Management Accounting

Fudan University The University of Hong Kong

Second Semester 2005/2006

 Instructor:     Dr. Liu ZHENG

Course Objectives

This course emphasizes the use of accounting information for internal purposes as opposed to the external disclosure focus of the financial accounting courses. The main objective of this course is to familiarize you with the basic concepts of management accounting system, and how the information generated by such a system can be useful for decision making and performance evaluation. 

More specifically, this course emphasizes four objectives:

1.  To introduce the basic concepts which form the discipline of management accounting

2.  To provide the skills necessary to use management accounting information to make business decisions

3.  To illustrate how management accounting information can be used to formulate and implement strategy in a variety of organizational environments

4.  To understand how the design of management accounting and control systems affect human behavior in organizations

 Course Materials

Charles Horngren, Srikant Datar and George Foster, “Cost Accounting: A Managerial Emphasis,” 12th edition (Prentice-Hall, 2005). 

 Additional reading materials, cases and case study questions are in our course packet.  It will be distributed before class.

 Course Organization

This course is loosely divided in two parts: (1) cost management systems and (2) management control systems. Topics covered in each part will be described in details in course outlines. Readings, case discussions, and practice problems are listed under each topic.

 Class time will primarily consist of case discussions and lectures. Please scan the assigned textbook chapters and articles so that you can answer the questions listed below each topic. Please make sure that you have prepared ALL cases before class to enhance class participation. 




Case Assignments**


April 21 

Topic 1, 2, 3

No case assignment


April 22


May 19

Topic 4, 5

Case #2, #3


May 20



June 9

Topic 6, 7, 8

Case #4, #5


June 10



*  The  above  schedule  is  only  a  rough  guideline.  Some  adjustments  may  be  necessary  to accommodate class discussion. 

** The case assignments are to be submitted on a group basis (four or five members in each group).  Individual case write-ups are not required, that is, each group need only hand in one case-write up for each assignment. Case write-ups should be handed in at the beginning of the class indicated in the session outline above.  Please retain a printed copy of your case write-up for your reference during class discussions.

Case discussion questions are provided at the end of each case to help you identify the key issues of the cases. In each case write-up, you need to address all the questions. You can use exhibits to provide evidence (analysis, calculations, charts, etc.) that supports the arguments made in the case analysis. The grading is based on the logic of your analysis, the application of learned knowledge, and the clarity of presentation. Your contribution to the group work will be peer-evaluated at the end of the semester.

Course Evaluation

 Grades will be based on class participation, case assignments, and a final exam as follows:

Class participation  


Case assignments


Final examination




Course Outlines

 Topic 1   Basic Cost Concepts

    Readings:  Chapter 1, 2, 3

a.   What is the role of management accounting in organization?

b.   What are major differences between management accounting and financial


c.   What is cost object? What is the difference between a direct cost and an

indirect cost? What is the difference between a fixed cost and a variable cost?

d.  Briefly outline the flow of a cost from raw materials inventory, through the

production process, to cost of goods sold; identify the difference between a

product cost and a period cost. 

e.   What does cost-volume-profit (CVP) model do?  

    Article:    “The Information Executives Truly Need,” (in course packet)  

    Case #1:  Pricing: Canadian Product Corporation Limited (CPCL)

     Practice problems:  3-33, 3-34, 3-39.

Topic 2   Product Costing Systems

    Readings:  Chapter 4 (skim through sections on journal entries) 

           Chapter 9 (skip “throughput costing”)

a.   What are the building-block concepts of costing system?

b.   Describe job-costing and process costing systems. Explain when it would be

appropriate to use each. 

c.   What is normal costing? 

d.   How does variable costing differ from absorption costing? 

e.   Describe how attempts to recover fixed costs of capacity may lead to price

increases and lower demand (i.e., downward demand spiral).

     Practice problems:  4-28, 9-33

 Topic 3   Activity-Based Costing and Management

     Readings:  Chapter 5

 a.  What is activity-based costing (ABC)?

b.  What is the real difference between ABC and traditional cost system?

c.  How can ABC help decision improvement?

d.  When would company benefit most in adopting ABC system? 

         Articles:   "How Cost Accounting Distorts Product Costs”

       “Cost Management Concepts and Principles: Does You    

        Company Need a New Cost System” 

     Case #2:  Wilkerson Company;   

    Case #3:  Kanthal

     Practice problems:  5-24

 Topic 4   Relevant Information and Decision Making

     Readings:  Chapter 11 (omit the Appendix)

a.  What is the difference between an opportunity cost and an outlay cost? why

opportunity cost is used in decision making

b.  Why are sunk costs irrelevant? 

c.  When would company benefit most in adopting ABC system? 

     Case #4:  Precision Worldwide

     Practice problems:  11-29, 11-31

     Readings:  Chapter 6, 7, 8 (omit sections on journal entries) 

a.   What is the starting point in budgeting?  

b.   Describe the mechanism of the budgeting process.

c.   What are the behavioral aspects of budgeting?

d.   According to Michael Jensen, what should be the relation between budget

and compensation? Do you agree?

     Article:  Corporate Budgeting is Broken--Let’s Fix It

     Practice problems:  8-35

 Topic 6   Strategy and Balanced Scorecard

     Readings:  Chapter 13 (pp. 431 - 440)

a.   What are features of a good performance measurement system?

b.   What is the balanced scorecard? Is the idea of balanced scorecard new? 

c.   What are the benefits of using the balanced scorecard? 

d.   What are the pitfalls to avoid in implementing a balanced scorecard?

     Article:   “Using the Balanced Scorecard as a Strategic Management System”

    Practice problems:  13-27

Topic 7   Responsibility Centers and Financial Control

    Readings:  Chapter 23

a.   What are the four basic forms of responsibility centers?

b.   How does the DuPont method analyze return on investment? 

c.   What are advantages and drawbacks of each of the four accounting-based

performance measures--return on investment (ROI), residual income (RI),

economic value added (EVA®), and return on sales (ROS)? 

    Article:  “The Real Key to Creating Wealth” 

      Practice problems:  23-21, 23-28, 23-30

Topic 8   Management Control Systems and Transfer Pricing 

     Readings:  Chapter 22

a.   What is a management control system and how should it be designed?

b.   What are benefits and costs of decentralization?

c .  What is transfer pricing? What is a transfer price intended to achieve? 

d.   What are alternative methods in setting transfer prices? 

e.   What is the general guideline for determining a minimum transfer price?

    Articles:   “Johnson & Johnson in the 1990s”

      “Getting Transfer Price Right: What Bellcore did”

    Case #5:  Zumwald AG

    Practice problem:  22-30

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