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STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

CENTRE FOR GRADUATE STUDIES

STUDY GUIDE
BMAC5203
Accounting for Decision Making
First Edition (September 2011)

Prepared by:

Assoc. Prof. Dr Indra Devi Kandasamy

Published by:

Centre for Instructional Design and Technology


Open University Malaysia

First Published:

September 2011

Copyright Open University Malaysia (OUM), September 2011, BMAC5203


All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia.

STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

Contents
Course Introduction................................................................................. 58
Course Synopsis ................................................................................ 5
Course Aims....................................................................................... 5
Course Outcomes .............................................................................. 6
Course Load....................................................................................... 6
Course Timetable............................................................................... 6
Course Requirements.................................................................................. 7
Feedback and Course Evaluation ...................................................... 7
Course Resources ....................................................................................... 7
Set Textbook(s).................................................................................. 7
Additional References ........................................................................ 7
Extra Recommended Reading ........................................................... 7
my Virtual Learning Environment (myVLE) ........................................ 7
OUM Digital Library Resources.......................................................... 8
Assessment.................................................................................................. 8
Assessment Format ........................................................................... 8
Assignment Question(s)..................................................................... 8
Final Examination............................................................................... 8
Late Submission of Assignment(s)..................................................... 8
Important Dates.................................................................................. 8
Weekly Study Guide ............................................................................ 1046
Week 1 ............................................................................................. 10
Week 2 ............................................................................................. 14
Week 3 ............................................................................................. 18
Week 4 ............................................................................................. 22
Week 5 ............................................................................................. 26
Week 6 ............................................................................................. 31
Week 7 ............................................................................................. 37
Week 8 ............................................................................................. 39
Week 9 ............................................................................................. 42
Week 10 ........................................................................................... 45
Appendix A ................................................................................................. 47
Responsibilities of students.............................................................. 47
Plagiarism, cheating & collusion ...................................................... 47

STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

COURSE INTRODUCTION
Course Synopsis
The BMAC5203 course is designed for business students without previous
in-depth exposure to managerial accounting. Internal or managerial
accounting system provides exclusive business information that assists
managers in handling the tasks of planning, control and decision-making.
Todays management accountants focus on the advisory and consulting
services related to strategic planning, organisational control and business
decisions. Their roles are not only revolved around product costing, pricing,
asset/liability management, investment analysis and performance evaluation
but also extends to contemporary issues such as financial and business
reengineering.
The type and nature of information supplied by the internal accounting
system is flexible and is customised to the needs of managers. It is also a
dynamic function that evolves consistently as organisational changes occur.
Parallel to the current trend in business, issues of global significance are
widely discussed and explored in this course.

Course Aims
The broad aims of this course are to:

1.

Introduce learners to the basic framework of Management Accounting


(Managerial) Information Systems which are relevant for business
planning, control and decisions;

2.

Assist learners in understanding the importance of business ethics and


explain the importance of ethical behaviour for managers and
accountants; and

3.

Provide learners with an understanding of the costing and pricing


principles and their relationship to profit planning and business problem
solving.

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ACCOUNTING FOR DECISION MAKING

Course Outcomes
At the completion of this course, it is expected that learners will be able to:
1.

Explain the basic aims (viz stock valuation, profit determination,


decision making, planning and control) of management accounting
(managerial) information systems in an organisation;

2.

Explain the role of ethics in the managerial decision making process;


and

3.

Apply management accounting concepts, principles and techniques


that are fundamental to effective planning and control and efficient
business decisions.

Course Load
It is a standard OUM practice that learners accumulate 40 study hours for
every credit hour. As such, for a three-credit hour course, you are expected
to spend at least 120 hours of learning. Table 1 gives an estimation of how
the 120 hours could be accumulated.
Table 1: Allocation of Study Hours
Activities

No of Hours

Reading the module and completing the exercises

60

Attending 5 tutorial sessions (2 hours for each session)

15

Engage in online discussion

10

Completing assignment

20

Revision

15

Total

120

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COURSE REQUIREMENTS
Prerequisites or Co-requisite
None.

Feedback and Course Evaluation


Please refer to myVLE.

COURSE RESOURCES
Set Textbook(s)
Textbook (supplied in course-pack)
Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of
managerial accounting (3rd ed.). South-Western Cengage Learning.

Additional References
Brandon, C. H., & Drtina, R. E. (1997). Management accounting strategy and
control. Mc Graw-Hill Companies, Inc.
Weygant, J. J, Kieso, D. E., & Kimmel, P. D. (1999). Managerial accounting:
Tools for business decision-making. John Wiley.

Extra Recommended Reading


Zimmerman, J. L. (2000). Accounting for decision making and control
(3rd ed.). McGraw Hill Companies, Inc.

my Virtual Learning Environment (myVLE)


Please refer to myVLE.

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ACCOUNTING FOR DECISION MAKING

OUM Digital Library Resources


Download past examination questions:
Click Exam Papers

ASSESSMENT
Assessment Format
Please refer to myVLE.

Assignment Question(s)
Please refer to myVLE.

Final Examination
Please refer to myVLE.

Late Submission of Assignment(s)


Failure to submit an assignment by the due date without the granting of an
official extension of time by your course tutor will incur a penalty.

Important Dates
Please refer to myVLE.

Note: This study guide is an excerpt from various sources. The author has
made all attempts to cite the original sources.
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Weekly Study Guide


Week 1
Topic 1: Introduction to Managerial Accounting and
Ethics
Readings
Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of
managerial accounting (3rd ed.). South-Western Cengage Learning.
Chapter 1 (Page 221)
e-Content
(a)

Download PowerPoint slides (lecture 1) from myVLE (Group Tool) and


read through the notes before your first class.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:
1.

Describe accounting information and explain the differences


between managerial accounting and financial accounting.
(a)

The American Accounting Association describes accounting as


the process of identifying, collecting, measuring, analysing,
preparing, interpreting and communicating economic information
to permit informed judgment to be made by users of accounting
information.

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(b)

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ACCOUNTING FOR DECISION MAKING

There are two different accounting information systems, serving


different category of users:
(i)

Managerial accounting system which meets the information


needs of internal management, and

(ii)

Financial accounting system which meets the needs of


external users such as bankers, creditors, government,
trade unions potential investors etc.

Table 1 shows the difference between managerial accounting


information and financial accounting information:
Types of accounting
information system:

Managerial accounting
information systems

Financial accounting
information systems

Targeted user:

internal users and managers

external users as well as


stockholders and creditors

Restrictions:

no mandatory rules for


preparing reports

must follow GAAP when


preparing financial
statements

Types of information:

financial and non-financial


information

financial information

Time orientation:

emphasises the future


(planning and decision
making)

historical orientation (reports


what has already occurred)

Aggregation:

detailed information about


product line, departments,
etc.

information about overall firm


performance

2.

Using managerial accounting system (MAS), the focus of this


course, provide information for managers to fulfil three basic
objectives/aims:
(a)

For stock valuation (costing products and services) and for profit
determination;

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BMAC5203

(b)

For planning, controlling,


improvement; and

(c)

For decision making.

ACCOUNTING FOR DECISION MAKING

evaluation,

and

continuous

The subsequent topics in this course will require learners to learn and
understand how MAS is used by managers to achieve each of the
basic objectives listed above.
3.

Explain the importance of ethical behaviour for managers and


management accountants.
The objective of maximising profits should be constrained by the
requirement that profits be achieved through legal and ethical means.
The Institute of Management Accountants (IMA) overarching ethical
principles include:
(a)

Competence maintain an appropriate level of professional


expertise by continually developing knowledge and skills;

(b)

Confidentiality refrain using confidential information for unethical


or illegal advantage;

(c)

Integrity abstain from engaging in or supporting any activity that


might discredit the profession; and

(d)

Credibility communicate information fairly and objectively.

Study Questions
(a)

How do managerial accounting and financial accounting differ? Who


are the different users of accounting information?

(b)

What are the three broad objectives of managerial accounting?

(c)

What is ethical behaviour? Explain the underlying code of ethics of the


IMA.

(d)

Should a MAS provide both financial and non-financial information?


Explain.

Now attempt the past examination questions to reinforce your


understanding of this topic.

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Frequently Asked Questions


1.

Question: Do you need to learn accounting double entries (debits and


credits)?
Answer: No. Accounting double entries are mostly confined to financial
accounting. The focus of your course is on managerial accounting.

2.

Question: Will you be asked to prepare Profit and Loss and Balance
Sheet statements during exams?
Answer: A full set of accounts (balance sheet and profit and loss
statement) is not required in this course. You may however, be asked
to prepare a simple profit summary.

Glossary of Important Terms


A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 2
Topic 2: Basic Cost Concepts and Cost Classifications
Readings
Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of
managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapters 2 and 3 (page 2898)

e-Content
(a)

Download PowerPoint slides (lecture 2) from myVLE (Group Tool) and


read through the notes before your first class.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:
1.

Explain the meaning of cost and how costs are assigned to


products and services.
(a)

Cost is the amount of cash or cash equivalent incurred for


producing goods and/or services.

(b)

A cost unit/cost object is any item such as products, departments,


customers, and activities for which costs are measured and
assigned.

(c)

Cost are assigned to cost objects either directly or indirectly.

(d)

Direct cost such as direct material, direct labour and direct


expenses are traced to cost units directly.

(e)

Indirect costs referred to as production overheads cannot be


directly identified to the cost objects. Therefore, they are allocated
by using a more complex approach. (This approach will be
discussed later).

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2.

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ACCOUNTING FOR DECISION MAKING

Define how costs are classified (cost classification).


Costs can be classified using the three broad managerial accounting
objectives discussed in Week 1. Figures 1 to 3 show these
classifications.

Figure 1: Cost classification for external product costing


Objective 1: For external product costing (stock valuation purposes) costs
are classified by the function they serve, as summarised below:

Figure 2: Cost classification for planning and control


Objective 2: For planning and control purposes costs are classified by
controls as summarised below:

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Study notes Figure 3: Cost classification for decision making


Objective 3: For decision making purposes costs are classified by behaviour,
as summarised below:

3.

Apply cost estimation methods to separate semi-variable costs


into fixed and variable elements.
(a)

For decision making purposes it is important to separate the


semi-variable costs into its fixed and variable components.

(b)

Cost estimation techniques are used to separate semi-variable


costs into its fixed and variable costs components.

(c)

There are a number of cost estimation methods available.


However, the method relevant for this course is the High Low
method.

4. Define the various costs of manufacturing products and the various


costs of behaviour. Eg. prime cost consists of:
(a)

Direct materials costs materials directly traceable to the


product/service;

(b)

Direct labour costs labour directly traceable to the product/


service;

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5.

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(c)

Direct expenses directly traceable to the product/service; and

(d)

Learners can refer to the main text, for the definition.

Calculate the cost of goods manufactured the cost of goods sold


and a simple income statement.
Learners can refer to the main text, pages 3941, for the calculation
formats.

Study Questions
Refer to your main text and attempt the following exercises:
(a)

Exercises 2.21 and 2.24 on page 51

(b)

Exercises 2.29, 2.30 and 2.31 on page 53

(c)

Problem 2.44 on page 57

(d)

Problems 2.47, 2.48 and 2.49 on pages 5960

(e)

Exercises 3.17 and 3.18 on page 99

Now attempt the past examination questions to reinforce your


understanding of this topic.
Frequently Asked Questions
Question: How to calculate an income statement for a service organisation?
Answer: Refer to page 43 of your text, for the format and calculations of
income statement for a service organisation.
Glossary of Important Terms
A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 3
Topic 3: Traditional Overhead and Activity Based Costing, Job
Order Costing and Process Costing
Readings
Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of
managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 5 (page 164203)

Chapter 6 (page 222253)

Chapter 7 (page 272279)

e-Content
(a)

Download PowerPoint slides (lecture 3) from myVLE (Group Tool) and


read through the notes before your next seminar.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:
1.

Explain and calculate how a traditional overhead costing


approach is used for product costing.
Traditional approach overhead involves a two-stage approach,
whereby overhead are first assigned to cost centres and then assigned
to cost objects:
(a)

Overhead absorption rate (OAR) is a predetermined rate


calculated using the following formula:

Budgeted production Overhead


Budgeted unit of base

(i)

OAR

(ii)

The above formula can be used to calculate a single or


plant-wide rate

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2.

ACCOUNTING FOR DECISION MAKING

(iii)

For the budgeted unit of base there are different methods of


calculation. However the most common methods are labour
rate, machine hour rate and output rate.

(iv)

Refer to page 300 of your text for an illustration on the


traditional overhead costing approach.

Explain and calculate how an ABC system is used for product/job


costing.

(a)

An ABC system traces costs to activities and then to cost objects.

(b)

The steps involved in ABC are:

(c)

(d)
3.

BMAC5203

(i)

Identify the activities;

(ii)

Determine the cost pool by assigning costs to activities;

(iii)

Determine the cost drivers for each activity;

(iv)

Determine the total amount each driver consumed;

(v)

Calculate cost per driver (Step 2 divided by Step 4); and

(vi)

Using the calculated cost driver rates charge the overhead


to each product according to its consumption.

The ABC hierarchy consists of different types of costs for different


levels:
(i)

Unit level activities


manufactured;

arise

each

time

product

is

(ii)

Batch level activities vary with the number of batches


produced;

(iii)

Product sustaining activities vary with the number of product


lines; and

(iv)

Facility sustaining activities are necessary to operate the


plant facility

Refer to text illustrations on pages 301302.

Explain the difference between traditional approach and the ABC


system.

(a)

Traditional overhead is volume related, hence it tends to


understate overhead cost of a low volume complex product and
overstate the overhead costs of a high volume product.

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(b)

4.

5.

6.

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ABC tends to allocate overheads to products which consume


activities and these activities cause the overheads to rise.

Explain the advantages of ABC.

(a)

ABC recognises the reality in advanced manufacturing


environments that overheads are not related to direct labour.
Instead, activities influence overheads. Hence, it provides more
accurate product costs.

(b)

Since ABC provides more accurate product costs, decisions


taken by management are better informed, eg pricing decisions.

(c)

More accurate product profitability analysis can be produced.

(d)

ABC recognises the various activities that take place in an


organisation, hence enabling management to target non-value
adding activities for cost reductions exercises.

Describe the differences between job order costing and process


costing and identify the types of firms that would use each
method.

(a)

Job order costing is for companies who produce unique products


which are tailor-made for individual customers needs.

(b)

Process costing involves producing similar or identical products or


services.

(c)

Go through Review Problem 1 on page 195 of the main text to


understand overheads and job costing.

Define equivalent units and explain their role in process costing.

(a)

In process costing, at the end of a period, there will be a number


of unfinished production units. These units are referred to as
work-in-process (WIP) units.

(b)

In order to determine the cost per unit produced, the output of the
period must be ascertained.

(c)

The output of the period consists of fully completed product units


(products started and ended during the same period) and
equivalents units, calculated from the opening and closing WIP.

(d)

For calculation of equivalent units refer to Illustration 6.2, page


227 of the main text.

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Study Questions

Refer to your main text and attempt the following exercises:


(a)

Exercise 7.39 on pages 310311

(b)

Exercise 7.49 on pages 314315

(c)

Exercise 7.51 on page 316

(d)

Problem 7.55 on page 318

(e)

Problem 5.54 on page 215

Now attempt the past examination questions to reinforce your


understanding of this topic.
Frequently Asked Questions
Question: Do you need to learn both the traditional and ABC methods for
the examinations?
Answer: Both methods are examinable!!
Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 4
Topic 4: Cost-Volume-Profit (CVP) Analysis
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 4 (page 114159)

e-Content

(a)

Download PowerPoint slides (lecture 4) from myVLE (Group Tool) and


read through the notes before your first class.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:

1.

Understand the underlying assumptions and limitations of the


CVP analysis tool.

Assumptions:
(a)

All other variables remain constant (e.g. productivity);

(b)

Total revenue is a linear function of output;

(c)

Total cost is a linear function of output;

(d)

A single product or a constant sales mix; and

(e)

No closing stock at the end of the period.

The underlying assumptions are the limitations of the CVP analysis


tool. This is because the above assumptions are not applicable in
practice.

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2.

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ACCOUNTING FOR DECISION MAKING

Determine the break-even point in sales units and sales value, the
amount of revenue required for a target profit and the margin of
safety.

(a)

(b)

For CVP analysis, a contribution margin approach used that


classifies costs by behaviour as:
(i)

Variable costs both variable manufacturing and variable


selling and administrative; and

(ii)

Fixed costs both fixed manufacturing and fixed selling and


administrative.

Contribution margin is calculated as follows:


Sales less all variable cost = Contribution.

(c)

Contribution/sales = C/S ratio

(d)

The break-even point (BEP) is the point where total revenue


equal total cost, the point of zero profit.

(e)

BEP can be determined using:

(f)

(i)

Equation method

(ii)

Formula approach

(iii)

Graphical approach (refer to text pages 123128)

Equation method:
Operating income = (Price Units sold) (Variable cost per unit
Units sold) Total fixed expenses
At breakeven, this can also be expressed as:
Total revenue Total variable cost Total fixed cost = $0
or
Total revenue = Total variable cost + Total fixed cost

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(g)

BMAC5203

Formula approach:

Break-even sales (units)

Break-even sales (RM)

(h)

(i)

ACCOUNTING FOR DECISION MAKING

Fixed costs
Contribution per unit

Fixed costs
C/S ratio

Graphical approaches:

(i)

Traditional break-even chart (refer to page 128)

(ii)

Profit volume chart (refer to page 127)

Other calculations:

Target profit (RM)

Fixed costs Required profit


C/S ratio

Margin of safety Sales Break-even sales


Degree of operating leverage

Total contribution margin


Operating income

Study Questions

Refer to your main text and attempt the following exercises:


(a)

Exercises 4.19 and 4.20 on page 149

(b)

Exercises 4.27, 4.28 and 4.29 on page 151

(c)

Problems 4.39 and 4.40 on page 155

(d)

Problems 4.42 and 4.44 on page 156

(e)

Problem 4.44 on page 157

Now attempt the past examination questions to reinforce your


understanding of this topic.

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Frequently Asked Questions

(a)

Question: Do you need to plot a graph during the examination?


Answer: Although it has not been tested previously, you are expected
to know how to plot a CVP analysis graph

(b)

Question: Will the formulas be given in the examination?


Answer: No. You are expected to remember the formulas and their
application.

Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 5
Topic 5: Short-term Decision Making
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 13 (page 556562)

e-Content

(a)

Download PowerPoint slides (lecture 5) from myVLE (group tool) and


read the notes for your next seminar.

(b)

Download past examination questions from (OUMs digital library) and


do the questions relevant to this topic.

Study Notes
The learning outcomes:

1.

Describe the short-run decision making model and explain how


cost behaviour affects the information used to make decisions.

(a)

Read and understand the six steps decision making model


explained on pages 556560 of the main text.

(b)

Generally, the short-term decision making model uses to two


broad principles:
(i)

The relevant costing principle

(ii)

The contribution approach principle

(c)

The above principles can be used for various short-term


decisions.

(d)

Figure 4 shows the types of decisions commonly undertaken


under each principle.

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Figure 4: Types of decision

2.

Identify and apply relevant costs and revenue, in a variety of


business decisions.

(a)

Relevant costs are future costs that affect future decisions which
differ across alternatives.

(b)

If a future costs is the same for more than one alternative, then it
has no effect on decisions. Such a cost is irrelevant.

(c)

Examples of relevant costs are:

(d)

(i)

Variable costs: Costs that vary with output

(ii)

Opportunity costs: Costs of the next best alternative


foregone

(iii)

Specific fixed costs: Costs that are incurred for a specific


purpose and can be avoided

(iv)

Out-of-pocket costs: Cash spending/expenses

(v)

Replacement costs: Costs incurred to replace materials that


have been used.

(vi)

Incremental costs: Additional cost incurred

Examples of irrelevant costs:


(i)

Sunk costs

(ii)

General fixed costs

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(e)

3.

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ACCOUNTING FOR DECISION MAKING

(iii)

Depreciation and other notional costs which are non-cash


items

(iv)

Overhead absorbed

As shown in Figure 4 earlier, relevant costing principle can be


used:
(i)

Pricing decisions: Minimum price that should be charged for


a job or project offered.

(ii)

Make-or-buy decisions: Compare the relevant cost of


making and outside price. If cost of making is less than
outside price, then make it internally.

(iii)

Shutdown decisions: Estimate the relevant cost and benefits


for a shutdown decision. If benefits are more than costs,
then the decision should be to shut down.

Understand and apply contribution approach for decision making.

(a)

Contribution = Sales variable costs

(b)

Contribution is the amount available to pay off fixed costs. Any


excess represents profit.

(c)

Using the contribution approach, only the variable costs are


relevant for decision making. All general fixed costs are assumed
to be constant in the short term.

(d)

As shown in Figure 4, contribution approach can be used for the


following decisions:

(e)

(i)

Choosing the optimal production plan;

(ii)

Make-or-buy decisions (Outsourcing); and

(iii)

Acceptance of special orders decisions.

For an optimal production plan decision:


(i)

Production is limited due to a limiting factor or a resource


constraint existing within the organisation.

(ii)

The limiting factor can be internal such as materials, labour


hours or machine hours or external such as sales demand.

(iii)

Management has to decide the best way to allocate the


internal scarce resources.

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(iv)

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ACCOUNTING FOR DECISION MAKING

The decision process involves a number of steps:

Step 1: Calculate contribution per unit of each product

Step 2: Identify the limiting factor and determine how


much each unit of a product consumes that limited
resource

Step 3: Calculate the contribution per limiting factor

Step 4: Rank the products according to their profitability

Step 5: Plan you production schedule based on the


ranking and availability of the resources

Step 6: Calculate the optimal profit from the optimal mix

Refer to Illustration 2 on 579580 in main text.

4.

For make-or-buy decisions two rules apply:

(a)

Rule 1: Spare capacity is available.


If spare capacity is available then the decision to make or buy is
solely based on comparing the internal variable cost of
making against the price quoted by the outside supplier. If
variable cost of making is less than outside price, make the
component internally.

(b)

Rule 2: There is a resource constraint (No spare capacity exists).


If there is no spare capacity, then the decision to make or buy
depends on internal relevant costs made up variable costs and
opportunity costs. This internal relevant costs is then
compared with the price quoted by the outside supplier. If
internal relevant costs is less than outside price, make the
component internally.

5.

For acceptance of special order learners should understand that


the decision is undertaken based on the following assumptions:

(a)

Spare capacity is available;

(b)

The special order price is higher than the variable cost or relevant
costs of producing the product;

(c)

General fixed costs is assumed to be constant;

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(d)

Acceptance of the special order will not affect the normal sales
demand; and

(e)

The special order is a one-off order only.

Learners are advised to refer to Illustration 13.2 on page 567 of the


main text.
Study Questions

Refer to your main text and attempt the following exercises:


(a)

Exercises 13.13, 13.14.13.19, 13.24, 13.25 and 13.26 on pages 582587 of the main text.

(b)

Problems 13.39, 13.40 and 13.42 on pages 591-592 of the main text.

(c)

Case 13.51 on page 597 of the main text.

Also attempt the past examination questions to reinforce your


understanding
Frequently Asked Questions
Question: How to structure the answer for each of the decision rule?
Answer: For each decision rule follow the formats given on Chapter 13 of
main text. Alternatively, follow the approach given by your facilitator.
Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 6
Topic 6: Planning and Control: Budgetary Control
Systems
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 9 (page 368405)

e-Content

(a)

Download PowerPoint slides (chapter 6) from myVLE (Group Tool) and


read the study guide before attending the face-to face seminar.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:

1.

Define budgeting and discuss its role in planning, control, and


decision making.

(a)

There are three levels of planning: corporate long-term planning,


medium-term planning and annual budgeting.

(b)

Budgets are financial plans for the future and are closely linked to
the long-term plan of the organisation.

(c)

Budgets are part of the planning and control process.

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(d)

(e)

2.

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ACCOUNTING FOR DECISION MAKING

Budgets assists an organisation:


(i)

To plan and control profitability;

(ii)

To plan and control production resources; and

(iii)

To plan and control finance and capital expenditure.

A budgetary system gives an organisation several advantages:


(i)

Provides information that can be used to improve decision


making;

(ii)

Provides greater coordination of the different functional


areas;

(iii)

Provides a standard for performance evaluation; and

(iv)

Improves communication and provides motivation to staff.

Explain the master budget, define and prepare operational/


functional budgets and financial budgets.

(a)

A master budget is a comprehensive financial plan for the whole


organization.

(b)

A budget committee reviews the budget, provides policy


guidelines, resolves conflicts and approves the final budget.

(c)

A budget officer or director directs and coordinates the


organisations overall budgeting process.

(d)

A master budget can be divided into operating/functional budgets


and financial budgets.

(e)

Operating/functional budgets describe the income generating


activities.

(f)

Financial budgets shows the inflows and outflows of cash and the
firms financial position.

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(g)

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ACCOUNTING FOR DECISION MAKING

The functional budgets consist of:


(i)

Sales budget: describes expected sales in units and RM.


Sales quantity budget is often referred to as the kingpin of
budgeting.

(ii)

Production budget: estimates how many units must be


produced to meet sales demand and also satisfy inventory
requirements.

(iii)

Direct material usage budget: Shows the amount of raw


material needed to meet the production quantity budget.

(iv)

Direct materials purchases budget: calculates the amount


and cost of materials to be purchased in each time period.

(v)

Direct labour costs budget: shows the total direct labour


hours and costs needed to meet the number of units in the
production budget.

(vi)

Overhead budget: shows the expected overhead costs


needed for the production quantity budget.

(vii) Selling and administrative budget: outline


expenditure for non-manufacturing activities.

planned

(viii) Finished good inventory budget: Provides information


needed to prepare the balance sheet.
(h)

The financial budget are:


(i)

Budgeted income statement: Prepared using the functional/


operational budget information;

(ii)

Cash budget: Planning timing of inflows and outflows; and

(iii)

Budgeted balance sheet.

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Figure 5: Master budget and its interrelationships Refer to Review


Problem I and II on page 393

3.

Describe the behavioural dimensions of budgeting.

(a)

Budgets are often used to judge the performance of managers.

(b)

Positive behaviour occurs when the goals of each manager are


aligned with company goals and the managers are motivated to
achieve them.

(c)

The alignment and coordination of individual goals with that of the


company is referred to as goal congruence.

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(d)

Dysfunctional behaviour is when individual behaviour is in conflict


with organisational goals.

(e)

Monetary and non-monetary incentives are used to control and


reward managers performance.

(f)

Participative budgeting allows subordinate managers to have a


say in the establishment of budget targets.

(g)

Participative budgeting motivates staff and communicates a


sense of responsibility to subordinate managers.

(h)

However, participative budgeting has three potential problems:


(i)

Setting standards that are either too high or low managers


tend to set too loose or too tight budgets.

(ii)

Budgetary slack may be built into the budgets budgetary


slack exists when managers deliberately underestimate
revenues and overestimate costs in an effort to avoid
adverse responsibility.

(iii)

Pseudo-participation this is where top management


assumes total control on the budgeting process, seeking
only superficial participation from lower level managers.

Study Questions

Refer to your main text and attempt the following exercises:


(a)

Exercises 9.21 to 9.29 on pages 398400

(b)

Exercises 9.30 to 9.12 on pages 400401

(c)

Exercises 9.34 to 9.39 on pages 402404

(d)

Problems 9.46 and 9.47 on pages 407408

Now attempt the past examination questions to reinforce your


understanding of this topic.
Frequently Asked Questions

None

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Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 7
Topic 7: Planning and Control: Flexible Budget
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 11 (page 460482)

e-Content

(a)

Download PowerPoint slides (lecture 7) from myVLE (Group Tool) and


read through the notes before you attend the next seminar.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcome:
Prepare a flexible budget and use it for performance reporting

(a)

A static budget is a budget for a particular level of activity.

(b)

A flexible budget enables a firm to compute expected costs for a range


of activity or enables to flex the original budget to actual activity level.

(c)

When preparing the flexible budget, all variable costs are flexed to
actual activity level, whilst fixed cost remain the same.

(d)

The difference between flexible budget and actual costs are referred to
as variances.

Refer to Illustrations 11.2 and 11.3 on page 465 and 466 respectively.

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Study Questions

Refer to your main text and attempt the following exercises:


Problems 11.46 to 11.49 on pages 494 to 497.
Now attempt the past examination questions to reinforce your
understanding of this topic.
Frequently Asked Questions

None
Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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STUDY GUIDE

BMAC5203

ACCOUNTING FOR DECISION MAKING

Week 8
Topic 8: Planning and Control: Standard Costing
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 10 (page 416452)

e-Content

(a)

Download PowerPoint slides (lecture 8) from myVLE (Group Tool) and


read the notes before attending the seminar.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:

1.

Explain how standard costs are prepared.

(a)

Standards are developed from work studies, historical experience


and input from personnel.

(b)

Types of standards:
(i)

Ideal standards can only operate under perfect working


conditions

(ii)

Currently attainable standards are achieved under efficient


operating conditions.

(c)

Standard costing is a management control system which is found


in mostly in the manufacturing industry.

(d)

Variances represent the difference between standard costs and


actual costs.

(e)

Variances are classified as favourable if the actual costs is less


than standard costs and vice versa.

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STUDY GUIDE

(f)

2.

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ACCOUNTING FOR DECISION MAKING

Advantages of standard costing:


(i)

It provides a means of ensuring that production resources


are used efficiently

(ii)

Provides management with a consistent method of


comparing actual performance with planned performance

(iii)

It helps to motivate staff to set realistic standards.

Compute the material and labour costs variance and explain how
they are used for control.

The diagram below shows the types of variances and the way to
compute the variances:
(a)

AQ = Actual quantity; AO = Actual Production output

(b)

AP = Actual price of materials; SP = Standard price of material

(c)

AR = Actual rate of labour; AH = Actual labour hours

(d)

SC = Standard materials/labour cost per unit

(e)

AC = Actual material/labour cost per unit

For illustration, refer to Review Problem 1 on page 439.


Study notes Figure 6: Production Costs Variances

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Study Questions

Refer to your main text and attempt the following exercises:


(a)

Exercises 10.27 to 10.35 on pages 444 to 446

(b)

Problems 10.41 and 10.43 on pages 448 and 450

Now attempt the past examination questions to reinforce your


understanding of this topic.
Frequently Asked Questions
Question: Will the relevant formulas be given in the exam question paper?
Answer: No, learners are required to understand, remember and apply the
formulas.
Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 9
Topic 9: Divisional Performance and Performance
Report
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.

Chapter 12 (page 506547)

e-Content

(a)

Download PowerPoint slides from myVLE (group tool) and go through


the slides before attending the seminar.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:

1.

Explain why firms choose to decentralise.

(a)

Decentralisation is the practice of delegating responsibilities.

(b)

Firms decide to decentralise for several reasons:


(i)

Ease of gathering and using local information;

(ii)

Focusing of central management; and

(iii)

Training and motivating of segment managers.

(c)

Responsibility accounting involves measuring the performance of


decentralised units in terms of accounting results.

(d)

Responsibility accounting involves measuring the performance of


decentralised units in terms of accounting results.

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STUDY GUIDE

2.

ACCOUNTING FOR DECISION MAKING

Identify and explain the different types of responsibility centres.

(a)

(b)

3.

BMAC5203

Four major types of responsibility centres:


(i)

Cost centre: Manager is responsible only for costs.

(ii)

Revenue centre: Manager is responsible for only revenue.

(iii)

Profit centre: Manager is responsible for both revenue and


costs.

(iv)

Investment centre: Manager is responsible for revenue,


costs and investments.

It is important to measure and monitor the performance of


investment centres.

Explain the different types of divisional performance measures.

There are three basis used to measure the performance of investment


centres:
(a)

Return on investment (ROI)

(i)

(ii)

(iii)

Operating income
Average operating assets

The ROI can be further analysed into:

Net Profit margin

Asset turnover

Operating income
Sales

Sales
Average operating assets

Advantages of ROI

It encourages managers to focus on cost efficiency;

It encourages mangers to focus on operating asset


efficiency; and

It deals with profits and net assets, which are concepts


well understood in business.

Limitations

Can lead to sub-optimal decision making.

There can be manipulation of the ratio.

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(b)

Residual Income (RI): is the difference between operating


income and the minimum ringgit return required on a
companys operating assets.
RI = Operating Income (minimum rate of return Average
operating assets)

(c)

Economic value added (EVA) is net income after tax minus


the total annual cost of capital.

Refer to Review Problems I and II on pages 537 and 538 to understand


the calculations.
Study Questions

Refer to your main text and attempt the following exercises:


(a)

Exercises 12.1 to 12.3 on page 342

(b)

Problems 12.3412.37 on pages 547549

Now attempt the past examination questions to reinforce your


understanding of this topic.
Frequently Asked Questions
Question: Is transfer pricing included in this course?
Answer: No, transfer pricing is not included in your course syllabus.
Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Week 10
Topic 10: Other Contemporary Issues
Readings

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of


managerial accounting (3rd ed.). South-Western Cengage Learning.
Google www. for on-line resources.
e-Content

(a)

Download PowerPoint slides from myVLE (Group Tool) and read


relevant articles before attending the seminars.

(b)

Download past examination questions from OUMs digital library and


do the questions relevant to this topic.

Study Notes
The learning outcomes:
Explain contemporary management accounting issues:

(a)

Total quality management; refer to pages 1011 and on-line resources;

(b)

Benchmarking, on-line resources;

(c)

Balanced scorecard, refer to pages 526536 and on-line resources;

(d)

Target costing, refer to pages 434, 576577 and on-line resources; and

(e)

Life cycle costing, on-line resources.

Learners are expected to read and understand the above issues on


their own.

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Study Questions

(a)

What are the four categories of quality costs?

(b)

What are the advantages and disadvantages of benchmarking?

(c)

Explain the benchmarking process.

(d)

Explain Kaplans balanced scorecard principle.

(e)

What is target costing? Explain.

(f)

What is life cycle costing? Explain how organisations use life cycle
costing.

Now attempt the past examination questions to reinforce your


understanding of this topic.
Frequently Asked Questions
Question: Are these topics important for the examinations?
Answer: These topics can be examined as course assignments or briefly in
the examinations.
Glossary of Important Terms

A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 731 to 738.
If the explanations are unclear, learners are advised to refer to an English/
Bahasa Malaysia Accounting dictionary.

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Appendix A
Responsibilities of Students

1.

Learners are required to use this


study guide as a support material.
For in-depth subject matter details,
learners are advised to refer to the
main course text provided with this
course.

2.

Face-to-face learners are required to


attend the five seminars held during
the semester.

3.

On-line learners are required to


discuss their doubts with their online facilitators using the myVLE.

4.

Learners should download and


practice the past examination
questions to have a better
understanding of the subject matter.

5.

Learners are advised to read the


Postgraduate Students Handbook
for further clarification.

Ethical Behaviour
Learners MUST read and conform to
the universitys Code of Ethics as
stated in the Postgraduate Students
Handbook.

Plagiarism, Cheating &


Collusion
Learners
MUST
read
the
Postgraduate Student Handbook for
the universitys rules and warnings
on
Plagiarism,
Cheating
&
Collusion.

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