MANAGEMENT

ACCOUNTING [ACC107]

Lecture 1

Chapters 1

Assessment Method

Components Weightings Due Dates

Mid-term exam 20% Week 8

Major Assignment 20%

Final Examination 60% Exam Week

Assignments (20%)

Assignments are due at 9.00 pm on the date specified and must be professionally presented (i.e., word processed, stapled, spell-checked, etc) and submitted in hard-copy form.

Penalty for late submission of items for assessments is 5% of the maximum mark for each day late.

A note on Plagiarism

Copying can result in ZERO for the whole assignment or part of the assignment

Mid term exam

Held during Week 8

Time allowed: 1 hour and 30 mins (no

reading time)

Questions are based on first half of the

term.

Questions will be both MCQ and

Question based

Mid-term test is worth 20% for the final

grade

Final Exam

Weighs 60% of the course (Marked out of

100 marks)

3 hour closed booked exam

Two parts in the exam (Part A and Part B)

Attendance of 80% is compulsory to sit

the exam

Aim of this course

The aim of this paper is to develop

knowledge and understanding of how to

prepare and process basic cost and

quantitative information to support

management in planning and decision-

making in a variety of business contexts.

Syllabus Contents

The syllabus contents include the following:

Explain the nature, source and purpose of management information

Explain and apply cost accounting techniques

Prepare budgets for planning and control

Compare actual costs with standard costs and analyse any variances

Explain and apply performance measurements and monitor business performance.

Chapter 1

The topics covered are:

Information

Planning, control and decision making

Financial accounting and cost and management accounting

Cost accounting information and decision making

Information Information is data that has been processed

in such a way as to be meaningful to the

person who receives it. Information is

anything that is communicated

Qualities of good information Relevance: Information must be relevant to the purpose for

which a manager wants to use it. In practice, far too many reports fail to 'keep to the point' and contain irrelevant paragraphs which only annoy the managers reading them

Completeness: An information user should have all the information he needs to do his job properly. If he does not have a complete picture of the situation, he might well make bad.

Accuracy: Information should obviously be accurate because using incorrect information could have serious and damaging consequences. However, information should only be accurate enough for its purpose and there is no need to go into unnecessary detail for pointless accuracy.

Clarity: Information must be clear to the user. If the user does not understand it properly he cannot use it properly. Lack of clarity is one of the causes of a breakdown in communication. It is therefore important to choose the most appropriate presentation medium or channel of Communication.

Qualities of good information Confidence: Information must be trusted by the managers

who are expected to use it. However not all information is certain. Strategic information, especially relating to the environment, is uncertain.

Timing: Information which is not available until after a decision is made will be useful only for comparisons and longer-term control, and may serve no purpose even then. Information prepared too frequently can be a serious disadvantage.

Channel of communication: There are occasions when using one particular method of communication will be better than others.

Cost: Information should have some value, otherwise it would not be worth the cost of collecting and filing it. The benefits obtainable from the information must also exceed the costs of acquiring it.

Why is information important?

Management need information

cost of a new product

cost of repairing, buying and hiring the

machine

current sales settlement patterns and

expected changes to the pattern if

discounts wee offered.

What type of information is needed

For an organisation

- Financial information

- Non-financial information

- A combination of both

Planning, control and decision-

making Information for management is likely to

be used for planning, control and decision

making.

Planning forces management to think

ahead systematically in both the short-

term and the long term.

Planning, control and decision-

making What is the objective of a business?

Planning, control and decision-

making

Long- term strategic planning

known as corporate planning, involves

selecting appropriate strategies so as to

prepare a long term plan to attain the

objective

Short term tactical planning

Used to achieve the long term plans and

this can be quarterly or monthly based

plans.

Planning, control and decision-

making

Control: Two stages in the control process

- Performance of the organisation

- The corporate plan

Effective control is therefore not practical without

planning, and planning without control is

pointless.

Planning, control and decision-

making

Decision making:

Decision making always involves a choice

between alternatives and is the role of the

management accountant to provide information

so that management can reach an informed

decision.

Anthony's view of management

activity

Anthony divides management activities

into:

- Strategic planning: the process of deciding on

objectives of the organisation

- Tactical (or management) control: the process by

which managers assure that resources are obtained and

used effectively and efficiently to achieve the

objectives

- Operational control: the process of assuring the

specific tasks are carried out effectively and

efficiently

Strategic Planning

Strategic plans are those which are set or

change the objectives, or strategic targets

of an organisation.

Tactical/Management control

Management control is concerned with

decisions about the efficient and effective

use of an organisations resources to these

objectives.

These are the most important areas of Management control

- Resources (4Ms) men, materials, machines and money

- Efficiency

- Effectiveness

Operational control

Operational control is the task of ensuring that

specific task are carried out effectively and

efficiently.

Management Control Systems

A system which measures and corrects the

performance of activities of subordinates in

order to make sure that the objectives of an

organisation are being met and the plans

devised to attain them are being carried out

Basic elements of management

control systems are: - Planning

- Recording

- Carrying out

- Comparing

- Evaluating

- Corrective actions

Types of information

Strategic information: information used by senior managers

Tactical information: is used by middle management. Eg; how to use the resources

Operational information: is used by front line managers

Financial accounting vs

management accounting

Financial Accounts

Details of performance over a period of time

Legal requirement

Format dictated by IAS & IFRS

Concentrates on business as a whole

Monetary nature

Historic by nature

Financial accounting vs

management accounting

Management Accounts

Are used to control and manage the organisation

Also for decision making

No legal requirement

No set format

Can be used to analyse only one section of the

company

Can have qualitative information

Can be used for future planning

Cost accounts

Cost accounting is gathering of cost information and its attachment to cost objects, the establishment of budgets, standard costs and actual cost of operations, processes, activities or products; and the analysis of variance, profitability or the social use of funds

Cost accounting is concerned with the following:

- Preparing statements (eg: budgets, castings)

- Cost data collection

- Applying costs to inventory, products and services

Cost accounts

Aims of cost accounts

- Cost of goods produced

- Cost of departments

- Calculating revenues

- Profitability of a product

- Selling prices

- Vale of inventories of goods (RM, WIP)

- Future cost

- How actual costs compare with budgeted costs

- What information management needs

Any questions??