ICMA Pakistan Advanced Management Accounting Syllabus

Advanced Management Accounting syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Advanced Management Accounting in ICMA Pakistan, not a summary of it.

1. 1

   Cost Management Techniques

   3 topics

   • Activity-based costing and management
   • Target costing and life-cycle costing
   • Throughput accounting and theory of constraints
2. 2

   Decision Making

   3 topics

   • Relevant costing for short-term decisions
   • Limiting factor analysis and linear programming
   • Pricing decisions and strategies
3. 3

   Budgeting and Forecasting

   3 topics

   • Advanced budgeting techniques
   • Zero-based and activity-based budgeting
   • Forecasting methods and uncertainty
4. 4

   Standard Costing and Variance Analysis

   4 topics

   • Material, labour and overhead variances
   • Sales and mix variances
   • Operating statements and variance reconciliation
   • Planning and operational variances
5. 5

   Performance Measurement

   3 topics

   • Divisional performance and transfer pricing
   • Financial and non-financial measures
   • Responsibility accounting
6. 6

   Risk and Uncertainty in Decisions

   3 topics

   • Expected values and decision trees
   • Sensitivity analysis
   • Risk attitudes and the value of information

Advanced Management Accounting flashcards for ICMA Pakistan

21 of 56 cards from the Advanced Management Accounting deck — real questions with worked answers.

1. What is Activity-Based Costing (ABC)?

   A costing method that assigns overhead costs to products/services based on the activities (cost drivers) that consume resources, rather than using a single volume-based absorption rate.

2. List the four steps in implementing Activity-Based Costing (ABC).

   1) Identify major activities; 2) Group costs into cost pools for each activity; 3) Identify the cost driver for each pool; 4) Calculate a cost driver rate and absorb costs into products based on driver usage.

3. What is a cost driver in ABC?

   A factor that causes the cost of an activity to change (e.g., number of set-ups, number of orders, machine hours). It is used to allocate cost pool costs to products.

4. How does the ABC cost driver rate formula work?

   Cost driver rate = Total cost in the activity cost pool / Total number of cost driver units. Each product is charged: rate x driver units consumed.

5. What is Activity-Based Management (ABM)?

   The use of ABC information to improve operations, reduce costs, and increase value by analysing activities — distinguishing value-added from non-value-added activities.

6. State two main advantages and one disadvantage of ABC over traditional absorption costing.

   Advantages: more accurate product costs (especially with diverse products/high overheads) and better cost control via activity analysis. Disadvantage: costly and time-consuming to implement and maintain.

7. What is Target Costing and how is target cost derived?

   A market-driven costing approach. Target cost = Target selling price (set by market) − Required profit margin. The firm then designs the product to meet this cost.

8. What is a 'cost gap' in target costing and how is it closed?

   Cost gap = Estimated current cost − Target cost. It is closed by value engineering, redesigning the product, cheaper materials, process improvement, or removing non-value-added features.

9. What is Life-Cycle Costing?

   A technique that accumulates and tracks all costs of a product over its entire life — from design and development through growth, maturity, and decline to abandonment — not just the production phase.

10. Name the typical stages of a product life cycle used in life-cycle costing.

    Introduction (launch), Growth, Maturity, and Decline (plus the prior development/design phase).

11. Why is the design phase critical in life-cycle costing?

    Around 70-90% of a product's life-cycle costs are 'locked in' (committed) at the design stage, so cost reduction efforts are most effective before production begins.

12. What is Throughput Accounting?

    A method based on the Theory of Constraints that treats only material cost as truly variable; it focuses on maximising throughput (sales revenue − material cost) through the system's bottleneck.

13. Define throughput, in throughput accounting.

    Throughput = Sales revenue − Totally variable (direct material) costs. All other costs (labour, overheads) are treated as fixed 'operating expenses'.

14. State the formula for the Throughput Accounting Ratio (TPAR).

    TPAR = Throughput per bottleneck hour / Operating (factory) cost per bottleneck hour. A TPAR greater than 1 means the product is profitable.

15. What are the five focusing steps of the Theory of Constraints (TOC)?

    1) Identify the constraint (bottleneck); 2) Exploit the constraint; 3) Subordinate everything else to the constraint; 4) Elevate the constraint; 5) Return to step 1 (do not let inertia become the constraint).

16. How should products be ranked using throughput accounting when there is a bottleneck?

    Rank products by throughput per unit of the bottleneck resource (e.g., throughput per bottleneck hour), highest first, then allocate the scarce resource accordingly.

17. What is a relevant cost?

    A future, incremental cash flow that arises as a direct consequence of a decision. Costs that are not future, not cash, or not incremental are irrelevant.

18. Why are sunk costs and committed costs irrelevant to decisions?

    Sunk costs are past costs already incurred and committed costs are unavoidable future costs; neither changes as a result of the decision, so both are excluded from relevant costing.

19. What is an opportunity cost and is it relevant?

    Opportunity cost is the value of the best alternative forgone by choosing one option over another. It is relevant and must be included in decision analysis.

20. What is the relevant cost of materials already in stock?

    If the material is in regular use, relevant cost = current replacement cost. If not in regular use, relevant cost = higher of its net realisable (scrap/resale) value or savings from using it elsewhere.

21. In a make-or-buy decision, which costs are relevant?

    The incremental/avoidable costs of making versus the purchase price of buying, plus any opportunity cost of the freed capacity. Unavoidable fixed costs are irrelevant.

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