Management Services
What management services tests
Management Services tests how accounting data support planning, control, and decisions: cost behavior, CVP, budgeting, standard costing, variance analysis, relevant costing, pricing, capital budgeting, and performance measurement. The exam values the decision-relevant cost, not the recorded cost.
Core rules
- Contribution margin = sales − variable costs; contribution margin ratio = CM ÷ sales.
- Break-even units = fixed costs ÷ CM per unit; target profit units = (fixed costs + target profit) ÷ CM per unit.
- Relevant costs are future costs that differ among alternatives. Sunk costs and allocated common costs are irrelevant.
- Standard costing separates price or rate and quantity or efficiency variances; responsibility depends on who controls the input.
- Capital budgeting uses discounted cash flows; accept positive NPV projects and compare IRR with the cost of capital.
- The balanced scorecard links financial, customer, internal process, and learning and growth measures.
Worked example
Fixed costs are ₱300,000, selling price is ₱100, variable cost is ₱50, and target profit is ₱100,000. CM per unit = ₱50. Target units = (300,000 + 100,000) ÷ 50 = 8,000 units. At 8,000 units, total CM is ₱400,000, fixed costs are ₱300,000, and profit is ₱100,000. If a special order uses idle capacity and has no variable selling cost, the relevant minimum price is the incremental variable cost, not full absorption cost.
Traps
Do not include sunk costs in special-order decisions. Do not use gross margin when CVP requires contribution margin. Do not blame an unfavorable price variance on the production manager if purchasing controls price. Do not ignore qualitative factors.