Description

Management Accounting

Management Accounting is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply the principles of cost estimation and cost and management accounting techniques and methods for decision making.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

• Estimate the cost of goods and services
• Analyse product costs for manufacturing and non-manufacturing activities
• Prepare marginal and absorption cost statements
• Analyse an organisation’s activities through budgetary control process
• Analyse variances for decision making

CONTENT

1. The context of management accounting:
   • Definition and scope of Cost and Management accounting
   • Role of Management Accounting in decision making
   • Users of Management accounting information
   • Cost accounting as a subset of management accounting
   • Management accounting and financial accounting
   • Difference between management accounting and financial accounting
   • Relationship between Management accountant and other managers
   • Limitations of management accounting

2.                   Costing terms and concepts

• Cost definition and identification
• Cost classification
• Cost classification bases; by time; by behaviour; by function; identification with stock; by relevance for decision making; by management control
• Types of cost systems
• Maintaining a cost database

3.                   Introduction to cost estimation

• Non-mathematical methods
  • Accounts Analysis method
  • High-Low method
  • Industrial Engineering method
• Mathematical methods
  • Scatter graph method
  • Ordinary Least Square method (simple regression only)

4.                   Cost accumulation

• Accounting for direct material cost
  • Introduction to Material costing
  • Objectives of material control
  • Essential requirements of material control system
  • Centralised and decentralized purchasing
  • Periodic inventory system
  • Perpetual inventory system
  • Setting stock levels
  • Factors influencing stock levels
  • Relevant cost for inventory management
  • The Economic Order Quantity

• Valuing inventory issues using FIFO, LIFO, standard cost method, weighted average, simple average and replacement cost method
• Accounting for direct labour cost
  • Methods of labour remuneration
  • Bonus schemes
  • Factors influencing wages
• Accounting for overhead cost
  • Overhead apportionment
  • Primary overhead distribution
  • Secondary overhead distribution methods (continuous allocation method, algebraic method, direct allocation method, sequential allocation method)
  • Absorption of overheads

5.                   Activity based costing

• Meaning of activity-based costing
• Distinction between activity-based costing and the Traditional absorption costing
• Classification of cost drivers
• The hierarchy of cost drivers
• Overhead absorption rates – ABC
• Income statements – one unit
• Income statement – total output/sales

6.                   Product costing methods

• Introduction to costing methods
• Specific order costing; Job order costing; Batch costing
• Continuous operation costing; Process costing (normal process losses; abnormal process losses/gains); treatment of closing work in progress; treatment of opening work in progress (FIFO and Weighted Average cost methods); Process costing for joint products and by-products; distinction between joint-products and by-products
• Service costing

7.                   Marginal and absorption costing

• Differences between marginal costing and absorption costing
• comparative income statements
• Arguments for the use of marginal costing
• Arguments for the use of absorption costing
• Reconciliation statement

8.                   Cost-volume profit analysis (break-even analysis)

• Introduction to C-V-P analysis
• Assumptions of C-V-P analysis
• Break-even chart
• Profit-volume chart
• Single product C-V-P analysis
• Multiple product C-V-P analysis
• Limitations of C-V-P Analysis
• Applications of marginal costing in decision making (make/buy decisions; discontinue a product; choice of a product where limiting factor exists; acceptance of a special offer); overriding considerations to the above decisions

9.                   Budgetary control

• Introduction to budgets
  • Essential features of a budget
  • Objectives of budgetary control
  • Difference between forecasts and budgets
• Types of budgets
  • Classification based on time (long-term budgets, short-term budgets and current budgets)
  • Classification based on functions (functional/subsidiary budgets, master budgets)
  • Classification based on capacity (fixed budgets, flexible budgets)
• Preparation of budgets
  • Functional budgets including cash budget and master budget
  • Fixed and flexible budgets

10.               Standard costing and variance analysis

• Introduction
  • Types of standards (basic standards, ideal standards, attainable standards)
  • Advantages and disadvantages of standard costing
• Variance analysis
  • Material cost variances (usage variance, price variance)
  • Labour cost variances (efficiency variance, rate variance)
  • Variable overhead variances (expenditure variance, efficiency variance)
  • Fixed overhead variances (expenditure variance, capacity variance, efficiency variance and volume variance)
  • Sales variances
• Causes of the various variances and remedies