ADVANCED MANAGEMENT ACCOUNTING

Transcription

1 PRACTICE MANUAL Final Course PAPER : ADVANCED MANAGEMENT ACCOUNTING Volume II.A BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA i

2 This practice manual has been prepared by the faculty of the Board of Studies. The objective of the practice manual is to provide teaching material to the students to enable them to obtain knowledge and skills in the subject. In case students need any clarifications or have any suggestions to make for further improvement of the material contained herein, they may write to the Director of Studies. All care has been taken to provide interpretations and discussions in a manner useful for the students. However, the practice manual has not been specifically discussed by the Council of the Institute or any of its Committees and the views expressed herein may not be taken to necessarily represent the views of the Council or any of its Committees. Permission of the Institute is essential for reproduction of any portion of this material. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA All rights reserved. No part of this book may be reproduced, stored in retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission in writing from the publisher. Revised Edition : January, 201 Website : bosnoida@icai.org Committee / : Board of Studies Department ISBN No. : Price : ` Published by : The Publication Department on behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi Printed by : Sahitya Bhawan Publications, Hospital Road, Agra ii

3 A WORD ABOUT PRACTICE MANUAL The Board of Studies has undertaken the step of developing Practice Manuals of all subjects to help the students with better understanding of the subject through a mode of questions and answers on different important topics and problems. Practice Manual and Study Material of a subject complements each other and all the students are expected to make holistic study of both to gain maximum benefit and acquire in-depth knowledge of the subject. The Practice Manual in the subject of Advanced Management Accounting has been developed taking primary input from question papers of Institute s earlier examinations over a number of years. It has been divided into sixteen chapters, keeping close correspondence with the chapters of the Study Material so as to make it an effective guidance material by providing clarification / solution to very important topics / issues, both theoretical and practical, of different chapters. The Practice Manual will serve as revision help book towards preparing for final examination of the Institute and help the students in identifying the gaps in the preparation of the examination and developing plan to make it up. The Practice Manual contains standard of solutions to the questions which will act as a benchmark towards developing the skill of students on framing standard answer to a question and thereby guide them to improve their performance in the examination. The Practice Manual of Advanced Management Accounting has been thoroughly revised to cater the need of home study and distance learning approach in Chartered Accountancy course. We would like to highlight some of the unique features of the Practice Manual in the subject of Advanced Management Accounting. This Practice Manual is divided into two volumes for ease of handling by the students. Volume A contains Chapters 1 9 and Volume B contains Chapters This Practice Manual has more than 300 practical questions. These 300 practical questions have been compiled in such a manner that it will cover basic concepts, practical concepts and all kind of adjustments required to solve a numerical & their solutions for extensive revision of the students of final level of Chartered Accountancy course. Important definitions, equations, formulae etc. has been given at the beginning of each chapter for a quick recapitulation. Solutions in this Practice Manual have been given step by step so that students can understand each problem with the help of self study. Each chapter of the Practice Manual has been divided into two sections i.e. Section A: Theory Questions and Section B: Practical Questions. Presentation is the hallmark of this Practice Manual. Questions and solutions thereof have been presented in a students friendly approach. iii

4 Matrix of chapter-wise marks distribution in the past examinations has been added in this Practice Manual. Normal distribution table, Logarithm and Anti-logarithm tables have also been included for the ready reference of the students while practicing numerical from Practice Manual. Every effort has been made to make the Practice manual error free, however if inadvertently any error is present and found by readers they may send it to us immediately so that it can be rectified at our end. For any further clarification/ guidance, students are requested to send their queries at Happy Reading and Best Wishes! iv

5 Paper-, Advanced Management Accounting Statement Showing Topic-Wise Distribution of Examination Questions Along With Marks Chapter/ Topics (Volume II.A) Chapter-1 Developments in the Business Environment Chapter-2 Decision Making using Cost Concepts and CVP Analysis Term of Examination Total Marks May 2010 Nov May 2011 Nov May 2012 Nov May 2013 Nov Q M Q M Q M Q M Q M Q M Q M Q M 2(a) 3(b) (c) 6(a) (b) Chapter-3 Pricing Decisions (a) 6(c) Chapter- Budget & Budgetary Control (d) 2(b) (a) 6(b) 1(c) 2(a) (a) 1(b) 7 1(b) 3(a) (a) (a) (c) (e) 6(a) 1(b) 1(c) 3(c) 6(c) 7(b) (d) 3(a) 7(c) 7(e) 1(b) (a) 6(c) (d) 2(c) 6(b) 7(d) (d) 3(c) 6(c) 1(c) (a) (a) (b) (a) 10 6(a) 7(d) 1(c) 6(b) 7(a) 7(e) 7(b) 7(c) 10 2(a) (b) 7(a) 1(d) (a) 3(a) (a) 12 1(b) 7(c) 12 2(c) 6(a) 7(b) 1(d) 7(d) (b) 2(b) 1(c) 7(e) 2(a) Avg. Marks Chapter- Standard Costing 3(a) (a) 10 2(b) 6 3(a) 9 3(b) (a) 7.2 Chapter-6 Costing of Service Sector - - 6(c) - - (b) 6 7(e) 6(a) (a) 7(a) Chapter-7 Transfer Pricing - - 7(a) 12 (a) 11 3(b) 2(a) 10 2(a) 11 7(e) (a) v

6 Chapter/ Topics (Volume II.A) Chapter- Uniform Costing and Inter-firm Comparison Chapter-9 Cost Sheet, Profitability Analysis and Reporting Term of Examination Total May 2010 Nov May 2011 Nov May 2012 Nov May 2013 Nov Marks Q M Q M Q M Q M Q M Q M Q M Q M 2(b) (c) 6(c) 3(b) (b) 3(b) (b) - - (b) - - Avg. Marks 1 1. Note Q represents question numbers as they appeared in the question paper of respective examination. M' represents the marks which each question carries. The question papers of all the past attempts of CA-Final can be accessed from the BOS Knowledge Portal on the Institute s website vi

7 CONTENTS (CHAPTERS 10 TO 16 OF ADVANCED MANAGEMENT ACCOUNTING ARE IN VOLUME II.B) Chapter-1: Developments in the Business Environment Basic Concepts Section A The Impact of Changing Environment on Cost and Management Accounting Total Quality Management Activity Based Cost Management Target Costing Life Cycle Costing Value Chain Analysis Just in Time Manufacturing Resource Planning Synchronous Manufacturing Theory of Constraints Benchmarking Section B Total Quality Management Activity Based Costing Life Cycle Costing Just In Time Theory of Constraints Chapter-2: Decision Making using Cost Concepts and CVP Analysis Basic Concepts Basic Formulae vii

8 Section A Section B Break-even Point / CVP Analysis / Profit Loss Forecast Profitability Statement Marginal Costing Vs Absorption Costing Opportunity Cost Cost Indifference Point Decision on Accepting / Quoting an Order Make or Buy Determination of Production Mix / Production Planning Preventive Maintenance Vs Break-Down Maintenance Labour Related Decisions Decision on Leasing Decision on Subcontracting Decision on Capacity Utilization Decision on Choice of Supplier / Customer Marketing Decision Selling Strategy Shut Down or Continue Incremental Revenue / Differential Cost Relevant Costing Miscellaneous Chapter-3: Pricing Decisions Basic Concepts Section A Section B Cost Plus / Mark-up Pricing Return on Investment Pricing viii

9 Pricing of New Product / Services Pricing Different Scenario Chapter-: Budget & Budgetary Control Basic Concepts....1 Formulae.... Section A.... Section B Cash Budget Cash Budget & Budgeted Income Statement....1 Fixed and Flexible Budgets Functional Budgets Budgeted Financials....6 Budget Variance....6 Budget Ratio....6 Miscellaneous Chapter-: Standard Costing Basic Concepts....1 Formulae....6 Reconciliations (Budgeted / Standard Profit / Actual Profit) Section A Section B Computation of Material Variances Computation of Overhead Variances Computation of Sales Variances....2 Computation of All Variances....0 Missing/Required Information from Given Inputs and Variances Factors Contributing to Change in Profit ix

10 Computation of Variances and Reconciliation of Budgeted/Standard Profit with Actual Profit Reconciliation of Budgeted/Standard Profit with Actual Profit with Given Variances Reconciliation of Budgeted Profit with Actual Profit with Given Budgeted Profit & Loss Account and Actual Profit & Loss Account... Information Required, Given Reconciliation between Budgeted/Standard Profit with Actual Profit Standard - Marginal Costing Single Plan/Partial Plan Incomplete Ledger, Computation of Variances Planning & Operational Variances, Controllable and Non Controllable Variances Chapter-6: Costing of Service Sector Basic Concepts Section A Section B Costing of the Services Hospitals & Health Clinics Costing of the Services Transport Agencies / Airlines Costing of the Services Hotels / Lodges Costing of the Services Utility Service Agencies Chapter-7: Transfer Pricing Basic Concepts Section A Section B Transfer Price - Shared Contribution / Market Price Method Transfer Pricing Based on Opportunity Cost Negotiated Transfer Price Transfer Pricing Decision Different Capacity Levels Transfer Pricing Decision Different Demand Levels x

11 Transfer Pricing Decision Miscellaneous Scenario Optimum Decision Making Vs Performance Evaluation Chapter-: Uniform Costing and Inter-firm Comparison Basic Concepts....1 Uniform Costing System....2 Inter-firm Comparison.... Chapter-9: Cost Sheet, Profitability Analysis and Reporting Basic Concepts Section A Section B Profitability Analysis Customer Profitability Analysis Balance Scorecard xi