CIMA Revision Cards Management Accounting Performance Evaluation (CIMA Managerial Level 2008) (CIMA Managerial Level 2008)

135 Pages·2006·1.46 MB·English

by  Robert Scarlett

CIMA REVISION CARDS
Management Accounting
Performance Evaluation
Bob Scarlett
Managerial Level Paper P1
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Firstpublished2006
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TABLE OF CONTENTS
1. Costaccounting systems.............................................................. 1
2. Thetheory andpractice of standard costing........................................ 21
3. Standard costingand performance evaluation...................................... 37
4. Basicaspects of management accounting.......................................... 51
5. Thetheory andpractice of budgeting................................................ 63
6. Budgetary control....................................................................... 81
7. Budgetingand performance evaluation.............................................. 93
8. Developments inmanagement accounting..........................................107
9. Responsibility centres andtransfer pricing..........................................119
Cost Accounting
Systems
Topics
Key learning system
. Absorptioncosting concept
questions
. Marginalcostingconcept
2.7 Valuation ofcompletedwork . Costingconceptscompared
6.6 Marginalcosting andprofit . Costinginjob, batch andprocessindustries
35 Costing systemsand . Productioncost perUnit inprocessindustries
decisionmaking . Valuationofprocess losses
1
Cost Accounting Systems
Absorption costing concept
Definitions
Absorptioncosting–anapproachtocostingthatassignsproductionoverheadstoproductsthroughtheuseof
an overhead absorptionrate
Overheadabsorptionrate–themeansofattributingoverheadcoststoindividualproducts,basedontheUnits
produced, labour hoursusedorsome suchbasis
Predeterminedoverheadabsorptionrate–anoverheadabsorptionrate,basedonbudgetedoverheadandthe
budgeted levelof outputand/oractivity
Under/over absorptionof overheads–thedifferencebetween overheadsabsorbed andoverheads incurred
Key points
K Theoverheadabsorptionrateadoptedshouldbetheonewhichmostmeaningfullyreflectsthemannerinwhich
overhead costsareincurred. Forexample, ifmostoverheads relatetotheemployment oflabour, thendirect
labourhours providetheappropriate overhead absorptionrate (‘OAR’)
2
Cost Accounting Systems
Absorption costing concept
K Anunder/overabsorptionofoverheadsariseswheretheactualoverheadsincurreddiffersfromtheoverheads
absorbed. Thiscan happen because(1) actual fixedoverheadsdiffer from thatbudgeted forand/or(2) the
actual levelof activitydiffersfrom thatbudgeted for
3
Cost Accounting Systems
Absorption costing concept
Example
ABCLtdproducestheUnit.Budgetdetailsforperiod99include–£1,000fixedoverheads,100Unitsoutputandsold
(givinganOARof£10perUnit),£5variablecostperUnitand£20sellingpriceperUnit.Actualresultsfortheperiod
are£1,000fixedoverheads,110Unitsoutput,£550variablecosts,105Unitssoldand£2,100salesrevenue.Aprofit
statementforperiod 99,usingtheabsorption costing principle,appearsas follows:
Salesrevenue £ 2,100
Production costs:
Variable 550
Fixed(110 Units@ £10) 1,100
1,650
Closingstock(5Units @£15) 75 (w1)
Cost ofsales 1,575
Gross profit 525
Over/(under) absorption of overheads 100(w2)
Netprofit 625
Workings:
(w1) cost perUnit is£5 variableplus £10fixed (predetermined)per Unit¼£15
(w2) £1,100 absorbed(110 Units @£10)fixedoverheads less £1,000 actualfixedoverheads
4
Cost Accounting Systems
Marginal costing concept
Definitions
Marginalcost–thepartoftheproductioncostofoneUnitofaproductthatwouldbeavoidedifthatUnitwere
notproduced, ortheamountby whichcost wouldincrease ifoneextra Unitwere produced
Marginalcosting–theaccountingsysteminwhichvariablecostsarechargedtocostUnitsandfixedcostsof
theperiod arewritten offin fullagainstcontribution
Contribution–salesrevenuelessmarginalcostofUnitssold.Contributionmaybeexpressedasatotalfigure,
as perUnitfigure orasapercentageof salesrevenue
Key points
K Contribution isarrived atbydeducting thevariable cost only oftheUnitssold from thesalesrevenuefigure
5