CA Inter Cost and Management Accounting

Course Content

Paper 3 – Cost and Management Accounting

1. Overview of Cost and Management Accounting

2. Introduction to Cost and Management Accounting

• Objectives and Scope of Cost and Management Accounting,

• The users of Cost and Management accounting information, Functions of management accounting.

• Role of the cost accounting department in an organisation and its relation with other departments.

• Installation of Costing System

• Relationship of Cost Accounting, Financial Accounting, Management Accounting and Financial Management.

• Cost terms and Concepts

• Cost Reduction and Cost Control

• Elements of Costs

• Cost behaviour pattern, Separating the components of fixed, variable, semi-variable and step costs.

• Methods of Costing, Techniques of Costing.

• Cost Accounting with the use of Information Technology

2. Elements of Cost and preparation of Cost Sheets

• Functional classification and ascertainment of cost

• Preparation of Cost Sheets for the Manufacturing sector and the Service sector

2. Ascertainment of Cost and Cost Accounting System

1. Material Cost

• Procurement procedures- Stored procedures and documentation in respect of receipts and issue of stock, Stock verification,

• Valuation of material receipts,

• Inventory control

Techniques of fixing the level of stocks- minimum, maximum, reorder point, safety stock, determination of optimum stock level,

Determination of Optimum Order quantity- Economic Order Quantity

Techniques of Inventory control- ABC Analysis, Fast, Slow-moving and Non-moving (FSN), High, Medium, Low (HML), Vital, Essential, Desirable (VED), Just-in-Time (JIT)- Stocktaking and perpetual inventory system, use of control ratios,

• Inventory Accounting

2. Employee Cost

• Attendance and Payroll procedures

• Employee Cost Control

• Employee Turnover- Methods of calculating employee turnover, causes of employee turnover, effects of employee turnover

• Utilization of Human Resource, Direct and indirect employee Cost, charging of employee cost, Identifying employee hours with work orders or batches or capital jobs.

• Remuneration systems and incentive schemes- Premium Bonus Method (Halsey Plan and Rowan Plan)

3. Overheads

• Functional analysis- Factory, Administration, Selling, Distribution, Research and Development

• Behavioral analysis- Fixed, Variable and Semi-Variable

• Allocation and Apportionment of overheads using Absorption Costing Method

• Factory Overheads- Primary and secondary distribution,

• Administration Overheads- Method of allocation to cost centres or products,

• Selling & Distribution Overheads- Analysis and absorption of the expenses in products/ customers, the impact of marketing strategies, the cost-effectiveness of various methods of sales promotion.

• Treatment of Research and development cost in cost accounting

4. Concepts of Activity Based Costing (ABC)

5. Recording and Accounting of Costs

• Non-integrated Cost Accounting system- Ledger under the non-integral system

• Integrated (Cost and Financial) Accounting system – Ledgers under an integral system

• Difference between the Non- integrated and Integrated Accounting system

• Reconciliation of profit as per Cost and Financial Accounts (under Non- Integrated Accounting System)

3. Methods of Costing

1. Single Output/ Unit Costing

2. Job Costing: Job cost cards and databases, collecting direct costs of each job, attributing overheads to jobs, Application of job costing

3. Batch Costing: Determination of optimum batch quantity, Ascertainment of cost for a batch, Preparation of batch cost sheet, Treatment of spoiled and defective work.

4. Contract Costing

• Ascertainment of cost of a contract, Progress payment, Retention money Escalation clause, Cost-plus contract, Value of work certified, Cost of Work not certified.

• Determination Value of work certified, Cost of work not certified, Notional or Estimated profit from a contact

5. Process/ Operation Costing

• Process cost recording, Process loss, Abnormal gains and losses, Equivalent units of production, Inter-process profit, Valuation of work in process.

• Joint Products- Apportionment of joint costs, Methods of apportioning joint cost over joint products,

• By-Products- Methods of apportioning joint costs over by-products, treatment of By-product cost

6. Costing of Service Sectors

• Determination of Costs and Prices of services

4. Cost Control and Analysis

1. Standard Costing

• Setting up of Standards, Types of Standards, Standard Costing as a method of performance measurement.

• Calculation and Reconciliation of Cost Variances-Material Cost Variance, employee Cost Variance, Variable Overheads Variance, Fixed Overhead Variance

2. Marginal Costing

• Basic concepts of marginal costing, Contribution margin, Break-even analysis, Break –even and profit volume charts, Contribution to sales ratio, Margin of Safety, Angle of Incidence, Cost-Volume-Profit Analysis (CVP), Multi-product break-even analysis, Consideration of Limiting factor (key factor),

• Determination of Cost of a product/ service under marginal costing method, determination of cost of finished goods, work-in-progress,

• Comparison of Marginal costing with absorption costing method- Reconciliation of profit under both methods,

• Short term decision making using the above concepts (basic/fundamental level).

3. Budget and Budgetary Control

• Meaning of Budget, Essentials of Budget, Budget Manual, Budget setting process, Preparation of Budget and monitoring procedures.

• The use of budget in planning and control

• Flexible budget, Preparation of Functional budget for operating and non-operating functions, Cash budget, Master budget,

• Introduction to Principal/ Key budget factor, Zero-Based Budgeting (ZBB), Performance budget, Control ratios and Budget variances.