Student Guidance Notes Guide C01 September 2004 Guidance notes for students planning to sit C01 Fundamentals of Management Accounting of the new 2006 CIMA Certificate in Business Accounting syllabus This guide outlines the issues relating to transition from C01 Management Accounting Fundamentals of the 2000 syllabus to CO1 Fundamentals of Management Accounting of the new 2006 CIMA Certificate in Business Accounting syllabus. The first section of this guide compares the two syllabuses, highlighting the differences between them. The second part of this guide focuses on the assessment strategy for the new C01 Fundamentals of Management Accounting exam. The third part of this guide lists additional (or changed) learning outcomes in the new syllabus. If you have any further queries relating to this guide, please contact the CIMA Contact Centre: Telephone+ 44 (0)20 8849 2251 Email: cima.contact@cimaglobal.com 1
Syllabus Comparison New Syllabus C01 Fundamentals of Management Accounting A. Cost Determination 25% B. Cost behaviour and Break Even Analysis 10% C. Standard Costing 15% D. Costing and Accounting Systems 30% E. Financial Planning and Control 20% Old Syllabus C01 Management Accounting Fundamentals 1(i) Cost Determination 30% 1(iv) Marginal Costing and Decision Making 15% 1(ii) Standard Costing 15% 1(iii) Costing and Accounting Systems 20% 1(v) Budgeting 20% Comparison and Comments Cost Determination is reduced from 30% currently to 25%. Stock control no longer appears (it is included in the Managerial level). The accounting for material, labour and overheads is now seen in the Costing and Accounting Systems section. Also a comparison of marginal with absorption costing has been removed (this appears at the Managerial level). This section reduces from 15% to 10% with the exclusion of relevant costs/revenues (seen at the later level). Standard Costing no longer requires fixed overhead variances to be dealt with. They are included at the Managerial Level Costing and Accounting Systems rises from 20% to 30% and contains material on managerial reports for a range of organisations (for example, charities and public sector bodies). It also identifies financial statements that inform management and items that may be highlighted in management reporting. These include value-added, contribution, marketing and administration expenses. Interlocking ledger systems have been removed. Financial Planning and Control no longer has reference to the use of IT in the budget process. There is also a greater emphasis on the interpretation of both budget statements and budget variances. Aims These are unchanged from the current syllabus. 2
Assessment There will be a computer-based assessment (CBA) of 2 hours duration, comprising 50 compulsory questions, each with one or more parts. The current paper requires a CBA of 90 minutes duration with 40 questions with one or more parts. A variety of objective test question types and styles will be used within the assessment. As well as the conventional multiple choice format other possible styles include: filling in the blank in a sentence listing items in rank order stating a definition (in not more than words) identifying a key issue, for example advantage/ disadvantage (in not more than words) calculating one specific figure, for example profit for a period. completing a blank or partially completed prescribed format using terms and/or numbers, for example an overhead cost table identifying points on a graph or diagram, for example a break even point identifying a specific term describing action/valuation seen in a scenario, for example the conditions for a recession matching items together or with a description, for example are the following cash or non-cash items interpreting numerical or graphical data. For further information about computer based assessment please visit the website at www.cimaglobal.com/cba 3
Learning Outcomes The following learning outcomes were either not included in the corresponding old syllabus or have experienced a change: explain why organisations need to know how much products, processes and services cost and why they need costing systems; explain the idea of a cost object ; explain the concept of a direct cost and an indirect cost; explain why the concept of cost needs to be qualified as direct, full, marginal etc, in order to be meaningful; distinguish between the historical cost of an asset and the economic value of an asset to an organisation; apply first-in-first-out (FIFO), last-in-first-out (LIFO) and average cost (AVCO) methods of accounting for stock, calculating stock values and related gross profit; explain why first-in-first-out (FIFO) is essentially a historical cost method, while last-infirst-out (LIFO) approximates economic cost; calculate direct, variable and full costs of products, services and activities using overhead absorption rates to trace indirect costs to cost units; explain the use of cost information in pricing decisions, including marginal cost pricing and the calculation of full cost based prices to generate a specified return on sales or investment. explain how costs behave as product, service or activity levels increase or decrease; distinguish between fixed, variable and semi-variable costs; explain step costs and the importance of time-scales in their treatment as either variable or fixed; estimate the fixed and variable elements of a semi-variable cost using the high-low method and line of best fit method; explain the contribution concept and its use in cost-volume-profit (CVP) analysis; calculate and interpret the breakeven point, profit target, margin of safety and profit/volume ratio for a single product or service; calculate the profit maximising sales mix for a multi-product company that has limited demand for each product and one other constraint or limiting factor. explain the difference between ascertaining costs after the event and planning by establishing standard costs in advance; explain why planned standard costs, prices and volumes are useful in setting a benchmark for comparison and so allowing managers attention to be directed to areas of the business that are performing below or above expectation; prepare standard costs for the material, labour and variable overhead elements of cost of a product or service; calculate variances for materials, labour, variable overhead, sales prices and sales volumes; prepare a statement that reconciles budgeted contribution with actual contribution; interpret statements of variances for variable costs, sales prices and sales volumes including possible inter-relations between cost variances, sales price and volume variances, and cost and sales variances; 4
describe the possible use of standard labour costs in designing incentive schemes for factory and office workers. explain the principles of manufacturing accounts and the integration of the cost accounts with the financial accounting system; prepare a set of integrated accounts, given opening balances and appropriate transactional information, and show standard cost variances; compare and contrast job, batch, contract and process costing; prepare ledger accounts for job, batch and process costing systems; prepare ledger accounts for contract costs; explain the difference between subjective and objective classifications of expenditure and the importance of tracing costs both to products/services and to responsibility centres; design coding systems that facilitate both subjective and objective classification of costs; prepare financial statements that inform management; explain why gross revenue, value-added, contribution, gross margin, marketing expense, general and administration expense, etc. might be highlighted in management reporting; compare and contrast managerial reports in a range of organisations including commercial enterprises, charities and public sector undertakings. explain why organisations set out financial plans in the form of budgets, typically for a financial year; prepare functional budgets for material usage and purchase, labour and overheads, including budgets for capital expenditure and depreciation; prepare a master budget: income statement, balance sheet and cash flow statement, based on the functional budgets; interpret budget statements and advise managers on financing projected cash shortfalls and/or investing projected cash surpluses; prepare a flexible budget based on the actual levels of sales and production and calculate appropriate variances; compare and contrast fixed and flexible budgets; explain the use of budgets in designing reward strategies for managers. Transition Arrangements Exams based on the CIMA Certificate in Business Accounting 2006 Syllabus, will be available at CIMA approved CBA centres from 2 October 2006. Exams based on the CIMA Certificate in Business Accounting 2000 Syllabus, will be available at CIMA approved CBA centres until the 1 March 2007. Exams based on the 2000 and 2006 Syllabus will be available concurrently between the 2 October 2006 and the 1 March 2007. 5
Conclusion This syllabus has experienced some changes. Material excluded includes stock control, labour control, marginal v absorption costing, fixed overhead variances, interlocking ledgers and IT in budgeting. These are either dealt with elsewhere or are no longer considered necessary. There is a rebalancing between sections with the biggest change in Costing and Accounting Systems from 20% to 30%. It is worth noting that there is an emphasis in this section given to management accounting reports for a range of organisations and the way they inform management. As with all the exams at Certificate level the computer based assessment is now two hours (from 90 minutes). 6