# Management Accounting kasneb new syllabus notes

PAPER NO. 11 MANAGEMENT ACCOUNTING

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 organisationâ€™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
1. ### 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

1. ### 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)
1. ### Cost accumulation

• Accounting for direct material cost
• Introduction to Material costing
• Objectives of material control
• Essential requirements of material control system
• 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
• Secondary overhead distribution methods (continuous allocation method, algebraic method, direct allocation method, sequential allocation method)
1. ### 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
1. ### 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
1. ### 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
1. ### 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
1. ### 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
1. ### Standard costing and variance analysis

• Introduction
• Types of standards (basic standards, ideal standards, attainable standards)