Summary
Samenvatting Financial Decision Making and Control BM01AFM
- Course
- Institution
- Book
Samenvatting boek Management and cost accounting
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
1 review
By: tijnvhout • 2 months ago
Seller
Follow
juliavvuuren
Reviews received
Content preview
,InhoudsopgaveChapter 1: Introduction to management accounting.......................................................................................3
Chapter 2: An introduction to cost terms and concepts..................................................................................8
Chapter 3: Cost assignment.......................................................................................................................... 12
Chapter 5: Process costing............................................................................................................................ 17
Chapter 6: Joint and by-product costing....................................................................................................... 21
Chapter 7: Income effects of alternative cost accumulation systems.............................................................24
Chapter 8: Cost-Volume-Profit analysis........................................................................................................ 27
Chapter 9: Measuring relevant costs and revenues for decision making........................................................32
Chapter 10: Pricing decisions and profitability analysis.................................................................................35
Chapter 11: Activity-based costing............................................................................................................... 39
Chapter 12: Decision-making under conditions of risk and uncertainty.........................................................43
Chapter 13: Capital investment decisions: appraisal methods.......................................................................46
Chapter 17: Standard costing and variance analysis 1...................................................................................51
Chapter 18: Standard costing and variance analysis 2...................................................................................57
Chapter 21: Strategic performance management.......................................................................................... 58
Chapter 24: Cost estimation and cost behaviour...........................................................................................63
2
,Chapter 1: Introduction to management accounting
Accounting:
the process of identifying, measuring and communicating economic information to permit informed
judgements and decisions by users of the information.
The objective of accounting is to provide sufficient information to meet the needs of the various
users at the lowest possible cost
Management accounting is concerned with the pro- vision of information to people within the
organization to help them make better decisions and improve the efficiency and effectiveness of
existing operations, whereas financial accounting is concerned with the provision of information to
external parties outside the organization, including the general public.
Major differences between management and financial accounting:
- Legal requirements
- Focus on individual parts or segments of the business
- Generally accepted accounting principles
- Time dimension
- Report frequency and less emphasis on precision
1. Identifying objectives
Before good decisions can be made there must be some guiding aim or direction that will enable the
decision-makers to assess the desirability of choosing one course of action over another. Hence, the
first stage in the decision-making process should be to specify the company’s goals or organizational
objectives, that is, what they are in business to achieve.
Economic theory traditionally assumes that firms seek to maximize profits for the owners of the firm
or, more precisely, the maximization of shareholders’ wealth, which, is equivalent to the
maximization of the present value of future cash flows.
There is the legal argument that the ordinary shareholders are the owners of the firm, which
therefore should be run for their benefit by trustee managers. Another argument supporting the
profit objective is that profit maximization leads to the maximization of overall economic welfare.
3
, Clearly it is too simplistic to say that the only objective of a business firm is to maximize profits. Some
managers seek to establish a power base and build an empire. Another common goal is security, and
the removal of uncertainty regarding the future may override the pure profit motive. Organizations
may also pursue more specific objectives, such as producing high-quality products or being the
market leader within a particular market segment.
There are three reasons for us to concentrate on this objective (maximizing future profits):
1. It is unlikely that any other objective is as widely applicable in measuring the ability of the
organization to survive in the future.
2. It is unlikely that maximizing future profits can be realized in practice, but by establishing the
principles necessary to achieve this objective you will learn how to increase profits.
3. It enables shareholders as a group in the ‘bargaining coalition’ to know how much the pursuit
of other goals is costing them by indicating the amount of cash distributed among the
members of the coalition.
2. Search for alternative courses of action
The second stage in the decision-making model is a search for a range of possible courses of action
(or strategies) that might enable the objectives to be achieved.
In particular, the company should consider one or more of the following courses of action:
- developing new products for sale in existing markets (product development);
- developing new markets for existing products (market development);
- developing new products for new markets (diversification).
The search for alternative courses of action involves the acquisition of information concerning future
opportunities and environments; it is the most difficult and important stage of the decision-making
process.
3. Select appropriate alternative courses of action
In order for managers to make an informed choice of action, data about the different alternatives
must be gathered. For example, managers might ask to see projected figures on:
the potential growth rates of the alternatives under consideration;
the market share the company is likely to achieve;
projected profits for each alternative.
The alternatives should be evaluated to identify which course of action best satisfies the objectives of
an organization. The selection of the most advantageous alternative is central to the whole decision-
making process and the provision of information that facilitates this choice is one of the major
functions of management accounting.
4. Implementation of the decisions
Once the course of action has been selected, it should be implemented as part of the budgeting and
long-term planning process. The budget is a financial plan for implementing the decisions that
management has made. The budgets for all of the various decisions a company takes are expressed
in terms of cash inflows and outflows, and sales revenues and expenses. These budgets are initially
prepared at the departmental/responsibility centre level (i.e. a unit or department within an
organization where a manager is held responsible for performance) and merged together into a
single unifying statement for the organization as a whole that specifies the organization’s
expectations for future periods. This statement is known as a master budget and consists of
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller juliavvuuren. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R145,92. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72042 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now