ACC 303 — Management Accounting (Performance Management): Lecture Note

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LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS COURSE CODE:ACC 303 COURSE TITLE: Management Accounting (Performance Management) COURSE TITLE:(3 units C: LH 30;PH 45) SERIES LIST Series 1: Budgeting, Standard Costing, and Variance Analysis Series 2: Behavioural Aspects of Budgeting and Strategic Performance Management Series 3: Cost Reduction, Control Techniques, and Spreadsheet Applications Series 4: Decision Making with Relevant Costs, CVP Analysis, and Pricing Strategies Series 5: Divisional Performance, Transfer Pricing, Ethical Principles, and Topical Issues in Performance Management Series 1: Budgeting, Standard Costing, and Variance Analysis Part 1.1: Budgeting fundamentals and techniques Sub-Part 1.1.1: Definition, purpose, and types of budgets Sub-Part 1.1.2: Forecasting, master and subsidiary budgets Sub-Part 1.1.3: Cash budgets and flexible budgets Part 1.2: Standard costing Sub-Part 1.2.1: Concept and objectives of standard costing Sub-Part 1.2.2: Establishing standards for costs Sub-Part 1.2.3: Role of standard costing in planning and control Part 1.3: Variance analysis Sub-Part 1.3.1: Types of variances (material, labour, overhead, sales) Sub-Part 1.3.2: Calculation and interpretation of variances Sub-Part 1.3.3: Managerial use of variance analysis for performance evaluation Part 1.4: Integration of budgeting and variance analysis Sub-Part 1.4.1: Linking budgets with standard costing systems Sub-Part 1.4.2: Using variance analysis to improve budgeting accuracy Sub-Part 1.4.3: Case examples of integrated performance management Introduction Budgeting and cost control are central to the success of any organisation. Managers must plan ahead, allocate resources wisely, and monitor performance against expectations. Without effective budgeting and the ability to measure deviations from planned costs, businesses risk inefficiency and poor decision making. This Series introduces you to the essential tools of budgeting, standard costing, and variance analysis, which together form the backbone of performance management in accounting. The aim of this Series is to equip you with the knowledge and skills to prepare budgets, apply standard costing techniques, and analyse variances in order to support planning, control, and performance evaluation. We shall commence this Series by exploring the fundamentals of budgeting, including its definition, purpose, and the different types such as master, subsidiary, cash, and flexible budgets. Next, we will move on to standard costing, examining its objectives, how standards are established, and its role in planning and control. Following that, we will study variance analysis, focusing on the types of variances, their calculation, and interpretation for managerial use. Finally, we will conclude by integrating budgeting and variance analysis, showing how these tools work together to improve accuracy and enhance performance management.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Series Learning Outcomes Upon completing this Series, you should be able to: SLO 1.1 define the concept of budgeting and explain its purpose in organisational planning and control, SLO 1.2 distinguish between different types of budgets including master, subsidiary, cash, and flexible budgets, SLO 1.3 describe the objectives of standard costing and its role in performance management, SLO 1.4 demonstrate how to establish cost standards within a standard costing system, SLO 1.5 calculate and interpret variances such as material, labour, overhead, and sales variances, SLO 1.6 analyse the managerial implications of variance analysis for evaluating performance, and SLO 1.7 evaluate how budgeting and variance analysis can be integrated to improve accuracy and enhance organisational decision making. ## 1.1 Budgeting Fundamentals And Techniques ### 1.1.1 Definition, purpose, and types of budgets A **budget** is a financial plan that estimates income and expenditure for a specific period, usually one year. It serves as a guide for managers to allocate resources, monitor performance, and achieve organisational objectives. The purpose of budgeting is to provide a framework for planning, controlling, and evaluating business activities. There are several types of budgets: - **Master budget**: A comprehensive plan that consolidates all subsidiary budgets into one overall financial plan. - **Subsidiary budgets**: Detailed budgets for specific areas such as sales, production, or purchasing. - **Cash budget**: A plan that estimates cash inflows and outflows to ensure liquidity. - **Flexible budget**: A budget that adjusts according to changes in activity levels, making it useful for performance evaluation. [Insert Figure here] Short description: Diagram showing types of budgets and their relationships. Caption: Figure 1.1 Types of budgets in an organisation AI prompt: "Generate a diagram showing master, subsidiary, cash, and flexible budgets with arrows indicating their relationships." Search string: "types of budgets diagram management accounting OER" Fill in the blank: A __________ budget adjusts according to changes in activity levels. --- ### 1.1.2 Forecasting, master and subsidiary budgets **Forecasting** refers to predicting future financial outcomes based on past data, trends, and assumptions. It is the starting point for preparing budgets. The **master budget** integrates all subsidiary budgets, providing a complete picture of the organisation’s financial plan. Subsidiary budgets include sales, production, materials, labour, and overhead budgets, each focusing on a specific operational area.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Caption: Table 1.1 Examples of subsidiary budgets Short description: A table listing common subsidiary budgets and their focus areas. Fill in the blank: The __________ budget integrates all subsidiary budgets into one overall plan. --- ### 1.1.3 Cash budgets and flexible budgets A **cash budget** is a plan that estimates cash receipts and payments over a period, ensuring that the organisation maintains adequate liquidity. It helps managers anticipate cash shortages or surpluses and plan financing or investment accordingly. A flexible budget is designed to change with variations in activity levels. Unlike a fixed budget, it provides a more realistic basis for performance evaluation because it accounts for actual operating conditions.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Caption: Box 1.1 Features of cash and flexible budgets Short description: A box summarising the key features of cash and flexible budgets. Fill in the blank: A __________ budget helps managers anticipate cash shortages or surpluses. --- ###### Pilot questions 1.1 1. What is a budget and what purpose does it serve? 2. Name two types of budgets commonly used in organisations. 3. What is the role of forecasting in budgeting? 4. Which budget integrates all subsidiary budgets? 5. Why is a flexible budget considered more realistic than a fixed budget? ## 1.2 Standard Costing ### 1.2.1 Concept and objectives of standard costing **Standard costing** is a system that assigns predetermined costs to products or services, based on expected levels of efficiency and resource usage. These predetermined costs are called **standards**, and they serve as

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS benchmarks against which actual performance is measured. The main objectives of standard costing are to aid planning, facilitate cost control, and provide a basis for performance evaluation. Short description: Diagram showing the flow of standard costing from setting standards to comparing with actual costs. Caption: Figure 1.2 Concept of standard costing Fill in the blank: Predetermined costs used as benchmarks in standard costing are called __________. --- ### 1.2.2 Establishing standards for costs Standards can be set for different cost elements such as materials, labour, and overheads. For example, a **material standard** specifies the expected quantity and price of raw materials, while a **labour standard** defines the expected time and wage rate for tasks. Overhead standards estimate indirect costs based on activity levels.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS The process of establishing standards involves analysing past data, considering current conditions, and setting realistic expectations. Standards should be challenging yet achievable, encouraging efficiency without discouraging employees. Caption: Table 1.2 Types of cost standards Short description: A table listing material, labour, and overhead standards with their definitions. Fill in the blank: A labour standard defines the expected __________ and wage rate for tasks. --- ### 1.2.3 Role of standard costing in planning and control Standard costing plays a vital role in both planning and control. In planning, it helps managers estimate future costs and set budgets. In control, it allows comparison between actual and standard costs, highlighting variances that require corrective action.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS By identifying areas where performance deviates from expectations, managers can take steps to improve efficiency, reduce waste, and enhance profitability. Standard costing also provides valuable information for decision making, such as pricing and resource allocation. Caption: Box 1.2 Roles of standard costing in planning and control Short description: A box summarising the roles of standard costing in planning, control, and decision making. Fill in the blank: Standard costing allows comparison between actual and __________ costs. --- Pilot questions 1.2 1. What is standard costing and what are its objectives? 2. Name one type of cost standard and explain its purpose. 3. What factors should be considered when establishing standards? 4. How does standard costing assist in planning? 5. Why is standard costing useful for control purposes? ## 1.3 Variance Analysis

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