BUSI 1038 1

Management Accounting and Decisions I

Dr. How Shi Min
ELG 18(Orange building)
[email protected]

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 Students should have taken Financial Accounting (BUSI 1036)
before enrolling in this module
 May progress to Management Accounting & Decisions 2 (and then
MAD 3 & MAD 4) subsequent to this module

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 Throughout the module we will develop an
understanding of the following basic concepts:
1. How costs are to be analysed in different
context
2. How accounting information systems deal
with and report costs
3. How cost information may be useful to
management

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 Knowledge and understanding
 This module develops a knowledge and understanding of:
 The sources, uses and management of finance.
 The use of accounting and other information systems for
planning, control, and decision making. Intellectual skills.

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 Intellectual skills
 This module develops:
 The ability to analyse facts and circumstances to determine the
cause of a problem and identifying and selecting appropriate
solutions.
 Conceptual and critical thinking, analysis, synthesis and
evaluation.

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 Professional practical skills
 This module develops:
 Numeracy and quantitative skills to manipulate data, evaluate,
estimate and model business problems, functions and
phenomena.
 Qualitative skills.

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 Transferable (key) skills
 This module develops:
 Self-management and a readiness to accept responsibility and
flexibility, to be resilient, self-starting and appropriately
assertive, to plan, organise and manage time.
 Articulating and effectively explaining information.

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 Class room learning
 10 lectures  2 hours per lecture
 5 tutorials  1 hour each

 Core text
 Garrison, R., E. Noreen, P. Brewer, N. Cheng & K. Yuen (2015),
Managerial Accounting: An Asian Perspective (2nd ed), McGraw-Hill.

 Supplementary text (you can also refer to this if you wish)

 Garrison, R., E. Noreen, P. Brewer (2015), Managerial Accounting
(15th ed), McGraw-Hill
 Or any other Management Accounting / Cost Accounting books

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 Moodle
 Please check the Moodle page as frequent as you possibly could.
 Module outline, lecture slides, tutorial questions & answers will be
uploaded for your perusal
 Announcements regarding classes, materials, exam related issues
will be put on Moodle too

 Module outline
 Refer to module outline as and when necessary
 This document contains all the information you need to know about
this module
 Topics to be covered every week
 Tutorial schedule, time and venue
 Assessment

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 This is a 100% exam-based module
 NO coursework
 Two-hour final exam

 Exam formats
 Section A: 25 MCQ (50%)
 Section B: two computational questions (20% each)
 Section C: one out of 3 short essay questions (10%)

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 10 credit module
 100 hours of work, not confined to only lectures and tutorials

 Attend lectures and tutorials

 Attempt practice questions after each class  helps with revision
later
 Attempt tutorial questions before attending the class  engage in
discussion & helps with understanding
 Study in groups might help with understanding
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  Started in 1971 in Seattle’s Pike Place Market
 Revenue worldwide grew from $4.3 billion in 2003 to $22.39
billion in 2017.
 2015 total assets were $12.45 billion in 2015 to $14.37 billion in
2017.
 In 2015, the number of international stores reached 12,521 and
the number of US stores reached 10,522.
 In 2017, the number of stores worldwide grew to 27,339 and
13,930 stores in the U.S. alone.

* Source: www.statista.com
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 How do store managers keep track of their performances, the
performances of the staff members, their performances
compare with other stores and other competitors?
 How to baristas know whether or not customers like what they
are serving, what new product lines to introduce, when to
introduce, what promotions to make?
 How do chief executives know when to expand the store, which
store to expand, where to open up new stores, what other
assets to invest?

Rely on Management Accountants to

provide information

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 Both internal and external parties make decisions, but in
different ways so need different types of info
 Internal: managers
 External: investors, creditors, customers, government

 Management Accounting
 Provides accounting info for internal users

 Financial Accounting (1st semester)

 Produces accounting info for external users

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 “The process of identifying, measuring and communicating
economic information to permit informed judgments and decisions
by users of the information”
[American Accounting Association]

 An integral part of management to require the identification,

generation, presentation, interpretation and use of information
relevant to:
 Formulate business strategy
 Planning and controlling activities
 Decision-making
 Efficient resource usage
 Performance improvement and value enhancement
 Safeguarding tangible and intangible assets, and
 Corporate governance and internal control
[CIMA Official Terminology, 2000, p3]

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 Management Accounting Financial Accounting
Primary users Organisation managers at various levels Outside parties such as investors and
government agencies but also organisation
managers

Freedom of choice of No constraints other than requiring the Constrained by generally accepted
accounting measures benefits of improved management accounting principles (GAAP) and
decisions to exceed information costs International Accounting Standards (IASs)

Behavioural implications Choice should consider how Choice based on how to measure and
in selecting accounting measurements and reports will influence communicate economic phenomena;
measures managers’ daily behaviour behavioural considerations are secondary,
although executive compensation based on
reported results may have behavioural
impacts
Time focus of reports Future oriented: formal use of budgets as Past oriented: historical evaluation
well as historical records e.g. 2012 actual performance versus 2011
e.g. 2012 budget versus 2012 actual actual performance
performance

Time span of reports Flexible, varying from hourly to 10-15 Less flexible: usually one year or one
years quarter
Types of reports Detailed reports: includes details about Summary reports: primarily report on the
products, departments, territories, etc entity as a whole

Influence of other Field is less sharply defined; heavier use Field is more sharply defined. Lighter use
functional areas of economics, decision sciences, and of related disciplines
behavioural sciences 18
 Scorecard questions
 Is the company doing well or poorly?
 Scorekeeping is the classification, accumulation, and reporting of fata
that help users to understand and evaluate organisational performance
 Info must be accurate and reliable to be useful
 Starbucks produces numerous reports to evaluate results for stores and
divisions

 Attention directing questions

 Which areas require additional investigation?
 Usually involves routine reports that compare actual results with
expectations / plans/ budgets
 One of the Starbucks branches reported profit of $120,000 when budgeted
profit profit was $150,000. Investigate why?

 Problem-solving questions
 Which is the best alternatives?
 Involves an analysis of the impacts of each alternative to identify the
best course to follow
 Starbucks experiments by adding various items to its menu and to evaluate
how new items affect revenues & costs 19
 Management process involves Planning and Control
 Planning
 Setting objectives for the organisation
 Outlining how these can be achieved
 What objectives does the organisation want to achieve?
 When and how will the organisation achieve them?

 Control
 Implementing plans and using feedback to evaluate the attainment
of objectives
 Planning generates actions, actions generate feedback, and control
uses this feedback to influence future planning and actions

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 Internal Accounting
Management Process System
Budgets, special reports
PLANNING • Customer surveys
• Competitors analysis
Increase profitability
• Advertising cost /
through product impact analysis
growth and improved • Revenue/advertising
marketing budgets
Corrections and Revisions of Plans and

Accounting System
CONTROL • Source documents such
Actions as invoices from ad
• Expand number of agencies, register tapes
drinks by 20% • Actual
revenue/advertising
• Increase advertising expenses from general &
expense by 50% subsidiary ledgers

Evaluation
• Percent increase in
Actions

Performance Report
drinks sold • Drink sales report
• Percent increase in • Actual versus budgeted
advertising revenue
• Percent increase in • Actual versus budgeted
ad expense
revenue
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A more competitive
environment emphasizing:
 Higher quality products
 Lower prices and costs
 Global competition Business environment
changes in the past
 Meeting and anticipating
customer needs twenty years
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‘New tools for
managers!

Just-In-Time
Total Quality Management
Process Reengineering
ERP systems

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All Professional Management Accountants Bodies issue
their own Code of Conduct but they all share similar
fundamental principles and conceptual approaches as the
one issued by the Institute of Management Accountants.

The Institute of Management Accountants’ (IMA)

Statement of Ethical Professional Practice
consists of two parts that offer guidelines for:
 Ethical behavior.
 Resolution for an ethical conflict.
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 Recognize and
communicate professional
limitations that preclude
responsible judgment.

Maintain Follow applicable

professional Competence laws, regulations
competence. and standards.

Provide accurate, clear,

concise, and timely decision
support information.
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 IMA Guidelines for Ethical
Behaviour Do not disclose confidential
information unless legally
obligated to do so.

Do not use
confidential
information for Confidentiality
unethical or illegal
advantage.

Ensure that subordinates do

not disclose confidential
information.
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IMA Guidelines for Ethical
Behaviour
Mitigate conflicts of
interest and advise others
of potential conflicts.

Refrain from
conduct that
would prejudice Integrity
carrying out
duties ethically.
Abstain from activities that
might discredit the
profession.
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Communicate information
fairly and objectively.

Disclose delays or
deficiencies in information
Credibility timeliness, processing, or
internal controls.

Disclose all relevant

information that could
influence a user’s
understanding of reports
and recommendations.
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 Broad-based statements of a
company’s responsibilities to:

Employees Customers Suppliers

And to the communities in

which the company operates.
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Code of conduct –
international level
The Code of Ethics for Professional
Accountants, issued by the International
Federation of Accountants (IFAC), governs the
activities of professional accountants worldwide.

In addition to integrity and objectivity, resolution of ethical

conflicts, competence, and confidentiality, the IFAC’s code
deals with the accountant’s ethical responsibilities in:
Taxes,
Independence,
Fees and commissions,
Advertising and solicitation,
Handling of monies, and
Cross-border activities. 30