PAPER 12 MANAGEMENT ACCOUNTING 2 AIMS To develop a critical understanding of issues relating to cost management, cost control and strategic decision making. This paper concentrates on contemporary topical issues such as activity-based techniques, throughput accounting, economic value added, business process re-engineering and the balanced scorecard. Some of these techniques were designed to meet perceived shortcomings in traditional methods such as standard costing and accounting-based measures such as return-on-investment and a key part of this paper is to compare contemporary and traditional methods. As the world of accounting is dynamic, this paper will combine the study of traditional concepts and techniqueswith the most recent advances in management accounting as these relate to management information needs for planning, control, and decision making. Fig. 12 Inter-relationship of units The objectives of this paper are to ensure that the students have: A thorough understanding of the role of management accounting in the modern day economic and commercial environment to enable them to make effective use of management accounting information within their own organisation or business practice.
A detailed knowledge of both the financial control and decision support aspects of management accounting to develop the analytical skills necessary to diagnose complex business problems in an accounting information context. An appreciation of the strategic aspects of management accounting. DESCRIPTORS After successfully completing this paper students should be able to: Appreciate the "big picture" fundamentals of management accounting: Demonstrate the role management accounting plays in supporting organisations and managers in keeping pace with technological change, globalisation and customer needs. Discuss howthemanagerusesthemanagement accountingsystem to prepare, analyse and critically evaluate information for making planning decisions. Discuss howthe management accountingsystem measures the performanceand influencesthe behaviour of the manager. Discuss the strengths and weaknesses of anorganisation's management accounting informationsystem,identify and apply techniques appropriate to specified situations Apply management accounting methods and techniquesto demonstrate how customer and organisational value can be achieved throughsound business decision making. Applying and discussing appropriatetechniques is an important outcome of this paper STRUCTURE OF THE PAPER A three hour 15 minutepaper consisting of two sections. All questions must be attempted. SECTION A
This section scores 66% of the overall mark and comprises 3 quantitative orientated questions, which will carry 22 marks each. The nature of the questions will involve calculation and interpretation. The objective of this section is to determine the candidate's understanding and ability to use the techniques, processes and practices of a modern management accountant. SECTION B This section scores 34% of the overall mark and will consist of two questions of a discursive nature that will carry 17 marks each. The objective of this section is to determine the candidate s ability to convey information in an understandable and decision relevant form. SYLLABUS 12.1 COST BEHAVIOUR AND MANAGEMENT Topic Weighting 25% This section will develop concepts first introduced in Paper 3, Sections 3.1-3.4 and assumes a good working knowledge of the changing nature of costs in the modern organisation. The candidate will need to understand and apply: costmanagement principles; the usefulness and application of techniques such as the learning curve model, regression analysis and advanced variance analysis. 12.2 DECISION MANAGEMENT Topic Weighting 25%
This section will draw on the coverage of 3.6 in Paper 3 and will require detailed knowledge of techniques dealing with: preparing cost calculations using traditional, throughput and activity-based methods; explaining and evaluating the use of traditional, throughput and absorption costing methods in differing contexts and for different purposes including conditions of scarce resources; the theory of constraints and the inter-relationship of accounting methods and modern manufacturing techniques such as make or buy decisions within the context of supply chain management; the application of the theory of constraints and activity-based costing; activity-based management and Activity-based budgeting and the conditions for their success; the use of activity-based costing for pricing and the use of "activity-based pricing"; preparing information for pricing decisions taking account of market segments and differing customer attitudes to price and value; evaluating the use of alternative marketing strategies, their benefits and risks In all aspects of this section, candidates should be prepared to provide a critical analysis (strengths/weaknesses/underlying assumptions) of the technique under consideration. 12.3 MANAGEMENT ACCOUNTING IN THE LARGE COMPANY Topic Weighting 25% This section requires drawing on some of the coverage in section 3.5 in Paper 3 and will examine the design and use of management accounting systems in the large company. Topics will include: decentralisation and divisionalisation; management control systems;
performance measurement and management; internal trade and transfer pricing assessing the advantages and disadvantages of adopting a range of transfer pricing approaches in differing contexts; contingency theory and agency theory in relation to the management accounting systems. 12.4 ACCOUNTING FOR VALUE CREATION Topic Weighting 25% This section will emphasise and expand the coverage in section 3.1 of Paper 3 and will cover recent developments in management accounting within the context of the information requirements of the modern organisation. Candidates' need to be aware of the leading advocates of the techniques together with any published criticisms that have been introduced to the field of management accounting during the last decade, the purpose of these techniques and their impact on the management accountant. Topics include: advanced manufacturing technologies, material requirement planning (MRP 1), manufacturing resource programming (MRP 2) and JIT; the economic value added concept and the advantages and disadvantages of the technique compared with traditional return on investment and residual income measures; introduction to strategic management accounting concepts such as Value chain analysis, customer profitability analysis, accounting for costs of quality and supply chain management; just in time and throughput accounting;
integrative performance measurement systems as a means of reformulating strategy and meeting competitive challenges such as benchmarking, balanced scorecard, stakeholder analysis and six sigma. RELATIONSHIP TO OVERALL SYLLABUS Paper 12 assumes a sound practical knowledge of the underlying techniques introduced in Paper 3 Management Accounting 1 and Paper 6 Information Processing. It acknowledges the relevance of the material considered in Paper 9 Management Information and Paper 10 Business Management and provides a firm foundation for Paper 14 Financial Management. ETHICS Students are advised that the standards outlined in The Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA Code) are implicit in, and examinable throughout, the AIA syllabus. The Code can be accessed via the AIA website at www.aiaworldwide.com. ESSENTIAL READING AIA Text Book Paper 12 Management Accounting 2 Publisher: BPP Learning Media ISBN: 9781445389134 The e-book is available free at: recruitment@aiaworldwide.com. You can purchase a hard copy of the text book at: membership@aiaworldwide.com. International Accountant ISSN: 1465-5144 You can purchase any of the books listed below quickly and easily through the publishers website or link stated below. Management and Cost Accounting (8 th Edition)
withcoursemate and e-book access card Author: Drury, C Publisher: Cengage Learning ISBN: 9781408064341 Website: www.cengagebrain.com Management and Cost Accounting (5 th Edition) Author: Bhimani, A, Horngren, C.T, Datar, S.M and Foster, G Publisher: Pearson Education Limited ISBN: 9780273762232 Website: www.pearson-books.com/aia2012discount gement Accounting (4 th Edition) Author: Garrison, R.H, Noreen, E.W and Seal, W Publisher: McGraw-Hill Education - Europe ISBN: 9780077129897 Website: www.mcgraw-hill.co.uk/discount Management Accounting (6 th Edition) Authors: Atkinson, A.A, Kaplan, R.S, Matsurura, E.M and Young, S.M Publisher: Pearson Education (US) ISBN: 9780273760160 Website: www.pearson-books.com/aia2012discount Journals International Accountant Harvard Business Review
Journal of Management Accounting Research Accounting Review Management Accounting Quarterly Accounting Horizons