London School of Economics and Political Science (LSE)

Modules

97
Management Accounting

Prerequisite – 19 Elements of accounting and finance

The decision-making framework: elementary notions of organisation, management and decision-making; the distinction between economic, behavioural and societal perspectives on management accounting; the difference between long-term and short-term decisions; the concept of owners’ wealth maximisation and its limitations.

The value of information under uncertainty: the economist’s definition of information and its value; risk as a probabilistic definition of uncertainty; the limitations of risk analysis; the potential of sensitivity analysis and the role for accounting as a learning machine.

The concept of relevant cost: the relevance of cash flows for decision-making; the concept of opportunity cost; alternative budgets for decision-making; sunk costs and their treatment; the use of discounting methods in long term decisions.

Cost estimation and cost behaviour: the elements of total cost and their behaviour; fixed and variable costs; the identification of cost drivers; methods of allocating costs; the concept of contribution margin; cost-volume-profit and break-even analysis.

Types of costing: the nature of costing systems and their integration into financial accounting systems; job and process costing; marginal and absorption costing; activity-based costing.

Pricing and decisions with scarce resources: methods for determining optimal prices; the relationship between costs and prices, including cost-plus and contribution margin pricing; the optimal allocation of scarce resources, including simple linear programming techniques; the interpretation of dual (shadow) prices under conditions of resource constraint and their relationship with opportunity costs.

Budgeting and control: the structure of budgets, including the master budget and the cash budget; the functions of budgets within organisations, including the motivational, planning and control roles of budgets.

Standard costing and variance analysis: methods of determining standard costs; the calculation of revenue and cost variances and their analysis into price and volume elements; the relationship between standard costs and budgets and the reconciliation of budget and actual results using variances; the interpretation of variances; the motivational role of variance analysis.

Divisional performance: the emergence of divisional organisation and its relationship with responsibility accounting; basic performance measures, including return on investment and residual income, and their limitations; transfer pricing; problems of motivating divisional managers.

Organisational aspects of planning and control: the flow of information within organisations; influences on the form and use of management accounting systems, including cultural and other contingencies; contingency theory as applied to management accounting; changes in the nature of management accounting through time; strategic management accounting and other emerging issues in management accounting.