Table Of Content10
INTERMEDIATE : PAPER -
COST AND
MANAGEMENT
ACCOUNTANCY
INTERMEDIATE
STUDY NOTES
The Institute of Cost Accountants of India
CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
First Edition : February 2013
Second Edition : July 2013
Revised Second Edition : November 2014
Published by :
Directorate of Studies
The Institute of Cost Accountants of India (ICAI)
CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
www.icmai.in
Printed at :
Repro India Limited
Plot No. 02, T.T.C. MIDC Industrial Area,
Mahape, Navi Mumbai 400 709, India.
Website : www.reproindialtd.com
Copyright of these Study Notes is reserved by the Insitute of Cost
Accountants of India and prior permission from the Institute is necessary
for reproduction of the whole or any part thereof.
Syllabus
PAPER 10: COST & MANAGEMENT ACCOUNTANCY (CMA)
Syllabus Structure:
The syllabus comprises the following topics and study weightage:
A Cost & Management Accounting – Methods & Techniques 50%
B Cost Records and Cost Audit 20%
C Economics for managerial decision-making 30%
C
30%
A
50%
B
20%
ASSESSMENT STRATEGY
There will be written examination paper of three hours
OBJECTIVES
To provide an in depth knowledge of the detailed procedures and documentation involved in cost ascertainment systems.
Acquire knowledge and skills for application of economics for managerial decision making.
Learning Aims
The syllabus aims to test the student’s ability to:
Understand the cost and management accounting techniques for evaluation, analysis and application in managerial
decision making;
Compare and contrast marginal and absorption costing methods in respect of profit reporting;
Apply marginal and absorption costing approaches in job, batch and process environments;
Prepare and interpret budgets and standard costs and variance statements;
Understand CARR and CAR;
Understand the application of economics in managerial decision-making.
Skill Set required
Level B: Requiring the skill levels of knowledge, comprehension, application and analysis.
Section A : Cost & Management Accounting – Methods & Techniques 50%
1. Cost Accounting Methods and Systems
2. Decision Making Tools
3. Budgeting and Budgetary Control
4. Standard Costing
Section B : Cost Records and Cost Audit 20%
5. Cost Accounting Records and Cost Audit
Section C : Economics for managerial decision-making 30%
6. Economics for managerial decision-making
SECTION A: COST & MANAGEMENT ACCOUNTING – METHODS & TECHNIQUES (50 MARKS)
1. Cost Accounting Methods and Systems
(a) Necessity and importance of cost accounting, what management expects of cost accounting, cost department
organization and relationship with other departments, installation of a costing system and modification thereof; planning
and progressing of accounting, design of forms and records
(b) Accounting entries for an integrated accounting system- cost ledgers; Reconciliation between cost and Financial profit
and loss account; Integrated and non-integrated accounting and reporting
(c) Job, batch, contract costing, process costing (including establishment of equivalent units in stock, work-in –progress and
abnormal loss accounts and use of various methods like first-in-first out), operation costing, operating costing, unit costing,
multiple costing, by-product and joint products
2. Decision Making Tools (advanced level)
(a) Marginal Costing : basic concepts; break even analysis and cost-volume-profit analysis; break-even charts and profit
charts; differential cost analysis; stock valuation under marginal costing techniques versus absorption costing techniques;
applications of marginal costing in decision making
(b) Throughput Accounting (TA) – as a system of profit reporting and stock valuation
(c) Activity-Based Costing (ABC) for profit reporting and stock valuation
(d) Integration of Standard Costing with Marginal Cost Accounting, Absorption Cost Accounting and Throughput
Accounting
(e) Transfer Pricing – determination of inter-departmental or inter-company transfer price
(f) Treatment of special expenses in costs such as – research and development expenses, preliminary expenses, rectification
expenses, costs of obsolescence, etc.
(g) Accounting and control of waste, scrap, spoilage, defective, etc
3. Budgeting and Budgetary Control
(a) Budget Concepts and Budget Preparation
(b) Fixed and Flexible Budgets
(c) Fixed, variable, semi-variable and activity-based categorizations of cost and their application in projecting financial
results
(d) Zero Base Budgeting (ZBB)
(e) Budgetary Control
4. Standard Costing
(a) Concept and uses; accounting – methods and reconciliation – stock valuation
(b) Variance Analysis: Cost, Profit and Sales Variances – presentation of variances, investigation of variances, revision of
standards
(c) Reporting – requisites of reports – interpretation and uses for Managerial decision-making activities
(d) Uniform Costing and Inter-firm comparison
SECTION B: COST RECORDS AND COST AUDIT (20 MARKS)
5. Cost Accounting Records and Cost Audit
(a) Cost Accounting Records and Cost Audit under Companies Act, 2013
(b) Nature and scope of Cost Audit
(c) Cost Compliance Reports – by Cost Accountants
(d) Companies (Cost Accounting Record) Rules, 2011 and Companies (Cost Audit Report) Rules, 2011 [To be substituted by
relevant Rules of 2014]
SECTION C: ECONOMICS FOR MANAGERIAL DECISION-MAKING (30 MARKS)
6. Economics for Managerial Decision-Making
(a) Concepts of Markets, analysis of market demand and empirical estimation of demand
(b) Government Intervention and effect
(c) Business and economic forecasting
(d) Empirical production function and cost analysis
(e) Factor demand and input decisions
(f) Pricing Policies
Content
SECTION A
COST & MANAGEMENT ACCOUNTING -
METHODS AND TECHNIQUES
Study Note 1 : Cost Accounting Methods & Systems
1.1 Importance Of Cost Accounting 1.1
1.2 Integrated Accounting System 1.13
1.3 Methods / Types Of Costing 1.46
Study Note 2 : Decision Making Tools (advanced level)
2.1 Marginal Costing 2.1
2.2 Throughput Accounting 2.63
2.3 Activity Based Costing 2.74
2.4 Transfer Pricing 2.83
2.5 Treatment Of Special Expenses In Cost Accounts 2.94
2.6 Integration of Standard Costing with Marginal Cost Accounting, Absorption Cost
Accounting and Throughput Accounting 2.100
Study Note 3 : Budgeting And Budgetary Control
3.1 Budgeting 3.1
3.2 Budgetary Control 3.7
Study Note 4 : Standard Costing
4.1 Standard Costing 4.1
4.2 Uniform Costing 4.61
SECTION B
COST RECORDS AND COST AUDIT
Study Note 5 : Cost Accounting Records and Cost Audit
5.1 Introduction to Cost Audit 5.1
5.2 Origin of Cost Audit 5.2
5.3 Relevance of Cost Audit 5.2
5.4 Objectives of Cost Audit 5.3
5.5 Provision for Cost Audit 5.4
5.6 Companies (Cost Accounting Records) Rules 2011 And Companies
(Cost Audit Report) Rules 2011 [To be substituted by relevant Rules of 2014] 5.6
SECTION C
ECONOMICS FOR MANAGERIAL DECISION MAKING
Study Note 6 : Economics for Managerial Decision Making
6.1 Concepts Of Market And Demand 6.1
6.2 Government Intervention And Effect. 6.33
6.3 Business And Economic Forecasting 6.38
6.4 Empirical Production Function And Cost Analysis 6.46
6.5 Factor Demand And Input Decisions 6.67
6.6 Pricing Policies 6.73
Techniques and Applications of Economics 6.83
Appendix 6.116
Section – A
COST AND MANAGEMENT
ACCOUNTING – METHODS &
TECHNIQUES
Study Note - 1
COST ACCOUNTING METHODS AND SYSTEMS
This Study Note Includes
1.1 Importance of Cost Accounting
1.2 Integrated Accounting System
1.3 Methods (or) Types of Costing
1.1 IMpOrTANCE Of COST ACCOUNTING
1.1.1 Cost Accounting: Cost Accounting may be defined as “Accounting for costs classification and
analysis of expenditure as will enable the total cost of any particular unit of production to be ascertained
with reasonable degree of accuracy and at the same time to disclose exactly how such total cost is
constituted”. Thus Cost Accounting is classifying, recording and appropriate allocation of expenditure
for the determination of the costs of products or services, and for the presentation of suitably arranged
data for the purposes of control and guidance of management.
Cost Accounting can be explained as follows:
(i) Cost Accounting is the process of accounting for cost which begins with recording of income and
expenditure and ends with the preparation of statistical data.
(ii) It is the formal mechanism by means of which cost of products or services are ascertained and
controlled.
(iii) Cost Accounting provides analysis and classification of expenditure as will enable the total cost
of any particular unit of product / service to be ascertained with reasonable degree of accuracy
and at the same time to disclose exactly how such total cost is constituted. For example it is not
sufficient to know that the cost of one pen is ` 25 but the management is also interested to know
the cost of material used, the amount of labour and other expenses incurred so as to control and
reduced its cost.
(iv) It establishes budgets and standard costs and actual cost of operations, processes, departments
or products and the analysis of variances, profitability and social use of funds.
Thus cost accounting is a quantitative method that collects, classifies, summarises and interprets
information for product costing, operation planning and control and decision making.
1.1.2 Costing: costing is defined as the technique and process of ascertaining costs. The technique in
costing consists of the body of principles and rules for ascertaining the costs of products and services.
The technique is dynamic and changes with the change of time. The process of costing is the day to
day routine of ascertaining costs. It is popularly known as an arithmetic process and daily routine. For
example, if the cost of producing a product say ` 1,500, then we have to refer material, labour and
expenses and arrive at the above cost as follows:
Material ` 800
Labour ` 400
Expenses ` 300
Total ` 1,500
Finding out the breakup of the total cost from the recorded data is a daily process. That is why it is called
daily routine. In this process we are classifying the recorded costs and summarizing each element and
the total is called technique.
CosT And MAnAgEMEnT ACCounTAnCy I 1.1
