Management Accounting – Decision Making (IDEC) (Pre-requisite IMPM)

Syllabus overview

Decision Making builds on the introduction to costing and accounting systems and decision-making provided by Management Accounting Fundamentals and Performance Measurement, and covers investment appraisal, international business and management accounting issues and developments.

While this paper will develop students' ability to apply a range of management accounting techniques and decision-making tools to the modern business environment, students will also have to demonstrate an understanding of these tools and the issues that surround their use.

Students require knowledge of the history of management accounting, since they have to understand why management accounting needs to evolve to remain relevant.

Students must also appreciate the contribution made by information technology to management accounting.

Aims

This syllabus aims to test the student’s ability to:

• evaluate costing and accounting systems;
• apply and evaluate techniques used in management decision-making;
• apply and evaluate alternative methods of investment appraisal;
• discuss new developments in business and management accounting for a wide range of sectors, including, manufacturing, retail and service.

There will be a written paper of three-hours. Section A will use objective testing for 20% of the marks. Section B will be a compulsory question for 30% of the marks. Section C will offer a choice of one question from two for 25% of the marks, and Section D will offer a choice of one question from two for 25% of the marks.

On completion of their studies students should be able to:

• identify and discuss relevant costs and benefits;
• identify and discuss qualitative factors;
• identify and discuss external pricing strategies;
• evaluate external pricing strategies, using sales variance analysis;
• explain and demonstrate transfer pricing in an international context;
• apply and evaluate profit maximisation;
• prepare and interpret reports, using Pareto analysis;
• apply and discuss the experience and learning curve;
• discuss risk and uncertainty;
• apply and discuss decision trees;
• evaluate the value of information;
• evaluate costing systems for decision-making.

Syllabus content

• Relevant costs and benefits.

• Joint cost allocations, common costs.
• Qualitative factors.
• Sales mix, quantity, market size and market share variances. (Note: these variances will be calculated on a units basis using sales revenue, contribution or gross profit.)
• Transfer pricing: no market/imperfect market for intermediates, negotiated prices, dual pricing, two-part tariff and supplementing full cost with subsidies to spread risk.
• External pricing strategies: premium pricing, penetration pricing, market skimming, optional extras, loss leaders, product differentiation, product bundling.
• International transfer pricing: taxation, currency, remittance of funds.
• Profit maximisation. (Note: the use of calculus is not required.)
• Pareto analysis.
• Risk and uncertainty.
• Decision trees.
• Learning curve. (Note: derivation of the learning index and the learning rate is required.)
• Alternative costing systems.

On completion of their studies students should be able to:

• apply and evaluate activity-based costing and activity-based management;
• apply and evaluate direct product profitability;
• apply and evaluate alternative costing and accounting systems: backflush accounting, throughput accounting, overhead allocation (Japanese), absorption costing, marginal costing, activity-based costing, integrated/interlocking accounting. (Note: detailed accounting entries are not required);
• apply and evaluate target costing;
• apply and evaluate life-cycle costing.

Syllabus content

• Activity-based costing and activity-based management.
• Customer profitability analysis.
• Direct product profitability.
• Just-in-time and backflush accounting.
• Theory of constraints and throughput accounting.
• Behavioural aspects of alternative costing systems.
• Target costing.
• Life-cycle costing.

On completion of their studies students should be able to:

• explain the capital budgeting process;

• evaluate projects using investment appraisal techniques;
• evaluate alternative investment appraisal techniques;
• discuss the relevance of qualitative factors;
• prepare project cash-flows that take account of taxation and inflation;
• evaluate mutually exclusive projects with unequal lives;
• apply sensitivity analysis to cash-flows;
• calculate abandonment values;
• discuss post-completion appraisal;
• discuss investment centres;
• calculate return on investment and residual income;
• evaluate return on investment and residual income;
• discuss the behavioural implications of return on investment and residual income.

• Capital budgeting process.
• Investment appraisal techniques: payback, discounted payback, accounting rate of return, net present value, internal rate of return.
• Taxation.
• Inflation.
• Unequal lives.
• Project abandonment.
• Sensitivity analysis.
• Post-completion appraisal.
• Return on investment.
• Residual income.

On completion of their studies students should be able to:

• discuss the history of management accounting;
• compare and contrast management accounting and financial accounting;
• evaluate management accounting for the modern business environment;
• discuss international business developments;
• discuss international management accounting issues and developments.

• Management accounting.
• Principles of financial accounting: rules, concepts, reporting framework.
• History of management accounting.
• International business developments.

• International management accounting issues and developments.