Lahore University of Management Sciences

ACCT 130 – Principles of Management Accounting

Spring Semester 2016
Instructor Waqar Ali
Room No. 422
Office Hours TBA
Email Waqar.ali@lums.edu.pk
Telephone 042-3560-8394
Secretary/TA Secretary: Ahmad Ali/ TA: TBA
TA Office Hours TBA
Course URL (if any) http://suraj.lums.edu.pk/~pco/

COURSE BASICS
Credit Hours 3
Lecture(s) 2 Duration 75 minutes
Recitation/Lab (per week) On need basis Duration On need basis
Tutorial (per week) On need basis Duration On need basis

COURSE DISTRIBUTION
Core Core
Elective
Open for Student Category
Close for Student Category

COURSE DESCRIPTION

Managerial accounting is a pivotal ingredient to business performance and governance. Management styles are evolving as a
consequence of shift in the global economic power in favor of emerging economies, continuous technological improvements and
rise in regulation demanding greater disclosure. This raises efficacy of internally generated economic information (costing-
oriented) which is at the heart of managerial accounting.

This course highlights this information’s use towards efficient planning, key/strategic decision-making and effective financial
control. Core cost concepts culminate into intelligent costing methodologies and decision-making tools; thereby preparing students
to become informed executives and managers as they enter the competitive business environment.

The course aims to discuss a variety of established as well as more dynamic and encompassing management accounting and
financial control strategies.

COURSE PREREQUISITE(S)

• ACCT 100 Principles of Financial Accounting

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COURSE OBJECTIVES & LEARNING OUTCOMES
The objective of the course is to ensure that students develop a functional knowledge of basic managerial
accounting principles. This will include:

 An understanding of the differences between financial and managerial accounting

 The ability to calculate costs in both a job order and process cost accounting system and understand the cost
flow

 An understanding of the types of costs and how they behave in order to conduct cost‐volume profit analyses

 An understanding of the role and purpose of activity based costing for decision making purposes including the
ability to calculate costs under an ABC system

 An understanding of the different types of budgets and the ability to prepare static and flexible budgets

 The ability to perform standard cost variance analyses and fixed and variable overhead variance analyses and
interpret these results

 Understand the role of accounting information in business decision making

 Understand the basic design of management control system including performance measurement,
responsibility accounting etc.

 Understand the role of ethics in managerial accounting decision‐making

UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES

General Learning Goals & Objectives
Goal 1 –Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 –Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational
context.
Goal 3 – Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions.
Goal 4 – Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and management
context.
Goal 5 – Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 – Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal,
Technological, and Social environment of organizations.

Major Specific Learning Goals & Objectives

Goal 7 (a) – Discipline Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact including
application to real world situations (including subject knowledge).
Goal 7 (b) – Understanding the “science” behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate
decision-support tools, interpret results and make meaningful recommendations to support the decision-maker
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Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.

MAPPING OF OBJECTIVES
PROGRAM LEARNING GOALS COURSE LEARNING OBJECTIVES COURSE ASSESSMENT ITEM
AND OBJECTIVES
Goal 1 –Effective Written and Oral
Communication
Goal 2 –Ethical Understanding and  Understand the role of ethics in managerial Quizzes, Project, Final Exams, CP
Reasoning
accounting decision‐making

Goal 3 – Analytical Thinking and

Problem Solving Skills
Goal 4 – Application of Information
Technology
Goal 5 – Teamwork in Diverse and
Multicultural Environments
Goal 6 – Understanding
Organizational Ecosystems
Goal 7 (a) – Discipline Specific  An understanding of the differences between Quizzes, Project, Final Exams, CP
Knowledge and Understanding financial and managerial accounting

 The ability to calculate costs in both a job

order and process cost accounting system and
understand the cost flow

 An understanding of the types of costs and

how they behave in order to conduct
cost‐volume profit analyses

 An understanding of the role and purpose of

activity based costing for decision making
purposes including the ability to calculate
costs under an ABC system

 An understanding of the different types of

budgets and the ability to prepare static and
flexible budgets

 The ability to perform standard cost variance

analyses and fixed and variable overhead
variance analyses and interpret these results

 Understand the role of accounting

information in business decision making

 Understand the basic design of management

control system including performance
measurement, responsibility accounting etc.

 Understand the role of ethics in managerial

accounting decision‐making
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Goal 7 (b) – Understanding the  Understand the role of accounting Quizzes, Project, Final Exams, CP
“science” behind the decision- information in business decision making
making process
 Understand the basic design of management
control system including performance
measurement, responsibility accounting etc.

GRADING BREAKUP AND POLICY

Quizzes (n-1) 20%

Midterm 35%
Class Participation (Attendance) 05%
Assignment: Presentation 05%
Final Exam 35%

Course Instructions:

• This course encourages active reading on part of students to best comprehend technical and diverse management
accounting concepts. Class lectures would augment this base reading. Therefore attendance is of high importance. After 3
absences, a proportionate grade reduction would apply for every further absence.
• The assignment / presentation would be around ICAEW (Institute of Chartered Accountants of England & Wales) published
content around key concepts learned in the course. It will be a group presentation with a number of groups assigned a
unique ICAEW article to study, further research on and develop a response in the form of a presentation.

EXAMINATION DETAIL

Yes/No: Yes
Combine/Separate: Combine
Duration: 1.5 Hours
Midterm
Preferred Date: TBC
Exam
Exam Specifications: MCQs, Short Free Response Questions

Yes/No: Yes
Combine Separate: Combine
Duration: 1.5 Hours
Final Exam Exam Specifications: MCQs, Short Free Response Questions
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LECTURES CHAPTER: TITLE SESSION OBJECTIVES
1 Chapter 1:  Identify the major differences and similarities between financial and managerial
Managerial accounting.
Accounting and the  Understand the role of management accountants in an organization.
Business  Understand the basic concepts underlying Just‐In‐Time (JIT), Total Quality Management
Environment (TQM), Process Reengineering and the Theory of Constraints (TOC).
 Understand the importance of upholding ethical standards.

2, 3 Chapter 2: Cost  Identify and give examples of each of the three basic manufacturing cost categories.
Terms, Concepts,  Distinguish between product costs and period costs and give examples of each.
and Classifications  Prepare an income statement including calculation of the cost of goods sold.
 Prepare a schedule of cost of goods manufactured.
 Understand the differences between variable costs and fixed costs.
 Understand the differences between direct and indirect costs.
 Define and give examples of cost classifications used in making decisions: differential
costs, opportunity costs, and sunk costs.

4, 5 Chapter 3: Systems  Distinguish between process costing and job‐order costing and identify companies that
Design: Job‐Order would use each method.
Costing  Identify the documents used in a job‐order costing system.
 Compute predetermined overhead rates and explain why estimated overhead costs
(rather than actual overhead costs) are used in the costing process.
 Apply overhead cost to jobs using a predetermined overhead rate.
 Determine under applied or over applied overhead.
 Use the direct method to determine cost of goods sold
6 Chapter 5: Cost  Understand how fixed and variable costs behave and how to use them to predict costs.
Behavior: Analysis  Use a scatter graph plot to diagnose cost behavior.
and Use  Analyze a mixed cost using the high‐low method.
 Prepare an income statement using the contribution format.
7, 8 Chapter 6:  Explain how changes in activity affect contribution margin and net operating income.
Cost‐Volume‐Profit  Prepare and interpret a cost‐volume‐profit (CVP) graph.
Relationships  Use the contribution margin ratio (CM ratio) to compute changes in contribution and net
operating income resulting from changes in sales volume.
 Show the effects on contribution margin of changes in variable costs, fixed costs, selling
price, and volume.
 Compute the break‐even point in unit sales and sales dollars.
 Determine the level of sales needed to achieve a desired target profit.
 Compute the margin of safety and explain its significance.
 Compute the degree of operating leverage at a particular level of sales and explain how it
can be used to predict changes in net income.
 Compute the break‐even point for a multi product company and explain the effects of
shifts in the sales mix on contribution margin and the break‐even point.
9, 10 Chapter 9: Profit  Understand why organizations budget and the processes they use to create budgets.
Planning  Prepare a sales budget, including a schedule of expected cash collections.
 Prepare a production budget.
 Prepare a direct materials budget, including a schedule of expected cash disbursements
for purchases of materials.
 Prepare a direct labor budget.
 Prepare a manufacturing overhead budget.
 Prepare a selling and administrative expense budget.
 Prepare a cash budget.
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LECTURES CHAPTER: TITLE SESSION OBJECTIVES
 Prepare a budgeted income statement.
 Prepare a budgeted balance sheet.
11 Chapter 7: Variable  Explain how variable costing differs from absorption costing and compute unit product
Costing: A Tool for costs under each method.
Management  Prepare income statements using both variable and absorption costing.
 Reconcile variable costing and absorption costing net operating incomes and explain why
the two amounts differ.
 Understand the advantages and disadvantages of both variable and absorption costing.
12, 13 Chapter 4: Systems  Record the flow of materials, labor, and overhead through a process costing system.
Design: Process  Compute the equivalent units of production using the weighted average method.
Costing (FIFO  Prepare a quantity schedule using the weighted‐average method.
Method)  Compute the costs per equivalent unit using the weighted average method.
 Prepare a cost reconciliation using the weighted‐average method.
 Compute the equivalent units of production using the FIFO method.
 Prepare a quantity schedule using the FIFO method.
 Compute the costs per equivalent unit using the FIFO method.
 Prepare a cost reconciliation using the FIFO method.
14 Pre-Mid Review  Review: Mid
Mid term
16, 17, 18 Chapter 8:  Understand activity‐based costing and how it differs from a traditional costing method.
Activity‐Based  Assign costs to cost pools using a first‐stage allocation.
Costing: A Tool to  Compute activity rates for cost pools.
Aid Decision  Assign costs to a cost object using a second‐stage allocation.
Making  Use activity‐based costing to compute product and customer margins.
19 / 20 Chapter 10:  Explain how direct materials standards and direct labor standards are set.
Standard Costs and  Compute the direct materials price and quantity variances and explain their significance.
the Balanced  Compute the direct labor rate and efficiency variances and explain their significance.
Scorecard  Compute the variable manufacturing overhead spending and efficiency variances.
 Understand how a balanced scorecard fits together and how it supports a company’s
strategy.
 Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE).
21 / 22 Chapter 11:  Prepare a flexible budget and explain the advantages of the flexible budget approach over
Flexible Budgets the static budget approach.
and Overhead  Prepare a performance report for both variable and fixed overhead costs using the flexible
Analysis budget approach.
 Use a flexible budget to prepare a variable overhead performance report containing only a
spending variance.
 Use a flexible budget to prepare a variable overhead performance report containing both
a spending and efficiency variance.
 Compute the predetermined overhead rate and apply overhead to products in a standard
cost system.
 Compute and interpret the fixed overhead budget and volume variances.
23 Chapter 12:  Prepare a segmented income statement using the contribution format and explain the
Segment Reporting difference between traceable fixed costs and common fixed costs.
and  Compute return on investment (ROI) and show how changes in sales, expenses, and assets
Decentralization affect ROI.
 Compute residual income and understand its strengths and weaknesses.
24 Appendices 12A&B  Determining the range, within which negotiated transfer price should fall.
/ Transfer Pricing  Understand wider business implications of such.
25 / 26 Chapter 13:  Identify relevant and irrelevant costs and benefits in a decision.
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LECTURES CHAPTER: TITLE SESSION OBJECTIVES
Relevant Costs for  Prepare an analysis showing whether a product line or other business segment should be
Decision Making dropped on retained.
 Prepare a make or buy analysis.
 Prepare an analysis showing whether a special order should be accepted.
 Determine the most profitable use of a constrained resource and the value of obtaining
more of the constrained resource.
 Prepare an analysis showing whether joint products should be sold at the split‐off point or
processed further.
27 ICAEW insights  Article Presentations
(CP intensive)
28 ICAEW insights  Article Presentations
(CP intensive)
Pre-Final Review

TEXTBOOK(S)/SUPPLEMENTARY READINGS

 Managerial Accounting, 12th edition, Garrison, Noreen, & Brewer, McGraw Hill.
 Further supplementary material will be provided during the duration of the course.