CIMA Learning System 2007 Management Accounting Decision Management (CIMA Managerial Level 2008)

copyright......Page 3
contents......Page 4
How to use your CIMA Learning System......Page 12
Guide to the Icons used within this Text......Page 13
Planning......Page 14
Tips for effective studying......Page 15
Assessment Strategy......Page 16
Syllabus content......Page 17
Syllabus content......Page 18
Learning outcomes......Page 19
Transitional arrangements......Page 20
1.2 What is meant by cost?......Page 24
1.3.1 Composite cost units......Page 25
1.5.1 Classification of costs according to their nature......Page 26
1.5.3 Other examples of cost classification......Page 27
1.6.1 Fixed cost......Page 28
1.6.2 Variable cost......Page 29
1.6.4 Analysing semi-variable costs......Page 31
1.7 The elements of cost......Page 34
1.8 Summary......Page 35
2.2 Overhead allocation and apportionment......Page 36
2.4 Applying the overhead absorption rate......Page 37
2.5 Selecting the most appropriate absorption rate......Page 38
2.6.1 Under- or over-absorption of overheads......Page 39
2.6.3 Accounting for under- or over-absorbed overheads......Page 40
2.7 Illustrative example......Page 41
2.8.2 Activity-based costing......Page 43
2.10 Marginal costing and contribution......Page 45
2.11 Preparing profit statements using marginal costing and absorption costing......Page 46
2.11.2 Profit statements using absorption costing......Page 47
2.12.1 Reconciling the profits given by the different methods......Page 48
2.12.3 Profit differences in the long term......Page 49
2.14 Summary......Page 50
3.2.1 Calculating the breakeven point......Page 52
3.3 The margin of safety......Page 53
Solution......Page 54
3.5 Drawing a basic breakeven chart......Page 55
3.6 The contribution breakeven chart......Page 56
3.7 The profit-volume chart......Page 57
3.7.1 The advantage of the profitÒvolume chart......Page 58
3.8 The limitations of breakeven (or CVP) analysis......Page 59
3.10 Using costs for decision-making......Page 60
Exercise......Page 61
Solution......Page 62
3.12 Multi-product CVP analysis......Page 63
3.13 Summary......Page 65
Question 1......Page 66
Question 2......Page 67
Question 4......Page 68
Question 5......Page 69
Solution 1......Page 70
Solution 3......Page 71
Solution 4......Page 72
Solution 5......Page 73
4.2.1 Non-relevant costs......Page 76
Solution......Page 77
4.3.1 Examples of opportunity costs......Page 78
4.4.3 Using incremental costs......Page 79
Solution......Page 80
4.5.1 Decisions involving a single limiting factor......Page 81
Solution......Page 83
Exercise: make or buy/outsourcing decision and accept/reject an order......Page 84
Solution......Page 85
Exercise: discontinuing a product......Page 86
Solution......Page 87
Exercise: deciding when to close a department or factory......Page 88
Notes......Page 89
Exercise......Page 90
Summary......Page 91
Joint products: what process costing does, and does not, tell us......Page 92
Solutions......Page 94
Question 1......Page 100
Question 2......Page 101
Question 4......Page 102
Question 5......Page 104
Question 6......Page 105
Solution 2......Page 108
Solution 4......Page 110
Solution 5......Page 112
Solution 6......Page 115
5.2 Basic linear programming......Page 116
5.2.1 Formulating the mathematical model......Page 117
5.2.2 The graphical method of solving linear programming models......Page 118
5.2.3 Further examples of the construction and graphing of constraints......Page 122
5.2.4 Multiple solutions......Page 123
5.2.5 Slack and surplus......Page 126
5.2.6 Shadow prices and opportunity costs......Page 127
5.3 The Simplex method......Page 128
5.4 Worth and relative loss......Page 130
5.5 Summary......Page 131
Straight thinking......Page 132
Question 2......Page 138
Question 4......Page 139
Question 5......Page 140
Solution 1......Page 142
Solution 3......Page 143
Solution 4......Page 144
Solution 5......Page 146
6.2.1 Price elasticity of demand......Page 148
6.2.2 The product life cycle......Page 152
6.2.3 The profit-maximisation model......Page 154
6.3.1 Total cost-plus pricing......Page 155
6.3.2 Marginal cost-plus pricing......Page 158
6.4.2 Market skimming......Page 159
6.4.4 Price differentiation......Page 160
6.4.6 Product bundling......Page 161
Exercise......Page 162
6.4.8 Using discounts in pricing......Page 163
6.5 Summary......Page 164
The pricing decision - economists versus accountants......Page 166
Question 1......Page 172
Question 2......Page 173
Solution 1......Page 174
Solution 2......Page 175
7.2.1 The probabilistic model and expected value......Page 178
Exercise......Page 180
Solution......Page 181
7.3.1 Method and applications......Page 183
Solution......Page 184
Solution......Page 185
Solution......Page 187
7.4 Uncertainty in investment appraisal......Page 188
7.6 Maximin, Maximax and Regret Criteria......Page 189
Summary......Page 190
7 Readings......Page 192
The impact of risk and uncertainty on managerial decision-making......Page 196
The expected value approach......Page 199
Concluding remarks......Page 200
Question 1......Page 202
Question 2......Page 203
Question 3......Page 204
Question 4......Page 205
Solution 1......Page 206
Solution 2......Page 207
Solution 3......Page 208
Solution 4......Page 209
8.2.1 Introduction......Page 212
8.2.2 Net present value (NPV)......Page 214
Exercise: calculating the NPV without using present value tables......Page 215
8.2.3 Payback (PB)......Page 216
8.2.5 Discounted payback index (DPBI) or profitability index......Page 218
8.2.6 Internal rate of return (IRR)......Page 219
8.2.7 Multiple IRRs......Page 221
8.2.8 Modified internal rate of return (MIRR)......Page 222
8.2.9 Accounting rate of return (ARR)......Page 223
8.2.10 Example comparing ARR and NPV......Page 225
8.2.11 Summary of the four investment appraisal methods......Page 226
8.3.2 Unequal lives......Page 227
8.3.3 Asset replacement cycles......Page 228
8.3.4 Capital rationing......Page 231
8.3.5 The discount rate......Page 232
8.3.6 Sensitivity analysis......Page 233
Solution......Page 234
Exercise......Page 235
8.3.7 Risk......Page 236
8.3.8 Inflation......Page 237
Solution......Page 238
8.3.9 Incorporating the effect of taxation......Page 239
8.4.2 Benefits of post-completion appraisal......Page 243
8.4.3 Project abandonment......Page 245
8.4.4 Role of post-appraisal in project abandonment......Page 248
8.5 Summary......Page 249
The Possibilities and Practicalities of Gain Sharing Arrangements......Page 250
Post-completion auditing with Heineken......Page 255
The gentle touch......Page 260
Tools for dealing with uncertainty......Page 264
Question 1......Page 272
Question 4......Page 274
Question 6......Page 275
Question 7......Page 276
Question 9......Page 277
Question 10......Page 278
Solution 1......Page 280
Solution 2......Page 281
Solution 3......Page 282
Solution 4......Page 283
Solution 6......Page 284
Solution 7......Page 285
Solution 8......Page 287
Solution 9......Page 289
Solution 10......Page 290
9.2 Continuous improvement......Page 294
9.4 Value analysis......Page 295
9.6 The value chain......Page 296
9.7 Just-in-time concept......Page 297
9.7.1 JIT systems......Page 299
9.7.2 JIT and supplier relationships......Page 300
9.8.1 Quality as a concept......Page 301
9.8.2 TQM in practice......Page 303
9.10 Summary......Page 304
Quality Streak......Page 306
Question 2......Page 310
Solution 1......Page 312
JIT purchasing......Page 313
The effect on profitability......Page 314
10.2.1 Cost behaviour......Page 316
10.2.2 Absorption costing......Page 317
10.2.3 Direct product profitability (DPP)......Page 318
10.3.1 Introduction......Page 321
Definitions......Page 322
10.3.2 Simple example of traditional absorption costing and ABC......Page 324
10.3.3 Activity-based management......Page 326
10.3.4 Activity-based management: cost management of activities......Page 327
10.3.6 Activity-based management: customer profitability analysis......Page 329
10.3.7 Distribution channel profitability......Page 331
10.3.8 Activity-based management: strategic activity management......Page 332
10.3.9 Using ABC in service industries and activities......Page 333
10.3.10 Problems with implementing ABC......Page 334
10.4.1 The rule......Page 335
10.4.2 Uses of Pareto analysis......Page 336
Solution......Page 337
10.5 Summary......Page 339
10 Readings......Page 340
Tool of the trade......Page 349
Customer profitability analysis......Page 353
Voyage of discovery......Page 359
Question 1......Page 362
Question 2......Page 363
Question 3......Page 364
Question 6......Page 365
Question 7......Page 366
Question 8......Page 367
Solution 1......Page 370
Solution 3......Page 371
Solution 4......Page 372
Solution 5......Page 375
Solution 6......Page 377
Solution 7......Page 378
Solution 8......Page 379
11.2.2 The nature of the learning curve......Page 384
Solution......Page 387
11.2.4 Learned behaviour......Page 388
Exercise......Page 389
Solution......Page 390
11.3 Summary......Page 391
Learning curves......Page 392
Exercise......Page 396
Question 1......Page 398
Question 2......Page 399
Solution 1......Page 400
Solution 2......Page 401
12.2.1 Introduction......Page 404
12.2.2 Traditional manufacturing philosophy......Page 405
12.2.4 Volume versus variety......Page 407
12.3.1 Just-in-time (JIT)......Page 409
12.3.2 Backflush accounting......Page 410
12.4.1 The theory of constraints (TOC)......Page 413
12.4.2 Throughput accounting (TA)......Page 414
Exercise - contrasting TA with the limiting factor approach......Page 415
Solution......Page 416
12.4.3 Throughput cost control and effectiveness measures......Page 418
12.4.4 Case - throughput accounting at Garrett Automotive Ltd UK......Page 419
12.4.5 Summary of throughput accounting......Page 420
12.5.1 Target costing: a strategic profit management system......Page 422
12.5.2 Using target costing in the concept and design stages......Page 424
12.5.3 Target costing for existing products......Page 425
12.5.4 Target costing support systems......Page 426
12.6.1 Life cycle costing - introduction......Page 427
12.6.2 Product life cycle costing......Page 428
12.6.3 Customer life cycle costing......Page 431
12.7 Summary......Page 432
Manage your costs by managing your cycle times......Page 434
An extract from: Throughput Accounting: The Garrett Automotive Experience......Page 437
Question 1......Page 442
Question 2......Page 443
Question 3......Page 444
Question 4......Page 445
Solution 1......Page 446
Solution 3......Page 447
Solution 4......Page 449
Planning......Page 452
Tips for the final revision phase......Page 453
Structure of the paper......Page 454
Question 1......Page 456
Question 2......Page 458
Question 3......Page 460
Question 4......Page 461
Question 5......Page 462
Question 6......Page 463
Question 8......Page 465
Question 9......Page 466
Question 10......Page 467
Question 12......Page 468
Question 13......Page 469
Question 14......Page 470
Question 17......Page 471
Question 18......Page 472
Question 19......Page 473
Question 20......Page 474
Question 21......Page 475
Question 22......Page 476
Question 24......Page 477
Question 25......Page 478
Question 26......Page 479
Question 28......Page 480
Question 29......Page 481
Question 30......Page 483
Question 32......Page 484
Question 33......Page 485
Question 34......Page 486
Question 35......Page 487
Question 37......Page 488
Question 38......Page 489
Question 39......Page 491
Question 40......Page 493
Question 41......Page 494
Question 42......Page 495
Question 43......Page 496
Question 44......Page 497
Question 45......Page 499
Question 46......Page 500
Question 47......Page 501
Solution 1......Page 504
Solution 2......Page 505
Solution 3......Page 507
Solution 4......Page 508
Solution 5......Page 509
Solution 6......Page 510
Solution 7......Page 512
Solution 8......Page 514
Solution 9......Page 515
Solution 10......Page 516
Solution 11......Page 518
Solution 12......Page 520
Solution 13......Page 521
Solution 14......Page 524
Solution 15......Page 525
Solution 16......Page 526
Solution 17......Page 528
Solution 18......Page 531
Solution 19......Page 533
Solution 20......Page 535
Solution 21......Page 537
Solution 22......Page 538
Solution 23......Page 540
Solution 24......Page 542
Solution 25......Page 544
Solution 26......Page 545
Solution 27......Page 546
Solution 28......Page 548
Solution 29......Page 549
Solution 30......Page 551
Solution 31......Page 553
Solution 32......Page 555
Solution 33......Page 556
Solution 34......Page 559
Solution 35......Page 560
Solution 36......Page 562
Solution 37......Page 564
Solution 38......Page 567
Solution 39......Page 569
Solution 40......Page 572
Solution 41......Page 575
Solution 42......Page 578
Solution 43......Page 580
Solution 45......Page 584
Solution 46......Page 586
Solution 47......Page 587
Managerial Level Management Accounting - Decision Management (Paper P2)......Page 592
Paper......Page 593
Question One......Page 594
Question Two......Page 596
Question Four......Page 597
Question Five......Page 599
Question Six......Page 600
Question Seven......Page 602
Present Value Table......Page 604
Learning curve......Page 606
Brief Guide......Page 607
Question One......Page 608
Question Three......Page 610
Question Four......Page 611
Question Five......Page 613
Question Six......Page 614
Question Seven......Page 615
Index......Page 618