CIMA OFFICIAL REVISION CARDS OPERATIONAL LEVEL SUBJECT P1 Management Accounting MANAGEMENT ACCOUNTING Published by: Kaplan Publishing UK Unit The Business Centre, Molly Millars Lane, Wokingham, Berkshire RG41 2QZ Copyright © 2017 Kaplan Financial Limited All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Acknowledgements The CIMA Publishing trademark is reproduced with kind permission of CIMA Notice The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties Please consult your appropriate professional adviser as necessary Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 978-1-78415-944-3 Printed and bound in Great Britain MANAGEMENT ACCOUNTING How to use Revision Cards The concept •• Revision Cards are a new and different way of learning, based upon research into learning styles and effective recall •• The cards are in full colour and have text supported by a range of images, making them far more effective for visual learners and easier to remember •• Unlike a bound text, Revision Cards can be rearranged and reorganised to appeal to kinaesthetic learners who prefer to learn by doing •• B eing small enough to carry around means that you can take them anywhere This gives the opportunity to keep going over what you need to learn and so helps with recall •• The content has been reduced down to the most important areas, making it far easier to digest and identify the relationships between key topics •• Revision Cards, however you learn, whoever you are, wherever you are MANAGEMENT ACCOUNTING How to use them Revision Cards are a pack of approximately 52 cards, slightly bigger than traditional playing cards but still very easy to carry and so convenient to use when travelling or moving around They can be used during the tuition period or at revision They are broken up into sections •• An overview of the entire subject in a mind map form (orange) •• A mind map of each specific topic (blue) •• Content for each topic presented so that it is memorable (green) Each one is a different colour, allowing you to sort them in many ways •• Perhaps you want to get a more detailed feel for each topic, why not take all the green cards out of the pack and use those •• You could create your own mind maps using the blue cards to explore how different topics fit together •• If at the revision phase why not take all the purple cards and work through the past questions identified •• And if there are some topics that you understand, take those out of the pack, leaving yourself only the ones you need to concentrate on There are just so many ways you can use them MANAGEMENT ACCOUNTING Contents Core costing techniques Other costing techniques The importance of quality Decision making Variances Budgeting Forecasting techniques Risk and uncertainty MANAGEMENT ACCOUNTING Syllabus weighting Topic Study Weighting A Cost accounting systems 30% B Budgeting 25% C Short-term decision making 30% D Dealing with risk and uncertainty 15% Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions overview management accounting RevisionCards MANAGEMENT ACCOUNTING ABC Absorption Marginal Costing Other Information Relevant costs Risk and uncertainty Attitudes Decision making Overview Decision trees Linear programming Systems Functional Behavioural aspects Break even Calculations Variance analysis Budgeting Planning Mix and yield core costing techniques management accounting RevisionCards MANAGEMENT ACCOUNTING – Core costing techniques Absorption costing Marginal Costing 10 Core costing techniques Activity based costing MANAGEMENT ACCOUNTING – Core costing techniques Absorption costing Overhead absorption rate = Total overhead cost Budgeted activity level Over-absorption Under-absorption • Overhead absorbed is more than the overhead expenditure incurred • Overhead absorbed is less than the overhead expenditure incurred • Amount of over-absorbed overhead is added to profit in the statement of profit or loss • Amount of under absorbed overhead is subtracted from profit in the statement of profit or loss 11 MANAGEMENT ACCOUNTING – Core costing techniques Absorption costing Advantages Disadvantages • Improved long-time pricing • More difficult • Ensures prices cover all costs • Encourages over-production • Better cost control • Requires arbitrary cost apportionments • Consistent with financial reporting 12 MANAGEMENT ACCOUNTING – Core costing techniques Marginal costing Inventory is valued at variable production cost Profit = Total contribution less all fixed costs Contribution = Sales less all variable costs Profits reconciled to absorption costing by taking the change in inventory and multiplying by the fixed overheads per unit Which profit is higher? Inventory increases Inventory decreases • Absorption costing • Marginal costing 13 MANAGEMENT ACCOUNTING – Core costing techniques Marginal costing Advantages Disadvantages • Better for short-term decision making • Shouldn’t be used for long term-pricing • Simpler • Can’t be used for external reporting 14 MANAGEMENT ACCOUNTING – Core costing techniques Absorption costing in pricing Full cost plus = Total budgeted factory costs + mark-up on costs budgeted volumes Advantages Disadvantages Quick and cheap if cost structures known Can be the basis for uncompetitive prices Useful in contracting industries Ignores price elasticity of demand Required proft achieved if sales budgeted are achieved Problematic if budget sales volumes not achieved Useful to justify price increases Ignores competitors activities 15 MANAGEMENT ACCOUNTING – Core costing techniques Marginal costing in pricing Marginal cost plus = variable cost + % contribution margin Advantages Simple to operate Draws management attention to contribution and the effects of higher or lower sales volumes on profit Good for pricing specific contracts – recognises relevant costs Facilitates decision making when resources are scarce 16 Disadvantages Does not ensure that sufficient attention is paid to demand conditions, competitor’s prices and profit maximisation Ignores fixed overheads in the pricing decision Fixed costs may not be recovered in the long term Difficult to raise prices where mark-ups are low May encourage price wars MANAGEMENT ACCOUNTING – Core costing techniques Definitions Allocate overhead costs to activities that incur them Determine the cost driver for each activity or cost pool Collect data about actual activity for the cost driver in each cost pool Calculate the overhead cost of each product service 17 Steps in Activity Based Costing Identify activities that consume resources and incur overhead costs Cost pool: An activity that consumes resources and for which overhead costs are identified and allocated For each cost pool, there should be a cost driver Cost driver: A unit activity that consumes resources ‘Any factor which causes a change in the cost of an activity.’ MANAGEMENT ACCOUNTING – Core costing techniques Activity Based Costing Advantages Disadvantages • Better information • Expensive • Better cost control • Still some arbitrary allocations • Better pricing • Need best cost driver • Fairer overheads in units 18 ... techniques management accounting RevisionCards MANAGEMENT ACCOUNTING – Core costing techniques Absorption costing Marginal Costing 10 Core costing techniques Activity based costing MANAGEMENT ACCOUNTING. .. error and take action to ensure it is corrected in future editions overview management accounting RevisionCards MANAGEMENT ACCOUNTING ABC Absorption Marginal Costing Other Information Relevant costs... them MANAGEMENT ACCOUNTING Contents Core costing techniques Other costing techniques The importance of quality Decision making Variances Budgeting Forecasting techniques Risk and uncertainty MANAGEMENT