INTERMEDIATE LEVEL: MANAGEMENT ACCOUNTING NEW PDF NOTES

INTERMEDIATE LEVEL: MANAGEMENT ACCOUNTING

 

General Objective

The course introduces the basic principles of cost estimation and cost accounting to equip the candidate with knowledge, skills and attitudes that will enable application of the concepts and principles of management accounting for decision making.

 

Expected 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

 

Course Contents

5.1 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

 

5.2 Costing terms and concepts

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

 

5.3 Introduction to cost estimation

Non-mathematical methods;

  • Accounts Analysis method;
  • High-Low method;
  • Industrial Engineering method

Mathematical methods;

 

5.4 Cost accumulation

Accounting for direct material cost

  • Introduction to Material costing
  • Objectives of material control
  • Essential requirements of material control system
  • Centralized 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

 

5.5 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

 

5.6 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

 

5.7 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

 

5.8 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

 

 

5.9 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

 

5.10 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

 

 

Recommended Study Materials  
  Title Author Edition
1. Management and Cost Accounting Colin Drury 7
2. Cost Accounting: Principles and Practice Arora M. N. 12
3. Introduction to Cost and Management Accounting Storey Roger  
 

 

 

 

 

 

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