CPA Australia Foundation Management Accounting Module 5 (Summary Notes)
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Course
CPA Australia
Institution
CPA Australia
Looking to excel in your Management Accounting course and achieve your academic goals? Look no further than these comprehensive study notes! These notes are concise and structured (WITH CALCULATION WORKINGS) for Module 5 of the CPA Australia Foundation Management Accounting subject. (p.s, am sell...
M5:1 The Purpose of Performance Management Systems
Performance management
● Aims to establish how well something/somebody is doing in relation to a plan
Types of performance measures
● Financial performance indicators
● Non - financial performance indicators
‘Things’ that undergo performance measurements:
● A machine
● A factory
● A subsidiary company
● An organization as a whole
‘Bodies’ that undergo performance measurements:
● An individual employee
● A manager
● A group of people
Objectives of performance measurement
● Identify aspects of performance that may be a cause for concern
● Explain differences between actual performances and the
plan/expectation/deteriorating performance over time
● Consider ways of taking control measures to improve performance
, M5:2 Responsibility Centres, Materiality and Controllability 2.1 Cost centres
Cost centre
Responsibility accounting ● A cost/expense centre which is part of an organisation which incurs cost
● A system of accounting that segregates revenue and costs into areas of personal ● A responsibility centre where the manager has authority and influence over the
responsibility to monitor and assess the performance of each part of an costs but not over revenue
organisation ● Can be quite small (1 person/machine/expenditure item)
● An accounting system that measures the performance of managers against their ● Can be quite big (an entire department)
budgets
Cost code
Responsibility centre ● To charge actual costs to a cost centre
● A function/department of an organisation that is headed by a manager who has ● Items of expenditure will be recorded with the appropriate cost code
direct responsibility for its performance ● When costs are eventually analysed, there may be some apportionment of the
● Different bases for control: costs of one of the cost centre to other cost centres
○ Cost centre
■ Any unit of an organisation to which costs can be separately Information about the cost centres
attributed ● May be collected in terms of
○ Profit centre ○ Total actual costs
■ Any unit of an organisation to which both revenues and costs ○ Total budgeted costs
are assigned, so that the profitability of the unit may be ○ Total cost variances
measured ● Analysed in terms of ratios
○ Investment centre ○ Cost per unit produced (budgeted and actual)
■ A profit centre whose performance is measured by its return ○ Hours per unit produced (budget and actual)
on capital employed ○ Transport costs per tonne/kilometre (budget and actual)
● Materiality and controllability
○ Should be considered before investigating a variance
Budget
● Will be prepared for each responsibility centre
● The manager will be responsible for achieving the budget targets of that centre
● Performance of that centre
○ Will be monitored
○ The manager will be expected to take appropriate action if there are
significant variances/other targets are not met
, 2.2 Revenue centres 2.3 Profit centres
Revenue centre Profit centre
● A section of an organisation which raises revenue but has no responsibility for ● Any section of an organisation which earns revenue and incurs costs
production ● Eg, a division of a company
● Eg, a sales department ● The profitability of a section can be measured
● Often used in non-profit making organisations ● A responsibility centre where the manager has authority and influence over
● Similar to cost centres - but for recording revenues only costs and revenue of that centre
● Differs from cost centres - accounts for both costs and revenues
Information collected by revenue centres ● Likely to cover a large area of operations
● Based on a comparison of budgeted and actual revenues earned by that centre ○ An entire division within the organisation
○ A separate profit centre for each product/brand/service/each
geographical selling area
● There are likely to be several cost centres within a profit centre
Key performance measure of a profit centre
● Profit
Manager of the profit centre
● Must be able to influence both revenue and costs
● Have a say in both sales and production policies
● A fairly senior person within an organisation
Information requirements by profit centres
● Need to be similarly focused
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