Lahore University of Management Sciences. ACCT 130 Principles of Management Accounting Fall Semester 2017 Waqar Ali, Omair Haroon, Ayesha Bhatti

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1 ACCT 130 Principles of Management Accounting Fall Semester 2017 Instructor Waqar Ali, Omair Haroon, Ayesha Bhatti Room No. TBA Office Hours TBA Telephone 5318; 8394; 8087 Secretary/TA Secretary: TBA TA: TBA TA Office Hours TBA Course URL (if any) 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 Elective Open for Student Category Close for Student Category Core 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 (costingoriented) 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

2 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

3 Indicate below how the course learning objectives specifically relate to any program learning goals and objectives. MAPPING OF OBJECTIVES PROGRAM LEARNING GOALS AND OBJECTIVES Goal 1 Effective Written and Oral Communication Goal 2 Ethical Understanding and Reasoning 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 Knowledge and Understanding Goal 7 (b) Understanding the science behind the decisionmaking process COURSE LEARNING OBJECTIVES Understand the role of ethics in managerial accounting decision making 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 Understand the role of accounting information in business decision making Understand the basic design of management control system including performance measurement, responsibility accounting etc. COURSE ASSESSMENT ITEM Quizzes, Project, Final Exams, CP Quizzes, Project, Final Exams, CP Quizzes, Project, Final Exams, CP

4 GRADING BREAKUP AND POLICY Quizzes (Lowest scoring quiz will be dropped.) 20% Midterm Exam 30% Class Participation/Attendance 10% Final Exam 40% Course Instructions: The 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. EXAMINATION DETAIL Midterm Exam Yes/No: YES Combine Separate: N/A Duration: 2 Hours Preferred Date: Exam Specifications: MCQs Final Exam Yes/No: YES Combine Separate: N/A Duration: 2 Hours Exam Specifications: MCQs 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 Environment Management (TQM), Process Reengineering and the Theory of Constraints (TOC). Understand the importance of upholding ethical standards. 2, 3 Chapter 2: Cost Terms, Concepts, and Classifications 4, 5 Chapter 3: Systems Design: Job Order Costing 6 Materials Planning / Accounting for Direct Identify and give examples of each of the three basic manufacturing cost categories. Distinguish between product costs and period costs and give examples of each. 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. Distinguish between process costing and job order costing and identify companies that would use each method. 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. Quantitative models for the planning and control of stocks and relevant costs Calculating Economic Order Quantity, Re Order Level and Safety Stock

5 LECTURES CHAPTER: TITLE SESSION OBJECTIVES Materials (Part II, Assumptions of the EOQ formula Chapter 3, Colin Materials requirement planning Drury) 7 Chapter 5: Cost Behavior: Analysis and Use 8, 9 Chapter 6: Cost Volume Profit Relationships 10, 11 Chapter 7: Variable Costing: A Tool for Management 12, 13 Chapter 4: Systems Design: Process Costing (FIFO Method) Understand how fixed and variable costs behave and how to use them to predict costs. Use a scatter graph plot to diagnose cost behavior. Analyze a mixed cost using the high low method. Prepare an income statement using the contribution format. Explain how changes in activity affect contribution margin and net operating income. Prepare and interpret a cost volume profit (CVP) graph. 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. Explain how variable costing differs from absorption costing and compute unit product costs under each method. 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. Record the flow of materials, labor, and overhead through a process costing system. Compute the equivalent units of production using the weighted average method. Prepare a quantity schedule using the weighted average 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 Revision Session 15 Mid term 16, 17 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 Aid Compute activity rates for cost pools. Decision Making Assign costs to a cost object using a second stage allocation. Use activity based costing to compute product and customer margins. 18, 19 Chapter 9: Profit Planning Understand why organizations budget and the processes they use to create budgets. 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.

6 LECTURES CHAPTER: TITLE SESSION OBJECTIVES Prepare a cash budget. Prepare a budgeted income statement. 20, 21 Chapter 10: Standard Costs and the Balanced Scorecard 22, 23 Chapter 11: Flexible Budgets and Overhead Analysis 24, 25 Chapter 12: Segment Reporting and Decentralization 26 Appendices 12A: Transfer Pricing 27, 28 Chapter 13: Relevant Costs for Decision Making TEXTBOOK(S)/SUPPLEMENTARY READINGS Prepare a budgeted balance sheet. Explain how direct materials standards and direct labor standards are set. Compute the direct materials price and quantity variances and explain their significance. Compute the direct labor rate and efficiency variances and explain their significance. 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). Prepare a flexible budget and explain the advantages of the flexible budget approach over the static budget approach. Prepare a performance report for both variable and fixed overhead costs using the flexible 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. Prepare a segmented income statement using the contribution format and explain the difference between traceable fixed costs and common fixed costs. Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Compute residual income and understand its strengths and weaknesses. Determining the range, within which negotiated transfer price should fall. Understand wider business implications of such. Identify relevant and irrelevant costs and benefits in a decision. Prepare an analysis showing whether a product line or other business segment should be 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. Managerial Accounting, 12th edition, Garrison, Noreen, & Brewer, McGraw Hill. Further supplementary material (Materials Planning chapter 3: Cost and Management Accounting, 6 th Edition, Colin Drury).