management Accounting
Management Accounting
Performance Appraisal
This applies where individual performance is formally monitored and feedback is delivered. This is done
by establishing Key Performance Indicators (KPIs) for individuals, against which performance is rated
or measured and the ratings summarised. Top performance is normally rewarded. The performance
appraisal process should be seen as part of guiding and managing career development. It is also a
method of measuring an employee’s worth to the organisation.
COST ACCOUNTING
Management Accounting is concerned with both costs and revenues. The part of management
accounting that is concerned with costs is often known as Cost Accounting. A Cost Accounting system
is generally made up of the following five parts:
1. an input measurement basis
2. an inventory valuation method
3. a cost accumulation method
4. a cost flow assumption
5. a capability of recording inventory cost flows at certain intervals
These five parts, and the alternatives under each part, are presented below.
Many possible cost accounting systems can be designed from the various combinations of the available
alternatives, although not all of the alternatives are compatible. Selecting one part from each category
provides a basis for developing an operational definition of a specific cost accounting system.
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Management Accounting
Chapter 1 : Introduction to Management Accounting
PRACTICE QUESTIONS
The following questions will test your knowledge of the material you have just covered in this chapter.
You should also review the questions available online through MyRevision for this topic, as these will
assist you significantly in your preparation for your examination in May/August. In addition, Sample
papers for this subject can be downloaded from www.AccountingTechniciansIreland.ie
Question 1.1 (ref: 1460)
Outline the main users of accounting information and the information requirements of each user / user
group.
Question 1.2 (ref: 1463)
What types of financial information and non-financial information would the following people require:
1. A buyer in a retail clothing business
2. A production manager in a toy factory
3. The managing director of a private hospital
4. Project managers in an overseas charity aid organisation
Question 1.3 (ref: 1465)
Describe a typical planning and control cycle.
Why is it important for businesses to implement this cycle ?
Question 1.4 (ref: 1467)
Explain the basic principle of performance management and its potential benefits to organisations.
Question 1.5 (ref: 1468)
Give three examples of ways in which a cost accounting system could aid cost control in a haulage
business.
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