Management Accounting and Performance Management
What the exam tests
Management Accounting and Performance Management tests cost behaviour, costing methods, CVP analysis, budgeting, variance analysis, transfer pricing and divisional performance measures. Questions often require you to compute a figure and explain its behavioural consequence.
Core rules
- Contribution = sales − variable costs; CVP uses contribution to cover fixed costs and target profit.
- Variances separate price/rate effects from quantity/efficiency effects.
- ROI = divisional profit ÷ invested capital; residual income = profit − required return on capital.
- Transfer prices should motivate goal congruence and preserve divisional autonomy.
- The balanced scorecard links financial, customer, internal process, and learning and growth measures.
Worked example
Standard material is 2 kg per unit at 5.00 per kg. Actual output is 1,100 units, actual usage 2,250 kg, actual cost 11,700. Actual price = 11,700 ÷ 2,250 = 5.20. Price variance = (5.00 − 5.20) × 2,250 = 450 adverse. Standard quantity allowed = 1,100 × 2 = 2,200 kg. Usage variance = (2,200 − 2,250) × 5.00 = 250 adverse. Total material variance = 700 adverse.
Traps that cost marks
Using budgeted output instead of actual output in the standard quantity; treating fixed overhead volume variance as controllable by the production manager; rejecting a project because it lowers divisional ROI although it exceeds the cost of capital; and including sunk costs in relevant-cost decisions.