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Management Accounting-II (Introduction to Management Acccounting) |
Management Accounting-II (Introduction to Management Accounting)
Course Objectives
The course is designed to know the process of making information available to the management to take effective decision. The specific objectives are to
a.understand the concept and process of management accounting information systems
b.understand the concept of CVP and its application
c.develop knowledge for pricing product and services
d.know the relevant decision making approaches
e.know the process of reporting performance of responsibility centers
f.know how to analyze profitability, performance
g.take capital investment decisions
Cost Behavior and CVP Analysis-Weight-25%
202.01 Introduction
Management accounting defined – Relationship between Management Accounting and Financial Accounting and Cost Accounting–Role of Management Accounting Qualitative characteristics of accounting information - The work of management and the need for Management Accounting information–Changing business environment–JIT – TQM – Process Re-engineering – Automation – TOC – Benchmarking – continuous Improvement creating value – Ethical conduct.
202.02 Cost Concepts & Behaviors: Analysis & Use
Cost – Manufacturing costs – Non-manufacturing costs – product users period cost – cost of goods manufactured – Inventoriable costs-variable costs-fixed costs-Direct costs – Indirect costs. Differential costs and revenues Opportunity costs sunk costs – relevant costs – Avoidable costs. Flexible costs – capacity related costs – unit related cost – Batch related cost – product sustaining cost – customer sustaining cost – Business sustaining cost. Life cycle cost. Cost behavior patterns, Linearity assumption and relevant range, Analysis of mixed cost.
202.03 Cost Volume – Profit Analysis
Contribution format Income statement Uses of cost volume profit Analysis – Breakeven point, CM ratio, Margin of safety, – shut down point – Graphical approach to Breakeven point determination – CVP in a multi-product environment-Assumptions and limitations of CVP analysis.
Pricing and Planning and Decision Making -Weight-25%
202.04 Cost Information for Pricing and Product Planning
Role of product costs in pricing and product mix decisions – short term product Mix decisions – price Takers – price setters – Long Term Pricing decision price setters – Price Takers – Economic Analysis of Pricing decisions.
202.05 Traditional and Activity Based Cost Management Systems
Traditional Manufacturing costing systems: limitations of Traditional cost system-Activity Based cost Management systems-Measuring the cost of resource capacity-Tracing costs to customers – Managing customer profitability-problems of implementing-Activity Based Cost Management systems.
202.06 Relevant Costs for Decision Making
Cost concepts for decision making-relevant and irrelevant cost, differential cost analysis. Adding or dropping Product lines and other segments- the make or Buy decisions – accepting or refusing a special order- making price cut in competitive market, expanding shutting down or eliminating facilities, – Utilization of scarce resources-sell-or-process further – Equipment replacement decision.
Responsibility Accounting -Weight-25%
202.07 Responsibility Accounting
Decentralization in organizations– Concepts, Advantages and disadvantages of decentralization, Performance measurement in decentralized organization, Responsibility centers – segment reporting and profitability analysis. Hindrance to cost assignment.
Rate of Return on Investment (ROL) – Controlling ROI – Criticism of ROI-Economic Value Addition – Residual Income [RI]. Balanced Score Card [BSC].
202.08 Capital Budgeting Decisions
Capital Budgeting – planning Investments cost flow – NPV – IRR methods. The total cost Approach – the Incremental cost Approach – Least cost decisions.
202.09 Managing Quality and Time to Create Value
Quality and its importance-cost of Improving quality – TQM – ROQ – Dimensions of Quality – Trade offs between Quantity and price – Identifying costs of Quality – Preventive costs – Appraisal costs – Internal Failure costs-External Failure costs. Reporting costs of Quality. Importance of Managing time in a competitive environment – New product and service development time customer response time-cycle time. Cost of time – Measurement of process productivity and Efficiency.
202.10 Profitability Analysis
Analysis of profit related variances: Contribution margin variance-Market share and Market size variance – Profitability by segments – profitability by product line Divisional profit – customer profitability-Overall Profit time and profit short run profitability and long run profitability.
Management Control Techniques -Weight-25%
202.11 Flexible Budget and Variance Analysis
Flexible Budgets – Variable overhead variances – spending variance – Efficiency variance – fixed overhead variance Analysis-The Budget variance – the volume variance overhead variances and under or over applied overhead cost.
202.12 Quantitative Techniques
Forecasting tools – Regression Analysis – Critical Path Methods (CPM) – Project Evaluation and Review Technique (PERT) – use of linear programming model to maximize contribution and to minimize cost. Sensitivity analysis. Gantt Chart. Application of Decision theory, Game theory, Waiting line theory, Simulation Technique etc. in both operating and strategic management decision.
202.13 Management Control
Management control: Defined – Objectives of Management control – Operational Control versus Management Control – Accounting control – Design of Management Control System – Informal System and Formal System – open and closed loop control system-Feedback: Positive and negative Feedback.
Text Books :
1 Managerial Accounting. 10th Edition - Garrison, R. H. and E. W. Noreen. 2003 (McGraw – Hill Irwin).
2. Introduction to Management Accounting - Horngren, C. T., G. L. Sundem, and W. O. Stratton. 2002.
Reference Books :
1. Management Accounting. 3rd Edition - Atkinson, A. A., R. D. Banker R. S. Kaplan and S. M. young. 2001 (Pearson Education).
2. Cost Management. 2nd Edition - Hilton, R. W., M. W. Maher, and F. H. Selto. 2003 (McGraw-Hill Irwin).
3. Management Control: Planning, Control, Measurement, and Evaluation - Euske, K. J. 1983 (Addison – Wesley Publishing Company).
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