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Accounting Notes Managerial Accounting Notes

Ac211 Module 3 Management Accounting For Decision Making (Course Notes) Notes

Updated Ac211 Module 3 Management Accounting For Decision Making (Course Notes) Notes

Managerial Accounting Notes

Managerial Accounting

Approximately 157 pages

In depth, typed notes covering the Managerial Accounting (AC211) at LSE (London School of Economics). Covers the full content of the 4 modules in the course.

Module 1 - Management Accounting and Strategy
Module 2 - Planning and Control
Module 3 - Management Accounting for Decision Making
Module 4 - Performance Measurement

Over 70 pages of notes in an easy to follow, intuitive format, closely following the structure of the course (2010-2011). Notes are in bullet points of varying length a...

The following is a more accessible plain text extract of the PDF sample above, taken from our Managerial Accounting Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Lecture 1: Costing and Pricing in the Short Term Important Questions * How do you identify relevant costs and revenues for decision-making in the short-term? * When do costing systems product relevant information for decision-making? Reading Key Points * Information and decisions * Relevant vs. irrelevant costs/revenues * Special pricing decisions Summary * Information and decisions * Special pricing decisions * Product mix decisions under capacity constraints * Outsourcing decisions * Discontinuation decisions * Costing systems * Product mixes under capacity constraints * Outsourcing decisions * Discontinuation decisions * ABC vs. traditional costing systems * Is ABC always more accurate? * Joint costs Information and Decisions * Using management accounting information: * Specification, aggregation and measurement errors Definitions * Addivity/separability of cost drivers = Summing them up across all products gives total activity * * Direct costs = can be directly traced to a cost object * Discontinuation decision = when products or other cost objects (e.g. customers, locations) are to be considered for discontinuation * Indifferential = To remain identical under all possible courses of action * Cost-Volume-Profit analysis is a typical way to make routine decisions * Indirect costs = cannot be directly traced to a cost object * Non-separable = resources that all products use at once in a nonexclusive manner * Outsourcing = Obtaining certain goods or services from outside suppliers instead of producing them internally * * Separability of cost pools = Every cost pool corresponds to one and only one activity * Special pricing decisions = Decisions concerning one-off orders, from customers outside the firm's main market * This module is about non-routine decisions: * One-off, non frequent * Special studies: * Special pricing decisions * Product mix under capacity constraints * Outsourcing (make or buy) * Discontinuation decisions * We only need to consider costs and revenues relevant to the decision in question * Relevant costs and revenues: * Future costs and revenues which: ? Are affected by the decision * Not independent from the decision * Do not remain the same under all possible courses of action * Irrelevant costs and revenues: * Past costs (i.e. sunk costs) * Costs and revenues independent and unaffected by the decision * Indifferential = To remain identical under all possible courses of action * Indirect relevant costs can be very difficult to measure * Crucial to allocate them effectively to avoid wrong decisions Special Pricing Decisions * Special pricing decisions = Decisions concerning one-off orders, from customers outside the firm's main market * Often at a price p < p (prevailing market price) Example of a special pricing decision * 1. Analysis of the relevant costs and revenues 2. Consider qualitative and strategic matters Course Notes Page 1 2. Consider qualitative and strategic matters 3. Consider beyond the short term Further example of a special pricing decision 1. Analysis of the relevant costs and revenues * 2. Considerations Product mix decisions under capacity constraints * We assume a multi-product firm with capacity Q * The capacity is constrained by some bottleneck (D>Q) * i.e. shortage of materials, skilled labour etc. * The different products are competing for the use of the limiting factor(s) * How do we choose the optimal product mix? * Decision rule: * Calculate contribution per unit of limiting factor * Maximise the production of the product with the highest contribution Example of a product mix decision under constraints 1. Calculate contribution margin per machine-hours (the constraint) * 2. Maximise the production of the product with the highest contribution Outsourcing decisions (make or buy?) * Outsourcing = Obtaining certain goods or services from outside suppliers instead of producing them internally * When deciding between make or buy, we consider two sides: * Financial: * Cost of internal production vs. cost of outsourcing * However, comparing total unit cost with purchase price may be misleading * Some costs included in total unit cost may still be incurred under outsourcing option * Qualitative/strategic: * Quality issues, need to retain key competencies or learning potential Example of an outsourcing decision Course Notes Page 2

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