- Cost and variance measures
a. Comparison of actual to planned results
b. Use of flexible budgets to analyze performance
c. Management by exception
d. Use of standard cost systems
e. Analysis of variation from standard cost expectations - Responsibility centers and reporting segments
a. Types of responsibility centers
b. Transfer pricing
c. Contribution margin
d. Reporting of organizational segments - Performance measures
a. Product profitability analysis
b. Business unit profitability analysis
c. Customer profitability analysis
d. Return on investment (ROI)
e. Residual income
f. Investment base issues
g. Key performance indicators (KPIs)
h. Balanced scorecard
Part 1 – Section C.1. Cost and variance measures
The candidate should be able to:
- a. analyze performance against operational goals using measures based on revenue, manufacturing costs, nonmanufacturing costs, and profit depending on the type of center or unit being measured
- b. explain the reasons for variances within a performance monitoring system
- c. prepare a performance analysis by comparing actual results to the master budget, calculate favorable and unfavorable variances from the budget, and provide explanations for variances
- d. identify and describe the benefits and limitations of measuring performance by comparing actual results to the master budget
- e. analyze a flexible budget based on actual sales (output) volume
- f. calculate the sales-volume variance and the sales-price variance
- g. calculate the flexible-budget variance by comparing actual results to the flexible budget
- h. investigate the flexible-budget variance to determine individual differences between actual and budgeted input prices and input quantities
- i. explain how budget variance reporting is utilized in a management-byexception environment
- j. define a standard costing system and identify the reasons for adopting a standard costing system
- k. demonstrate an understanding of price (rate) variances and calculate the price variances related to direct material and direct labor inputs
- l. demonstrate an understanding of efficiency (usage) variances and calculate the efficiency variances related to direct material and direct labor inputs
- m. demonstrate an understanding of spending and efficiency variances as they relate to fixed and variable overhead
- n. calculate a sales-mix variance and explain its impact on revenue and contribution margin
- o. calculate and explain a mix variance
- p. calculate and explain a yield variance
- q. demonstrate how price, efficiency, spending, and mix variances can be applied in service companies as well as in manufacturing companies
- r. analyze factory overhead variances by calculating variable overhead spending variance, variable overhead efficiency variance, fixed overhead spending variance, and production volume variance
- s. analyze variances, identify causes, and recommend corrective actions
Part 1 – Section C.2. Responsibility centers and reporting segments
The candidate should be able to:
- a. identify and explain the different types of responsibility centers
- b. recommend appropriate responsibility centers given a business scenario
- c. calculate a contribution margin
- d. analyze a contribution margin report and evaluate performance
- e. identify segments that organizations evaluate, including product lines, geographical areas, or other meaningful segments
- f. explain why the allocation of common costs among segments can be an issue in performance evaluation
- g. identify methods for allocating common costs such as stand-alone cost allocation and incremental cost allocation
- h. define transfer pricing and identify the objectives of transfer pricing
- i. identify the methods for determining transfer prices, and list and explain the advantages and disadvantages of each method
- j. calculate transfer prices using variable cost, full cost, market price, negotiated price, and dual-rate pricing
- k. explain how transfer pricing is affected by business issues, such as the presence of outside suppliers and the opportunity costs associated with capacity usage
- l. describe how special issues such as tariffs, exchange rates, taxes, currency restrictions, expropriation risk, and the availability of materials and skills affect performance evaluation in multinational companies
Part 1 – Section C.3. Performance measures
The candidate should be able to:
- a. explain why performance evaluation measures should be directly related to strategic and operational goals and objectives, why timely feedback is critical, and why performance measures should be related to the factors that drive the element being measured (e.g., cost drivers and revenue drivers)
- b. explain the issues involved in determining product profitability, business unit profitability, and customer profitability, including cost measurement, cost allocation, investment measurement, and valuation
- c. calculate product-line profitability, business unit profitability, and customer profitability
- d. evaluate customers and products on the basis of controllable margin and recommend ways to improve profitability and/or drop unprofitable customers and products
- e. define and calculate ROI
- f. analyze and interpret ROI calculations
- g. define and calculate residual income (RI)
- h. analyze and interpret RI calculations
- i. compare the benefits and limitations of ROI and RI as measures of performance and explain their appropriate usage
- j. explain how revenue and expense recognition policies may affect the measurement of income and reduce comparability among business units
- k. explain how inventory measurement policies, joint asset sharing, and overall asset measurement policies may affect the measurement of investment and reduce comparability among business units
- l. define critical success factors (CSFs) and KPIs and discuss the importance of these measures in evaluating an organization
- m. define the concept of a balanced scorecard and identify its components
- n. identify and describe the perspectives of a balanced scorecard, including financial, customer, internal process, and learning and growth
- o. identify and describe the characteristics of an effective balanced scorecard
- p. demonstrate an understanding of a strategy map and the role it plays
- q. analyze and interpret a balanced scorecard and evaluate performance based on the analysis
- r. recommend performance measures and a periodic reporting methodology given operational goals and actual results