By

Dr. Stephen Kasumba

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 COURSE OUTLINE
The course focuses on the way management
accounting information is:
 gathered,
processed and
disseminated for decision-making.
Management accounting is seen as a way of providing
information in three main areas:
costing,
decision-making, and
planning and control.

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 COURSE OBJECTIVES
By the end of the course, students should be able to:
Familiar with management accounting terminology;
Aware of the various techniques and systems of costing
and their impact on decision making;
Apply accounting information in decision making
process;
Plan, allocate and manage resources in an organisation;
and
Evaluate performance of various units of an organisation

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 TOPICS TO BE COVERED
1. Nature of management accounting,
2. Cost concepts &behaviour;
3. Activity based costing;
4. Cost volume profit analysis
5. Short-term decisions
6. Budgeting and budgetary control,
7. Standard costing and variance analysis
8. Performance measurement and transfer pricing.

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 ESSENTIAL BOOKS
The required textbooks are:
Drury, C. (2008) Management and Cost Accounting, 7th
Edition, London: Thompson Business Press. (a
supporting website for students: www.drury-online.com
)
Seal, W., Garrison, R., Noreen, E. (2006) Management
Accounting 2nd Edition, McGraw-Hill. (a supporting
website for students: www.mcgraw-hill.co.uk)
There is a supporting website for students with
additional materials at: www.drury-online.com

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 ASSESSMENT
By:
Coursework
Examination

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 MANAGEMENT ACCOUNTING
Management accounting is the application of the
principles of accounting and financial management to:
create,
protect,
preserve and
increase value for the stakeholders of for-profit and not-
for-profit enterprises in the public and private sectors
(CIMA)

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 WORK OF MANAGEMENT

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PLANNING AND CONTROL CYCLE

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 THE ROLE OF MANAGEMENT
ACCOUNTING
Management accounting is an integral part of
management.
It requires the identification, generation, presentation,
interpretation and use of relevant information to:
Inform strategic decisions and formulate business
strategy
Plan long, medium and short-run operations
(budgeting)
Determine capital structure and fund that structure
Design reward strategies for executives and
shareholders

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 THE ROLE OF MANAGEMENT
ACCOUNTING
Inform operational decisions
Control operations and ensure the efficient use of
resources
Measure and report financial and non-financial
performance to management and other stakeholders
Safeguard tangible and intangible assets
Implement corporate governance procedures, risk
management and internal controls (CIMA Official
Terminology, 2005).

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 MA versus FA
Management accounting is concerned with the
provision of information to internal parties within the
organisation to help them make better decisions and
improve the efficiency and effectiveness of existing
operations.
Financial accounting which mainly is concerned with
the provision of information to external parties.

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 MA versus FA

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 MA versus FA

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 EMERGING THEMES IN
MANAGEMENT ACCOUNTING
According to Johnson and Kaplan (1987), most
management accounting practices used in mid-1980s
had been developed by 1925 which were obsolete and
no longer relevant to today’s competitive environment.
It is argued that for MA to be useful, it must be
adapted to reflect changes to new business processes
and technologies, and deregulation and privatisation,
and global competition.

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 EMERGING THEMES IN
MANAGEMENT ACCOUNTING
Since then, many management accounting theories,
techniques and practices have been innovated that are
relevant to today’s environment, e.g.
Strategic management accounting, including target
costing, cost management
Use of non-financial performance measures – e.g. to
make customer complaints (satisfaction) an overriding
priority (Balanced Scorecard).
Activity based costing and budgeting
Focus on simplicity of reports and quicker feedback
Total quality management

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 BALANCED SCORECARD
Traditionally (i.e. prior to 1980s) MA focused mainly
on financial performance measures.
Greater emphasis now being given to incorporating
non-financial measures into the formal reporting
system – to compete in the global competitive
environment.
Result was a proliferation of performance measures.
However, some of these measures conflicted with each
other, unbalanced, etc.

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 BALANCED SCORECARD
The need to integrate financial and non-financial
performance measures that link them to the
company’s strategy led to the emergence of Balanced
Scorecard (BS).
Balanced Scorecard seeks to link performance
measures to an organization’s vision & strategy – i.e. it
is an integrated framework of performance that can be
used to clarify, communicate and manage strategy
implementation.

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 BALANCED SCORECARD
Balanced Scorecard advocates looking at the business
from four different perspectives by seeking to provide
answers to the following four basic questions:
 How do customers see us? (customer perspective),
 What must we excel at? (internal business process
perspective),
Can we continue to improve and create value? (learning
and growth perspective),
 How do we look to shareholders? (Financial
perspective).

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 BALANCED SCORECARD
The Balanced Scorecard
Financial
To succeed financially, how should we
appear to our shareholders?

Internal Business
Customer Vision Process
To achieve our vision, &
To satisfy our shareholders
how should we appear Strategy and customers, what
to our customers?
business processes must
we excel at?

Learning & Growth

To achieve our vision, how will we
sustain our ability to change and
improve?
Source: Kaplan & Norton, 1996 AC202 Lecture 1 13 details
See Drury pp. 999-1020 for further

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 THE CHANGING BUSINESS
ENVIRONMENT
A more competitive environment emphasising:
Higher quality products
Lower prices and costs
Global competition
Meeting and anticipating customer needs

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 MEETING THE CHALLENGES OF
CHANGING BUSINESS ENVIRONMENT

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 CHANGES IN PUBLIC SECTOR
MANAGEMENT
New trends in public sector management
More use of performance indicators
More decentralization – e.g. in local governments
More contracting out- Private Finance Initiatives
(PFI)or Public Private Partnerships (PPP)
Greater awareness of cost and performance
management

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SUMMARY
Many changes and challenges especially globalisation.
Faith in accounting shaken by scandals such as Enron,
etc
But also the commercial failures of the Dotcom,
Northern Rock,
Question: Are firms’ management accounting
systems up to scratch?

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