Management Control and
Cost Management – 2025 - 2026
Inhoud
(1)Management control
1. Introduction to management control .................................................................................................................. 5
1.1. Big challenge: strategy execution ..................................................................................................................... 5
1.2. Causes of control problems .............................................................................................................................. 6
2. Introduction to accounting and costing .............................................................................................................. 9
2.1. What is Accounting? ........................................................................................................................................ 9
2.2. The design of internal accounting systems .................................................................................................... 12
3. Management control alternatives .................................................................................................................... 13
3.1. Zimmerman’s control framework................................................................................................................... 14
3.2. Merchant & Van der Stede framework .......................................................................................................... 17
3.3. Simon’s levers of control ................................................................................................................................ 24
4. Control System Cost ......................................................................................................................................... 25
4.1. No control system is free of costs ................................................................................................................... 25
4.2. Examples of indirect costs .............................................................................................................................. 25
5. Control system design (maintaining effective control) ..................................................................................... 28
5.1. How to reduce the side effects of control? ..................................................................................................... 28
6. Incentive Systems ............................................................................................................................................ 33
6.1. Introduction.................................................................................................................................................... 33
6.2. Purpose of incentive systems ......................................................................................................................... 33
6.3. Economic prediction: the prevalence of PFP (Pay-For-Performance) ............................................................. 35
7. Performance measurements systems .............................................................................................................. 36
7.1. Introduction to performance measurement .................................................................................................... 36
7.2. What is a good performance measure? .......................................................................................................... 37
7.3. Challenges of performance measurement ..................................................................................................... 38
7.4. Overcoming the shortcomings of performance measures............................................................................... 39
Summary ...................................................................................................................................................................... 40
8. Financial Performance Measures ..................................................................................................................... 41
8.1. Why financial measures? ............................................................................................................................... 41
8.2. Classification of financial performance measures.......................................................................................... 41
8.3. Market measures ........................................................................................................................................... 41
, 8.4. ACCOUNTING MEASURES............................................................................................................................... 42
8.5. Economic measures ........................................................................................................................................ 46
9. Balanced scorecard (=BSC) ............................................................................................................................... 49
9.1. Introduction to BSC ........................................................................................................................................ 49
9.2. BSC framework ............................................................................................................................................... 50
9.3. Case about Tesco: A leading retailer in the UK .............................................................................................. 51
9.4. Example: Global Oil Corporation’s Marketing and Refining (M&R) Division ..................................................... 52
9.5. Case 3: fiedler international ........................................................................................................................... 55
9.6. Cautions in using BSC ..................................................................................................................................... 57
9.7. Determining relative weight for each performance measure ........................................................................ 58
10. Financial Responsibility Centers ....................................................................................................................... 60
10.1. introduction .................................................................................................................................................... 60
10.2. Different types of responsibility centers ......................................................................................................... 60
10.3. Selecting the right financial responsibility center .......................................................................................... 64
11. Introduction to budgets and budgeting ............................................................................................................ 68
11.1. What is a budget? .......................................................................................................................................... 68
11.2. How does budgeting help organization?........................................................................................................ 68
11.3. Why is budgeting criticized? .......................................................................................................................... 70
11.4. Should budgeting be abandoned?.................................................................................................................. 73
12. Characteristics of budgeting systems ............................................................................................................... 73
12.1. Who should set the budget/target? ................................................................................................................ 73
12.2. What is a good goal? ..................................................................................................................................... 78
13. Budget types/characteristics (5) ....................................................................................................................... 79
Summary ...................................................................................................................................................................... 84
14. Introduction to Transfer pricing ....................................................................................................................... 85
14.1. Why transfer pricing? ..................................................................................................................................... 86
14.2. Transfer pricing and tax avoidance ................................................................................................................ 87
14.3. What is a good transfer pricing? .................................................................................................................... 88
15. Methods of transfer pricing.............................................................................................................................. 88
15.1. Transfer pricing methods ............................................................................................................................... 88
15.2. Exercises & death spiral ................................................................................................................................. 96
Summary ...................................................................................................................................................................... 99
(2)Cost management
1. Cost terminology ............................................................................................................................................ 100
1.1. Introduction to Key terms............................................................................................................................. 100
1.2. Economic cost vs. accounting costs .............................................................................................................. 103
1.3. Relevant vs. irrelevant costs ......................................................................................................................... 103
,2. Cost-Volume-Profit analysis (CVP) .................................................................................................................. 106
2.1. Operating Leverage ...................................................................................................................................... 108
2.2. Optimizing in case of scarce resources ......................................................................................................... 113
3. Introduction to cost allocation ....................................................................................................................... 113
3.1. Company ...................................................................................................................................................... 114
3.2. Why allocating service department costs to operating costs? Why cost allocation? .................................. 116
3.3. When should service department costs be allocated to the operating departments?................................. 117
3.4. Allocating multiple service department costs to operating units ................................................................. 121
3.5. Summary ...................................................................................................................................................... 123
4. Insulating versus non-insulating cost allocation ............................................................................................. 124
4.1. Choice of the allocation base ....................................................................................................................... 124
4.2. Evaluating performance ............................................................................................................................... 129
5. Introduction to absorption costing ................................................................................................................. 132
5.1. What is absorption costing? (full costing) .................................................................................................... 132
5.2. Why absorption costing?.............................................................................................................................. 133
5.3. How to do absorption costing? .................................................................................................................... 133
6. Job order costing ............................................................................................................................................ 138
6.1. How to allocate costs to jobs?...................................................................................................................... 138
Examples .................................................................................................................................................................... 140
6.2. Alternative cost allocation methods ............................................................................................................ 147
7. Joint cost allocation ....................................................................................................................................... 149
8. Variable costing vs. absorption costing .......................................................................................................... 152
8.1. Example: absorption costing creates incentive to overproduce ................................................................... 152
8.2. Earnings management in absorption cost accounting ................................................................................. 152
8.3. Case study .................................................................................................................................................... 158
9. Introduction to activity-based costing (ABC) .................................................................................................. 161
9.1. How are costs treated under Activity-based costing? .................................................................................. 161
2. ABC – allocating costs to products (Step 2) ................................................................................................ 164
10. Activity based costing (ABC): advantages and costs ....................................................................................... 166
10.1. Benefits of ABC ............................................................................................................................................. 166
10.2. Costs of ABC ................................................................................................................................................. 166
10.3. Misunderstanding of ABC ............................................................................................................................. 166
10.4. Common types of cost drivers (activity measure) ........................................................................................ 167
Summary .................................................................................................................................................................... 168
Additional exercises .................................................................................................................................................... 168
10.5. Case study: the classic pen company ........................................................................................................... 171
11. Customer profitability analysis (CPA) ............................................................................................................. 174
, 11.1. Why can we not rely on revenue to evaluate customers? ............................................................................ 174
11.2. how do firms traditionally measure customer profitability (and why is it wrong?) ..................................... 175
11.3. How does customer profitability analysis (CPA) solve this problem? ........................................................... 175
11.4. How can CPA be used for better decisions? ................................................................................................. 176
11.5. Case study: blue ridge manufacturing ......................................................................................................... 177
12. Total cost of ownership and supplier selection .............................................................................................. 181
12.1. What is Total cost of ownership (TCO) ......................................................................................................... 181
12.2. Extending management accounting beyond firm boundaries ..................................................................... 181
12.3. Additional case study (3M)........................................................................................................................... 185
13. Total quality management ............................................................................................................................. 188
13.1. The traditional view vs. TQM perspective .................................................................................................... 188
14. Introduction to target costing ........................................................................................................................ 193
14.1. Different views on pricing ............................................................................................................................ 193
14.2. What is target costing .................................................................................................................................. 194
15. Standard costing ............................................................................................................................................ 195
16. Labor variance & materials variance analyses ................................................................................................ 196
16.1. Calculating labour variance & materials variance ....................................................................................... 196
16.2. Bookkeeping using standard costing............................................................................................................ 197
16.3. Disposal of variances .................................................................................................................................... 198
16.4. Challenges in setting a standard .................................................................................................................. 200
16.5. Dysfunctional effects of standard ................................................................................................................ 203
16.6. Some ways to lower/minimize the effects/costs of standard costing .......................................................... 204
Summary ................................................................................................................................................................. 204
Cost Management – 2025 - 2026
Inhoud
(1)Management control
1. Introduction to management control .................................................................................................................. 5
1.1. Big challenge: strategy execution ..................................................................................................................... 5
1.2. Causes of control problems .............................................................................................................................. 6
2. Introduction to accounting and costing .............................................................................................................. 9
2.1. What is Accounting? ........................................................................................................................................ 9
2.2. The design of internal accounting systems .................................................................................................... 12
3. Management control alternatives .................................................................................................................... 13
3.1. Zimmerman’s control framework................................................................................................................... 14
3.2. Merchant & Van der Stede framework .......................................................................................................... 17
3.3. Simon’s levers of control ................................................................................................................................ 24
4. Control System Cost ......................................................................................................................................... 25
4.1. No control system is free of costs ................................................................................................................... 25
4.2. Examples of indirect costs .............................................................................................................................. 25
5. Control system design (maintaining effective control) ..................................................................................... 28
5.1. How to reduce the side effects of control? ..................................................................................................... 28
6. Incentive Systems ............................................................................................................................................ 33
6.1. Introduction.................................................................................................................................................... 33
6.2. Purpose of incentive systems ......................................................................................................................... 33
6.3. Economic prediction: the prevalence of PFP (Pay-For-Performance) ............................................................. 35
7. Performance measurements systems .............................................................................................................. 36
7.1. Introduction to performance measurement .................................................................................................... 36
7.2. What is a good performance measure? .......................................................................................................... 37
7.3. Challenges of performance measurement ..................................................................................................... 38
7.4. Overcoming the shortcomings of performance measures............................................................................... 39
Summary ...................................................................................................................................................................... 40
8. Financial Performance Measures ..................................................................................................................... 41
8.1. Why financial measures? ............................................................................................................................... 41
8.2. Classification of financial performance measures.......................................................................................... 41
8.3. Market measures ........................................................................................................................................... 41
, 8.4. ACCOUNTING MEASURES............................................................................................................................... 42
8.5. Economic measures ........................................................................................................................................ 46
9. Balanced scorecard (=BSC) ............................................................................................................................... 49
9.1. Introduction to BSC ........................................................................................................................................ 49
9.2. BSC framework ............................................................................................................................................... 50
9.3. Case about Tesco: A leading retailer in the UK .............................................................................................. 51
9.4. Example: Global Oil Corporation’s Marketing and Refining (M&R) Division ..................................................... 52
9.5. Case 3: fiedler international ........................................................................................................................... 55
9.6. Cautions in using BSC ..................................................................................................................................... 57
9.7. Determining relative weight for each performance measure ........................................................................ 58
10. Financial Responsibility Centers ....................................................................................................................... 60
10.1. introduction .................................................................................................................................................... 60
10.2. Different types of responsibility centers ......................................................................................................... 60
10.3. Selecting the right financial responsibility center .......................................................................................... 64
11. Introduction to budgets and budgeting ............................................................................................................ 68
11.1. What is a budget? .......................................................................................................................................... 68
11.2. How does budgeting help organization?........................................................................................................ 68
11.3. Why is budgeting criticized? .......................................................................................................................... 70
11.4. Should budgeting be abandoned?.................................................................................................................. 73
12. Characteristics of budgeting systems ............................................................................................................... 73
12.1. Who should set the budget/target? ................................................................................................................ 73
12.2. What is a good goal? ..................................................................................................................................... 78
13. Budget types/characteristics (5) ....................................................................................................................... 79
Summary ...................................................................................................................................................................... 84
14. Introduction to Transfer pricing ....................................................................................................................... 85
14.1. Why transfer pricing? ..................................................................................................................................... 86
14.2. Transfer pricing and tax avoidance ................................................................................................................ 87
14.3. What is a good transfer pricing? .................................................................................................................... 88
15. Methods of transfer pricing.............................................................................................................................. 88
15.1. Transfer pricing methods ............................................................................................................................... 88
15.2. Exercises & death spiral ................................................................................................................................. 96
Summary ...................................................................................................................................................................... 99
(2)Cost management
1. Cost terminology ............................................................................................................................................ 100
1.1. Introduction to Key terms............................................................................................................................. 100
1.2. Economic cost vs. accounting costs .............................................................................................................. 103
1.3. Relevant vs. irrelevant costs ......................................................................................................................... 103
,2. Cost-Volume-Profit analysis (CVP) .................................................................................................................. 106
2.1. Operating Leverage ...................................................................................................................................... 108
2.2. Optimizing in case of scarce resources ......................................................................................................... 113
3. Introduction to cost allocation ....................................................................................................................... 113
3.1. Company ...................................................................................................................................................... 114
3.2. Why allocating service department costs to operating costs? Why cost allocation? .................................. 116
3.3. When should service department costs be allocated to the operating departments?................................. 117
3.4. Allocating multiple service department costs to operating units ................................................................. 121
3.5. Summary ...................................................................................................................................................... 123
4. Insulating versus non-insulating cost allocation ............................................................................................. 124
4.1. Choice of the allocation base ....................................................................................................................... 124
4.2. Evaluating performance ............................................................................................................................... 129
5. Introduction to absorption costing ................................................................................................................. 132
5.1. What is absorption costing? (full costing) .................................................................................................... 132
5.2. Why absorption costing?.............................................................................................................................. 133
5.3. How to do absorption costing? .................................................................................................................... 133
6. Job order costing ............................................................................................................................................ 138
6.1. How to allocate costs to jobs?...................................................................................................................... 138
Examples .................................................................................................................................................................... 140
6.2. Alternative cost allocation methods ............................................................................................................ 147
7. Joint cost allocation ....................................................................................................................................... 149
8. Variable costing vs. absorption costing .......................................................................................................... 152
8.1. Example: absorption costing creates incentive to overproduce ................................................................... 152
8.2. Earnings management in absorption cost accounting ................................................................................. 152
8.3. Case study .................................................................................................................................................... 158
9. Introduction to activity-based costing (ABC) .................................................................................................. 161
9.1. How are costs treated under Activity-based costing? .................................................................................. 161
2. ABC – allocating costs to products (Step 2) ................................................................................................ 164
10. Activity based costing (ABC): advantages and costs ....................................................................................... 166
10.1. Benefits of ABC ............................................................................................................................................. 166
10.2. Costs of ABC ................................................................................................................................................. 166
10.3. Misunderstanding of ABC ............................................................................................................................. 166
10.4. Common types of cost drivers (activity measure) ........................................................................................ 167
Summary .................................................................................................................................................................... 168
Additional exercises .................................................................................................................................................... 168
10.5. Case study: the classic pen company ........................................................................................................... 171
11. Customer profitability analysis (CPA) ............................................................................................................. 174
, 11.1. Why can we not rely on revenue to evaluate customers? ............................................................................ 174
11.2. how do firms traditionally measure customer profitability (and why is it wrong?) ..................................... 175
11.3. How does customer profitability analysis (CPA) solve this problem? ........................................................... 175
11.4. How can CPA be used for better decisions? ................................................................................................. 176
11.5. Case study: blue ridge manufacturing ......................................................................................................... 177
12. Total cost of ownership and supplier selection .............................................................................................. 181
12.1. What is Total cost of ownership (TCO) ......................................................................................................... 181
12.2. Extending management accounting beyond firm boundaries ..................................................................... 181
12.3. Additional case study (3M)........................................................................................................................... 185
13. Total quality management ............................................................................................................................. 188
13.1. The traditional view vs. TQM perspective .................................................................................................... 188
14. Introduction to target costing ........................................................................................................................ 193
14.1. Different views on pricing ............................................................................................................................ 193
14.2. What is target costing .................................................................................................................................. 194
15. Standard costing ............................................................................................................................................ 195
16. Labor variance & materials variance analyses ................................................................................................ 196
16.1. Calculating labour variance & materials variance ....................................................................................... 196
16.2. Bookkeeping using standard costing............................................................................................................ 197
16.3. Disposal of variances .................................................................................................................................... 198
16.4. Challenges in setting a standard .................................................................................................................. 200
16.5. Dysfunctional effects of standard ................................................................................................................ 203
16.6. Some ways to lower/minimize the effects/costs of standard costing .......................................................... 204
Summary ................................................................................................................................................................. 204
