Chopi CPA Management Accounting Notes

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CPA INTERMEDIATE LEVEL

GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply management accounting principles and concepts in business.

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
• Use computers in cost management.

CONTENT

Nature and purpose of cost and management accounting

• The nature of cost accounting and costing terms
• The role of cost accounting in management
• The purposes of cost accounting information
• Scope of cost accounting
• Meaning of management accounting, scope, limitations, applications
• Relationship between cost, financial and management accounting
• Selection of an ideal cost accounting system

Cost classification

• Definition and purpose of cost classification
• Methods of cost classification: by nature/elements of manufacturing costs; functional classification; behavioural classification; controllability; time; financial accounting; identification with inventory; for decision making

Cost estimation

• Meaning of cost estimation
• Methods of estimating cost; non-mathematical methods like engineering method, accounts analysis method and high-low method; mathematical methods like scatter graph method, OLS regression method (simple linear regression only)

Accounting, for material, labour and overheads

• Accounting for materials and inventory; material cost records, purchasing procedures, receipt and issues of material, methods of valuing material issues, inventory control procedures; economic order quantity (EOQ) and economic batch quantity(EBQ) models and back flush
• Accounting   for   labour:    Methods    of   labour   remuneration,    labour    control procedures, maintenance of labour records
• Accounting for overheads: Types of overheads, manufacturing, distribution and administration, service departmental cost allocation and apportionment, overheads analysis, overhead absorption rates, over or under absorption

Cost bookkeeping

• The flow of costs in a business enterprise
• Cost bookkeeping- interlocking and integrated ledger systems

Costing methods

• Job order costing
• Batch costing
• Process costing (including work in progress; joint and by-products)
• Service costing
• Unit costing

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Marginal and absorption costing

• Distinction between marginal and absorption costing
• Valuation of products under marginal and absorption costing
• Preparation of marginal and absorption statements; cost of production and profit determination
• Applications of marginal costing: break-even analysis and charts (single product)
• Simplified decision problems; accept or reject, special order, dropping a product, make or buy
• Operating statements

Activity based costing

• Meaning of ABC
• Types of activities
• Overhead absorption rates
• Incomes statement

Budgeting and budgetary control

• Nature and purposes of budgets
• Preparation of budgets; master budgets, functional (department budgets, cash budgets), proforma financial reports (income statements and balance sheets)
• Purpose of budgetary control; operation of a budgetary control system, organisation and coordination of the budgeting function
• Distinction between budgeting and budgetary control in the private and public sectors

Standard costing

• Types of standards
• Principles of setting standards
• Standard cost card
• Behavioural aspects of standard costing
• Generation of standard cost information
• Materials, labour and overheads variances; price ,efficiency mix and yield variances

Cost management

• Value chain-research    and    development;    design;     production;    marketing distribution; customer care
• Just in time (JIT)
• Use of computers in costing; job costing, inventory management,  labour  costing, cost entre analysis, coding, budgeting and decision making

Emerging issues and trends

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