Final Year B. Comm., B. Comm. (Accounting) & B. Comm. (International)
Semester II 2012-13
Management Accounting III (AY 322)
Lecturers:
Professor Breda Sweeney
John Currie
Accountancy & Finance
Room 364, Cairnes Building
Accountancy & Finance
Room 377, Cairnes Building
Ext. 3815 or 091-49 3815
Ext. 3884 or 091-49 3884
breda.sweeney@nuigalway.ie
john.currie@nuigalway.ie
Objectives and Learning Outcomes:
This course builds on the foundations of the previous courses in Management Accounting, and is designed
to provide a detailed understanding of advanced issues in costing, management control, and
management accounting.
In particular, the course is designed to achieve the learning outcomes specified separately under each of
the topic headings below.
Please note that Management Accounting I (AY207) and Management Accounting II
prerequisites for this course.
(AY321)
are
Texts:
The basic text for the course is:
1.
Colin Drury:
Management and Cost Accounting. (7th or 8th Edition).
Additional readings are in the following texts which are available for borrowing in the library (maximum
one day):
1.
Willie Seal, Ray H. Garrison and Eric W. Noreen: Management Accounting (Third Edition) McGraw
Hill Education (UK). 2009.
2.
Emmanuel, Otley & Merchant: Accounting for Management Control. 2nd Ed., 1990.
3.
Ashton, Hopper and Scapens: Issues in Management Accounting.
AY322 Management Accounting III Course Outline 2012-13:
2nd Ed., 1995.
Page 1 of 7
Blackboard:
http://nuigalway.blackboard.com
Lecturers will provide lecture notes, links to relevant articles and readings , problems, and solutions for
their sections of the course on Blackboard. Copies of this course outline, as well as copies of some past
examination papers with solutions to quantitative questions are also available on Blackboard. Links to
the supporting websites for the recommended textbooks are available in the ‘Textbook Websites’
section on Blackboard.
Note: Documents on Blackboard will normally be in portable document format (.pdf). You should
contact the lecturer if you require these materials in an alternative format because of a disability.
Organisation:
The course has three one-hour class sessions per week, as follows:

Monday
4.00 - 5.00:
D’Arcy Thompson Theatre

Tuesday
1.00 - 2.00:
McMunn Theatre

Wednesday
3.00 – 4.00:
ENG-GO17 Lecture Hall 2 (Engineering Building)
Normally, the Monday and Tuesday sessions will be used as lecture sessions, and the Wednesday session
will be used as a ‘workshop’ session to review problem material. Any variations on this pattern will be
announced on Blackboard in advance.
You are expected to study the assigned readings before class. This preparation should include a preview
of the relevant lecture notes which will be available in advance on Blackboard.
Questions / Problems are listed where relevant, and solutions to a selection of these problems will be
discussed at workshops. Problems and solutions which are not discussed at workshops will be available
on Blackboard.
Please note that the assigned problems are used to develop an understanding of the relevant materials
and analytical methods, and are not necessarily prototype examination questions. A thorough
understanding of all of the course topics (developed through studying the assigned readings and the
lecture notes, and developing skills of analysis through practice with problem material) will be
expected, and you may be required to apply principles and analytical methods to novel situations in the
examination.
Coursework and Examination:
Coursework will consist of two assignments each of which will carry 10% of the course grade (subject to
the “35% rule”). Details of this coursework will be announced shortly.
The final examination will be a 2½ hour paper. You will be required to answer either Question 1 or
Question 2 in Section A for 20 Marks, and two of the three questions in Section B for 40 marks each.
Some past examination papers together with solutions to ‘quantitative’ questions are available on the
‘Exam Papers’ link on the AY322 Blackboard page.
AY322 Management Accounting III Course Outline 2012-13:
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Course Topics, Readings and Problems
1. Advanced variance analysis:
Learning Outcomes:
(John Currie: 4 Lectures & 2 workshops)
On completion of this topic you should be able to:

Calculate and interpret the significance of raw materials mix and yield variances;

Determine sales mix and sales quantity variances;

Identify likely causes and consequences of mix, yield and quantity variances;

Separate sales quantity variances into “market size” and “market share” elements and
diagnose the appropriate reactions to these elements;

Use advanced variance analysis information to critically evaluate the success of a business
strategy.
Review:
Drury:
Chapter 17.
Read:
Drury:
Chapter 18 (7th ed.: pp. 457-461; or 8th ed.: pp. 463-469).
Drury:
Learning Note 18.1 (AY322 Blackboard page).
Seal:
Appendix 13A.
Steven:
“Sales variances: time for the hard sell?”. (AY322 Blackboard page).
Problems:
Drury IM18.4; Aromat; Waldorf; Nurture; Klerk; Tunnel Foxes; Vancouver; Glazura;
Carnivore; Caprivi; Spode; Atlantico; Premium Foods; Maple Ridge; Whistler.
AY322 Management Accounting III Course Outline 2012-13:
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2. Management of quality and just-in-time (JIT) systems:
(John Currie: 5 Lectures & 3
workshops)
Learning Outcomes:
On completion of this topic you should be able to:

Describe the importance of quality for competitive success in business;

Prepare and interpret cost of quality reports;

Determine the opportunity cost of quality failures;

Demonstrate the significance of nonfinancial and financial measures in the management of
organisations’ quality programs;

Understand the distinctive characteristics of just-in-time (JIT) systems;

Measure the financial gains arising from implementation of quality management and JIT;

Explain and apply throughput accounting and the theory of constraints (TOC).
Read:
Drury:
Chapter 21 (7th ed.: pp. 548-551 & 556-559 or 8th ed.: pp. 553-562).
Drury:
Chapter 24 (7th ed.: p. 633 or 8th ed.: pp. 645-646).
Drury:
Appendix 9.1.
Seal:
Chapter 18 (pp. 746-756 & pp. 758-765); Chapter 19 (pp. 798-800).
Schiffauerova & Thomson: “Managing cost of quality: insight into industry practice”.
(AY322 Blackboard page).
Cauchick-Miguel & Pontel: “Assessing quality costs of external failures”. (AY322
Blackboard page).
Fullerton & McWatters: “The production performance benefits from JIT
implementation”. (AY322 Blackboard page).
Hoque: “Total quality management and the balanced scorecard approach”. (AY322
Blackboard page).
Garrett: “Throughput accounting and backflush accounting”. (AY322 Blackboard
page).
Problems:
(A) Accounting information for Quality Management:
Seal P18.12 & P18-13; Intrepid Couriers; Stobuild; MB Electrics; Wellfleet; Elephant;
Charna; Gazownia; Superior Manufacturing; Dysan; Lagoa; Caspian; Wheeler; Jersey;
Guernsey; Murmansk; Rancha.
(B) Accounting information for JIT systems:
Seal P18-6; Balance; Sutherland; Croatia; Lontac; Quality Metal Products; Eclipse;
Lemberg; Fenchurch; Gordon; Desert; Kola.
(C) Throughput accounting and the theory of constraints (TOC):
Chester; Rahoon Manufacturing; Throughput Ltd.; TOC Ltd.; V-Tex Manufacturing;
“Magda & Gemma”; Mexico.
AY322 Management Accounting III Course Outline 2012-13:
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3. Issues in Management Control:
(Breda Sweeney: 5 Lectures; no workshops)
(A) Advanced budgeting techniques (zero based budgeting, activity based budgeting)
(B) Alternatives to budgets
(C) Simons levers of control framework
(D) The contingency theory of management control:
Learning Outcomes:
On completion of this topic you should be able to:

Explain zero based budgeting and activity based budgeting

Discuss and critically evaluate the alternatives to budgets

Describe Simons’ levers of controls and apply the levers in an organisational setting

Critically evaluate the usefulness of Simons’ framework

Describe the contingency theory of management accounting;

Critically discuss the usefulness of contingency theory;

Explain the contingent variables included in previous contingency research;

Discuss the difficulty of measuring organisational effectiveness.
Read:
Drury: Learning Note 16.1 (Online)
Emmanuel, Otley and Merchant: Accounting for Management Control. Chapter 2
(pp. 52 - 67).
Otley: “Management Control, Organisational Design, and Accounting Information
Systems”. (in Ashton, Hopper and Scapens).
Chapman: “Reflections on a Contingent View of Accounting”.
Chenhall: “Management control systems design within its organisational context:
findings from contingency based research and directions for the future.”
Hansen, Otley and Van der Stede “Practice developments in budgeting: an overview
and research perspective”
‘Beyond budgeting’ ACCA student newsletter March 2005
‘Beyond budgeting: Building a new management model for the information age’
Management Accounting, January 1999, pp. 16-21.
‘HP Bulmer case study’ Business Intelligence 2002
Case study on Simons (Curtis and Sweeney)
AY322 Management Accounting III Course Outline 2012-13:
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4. Transfer Pricing in Divisionalised Companies:
Learning Outcomes:
(John Currie: 4 Lectures & 2 workshops)
On completion of this topic you should be able to:

Explain the importance of Transfer Prices in motivating optimal business unit behaviour;

Evaluate transfer pricing schemes in terms of goal congruence, fairness, and autonomy;

Explain the separate circumstances in which marginal cost and market price are goalcongruent transfer prices;

Evaluate transfer prices based on variable cost, full cost, and full cost plus profit markup;

Explain the relevance of opportunity cost in setting transfer prices;

Discuss the advantages and limitations of negotiated transfer prices;

Explain the advantages and limitations of dual transfer pricing schemes;

Discuss the limitations of linear programming in setting transfer prices in circumstances
involving multiple capacity constraints;

Discuss the particular issues involved in international transfer pricing.
Read:
Drury:
Seal:
Chapter 20 (Including Appendix);
Chapter 16, pp. 717 – 725.
Problems:
Drury:
IM 20-5; IM 20-6; IM 20-7; IM 20-8.
Galway; Mayo Industries; Carsworth; Donegal; Limerick; Clarecastle; Peterson;
Supermodels; Kimberly; Hibernia; Atlantic Industries; Falcon; Astral Industries.
Clonmel plc; Core.
AY322 Management Accounting III Course Outline 2012-13:
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5. Advanced Cost Analysis:
(John Currie: 5 Lectures & 3 workshops)
(A): Competitive bidding and cost estimation biases:
Learning Outcomes:
On completion of this material you should be able to:

Explain ‘the winner’s paradox’ in a competitive bidding environment in which bidders are
uncertain about the cost of completing the contract;

Estimate the expected profit margin of the winning bidder in a competitive bidding context;

Estimate the required markup on estimated costs in a competitive bidding context in order
for the winner to expect to earn a particular profit percentage on the true cost of the order;

Explain the risk associated with biased costing systems in a competitive bidding
environment, and estimate the profit or loss outcomes for competing bidders with biased
cost accounting systems.
Review:
Drury:
Chapter 12.
Read:
Magee:
Advanced Managerial Accounting. Chapter 8 (pp. 181 - 186).
(AY322 Blackboard page).
Cooper and Kaplan: “Measure Costs Right: Make the Right Decisions”
(AY322 Blackboard page).
Problems:
Magee: 8-7; 8-8.
Magee Enterprises; Mike and Bill; Hugh & Lou; Harry & Larry; Mary & Kate;
Western Logistics; Logan & Morgan. Paddy and Joe; Cost Uncertainty; Matrix &
Latour; Osmium & Thallium.
(B): Costs of joint products and byproducts:
Learning Outcomes:
On completion of this material you should be able to:

Understand the characteristics of joint products and by-products;

Appreciate the decision-making and costing issues which arise in the context of joint
products and by-products;

Apply the various methods available for costing joint products and by-products, and to make
recommendations as to the appropriateness of these methods in specific situations.
Read:
Drury:
Chapter 6.
Problems:
Drury:
IM6-5, IM6-6, & IM6-8.
PS Ltd.; Southern Dairies; Corrib Chocolate Products; Dobra; Intercarb; White Star;
Organic Foods; Aston; Carbon; Navarre; Lignite; Kret; Carcasonne; Tusk;
Queensbury; Greendale; Casion.
AY322 Management Accounting III Course Outline 2012-13:
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