Management Accounting kasneb new syllabus notes

PAPER NO. 11 MANAGEMENT ACCOUNTING

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UNIT DESCRIPTION

This paper 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

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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