Management Acoouting Summary

Entry-ticket homework instructions to students

Readings:

• Read Chapter 12 of Langfield Smith Textbook
• Case: Transworld Autoparts
• Chapter 1 of “Relevance Lost” by Johnson & Kaplan (1987)

Recommended further reading

• Book Chapter: “The role of management accounting information” (Ch 1 from Groot and Selto)

• Article: Otley, D. (1999). Performance management: a framework for management control systems research. Management Accounting Research, 10(4), 363-382.
• Article: Ferreira, A., & Otley, D. (2009). The design and use of performance management systems: An extended framework for analysis. Management Accounting Research, 20(4), 263-282.

Theory recap questions (to be discussed in Lecture 3)

1. Johnson & Kaplan (p. 6-12) describe how the emergence of different types of in management accounting corresponded to changing needs of organisations. Explain the benefit of the following ‘innovations’ in management accounting information:

1. Basic conversion efficiency measures (e.g. cost/hr, cost/pound)
2. Segment reporting and summary performance measures of managerial performance:
3. Standard costing procedures: why? Standard allows to measure variance.
4. Overhead allocation methods: Stepwise, process and product. Way later we developed ABC with the help from Kaplan.

Overhead: indirect costs (Misc. costs)

If you don’t calculate overheads, you can’t get the total costs.

Multiple products problem of not allocating overheads: gonna pick the wrong product (Eg, picking up the product that will be most costliest)

Why do we want to allocate overheads?

1. Divisional Return on Investment:

Why do we want it?

1. Responsibility accounting:

1. Define each of the following terms and provide an example/type for each:

1. corporate strategy

• Choices about type of businesses:
• How to best structure and finance the organisation (Single vs. multi-unit businesses)

1. competitive/business strategy

• The way that businesses competes within its chosen market.

1. operational strategy

• Tactical and operational decisions about how the organisation will deliver competitive strategy.

1. How would you describe the corporate, competitive and operational strategy of McDonalds?

• Corporate strategy: what types of market and businesses to invest in

Eg, Franchise strategy

• Competitive strategy: Eg, cost leadership
• Operational strategy: Eg, how they prepare their food in their stores, customer service
• Org, performance: Outcomes

The achievement of objectives. Performance can be market share, successfully delivering great customer service.

1. How would you define the term ‘organizational objectives’? What are the organizational objectives of McDonalds? How could we define performance for McDonalds?

1. What is the difference between validity and reliability in performance measurement? Can you provide an example of each to illustrate.

• Validity is the extent to which a measure captures what is intended

(Does it make sense to reality)

• Reliability refers to the degree of accuracy, objectivity and precision of the measurement. (Free from noise and bias)
• Examples: The financial statement is the valid resource to evaluate a company’s financial performance however, the numbers or standards in the financial statement may not be reported truthfully by the managers.

Eg,

Outputs (grading quality of essay marks) > Valid measure

Is it a reliable measure? Yes, depending on the knowledge of expertise.

1. What is the difference between gaming and manipulation? Can you provide an example of each to illustrate.

• Gaming is when a measure alters the behavioural patterns of the employees and manipulation is when managers or employees influence a measure so that it no longer reflects what was originally intended.
• Examples: A financial statement is manipulated when managers used the flexibility in accounting standard choice to manipulate shareholders’ expectation.
• Gaming: Free rider from the group assignment, Budgetary slack, chargeable hours

1. What do we mean by timeliness of measurement? How does this relate to cybernetic loops?

• Timeliness is the extent to which information arrives in time for analysis and action to be taken. This is related to the cybernetic loops because information is needed to measure the actual performance and then compare actual to standard and then evaluate the differences to take corrective action. If the information does not arrive in time, managers cannot access as well as analyse the performance.
• Timely feedback,

Case questions (to be discussed in tutorial 2)

Watch the video on UTSOnline: “How to read case studies”.

Read and analyse the case study “Transworld Auto Parts” (available on UTSOnline).