OBJECTIVES On completion of this paper candidates should be able to: • explain the role of management accounting within an organisation and the requirement for management information • d
Trang 1To develop knowledge and understanding
of the application of management
accounting techniques to support the
management processes of planning, control
and decision making
OBJECTIVES
On completion of this paper candidates
should be able to:
• explain the role of management
accounting within an organisation and the
requirement for management information
• describe costs by classification and
purpose
• identify appropriate material, labour and
expense costs
• understand the principles of costing and
apply them in straightforward scenarios
• understand and demonstrate the cost
factors affecting production and pricing
decisions
• understand the basic principles of
performance management
• demonstrate the skills expected in Part 1
POSITION OF THE PAPER IN THE
OVERALL SYLLABUS
No prior knowledge is required before
commencing study for Paper 1.2 Some
understanding of the accounting principles
and practices from Paper 1.1 Preparing
Financial Statements and a basic
competence in numeracy are assumed
This paper provides the basic techniques required to enable the candidate to develop the various methods into more complex problems at later parts Candidates will, therefore, need a sound understanding of the methods and techniques encountered in this paper to ensure that they can take them further in subsequent papers The methods introduced in this paper are revisited and extended in Paper 2.4 Financial Management and Control and taken yet further in Papers 3.3 Performance Management and 3.7 Strategic Financial Management
SYLLABUS CONTENT
1 Accounting for management
(a) The nature, purpose, scope and interrelations of functions carried out
by management in relation to resources, costs, operations, performance
(i) setting objectives (long and short-term, strategic and operational, corporate and personal)
(ii) planning to meet objectives (iii) implementing objectives (iv)monitoring and controlling against objectives and plans (b) Nature of internal reporting (i) financial and non-financial information for managers (ii) cost centres, revenue centres, profit centres and investment centres and the impact of these
on management information (c) Management information requirements
(i) importance and definition of good information
(ii) presentation of information (iii) role of accountants and accounting information (iv)role of IT
(d) Maintaining and improving an appropriate system
(i) cost units (ii) cost/profit/responsibility centres
Financial Information for Management
Paper 1.2
3.3 Performance Management 3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for Management
Trang 2(iii) methods for recording relevant
information
(iv)sources of information and
recording/processing information
(v) computer based information,
storage and processing
(vi)analysis of output information
and its dissemination to relevant
individuals/departments
2 Cost accounting
(a) Cost accounting versus management
accounting
(i) purposes of cost and management
accounting and financial accounting
(ii) role of cost accounting in a
management information system
(iii) non-financial information
(b) Nature and purpose of cost
classification and definitions
3 Elements of cost
(a) Materials
(i) standard and actual costs for
materials including the use of
FIFO, LIFO and weighted average
for material valuation and the
pricing of material issues
(ii) optimal purchase quantities to
include discounts
(iii) optimal batch quantities
(iv)reorder levels
(v) material losses
(b) Labour
(i) direct and indirect labour
(ii) different remuneration methods
(iii) labour efficiency
(iv)labour turnover
(c) Overheads (i) direct and indirect expenses (ii) principles and processes of overhead cost analysis (iii) allocation and apportionment of overhead costs including reciprocal service centre situations (iv)absorption rates (v) under- and over -absorption (vi)fixed overhead expenditure and volume variances
(vii) fixed overhead efficiency and capacity variances where appropriate
(viii) changes in the cost structure of
a business over time
4 Costing systems
(a) Job, batch and process costing (i) characteristics
(ii) direct and indirect costs (including waste, scrap and rectification costs)
(iii) valuation of process transfers and work-in-progress using equivalent units of production and based on FIFO and weighted average pricing methods (iv) process costing normal losses, abnormal losses and gains (v) joint and by-products in process costing
(b) Operation/service costing (i) scope of operation/service costing (ii) appropriate cost units
(iii) collection, classification and ascertainment of costs
5 Costing methods and techniques
(a) Standard costing (i) establishment of standard costs (ii) variance analysis
(iii) explanations of variances and control
(iv) implications for management (v) operating statements
(b) Marginal and absorption costing (i) marginal and absorption costing profit and loss accounts (ii) reconciliation of the profits under the two methods
(iii) contrast of absorption and marginal costing
6 Short-term decision making
(a) Cost behaviour (i) fixed, variable and semi-variable costs
(ii) cost behaviour using an appropriate graph (iii) high-low method (iv) regression analysis
(b) CVP analysis (i) break-even point and revenue (ii) margin of safety
(iii) target profit (iv) contribution to sales ratio (v) break-even chart and profit/ volume graph
(c) Limiting factors
Trang 3(i) optimal production plan given a
scarce resource
(ii) linear programming techniques
(iii) other methods for more than two
variable problems
(d) Preparation of cost estimates for
decision making
(i) relevant costing techniques to
include opportunity/sunk,
avoidable/unavoidable, fixed/
variable applied to such
situations as make or buy, shut
down and one-off contracts
(e) Pricing of goods and services
(i) price/demand relationships
(ii) full cost plus pricing
(iii) marginal costing
(f) Price skimming, penetration pricing,
premium pricing and price
discrimination
EXCLUDED TOPICS
The syllabus content outlines the areas for
assessment No areas of knowledge are
specifically excluded from the syllabus
KEY AREAS OF THE SYLLABUS
The key topic areas are:
• cost classification and behaviour
• material, labour and overhead costs
• absorption and marginal costing
• process costing
• standard costing
• CVP analysis
• pricing methods
APPROACH TO EXAMINING THE SYLLABUS
The examination is a three hour paper constructed in two sections Both sections will draw from all parts of the syllabus and will contain both computational and discursive elements
Number
of Marks Section A: 25 compulsory multiple choice questions (2 marks each) 50 Section B: 5 compulsory short form questions (8-12 marks each) 50
100
Paper 1.2 can also be taken as a three hour computer based examination
ADDITIONAL INFORMATION
Formulae as required are included in the formulae sheet given in the exam
RELEVANT TEXTS
There are a number of sources from which you can obtain a series of materials written for the ACCA examinations These are listed below:
Foulks Lynch – ACCA's official publisher
Contact number: +44 (0)20 8831 9990
Website: www.foulkslynch.com
Accountancy Tuition Centre (ATC) International
Contact number: +44 (0)141 880 6469
Website: www.ptc-global.com
BPP
Contact number: +44 (0)20 8740 2211 Website: www.bpp.com
The Financial Training Company
Contact number: +44 (0)174 785 4302 Website: www.financial-training.com
The following texts are also recommended
as study material for this paper:
G Bancroft, G O’Sullivan Quantitative
Methods for Accounting and Business Studies (3rd Edition) McGraw Hill
ISBN 0077077318
C Drury Management and Cost
Accounting (5th Edition) International
Thomson Business Press ISBN 1861525362
Wider reading is also desirable, especially regular study of relevant articles in ACCA's
student accountant.
Financial Information for Management (Continued)
Trang 4STUDY SESSIONS
1 Information for Management
(a) Distinguish between ‘data’ and
‘information’
(b) Describe the sources of information
(c) Identify and explain the attributes of
good information
(d) Describe the methods of recording
and processing information
(e) Describe the ways in which data
could be presented to management
2 Management Information Systems
(a) Explain what is meant by a
management information system
(b) Explain the role of accountants and
accounting information within a
management information system
(c) Describe the purpose and role of
cost and management accounting
within a management information
system
(d) Compare and contrast financial and
cost and management accounting
(e) Outline the managerial processes of
planning, decision-making and
control
(f) Discuss the management of both
financial and non-financial
information requirements
(g) Describe the various types of
responsibility centres and the impact
of these on management
information
3 Objectives, Strategy and Planning
(a) Define the terms ‘objectives’ and
‘strategy’
(b) Describe the different objectives for different types of organisations (c) Illustrate the links between strategy and organisational structure (d) Explain how the objectives and strategy
of an organisation impact upon its plans (e) Describe the planning process (f) Describe the main techniques used
in the planning and decision making process for various types of organisation (g) Explain the difference between strategic, tactical and operational planning
(h) Describe the basic elements of and purpose of a management control system
(i) Illustrate the need for monitoring and evaluation
(j) Describe methods for monitoring and controlling against objectives and plans
4 The Role of Information Technology in Management Information
(a) Identify the characteristics and different types of computer hardware and software
(b) Evaluate the potential value of computer systems in handling and processing business data (c) Describe methods of capturing and processing data by computer
(d) Describe how data is grouped, tabulated, stored and output (e) Explain the role and features of spreadsheet systems
(f) Describe how output could be analysed and used within an organisation
5 Cost Classification
(a) Explain and illustrate classifications used in the analysis of product/ service costs including by function, direct and indirect, product and period, fixed and variable, avoidable and unavoidable, controllable and uncontrollable
(b) Explain and illustrate the concept of cost objects, cost units, cost centres, revenue centres, profit centres and investment centres
(c) Describe briefly the process of accounting for input costs and relating them to work done (d) Describe briefly the different methods of costing final outputs and their appropriateness to different types of business organisation/ situation
(e) Describe the nature of control achieved through the comparison of actual costs against plan
6 Cost Behaviour - 1
(a) Explain the importance of cost behaviour in relation to business decision-making
Trang 5Financial Information for Management (Continued)
(b) Describe factors which influence cost
behaviour
(c) Explain how the terms linear,
curvi-linear and step functions apply to
costs
(d) Identify, describe and illustrate
graphically different types of cost
behaviour
(e) Explain the structure of linear
functions and equations
(f) Provide examples of costs which
contain both fixed and variable
elements
(g) Use high/low analysis to separate
the fixed and variable elements of
such costs
7 Cost behaviour - 2
(a) Construct a scatter graph to
establish whether a linear function
would be appropriate
(b) Establish a linear function using
regression analysis and interpret the
results
(c) Calculate and explain the concepts
of correlation and coefficient of
determination
8 Material Costs – 1
(a) Describe the different procedures
and documents necessary for
ordering, receiving and issuing
materials from stock
(b) Describe the control procedures used
to monitor physical and ‘book’ stock
and to minimise discrepancies and
losses
(c) Calculate, explain and evaluate the value of closing stock and material issues using LIFO, FIFO and average methods (weighted and periodic) (d) Calculate the standard cost of stocks from given information
(e) Prepare ledger entries to record material cost inputs and outputs (f) Interpret the entries and balances in the material stock account
9 Material Costs – 2
(a) Explain the reasons for holding stock (b) Identify and explain the costs of having stock
(c) Calculate and interpret optimal reorder quantities
(d) Calculate and interpret optimal reorder quantities when discounts apply
(e) Produce and interpret calculations to minimise stock costs when stock is gradually replenished
(f) Describe appropriate methods for establishing reorder levels
10 Labour Costs
(a) Explain the difference between, and calculate, direct and indirect labour costs
(b) Explain the methods used to relate input labour costs to work done (c) Prepare journal and ledger entries to record labour cost inputs and outputs
(d) Describe and illustrate different remuneration methods and incentive schemes
(e) Calculate the level, and analyse the costs and causes of, labour turnover (f) Describe and illustrate measures of labour efficiency and utilisation (g) Interpret the entries and balances in the labour account
11 Overheads – 1
(a) Explain the difference between the treatment of direct and indirect expenses
(b) Describe and justify the process of apportioning manufacturing overhead costs incurred to production
(c) Allocate and apportion factory overheads using an appropriate basis
(d) Re-apportion service centre costs including the use of the reciprocal method
(e) Comment on the use of blanket, department, cost driver, actual and pre-determined absorption rates (f) Identify, calculate and discuss the appropriate absorption rates using relevant bases
12 Overheads –2
(a) Prepare journal and ledger entries for manufacturing overheads incurred and absorbed
Trang 6(b) Calculate, explain and account for
under – and over – absorbed
overheads
(c) Calculate and explain fixed overhead
expenditure, volume and, where
appropriate, efficiency and capacity
variances
(d) Describe and evaluate methods of
attributing non-manufacturing
overhead costs to units of output
(e) Perform process cost accounting
transactions for selling, distribution
and administration overhead in a
given business context
(f) Describe how the cost structure of a
business has changed over time and
the implication of this with regard to
overhead analysis
13 Revise all work to date
14 Marginal and Absorption Costing
(a) Explain the concept of contribution
(b) Demonstrate and discuss the impact
of absorption and marginal costing
on stock valuation and profit
measurement
(c) Establish the standard cost per unit
from given data under absorption
and marginal costing
(d) Produce profit and loss accounts
using absorption and marginal
costing
(e) Reconcile the profits reported under
the two methods
(f) Discuss the advantages and disadvantages of absorption and marginal costing
15 Job and Batch Costing (a) Describe the characteristics of job
and batch costing (b) Describe the situations where the use of job or batch costing would be appropriate
(c) Discuss, and illustrate, the treatment
of direct, indirect and abnormal costs
(d) Complete cost records and accounts
in job and batch cost accounting situations
(e) Estimate job costs from given information
16 Process Costing – 1
(a) Describe the characteristics of process costing
(b) Describe situations where the use of process costing is appropriate (c) Describe the key areas of complexity
in process costing (d) Define ‘normal’ losses and
‘abnormal’ gains and losses (e) State and justify the treatment of normal losses and abnormal gains and losses in process accounts (f) Account for process scrap (g) Calculate the cost per unit of process outputs, and prepare simple process accounts, in absorption and marginal costing systems
17 Process Costing –2
(a) Calculate and explain the concept of equivalent units
(b) Allocate process costs between work remaining in process and transfers out of a process using the weighted average cost and FIFO methods (c) Prepare process accounts in situations where work remains incomplete
(d) Prepare process accounts in situations where losses and gains are identified at different stages of the process
(e) Distinguish between by-products and joint products
(f) Value by-products and joint products
at the point of separation (g) Prepare process accounts in situations where by-products and/or joint products occur
18 Operation/Service CostinG
(a) Describe situations where the use of operation/service costing is appropriate (b) Illustrate suitable unit cost measures that may be used in a variety of different operations and services (c) Carry out service cost analysis in internal service situations (d) Carry out service cost analysis in service industry situations
19 Cost-Volume-Profit (CVP) Analysis - 1
(a) Explain the objective of CVP analysis
Trang 7Financial Information for Management (Continued)
(b) Explain the concept of break-even
(c) Calculate and explain the break-even
point and revenue, target profit,
contribution to sales ratio and margin
of safety
20 Cost-Volume-Profit (CVP)
Analysis - 2
(a) Construct break-even, contribution,
and profit/volume charts from given
data
(b) Apply the CVP model in
multi-product situations
21 Limiting Factors
(a) Explain and recognise what causes
optimisation problems
(b) Identify, formulate and determine the
optimal solution when there is a
single limiting factor
22 Linear programming
(a) Formulate a linear programming
problem involving two variables
(b) Determine the optimal solution to a
linear programming problem using a
graph
(c) Determine the optimal solution to a
linear programming problem using
equations
(d) Explain the methods available for
dealing with optimisation problems
with more than two variables
(e) Formulate, but do not solve, a linear
programming problem involving
more than two variables
(f) Explain shadow prices (calculations not examinable)
23 Relevant Costing - 1
(a) Explain the concept of relevant costing
(b) Explain the relevance of such terms
as opportunity and sunk costs, avoidable and unavoidable costs, fixed and variable costs, historical and replacement costs, controllable and uncontrollable costs, to decision making
24 Relevant Costing - 2
(a) Calculate the relevant costs for materials and labour
(b) Calculate and explain the deprival value of an asset
(c) Construct a relevant cost statement and explain the results for such situations as make or buy decisions, shut down decisions and one-off contracts
25 Pricing
(a) Explain the factors that influence the price of a product
(b) Establish the price/demand relationship of a product (c) Establish the optimum price/output level when considering profit maximisation and maximisation of revenue
(d) Calculate prices using full cost and marginal cost as the pricing base
(e) discuss the advantages and disadvantages of these pricing bases (f) Discuss pricing policy in the context
of price skimming, penetration pricing, premium pricing and price discrimination
26 Standard Costing - 1 (a) Explain the purpose of standard
costing (b) Establish the standard cost per unit from given data under absorption and marginal costing
(c) Explain the purpose of the following variances:
(i) Materials price and usage (ii) Labour rate, idle time and efficiency
(iii) Variable overhead expenditure and efficiency
(iv) Fixed overhead expenditure, volume and, where appropriate, efficiency and capacity (v) Sales volume and price
27 Standard costing - 2
(a) Calculate and interpret the above variances, using the appropriate costing method
(b) Prepare operating statements to reconcile budgeted to actual profit (c) Discuss the implications of the results of variance analysis for management
28 REVISE ALL WORK