BPP LEARNING MEDIA CIMA P2 Advanced Management Accounting For exams in 2016 江西财经大学会计学院 吉伟莉

BPP LEARNING MEDIA Part B(Chapter 5/6/7) Overview Responsibility accounting Responsibility centre performance measurement Performance management of responsibility centres Transfer pricing Investment centre –ROI & RI Approaches Market based Cost based Opportunity cost Aims Cost centre – Standard costing/ budget(variance) Profit centre – Standard costing/ budget(variance)

BPP LEARNING MEDIA Chapter 5 Decision making in responsibility centres —Divisionalisation —Responsibility accounting —Budgetary control —Controllable/uncontrollable costs —Behavioural aspects —Beyond budgeting

BPP LEARNING MEDIA Chapter Overview Responsibility accounting Budgetary control Decision making in responsibility centres Beyond budgeting Fixed budget vs flexible budget Behavioural implications of budgeting

There are two common ways of structuring organisations: —Functionally (all activities of a similar type within a company, such as production, sales, research, are under the control of the appropriate departmental head) —Divisionally —In general, a divisional structure will lead to decentralisation of the decision-making process Divisionalisation 1

Advantages of divisionalisation —It can improve the decision-making process in two ways: —Quality —Speed —The authority to act to improve performance should motivate divisional managers —Top management are freed up from day-to-day operations and can devote more time to strategic planning —Divisions provide valuable training grounds for future members of top management Divisionalisation 2

Disadvantages of divisionalisation Dysfunctional decision-making —A balance has to be kept between decentralisation of authority to provide incentives and motivation, and —Retaining centralised authority to ensure goal congruence —Increase in costs of activities common to all divisions —Loss of control by top management Divisionalisation 3

Responsibility accounting —A system of decentralised authority —Performance of the decentralised units measured in terms of accounting results —This involves tracing costs (and revenues, assets and liabilities, where appropriate) to the individual managers who are primarily responsible for making decisions about controlling the costs in question Responsibility accounting 1

There are four types of responsibility accounting unit/responsibility centre —Cost centre —Revenue centre —Profit centre —Investment centre Responsibility accounting 2

BPP LEARNING MEDIA Responsibility accounting 3 10

BPP LEARNING MEDIA Responsibility accounting 4 —The system must therefore distinguish between controllable costs and uncontrollable costs —The managers of responsibility centres should only be accountable for costs which they have some influence. —Sometimes it is hard to distinguish controllable cost and uncontrollable cost. e.g. apportioned costs

Ture or false? 1.A cost which is not controllable by a junior manager or supervisor might be controllable by a senior manager. 2.All fixed cost are uncontrollable in the short run. 3.Share of the costs of the maintenance department is uncontrollable for the production manager. So the production manager should not be held accountable for the apportioned cost. Quick quiz

Controllable costs —Can be influenced by the budget holder Variable costs —Yes in the short term Fixed costs —No in the short term or discretionary or directly attributable Assets/liabilities —To the extent the manager can increase/reduce them Responsibility accounting 5

BPP LEARNING MEDIA Management uses budgets to monitor and control operations.  Develop the budget from planned objectives.  Compare actual with budget and analyze any differences.  Take corrective and strategic actions.  Revise objectives and prepare a new budget. Budgetary Control and Reporting

BPP LEARNING MEDIA 15 Objectives of a budgetary systems —Ensure the organization’s objectives are achieved —Compel planning —Communicate ideas and plans —Co-ordinate activities —Provide a framework for responsibility accounting —Establish a system of control —Motivate employees to improve their performance

BPP LEARNING MEDIA Appendix 1 职能制组织结构图

BPP LEARNING MEDIA Appendix 2 事业部制组织结构图