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Chapter -1 – Accounting for Management
Good information: Relevant,
complete, accurate, clear, timely etc
Cost and Information is also
important. If any information needs huge cost then that information is may not
be suitable.
Types of information:
Strategic: Used by
senior manager, Prepared on ad-hoc
basis, quantitative, Both quantitative and qualitative, for long term
Tactical: Used by
middle manager, quantitative, routinely and regularly, short and medium term.
Operational: Front line
manager, Task specific and and largely quantitative.
Objective:
Profit making: Maximize
profit, Non profit seeking: Provide
goods and services.
Cost Accounting Information is
unsuitable for decision making. It is a part of management accounting.
Concerned with budget and, costing, Cost data collection, applying cost o
inventory, products and services.
Chapter – 2- Sources of Data
Data is un-process
Data: Primary and secondary.
Source:
Internal and external.
Internal : From inside the company and Outside from Journal, internet, etc
Discrete data/variable can only be taken on a countable number (0,1,2,3,4,5,6,7,8,9)of
values. Continuous data can take on
any value (1.542, 1.639).
Population Data:
Quantitative (Discrete and Continuous data) Qualitative (Primary and secondary)
Census: Examined/survey on the whole population.
Probability sampling method:
Random : Every item in the
population has an equal chance of being included.
Stratified
random : Method of sampling which
involves dividing the population into strata/group
or categories. Such as age, gender,
education, female etc
Systematic : a sampling method which works
by selecting every nth item after a random start.
Multistage : is a probability sampling
method which involves dividing the population into a number
of sub-population and the selecting a small sample of these sub- populations
at random.
Cluster
: is a non-random sampling method that involves selecting one definable
subsection of the population as the sample, that
subsection taken to be representative of
the population in question. (Ideal School and
college might be taken as a cluster
sample of all children in Dhaka city.)
Non-probability sampling method: the chance of each member of the population appearing in the sample is
not known.
Quota sampling: to
interview all the people they meet up to certain quota.
Chapter – 3- Cost classification:
Material, Labor and expenses : Direct and Indirect Cost
Direct expense: are any
expenses which are incurred on a specific product other than direct material
cost and direct wages.
Production overhead:
Indirect materials, Indirect wages, Indirect expenses.
Administration overhead: Depreciation, Office
salaries, rent, rates, insurance, lighting etc.
Distribution Overhead:
Cost of packing, wages of packers, drivers and dispatch clerks, Insurance
charges, rent, rates, depreciation of warehouses and so on.
Functional Cost:
Production, Administration,
Selling, Distribution, research, Financing Cost ( loan interest)
Total Cost: Fixed Cost
+ Variable cost.
Cost center: When cost
are incurred then they are generally allocate to cost center.
Cost unit: is a unit of
product or services top which can be related.
Cost of object: Cost of
a product, cost of a service and cost of operating a department.
Profit Centers: Both
cost and revenue
Revenue centers: Revue
only
Investment centers
Return on investment. And it is a profit center.
Responsibility centers:
is a department or organizational
function whose performance is the direct responsibility of a specific manager.
** If any manager has specific power to take decision then he can do it.
Type of Code –
Sequence or
progressive codes - 000042, 000043, 000045
Group Classification Code - 4NNNNN,
5NNNNN, 6NNNNN
Faceted Code - The
First digit (nails) , Second Digit(Steel), Third Digit
(50mm together mix and make a code
Significant digit codes and Hierarchical
code.
Chapter-4- Cost behavior:
Cost behavior is the way in which costs are affected by changes in the
volume of output.
Type of cost: Fixed cost, variable cost, Step fixed cost/step cost, semi
variable,
High Low method: Total cost at high activity level-
total cost at low activity level Total units at high activity
level-total units at low activity level
High Low method: (Total cost at high activity level-
Step up Cost)- total cost at low activity level
(Step up cost) Total units at high activity
level-total units at low activity level
Fixed
cost=(Total cost at
high activity level)-(Total units at high activity level x variable cost per
unit)
Linear equation: is a straight line
Y=a + bx y
= is the dependent variable whose value depends upon the value of x.
x
= is the independent variable whose value helps to determine the corresponding value of y;
a
= is a constant, that is a fixed amount
b=
is also a constant, being the coefficient of x
a=
Y intersect=Fixed Cost, b=
gradient/slope/variable
Chapter
-5 – Presenting Information:
Report are usually intended to initiate
a decision or action.
The report writer should communicate
information in an unbiased way.
One-off report: will be commissioned by
a manager, who will then expect to make a decision
on the basis of what a the report tells him.
Routine reports: such as performance
report. It is a part of establish report.
Some
reports arise out of particular event.
Generally
accepted principles of report writing:
Title,
Identification of report writer,
report user, and date
Contents of page , Source of
information , Sections , Appendices, Summary of recommendations, Prominence of important items
Presenting
and interpreting information in charts:
1-
What the information is intended to show.
2-
Who is going to use the information.
Chart:
Simple, Component, multiple
Chart
Section
B
Chapter-6-
Accounting for Material
Classification
of inventories:
Raw materials, Spare part/consumables, work in
progress, Finished goods
Inventory cost include purchase cost, holding cost, ordering cost and
cost of running out inventory.
Goods Requisition – Department then Purchase
requisition – Store then Purchase order – Purchase department.
Free Inventory:
Materials in inventory+ Materials order from supplier – Materials requisitioned, not yet issued
Reorder Level
= Maximum usage x maximum lead
time
Minimum Level= reorder level- (average usage x average lead time)
Maximum level= reorder
level + Reorder quantity – (minimum usage x minimum lead time)
Average inventory = Safety inventory + 1/2
of reorder quantity.
Holding Cost = (Safety inventory + ½ of reorder
Quantity) x CH
Economic Quanity: Economic
Batch Quantity:
EOQ =
EBQ
=
R
= The production rate per time period (which must exceed the inventory usage
Debit
entry: Any increase in
materials inventory
Credit
entry: Any reduction in
materials inventory
Inventories are valued at the lower of cost and
net realizable value.
AVCO: Cumulative
weighted average pricing. In a period of inflation , using the cumulative
weighted average pricing system, the value of material issues will rise
gradually, but will tend to lag a little behind the current market value at the
date of issue.
Chapter
– 8 # Accounting for overhead:
Production, Selling and Distribution, Administration
Absorption costing is a method for sharing
overheads between products on a fair
basis.
Reciprocal method = repeated distribution
Chapter
– 9 – Absorption costing & Marginmal
Absorption costing profit = If inventory levels
have gone up (that is closing inventory> opening inventory) then absorption
costing profit will be greater than marginal costing.
Marginal costing profit = If inventory levels
have gone up (that is closing inventory< opening inventory) then marginal
costing profit will be greater than absorption costing.
Allocation
– Apportionment – Reapportionment – Absorption
Chapter
– 10 – Job, Batch and service Costing
Margin directly related with the sales.
Mark up directly related with the Cost of Sales
That
means 10% Mark Up = 100% cost then sales 110%
And
10% Margin = 90 % Cost of sales and 100% sales
Batch
Costing is similar
to job costing in that each batch of similar articles is separately
identifiable. The cost per unit
manufactured in a batch cost divided by the number of units in the batch.
Service
costing: Such as Haircut
Simultaneity:
The production and consumption of a haircut are Simultaneous and therefore it
cannot be inspected for quality in advance.
Intangibility:
A haircut intangible in itself
Heterogeneity:
Exact service received will vary each time, not only will two hairdressers cut
hair differently.
Perishability:
It cannot be stored that’s why it is perishable
Chapter
-11 – Process Costing
Process
Costing is in Work in Progress
Loss:
Normal
Losses: Normal Losses is the loss expected during a process.
It is not given a cost. But scrap value should be included in process A/C.
Abnormal
Losses: is the extra loss resulting when actual loss is
greater than normal or expected loss and it is given a cost.
Abnormal
Gain: is the gain resulting when actual loss is less than
the normal or expected loss, and it is given a negative cost.
Scrap is
Discarded material having some value.
The
Scrap value of normal loss is usually deducted from the cost of materials
The
Scrap value of abnormal loss (or abnormal gain) is usually set off against its
cost, in an abnormal loss (
abnormal gain) account.
Process
Account
Input
Abnormal gain
|
Output
Normal Loss Scrap Value
Abnormal loss
|
Equivalent
units: Equivalent units are notional whole units which
represent incomplete work, and which are used to apportion costs between work
in process and completed output.
Account can be taken of opening work in
progress using either the FIFO
method or the Weighted Average Cost Method.
All opening cost should be included in costing and then calculate total cost.
Chapter
-12 Process Costing, Joint Product, and
By Product
Joint products are two or more products
separated in a process, each of which has a significant value compared to
the other. A by product is an incident
product from process which has an
insignificant value compared to the main product.
Joint cost: The point at which joint and
by-products become separately identifiable is known as the split-off point or
Separation Point. Cost incurred up to this point are called common cost or
joint cost.
The
Relative sales value method is the most widely used
method of apportioning joint costs because (ignoring the effect of further
processing costs) it assumes that all products achieve the same profit margin.
Chapter
-13 – Alternative costing principles
ABC
method Activity based costing: An alternative to the
traditional methods of absorption costing
is Activity Based Costing.
A cost
driver is the factor which causes the costs of an activity
Cost
of conformance: Costs of achieving specified quality standards
Cost of prevention and Cost of appraisal
Cost
of non-conformance: The
cost of failure to deliver the standard of quality.
TQM-
Total Quality Management : is the process of applying a zero defect
philosophy to the management of all resources and relationships within an
organization as a means of developing and sustaining a culture of continuous
improvement which focuses on meeting customer expectations.
Life
cycle costing: It tracks
and accumulate costs and revenues attribution.
A
product life style : Introduction, Maturity (Saturation), Growth,
Decline
Target
Costing : Target costing involves setting a target cost by
subtracting a desired profit margin
from a competitive market price.
Chapter
-14 – Forecasting
Correlation:
Two variables are said to be corrected if a change in the value of one
variable is accompanied by a change in the value of another variable.
Correlation can be Positive or Negative
Positive
Correlation: It means that low values of one variables are
associated with low values of the other and high values of one variables are
associated with high values of the other.
Negative
correlation: It means that low values of one variables are
associated with high values of the other and high values of one variables are
associated with low values of the other.
Time series is a series of
figures or values recorded over time.
There are four components of a time series: trend,
seasonal variations, cyclical variations and random variations.
Historigram: A graph of a time series called a
historigram.
The trend is the underlying long term movement over
time in the values of the data recorded.
Price indices and
Quantity indices:
A price index measure the change in the money value of
a group of items over time.
A quantity index measure the change in the non
monetary values of a group of items over time.
Chapter – 15 – Budgeting
The budget is a quantitative plan of action for a
forthcoming accounting period.
Objective: Compel
Planning, Communicate ideas, coordinate activities, establish a system control,
motivate employees to improve their performance.
·
A cost centres
acts as a collecting place for certain costs before they are analysed further.
·
A revenue
centre is a profit centre whose performance is measured by its return on
capital employed.
·
A profit centre
is any unit of an organization to which revenue and costs are assigned, so that
the profitability of the unit may be measured.
·
Controllable
fixed cost: Committed fixed cost and Discretionary fixed cost
(such as sales promotion, research and development)
·
A Fixed Budget is
a budget which is designed to remain unchanged regardless of the volume of
output may differ from budgeted volumes.
·
A flexed budget
is a budget which, by recognizing different cost behavior patterns, is designed
to change as volume of output change.
·
The difference between the components of the fixed
budget and the actual results are known as budget variance.
·
Spreadsheet is an electronic
piece of paper into rows and columns. The intersection of a row and column is
known as a cell.
Chapter- 16- The
Budgetary Process
The budget
period is the time period to which
the budget relates.
The budget
committee is the co-ordinating body
in the preparation and administration of budgets.
The budget
manual is a collection of instructions
The Principal
Budget factor is the factor that limits an organisations performance for a
given period and is often the starting point in budget preparation.
Functional budget are the budgets
for the various functions and departments of an organization.
A Standard hour
is the quantity of work achievable at standard performance, expressed in terms
of a standard unit of work done in a standard period of time.
·
Material
used in Production = Opening Inventory + Purchase – Closing Inventory
·
Material
Purchase = Material used in production +
Closing Inventory – opening Inventory
·
Sales=
Opening Inventory + Units Produced – Closing Inventory
·
Units
Produced = Sales + Closing inventory – Opening Inventory
·
Production=
Sales +Closing Inventory –Opening Inventory
A cash budget
is a detailed budget of cash flows and outflows incorporating both revenue and
capital items.
Budgeted Accounts are based on the
accrual concept.
The Master
Budget consists of a budgeted income statement, a budgeted statement of
financial position and a cash budget. And which provides the overall picture of
the planned performance for the budget period.
Chapter – 17
Making Budget Work
Used correctly a budgetary control system can motivate but it can also produce
undesirable negative reactions.
Goal Congruence is the state which leads individuals or group
to take actions that are in their self interest and also in the best interest
of the organization.
Types of Budget : Top down (Imposed budget) or from the bottom up (participatory budget). Many
writers refer to third style (negotiated).
There are three ways of using budgetary information to evaluate managerial
performance (budget constrained style,
profit conscious style, non-accounting style.)
Top down
(Imposed): A budget allowance is set without permitting the
ultimate budget holder to have the opportunity to participate in the budgeting
process.
Bottom up
(Participative) : A budgeting system in which all budget holders are
given the opportunity to participate in setting their own budget.
Negotiated style:
A budget in which budget allowances are set
largely on the basis of negotiations between budget holders and those to whom
they report.
Value assed incentive scheme : Value added =
sales – cost of bought-in materials and services
Chapter -18-
Capital Expenditure Budgeting
Capital
Expenditure results in the acquisition of non-current assets or an
improvement in their earning capacity.
Revenue expenditure is expenditure
which is incurred for the purpose of the trade of the business or to maintain
the existing earning capacity of non current assets.
Chapter -19 –
Methods of Project Appraisal
Pay Back period is the
time taken for the initial investment to be recovered in the cash inflows from
the project. The payback method is particularly relevant if there are liquidity
problems, or if distant forecast are very uncertain.
The time value
of money is an important consideration in decision making.
Equivalent rates
of interest
An effective annual rate of interest is the
corresponding annual rate when interest is compounded at intervals shorter than
a year.
Effective
Interest rate = (1+r/m)mn - 1
Non Annual
Compounding
Interest has been calculated annually, but this isn’t
always the case. Interest may be compounded daily, weekly, monthly or
quarterly.
For
example, $10,000 invested for 5 years at a interest rates of 2% per month will
have a final value of $10,000 x (1+0.02)60
= 32810. Notice that n relates to the number of periods (5 years x 12 months)
that r is compounded
Adjusted nominal
Rate = Equivalent Annual Rate= Effective Annual Rate = Annual Percentage Rate =Compound Annual Rate
NPV = The net present
value method calculates the present value of all cash flows, and sums them to
give the net present value. If this positive then the project is acceptable
** NPV and IRR only give the same accept or reject
decision when the cash flows are straight.
Annuities are an annual
cash payment or receipt which is the same
amount every year for a number years..
IRR = Internal
Rate of Return: The internal rate of return technique uses a trial and
error method to discover the discount rate which produces the NPV of ZERO. This
discount rate will be the return forecast for the project.
IRR is no superior of NPV.
*** If a project earns a higher rate of return than
the cost of capital, it will worth undertaking (and is NPV would be positive).
If it earns a lower rate of return, it
is not worthwhile (and its NPV would
be negative ). If a project earns a return which is exactly equal to the cost
of capital, its NPV will be 0 ) and it will only just be
worthwhile.
Relevant cost
are future incremental cash flows.
Avoidable cost, differential cost and opportunity cost
are relevant cost
Non relevant cost are
Sunk Cost, Committed cost and notional cost.
Notional Cost: is a hypothetical accounting cost reflect the use of a benefit for
which no actual cash expense is incurred.
Chapter-20
– Standard Costing
A standard cost is predetermined estimated unit cost, used for
inventory valuation and control.
Variance: Difference between actual and standard costs are called variances
Types of Performance standard: Ideal (perfect operating condition-
no wastage, no spoilage, no idle time etc)
Attainable (Some allowance is made for wastage and inefficiencies.
Current: Current working condition
Basic: kept unaltered over a long period of
time and may be out of date.
Chapter-21
– Basic Variance Analysis
The
direct Material Price Variance : This is the
difference between the standard cost and the actual cost for the actual
quantity of material used or purchased. In other words, it is the difference
between what the material did cost and what should have cost.
** Material Price Variance Combination of favourable Material
price variance and usage Adverse variance.
The
Direct Material Usage variance: This is the
difference between the standard quantity of materials that should have been
used for the number of units actually produced, and the actually quantity of
material used, valued at the standard cost per unit of material.
Closing Inventory
Valuation
Absorption Costing = All
cost
Marginal Costing = Only
Variable Cost
So, Absorption Costing
Inventory Valuation > Marginal Costing Inventory Valuation
Marginal
Costing: There is no volume Variance. The only fixed overhead variance in a
marginal costing is the fixed overhead expenditure variance.
At the time of Cost:
Budget to Actual then all
favourable should be (-)
Budget to Actual then all
Adverse should be (+)
Actual to Budget then all
favourable should be (+)
Actual to Budget then all
Adverse should be (-)
At the time of Profit:
Budget to Actual then all
favourable should be (+)
Budget to Actual then all
Adverse should be (-)
Actual to Budget then all
favourable should be (-)
Actual to Budget then all
Adverse should be (+)
Chapter-22 – Further
Variance Analysis
1. Selling Price variance : The difference between what the sales revenue should have been for
the actual quantity sold, and what it was.
2.
Sales Volume Profit Variacne: Difference
between the actual units sold and the budgeted (planned) quantity, valued at
the standard profit per unit.
3.
Operating Statements Show how the
combination of variances reconcile budgeted profit and actual.
4.
In the marginal costing system the only fixed overhead variance is
an Expenditure Variance.
The sales volume variance is
valued at standard contribution margin, not standard profit margin.
Variable cost increase then contribution decrease.
Variance
can be used to derive actual data from standard cost details
If
in the question Standard marginal costing and standard contribution on actual
sales given then it will be Sales volume Contribution variance.
Chapter – 23- Performance
Measurement
Objective – Goal –
Mission – Vision
Short Termism Is not good
things for the company
Short Termism is when there is a bias towards short-term rather than long term
performance.
A critical success factors
is performance requirement that is fundamental to competitive success.
Performance Measure : Financial Performance Measure (Profit,
revenue, Cost, Share Price, Cash flow) and non financial Performance Measure
Sample Question 2014
1.
Is aspiration Budget is a
motivation budget. True or False
2.
What is master budget?
3.
What kind of preparation need to
prepare Master Budget
4.
Math from: Sales Volume Variance
and Sales Price Variance
5.
Budget Price variance, Material
Price variance, labour cost variance
6.
What is management A/c &
Financial Accounting
7.
Select Participants from Sampling
frame in regular interval
8.
Why flexed budget prepare?
9.
EOQ method apply and calculate the
day between order assume 365 days in a year
10. Marginal
costing and absorption costing profit difference why ?
11. Excel
if b4>100,B4-100,0 then what is in C4 is bonus.
12. Cost
control in Bus service 1. Operating cost per passenger/km
13. What
is negative correlation?
PASS RATES FOR PAPER F3
| Dec 2007 | 67 |
| Jun 2008 | 48 |
| Dec 2008 | 50 |
| Jun 2009 | 55 |
| Dec 2009 | 59* |
| Jun 2010 | 60* |
| Dec 2010 | 60* |
| Jun 2011 | 55* |
| Dec 2011 | 54* |
| Jun 2012 | 57* |
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