Cost and Management Accounting

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2 Paper 2 Cost and Management Accounting Syllabus Line Chart Showing Relative Importance of Chapters Table Showing Importance of Chapter on the Basis of Marks Formula Table Study Material Based Contents 1 Lesson 1 Introduction to Cost and Management Accounting Lesson 2 Material Cost Lesson 3 Labour Cost Lesson 4 Direct Expenses and Overheads Lesson 5 Activity Based Costing (ABC) Lesson 6 Cost Records - (Integrated & Non-Integrated Accounts and Reconciliation of Cost) Lesson 7 Costing Systems - I (Unit or Output Costing, Cost Sheet, Job Costing, Batch Costing, Contract Costing) Lesson 7 Costing Systems - II (Process Costing) Lesson 7 Costing Systems - III (Service Costing / Operating Costing) Lesson 8 Marginal Costing Lesson 9 Standard Costing and Variance Analysis Lesson 10 Budget, Budgeting and Budgetary Control Lesson 11 Cost Accounting Records and Cost Audit Lesson 12 Analysis & Interpretation of Financial Statements (Ratio Analysis, Cash Flow Statement, Fund Flow Statement.. Model Test Paper Model Test Paper Model Test Paper

3 Syllabus Paper 2 Cost and Management Accounting (100 marks) Level of knowledge: Working knowledge. Objective: To acquire knowledge and understanding of the concepts, techniques and practices of cost and management accounting and to develop skills for decision making. Detailed Contents 1. Introduction to Cost and Management Accounting Cost Accounting: Evolution, Meaning, Objectives and Scope Concepts of Costs, Classifications and Elements of Cost Cost Centre and Cost Unit Methods and Techniques of Costing Cost Accounting Standards Installation of a Costing System Practical Difficulties in Installing a Costing System Role of Cost Accountant in Decision Making Management Accounting: Evolution, Meaning, Objectives and Scope Tools and Techniques of Management Accounting Relationship of Cost Accounting, Financial Accounting, Management Accounting and Financial Management Conflicts in Profit versus Value Maximisation Principle Role of Management Accountant in Decision Making 2. Material Cost Materials Control - Concept and Techniques Procurement Procedures and Documentation: Methods of Purchasing; Procedure of Purchases, Stores and Issue of Material; Stock Verification Methods of Pricing of Material: FIFO, LIFO, Simple Average, Weighted Average Accounting and Control of Material Losses, Wastage, Scrap, Spoilage and Defectives Inventory Management: Techniques of fixing of minimum, maximum and reorder levels, Economic Order Quantity, ABC Analysis; Stock Verification and Perpetual Inventory 3. Labour Cost Meaning and Classification of Labour Costs Accounting and Control of Labour Costs 2.2

4 Time Keeping and Time Booking Attendance and Payroll Procedures, Time Recording, Overtime and Idle Time Labour turnover and Remedial Measures Efficiency Rating Procedures; Remuneration Systems and Incentive Schemes 4. Direct Expenses and Overheads Direct Expenses: Meaning, Nature, Collection, Classification and Treatment of Direct and Indirect Expenses Overheads: Meaning, Nature, Collection and Classification Functional Analysis: Factory, Administration, Selling, Distribution, Research and Development Behavioural Analysis: Fixed, Variable, Semi variable and Step Cost Allocation, Apportionment, Absorption and Control of Overheads Preparation of Cost Sheet 5. Activity Based Costing (ABC) Meaning, Importance, Characteristics Elements and Steps involved ABC vs. Traditional Costing Uses and Limitations 6. Cost Records Cost Ledgers - Integrated Accounts and Non-Integrated Accounts Reconciliation of Cost and Financial Accounts 7. Costing Systems Unit and Output Costing Job Costing: Job Cost Cards, Collecting Direct Costs, Allocation of Overheads and its Applications Batch Costing: Features and Applications Contract Costing: Features, Distinction between Job and Contract Costing, Progress Payments, Retention Money, Escalation Clause, Contract Accounts, Accounting for Material, Accounting for Plant Used in a Contract, Contract Profit and Accounting Entries Process Costing: Features, Applications and Types of Process Costing, Process Loss, Abnormal Gains and Losses, Equivalent Units, Inter-Process Profit, Joint Products, By-Products and Accounting Service Costing: Features and Applications, Unit Costing and Multiple Costing, Application, Identification of Cost Unit and Cost Determination and Control 8. Marginal Costing Meaning, Advantages, Limitations and Applications Breakeven Analysis Cost-Volume Profit Analysis 2.3

5 P/V Ratio and its Significance Margin of Safety Absorption Costing: System of Profit Reporting and Stock Valuation Difference between Marginal Costing and Absorption Costing Income Measurement under Marginal Costing and Absorption Costing 9. Standard Costing Definition, Significance and Applications Various Types of Standards Installation of Standard Costing System-for Material, Labour, and Overhead Variance Analysis for Materials, Labour and Overheads and Accounting Treatment of Variances Benchmarking for Setting of Standards Variance Reporting to Management 10. Budget, Budgeting and Budgetary Control Budget Concept, Manual Fixed and Flexible Budgets Preparation and Monitoring of Various Types of Budgets Budgetary Control System: Advantages, Limitations and Installation Zero Base Budgeting Programme and Performance Budgeting 11. Cost Accounting Records and Cost Audit Nature and Scope of Cost Audit Cost Accounting Records and Cost Audit under Companies Act, 1956 Purpose, Scope and Advantages of Cost Audit Implementing Authorities of Cost Audit Cost Audit Techniques and Programmes Cost Audit Report Cost Auditor - Appointment, Rights and Responsibilities 12. Analysis and Interpretation of Financial Statements Financial Statements: Nature, Attributes, Objectives, Importance, Limitations Recent Trends in presenting Financial Statements Financial Statements Analysis: Types, Methods, Objectives, Limitations Ratio Analysis: Accounting, Uses, Classification, Advantages, Limitations Cash Flow Statement Fund Flow Statement Difference between Cash Flow and Fund Flow Statement Management Reporting 2.4

6 Line Chart Page 2.5

7 Chap. No. Chapter Name Table Showing Importance of Chapter on the Basis of Marks Years 09 Dec. 10 June 10 Dec. 11 June 11 Dec. 12 June 12 Dec. 13 June 13 Dec. 14 Total Ave. June 1 Introduction to Cost and Management Material Cost Labour Cost Direct Expenses and Overheads Activity Based Costing (ABC) 6 Cost Record - I (Integrated & Non Costing Systems - I (Unit and Output Costing Systems - II (Process costing) Costing Systems - III (Service Costing / Marginal Costing Standard Costing and Variance Analysis 12 Budget, Budgeting and Budgetary Control Cost Accounting Records and Cost Audit 14 Analysis & Interpretation of Financial

8 Formula Table Chapter- 2 Material Levels Maximum Level = Re-order Level + Re-order Quantity - (Minimum Consumption x Minimum Re-order Period) Minimum Level = Re-order Level - (Average Rate of Consumption x Average Time required to obtain fresh delivery) Average Stock Level = ½ x (Maximum Level + Minimum Level) or Minimum Level + ½ Re-order Quantity Economic Ordering Quantity E = Where: E = Economic ordering quantity U = Quantity (units) purchased or used in a year P = Cost of placing an order S = Annual cost of storage of one unit Turnover Ratios Stock Turnover = Labour Turnover Chapter- 3 (i) Separation Rate Method = x100 (ii) Replacement Method = x100 (iii) Flux Rate Method = x100 or X100 (iv) Equivalent Annual Rate = x 100 Incentive Plans (i) Halsey Plan: Total Earnings = Time taken x Hourly Rate + (Time saved x

9 2.8 O Model Solved Scanner CSEP M-I Paper 2 (New Syllabus) Rate x 50%) (ii) Rowan Plan: Total Earnings = Time taken x Hourly Rate + Bonus* (iii) *Bonus = x Time taken x Hourly Rate Barth Scheme = Hourly Rate x Factory Overhead Rate Chapter- 4 (i) Direct Material Cost Method = x 100 (ii) Direct Labour Cost Method = x 100 (iii) Prime Cost Method = x 100 (iv) Machine Hour Rate Method = (v) Labour Hour Rate Method = Office Overhead Rate (i) As a Percentage to Factory Cost = x 100 (ii) As a Percentage to Factory Overheads = x100 (iii) As a Percentage to Sales = x 100 (iv) As a Percentage of Conversion Cost = x 100 (v) As a Percentage of Gross Profit = x 100 Selling Overhead Rate (i) As a Rate per Article = (ii) As a Percentage of Selling Price= x100 (iii) As a Percentage of Works Cost = x100

10 Formula Table O 2.9 Chapter- 7 EBQ = Where A = Annual demand for the product S = Set up cost per batch C = Carrying cost per unit of production If the rate of interest (i) and unit cost of production (c) are given, then EBQ = Chapter- 8 Economic Batch Quantity = Where: U = Annual Demand P = Setting up and order processing costs (per batch) S = Storage or inventory carrying cost per unit p.a. Profit to be taken to P & L Account in case of Incomplete Contracts 1. When the work certified is less than 1/4 of the contract price: No profit to P & L Account 2. When the work certified is 1/4 but less than ½ of the contract price: Profit to date x 1/3 x Cash received/work certified 3. When the work certified is ½ or more of the contract price: Profit to date x 2/3 x Cash recd. / Work certified 4. When contract is almost complete and further estimated expenditure is given: Estimated Total Profit x x 5. In case of loss: The entire loss to be transferred to P & L Account. 6. Abnormal Wastage / Effectives: Cost of Abnormal Wastage = x Abnormal Wastage in units 7. Abnormal Wastage / Effectives: Cost of Abnormal Effectives = x Abnormal Effectives in units

11 2.10 O Model Solved Scanner CSEP M-I Paper 2 (New Syllabus) Chapter- 9 Absolute (weighted average) tonne- kilometres: It is the sum total of tonneskilometre which is determined by multiplying various distances by respective load quantity carried. or Numerically, Absolute tonne-kilometres = 3 (Distance covered between two stations local carried) Commercial tonne Km = Avg. Load Distance covered. Passengers km. = No. of buses distance in one trip seating capacity of each bus No. of days in a month x No. of trips Effective Passenger km = Total Passengers km capacity utilised. Variable Maintenance cost per km = Fixed maintenance cost = Total maintenance cost! Variable maintenance cost Cost/ km run = Chapter- 10 Contribution Contribution = Selling Price - Variable Cost Or Fixed Cost + Profit Profit / Volume Ratio (P/V Ratio) = or or In case P/V Ratio is to be expressed as a percentage of sales, the figure obtained should be multiplied by 100. Break-even Point of Output = Fixed Cost/Contribution per unit Break-even Point of Sales = x Selling Price per unit or = x Total Sales

12 Formula Table O 2.11 or = or = Fixed Costs/Profit Volume Ratio Unit for a Desired Profit = Sales for a Desired Profit = Cash Break-even Point (of output) = Cash Fixed Costs/Cash Contribution per unit Composite Break-even Point (Sales)= or = x Total Sales Composite P/V Ratio = x 100 Chapter- 11 Uncontrollable material purchase price planning variance : = (Standard price p.u.! General market price p.u.) Actual quantity purchased Controllable material purchase price efficiency variance : = (General market price p.u.! Actual price paid p.u.) Actual quantity purchased Total sales margin variance (planning element) : = {Expert s budgeted sales volume ( Expert s selling price! Standard cost)! Original budgeted sales volume (Budgeted selling price! Standard cost)} Total sales margin variance (appraisal element): = {Actual sales volume (Actual selling price! Standard cost)! Expert s budgeted sales volume (Expert s selling price! Standard cost)} Std. Fixed Overhead Rate = Std. Variable Overhead Rate = 1. Material cost variance = Standard cost! Actual cost 2. Material usage variance: = Standard price (Standard quantity! Actual quantity) 3. Material prices variance: = Actual quantity (Standard price per kg! Actual price per kg) 4. Labour cost variance: = (Standard labour cost! Actual labour cost)

13 2.12 O Model Solved Scanner CSEP M-I Paper 2 (New Syllabus) 5. Labour efficiency variance: = Standard labour rate per hour {Total standard hours! Total annual hours} 6. Labour rate variance: = Actual hours {Standard rate! Actual rate} 7. Fixed overhead efficiency variance: = 8. Fixed overhead capacity variance: = 9. Fixed overhead expenditure variance: = {Budgeted fixed overhead! Actual fixed overhead} 10. Variable overhead efficiency variance: S tan dard hours Actual hours 11. Variable overhead expenditure variance: 12. Sales margin value variance: = Actual margin! Budgeted margin 13. Sales margin volume variance: = Budgeted margin per unit (Budgeted volume! Actual volume) 14. Sales margin price variance: = Actual sales volume (Budgeted margin per unit! Actual margin per unit) Standard Variable OH Rate/unit:- Standard Fixed OH Rate / unit = Material Mix Variance : (Revised Std.!Actual consumption) Std. Price Mixture Yield Variance : (Actual yield! Std. yield for actual output Std. cost per unit.) Chapter- 12

14 Formula Table O 2.13 Activity ratio = Capacity ratio = Efficiency ratio = Chapter- 14 Profitability Ratios = x100 Return on Investment = x 100 Capital employed = Share Capital + Reserve and Surplus + Long - term Loans - Non- Operating Assets Fictitious Assets OR Capital employed = Net fixed assets + working capital Return on Shareholders Funds x 100 Return on Assets Profit Ratios Net Profit Ratio x 100 x 100 Net Profit Ratio = x 100 Capital Turnover (Sales to Capital Employed) Ratio Capital Turnover Ratio = Total Assets Turnover Ratio Total Assets Turnover Ratio = Fixed Assets Turnover Ratio Fixed Assets Turnover Ratio =

15 2.14 O Model Solved Scanner CSEP M-I Paper 2 (New Syllabus) Working Capital Turnover Ratio Working Capital Turnover Ratio = Stock Turnover Ratio (Inventory Turnover Ratio) Stock Turnover Ratio = or Debtors Turnover Ratio (Debtors Velocity) Debtors Turnover Ratio = Creditors Turnover Ratio (Creditors Velocity) Creditors Turnover Ratio = Debt Payment Period OR OR Current Ratio Current Ratio = Liquid Ratio Liquid Ratio = Liquid Ratio = Debt-Equity Ratio (i) (ii) OR

16 Solved Scanner CSEP Module 1 Paper 2 Cost And Management Accounting New Syllabus Title Green by Dr.Arun Kumar,CS Dr.Himanshu Srivastava July % OFF Publisher : Shuchita Prakashan ISBN : Author : Dr. Arun Kumar, CS Dr.Himanshu Srivastava Type the URL : Get this ebook

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