Updated A.Y. 2014-2015
Management accounting is necessary for making business decisions including product costing, quality analysis, employee motivation, performance evaluation and feedback, product pricing, production technology, component sources, customer profitability, investment decisions, capacity utilization, and the like. Managerial accounting is integrally involved in the marketing, finance, operational, and human relations aspects of the business. Managerial control course (Cost Management + Planning & Control) cross cut these functional lines and examine information useful for making decisions in a variety of settings.
This course emphasizes the use of accounting information for internal planning and control purposes. This orientation contrasts with financial accounting where the focus is on accounting disclosures for parties external to the firm. The course is intended as an introduction for individuals who will make business decisions and evaluate the performance of business units using data obtained from the accounting system. The course will cover the vocabulary and mechanics of cost accounting, basic issues involved in the design of a cost accounting system, and the role of management accounting in decisions concerning resource allocation and performance evaluation. Throughout the course, we will pay particular attention to various (unintended) dysfunctional consequences of traditional cost accounting systems, as well as possible solutions to these problems.
The content of this course is organized into four components. First covered are the concepts and fundamentals of management accounting which pervade business decisions. This area includes cost behaviour as studied in cost-volume-profit analysis and cost traceability as studied in product costing and overhead allocation. We study two models for accumulating information: the full cost model (all costs incurred) and the direct cost model (incremental costs). These two cost models provide the framework for studying the use of managerial accounting information in various decision settings. The overriding purpose of this course is to understand these two frameworks and their applicability in various decision settings.
The second component covered is relevant costing, or the use of information to make alternative choices in non-routine decision situations. The focus is on approaches for structuring special decisions situations. We reconsider the full cost and direct cost models and examine decisions such as special order, make or buy, sell or process further, product line elimination, pricing, equipment replacement, and capital budgeting.
Covered third is the planning function, or identifying goals and the means for their attainment. This aspect of the management information system is used to motivate and coordinate employees. Planning activities involve decisions between alternative courses of actions with a focus on future costs. In this context we consider standard costs and budgeting.
The final component covered is the control function, or implementation of plans and the use of feedback to ensure goals are reached. The third model for accumulating information is introduced: cost controllability (how costs are affected by a manager's decision-making authority). In this topic we consider variance analysis, responsibility accounting, and performance evaluation.
COURSE COVERAGE (MAIN COURSE TOPICS)
Introduction to Management Accounting Concepts
Major objectives: Introduce important cost terms and concepts. Review of elementary financial accounting concepts and terms. Introduce management accounting and differentiate it from financial accounting. Define and illustrate cost objects, direct costs, and indirect costs. Understand the associations between cost drivers, variable costs, and fixed costs, and the major assumptions underlying the definitions of variable and fixed costs. Review the concepts of contribution margin, breakeven point, and cost-volume-profit analysis.
Costs in a Manufacturing Firm
Major Objectives: Examine cost accounting issues in legal decisions and contracts using a case study involving cost behaviour, profitability analysis. Understand the nature of costs incurred by manufacturing firms. Describe the mechanics of cost accounting systems and the way they map cost flows.
Relevant Cost Analysis
Major Objectives: Examine the use of cost data in the context of a firm attempting to set a market price, taking strategic considerations into account. Understand the notion of relevant costs and their use in simplifying the analysis of decision problems.
Cost Accounting Systems
Major Objectives: Distinguish between job costing and process costing, and relate their value to the nature of the underlying production process. Introduce cost allocation and the computation of overhead rates.
Activity-Based Costing and Cost Allocation
Major Objectives: Understand the hierarchy of costs. Understand the differences between traditional cost systems and Activity-Based Costing (ABC). Apply ABC concepts in an actual decision-making context to understand the effect of cost accounting methods on perceived product profitability, and the use of ABC data in operational and marketing decisions.
Budgets and Standard Cost Systems; Analysis of Variances
Major Objectives: Understand the functioning of standard costing systems. Introduce flexible budgets and standard costs as aids for planning and control. Learn how variances between actual and standard costs can be broken into price and efficiency variances to assist in assigning responsibility and examining the variances' causes. Explain the computation and meaning of volume variances and the effects of capacity utilization on performance evaluation.
Major objectives: Examine more generally the nature of performance evaluation in business units and study some of its specific manifestations (ROI, EVA, etc.). Understand the rationale underlying the Balanced Scorecard.
The course will be a combination of lectures, problem-solving, case work, and interactive class discussion.
CRITERIA FOR STUDENT EVALUATION
Examination is divided into written and oral parts. Other ways of checking students' progress (i.e., intermediate tests upon agreement with students) could be used.
Garrison, Norreen, Brewer, Managerial Accounting (13th Edition, McGraw/Hill/Irwin), ISBN Number: 0-073-52670-3 (Chapters 1-11, 13-14).