CIMA - P2 Advanced Management Accounting

575 Pages·2014·9.81 MB·English

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CIMA Study Text I
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or calculations that will be the foundations of your • Links show how the syllabus overlaps with other ud
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• Exam Alerts show you how subjects are likely to be Brought Forward that you need to remember from x
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tested previous exams
• Exam Skills are the key skills you will need to • Website References link to material that will
demonstrate in the exam, linked to question enhance your understanding of what you’re
requirements studying
• Formulae to Learn are formulae you must • Section Summaries allow you to review each
remember in the exam and Exam Formulae are section
formulae you will be given in the exam
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Contact us 2 CIMA Study Text
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Management Paper P2
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bpp.com/learningmedia Advanced Management Accounting
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Study Text for exams
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in 2015
CMP2ST15.indd 1-3 22/07/2014 13:00
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MANAGEMENT
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PAPER P2
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ADVANCED MANAGEMENT
ACCOUNTING
Our text is designed to help you study effectively and efficiently.
In this edition we:
 Highlight the most important elements in the syllabus and the key skills you will need
 Signpost how each chapter links to the syllabus and the learning outcomes
 Use overview and summary diagrams to develop understanding of interrelations
between topics
 Provide lots of exam alerts explaining how what you're learning may be tested
 Include examples and questions to help you apply what you've learnt
 Emphasise key points in section summaries
 Test your knowledge of what you've studied in quick quizzes
 Examine your understanding in our practise question bank

SUITABLE FOR EXAMS IN 2015
ii

First edition 2014

ISBN 97 81 4727 1447 3
e-ISBN 9781 4727 2051 1

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iii

Contents
Page
Introduction
How our Study Text can help you pass iv
Features in our Study Text v
Streamlined studying vi
Syllabus and learning outcomes vi
Studying P2 xii
Assessment xvii
Part A Cost planning and analysis for competitive advantage
Introduction – a revision of basic cost accounting concepts and techniques 3
1 Analysing and managing costs 27
2 Techniques for enhancing long-term profits 101
3 Cost planning 125
4 Pricing strategies 151
Part B Control and performance management of responsibility centres
5 Decision making in responsibility centres 193
6 Performance measurement 231
7 Transfer pricing 271
Part C Long-term decision making
8 Project appraisal 299
9 Further aspects of decision making 359
Part D Management control and risk
10 Management control and risk 379
Appendix: Mathematical tables and exam formulae 451
Practise question bank 457
Practise answer bank 489
Index 549
Review form
iv
Introduction
How our Study Text can help you pass
Streamlined  We show you the best ways to study efficiently
studying
 Our Text has been designed to ensure you can easily and quickly navigate
through it
 The different features in our Text emphasise important knowledge and
techniques
Exam expertise  Studying P3 on page xv introduces the key themes of the syllabus and
summarises how to pass
 We highlight throughout our Text how topics may be tested and what you’ll have
to do in the exam
 We help you see the complete picture of the syllabus, so that you can answer
questions that range across the whole syllabus
 Our Text covers the syllabus content – no more, no less
Regular review  We frequently summarise the key knowledge you need
 We test what you’ve learnt by providing questions and quizzes throughout our
Text
Our other products
BPP Learning Media also offers these products for the P3 test and Strategic integrated case study exams:
i-Pass Providing computer-based testing in a variety of formats, ideal for self-assessment
Objective test Providing helpful guidance on how to pass the objective test and more question
Kit practice
Passcards Summarising what you should know in visual, easy to remember, form
Integrated case Providing help with exam skills and question practice for the integrated case study
study Kit exam
You can purchase these products by visiting www.bpp.com/cimamaterials
CIMA Distance Learning
BPP's distance learning packages provide flexibility and convenience, allowing you to study effectively, at
a pace that suits you, where and when you choose.
Online classroom Through live interactive online sessions it provides you with the traditional
live structure and support of classroom learning, but with the convenience of
attending classes wherever you are
Online classroom Through pre-recorded online lectures it provides you with the classroom
experience via the web with the tutor guidance & support you’d expect from a
face to face classroom
You can find out more about these packages by visiting www.bpp.com/cimadistancelearning
v
Introduction
Features in our Study Text
Chapter Overview Diagrams illustrate the connections between the topic areas you are
about to cover
Section Introductions explain how the section fits into the chapter

Key Terms are the core vocabulary you need to learn

KEY TERM
Key Points are points that you have to know, ideas or calculations that will be the
foundations of your answers
KEY POINT
Exam Alerts show you how subjects are likely to be tested

Exam Skills are the key skills you will need to demonstrate in the exam, linked to
question requirements
Formulae To Learn are formulae you must remember in the exam

Exam Formulae are formulae you will be given in the exam

Examples show how theory is put into practice

Questions give you the practice you need to test your understanding of what you’ve
learnt
Case Studies link what you’ve learnt with the real-world business environment

CASE STUDY
Links show how the syllabus overlaps with other parts of the qualification, including
Knowledge Brought Forward that you need to remember from previous exams
Website References link to material that will enhance your understanding of what
you’re studying
Further Reading will give you a wider perspective on the subjects you’re covering

Section Summary Diagrams allow you to review each section
vi
Introduction
Streamlined studying
What you should do In order to
Read the Chapter and Section Introductions and See why topics need to be studied and map your
look at the Chapter Overview Diagram way through the chapter
Go quickly through the explanations Gain the depth of knowledge and understanding
that you'll need
Highlight the Key Points, Key Terms and Formulae Make sure you know the basics that you can't do
To Learn without in the exam
Focus on the Exam Skills and Exam Alerts Know how you'll be tested and what you'll have to
do
Work through the Examples and Case Studies See how what you've learnt applies in practice
Prepare Answers to the Questions See if you can apply what you've learnt in
practice
Review the Chapter Summary Diagrams Remind you of, and reinforce, what you've learnt
Answer the Quick Quiz Find out if there are any gaps in your knowledge
Answer the Question(s) in the Practise Question Practise what you've learnt in depth
Bank
Should I take notes?
Brief notes may help you remember what you’re learning. You should use the notes format that’s
most helpful to you (lists, diagrams, mindmaps).
Further help
BPP Learning Media’s Learning to Learn Accountancy provides lots more helpful guidance on studying. It
is designed to be used both at the outset of your CIMA studies and throughout the process of learning
accountancy. It can help you focus your studies on the subject and exam, enabling you to acquire
knowledge, practise and revise efficiently and effectively.
Syllabus and learning outcomes
Paper P2 Risk Management
The syllabus comprises:
Topic and Study Weighting
%
A Cost planning and analysis for competitive advantage 25
B Control and performance management of responsibility centres 30
C Long-term decision making 30
D Management control and risk 15
vii
Introduction
Learning Outcomes On completion of their studies, students should be able to:
Lead Component Indicative syllabus content
A Cost planning and analysis for competitive advantage
1 Evaluate (a) Evaluate activity-based  Activity-based costing to derive
techniques for management ‘long-run’ costs appropriate for use
analysing and in decision making.
managing costs
 Activity-based management and its
for competitive
use in improving the efficiency of
advantage.
repetitive overhead activities.
 Direct and activity-based cost
methods in tracing costs to ‘cost
objects’, such as customers or
distribution channels, and the
comparison of such costs with
appropriate revenues to establish
‘tiered’ contribution levels, as in the
activity-based cost hierarchy.
 Direct customer profitability and
distribution channel profitability.
(b) Evaluate total quality  The impacts of just-in-time (JIT)
management (TQM) production, the theory of constraints
techniques and total quality management on
efficiency, inventory and cost.
 The benefits of JIT production, total
quality management and theory of
constraints and the implications of
these methods for decision making
in the contemporary manufacturing
environment.
 Kaizen costing, continuous
improvement and cost of quality
reporting.
 Process re-engineering and the
elimination of non-value adding
activities and reduction of activity
costs.
(c) Discuss techniques for  Target costing and the determination
enhancing long-term profits of target costs from target prices.
 Value analysis and quality function
deployment.
 The Value Chain and the
management of contribution/profit
generated throughout the chain.
 Life cycle costing and its
implications for marketing strategies.
(d) Apply learning curves to  Learning curves and their use in
estimate time and cost for predicting product/service costs,
activities, products and including derivation of the learning
services. rate and the learning index
viii
Introduction
Learning Outcomes On completion of their studies, students should be able to:
Lead Component Indicative syllabus content
B Control and performance management of responsibility centres
1 Discuss decision (a) Discuss the information  Relevant cost information for cost
making in needed for decision making centre managers: controllable and
responsibility in different organisational uncontrollable costs and budget
centres. structures flexing.
 Relevant revenue and cost
information for profit and investment
centre managers: cost variability,
attributable costs, controllable costs
and identification of appropriate
measures of profit centre
‘contribution’.
 Alternative measures of performance
for responsibility centres.
(b) Prepare reports to inform  Performance reports: recognising
decisions. issues of controllable/uncontrollable
costs, variable/fixed costs and
tracing revenues and costs to
particular cost objects.
2 Discuss issues (a) Prepare performance reports  Key metrics for the assessment of
arising from the for the evaluation of financial consequences including
use of projected and actual profitability, liquidity and asset
performance performance turnover ratios, return on
measures and investment, residual income and
budgets for economic value.
control.
 Benchmarking.
 Analysis of reporting by dimension
(e.g. segment, product, channel).
(b) Discuss traditional and non-  Non-financial performance
traditional approaches to indicators.
performance measurement
 Balanced Scorecards (BSC).
(c) Discuss the criticisms and  Behavioural issues in budgeting:
behavioural aspects of participation in budgeting and its
budgeting in responsibility possible beneficial consequences for
centres. ownership and motivation;
participation in budgeting and its
possible adverse consequences for
‘budget padding’ and manipulation;
setting budget targets for motivation;
implications of setting standard costs
etc.
 Criticisms of budgeting and the
arguments for and against ‘beyond
budgeting’.
ix
Introduction
Learning Outcomes On completion of their studies, students should be able to:
Lead Component Indicative syllabus content
3 Evaluate issues (a) Discuss the likely  The behavioural consequences of
arising from the behavioural consequences of performance management and
division of the performance measurement control in responsibility centres.
organisation into within an organisation
 The behavioural consequences
responsibility
arising from divisional structures:
centres.
internal competition and internal
trading.
(b) Discuss transfer pricing  The theory of transfer pricing,
systems including perfect, imperfect and no
market for the intermediate good.
 Negotiated, market, cost-plus and
variable cost-based transfer prices.
Dual transfer prices and lump sum
payments as means of addressing
some of the issues that arise.
(c) Evaluate the effects of  The motivation of divisional
transfer prices. management.
 Divisional and group profitability.
 The autonomy of individual divisions.