Managerial Accounting
PURPOSE OF THIS COURSE
This course emphasizes the use of accounting information for internal planning and control purposes. This orientation contrasts with financial accounting where the focus is on accounting disclosures for parties external to the firm.
The course is intended as an introduction for individuals who will make business decisions and evaluate the performance of business units using data obtained from the accounting system.
The course will cover the vocabulary and mechanics of cost accounting, basic issues involved in the design of a cost accounting system, and the role of management accounting in decisions concerning resource allocation and performance evaluation.
Throughout the course, we will pay particular attention to various (unintended) dysfunctional consequences of traditional cost accounting systems, as well as possible solutions to these problems.
FORMAT
The course will be a combination of lectures, problem-solving, case work, and interactive class discussion.
I expect that you will complete or at least discuss the cases as a group. When we discuss a case in class, I may call on one or two groups (never specific individuals) to present their results and/or analysis. Each group may decide which of its member individual(s) will do the presentation.
TENTATIVE COURSE TOPICS
Review of Basic Financial Accounting Concepts
Review of elementary financial accounting concepts and terms. Introduce management accounting and differentiate it from financial accounting. Discuss the basics of financial accounting transaction analysis and the key financial statements produced by firms.
Introduction to Management Accounting Concepts
Major objectives: Discuss the evolution of management accounting. Introduce important cost terms and concepts. Define and illustrate cost objects, direct costs, and indirect costs. Understand the associations between cost drivers, variable costs, and fixed costs, and the major assumptions underlying the definitions of variable and fixed costs. Review the concepts of contribution margin, breakeven point, and cost-volume-profit analysis.
Costs in a Manufacturing Firm
Major Objectives: Examine cost accounting issues in legal decisions and contracts using a case study involving cost behavior, profitability analysis, and the interface of financial, managerial, and tax accounting. Understand the nature of costs incurred by manufacturing firms. Describe the mechanics of cost accounting systems and the way they map cost flows.
Relevant Cost Analysis
Major Objectives: Examine the use of cost data in the context of a firm attempting to set a market price, taking strategic considerations into account. Understand the notion of relevant costs and their use in simplifying the analysis of decision problems.
Long-Run Decision Making
Major Objectives: Extend the analysis of decision-making to settings in which cash flows occur over multiple time periods. Study the use of discounted cash flow (DCF) and other tools for long-run analysis.
Cost Accounting Systems
Major Objectives: Distinguish between job costing and process costing, and relate their value to the nature of the underlying production process. Introduce cost allocation and the computation of overhead rates.
Activity-Based Costing and Cost Allocation
Major Objectives: Understand the hierarchy of costs. Understand the differences between traditional cost systems and Activity-Based Costing (ABC). Apply ABC concepts in an actual decision-making context to understand the effect of cost accounting methods on perceived product profitability, and the use of ABC data in operational and marketing decisions.
Budgets and Standard Cost Systems; Analysis of Variances
Major Objectives: Understand the functioning of standard costing systems. Introduce flexible budgets and standard costs as aids for planning and control. Learn how variances between actual and standard costs can be broken into price and efficiency variances to assist in assigning responsibility and examining the variances' causes. Explain the computation and meaning of volume variances and the effects of capacity utilization on performance evaluation.
Activity-Based Costing; Capacity Costs and Seasonality
Major Objectives: Understand alternative denominator level concepts. Analyze various ways of dealing with capacity costs, especially in the presence of seasonality effects. Analyze how to integrate activity-based costing concepts with the analysis of spending and other variances.
Decentralization and Performance Measurement
Major objectives: Introduce the reasons behind decentralization and understand the concept and various forms of responsibility accounting. Analyze the determination of optimal provision of incentives. Examine more generally the nature of performance evaluation in business units and study some of its specific manifestations (ROI, EVA, etc.). Understand the rationale underlying the Balanced Scorecard.
Transfer Pricing I
Major objectives: Understand the nature of intra-firm transactions and the importance of proper accounting for them. Analyze the optimality of various methods of determining prices for such transactions. Consider a simple scenario that illustrates the difficulties inherent in identifying an "optimal" transfer price.
Transfer Pricing II
Major Objectives: Study a decision-making setting in which issues of responsibility accounting and performance measurement interact. Briefly look at various prevailing methods of transfer price determination, as well as the special import of transfer prices in the context of minimizing overall tax burdens.
Review, Unfinished Topics
Major Objectives: Complete discussion of any unfinished material. Address special topics of interest to the class (service costs, productivity measurement, measuring quality, etc.).
