MANAGEMENT ACCOUNTING FOR
DECISION MAKERS
Finance block 4.1
TABLE OF CONTENTS
Chapter 1: Introduction to Management Accounting ............................................................................................ 2
Chapter 2: Relevant Costs and Benefits for Decision Making ............................................................................ 7
Chapter 3: Cost-Volume-Profit Analysis............................................................................................................... 10
Chapter 4: Full Costing ............................................................................................................................................ 14
Chapter 5: Costing and Cost Management in a Competitive Environment ................................................... 22
Chapter 6: Budgeting .............................................................................................................................................. 28
Mock Exam: Management Control 4.1 ............................................................................................................... 33
1
,CHAPTER 1: INTRODUCTION TO MANAGEMENT ACCOUNTING
Management accounting Information for managers for decision-making
purposes.
The board of directors is charged with three major tasks:
1. Setting the overall direction and strategy for the business;
2. Monitoring and controlling the activities of the business;
3. Communicating with shareholders and others connected with the business.
Why are larger businesses not managed as a single unit by just one manager?
1. The sheer volume of activity or number of employees makes it impossible for one person to
manage them;
2. Certain business operations may require specialised knowledge or expertise;
3. Geographical remoteness of part of the business operations may make it more practical to
manage each location as a separate part, or set of separate parts.
A department structure organized according to business functions:
A divisional organizational structure:
2
, Reasons the business environment is changing:
1. Increasing sophistication of customers;
2. Development of global economy;
3. Rapid changes in technology;
4. Deregulation of domestic markets;
5. Increasing pressure from owners;
6. Increasing volatility of financial markets.
The strategic management framework:
1. Establish mission (purpose), vision (aspiration) and objectives (targets, outcomes, and assess
performance);
2. Undertake a position analysis; (SWOT)
3. Identify and asses the strategic options; (road map)
4. Select strategic options; (criteria and formulate plans)
5. Perform, review and control.
Changes in the business landscape:
− Growth of the service sector;
− Emergence of new industries;
− Growth of e-commerce;
− Automated manufacturing;
− Lean manufacturing;
− Greater product innovation;
− Faster response times.
Financial objective:
To enhance the wealth of owners. Usually consistent with needs of other groups. Generating wealth is
NOT same as current year’s profit (LT vs. ST)
Relationship between risk and return:
3
DECISION MAKERS
Finance block 4.1
TABLE OF CONTENTS
Chapter 1: Introduction to Management Accounting ............................................................................................ 2
Chapter 2: Relevant Costs and Benefits for Decision Making ............................................................................ 7
Chapter 3: Cost-Volume-Profit Analysis............................................................................................................... 10
Chapter 4: Full Costing ............................................................................................................................................ 14
Chapter 5: Costing and Cost Management in a Competitive Environment ................................................... 22
Chapter 6: Budgeting .............................................................................................................................................. 28
Mock Exam: Management Control 4.1 ............................................................................................................... 33
1
,CHAPTER 1: INTRODUCTION TO MANAGEMENT ACCOUNTING
Management accounting Information for managers for decision-making
purposes.
The board of directors is charged with three major tasks:
1. Setting the overall direction and strategy for the business;
2. Monitoring and controlling the activities of the business;
3. Communicating with shareholders and others connected with the business.
Why are larger businesses not managed as a single unit by just one manager?
1. The sheer volume of activity or number of employees makes it impossible for one person to
manage them;
2. Certain business operations may require specialised knowledge or expertise;
3. Geographical remoteness of part of the business operations may make it more practical to
manage each location as a separate part, or set of separate parts.
A department structure organized according to business functions:
A divisional organizational structure:
2
, Reasons the business environment is changing:
1. Increasing sophistication of customers;
2. Development of global economy;
3. Rapid changes in technology;
4. Deregulation of domestic markets;
5. Increasing pressure from owners;
6. Increasing volatility of financial markets.
The strategic management framework:
1. Establish mission (purpose), vision (aspiration) and objectives (targets, outcomes, and assess
performance);
2. Undertake a position analysis; (SWOT)
3. Identify and asses the strategic options; (road map)
4. Select strategic options; (criteria and formulate plans)
5. Perform, review and control.
Changes in the business landscape:
− Growth of the service sector;
− Emergence of new industries;
− Growth of e-commerce;
− Automated manufacturing;
− Lean manufacturing;
− Greater product innovation;
− Faster response times.
Financial objective:
To enhance the wealth of owners. Usually consistent with needs of other groups. Generating wealth is
NOT same as current year’s profit (LT vs. ST)
Relationship between risk and return:
3
