Fundamentals of Management Accounting

Description

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

Fundamentals of Management Accounting covers the competencies required to maintain management accounts for business decisions. Competencies include: Identifying concepts used in management accounting, using appropriate techniques to estimate business costs, Accounting for different business costs, applying costing methods in determining the cost of a product or service, preparing income statements using marginal costing and absorption costing techniques, applying break-even analysis in business decision making and preparing budgets for management decisions making.

LEARNING OUTCOMES

• Identify concepts used in management accounting
• Use appropriate techniques to estimate business costs
• Account for different business costs
• Apply costing methods in determining the cost of a product or service
• Prepare income statements using marginal costing and absorption costing techniques
• Apply break-even analysis in business decision making
• Prepare budgets for management decisions making

CONTENT:

1. Identify concepts used in management accounting
   • Definitions of key terms:
     • Cost
     • Cost unit/object
     • Cost accounting
     • Cost accountant
     • Management accounting
     • Management accountant
     • Cost centre
     • Profit centre
     • Responsibility centre
   • Role of Management Accounting in decision making
   • Users of Management accounting information
     • Executives
     • Production managers
     • Sales managers
     • Employees
   • Difference between management accounting and financial accounting
   • Relationship between cost accounting and management accounting
   • Limitations of management accounting
   • Cost control vs cost reduction
     • Definitions
     • Advantages of cost control
     • Differences between cost control and cost reduction
   • Selection of an ideal cost accounting system
     • Definition of cost accounting system
     • Factors to be considered in designing an ideal cost accounting system
   • Professional ethics for management accounting
     • Competence
     • Confidentiality
     • Integrity
     • Credibility
   • Cost classification:
     • Definition of cost classification
     • Purpose of cost classification
   • Bases of classification
     • Functions
     • Behaviour
     • Nature of expense
     • Relation to cost centre or cost unit
     • Time
     • Costs for management decision making
     • Nature of production or process

2.       Use appropriate techniques to estimate business costs

• Introduction to cost estimation
  • Definition of cost estimation
  • Purpose of cost estimation
  • Methods of cost estimation:
  • Non-mathematical methods;
    • Accounts Analysis method;
    • High-Low method;
    • Industrial Engineering method
  • Mathematical methods;
    • Scatter graph method;
    • Simple linear regression

3.                   Account for different business costs

• Accounting for materials and inventories
  • Objectives of material control
  • Essential requirements of material control system
  • Centralised and decentralised purchasing:
    • Definitions
    • Advantages
    • Disadvantages
  • Periodic inventory system
  • Perpetual inventory system
• Stores ledger card
  • Definition of a store ledger card
  • Methods of preparation
    • FIFO
    • LIFO
    • Weighted average methods
  • Determining optimal stock levels
    • Stock levels and its control
    • Factors influencing stock levels
    • Relevant costs for inventory management:
      • Purchase
      • Ordering
      • Holding/carrying
    • The Economic Order Quantity (EOQ)
      • Definition
      • Assumptions
      • Determination
    • Accounting for labour
      • Factors influencing wages
      • Methods of labour remuneration:
        • Time rate
        • Piece rate
        • Bonus schemes (individual and Group)
      • Labour turnover
    • Accounting for overheads
      • Definition
      • Classification:
        • Nature
        • Function
        • Element
        • Behaviour
      • Overhead allocation, apportionment and reapportionment
      • Factors to be considered when apportioning overheads
      • Methods of overheads distribution:
        • Primary
        • Secondary
      • Absorption of overheads
        • Definition
        • Methods of overheads absorption
        • Factors to consider in selection overhead absorption rates

• Over/under absorption of overheads
  • Definition
  • Causes
  • Computation

4.                   Apply costing methods in determining the cost of a product or service

• Job order costing
  • Definition
  • Features
  • Advantages
  • Limitations
  • Costing
• Batch costing
  • Definition
  • Features
  • Applications
  • Costing
• Process costing (excluding work in progress, joint and by-products)
  • Definition
  • Features
  • Applications
  • Differences between job costing and process costing
  • Losses (Normal loss, abnormal loss/gain)
  • Preparation of process accounts
• Service costing
  • Definition
  • Features
  • Costing

5.                   Prepare income statements using marginal costing and absorption costing techniques

• Differences between marginal costing and absorption costing
  • Features
  • Merits/demerits
  • Limitations
• Comparative income statements
• Reconciliation statement
  • Difference in stock valuation
  • Over/under absorbed overheads
  • Preparation of the statement

6.                   Apply break-even analysis in business decision making

• Introduction to cost volume profit (C-V-P) analysis
  • Objectives of C-V-P analysis
  • Assumptions/Limitations of C-V-P analysis
  • Break-even chart
• Profit-volume chart
  • Definition
  • Derivation
  • Single product C-V-P analysis
• Applications of marginal costing in decision making:
  • Make/buy decisions
  • Continue/discontinue a product
  • Choice of a product where limiting factor exists
  • Acceptance of a special offer
  • Overriding considerations to the above decisions

7.                   Prepare budgets for management decisions making

• Definition of terms:
  • Budget
  • Budget centre
  • Budget bias(slack)
  • Budget manual
    • Essential features of a budget
    • Objectives of the budgets
    • Limitations of the budgets
    • Difference between forecasts and budgets
  • Classification of budgets
    • Classification based on time:
      • Long-term budgets
      • Short-term budgets
    • Classification based on nature of expenditure and receipts:
      • Capital budget
      • Revenue budget
    • Classification based on functions
      • Sales budget
      • Production budget
      • Materials cost budget
      • Materials purchase budget
      • Cash budget
    • Classification based on capacity
      • Fixed budgets
      • Flexible budgets
    • Preparation of budgets
      • Functional budgets
      • Fixed and flexible budgets