Do you like T-accounts? Do you love huge complicated Excel spreadsheets which tell you what is the right or wrong decision? If this is the case, may be this is not the perfect class for you. This class is about management. Accounting only serves as the basis to provide us with the figures we need to discuss and support decisions. The figures will only be one part of the equation. It will be rare in this class to obtain a mathematically correct solution. We will focus on the behavioral issues of management accounting instead. This will allow us to illustrate some of the real problems of management accounting in large corporations, e.g.
drowning in huge amounts of reporting information which hardly anybody in the organization understands any more;
eliminating profitable or strategically important products or services because a management accounting systems which produces endless mountains of opaque figures proves these items are not really making money;
focusing purely on Monopoly money, billing out products and services to the neighboring profit center, thereby ensuring that the own profit center looks great and the year end bonus is assured, forgetting that money can only be earned with outside customers and
optimizing short term performance measures to obtain the next bonus, forgetting the long term issues the company is facing.
All this does not mean that we will not discuss specific management accounting tools. Actually, we will be discussing a lot of very specific tools and, yes, there will be some Excel spreadsheets waiting for you. However, understanding the tools will be the easy part. After all, management accounting is not rocket science. Unlike in finance, you do not win a Nobel Prize for defining a new way to allocate costs throughout the organization. Applying the tools, realizing the inherent conflict of interests and anticipating the resulting management behavior will be the real challenge. It is here where the theoretically correct solution might not necessarily be the preferred solution. In addition, theoretically correct solutions might look quite different in distinct cultural environments. A German management accountant might have a different idea on how to determine product costs or on the relevance of these product costs for the pricing decision than his American colleague.
With this behavioral approach, the class is meant to prepare you for real world decision situations where your management accountant recommends a certain course of action based on figures only he or she fully understands. In these situations it is crucial that you can ask the right questions, demand that the problem should be analyzed again from a different angle and realize which of the available management accounting tools is suitable for which context.
Understanding the nature and objectives of this class.
Explaining the course structure.
2: MANAGEMENT ACCOUNTING
Realizing the challenges of short term accounting information.
Establishing the key ingredients of management accounting.
Understanding the continuing evolution of management accounting.
Discussing the responsibilities of managers and financial controllers.
Reading: HBDF chapters 1 and 2
Case 1: Case Swisstex
Case 2: HBDF case 103: Electronic Boards plc
3: FINANCIAL TOP DOWN OBJECTIVE
Understanding the different possibilities for setting financial top down objectives.
Realizing the complexities of setting financial performance targets in multinational enterprises.
Establishing the link between financial management and management accounting.
Reading: HBDF chapter 19
Case: PowerPumps I
4: MECHANICS AND IMPLICATIONS OF BUDGETING
Understanding the mechanics of budgeting.
Realizing the central role of budgeting as a control mechanism.
Studying the behavioral aspects of budgeting.
Reading: HBDF chapters 5 and 6, 14
Case: PowerPumps II
5: THEORY AND PRACTICE OF COSTING
Understanding the different approaches of product costing.
Realizing the power of costing information within an organization.
Discussing which costing information is suitable for which decision situation.
Reading: HBDF chapters 3 and 4, 10-12
Case: PowerPumps III and IV
6: ACTIVITY BASED COSTING
Understanding the concept of abc costing.
Realizing limits of costing information.
Discussing how costing information can be used for strategic purposes.
Reading: HBDF chapters 11
Case: Kanthal (A)
7: TRANSFER PRICING / INTERDIVISONAL SALES
Understanding the differences between cost centers and profit centers.
Realizing the complexity of interdivisional pricing decisions.
Discussing the different behavioral aspects of interdivisional transfer price arrangements.
Reading: HBDF chapter 18
Case: Siemens Electric Motor Works (B): Pricing Interdivisional Sales
8: PERFORMANCE MEASUREMENT
Discussing the usefulness of financial performance measurement.
Identifying the limitations and dangers of performance measures.
Examining the mechanics of variance analysis.
Reading: HBDF chapters 15 and 16
Case 1: HBDF case 301: Zeroes plc
Case 2: HBDF case 303: Fiddler Ltd.
OBJECTIVES OF THE CLASS
Understanding the major tools management accounting has to offer.
Discussing the behavioral implications of management accounting information.
Being able to define a suitable financial top down objective.
Defining appropriate financial measures for different organizational units like production and sales units.
Realizing the key steps and ingredients of the budgeting process.
Identifying the different approaches to determine product costs and understanding the usefulness of these approaches in different decision situations.
Gaining an appreciation of the influences of budgeting and systems of performance evaluation on management behavior and organizational functioning.
Course Packet: The required course packet contains all the material for the class.
Textbook: Management and Cost Accounting; Horngren, Bhimani, Datar and Foster, 4th edition, Prentice Hall (called HBDF in this document). Note that since this is a MBA class, rather than one designed for accounting students, the text will serve more as a background resource and a source of case studies rather than as the main learning tool. That role will be assumed by the cases and the class room discussion.
Method of examination
Class participation etc. (50%)
Final examination (50%)