P Cost and management accounting - Institute of Chartered

508 Pages·2015·7.96 MB·English

by  George Primentas

P
P
A
C
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Cost and management accounting
Second edition published by
Emile Woolf International
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© Emile Woolf International, January 2015

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`© Emile Woolf International ii The Institute of Chartered Accountants of Pakistan
Certificate in Accounting and Finance
Cost and management accounting C

Contents

Page
Syllabus objective and learning outcomes v
Chapter
1 Inventory valuation 1
2 Inventory management 21
3 Accounting for overheads 45
4 Marginal costing and absorption costing 77
5 Cost flow in production 95
6 Job, batch and service costing 133
7 Process costing 153
8 Budgeting 201
9 Standard costing 241
10 Variance analysis 253
11 Target costing 319
12 Relevant costs 331
13 Cost-Volume-Profit (CVP) analysis 343
14 Decision making techniques 367
15 Introduction to financial instruments 391
16 Time value of money 419
17 Sustainability reporting 469
Appendix 487
Index 491
© Emile Woolf International iii The Institute of Chartered Accountants of Pakistan
Cost and management accounting

© Emile Woolf International iv The Institute of Chartered Accountants of Pakistan
Certificate in Accounting and Finance
Cost and management accounting S

Syllabus objectives
and learning outcomes
CERTIFICATE IN ACCOUNTING AND FINANCE
COST AND MANAGEMENT ACCOUNTING
Objective
To equip candidates with techniques of cost accounting to provide a knowledge base for
decision making skills.

Learning Outcome
On the successful completion of this paper candidates will be able to:
1 establish the costs associated with the production of products and provision of
services
2 demonstrate an understanding of different costing systems
3 prepare various types of forecasts and budgets
4 apply the concepts of costing in the decision making process
5 demonstrate a functional knowledge of financial instruments
6 apply concept of time value of money
7 understand the concepts of sustainability reporting.

Grid Weighting
Costs associated with the production 15-20
Costing system 20-30
Budget and budgetary controls 10-15
Decision making 20-25
Financial instruments 5-10
Time value of money 5-10
Sustainability reporting 5-10
Total 100
© Emile Woolf International v The Institute of Chartered Accountants of Pakistan
Cost and management accounting

Syllabus
Contents Level Learning Outcome
Ref
A Costs associated with production
1 Basis of valuation - FIFO, 2 LO1.1.1: Apply inventory valuation
methods (namely, FIFO, weighted
weighted average, lower of cost
average, lower of cost and net
and net realizable value
realizable value) in simple scenarios
LO1.1.2: Comment on the suitability
of inventory valuation under FIFO,
weighted average, lower of cost and
net realizable value
LO1.1.3: Compare inventory
valuation under FIFO, weighted
average, lower of cost and net
realizable value
LO1.1.4: Calculate NRVs of
inventories in a given scenario.
2 Economic Order Quantity 2 LO1.2.1: Describe the economic
order quantity (EOQ) and apply the

concept in given scenarios
LO1.2.2: Calculate the EOQ from
data provided.
3 Safety stock 2 LO1.3.1: Describe safety stocks for
inventories
LO1.3.2: Explain the reasons for
maintaining safety stock
LO1.3.3: Calculate the safety stock
from data provided.
4 Re-order level 2 LO1.4.1: Explain the re-order levels
and the objectives of setting re-
order levels
LO1.4.2: Calculate re-order levels
by using the data provided.
5 Manufacturing expenses - actual 2 LO1.5.1: Describe manufacturing
overheads using examples
and applied
LO1.5.2: Compare manufacturing,
administrative and selling costs
LO1.5.3: Identify manufacturing
overheads from data provided
LO1.5.4: Describe and distinguish
between actual overhead and
applied overhead
LO1.5.5: Calculate applied
overheads using data provided.
© Emile Woolf International vi The Institute of Chartered Accountants of Pakistan
Syllabus objectives and learning outcomes

Syllabus
Contents Level Learning Outcome
Ref
Costs associated with production

(continued)
6 Over or under absorbed overhead 2 LO1.6.1: Compare actual and
absorbed overheads from data
provided
LO1.6.2: Analyze over or under
absorption in terms of expenditure
and volume variances
LO1.6.3: Account for over or under-
absorbed overheads.
7 Production and service 2 LO1.7.1: Identify production and
departments service departments in a
manufacturing facility and analyze
their related cost
LO1.7.2: Explain the basis of
allocation of cost of service
department to production
department
8 Apportionment, allocation and 2 LO1.8.1: Allocate costs to
absorption of service departments' production and service departments
overheads to production using information provided
LO1.8.2: Allocate costs of service
departments to production
department using data and
information provided.
B Costing systems
1 Marginal costing 2 LO2.1.1: Explain the concept of
marginal costing and apply on given
data
LO2.1.2: Explain how marginal
costing helps managerial decisions
using examples.
2 Absorption costing 2 LO2.2.1: Describe and apply
absorption costing approach in
given scenarios
LO2.2.2: Compare marginal costing
and absorption costing.
3 Manufacturing cost accounting 2 LO2.3.1: Explain the flow of cost in
cycle production process using examples.
LO2.3.2: Prepare accounting entries
for flow of cost.
© Emile Woolf International vii The Institute of Chartered Accountants of Pakistan
Cost and management accounting

Syllabus
Contents Level Learning Outcome
Ref
Costing systems (continued)
4 Job order costing 2 LO2.4.1: Describe job order costing
LO2.4.2: Calculate the cost of a job
and inventories by application of job
order costing
LO2.4.3: Prepare accounting entries
under the job order costing system.
5 Process costing 2 LO2.5.1: Describe the process
costing including the treatment of
normal / abnormal loss / gain
LO2.5.2: Calculate cost of product
and inventories by application of
process costing
LO2.5.3: Prepare accounting entries
under the process costing system.
6 Treatment of Joint and By- 2 LO2.6.1: Describe joint and by
Products products using examples
LO2.6.2: Allocate joint production
costs using sales value, physical
units, average units and weighted
average methods
LO2.6.3: Account for by-products
using recognition of gross revenue,
recognition of net revenue and
replacement cost approaches.
7 Cost of services rendered 2 LO2.7.1: Explain how
departmentalization in a service
organization helps in cost planning
and control
LO2.7.2: Calculate cost of services
rendered by a service organization.
8 Standard costing 2 LO2.8.1: Explain standard costing
using examples
LO2.8.2: Perform standard setting
for material, labour and factory
overhead.
9 Variance analysis-material, labour 2 LO2.9.1: Calculate, analyze and
and overhead interpret various variances relating
to material, labour and factory
overhead.
10 Target costing 2 LO2.10.1: Describe target costing
and how target cost is determined
LO2.10.2: Apply the target costing
tools to given scenarios.
© Emile Woolf International viii The Institute of Chartered Accountants of Pakistan
Syllabus objectives and learning outcomes

Syllabus
Contents Level Learning Outcome
Ref
C Budget and budgetary controls
1 Planning, forecasting and 2 LO3.1.1: Explain how budgeting
budgeting of sales, cost and profit process works and how it fits into
overall planning and control
LO3.1.2: Prepare forecasts on given
data and assumptions
LO3.1.3: Identify and describe
different purposes of budgeting
LO3.1.4: Identify and describe the
various stages in the budget
process
LO3.1.5: Prepare following types of
budgets:
 fixed and flexible budgets;
 performance budgeting;
 sales budget;
 production budget;
 direct materials budget;
 direct labour budget;

 manufacturing overhead
budget;
 inventory budget;
 cost of goods sold budget;
 selling and administrative
expenses budget with
inflation aspects;
 Master/cash budget;
 zero based budgets, and
 capital expenditure budgets;
LO3.1.6: Describe the human &
motivational aspects of budgets
LO3.1.7: Describe the budgeting
and planning in a non-profit
organisation
LO3.1.8: Prepare forecast and
budgets for a non-profit
organisation.

© Emile Woolf International ix The Institute of Chartered Accountants of Pakistan
Cost and management accounting

Syllabus
Contents Level Learning Outcome
Ref
D
Decision making
1 Opportunity cost 2 LO4.1.1: Describe opportunity cost
using examples.
2 Relevant cost 2 LO4.2.1: Describe relevant costs
using examples
LO4.2.2: Identify the costs that are
relevant to a particular decision in
given data.
3 Breakeven analysis 2 LO4.3.1: Explain the break-even
point using examples and margin of
safety
LO4.3.2: Calculate the breakeven
point in quantity and amount from
information provided
LO4.3.3: Apply cost volume profit
(CVP) analysis and explain its
usefulness for management.
4 Make or buy decisions 2 LO4.4.1: Apply marginal and
relevant costing concepts to analyze
make or buy options
LO4.4.2: Analyze make or buy
options in case of capacity
constraints
LO4.4.3: Discuss using examples
the importance of qualitative
consideration in make or buy
decisions.
5 Pricing for special orders 2 LO4.5.1: Perform incremental cost
benefit analysis for a special order
6 Further processing decisions 2 LO4.6.1: Perform incremental cost
benefit analysis for further
processing costs.
7 Utilization of spare capacity 2 LO4.7.1: Analyze the impact of
spare capacity on management
decisions regarding make or buy,
special order and further
processing.

© Emile Woolf International x The Institute of Chartered Accountants of Pakistan