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PAPER NO.14 ADVANCED MANAGEMENT ACCOUNTING GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply advanced management accounting techniques in business decision making.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

• Use cost estimation data in decision making
• Apply inventory management techniques to decision making
• Use financial and non-financial indicators to measure organisational performance
• Apply environmental management accounting concepts in

CONTENT

Nature of management accounting

• Introduction to advanced management accounting
• Scope of management accounting
• Limitations of management accounting
• Ethical standards of management accountants

Decision theory

• Decision process
• Decision making environment – certainty, risk, uncertainty and competition
• Decision making under uncertainty – maximin, maximax, minimax regret, Hurwicz decision rule, Laplace decision rule
• Decision making under risk – expected monetary value, expected opportunity loss, minimising risk using coefficient of variation, expected value of perfect information
• Decision trees – sequential decision, expected value of sample information
• Limitations of expected monetary value criteria

Cost estimation and forecasting

• An overview of the methods of cost estimation and prediction; engineering, simulation and statistical methods, simple and multiple regressions, the statistical properties of regression
• Interpretation of ANOVA tables
• Learning curve and its application

Inventory control decisions

• Cost of holding and ordering inventory
• Stochastic inventory models
• Inventory models for perishable items
• Application of simulation models in inventory control

Pricing decisions

• External pricing methods
• Internal pricing methods (transfer pricing)
• Target costing
• Life cycle costing

Short-term planning and decision-making

• Overview of single product and multiple product cost-volume-profit analysis under conditions of certainty
• Single product and multiple product cost-volume-profit analysis under conditions of uncertainty
• Risk assessment
• Application of marginal costing: product mix decisions, special orders, make or buy decision, pricing decisions and other similar short-run decisions, relevant information in decision making

Budgetary control and advanced variance analysis

• Flexible and static budget, purpose of budgetary control; operation of a budgetary control system, organisation and coordination of the budgeting function
• Human aspects (motivational aspects) of budgeting, emerging trends in budgetary control; ERPS, ABB, ZBB, program budgeting
• Advanced variance analysis and performance evaluation; expost variances and opportunity costs in variances
• Variance investigation models

Performance measurement and evaluation

• Linkage between performance measurement and organisational vision
• Responsibility accounting and responsibility centres, segmented reporting
• Distinction between financial performance measures and non-financial performance measures
• Cost of information
• Methods of evaluating responsibility centre performance such as return on investment (ROI), residual income (RI) and economic value added (EVA) (mportance and limitations of the methods)
• Other financial/non-financial performance measures: balanced scorecard, performance pyramid, Fitzgerald and Moon’s building block model, performance prism
• Managerial incentive schemes
• Performance contracting
• Performance measures in the service industry

Environmental management accounting

• Role of accountants in environmental management accounting
• Using environmental management accounting to manage costs
• Opportunities for environmental awareness in management accounting

Emerging issues and trends
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