Management Accounting – Performance Management (IMPM) (Pre-requisite FMAF)

Syllabus overview

Performance Management builds on the introduction to standard costing and budgeting provided by Management Accounting Fundamentals, and covers the allocation and management of resources.

While this paper will develop students’ ability to apply a range of management accounting techniques, quantitative methods and resource management strategies to the modern business environment, students will also have to demonstrate understanding of these tools and the issues that surround their use.

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

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

• apply and evaluate standard costing;
• prepare and evaluate plans, budgets and forecasts;
• apply and evaluate techniques for allocating and managing resources 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:

• explain why costing systems and standard costs must be reviewed on a regular basis;
• explain why it is necessary to take account of the learning curve effect to produce meaningful standards;
• calculate the standard cost for a product which exhibits the learning curve effect;
• calculate and interpret material, labour, variable overhead, fixed overhead and sales variances;
• prepare and discuss a report which reconciles budget and actual profit using absorption and/or marginal costing principles;
• calculate and explain planning and operational variances;
• prepare reports using a range of internal and external benchmarks and interpret the results;
• discuss the behavioural implications of standard costing.

• Criticisms of standard costing.
• Learning curve. (Note: derivation of the learning index and the learning rate is not required.)
• Material mix and yield variances.
• Labour mix and yield variances.
• Fixed overhead capacity and efficiency variances.
• Sales price and volume variances. (Note: the volume variance will be calculated on a units basis using sales revenue, contribution or gross profit.)
• Interpretation of variances: interrelationship, significance.
• Planning and operational variances.
• Benchmarking.
• Behavioural implications.

On completion of their studies students should be able to:

• explain why organisations prepare plans;
• calculate future sales and costs, using forecasting techniques, and evaluate the results;
• explain and interpret the effect of amendments to budget/plan assumptions;
• explain why it is necessary to identify controllable and uncontrollable costs;
• evaluate performance using fixed and flexible budget reports;
• discuss alternative approaches to budgeting;
• evaluate the balanced scorecard;
• discuss the behavioural implications of planning and budgeting;
• compare and contrast cost and profit centres;
• explain the principles of transfer pricing;
• compare and contrast transfer pricing systems.

• Planning.
• Time series and regression.
• ‘What-if?’ analysis.
• Controllable and uncontrollable costs.
• Fixed and flexible budgeting.
• Incremental budgeting.
• Rolling budgets.
• Zero-based budgeting.
• Activity-based budgeting.
• Balanced scorecard.
• Behavioural implications.
• Cost and profit centres.
• Principles of transfer pricing.
• Transfer pricing systems: cost/standard cost, cost/standard cost plus, market price, market price less savings.

On completion of their studies students should be able to:

• describe the modern business environment;
• compare and contrast alternative production and management strategies;
• compare and contrast value analysis and functional analysis;
• explain activity-based costing;
• explain total quality management;
• prepare and discuss cost of quality reports;
• calculate and interpret the break-even point, profit target, margin of safety and profit/volume ratio for multiple products;
• prepare break-even charts and profit/volume charts for multiple products;
• discuss multiple-product CVP analysis;
• calculate and interpret the profit-maximising sales mix for a company with a single resource constraint and limited freedom of action;
• solve a two-plus constraint/limitation problem for two products using the graphical method, and interpret the results;
• prepare formulae for a two-plus constraint/limitation problem for two-plus products using the simplex method, and interpret the results;
• discuss the linear programming model.

• Modern business environment.
• Resource planning systems: MRPI, MRPII and ERP.
• Just-in-time.
• Activity-based costing.
• Cost-reduction programmes.
• Value and functional cost analysis.
• Total quality management.
• Multi-product CVP analysis, including break-even, margin of safety, contribution/sales ratio, break-even charts, contribution, profit/volume graphs.
• Single limiting factor analysis where a company has restricted freedom of action.

• Linear programming.