Last minute revision topics for ACCA PM

Richard Clarke

Key Topics

Here's 3 key topics for you to start to understand at a late stage:

  1. Activity-Based Costing (ABC)

    Activity-Based Costing (ABC) is a method that provides a more accurate estimate of product costs by examining the activities necessary to produce each unit. Traditional costing methods often oversimplify cost behavior by assuming that fixed costs are incurred over time and can be allocated based on labor or machine. However, this approach can lead to inaccuracies, especially in diverse and flexible manufacturing environments.

    ABC addresses this by splitting fixed overheads into activities, known as cost pools, and identifying cost drivers for each pool. The cost per unit of the cost driver is then calculated and allocated to products based on their usage of the cost driver. The implementation of ABC involves several steps: identifying cost pools, determining cost drivers, calculating the cost per unit of cost driver, and allocating these costs to products.

    This method helps in understanding the true cost of production, which includes both variable and fixed costs. By providing a more detailed view of cost behavior, ABC enables better pricing decisions and cost control. It also helps in identifying non-value-added activities, thereby supporting cost reduction and efficiency improvement initiatives.

  2. Activity-Based Management (ABM)

    Activity-Based Management (ABM) extends the principles of ABC to a broader management context. ABM uses the detailed cost information provided by ABC to make informed decisions aimed at improving business processes and reducing costs. It involves identifying non-value-added activities and finding ways to eliminate or reduce them.

    For example, while setting up machines might be seen as a non-value-added activity, it is essential for production. ABM focuses on improving the efficiency of such necessary activities.

    ABM can be integrated with other performance improvement strategies like Total Quality Management (TQM), Six Sigma, and Business Process Reengineering. These methodologies benefit from the detailed cost information provided by ABM, which helps in identifying areas for improvement, justifying costs, and monitoring the benefits of improvement projects.

    However, ABM can be complex and expensive to implement, making it more suitable for larger organizations with diverse product ranges. For smaller businesses, the costs of implementing ABM may outweigh the benefits.

  3. Decision Trees

    Decision trees are a valuable tool for breaking down complex decision-making problems into more manageable parts. They provide a visual representation of all possible courses of action and their potential outcomes, making it easier to analyse and compare different options.

    Decision trees use squares to represent decisions and circles to represent outcomes. The process involves constructing the tree by identifying all possible decisions and outcomes, assigning probabilities and financial values to each outcome, and then evaluating the tree to determine the best course of action.

    The evaluation stage involves calculating the expected values at each outcome point and using these to make decisions. This method is particularly useful for multi-stage decision problems where several decisions and outcomes are interdependent. While decision trees provide a structured approach to decision-making, they also have limitations.

    The accuracy of the expected values depends on the reliability of the probabilities and financial estimates used. Additionally, decision trees assume a risk-neutral attitude, which may not always align with the decision-maker's risk preferences. Despite these limitations, decision trees are a powerful tool for making informed decisions based on existing information and best estimates.