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CENTRE FOR GRADUATE STUDIES
STUDY GUIDE
BMAC5203
Accounting for Business
Decision Making
Writer: Assoc Prof Dr Indra Devi Kandasamy
Developed by: Centre for Instructional Design and Technology
Open University Malaysia
First Edition, September 2011
Second Edition, August 2012
Third Edition, J anuary 2014
Fourth Edition, December 2013
Copyright Open University Malaysia (OUM), December 2013, BMAC5203
All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Contents
Course Introduction ................................................................................. 56
Course Synopsis ................................................................................ 5
Course Aims ....................................................................................... 5
Course Outcomes .............................................................................. 6
Course Load ....................................................................................... 6
Course Requirements .................................................................................. 7
Prerequisites or Co-requisites ............................................................ 7
Feedback and Course Evaluation ...................................................... 7
Course Resources ....................................................................................... 7
Set Textbook(s) .................................................................................. 7
Additional References ........................................................................ 7
Extra Recommended Reading ........................................................... 7
my Virtual Learning Environment (myVLE) ........................................ 7
OUM Digital Library Resources .......................................................... 8
Assessment .................................................................................................. 8
Assessment Format ........................................................................... 8
Assignment Question(s) ..................................................................... 8
Final Examination ............................................................................... 8
Late Submission of Assignment(s) ..................................................... 8
Important Dates .................................................................................. 8
Weekly Study Guide ............................................................................ 1047
Week 1 ............................................................................................. 10
Week 2 ............................................................................................. 14
Week 3 ............................................................................................. 19
Week 4 ............................................................................................. 23
Week 5 ............................................................................................. 27
Week 6 ............................................................................................. 32
Week 7 ............................................................................................. 38
Week 8 ............................................................................................. 40
Week 9 ............................................................................................. 43
Week 10 ........................................................................................... 46
Appendix A ................................................................................................. 49
Responsibilities of Learners ............................................................. 49
Ethical Behaviour ............................................................................. 49
Plagiarism, Cheating & Collusion ..................................................... 49
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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COURSE INTRODUCTION
Course Synopsis
The BMAC5203 course is designed for business students without previous
in-depth exposure to managerial accounting. Internal or managerial
accounting system provides exclusive business information that assists
managers in handling the tasks of planning, control and decision-making.
Todays management accountants focus on the advisory and consulting
services related to strategic planning, organisational control and business
decisions. Their roles are not only revolved around product costing, pricing,
asset/liability management, investment analysis and performance evaluation
but also extends to contemporary issues such as financial and business
reengineering.
The type and nature of information supplied by the internal accounting
system is flexible and is customised to the needs of managers. It is also a
dynamic function that evolves consistently as organisational changes occur.
Parallel to the current trend in business, issues of global significance are
widely discussed and explored in this course.
Course Aims
The broad aims of this course are to:
1. Introduce learners to the basic framework of Management Accounting
(Managerial) Information Systems which are relevant for business
planning, control and decisions;
2. Assist learners in understanding the importance of business ethics and
explain the importance of ethical behaviour for managers and
accountants; and
3. Provide learners with an understanding of the costing and pricing
principles and their relationship to profit planning and business problem
solving.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Course Outcomes
At the completion of this course, it is expected that learners will be able to:
1. Explain the basic aims (viz stock valuation, profit determination,
decision making, planning and control) of management accounting
(managerial) information systems in an organisation;
2. Explain the role of ethics in the managerial decision making process;
and
3. Apply management accounting concepts, principles and techniques
that are fundamental to effective planning and control and efficient
business decisions.
Course Load
It is a standard OUM practice that learners accumulate 40 study hours for
every credit hour. As such, for a three-credit hour course, you are expected
to spend at least 120 hours of learning. Table 1 gives an estimation of how
the 120 hours could be accumulated.
Table 1: Allocation of Study Hours
Activities No of Hours
Reading the module and completing the exercises 60
Attending 5 seminars (3 hours for each session) 15
Engage in online discussion 10
Completing assignment 20
Revision 15
Total 120
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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COURSE REQUIREMENTS
Prerequisites or Co-requisites
None.
Feedback and Course Evaluation
Please refer to myVLE.
COURSE RESOURCES
Set Textbook(s)
Textbook (supplied in course-pack)
Garrison, R.H., Noreen, E.W., Brewer, P.C., Cheng, N.S., & Yuen, K.C.K.
(2012). Managerial Accounting, An Asian Perspective (13th ed.). Mc
Graw-Hill Companies, Inc.
Additional References
Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2009). Cornerstones of
managerial accounting (3rd ed.). South-Western Cengage Learning.
Brandon, C. H., & Drtina, R. E. (1997). Management accounting strategy and
control. Mc Graw-Hill Companies, Inc.
Weygant, J . J , Kieso, D. E., & Kimmel, P. D. (1999). Managerial accounting:
Tools for business decision-making. J ohn Wiley.
Extra Recommended Reading
Zimmerman, J . L. (2000). Accounting for decision making and control
(3rd ed.). McGraw Hill Companies, Inc.
my Virtual Learning Environment (myVLE)
Please refer to myVLE.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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OUM Digital Library Resources
Download past examination questions:
Click Exam Papers
ASSESSMENT
Assessment Format
Please refer to myVLE.
Assignment Question(s)
Please refer to myVLE.
Final Examination
Please refer to myVLE.
Late Submission of Assignment(s)
Failure to submit an assignment by the due date without the granting of an
official extension of time by your course tutor will incur a penalty.
Important Dates
Please refer to myVLE.
Note: This study guide is an excerpt from various sources. The author has
made all attempts to cite the original sources.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Weekly Study Guide
Week 1
Topic 1: Introduction to Managerial Accounting and
Ethics
Readings
Garrison, R.H., Noreen, E.W., Brewer, P.C., Cheng, N.S., & Yuen, K.C.K.
(2012). Managerial Accounting, An Asian Perspective (13th ed.). Mc
Graw-Hill Companies, Inc.
Chapter 1 (Page 128)
e-Content
(a) Download PowerPoint slides (Chapter 1) from myVLE (Group Tool)
and read the study guide before attending the face to face seminar.
(b) Download past examination questions from OUMs digital library and
do the questions relevant to this topic.
Study Notes
The learning outcomes:
1. Describe accounting information and explain the differences
between managerial accounting and financial accounting.
(a) The American Accounting Association describes accounting as
the process of identifying, collecting, measuring, analysing,
preparing, interpreting and communicating economic information
to permit informed judgment to be made by users of accounting
information.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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(b) There are two different accounting information systems, serving
different category of users:
(i) Managerial accounting system which meets the information
needs of internal management, and
(ii) Financial accounting system which meets the needs of
external users such as bankers, creditors, government,
trade unions, potential investors, etc.
Table 1 shows the differences between managerial accounting
information and financial accounting information:
Types of accounting
information system:
Managerial accounting
information systems
Financial accounting
information systems
Targeted user: Internal users and managers External users as well as
stockholders and creditors
Restrictions: No mandatory rules for
preparing reports
Must follow GAAP when
preparing financial
statements
Types of information: Financial and non-financial
information
Financial information
Time orientation: Emphasises the future
(planning and decision
making)
Historical orientation (reports
what has already occurred)
Aggregation: Detailed information about
product line, departments,
etc.
Information about overall firm
performance
2. Using managerial accounting system (MAS), the focus of this
course, provides information for managers to fulfil three basic
objectives/aims:
(a) For stock valuation (costing products and services) and for profit
determination;
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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(b) For planning, controlling, evaluation and continuous improvement;
and
(c) For decision making.
The subsequent topics in this course will require learners to learn and
understand how MAS is used by managers to achieve each of the
basic objectives listed above.
3. Explain the importance of ethical behaviour for managers and
management accountants.
The objective of maximising profits should be constrained by the
requirement that profits be achieved through legal and ethical means.
The Institute of Management Accountants (IMA) overarching ethical
principles include:
(a) Competence Maintain an appropriate level of professional
expertise by continually developing knowledge and skills;
(b) Confidentiality Refrain from using confidential information for
unethical or illegal advantage;
(c) Integrity Abstain from engaging in or supporting any activity that
might discredit the profession; and
(d) Credibility Communicate information fairly and objectively.
Study Questions
(a) How do managerial accounting and financial accounting differ? Who
are the different users of accounting information?
(b) What are the three broad objectives of managerial accounting?
(c) What is ethical behaviour? Explain the underlying code of ethics of the
IMA.
(d) Should MAS provide both financial and non-financial information?
Explain.
Now attempt the past examination questions to reinforce your
understanding of this topic.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Frequently Asked Questions
1. Question: Do you need to learn accounting double entries (debits and
credits)?
Answer: No. Accounting double entries are mostly confined to financial
accounting. The focus of your course is on managerial accounting.
2. Question: Will you be asked to prepare profit and loss and balance
sheet statements during exams?
Answer: A full set of accounts (balance sheet and profit and loss
statement) is not required in this course. You may however, be asked
to prepare a simple profit summary.
Glossary of Important Terms
A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 28 to 29.
If the explanations are unclear, learners are advised to refer to an English-
Malay Accounting dictionary.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Week 2
Topic 2: Basic Cost Concepts and Cost Classifications
Readings
Garrison, R.H., Noreen, E.W., Brewer, P.C., Cheng, N.S., & Yuen, K.C.K.
(2012). Managerial Accounting, An Asian Perspective (13th ed.). Mc
Graw-Hill Companies, Inc.
Chapters 2 (pages 35-66)
Chapters 3 (pages 101129)
e-Content
(a) Download PowerPoint slides (chapters 2 and 3) from myVLE (Group
Tool) and read the study guide before attending the face to face
seminar.
(b) Download past examination questions from OUMs digital library and
do the questions relevant to this topic.
Study Notes
The learning outcomes:
1. Explain the meaning of cost and how costs are assigned to
products and services.
(a) Cost is the amount of cash or cash equivalent incurred for
producing goods and/or services.
(b) A cost unit/cost object is any item such as products, departments,
customers and activities for which costs are measured and
assigned.
(c) Cost are assigned to cost objects either directly or indirectly.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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(d) Direct cost such as direct material, direct labour and direct
expenses are traced to cost units directly.
(e) Indirect costs referred to as production overheads cannot be
directly identified to the cost objects. Therefore, they are allocated
by using a more complex approach. (This approach will be
discussed later).
2. Define how costs are classified (cost classification).
Costs can be classified using the three broad managerial accounting
objectives discussed in Week 1. Figures 2.1 to 2.3 show these
classifications.
Figure 2.1: Cost classification for external product costing
Objective 1: For external product costing (stock valuation purposes) costs
are classified by the function they serve, as summarised below:
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Figure 2.2: Cost classification for planning and control
Objective 2: For planning and control purposes, costs are classified by
controls as summarised below:
Figure 2.3: Cost classification for decision making
Objective 3: For decision making purposes costs are classified by behaviour,
as summarised below:
3. Apply cost estimation methods to separate semi-variable costs
into fixed and variable elements.
(a) For decision making purposes it is important to separate the
semi-variable costs into its fixed and variable components.
(b) Cost estimation techniques are used to separate semi-variable
costs into its fixed and variable costs components.
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(c) There are a number of cost estimation methods available.
However, the method relevant for this course is the High-Low
method.
4. Define the various costs of manufacturing products and the
various costs of behaviour. For instance, prime cost consists of:
(a) Direct materials costs Materials directly traceable to the
product/service;
(b) Direct labour costs Labour directly traceable to the product/
service; and
(c) Direct expenses Directly traceable to the product/service.
Learners can refer to the main text, for the definition.
5. Calculate the cost of goods manufactured, the cost of goods sold
and a simple income statement.
Learners can refer to the main text, pages 3941, for the calculation
formats.
Study Questions
Refer to your main text and attempt the following exercises:
(a) Exercise 2-2 on page 71
(b) Exercise 2-3 on page 71
(c) Problem 2-16 on pages 77-78
(d) Problems 2-20, 2-22 and 2-24 on pages 8082
(e) Exercise 3-1 on page 132
(f) Problem 3-13 on page 137
Now attempt the past examination questions to reinforce your
understanding of this topic.
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Frequently Asked Question
Question: How to calculate an income statement for a service organisation?
Glossary of Important Terms
A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 68 to 70 and 131 to 132.
If the explanations are unclear, learners are advised to refer to an English-
Malay Accounting dictionary.
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Week 3
Topic 3: Traditional Overhead and Activity Based
Costing, Job Order Costing and Process
Costing
Readings
Garrison, R.H., Noreen, E.W., Brewer, P.C., Cheng, N.S., & Yuen, K.C.K.
(2012). Managerial Accounting, An Asian Perspective (13th ed.). Mc
Graw-Hill Companies, Inc.
Chapter 7 (pages 275313)
Chapter 8 (pages 347373)
Chapter 9 (pages 401-422)
e-Content
(a) Download PowerPoint slides (chapter 7,8 and 9) from myVLE (Group
Tool) and read the study guide before attending the face to face
seminar.
(b) Download past examination questions from OUMs digital library and
do the questions relevant to this topic.
Study Notes
The learning outcomes:
1. Explain and calculate how a traditional overhead costing
approach is used for product costing.
Traditional approach overhead involves a two-stage approach,
whereby overhead are first assigned to cost centres and then assigned
to cost objects:
(a) Overhead absorption rate (OAR) is a predetermined rate
calculated using the following formula:
(i)
Budgeted production Overhead
OAR
Budgeted unit of base
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(ii) The above formula can be used to calculate a single or
plant-wide rate.
(iii) For the budgeted unit of base there are different methods of
calculation. However the most common methods are labour
rate, machine hour rate and output rate.
(iv) Refer to page 299-300 of your text for an illustration on the
traditional overhead costing approach.
2. Explain and calculate how an ABC system is used for product/job
costing.
(a) An ABC system traces costs to activities and then to cost objects.
(b) The steps involved in ABC are:
(i) Identify the activities;
(ii) Determine the cost pool by assigning costs to activities;
(iii) Determine the cost drivers for each activity;
(iv) Determine the total amount each driver consumed;
(v) Calculate cost per driver (Step 2 divided by Step 4); and
(vi) Using the calculated cost driver rates charge the overhead
to each product according to its consumption.
(c) The ABC hierarchy consists of different types of costs for different
levels:
(i) Unit level activities arise each time a product is
manufactured;
(ii) Batch level activities vary with the number of batches
produced;
(iii) Product sustaining activities vary with the number of product
lines; and
(iv) Facility sustaining activities are necessary to operate plant
facility
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3. Explain the difference between traditional approach and the ABC
system.
(a) Traditional overhead is volume related, hence it tends to
understate overhead cost of a low volume complex product and
overstate the overhead costs of a high volume product.
(b) ABC tends to allocate overheads to products which consume
activities and these activities cause the overheads to rise.
4. Explain the advantages of ABC.
(a) ABC recognises the reality in advanced manufacturing
environments that overheads are not related to direct labour.
Instead, activities influence overheads. Hence, it provides more
accurate product costs.
(b) Since ABC provides more accurate product costs, decisions
taken by management such as pricing decisions are better
informed.
(c) More accurate product profitability analysis can be produced.
(d) ABC recognises the various activities that take place in an
organisation, hence enabling management to target non-value
adding activities for cost reductions exercises.
5. Describe the differences between job order costing and process
costing and identify the types of firms that would use each
method.
(a) J ob order costing is for companies who produce unique products
which are tailor-made for individual customers needs.
(b) Meanwhile, process costing involves producing similar or identical
products or services.
(c) Go through Review Problem from pages 373 to 375 of the main
text to understand job order costing.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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6. Define equivalent units and explain their role in process costing.
(a) In process costing, at the end of a period, there will be a number
of unfinished production units. These units are referred to as
work-in-process (WIP) units.
(b) In order to determine the cost per unit produced, the output of the
period must be ascertained.
(c) The output of the period consists of fully completed product units
(products started and ended during the same period) and
equivalents units, calculated from the opening and closing WIP.
Study Questions
Refer to your main text and attempt the following exercises:
(a) Exercise 7B-2 on page 342
(b) Exercise 8-3 on page 377
(c) Exercise 8-5 on page 378
(d) Exercise 8-20 on pages 383-384
(e) Exercise 9-2 on page 426
Now attempt the past examination questions to reinforce your
understanding of this topic.
Frequently Asked Question
Question: Do you need to learn both traditional and ABC methods for the
examinations?
Answer: Both methods are examinable!!
Glossary of Important Terms
A list of important terms and brief explanations can be found in the Glossary
section of your main text. Please refer to pages 315, 376 and 425.
If the explanations are unclear, learners are advised to refer to an English-
Malay Accounting dictionary.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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Week 4
Topic 4: Cost-Volume-Profit (CVP) Analysis
Readings
Garrison, R.H., Noreen, E.W., Brewer, P.C., Cheng, N.S., & Yuen, K.C.K.
(2012). Managerial Accounting, An Asian Perspective (13th ed.). Mc
Graw-Hill Companies, Inc.
Chapter 4 (page 151-182)
e-Content
(a) Download PowerPoint slides (chapter 4) from myVLE (Group Tool) and
read the study guide before attending the face to face seminar.
(b) Download past examination questions from OUMs digital library and
do the questions relevant to this topic.
Study Notes
The learning outcomes:
1. Understand the underlying assumptions and limitations of the
CVP analysis tool.
Assumptions:
(a) All other variables remain constant (e.g. productivity);
(b) Total revenue is a linear function of output;
(c) Total cost is a linear function of output;
(d) A single product or a constant sales mix; and
(e) No closing stock at the end of the period.
The underlying assumptions are the limitations of the CVP analysis
tool. This is because the above assumptions are not applicable in
practice.
STUDY GUIDE BMAC5203 Accounting for Business Decision Making
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2. Determine the break-even point in sales units and sales value, the
amount of revenue required for a target profit and the margin of
safety.
(a) For CVP analysis, a contribution margin approach used that
classifies costs by behaviour as:
(i) Variable costs Both variable manufacturing and variable
selling and administrative; and
(ii) Fixed costs Both fixed manufacturing and fixed selling
and administrative.
(b) Contribution margin is calculated as follows:
Sales less ALL variable cost = Contribution.
(c) Contribution/sales =C/S ratio
(d) The break-even point (BEP) is the point where total revenue
equals total cost, the point of zero profit.
(e) BEP can be determined using:
(i) Equation method
(ii) Formula approach
(iii) Graphical approach (refer to text pages 156158)
(f) Equation method:
Operating income =(Price Units sold) (Variable cost per unit
Units sold) Total fixed expenses
At breakeven, this can also be expressed as:
Total revenue Total variable cost Total fixed cost = $0
or
Total revenue = Total variable cost + Total fixed cost
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(g) Formula approach:
Fixed costs
Break-even sales (units)
Contribution per unit
Fixed costs
Break-even sales (RM)
C/S ratio
(h) Graphical approaches:
(i) Traditional break-even chart
(ii) Profit volume chart
(i) Other calculations: