Summary Principles of Management Accounting - PART 3: PLANNING, BUDGETING AND CONTROLLING PERFORMANCE

SYmon MK
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MAC2601
PRINCIPLES OF MANAGEMENT ACCOUNTING

PART 3: PLANNING, BUDGETING AND CONTROLLING PERFORMANCE

Question 1:




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, CONTENTS
INTRODUCTION vi

PART 3: PLANNING, BUDGETING AND CONTROLLING PERFORMANCE 1
Topic 9 – Budgeting techniques 3
Study unit 21: The budgeting process 5
1 Introduction 5
2 Budgeting and budgetary control 6
3 Functions and aims of budgetary control 6
4 Controllability and responsibility 7
5 Stages in the budgeting process 11
6 Master and sub-budgets 14
7 Cash budget and forecast 16
8 Alternative budgeting methods 20
9 Summary 22
Self-assessment activity 22

Study unit 22: Flexing the budget 29 29




1 Introduction 29
2 Flexing the budget 29
3 Budgeting: advantages and disadvantages 32
4 Summary 33
Self-assessment activity 33

Topic 10 – Standard costing 37
Study unit 23: The standard costing system 39 39




1 Introduction 39
2 Standards and efficient operating conditions 39
3 Aims of a standard costing system 40
4 Differences between budget and standard 41
5 Establishing cost standards 42
6 Standard cost card 44
7 Summary 49
Self-assessment activity 49

Study unit 24: Calculating selected variances 51 51




1 Introduction 51
2 What is a variance? 52
3 Types of variances 54
4 Material variances 56
5 Labour variances 65
6 Manufacturing overheads 73
7 Variable sales and distribution cost variances 88
8 Selling price variance 90
9 Summary 93
Self-assessment activity 93

Study unit 25: Reconciliation and analysis of variances 99 100




1 Introduction 99


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CONTENTS

, 2 Possible reasons for deviation from standards 100
3 Reconciling actual results with budgeted results 102
4 Characteristics/Advantages of an efficient standard costing system 111
5 Industries best suited for a standard costing system 112
6 Summary 112
Comprehensive self-assessment activity 112

PART 4: RELEVANT INFORMATION FOR SHORT-TERM DECISIONS 127
Topic 11 – Relevant costing 129
Study unit 26: Relevant versus irrelevant costs 131 131




1 Introduction 131
2 What makes information relevant? 132
3 Terminology 132
4 Quantitative and qualitative factors 138
5 The comprehensive and differential (or incremental) methods 139
6 Summary 142
Self-assessment activity 143
Study unit 27: Short-term decision-making (special orders) 147 147




1 Introduction 147
2 Decision-making guidelines 147
3 Preconditions for setting short-term special order prices 149
4 Relevant costs and direct material in store 150
5 Relevant costs and direct material out of stock 152
6 Relevant costs if direct permanent labour can be reassigned 154
7 Relevant costs if permanent labour cannot be reassigned 155
8 Relevant costs and manufacturing overheads 156
9 Relevant costs and non-manufacturing overheads 157
10 Information technology 158
11 Making the final recommendation (financial evaluation only) 158
12 Summary 160
Self-assessment activity 161
Study unit 28: Limiting factors and the allocation of resources 167 167




1 Introduction 167
2 What are limiting factors? 167
3 Decision-making in the case of one or more limiting factors 168
4 Summary 177
Self-assessment activity 177
Comprehensive self-assessment activity 178

Topic 12 – Sensitivity analysis 185
Study unit 29: Cost-volume-profit analysis (CVP) 187 187




1 Introduction 187
2 The importance of contribution in the decision-making process 187
3 Effect of changes in selling price on profits 191
4 Effect of changes in sales volume on profits 196
5 Effect of changes in production volumes and/or inventory on profits 198
6 Effect of changes in variable costs on profits 199
7 Effect of changes in fixed costs on profits 201
8 Decisions regarding effects of multiple changes in prices, costs and/or
volumes 205
9 Decisions and information technology 205
10 Summary 206
Self-assessment activity 207


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CONTENTS

, Study unit 30: Probabilities 216
1 Introduction 216
2 The concepts of probability (uncertainty) and risk 217
3 Unbiased probabilities 218
4 Biased probabilities 218
5 Probability distribution table and expected value 219
6 The individual outcome that is most likely to occur 222
7 Risk, uncertainty and decision-making 223
8 Summary 224
Self-assessment activity 224

Study unit 31: Decision trees 228 227




1 Introduction 228
2 The concepts surrounding decision trees 228
3 Conditional profits (values) 229
4 Final decision based on expected values 233
5 Summary 236
Self-assessment activity 237
WORD LIST 246




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CONTENTS