CPA
CERTIFIED PUBLIC ACCOUNTANTS
PART 1
SECTION 2
MANAGEMENT ACCOUNTING
STUDY TEXT
, MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
GENERAL OBJECTIVE
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable
him/her to apply management accounting principles and concepts in business
LEARNING OUTCOMES
A candidate who passes this paper should be able to:
- Estimate the cost of goods and services
- Analyse product costs for manufacturing and non-manufacturing activities
- Prepare marginal and absorption cost statements
- Analyse an organisation's activities through budgetary control process
- Analyse variances for decision making
- Use computers in cost management
CONTENT
1. Nature and purpose of cost and management accounting
- The nature of cost accounting and costing terms
- The role of cost accounting in management
- The purposes of cost accounting information
- Scope of cost accounting
- Meaning of management accounting, scope, limitations, applications
- Relationship between cost, financial and management accounting
- Selection of an ideal cost accounting system
2. Cost classification
- Definition and purpose of cost classification
- Methods of cost classification: By nature/elements of manufacturing costs; Functional
classification; Behavioral classification; Controllability; Time; Financial accounting;
Identification with inventory; For decision making
3. Cost estimation
- Meaning of cost estimation
- Methods of estimating cost; non-mathematical methods like engineering method, accounts
analysis method and high-Iow method; mathematical methods like scatter graph method, OLS
regression method (simple linear regression only)
www.someakenya.co.ke Contact: 0707 737 890 Page 2
, MANAGEMENT ACCOUNTING
4. Cost accumulation
- Accounting for materials and inventory; material cost records, purchasing procedures, receipt
and issues of material, methods of valuing material issues, inventory control procedures;
economic order quantity (EOQ) and economic batch quantity(EBQ) models and back flush
- Accounting for labour: Methods of labour remuneration, labour control procedures,
maintenance of labour records
- Accounting for overheads: Types of overheads, manufacturing, distribution and
administration, service departmental cost allocation and apportionment, overheads analysis,
overhead absorption rates, over or under absorption
- Activity based costing
5. Cost bookkeeping
- The flow of costs in a business enterprise
- Cost bookkeeping- interlocking and integrated ledger systems
6. Costing methods
- Job order costing
- Batch costing
- Process costing (including work in progress; joint and by-products)
- Service costing
- Unit costing
7. Marginal and absorption costing.
- Distinction between marginal and absorption costing
- Valuation of products under marginal and absorption costing
- Preparation of marginal and absorption statements; cost of production and profit
determination
- Applications of marginal costing: Break-even analysis and charts (single product)
- Simplified decision problems; accept or reject, special order, dropping a product, make or buy
- Operating statements
8. Budgeting and budgetary control
- Nature and purposes of budgets
- Preparation of budgets; master budgets, functional (department budgets, cash budgets),
proforma financial reports (income statements and balance sheets)
- Purpose of budgetary control; operation of a budgetary control system, organisation and
coordination of the budgeting function
- Distinction between budgeting and budgetary control in the private and public sectors
9. Standard costing
- Types of standards
- Principles of setting standards
- Standard cost card
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, MANAGEMENT ACCOUNTING
- Behavioural aspects of standard costing
- Generation of standard cost information
- Materials, labour and overheads variances; price and efficiency variances
10. Cost management
- Value chain-research and development-design-production-marketing distribution and
customer care
- Just in time (JIT)
- Use of computers in costing; job costing, inventory management, labour costing, cost entre
analysis, coding, budgeting and decision making
11. Overview of Performance Measurement
- Purpose of performance measurements
- Financial performance measures: profitability, liquidity, activity and gearing
- Non-financial performance measures. The balanced score card perspective
12. Emerging issues and trends
CONTENT PAGE
Topic 1: Nature and purpose of cost and management accounting……………………..…….5
Topic 2: Cost classification…………………………………………………………………...25
Topic 3: Cost estimation…………………………………………………………………...…34
Topic 4: Cost accumulation………………………………………………………………..…49
Topic 5: Cost bookkeeping……………………………………………………………….…129
Topic 6: Costing methods.......................................................................................................142
Topic 7: Marginal and absorption costing..............................................................................186
Topic 8: Budgeting and budgetary control.............................................................................224
Topic 9: Standard costing.......................................................................................................253
Topic 10: Cost management...................................................................................................285
Topic 11: Overview of Performance Measurement...............................................................293
Revised on: November 2016
www.someakenya.co.ke Contact: 0707 737 890 Page 4
CERTIFIED PUBLIC ACCOUNTANTS
PART 1
SECTION 2
MANAGEMENT ACCOUNTING
STUDY TEXT
, MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
GENERAL OBJECTIVE
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable
him/her to apply management accounting principles and concepts in business
LEARNING OUTCOMES
A candidate who passes this paper should be able to:
- Estimate the cost of goods and services
- Analyse product costs for manufacturing and non-manufacturing activities
- Prepare marginal and absorption cost statements
- Analyse an organisation's activities through budgetary control process
- Analyse variances for decision making
- Use computers in cost management
CONTENT
1. Nature and purpose of cost and management accounting
- The nature of cost accounting and costing terms
- The role of cost accounting in management
- The purposes of cost accounting information
- Scope of cost accounting
- Meaning of management accounting, scope, limitations, applications
- Relationship between cost, financial and management accounting
- Selection of an ideal cost accounting system
2. Cost classification
- Definition and purpose of cost classification
- Methods of cost classification: By nature/elements of manufacturing costs; Functional
classification; Behavioral classification; Controllability; Time; Financial accounting;
Identification with inventory; For decision making
3. Cost estimation
- Meaning of cost estimation
- Methods of estimating cost; non-mathematical methods like engineering method, accounts
analysis method and high-Iow method; mathematical methods like scatter graph method, OLS
regression method (simple linear regression only)
www.someakenya.co.ke Contact: 0707 737 890 Page 2
, MANAGEMENT ACCOUNTING
4. Cost accumulation
- Accounting for materials and inventory; material cost records, purchasing procedures, receipt
and issues of material, methods of valuing material issues, inventory control procedures;
economic order quantity (EOQ) and economic batch quantity(EBQ) models and back flush
- Accounting for labour: Methods of labour remuneration, labour control procedures,
maintenance of labour records
- Accounting for overheads: Types of overheads, manufacturing, distribution and
administration, service departmental cost allocation and apportionment, overheads analysis,
overhead absorption rates, over or under absorption
- Activity based costing
5. Cost bookkeeping
- The flow of costs in a business enterprise
- Cost bookkeeping- interlocking and integrated ledger systems
6. Costing methods
- Job order costing
- Batch costing
- Process costing (including work in progress; joint and by-products)
- Service costing
- Unit costing
7. Marginal and absorption costing.
- Distinction between marginal and absorption costing
- Valuation of products under marginal and absorption costing
- Preparation of marginal and absorption statements; cost of production and profit
determination
- Applications of marginal costing: Break-even analysis and charts (single product)
- Simplified decision problems; accept or reject, special order, dropping a product, make or buy
- Operating statements
8. Budgeting and budgetary control
- Nature and purposes of budgets
- Preparation of budgets; master budgets, functional (department budgets, cash budgets),
proforma financial reports (income statements and balance sheets)
- Purpose of budgetary control; operation of a budgetary control system, organisation and
coordination of the budgeting function
- Distinction between budgeting and budgetary control in the private and public sectors
9. Standard costing
- Types of standards
- Principles of setting standards
- Standard cost card
www.someakenya.co.ke Contact: 0707 737 890 Page 3
, MANAGEMENT ACCOUNTING
- Behavioural aspects of standard costing
- Generation of standard cost information
- Materials, labour and overheads variances; price and efficiency variances
10. Cost management
- Value chain-research and development-design-production-marketing distribution and
customer care
- Just in time (JIT)
- Use of computers in costing; job costing, inventory management, labour costing, cost entre
analysis, coding, budgeting and decision making
11. Overview of Performance Measurement
- Purpose of performance measurements
- Financial performance measures: profitability, liquidity, activity and gearing
- Non-financial performance measures. The balanced score card perspective
12. Emerging issues and trends
CONTENT PAGE
Topic 1: Nature and purpose of cost and management accounting……………………..…….5
Topic 2: Cost classification…………………………………………………………………...25
Topic 3: Cost estimation…………………………………………………………………...…34
Topic 4: Cost accumulation………………………………………………………………..…49
Topic 5: Cost bookkeeping……………………………………………………………….…129
Topic 6: Costing methods.......................................................................................................142
Topic 7: Marginal and absorption costing..............................................................................186
Topic 8: Budgeting and budgetary control.............................................................................224
Topic 9: Standard costing.......................................................................................................253
Topic 10: Cost management...................................................................................................285
Topic 11: Overview of Performance Measurement...............................................................293
Revised on: November 2016
www.someakenya.co.ke Contact: 0707 737 890 Page 4
