CMA Part 1 Volume 2: Sections D – E

340 Pages·02.865 MB·English

by  Brian Hock, Lynn Roden

CMA Part 1
Volume 2: Sections D – E

Financial Reporting, Planning,
Performance and, Control
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Sixth Edition
CMA
Preparatory Program

Part 1
Volume 2: Sections D – E

Financial Reporting, Planning,
Performance and Control

Brian Hock, CMA, CIA
and
Lynn Roden, CMA
with
Kevin Hock
HOCK international, LLC
P.O. Box 204
Oxford, Ohio 45056

(866) 807-HOCK or [phone]
[phone]

www.hockinternational.com
[email protected]

Published July 2014

Acknowledgements

Acknowledgement is due to the Institute of Certified Management Accountants for
permission to use questions and problems from past CMA Exams. The questions and
unofficial answers are copyrighted by the Certified Institute of Management Accountants
and have been used here with their permission.

The authors would also like to thank the Institute of Internal Auditors for permission to
use copyrighted questions and problems from the Certified Internal Auditor Examinations
by The Institute of Internal Auditors, Inc., 247 Maitland Avenue, Altamonte Springs,
Florida 32701 USA. Reprinted with permission.

The authors also wish to thank the IT Governance Institute for permission to make use
of concepts from the publication Control Objectives for Information and related
Technology (COBIT) 3rd Edition, © 2000, IT Governance Institute, www.itgi.org.
Reproduction without permission is not permitted.

© 2014 HOCK international, LLC

No part of this work may be used, transmitted, reproduced or sold in any form or by any
means without prior written permission from HOCK international, LLC.

ISBN: 978-1-934494-71-4
Thanks

The authors would like to thank the following people for their assistance in the
production of this material:

 All of the staff of HOCK Training and HOCK international for their patience in the
multiple revisions of the material,
 The students of HOCK Training in all of our classrooms and the students of HOCK
international in our Distance Learning Program who have made suggestions,
comments and recommendations for the material,
 Most importantly, to our families and spouses, for their patience in the long hours
and travel that have gone into these materials.

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This material is designed exclusively to assist people in their exam preparation. No
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consulting.
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CMA Part 1 Table of Contents
Table of Contents

Section D – Cost Management ......................................................................................... 1
Why Cost Management? ................................................................................................... 2
Classifications of Costs .................................................................................................... 3
The Difference Between Costs and Expenses 3
Direct Versus Indirect Costs 3
Costs Based on Level of Production (Fixed, Variable and Mixed Costs) 4
Production vs. Period Costs 7
Cost of Goods Sold (COGS) and Cost of Goods Manufactured (COGM) 13
The Flow of Manufacturing Costs .................................................................................. 15
1. Materials Inventory 15
2. Payroll 15
3. Factory Overhead Control 16
4. Work-in-Process Inventory 16
5. Finished Goods Inventory 17
6. Cost of Goods Sold 17
Costing Systems .............................................................................................................. 19
Introduction to Cost Measurement Systems 19
Benefits and Limitations of Each Cost Measurement System 24
Introduction to Cost Accumulation Methods 26
Introduction to Methods of Allocating Overhead 27
Accounting for Direct Manufacturing Inputs in Standard Costing .............................. 28
Overhead Allocation ........................................................................................................ 31
Manufacturing Overhead Allocation 31
Traditional (Standard) Allocation Method 32
Process Costing .............................................................................................................. 50
Steps in Process Costing 51
Process Costing Diagram – FIFO 62
Process Costing Diagram – Weighted Average 63
Process Costing Summary 64
Process Costing Examples 65
Spoilage in Process Costing 70
Job-Order Costing ........................................................................................................... 75
Operation Costing ........................................................................................................... 77
Activity-Based Costing ................................................................................................... 78
Life-Cycle Costing ........................................................................................................... 87
Customer Life-Cycle Costing.......................................................................................... 89
Joint Products and Byproducts ..................................................................................... 90
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Table of Contents CMA Part 1
Methods of Allocating Costs to Joint Products 90
Accounting for Byproducts 98
Variable and Absorption Costing ................................................................................. 106
Fixed Factory Overheads Under Absorption Costing 106
Fixed Factory Overheads Under Variable Costing 106
Effects of Changing Inventory Levels 107
Income Statement Presentation 108
Shared Services Cost Allocation ................................................................................. 121
Allocating Costs of A Single (One) Service or Support Department to Multiple Users 121
Allocating Costs of Multiple Service or Support Departments 125
Estimating Fixed and Variable Costs ........................................................................... 133
High-Low Points Method 133
Regression Analysis 135
Forecasting Total Costs 137
Supply Chain Management ........................................................................................... 138
What is Supply Chain Management? 138
Lean Manufacturing 138
Just-in-Time (JIT) Inventory Management Systems 141
Kanban 142
Introduction to MRP, MRPII, and ERP 143
Outsourcing 145
Theory of Constraints (TOC) 146
Capacity Level and Management Decisions 156
Business Process Improvement .................................................................................. 165
The Value Chain and Competitive Advantage 165
Process Analysis 169
Business Process Reengineering 170
Benchmarking Process Performance 171
Activity-Based Management (ABM) 172
The Concept of Kaizen 172
The Costs of Quality 173
ISO 9000 183
Quality Management and Productivity 183
Other Quality Related Issues 183
Accounting Process Redesign 186

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CMA Part 1 Table of Contents
Section E – Internal Controls ........................................................................................ 191
Governance, Risk, and Compliance ............................................................................. 193
Corporate Governance 193
Internal Control .............................................................................................................. 200
Internal Control Definition 200
The Importance of Objectives 201
Who Is Responsible for Internal Control? 201
Components of Internal Control 202
Internal Control Objectives 213
Types of Transaction Control Activities 213
Safeguarding Controls 214
Responsibilities, Authority and Requirements of the Audit Committee of the Board 217
Foreign Corrupt Practices Act (FCPA) 222
Sarbanes-Oxley Act 224
What Internal Control Can and Cannot Do 239
External Auditors’ Responsibilities and Reports 240
Internal Auditing ............................................................................................................ 242
Definition of Internal Auditing 242
The Internal Audit Charter 243
Independence and Objectivity in Internal Auditing 243
Requirement for Internal Auditor Proficiency 243
Responsibilities and Limit of Responsibilities 244
Types of Engagements 248
Quality Auditing 254
Quality Assurance Reviews of the Internal Audit Function 254
The Auditing Process 255
Audits of Financial Controls 272
Detection and Prevention of Fraud 275
Internal Audit Reports 278
Auditor Follow-Up 282
Computerized Audit Techniques 283
Systems Controls and Security Measures .................................................................. 286
Introduction to Systems Controls 286
Threats to Information Systems 287
The Classification of Controls 288
General Controls 289
Application Controls 301
Controls Classified as Preventive, Detective and Corrective 307
Controls Classified as Feedback, Feedforward and Preventive 307
Internet Security ............................................................................................................ 309
Viruses, Trojan Horses and Worms 310
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Table of Contents CMA Part 1
Cybercrime 311
Business Continuity Planning ...................................................................................... 315
Disaster Recovery 317

Answers to Questions ................................................................................................... 319

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