ACCA Performance Management (PM) - Study Text Notes

A revision of Management Accounting (MA) topics

• Costing Purpose:

  • Value inventory

  • Record costs

  • Price products

  • Make decisions

• Standard costing

• Definition: A predetermined unit cost set under specified working conditions.

  • Purposes:

    • Control

    • Planning

    • Performance measurement

    • Inventory valuation

    • Accounting simplification

  • Suited for:

    • Mass production of homogenous product

    • Repetitive assembly work

  • Less suited for non-homogenous products or high human intervention.

  • McDonaldisation: Standardization to apply standard costing.

    • Identical products (e.g., pre-measured sauce).

    • Reduced human intervention (e.g., automated drink dispensing).

• Preparing standard costs: Based on expected price and usage of materials, labour, and overheads.

  • Direct materials: $40$ square meters at $5.30$ per square meter.

  • Direct wages:

    • Bonding department: $24$ hours at $5.00$ per hour.

    • Finishing department: $15$ hours at $4.80$ per hour.

  • Variable overheads:

    • $1.50$ per bonding labour hour.

    • $1$ per finishing labour hour.

  • Fixed production overhead: $36,000$

  • Fixed non-production overhead $27,000$

• Types of Standard

  • Attainable Standards: Efficient but not perfect, allowing for normal losses. Motivates employees with challenging but realistic targets

  • Basic Standards: Long-term standards, showing trends over time. May demotivate if too easy over long time.

  • Current Standards: Based on current conditions. Useful in abnormal situations but doesn't necessarily motivate improvement

  • Ideal Standards: Based on perfect conditions (no waste, downtime, etc.). Useful for pinpointing cost-saving areas. Potentially demotivating as it's seen as unachievable

• Preparing attainable standard costs: allowing for idle time and waste.

• Flexible budgeting: Adapting budgets to different activity levels for better cost control.

  • Fixed budget: Prepared for a single level of activity.

  • Flexible budget: Prepared for various activity levels.

  • Flexed budget: Prepared at the period's end, based on actual output.

• Controllability and performance management: evaluating managers solely on controllable costs.

• Traditional costing methods: AC and MC

  • Absorption costing: Aims to determine the full production cost per unit.

    • $OAR = \frac{Production overhead}{Activity level}$

  • Marginal costing: Charges variable costs to cost units and writes off fixed costs against aggregate contribution.

    • Contribution is the difference between sales value and the variable cost of sales.

• Under and over-absorption predetermined rates is used to smooth out seasonal flactuations in overhead cost, and to enable unit cost to be calculate quickly throughout the year.

1. $OAR = \frac{Budgeted overhead cost}{Budgeted level of activity}$

2. Overhead absorbed = actual activity × OAR

3. Overhead absorbed (in Step 2) – Actual overhead = Over/(Under)

• Advantages and disadvantages of AC and MC

  • Absorption costing provides benefits such as:

    • Includes an element of fixed overheads in inventory values, in accordance with IAS 2.

    • In small organisations, absorbing overheads into the cost of products is the best way of estimating job costs and profits on jobs.

  • Marginal costing presents the following advantages:

    • Useful in the decision-making process, simple to operate, contribution per unit is constant.

Management Information Systems

• Data, Information, and Information Systems:

  • Data: Raw, unprocessed facts or figures.

  • Information: Processed data that has meaning and improves decision-making.

• Characteristics of Good Information (ACCURATE):

  • Accurate: Reliable.

  • Complete: Sufficient but not excessive.

  • Cost-effective: Value exceeds cost.

  • Understandable: Clearly presented.

  • Relevant: Pertinent to its purpose.

  • Accessible: Available appropriately.

  • Timely: Provided in time for decisions.

  • Easy to use: Clear and simple.

• Data Processing: Conversion of data into meaningful information.

• Information Technology (IT): Equipment for capturing, storing, transmitting, and presenting information.

• Information Systems (IS): Provision and management of information to support the organization's operations and strategy.

• Role of Information Systems:

  • Support operations: Processing and storing transactions.

  • Support management activities: Decision-making, planning, performance measurement, and control.

• Use of Information in Organizations:

  • Recording transactions: Evidence for dispute resolution, legal requirements.

  • Decision making: Informed decisions with internal and external data.

  • Planning: Knowledge of resources and timelines.

  • Performance measurement: Comparing results to budgets.

  • Control: Assessing and controlling plan performance.

• Costs and Benefits of Information Systems (IS):

  • Cost-benefit analysis: Assessing whether benefits justify costs.

  • Initial Costs: System design, software, hardware, implementation.

  • Running Costs: Labor, maintenance, IT support.

  • Costs of internal/external information: Direct, indirect, management, infrastructure.

  • Benefits of new IS: Enhanced efficiency, better quality data, better access to information, improved communication, and decision making.

• Systems Architecture and Data Flows:

  • Network: Facilitates information transfer.

  • Intranet: Internal network for info sharing

    • Savings in storage, and printing.

    • More used documents than those filed away, thus improvements in productivity and efficiency.

    • Easier to update information in electronic form.

  • Cloud computing: delivery of different services through the internet, allowing data to be stored, managed, and processed using remote servers.

  • Extranet: collaborative network using internet technology to join organizations.

  • Internet: Global system of interconnected networks.

  • Wireless Technology: Easier access to info, scalability, flexibility, and mobility.

• Privacy and Security:

  • General controls: Physical, personnel, access, equipment, business continuity planning.

  • Application controls: Completeness, validity, authorization checks.

  • Privacy and security risks

    • Contamination of the system by viruses (use anti-virus software), hackers (data encryption).

• Management Reports:

  • Input controls

  • Processing controls

  • Output controls.

• Data visualisation

  • Benefits includes accessible, real time, performance optimisation and insight and understanding.
    Chapter 3

• Three levels of planning and control within an organisation

  • Strategic Planning: Long-term with emphasis of the organization, internal and external.

  • Management control: Management is now able to use the data and budget measures to more effectively evaluate and control.

  • Operactional control: This involves collecting information on cost, revenues, volume and profitability in order to determine actual performace.

• Types of information systems

  • Strategic level: Requires information from internal and external sources in order to plan for the long-term. Internal information, both quantifiable and qualitative is supplied in summarzed form.

  • Tactical level: Requires information and instructions from the strategic management leavel to plan manpower. Such information would be in summarized form, but detailed enough to allow tactical planning of resources and manpower. Tactical information could include, for example, the short-term budget for 12 months and would show the budgeted machine use in terms of machine hours for each item of plant.

  • Operational level: This requires information and instructions from the tactical level of management. The operational level is primarily concerned with the day-to-day performance of tasks and most of the information is obtained from internal sources.

• Three levels of management are: strategic, tactical and operational.

  • Strategic decisions are long-term and complex

  • Tactical decisions are medium term, but less complex.

  • Operational decisions are day-to-day decisions typically made by junior managers.

• Transaction Processing Systems

  • TPS records historic information and represents the simple automation of manual systems. Data will mainly be high frequency and short term.

• Management information systems. This is used mostly by middle management. For a company that operates a national chain of car showrooms could use an MIS for performance measurement. The MIS could use the information from the sales TPS to generate reports such as: i) total sales for each type of car and ii) total sales made by each salesperson.

• Executive Information Systems

  • Provides strategic managers with flexible access to internal information from the entire business, as well as relevant information from the external environment. The reports produced are usually focussed on helping management analyse performance, see trends, and make strategic decisions.

• Enterprise resource planning system (ERPS): integrate the data from all operations within the organisation, e.g. operations, sales and marketing, human resources and purchasing, into one single system.

• Big Data

  • Volume

  • Variety:

  • Velocity

  • Veracity

  • Value
    Data Mining. Big Data. Data mining is the process of identifying trends and patterns in large sets of data.

Specialist cost and management accounting techniques

• Reasons for the development of ABC. ABC is used due to inaccurate information is determined for those products when volume does not drive overhead.

• Comparing ABC with traditional methods Traditional systems accurately measure volume-related resources but non-volume related activities such as support activities are not measured. ABC is more accurate than traditional methods.

• ABC has a number of advantages such as a better insight into what drives overhead costs, useful method for pricing and other decisions, can be applied to other overheads and can be applied to areas such as service costing.

• Reasons for introducing Activity-Based Costing (ABC) in the public sector:

  • Public Responsibility

  • Public Accountability

  • Resource allocation within an organisation

  • Helping managers to manage.

• Total Quality Management. A management technique used to ensure that goods are produced and services supplied of the highest quality. Fundamental features include: prevention of errors before they occur, participation of all employees, commitment of senior management to the cause, and recognition of the vital role of customers.

• Marginal Costing is a more useful method than absorption costing for decision making.

• Just-In-Time (JIT) Characteristics:
  * High quality
  * Speed
  * Reliability
  * Flexibility
  * Low Cost

• Throughput Accounting

  • Assumptions: Direct labour costs are fixed, the purchase cost of raw materials that are bought from external suppliers are the only variable cost in the short-term.

    • Step 1: Identify the system bottlenecks.

    • Step 2: Decide how to exploit the bottlenecks. .

    • Step 3: Subordinate everything else to the decision in Step 2

    • Step 4: Elevate the system bottlenecks.

    • Step 5: Go back to step 1.

    • =\frac{Throughput:per:factory:hour = \frac{Throughput :per :unit}{Product's: time:on:the:bottleneck:resource}Cost:per:factory:hour = \frac{Total :factory: cost}{Total: bottleneck :resource: time :available}Throughput: Accounting: Ratio(TPAR) = \frac{Return :per :factory: hour}{Cost: per: factory: hour}}

    • Interpret TPAR where TPAR>1, it means products should make a profit.
      Hences, marginal costing is more useful than absorption costing for decision making.

• Target costing involves setting a target cost by subtracting a desired profit from a competitive market price.

• Steps used in deriving a target cost (manufacturing industries)1 Establish a competitive market price 2 deducting a required profit from the selling prices from a target cost. 3 Identify the costs involved at different stages of the lifecycle 4 derive a lifecycle cost or profit in manufacturing and service industries 5 identify the benefits of life cycle costing

• Value Analysis. This is a technique in which a firm’s products and of its competitors, are subjected to examination by a small group of specialists. It helps to close the cost gap by assessing a product the followings by its features or by its costs at at a lower value.

• Environmental management accounting EMA Internal vs exeternal cost. Direct Vs. Hidden . Conventional Vs. contingent and Relationship cost.

Pricing

• Cost-plus: Price = cost + chosen margin.

• Market-skimming: High prices when a product is first launched to maximize short-term profitability. Good where barriers to entry exit such as copyright or patent.

• Penetration Pricing: Aims to gain rapid acceptance by initially charging low prices.

• Complementary Product: Complementary product pricing strategy of products that are often bought together.

• Product-line Pricing: setting the price steps between various products in a product line, based on: cost differences, customer evaluations of different features and competitors prices.

• Volume Discounting:

• Offering lower per-unit prices for larger quantities.
  Price elasticity of demand=\frac{Change : in: quantity :demanded : %}{ Change: in :price : %}

• * straight line demand P = a – bQ
  $\longleftarrow {P = a - bQ}$
  $\longleftarrow{a = price: when :Q =0}$
  $\longleftarrow{b = \frac{Change : in: price }{ Change : in :quantity}}$

• Factors that influence the pricing of a product or service:

• All forms of cost-plus

• Skimming

• Penetration

• Complementary product

• Product-line

• Volume discounting

• Discrimination

• Relevant cost.

Relevant costing

• Relevant Cash Flow. Cash position if accept proposal A.

  • Step 1: Relevant cash flow = A – B Cash position reject proposal.

• Opportunity cost: important concept for decision-making purposes.

• Material in short supply material usage, a materials that must be calculated, such as normal and abormal losses.

• Controls: Input, software audit trail, encryption facility and password maintenance facility.

• Relevant Costing.

Risk and uncertainty

• There are five V's that define the characteristics of data:

  • Volume

  • Variety:

  • Velocity

  • Veracity

  • Value

Regression analysis$y = a + bx$
$b = \frac{n∑xy – ∑x∑y}{n∑x^2– (∑x)^2}$
$a = \frac{∑y}{n} – b \frac{∑x}{n}$

• Regression analysis formula$Y = axb$
  Where:
  - Y = cumulative average time per unit to produce × units
  - a= the time taken for the first unit of output
  - x = the cumulative number of units produced
  - b = the index of learning (log LR/log2)
  - LR = the learning rate as a decimal

• The main purposes of standard costs are: Control,Planning Performance measurement, Inventory valuation and Accounting simplification.

Budgeting and Control

a budget is a formal quantitative expression of management's expectations regarding future condition's planning for a predetermined duration.
a budgetary system is divided into five different categories:
* The different level of an organization should be set clear financial limits and standards to be able to take part in future economic plans.
* The different types and levels should indicate the resources needs over the various financial year in order to determine the usefulness and problems occurred into the budget.
* The levels used for the usefulness and types of budget should be set into types including such as static, flexible plans (financial indicators) and/or non financial indicators such feed forward.

• regression analysis formula$P = a − bQ$
  $b = \frac{Change : in: price }{Change : in: quantity}$
  Where;$a = price: when :Q =0$
  \MR = a – 2bQ

• There are three different types of budgetary styles: Budget constrained style Performance evaluation Profit conscious style and Non-accounting style.

• There are different types of performance management system such as Performance analysis in private sector;Public Sector and non-profit organisations.

  • Performance analysis in private sector. Explain the differences of divisional performance and how transfer prices can distort the performance assement if divisions and decsions are not taking into account. (ROI) and (RI) calculate the measure as discusing the short comings.

Performance measurement in not-for-profit organisations and the public sector

• “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

• Triple bottom line reporting - TBL

  • Planet.

  • People

  • Planet
    • Value for Money (VFM) as a public sector objective and how the 3Es can be used to achieve VFM.
    ⚫ Economy
    ⚫ Efficiency
    ⚫ Effectiveness.

• Data mining and data analysis such as customer activity to segment their customer base and carefully target individuals with relevant offers (Facebook).
  The five V’s represents the defining characteristics of Big Data:Velocity,Volume Variety Veracityand Value Big Data

In order to become a member of the ACCA, as a trainee accountant you will need to demonstrate that you have achieved nine performance objectives.
FORMULAE SHEET
Regression analysis
y = a + bx
a = y – b x
b = nxy – xy
nx2– (x)2 Learning curve
Y = axb
Where
y = cumulative average time per unit to produce × units
a = the time taken for the first unit of output
x = the cumulative number of units produced
b = the index of learning (log LR/log2)
LR = the learning rate as a decimal
Demand curve$P = a − bQ$
{\b = \frac{Change : in: price }{Change : in :quantity}}
$P = a − bQ$
a = price when Q = 0
MR = a – 2bQ

_______________________________________________________________

Costing Purpose:

• Value inventory: Determines the cost of goods to accurately represent a company's assets.

• Record costs: Maintains detailed records for analyzing expenses and improving efficiency.

• Price products: Sets prices to ensure profitability and competitiveness.

• Make decisions: Informs strategic choices, such as outsourcing or expansion.

• Standard costing

  • Definition: A predetermined unit cost set under specified working conditions.

  • Purposes:

    • Control: Acts as a benchmark for monitoring and managing costs.

    • Planning: Supports forecasting and resource allocation.

    • Performance measurement: Assesses efficiency and effectiveness.

    • Inventory valuation: Provides a consistent basis for inventory accounting.

    • Accounting simplification: Streamlines cost tracking, reducing complexity.

  • Suited for:

    • Mass production of homogenous product

    • Repetitive assembly work

  • Less suited for non-homogenous products or high human intervention.

  • McDonaldisation: Standardization to apply standard costing.

    • Identical products (e.g., pre-measured sauce).

    • Reduced human intervention (e.g., automated drink dispensing).

• Preparing standard costs: Based on expected price and usage of materials, labour, and overheads.

  • Direct materials: $40$ square meters at $5.30$ per square meter.

  • Direct wages:

    • Bonding department: $24$ hours at $5.00$ per hour.

    • Finishing department: $15$ hours at $4.80$ per hour.

  • Variable overheads:

    • $1.50$ per bonding labour hour.

    • $1$ per finishing labour hour.

  • Fixed production overhead: $36,000$

  • Fixed non-production overhead $27,000$

• Types of Standard

  • Attainable Standards: Efficient but not perfect, allowing for normal losses. Motivates employees with challenging but realistic targets

  • Basic Standards: Long-term standards, showing trends over time. May demotivate if too easy over long time.

  • Current Standards: Based on current conditions. Useful in abnormal situations but doesn't necessarily motivate improvement

  • Ideal Standards: Based on perfect conditions (no waste, downtime, etc.). Useful for pinpointing cost-saving areas. Potentially demotivating as it's seen as unachievable

• Preparing attainable standard costs: allowing for idle time and waste.

• Flexible budgeting: Adapting budgets to different activity levels for better cost control.

  • Fixed budget: Prepared for a single level of activity.

  • Flexible budget: Prepared for various activity levels.

  • Flexed budget: Prepared at the period's end, based on actual output.

• Controllability and performance management: evaluating managers solely on controllable costs.

• Traditional costing methods: AC and MC

  • Absorption costing: Aims to determine the full production cost per unit.

    • $OAR = \frac{Production overhead}{Activity level}$

    • Useful for long-term pricing and profitability analysis, even though it can lead to over or under costing in short-term

  • Marginal costing: Charges variable costs to cost units and writes off fixed costs against aggregate contribution.

    • Contribution is the difference between sales value and the variable cost of sales.

    • Helps in short-term decision making and performance measuring, even though it can be unreliable for comprehensive profitability assessments

• Under and over-absorption predetermined rates is used to smooth out seasonal flactuations in overhead cost, and to enable unit cost to be calculate quickly throughout the year.

  1. $OAR = \frac{Budgeted overhead cost}{Budgeted level of activity}$

  2. Overhead absorbed = actual activity × OAR

  3. Overhead absorbed (in Step 2) – Actual overhead = Over/(Under)

• Advantages and disadvantages of AC and MC

  • Absorption costing provides benefits such as:

    • Includes an element of fixed overheads in inventory values, in accordance with IAS 2.

    • In small organisations, absorbing overheads into the cost of products is the best way of estimating job costs and profits on jobs.

  • Marginal costing presents the following advantages:

    • Useful in the decision-making process, simple to operate, contribution per unit is constant.

Management Information Systems

• Data, Information, and Information Systems:

  • Data: Raw, unprocessed facts or figures.

  • Information: Processed data that has meaning and improves decision-making.

• Characteristics of Good Information (ACCURATE):

  • Accurate: Reliable, free from error.

  • Complete: Sufficient but not excessive.

  • Cost-effective: Value exceeds cost.

  • Understandable: Clearly presented.

  • Relevant: Pertinent to its purpose.

  • Accessible: Available appropriately.

  • Timely: Provided in time for decisions.

  • Easy to use: Clear and simple.

• Data Processing: Conversion of data into meaningful information.

• Information Technology (IT): Equipment for capturing, storing, transmitting, and presenting information.

• Information Systems (IS): Provision and management of information to support the organization's operations and strategy.

• Role of Information Systems:

  • Support operations: Processing and storing transactions, automating routine tasks.

  • Support management activities: Decision-making, planning, performance measurement, and control.

• Use of Information in Organizations:

  • Recording transactions: Evidence for dispute resolution, legal requirements.

  • Decision making: Informed decisions with internal and external data.

  • Planning: Knowledge of resources and timelines.

  • Performance measurement: Comparing results to budgets, identifying variances.

  • Control: Assessing and controlling plan performance, ensuring objectives are met.

• Costs and Benefits of Information Systems (IS):

  • Cost-benefit analysis: Assessing whether benefits justify costs.

  • Initial Costs: System design, software, hardware, implementation.

  • Running Costs: Labor, maintenance, IT support.

  • Costs of internal/external information: Direct, indirect, management, infrastructure.

  • Benefits of new IS: Enhanced efficiency, better quality data, better access to information, improved communication, and decision making.

• Systems Architecture and Data Flows:

  • Network: Facilitates information transfer, enables communication.

  • Intranet: Internal network for info sharing

    • Savings in storage, and printing.

    • More used documents than those filed away, thus improvements in productivity and efficiency.

    • Easier to update information in electronic form.

  • Cloud computing: delivery of different services through the internet, allowing data to be stored, managed, and processed using remote servers.

  • Extranet: collaborative network using internet technology to join organizations.

  • Internet: Global system of interconnected networks.

  • Wireless Technology: Easier access to info, scalability, flexibility, and mobility.

• Privacy and Security:

  • General controls: Physical, personnel, access, equipment, business continuity planning.

  • Application controls: Completeness, validity, authorization checks.

  • Privacy and security risks

    • Contamination of the system by viruses (use anti-virus software), hackers (data encryption).

• Management Reports:

  • Input controls: Ensure data accuracy.

  • Processing controls: Verify data transformation.

  • Output controls: Secure report distribution.

• Data visualisation

  • Benefits includes accessible, real time, performance optimisation and insight and understanding.
    
    

Chapter 3

• Three levels of planning and control within an organisation

  • Strategic Planning: Long-term with emphasis of the organization, internal and external.

  • Management control: Management is now able to use the data and budget measures to more effectively evaluate and control.

  • Operactional control: This involves collecting information on cost, revenues, volume and profitability in order to determine actual performace.

• Types of information systems

  • Strategic level: Requires information from internal and external sources in order to plan for the long-term. Internal information, both quantifiable and qualitative is supplied in summarzed form.

  • Tactical level: Requires information and instructions from the strategic management leavel to plan manpower. Such information would be in summarized form, but detailed enough to allow tactical planning of resources and manpower. Tactical information could include, for example, the short-term budget for 12 months and would show the budgeted machine use in terms of machine hours for each item of plant.

  • Operational level: This requires information and instructions from the tactical level of management. The operational level is primarily concerned with the day-to-day performance of tasks and most of the information is obtained from internal sources.

• Three levels of management are: strategic, tactical and operational.

  • Strategic decisions are long-term and complex, focusing on the entire organization.

  • Tactical decisions are medium term, but less complex, made by department heads.

  • Operational decisions are day-to-day decisions typically made by junior managers.

• Transaction Processing Systems

  • TPS records historic information and represents the simple automation of manual systems. Data will mainly be high frequency and short term.

• Management information systems. This is used mostly by middle management. For a company that operates a national chain of car showrooms could use an MIS for performance measurement. The MIS could use the information from the sales TPS to generate reports such as: i) total sales for each type of car and ii) total sales made by each salesperson.

• Executive Information Systems

  • Provides strategic managers with flexible access to internal information from the entire business, as well as relevant information from the external environment. The reports produced are usually focussed on helping management analyse performance, see trends, and make strategic decisions.

• Enterprise resource planning system (ERPS): integrate the data from all operations within the organisation, e.g. operations, sales and marketing, human resources and purchasing, into one single system.

• Big Data

  • Volume

  • Variety:

  • Velocity

  • Veracity

  • Value
    
    

Data Mining. Big Data. Data mining is the process of identifying trends and patterns in large sets of data.

Specialist cost and management accounting techniques

• Reasons for the development of ABC. ABC is used due to inaccurate information is determined for those products when volume does not drive overhead.

• Comparing ABC with traditional methods Traditional systems accurately measure volume-related resources but non-volume related activities such as support activities are not measured. ABC is more accurate than traditional methods.

• ABC has a number of advantages such as a better insight into what drives overhead costs, useful method for pricing and other decisions, can be applied to other overheads and can be applied to areas such as service costing.

• Reasons for introducing Activity-Based Costing (ABC) in the public sector:

  • Public Responsibility

  • Public Accountability

  • Resource allocation within organisation

  • Helping managers to manage.

• Total Quality Management. A management technique used to ensure that goods are produced and services supplied, of the highest quality. Fundamental features include: prevention of errors before they occur, participation of all employees, commitment of senior management to the cause and recognition of the vital role of ustomers.

• Marginal Costing is a more useful method than absorption costing for decision making.

• Just-In-Time (JIT) Characteristics:
  
  

* High quality

* Speed

* Reliability

* Flexibility

* Low Cost

• Throughput Accounting

  • Assumptions: Direct labour costs are fixed, the purchase cost of raw materials that are bought from external suppliers are the only variable cost in the short-term.

  • Step 1: Identify the system bottlenecks.

  • Step 2: Decide how to exploit the bottlenecks. .

  • Step 3: Subordinate everything else to the decision in Step 2

  • Step 4: Elevate the system bottlenecks.

  • Step 5: Go back to step 1.

  • =\frac{Throughput:per:factory:hour = \frac{Throughput :per :unit}{Product's: time:on:the:bottleneck:resource}Cost:per:factory:hour = \frac{Total :factory: cost}{Total: bottleneck :resource: time :available}Throughput: Accounting: Ratio(TPAR) = \frac{Return :per :factory: hour}{Cost: per: factory: hour}}

  • Interpret TPAR where TPAR>1, it means products should make a profit.
    
    

Hences, marginal costing is more useful than absorption costing for decision making.

• Target costing involves setting a target cost by subtracting a desired profit from a competitive market price.

• Steps used in deriving a target cost (manufacturing industries)1 Establish a competitive market price 2 deducting a required profit from the selling prices from a target cost. 3 Identify the costs involved at different stages of the lifecycle 4 derive a lifecycle cost or profit in manufacturing and service industries 5 identify the benefits of life cycle costing

• Value Analysis. This is a technique in which a firm’s products and of its competitors, are subjected to examination by a small group of specialists. It helps to close the cost gap by assessing a product the followings by its features or by its costs at at a lower value.

• Environmental management accounting EMA Internal vs exeternal cost. Direct Vs. Hidden . Conventional Vs. contingent and Relationship cost.

Pricing

• Cost-plus: Price = cost + chosen margin.

• Market-skimming: High prices when a product is first launched to maximize short-term profitability. Good where barriers to entry exit such as copyright or patent.

• Penetration Pricing: Aims to gain rapid acceptance by initially charging low prices.

• Complementary Product: Complementary product pricing strategy of products that are often bought together.

• Product-line Pricing: setting the price steps between various products in a product line, based on: cost differences, customer evaluations of different features and competitors prices.

• Volume Discounting:

• Offering lower per-unit prices for larger quantities.
  
  

  Price elasticity of demand=\frac{Change : in: quantity :demanded : %}{ Change: in :price : %}

• * straight line demand P = a – bQ
  
  

$\longleftarrow {P = a - bQ}$

$\longleftarrow{a = price: when :Q =0}$

$\longleftarrow{b = \frac{Change : in: price }{ Change : in :quantity}}$

• Factors that influence the pricing of a product or service:

  • All forms of cost-plus

  • Skimming

  • Penetration

  • Complementary product

  • Product-line

  • Volume discounting

  • Discrimination

  • Relevant cost.

Relevant costing

• Relevant Cash Flow. Cash position if accept proposal A.

  • Step 1: Relevant cash flow = A – B Cash position reject proposal.

• Opportunity cost: important concept for decision-making purposes.

• Material in short supply material usage, a materials that must be calculated, such as normal and abormal losses.

• Controls: Input, software audit trail, encryption facility and password maintenance facility.

• Relevant Costing.

Risk and uncertainty

• There are five V's that define the characteristics of data:

  • Volume

  • Variety:

  • Velocity

  • Veracity

  • Value

• Regression analysis$y = a + bx$

$b = \frac{n∑xy – ∑x∑y}{n∑x^2– (∑x)^2}$

$a = \frac{∑y}{n} – b \frac{∑x}{n}$

• Regression analysis formula$Y = axb$

Where:

- Y = cumulative average time per unit to produce × units

- a= the time taken for the first unit of output

- x = the cumulative number of units produced

- b = the index of learning (log LR/log2)

- LR = the learning rate as a decimal

• The main purposes of standard costs are: Control,Planning Performance measurement, Inventory valuation and Accounting simplification.

Budgeting and Control

a budget is a formal quantitative expression of management's expectations regarding future condition's planning for a predetermined duration.

a budgetary system is divided into five different categories:

* The different level of an organization should be set clear financial limits and standards to be able to take part in future economic plans.

* The different types and levels should indicate the resources needs over the various financial year in order to determine the usefulness and problems occurred into the budget.

* The levels used for the usefulness and types of budget should be set into types including such as static, flexible plans (financial indicators) and/or non financial indicators such feed forward.

• regression analysis formula$P = a − bQ$

b = \frac{Change : in: price }{Change : in: quantity}}

Where;$a = price: when :Q =0$

\MR = a – 2bQ

• There are three different types of budgetary styles: Budget constrained style Performance evaluation Profit conscious style and Non-accounting style.

• There are different types of performance management system such as Performance analysis in private sector;Public Sector and non-profit organisations.

  • Performance analysis in private sector. Explain the differences of divisional performance and how transfer prices can distort the performance assement if divisions and decsions are not taking into account. (ROI) and (RI) calculate the measure as discusing the short comings.

Performance measurement in not-for-profit organisations and the public sector

• “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

• Triple bottom line reporting - TBL

  • Planet: environment impact

  • People: Labor and society impact

  • Planet: Finance and Economy
    
    

• Value for Money (VFM) as a public sector objective and how the 3Es can be used to achieve VFM.

⚫ Economy: Minimizing input cost

⚫ Efficiency: Maximizing output with inputs

⚫ Effectiveness: achieving set objectives.

• Data mining and data analysis such as customer activity to segment their customer base and carefully target individuals with relevant offers (Facebook).
  
  

*The five V’s* represents the defining characteristics of Big Data:Velocity,Volume Variety Veracityand Value Big Data

• In order to become a member of the ACCA, as a trainee accountant you will need to demonstrate that you have achieved nine performance objectives.
  
  

FORMULAE SHEET

Regression analysis

y = a + bx

a = y – b x

b = nxy – xy

nx2– (x)2 Learning curve

Y = axb

Where

y = cumulative average time per unit to produce × units

a = the time taken for the first unit of output

x = the cumulative number of units produced

b = the index of learning (log LR/log2)

LR = the learning rate as a decimal

Demand curve$P = a − bQ$

{\b = \frac{Change : in: price }{Change : in :quantity}}

$P = a − bQ$

a = price when Q = 0<br