CIMA'S Official Learning System PUBLISHING

Transcription

1 g$>g CIMA'S Official Learning System PUBLISHING Relevant for 2008/2009 Computer-Based Assessments CIMA terrmcafe in Business Accounting Janet Walker ELSEVIER AMSTERDAM BOSTON HEIDELBERG LONDON NEW YORK OXFORD PARIS SAN DIEGO SAN FRANCISCO SINGAPORE SYDNEY TOKYO

2 in Contents The CIMA Learning System xi How to use your CIMA Learning System Guide to the Icons used within this text Study technique Computer-Based Assessments Fundamentals of Management Accounting and Computer-Based Assessments Learning Outcomes and Indicative Syllabus Content 1 Basic Aspects of Cost Accounting 1 Learning Outcomes Introduction Why organisations need costing systems What is meant by'cost'? Cost units Composite cost units Cost centres, Cost objects Classification of costs Classification of costs according to their nature Classification of costs according to their purpose: direct costs 8 and indirect costs 1.8 Elements of cost Cost behaviour Fixed cost Variable cost Semi-variable cost Analysing semi-variable costs Using historical data The importance of time scale in analysing cost behaviour Summary ~- 19 Revision Questions 21 Solutions to Revision Questions 27 2 Accounting for the Value of Inventories 31 Learning Outcomes Introduction Valuing inventory at cost First in, first out (FIFO) Last in, first out (LIFO) Cumulative weighted average (AVCO) 35 xi xii xii xiv xv xvi

3 iv FUNDAMENTALS OF MANAGEMENT ACCOUNTING Cl 2.6 Comparison of FIFO, LIFO and AVCO 36 j±> Historical cost compared with economic cost and economic value 37 Q 2.7 Inventory valuation and the effect on gross profit 37 u 2.8 Periodic weighted average Materials documentation Perpetual inventory system Recording the receipt of goods Recording the movement of inventory items Summary 40 Revision Questions 41 Solutions to Revision Questions 45 3 The Analysis of Overhead 51 Learning Outcomes Introduction What is an overhead cost? Definition Functional analysis of overhead costs Overhead allocation and apportionment Absorption of overheads into saleable cost units General principles , Applying the overhead absorption rate Other absorption bases Selecting the most appropriate absorption rate Predetermined overhead absorption rates Under-or over-absorption of overheads The reasons for under-or over-absorption The problems caused by under-or over-absorption of overheads Illustrative example Solution Reciprocal servicing Taking account of reciprocal servicing The usefulness of reapportioned service centre costs Activity-based costing (ABC) The use of cost information in pricing decisions Marginal cost pricing Full cost-plus pricing Example: full-cost pricing to achieve a specified return on sales Example: full-cost pricing to achieve a specified return on 68 investment Second example: full-cost pricing to achieve a specified return 68 on investment 3.10 Summary 69 Revision Questions 71 Solutions to Revision Questions 79

4 FUNDAMENTALS OF MANAGEMENT ACCOUNTING v Cost-Volume-Prof it Analysis 85 8 Learning Outcomes 87 ^ 4.1 Introduction 87? 4.2 Breakeven or cost-volume profit analysis The concept of contribution Calculating the breakeven point The margin of safety The contribution to sales (C/S) ratio Drawing a basic breakeven chart The contribution breakeven chart The profit-volume chart The advantage of the profit-volume chart The limitations of breakeven (or CVP) analysis The economist's breakeven chart Using CVP analysis to evaluate proposals Limiting factor analysis Decisions involving a single limiting factor Summary 102 Revision Questions 103 Solutions to Revision Questions 111 Standard Costing and Variance Analysis 117 Learning Outcomes Introduction What is a standard cost? Performance levels A standard Ideal standard Attainable standard Current standard Setting standard costs Standard material price Standard material usage Standard labour rate Standard labour times Variable production overhead costs Updating standards Standard costing in the modern business environment What is variance analysis? Variable cost variances Direct material cost variances The direct material price variance and inventory valuation Direct labour cost variances Variable overhead cost variances 128

5 vi FUNDAMENTALS OF MANAGEMENT ACCOUNTING Cl 5.9 Sales variances 129 j Sales price variance 129 O Sales volume contribution variance 130 u 5.10 Summary 130' Revision Questions 131 Solutions to Revision Questions Further Standard Costing 143 Learning Outcomes Introduction Reconciling actual contribution with budgeted contribution Idle time variances Interpreting variances The reasons for variances The significance of variances Standard hour Labour incentive schemes Bonus schemes Piecework systems Guaranteed minimum wage A Differential piece rate Piecework hours Group incentive schemes Summary 157 Revision Questions 159 Solutions to Revision Questions Integrated Accounting Systems 169 Learning Outcomes Introduction An integrated accounting system Accounting for the cost of labour Deductions from employees'wages Overtime premium Bonus earnings Idle time Example: analysis of labour costs Integrated accounts in operation Example: the main accounting entries in an integrated system Accounting for under-or over-absorbed overheads Example: integrated accounts Standard cost bookkeeping Recording variances in the ledger accounts General rules for recording variances The income statement Standard cost bookkeeping: an example Valuing material inventory at actual cost Which inventory valuation method is generally preferred? 193

6 FUNDAMENTALS OF MANAGEMENT ACCOUNTING vii 7.9 Summary Revision Questions Solutions to Revision Questions 8 Specific Order Costing Learning Outcomes Introduction Job costing Job cost sheets and databases Collecting the direct costs of each job Attributing overhead costs to jobs A worked example Preparing ledger accounts for job costing systems Batch costing Example: batch costing Contract costing Architect's certificates and progress payments Retention money Contract accounts Accounting for contract materials Accounting for plant used on the contract Cost classification in contract costing Calculating contract profit and preparing balance sheet entries Contract costing: a worked example Accounting for a loss-making contract Contract costing: a second example Contract costing: a final example Summary Revision Questions Solutions to Revision Questions 9 Process Costing Learning Outcomes Introduction Process accounts Losses in process Abnormal losses and gains Closing work in progress: the concept of equivalent units Previous process costs Opening work in progress Process costing: a further example Contrasting process costing and specific order costing Summary Revision Questions Solutions to Revision Questions n O

7 viii FUNDAMENTALS OF MANAGEMENT ACCOUNTING Cl 10 Presenting Management Information 279 t Learning Outcomes 281 O 10.1 Introduction Subjective and objective classification Responsibility centres Reporting management accounting information Coding of costs Composite codes The advantages of a coding system The requirements for an efficient coding system Preparingfinancialstatements that inform management Value added Contribution Gross margin Managerial reports in a service organisation Establishing a suitable cost unit Establishing the cost per unit The instantaneous and perishable nature of services Managerial reporting in a charity: example Summary 292 Revision Questions 293 Solutions to Revision Questions Financial Planning and Control 301 Learning Outcomes Introduction The purposes of budgeting Budgetary planning and control What is a budget? The budget period Strategic planning, budgetary planning and 305 operational planning 11.3 The preparation of budgets Coordination: the budget committee Participative budgeting Information: the budget manual Early identification of the principal budget factor The interrelationship of budgets Using computers in budget preparation The master budget Preparation of functional budgets Budget interrelationships The cash budget Preparing cash budgets Interpretation of the cash budget A complete exercise Rolling budgets 322

8 FUNDAMENTALS OF MANAGEMENT ACCOUNTING ix 11.8 Budgets for non-operating functions 322 Q Incremental budgeting 323 Z Zero-based budgeting 323 z 11.9 Budgetary control information Budget centres Budgetary control reports Fixed andflexiblebudgets Flexible budgets: an example Preparing aflexiblebudget The total budget variance Usingflexiblebudgets for planning Flexible budgets: another example Extrapolating outside the relevant range Example: producing aflexiblebudget control statement Using budgets as a basis for rewards Example Factors to consider in the design of budget reward 333 schemes Summary 334 Revision Questions 335 Solutions to Revision Questions 343 Preparing for the Assessment 351 Format of the assessment 353 Revision technique 353 How to tackle the assessment 355 Revision Questions 357 Solutions to Revision Questions 389 Mock Assessment Mock Assessment Index 479