BUS 319 COURSEWARE

 
Course Code: BUS 319
Course Title: Management Accounting
Credit Unit: 3 credits
Status: Compulsory (C)
Course Duration: Three hours per week for 15 weeks (45 hours)
Name of Lecturer: Aremu Mukaila Ayanda Ph.D.
Title: Dr.
Status: Lecturer I
Qualification: B.Sc. (Hons) (Bus Admin), M.Sc. (Management Science), Cert. in Computer –
DPMIS, Ph. D. (Bus. Admin) (Unilorin), FMSM, AMNIM.
E-mail addresses: aremuilala@unilorin.edu.ng, aremuilalaa@yahoo.com
Office Location: Office No. 6, Department of Business Administration, Faculty of Business and
Social Sciences, University of Ilorin, Permanent Site.
Telephone: +234 8036718531
Consultation Hours: 2.00 – 3.00 p.m. (Monday – Thursday)
COURSE DETAILS
Course Content
Management accounting defined, diversities between management accounting and financial
accounting. Relevant costing, cost-volume-profit analysis, marginal costing and absorption
costing. Managerial control and budgeting. Standard costing, variance analysis and responsibility
accounting, capital budgeting and project analysis. Pricing decision. Sources and management of
working capital, analysis of financial statement. Linear programming and Learning curve theory.
Course Description
The focus of this course is to acquire students with the ability to use accounting data and other
financial information in the management of an entity. It also focus on the application of
quantitative techniques and system analysis, design of accounting result, intra firm accounting,
budget preparation and its usage for planning and control.
Course Outline
Week 1: Introduction to Management Accounting
Week 2: Scope of Management Accounting and Prerequisite of Management Accounting
Week 3: Diversities between financial accounting and management accounting, cost accounting
versus management accounting
Week 4: Relevant costing, Cost classification and Cost behavior
Week 5: Cost Estimation Techniques
Week 6: Cost-Volume-Profit Analysis / Break Even Analysis
Week 7: Marginal Costing and Decision Making
Week 8: Absorption Costing and Decision Making
Week 9: Budget and Budgetary Control

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Week 10: Standard costing, variance analysis and responsibility accounting
Week 11: Capital budgeting decision and project analysis.
Week 12: Pricing decision
Week 13: Sources and Management of Working Capital and Analysis of Financial Statement
Week 14: Linear programming and Learning curve theory
Week 15: Revision and General overview of the course
Course Justification
There is need to provide business management students with professional knowledge and skill in
the preparation and presentation of accounting information. This is because decision making
arises in business and managers are faced with problems and alternative courses of actions to
choose. The rationale of this course is to assist students to have the necessary accounting
knowledge in solving business problems and formulating of business policies and assist in the
planning and controlling of business activities.
Course Objectives
The aim of this course is to give you broad-based overview of introductory approach to
management accounting. The course deals principally with management accounting elements
and techniques. In this course student will learn about application of mathematical techniques to
solve management accounting problems. The following are the overall objectives of this course.
When this course is adequately covered and well understood and completed, students should be
able to:
i. Explain the term management accounting;
ii. Distinguish between financial accounting and management accounting;
iii. Apply Cost Estimation Techniques to solve business problems;
iv. Use Marginal Costing and Absorption Costing for Decision Making;
v. examine different component of cost classification;
vi. understand variance analysis and how it can be used to assign responsibility for
deviations and cost control;
vii. use linear programming technique to allocate the available limited recourses of an
organisation and;
viii. use accounting information and data to solve business problems.
Course Requirements
This is a compulsory course in the Department of Business Administration. It is mandatory all
the students in the Department to register for this course at 300 level. Student must participate
actively in class, in group discussion, assignment and read all the recommended text books. The
register students for this course are expected to have minimum of 75% class attendance record as
a condition for sit for the end of semester examination. Students are expected to have an e-mail
to enable them participate in online group discussion and online submission of assignment.
S/No. Types of Grading Score
1 Class attendance 05%
2 Online assignment 10%
3 Progress Test 15%
4 End of Semester Examination 70%
5 Total 100%
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Course Delivery Strategies
Conventional face to face teaching, class discussion, group work and online yahoo group
discussion will be used as delivery methods in this course for the students.
LECTURE CONTENT
Week 1: Introduction to Management Accounting.
Objectives
At the end of this unit you should be able to:
i. define the concept of Management accounting;
ii. classify information needs of management from view point of organisational
structure; and
iii. identify the qualities of management accounting information.
Description
The first week lectures will look at the overview of the management accounting. It will also open
and prepare the students for the entire semester’s work on management accounting. It will also
present various definitions on management accounting with emphasis on Charter Institute of
Management Accountants (CIMA) definition.
Study Questions
1. What is management accounting
2. Classify information needs of management from view point of organizational structure.
3. Mention five qualities of management accounting information.
Further Reading
Charles1 H. Brandon and Ralph E. Drtina (1997) Management Accounting – Strategy and
Control, The McGraw Hill Companies, Inc.
Adeniyi2, A. A. (2002) Simplified Management Accounting, Value Analysis Consult, Lagos
Das3, P., (1972): Accounting as an aid to management-need for extension of its Boundary. Indian
Journal of Accounting.
Week 2: Scope of Management Accounting and Prerequisite of Management Accounting
Objectives
At the end of this unit you should be able to:
i. understand the scope of management accounting; and
ii. clearly explain the prerequisite of Management Accounting.
Description
The second week lecture focuses on the various scope of management accounting with emphasis
on the major broad objectives of accounting information system. It will also cover prerequisite of
Management Accounting.
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Study Questions
1. Explain the scope of management accounting
2. Identify and explain the objectives of accounting information system.
3. Highlight five prerequisite of Management Accounting.
Further Reading
1. Ola1, C. S. (2003) Management Accounting: Theory and Application, Revised Edition,
Heinemann Education Book (Nig) Plc Ibadan.
2. Scapens W. Robert2 (1991) Management Accounting: A Review of Contemporary
Development (2nd Edition), Macmillian Education Ltd, London.
Week 3: Diversities between financial accounting and management accounting, cost accounting
versus management accounting
Objectives
At the end of this unit you should be able to:
i. define financial and accounting;
ii. have a complete understanding of differences between financial accounting and
management accounting; and
iii. explain diversities between cost accounting and management accounting.
Description
This week lecture will enable students to understand differences between financial accounting
and management accounting. Overview of cost accounting as well as its relationship with
management accounting will be discussed.
Study Questions
1. What is cost accounting?
2. Clearly distinguish between cost accounting and management accounting.
3. What are the major differences between financial accounting and management
accounting?
Further Reading
1. Colin1, D. (2008) Management and Cost Accounting, 7th Edition, Book Power formerly
ELST, Published by Cengage Learning.
2. Adeniyi2, A. A. (2002) Simplified Management Accounting, Value Analysis Consult,
Lagos.
3. Solomon2, E. and John, J. (1978): An Introduction to Financial Management. Prentice-
Hall, India.
Week 4: Relevant costing, Cost classification and Cost behaviour
Objectives
At the end of this unit you should be able to:
i. understand relevant costing;
ii. classify cost for stock valuation and measurement of profit;
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iii. classify cost for Decision making and planning;
iv. classify cost for control purpose;
v. distinguish between cost unit, cost centre, cost activities, cost accounting and
analysis;
vi. define cost behaviour and explain reasons for study cost behaviour; and
vii. explain pattern of cost behaviour.
Description
In this unit, introduction to general distinction between cost unit, cost center, cost activities and
cost analysis. The unit will also look at the different costing method in practice and different
classification of cost. Finally, reason for study cost behaviour; and how to handle cost related
issues and pattern will be discussed with students.
Study Questions
1. Define cost unit and cost center, distinguish carefully between them, and give two
examples of each.
2. Explain what you understand by cost behaviour.
3. Describe cost behavior patterns which may be encourage.
4. Identify and explain major classification of cost in management accounting.
Further Reading
Charles1 H. Brandon and Ralph E. Drtina (1997) Management Accounting – Strategy and
Control, The McGraw Hill Companies, Inc.
Adeniyi2, A. (2001): An Insight into Management Accounting, value analysis consult, Nigeria.
Week 5: Cost Estimation Techniques
Objectives
At the end of this unit you should be able to:
i. determine variable cost per unit;
ii. variable cost per unit to determine total variable cost;
iii. segregate semi variable cost into both fixed and variable components;
iv. identify the highest and least activity levels among the observed data;
v. draw a scatter graph to determine coordinate of the cost and associated level of
activities; and
vi. use regression analysis to determine the cost and predict cost and level of activities.
Description
This unit focuses on determination of how cost will react to changes in output of other
measurable activity level is of vital importance for decision-making planning and control. The
preparation of organisational budget, performance report, and the provision of relevant cost for
pricing and other decisions will all depend on reliable estimates of fixed and variable level of
activity.
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Study Questions
1. Differentiate between total variable cost and total fixed cost.
2. What is the purpose of identifying the highest and least activity levels among the
observed data?
3. The following data were extracted from Aresco Pharmacetical Company over a
period of five months in 2011 with respect to production of “M Cough Syrup”
Months Production level in units Cost of “M Cough Syrup”
March 21 85
April 28 107
May 34 122
June 31 118
July 40 134
Require:
a. Determine the average cost of “M Cough Syrup”
b. Use regression analysis to estimate the cost of “M Cough Syrup” in August 2011
if production level for “M Cough Syrup” is 50 units.
Further Reading
Colin2, (2002): Management and Cost Accounting, Van Nostrand Rembold, London.
Abiodun1, A. (2006) Cost and Management Accounting – Students’ Manual, 2nd Edition, Impact
global Publications, London
Week 6: Cost-Volume-Profit Analysis / Break Even Analysis
Objectives
At the end of this unit you should be able to:
i. define cost volume profit analysis and break even analysis;
ii. discuss decision relating to cost volume profit analysis;
iii. explain assumption of cost volume profit analysis;
iv. describe limitation of cost volume profit analysis;
v. explain the importance of cost volume profit analysis; and
vi. use application of cost volume profit analysis and drawing of profit volume chart.
Description
First Week (Week 6)
Introduction of cost volume profit analysis, decision relating to cost volume profit analysis will
be extensively discussed in the week. Overview of various assumption of cost volume profit
analysis will also be dwelled on during the week.
Second Week (Week 6)
Extensive limitation of cost volume profit analysis with respect to others techniques will be
reviewed to students. Importance of cost volume profit analysis to organisation and managerial
decision making will be covered as well.
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Third Week (Week 6)
The third week lecture will focus on break even analysis techniques application for purpose of
the cost volume profit analysis.
Study Questions
1. Explain cost volume profit analysis.
2. Identify and discuss the various assumption of cost volume profit analysis.
3. Discuss the importance of cost volume profit analysis.
4. “A break even chart must be interpreted in the light of the limitation of its underline
assumption” Discuss.
Further Reading
Charles1 H. Brandon and Ralph E. Drtina (1997) Management Accounting – Strategy and
Control, The McGraw Hill Companies, Inc.
Ravi2 M, C. K. (2003): Cost Accounting. Taxman's publishers, India
4Limitation of cost volume profit analysis
Week 7 and 8: Marginal Costing and Absorption Costing and Decision Making
Objectives
At the end of this unit you should be able to:
i. make fundamental difference between marginal costing and absorption costing
techniques;
ii. prepare income statement using marginal costing and absorption costing method;
iii. reconcile the income statement together;
iv. determine the profitability or otherwise of a product or a department;
v. know when to accept or reject special order;
vi. determine when to make or buy decision; and
vii. determine product mix when a company is face with constraints.
Description
The principle of marginal costing involves the separation of costs into fixed and variable, the
calculation of contribution and the treatment of fixed costs as period costs. Absorption costing
technique absorb overhead into product by applying a predetermine absorption rate. There are
situation where changes in fixed costs lead to a more fundamental aid to decision making called
differential costing. The tailoring of the data in line with decision situations requires the
applications of different concepts which are not in agreement with generally accepted accounting
principles for external reporting purposes.
Study Questions
1. Discuss the major difference between marginal costing and absorption costing
techniques.
2. Mukthar Snacks Company located in Ilala in Irepodun Local Govt. makes two
products: PIE and the DOUGHNUT. Information relating to each these products
for March 2008 is as follows:
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PIE DOUGHNUT
Operating stock Production (units) 15,000 6,000
Sales (units) 10,000 5,000
N N
Sales price per unit 20 Unit cost for:
Direct material 6 12
Direct labour 4 2
Variable production overheads 2 1
Variable sales overheads 2 3
Gross: Fixed cost for the month are: Production cost N30,000; Administrative cost
N10,000; Sales & Distribution cost N25,000.
Required: (a) Using Marginal Cost Principle, what was the profit in March 2010.
(b) What is the contribution to sales ratio for each product?
(c) What would the profit have been, if the sales have been 15,000 units of ‘PIE’ and
6,000 units of ‘DOUGHNUT’.
(d) What would the contribution of sales ratio for each product be at this higher level
of sales?
Further Reading
Couthurst1 and McAulay, L. (1992) Cost and Management Accounting Level 2, Longman Law,
Tax and Finance Division, UK Limited, London
Carl1, S. Warren, and Philip E. Fess (1981) Principle of Financial and Managerial Accounting,
South Western Publishing Co. Cincimati, Ohio, USA.
Colin2, D. (2001): Cost and Management Accounting. High Holbom House, Italy.
Week 9: Budget and Budgetary Control
Objectives
At the end of this unit you should be able to:
i. define budget and budgetary control;
ii. Explain how budgeting fits into the overall framework of decision-making, planning
and control;
iii. differentiate between forecast and budget;
iv. know the requirements of a sound budgeting system;
v. understand the multiple functions of budget; and
vi. describe the various stages in the budget process and problems of budgeting.
Description
Traditionally budgets have been employed as devices to limit expenditure, but a much more
useful and constructive view is to treat the budgeting process as a means for obtaining the most
effective and profitable use of the company's resources via planning and control. Budgets should
be a management tool rather than merely an accounting exercise.
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Study Questions
1. A budgetary planning and control system may include many individual budgets, which
are integrated into a "master budget". You are required to outline and briefly explain with
reasons the steps, which should normally be taken in the preparation of master budgets in
a manufacturing company, indicating the main budgets, which you think, should
normally be prepared.
2. differentiate between forecast and budget.
3. identify and explain stages in the budget process.
4. explain requirements of a sound budgeting system with reference to any Nigeria
organisation.
Further Reading
1. Ola1, C. S. (2003) Management Accounting: Theory and Application, Revised Edition,
Heinemann Education Book (Nig) Plc Ibadan.
2. Omolehinwa2, A. (2005): Management Accounting. Pye Ltd, Nigeria.
3. Ravi2, M.K (2003 : Cost Accounting Taxmann's publishers, India.
Week 10: Standard costing, variance analysis and responsibility accounting
Objectives
At the end of this unit you should be able to:
i. explain how a standard costing system operates;
ii. know how variances help to assign responsibility for deviation;
iii. know how variances can be used to control cost; and
iv. identify categories of variances and how to calculate variances.
Description
Week 10 lecture focuses on financial control system that enables the deviations from budget to
be analyzed, thus enabling costs to be controlled more effectively. This system of control is
called standard costing. This week lecture will specifically examine how a standard costing
system operates and how the variances are calculated.
Study Questions
1. What is standard costing?
2. List and explain major categories of variances.
Further Reading
1. Carl1, S. Warren, and Philip E. Fess (1981) Principle of Financial and Managerial
Accounting, South Western Publishing Co. Cincimati, Ohio, USA.
2. Colin2, D. (2001): Cost and Management Accounting. High Holbom House, Italy.
3. Management Accounting3 (BHM 680) National Open University of Nigeria Course
Material
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Week 11: Capital budgeting decision and project analysis
Objectives
At the end of this unit you should be able to:
i. define Capital budgeting;
ii. explain investment procedure;
iii. identify the salient characteristics of capital investment;
iv. explain the concept of payback period, ARR, IRR and NPV; and
v. calculate NPV,N IRR payback period and accounting rate of returns;
Description
This week lecture will focus on a very important part of a management accountants’ job which is
to provide information which will assist the making decisions concerning the investment of
capital funds. We will also discussed generally on the capital budgeting decisions and emphasis
the relationship between NPV, IRR, payback period and accounting rate of return.
Study Questions
1. Differentiate between internal rate of return and payback period.
2. Identify the internal of return of a project with the following cash flow characteristic
Year Profit
2001 (100.000)
2002 10,000
2003 40,000
2004 20,000
2005 40,000
2006 70,000
The minimum rate of return expected by the provider of funds is 16%
Further Reading
1. Abiodun1, A. (2006) Cost and Management Accounting – Students’ Manual, 2nd Edition,
Impact global Publications, London
2. Colin2, D. (2001): Cost and Management Accounting. High Holbom House, Italy.
3. Adeniyi2, A (2003); an insight to Management Accounting value Analysis consult
Nigeria
4. Management Accounting3 (BHM 680) National Open University of Nigeria Course
Material
Week 12: Pricing decision
Objectives
At the end of this unit you should be able to:
i. explain the numerous factors that will influence pricing decision;
ii. identify the optimal selling price;
iii. apply cost-plus pricing models;
iv. understand the limitations of cost-plus pricing; and
v. describe the different pricing policies.
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Description
Week 12 lecture shall focus on the role that accounting information plays in determining the
selling price by a price setting firm. It will specifically focus on the cost of information that is
required for product-mix decisions and pricing policies.
Study Questions
1. Identify and explain factors to be considered in pricing decisions?
2. What are the limitations of cost-plus pricing.
3. Discuss extensively different pricing policies that is been practiced in Nigerian
organisation.
Further Reading
1. Omolehinwa1, A. (2005): Work Out Management Accounting. Pye
Limited, Nigeria
2. Ravi2, M. K. (2003): Cost Accounting Taxmann's Publishers, India.
3. Management Accounting3 (BHM 680) National Open University of Nigeria Course
Material.
Week 13: Sources and Management of Working Capital and Analysis of Financial Statement
Objectives
At the end of this unit you should be able to:
i. explain working capital;
ii. explain the relationship between current Assets and fixed assets;
iii. explain the dangers of too little working capital; and
iv. identify the Composition of working capital;
Description
This week lecture center on the important considerations in the management of working capital.
It also dwells on the dangers of too little working capital. Week 12 lecture will also cover the the
composition of working capital.
Study Questions
1. Define the term working capital.
2. What are the relationship between current Assets and fixed assets? Support your answer
with relevant examples.
3. Discuss extensively the various composition of working capital.
Further Reading
1. Adeniyi2, A (2003); an insight to Management Accounting value Analysis consult Nigeria
2. Working capital3: http://webcache.googleusercontent.com/search?q=cache: 7fXf0LCMreIJ:en.
wikipedia.org/wiki/working_capital+definition+of+working+capital&cd=3&hl=en&ct=clnk&gl
=ng
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3. Management Accounting3 (BHM 680) National Open University of Nigeria Course
Material.
4. Working Capital Works3 - A company's efficiency, financial strength and cash-flow health
show in its management of working capital. http://www.investopedia.com/terms/w/
workingcapital.asp
Read more: http://www.investopedia.com/terms/w/workingcapital.asp#ixzz1cVV3Tjma
Week 14: Linear Programming and Learning Curve Theory.
Objectives
At the end of this unit you should be able to:
i. formulate the linear programming model;
ii. describe the basic steps in linear programming;
iii. understand how linear programming can be used in decision making, planning and
control; and
iv. identify the major deficiencies of linear programming.
Description
The opportunity costs of scarce resources in most of organisation can be determined by the use
of linear programming techniques. The students will be introduced to how linear programming
techniques can be applied to some specific types of decisions that a firm may have to make.
Students will also be taught how linear programming can be used to solve management
accounting problem.
Study Questions
1. Discuss briefly the uses of linear programming in management accounting and indicate
whether there are any limitations in using this kind of model.
2. UNILORIN Holdings Ltd makes two products: doughnut and meat pie whose
contribution margin is N100 and N115 per unit respectively. The production process
passes through three machines M-1, M-2 and M-3 whose maximum available hours are
800 hours, 600 hours and 720 hours respectively. Doughnut requires 8 hours, 10 hours
and 4 hours for machine M-1, M-2 and M-3 respectively per unit, meat pie requires for
every unit 10 hours, 6 hours and 12 hours of machine M-1, M-2 and M-3 respectively.
Negative production is not permissible, period charge is N5,000.
Required: (a). Formulate linear programming model,
(b). Obtain the product mix that optimizes contribution and determine the level
of profit at that mix.
Further Reading
1. Omolehinwa2, A. (2005): work out management accounting. PYE Nig.
Ltd., Lagos.
2. Lucey2, T. (2003) Management Accounting, 5th Edition, Book Power formerly ELST.
3. Adeniyi2, A. A. (2002) Simplified Management Accounting, Value Analysis Consult,
Lagos
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Week 15: Revision and General Overview of the Course
This week is meant for revision of all the various topics and sub topics that has been covered
since the commencement of the semester. Class and group discussions will also be made to
facilitate better understanding of the course. (3 hours)
Tutorial Questions
1. Mention five pre-requisites for management accounting system.
2. Differentiate between Break even analysis and margin of safety.
3. Discuss five qualitative factors that must be considered before discontinuing a product
under product profitability in an organisation.
4. What are the major significance of Cost Volume Profit Analysis (CVPA) in managerial
decision making.
5. Define the term cost behaviour and explain the major reasons for study cost behaviour in
an organisation.
6. Identify and explain the major objectives of accounting information system in a service
oriented organisation.
7. Examine specifically the diversities between financial accounting and management
accounting and give meaningful examples where necessary.
8. Identify and discuss the various assumption of Cost Volume Profit Analysis.
9. Examine the major differences between Marginal costing and Absorption costing and
explain the qualitative factors to be considered when taking “Make or Buy Decision”.
10. Explain pricing decision and explain factors to be considered in pricing decisions.
11. What are the dangers involved of keeping too little working capital?
12. Identify and explain the major characteristics of capital investment .
Further Reading
1. Das3, P., (1972): Accounting as an aid to management-need for extension of its
Boundary. Indian Journal of Accounting.
2. Hampton2, J.J.,(1989): financial decision making-concepts, problems and cases. Prentice-
Hall, India.
3. Kaplan2, R.S. and Norton, D. (1996): Translating strategy into Action. Harvard Business
School, Boston.
4. Solomon,2 E. and John, J. (1978): An introduction to financial management. Prentice-
Hall, India.
5. Ravi2 M, C. K. (2003): Cost Accounting. Taxman's publishers, India.
6. Omolehinwa2, A. (2005): Work Out Management Accounting. Pye Limited, Nigeria
7. ………….4Application of Marginal costing techniques
Legend
1 – Available in the University Library
2 – Available in local bookshops
3 – Available on the web
4 - Personal collection