LAHORE UNIVERSITY OF MANAGEMENT SCIENCES

SULEMAN DAWOOD SCHOOL OF BUSINESS

Managerial Accounting and Control Systems

Omair Haroon

COURSE OUTLINE
EMBA 2023
Module III
Instructor: Omair Haroon Email:
omair.haroon@lums.edu.pk
Room No: 4-0037 Telephone: Ext 8394
Office By appointment Secretary/ Faisal Hameed
Hours: TA <faisalha@lums.edu.pk>

COURSE OVERVIEW
Course Introduction

Building on the technical foundations of Financial Reporting and Analysis, this course
concentrates on the use of accounting information for decision making and control within the
firm. This orientation contrasts with financial accounting where the focus is on accounting
disclosures for parties external to the firm. This course reviews different costing
methodologies and how to use them for decision-making. The course also examines the use
of management accounting information for planning and performance evaluation. The last
module of the course examines the role of accounting information for implementation of
business strategies of the organization.

Course Learning Objectives

Upon successful completion of the course, the students should be able to understand

1. The cost accounting fundamentals in terms of understanding the cost terms and
purpose
2. Allocation of costs to different cost objects and different methods used for the
purpose
3. The use of accounting information for planning and control through the use of fixed
and flexible budgeting, variance analysis and its use for management control
4. The use of cost accounting information for managerial decision making
5. Use of managerial accounting information for strategy formulation, design of
managerial compensation and performance evaluation.

Course Description

The course is divided into the following broad modules:

Module I
Cost accounting fundamentals
Students will be introduced with different cost terms and their purpose. Use of accounting
systems to produce the relevant cost accounting information will be discussed. In addition to
that, the concept of Cost Volume Profit analysis will also be discussed in the module.

Module II
Cost Allocations
The objective of allocation of costs to different cost objects and the techniques used for the
purpose including conventional as well as refined techniques such as activity based costing
will be covered in the module. Use of activity based costing to measure customer profitability
and capacity costs will also be covered in the module.
COURSE OVERVIEW
Module III
Costs for decision making
Identification of relevant cost & revenues and their use for business decision making will be
discussed in the module. The focus of this module will be more on short term decision
making as long term decision making is covered in the finance course.

Module IV
Planning and control
Students will be introduced to variance analysis tools used to analyze production cost
variances (including direct costs and overheads)

Module V
Management Control Systems

The concept of management control system and different issues relating to that will be
covered in the module. Concepts covered will include cost control, transfer pricing,
performance measurement (using ROI, EVA as well as non-financial measures) including
responsibility centres, and design of overall internal and management control system.

EMBA PROGRAM LEARNING GOALS & OBJECTIVES

Goal 1 – Effective Communication

Objective Written: Students will be able to communicate in writing; effectively, clearly and
persuasively, in ways appropriate for a variety of objectives and audience.
Objective Oral: Students will be able to verbally communicate clearly and persuasively, in
ways appropriate for a variety of objectives and audience.
Goal 2 – Critical Thinking & Decision Making
Objective: Students will be able to identify key problems, collect and use information
critically, and generate viable alternatives and solutions.
Goal 3 – Global Perspective & Flexibility
Objective: Students will demonstrate understanding of global and multi-cultural perspectives
within the local context and be able to work effectively in multi-cultural settings.
Goal 4 – Leadership and Teamwork
Objective: Students will be able to assume leadership roles, perform leadership tasks
responsibly, and work effectively in teams.
Goal 5 – Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues
in an organizational context
Goal 6 – Functional (subject area knowledge), integrative and strategic abilities
Objective: Students will demonstrate understanding of the functional and strategic aspects of
business and management, be able to integrate across functional areas, and develop feasible
strategies and action plans.
INDICATE BELOW HOW THE COURSE LEARNING OBJECTIVES
SPECIFICALLY RELATE TO ANY PROGRAM LEARNING GOALS AND
OBJECTIVES.

Program Learning Goals Course Learning Course Assessment Item

and Objectives
Goal 1 – Effective
Communication
Goal 2 - Critical Thinking
and Decision Making
Goal 3 – Global Perspective
and Flexibility
Goal 4 – Leadership and
Teamwork
Goal 5 – Ethical
Understanding and
Reasoning
Goal 6 – Functional (subject
area knowledge), integrative
and strategic abilities
Objectives
Communication skills are CP , project & exam
imperative to this course as
verbal case analysis in class
is a large part of the grade
and other instruments will
require test written skills
CLO 4&5 CP
Principles of cost & CP, quizzes & exam
management accounting are
common across countries
and students will apply them
to a mix of local &
international cases
Students will get an Class discussions
opportunity to work in small
teams during their
discussion groups
Some cases in Module V Class discussions
require the students to
evaluate the ‘right’ thing to
do even though numbers
may suggest otherwise
The course covers all CP, quizzes, Project & exam
fundamental aspects of cost
accumulation and
managerial use of such
information

COURSE REQUIREMENTS
Financial Reporting and Analysis (Term I) is a pre-requisite for taking this course.

All of the key concepts covered in the course will be introduced through cases which you will
be required to solve (collectively) in class. You are expected to come to class prepared and
participate in the discussions. Large amounts of materials will be covered quickly and each
session builds on previous ones.

Success in mastering managerial accounting concepts is greatly enhanced by solving practical

problems. Your ability to tackle cases successfully will be enhanced if you have first
attempted to solve some problems on your own. Do not approach the course with the attitude
of memorizing rules or particular solution techniques. Examination questions will test your
understanding of those concepts, but by posing problems or conceptual questions that differ
from those that you have seen before.
RECOMMENDED TEXTBOOKS/SUPPLEMENTARY READINGS
Books:
Horngren “Cost Accounting: A Managerial Emphasis”, Horngren, Datar, and Rajan, 15th
edition
Hilton “Managerial Accounting: Creating Value in a Dynamic Business Environment” 10th
edition, Ronald W. Hilton and David E. Platt
HM “Cost Management: Accounting and Control”, 5th edition, Don R. Hansen and Maryanne
M. Mowen
Required chapters included in course pack
Various notes / articles (provided in the course pack or distributed during the course)

GRADING INSTRUMENTS

The following instruments of evaluation shall be used to assess individual performance.

1) Class Participation 25%
2) Quizzes 20%
3) Project 15%
4) Final Exam 40%

Quizzes would be unannounced, based on multiple choice questions (MCQs) and typically
related to the readings assigned for the class session.

The exam would comprise chiefly of case analysis with a relatively small component of short
questions aimed at assessment of understanding concepts learned during the course.

The project involves students identifying an application of materials learned in the course.
The students would be expected to write a report on how the organization they are working
for is using or should use the tools and techniques introduced in this course. The length of
the report can be a maximum of 3,000 words and should demonstrate students’ understanding
of the relevant concepts/tools/techniques and appreciation for challenges and benefits accrued
from use of the same in real life situations.

CLASS-MANAGEMENT POLICY

You are expected to be punctual for class and Discussion Group sessions. If you are late, you
will be allowed to participate in class discussions but will not be awarded any CP for that
session.
 Managerial Accounting & Control Systems
Executive MBA 2023
CASE/LECTURE BOOK

Session Module and TITLE OF READING LEARNING ASSIGNMENT QUESTIONS

No. Topic: CASE MATERIAL OBJECTIVES
Session 1 Module 1 – Cost Horngren Ch 1, “The Students will be introduced Be prepared to discuss readings in the
Accounting Manager and Management to some basic cost terms, session
Accounting” concepts and purposes
Fundamentals which they need to become
Cost terms & HM Ch. 2, “Basic Cost familiar with for cases to be
purposes Management used in the upcoming
Concepts” sessions.
Session 2 Cost terms & Nirala; The Review HM Ch. 2, “Basic This introductory case is 1. What cost information does Faisal need?
purposes cost Cost Management used as a springboard to Why?
Concepts” raise a number of issues and
question questions which will be 2. How should such information be
HM Ch. 3, “Cost answered with the help of obtained?
Behavior” the tools, concepts and
techniques that students will
learn over the span of the
course.
Session 3 MODULE II- Sapphire Hilton Ch. 3 “Product 1. Understanding costing 1. Calculate the cost of the customer orders
Cost Allocations Textile Costing and Cost systems given in Exhibit 6 of the case using the
Accumulation in a Batch 2. Distinguishing between existing costing system.
Overhead Cost Mills Production Environment” job & process costing 2. Calculate the cost of the customer orders
Allocation Limited: 3. Cost accumulation in a given in Exhibit 6 of the case using the
Refining the job order system proposed costing system.
Costing 4. Understanding cost 3. What do you recommend the company
System allocation decisions should do?
Session 4 Allocation of Rosemont HM Ch. 7, Students are introduced 1. What is the cost per visit for each department?
support costs Hill Health “Allocating Costs to the concept of cost 2. How might this information be used by Mr.
of Support allocations by Mitchell?
Centre Departments and performing a step-down
Joint Products". analysis and are
required to discuss the
usefulness of this new
information.
Session 5 Developing an Classic Pen Hilton Ch. 5, An introductory case 1. Calculate the revised product costs for the four pens,
ABC Model Company “Activity-Based which introduces the based on the activity information collected by
Costing basic concept of ABC. Dempsey.
and Management Students will develop a 2. What actions are stimulated by the ABC product
“ simple ABC model costs?
based on information
given in the case and
compare the results
with the traditional
model.
Session 6 Activity Precision As above Students will gain an Calculate the cost of the five orders in Exhibit 3 under
Based Costing Motors insight into the the traditional and new systems. (Hint: first
importance of a cost calculate the cost of processing an order and
Division system in supporting a handling a special component).
company’s decision to Calculate traditional and new system costs for each
change strategies. order if 1 unit, 10 units, 20 units or 100 units are
ordered.
Does the new system support the strategy of the firm in
ways that the traditional system cannot?
Session 7 Cost-Volume- Pakistan Horngren Ch. 3, Students will have an 1. Complete Exhibit 7 of the case for PIA and compare
Profit " Cost–Volume– opportunity to explore the results with three other international airlines.
International Profit Analysis” At present revenue and cost structure, what will be
Analysis the problems behind the
Airlines deepening financial the break-even load factor for PIA? What will be
situation at PIA through the effect on profitability if PIA operates with
an analysis of its cost similar load factors and hours of flight per aircraft
structure and per day comparable to those of other airlines?
operational 2. Based on the results of your analysis of question 1
performance. and the industry data in Exhibits 1, 2, 3 & 6, what
do you think are the major problems facing PIA?
3. According to the national media, PIA intends to
purchase 30 new aircraft by 2020. Based on your
analysis in questions 1 and 2, do you think that it is
the size of fleet which is the biggest problem for
PIA?
4. Assume that the average number of passengers
flying on the Islamabad-Sukkur route is 115.
Calculate the profitability of this route based on the
 following data; and then, on the basis of your
analysis, make suggestions as to what should be
done?

Aircraft used: Boing 737-200ER

Seating capacity: 300 passengers
KM’s /gallons (based on 300 available seats): 132
Price per gallon of Fuel: Rs.210
Air distance: 1,000 km
Revenue/passenger KM charged for this route: Rs.6.86
per actual PKM

Repair and maintenance, aviation, and passenger costs

can be assumed to be the same as are given in the
case for PIA
Session 8 Cost Volume The As Above How CVP analysis 1) How would you describe the competitive strategy
Profit (CVP) ALLTEL supports business of the ALLTEL Pavilion? What do you think it
strategy should be?
Analysis and Pavilion 2) For the show illustrated in Exhibit A, the KFBS
Strategy Allstars, how many tickets must ALLTEL Pavilion
sell to break even?
3) For which type of performer (fixed fee or per
capita) is breakeven analysis particularly
important, and why?
Which type of performer is preferred by the
Pavilion, and why?
4) Explain how sensitivity analysis could be used to
better understand the uncertainty surrounding the
KFBS Allstars event.
Session 9 MODULE MilliChem Hilton Ch. 14 A detailed numerical Questions in the case
III- Costs for Limited “Decision exercise in which
Making: further relevant costing
Decision Relevant concepts are studied in
Making Costs and the context of a make or
Short Term Benefits” buy situation.
decision
Making
 Session Decision Fashion As above 1. Understanding relevant vs Questions in the case
10 Making Point irrelevant costs

2. Understanding opportunity
costs

Session11 MODULE IV- Miles High Hilton Ch. 10, Students will be introduced to Questions in the case
Planning & Cycle “Standard Costing variance analysis tools used to
and analyze production cost variances
Control Analysis of Direct (including direct costs and
Flexible Costs”. overheads).
Budgeting &
Variance Hilton Ch. 11,
Analysis “Flexible Budgeting
and
Analysis of
Overhead Costs”.
Session12 Flexible Software As above and As above, plus introduction to Questions in the case
Budgeting & Associates Horngren, “Sales revenue variances
Variance Analysis”
Variance
Analysis
Session Return on Enager Hilton Ch. 12, The case introduces the concept of Questions in the case
13 Investment Industries, “Responsibility ROI as a tool to evaluate the
Accounting, performance of business divisions
Inc. Operational and managers. It also helps the
Performance students to understand the problems
Measures, and the and pitfalls associated with the use of
Balanced Scorecard” ROI as a performance evaluation
tool.
Hilton Ch. 13,
“Investment Centers
and Transfer
Pricing”
Session Transfer Pricing Birch Paper Transfer Pricing Understanding transfer pricing as a 1. Which bid should Mr. Kenton accept?
14 Company (Horngren) management control and 2. Which bid is in the best interest of Birch Paper
performance evaluation tools & the Company?
Ch. 22, possible problems associated with 3. Should the commercial vice president intervene? If so,
“Management using it. how?
Control Systems,
Transfer Prising, and
Multinational
Considerations”.
Session Performance Empire Glass Blocher Ch. 10, Understanding budgeting as a 1. Evaluate Empire’s budgeting process. What changes
15 Evaluation Company “Strategy and the management control tool would you recommend?
Master Budget” 2. Evaluate the other aspects of Empire’s control
systems Budget Advantages systems. What changes would you recommend?
and Disadvantages
(handout)
Behavioral Aspects
Of Budgeting
(handout)
Session Balanced Citibank: HM Ch. 13, “The The case is used to introduce the 1. Why has Citibank introduced a performance
16 Scorecard Performance Balanced Scorecard: concept of non-financial measures to scorecard
Strategic-Based evaluate the performance of 2. Assume that you are Liza Johnson, Complete Exhibit
Evaluation Control” managers and the problems I to evaluate Jam’s performance.
associated with this approach.