Cost Accounting

Part I: Cost Accounting (50 marks)

Objectives:

(a) To understand the basic concepts and processes used to determine product costs;

(b) To be able to interpret cost accounting statements;

(c) To be able to analyse and evaluate information for cost ascertainment, planning, control and decision

making; and

(d) To be able to solve simple cases.

Contents:

1. Introduction to Cost Accounting

(a) Objectives and scope of cost accounting

(b) Cost centres and cost units

(c) Cost classification for stock valuation, profit measurement, decision making and control

(d) Coding systems

(e) Elements of cost

(f) Cost behaviour pattern, separating the components of semi-variable costs

(g) Installation of a costing system

(h) Relationship of cost accounting, financial accounting, management accounting and financial

management.

2. Cost Ascertainment

(a) Material Cost

(i) Procurement procedures - store procedures and documentation in respect of receipts and

issue of stock, stock verification

(ii) Inventory control - techniques of fixing of minimum, maximum and reorder levels,

economic order quantity, ABC classification; stocktaking and perpetual inventory

(iii) Inventory accounting

(iv) Consumption - identification with products of cost centres, basis for consumption entries in

financial accounts, monitoring consumption.

(b) Employee Cost

(i) Attendance and payroll procedures, overview of statutory requirements, overtime, idle time

and incentives

(ii) Labour turnover

(iii) Utilisation of labour, direct and indirect labour, charging of labour cost, identifying labour

hours with work orders or batches or capital jobs

(iv) Efficiency rating procedures

(v) Remuneration systems and incentive schemes.

(c) Direct Expenses

Sub-contracting – control on material movements, identification with the main product or service.

(d) Overheads

(i) Functional analysis – factory, administration, selling, distribution, research and

development

Behavioural analysis – fixed, variable, semi variable and step cost

(ii) Factory overheads – primary distribution and secondary distribution, criteria for choosing

suitable basis for allotment, capacity cost adjustments, fixed absorption rates for absorbing

overheads to products or services

(iii) Administration overheads – method of allocation to cost centres or products

(iv) Selling and distribution overheads – analysis and absorption of the expenses in

products/customers, impact of marketing strategies, cost effectiveness of various methods

of sales promotion.

3. Cost Book-keeping

Cost ledgers – non-integrated accounts, integrated accounts, reconciliation of cost and financial accounts.

4. Costing Systems

(a) Job Costing

Job cost cards and databases, collecting direct costs of each job, attributing overhead costs to jobs,

applications of job costing.

(b) Batch Costing

(c) Contract Costing

Progress payments, retention money, escalation clause, contract accounts, accounting for material,

accounting for plant used in a contract, contract profit and balance sheet entries.

(d) Process Costing

Double entry book keeping, process loss, abnormal gains and losses, equivalent units, inter-process

profit, joint products and by products.

(e) Operating Costing System

5. Introduction to Marginal Costing

Marginal costing compared with absorption costing, contribution, breakeven analysis and profit volume

graph.

6. Introduction to Standard Costing

Various types of standards, setting of standards, basic concepts of material and labour standards and variance

analysis.

7. Budgets and Budgetary Control

The budget manual, preparation and monitoring procedures, budget variances, flexible budget, preparation

of functional budget for operating and non-operating functions, cash budget, master budget, principal budget

factors.