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PAPER NO. 5 MANAGEMENT ACCOUNTING 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.
Table of Contents
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
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: 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
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
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