CA Intermediate PAPER 4: COST AND MANAGEMENT ACCOUNTING Syllabus

PAPER 4: COST AND MANAGEMENT ACCOUNTING syllabus: all 4 chapters

Expand any chapter to see its topics and sub-topics.

1. 1

   Overview of Cost and Management Accounting

   2 topics

   • Introduction to Cost and Management Accounting
     • Objectives and Scope of Cost and Management Accounting
     • The users of Cost and Management accounting information, Functions of management accounting
     • Role of cost accounting department in an organisation and its relation with other departments
     • Installation of Costing System
     • Relationship of Cost Accounting, Financial Accounting, Management Accounting and Financial Management
     • Cost terms and Concepts
     • Cost Reduction and Cost Control
     • Elements of Costs
     • Cost behavior pattern, Separating the components of fixed, variable, semi-variable and step costs
     • Methods of Costing, Techniques of Costing
     • Digital Costing
   • Elements of Cost and preparation of Cost Sheets
     • Functional classification and ascertainment of cost
     • Preparation of Cost Sheets for Manufacturing sector and for Service sector
2. 2

   Ascertainment of Cost and Cost Accounting System

   6 topics

   • Material Cost
     • Introduction to procurement procedures. Valuation of receipts, issue and closing stock of Material, Stock verification
     • Material requirement analysis through digital costing including Government e-Marketplace (GeM). Introduction to Costing through Enterprise Resource Planning (ERP). Process of tender and quotation
     • Inventory control: Techniques of fixing level of stocks- minimum, maximum, re-order point, safety stock, determination of optimum stock level. Determination of Optimum Order quantity- Economic Order Quantity (EOQ). Techniques of Inventory control- ABC Analysis, Fast, Slow moving and Non moving (FSN), High, Medium, Low (HML), Vital, Essential, Desirable (VED), Just-in-Time (JIT)- Stock taking and perpetual inventory system, use of inventory control ratios, Digital Inventory control
     • Treatment of Normal/Abnormal Losses w.r.t. waste, scrap, spoilage, defective, obsolescence
   • Employee Cost
     • Introduction to Attendance and Payroll procedures
     • Elements of wages- Basic pay, Dearness Allowance, Overtime, Bonus, Holiday and leave wages, Allowances and perquisites
     • Employee Cost Control
     • Employee Turnover- Methods of calculating employee turnover, causes of employee turnover, effects of employee turnover
     • Remuneration systems and incentive schemes- Premium Bonus Method (Halsey Plan and Rowan Plan)
   • Direct Expenses
     • Identification of direct expenses with the main product or service and its treatment
   • Overheads
     • Functional analysis- Factory, Administration, Selling, Distribution, Research and Development
     • Behavioral analysis- Fixed, Variable and Semi-Variable
     • Allocation and Apportionment of overheads using Absorption Costing Method
     • Factory Overheads- Primary and secondary distribution
     • Administration Overheads- Method of allocation to cost centres or products
     • Selling & Distribution Overheads- Analysis and absorption of the expenses in products/ customers, impact of marketing strategies, cost effectiveness of various methods of sales promotion
     • Treatment of Research and development cost in cost accounting
   • Concepts of Activity Based Costing (ABC)
   • Integration of cost and financial data
     • Recording of financial data and its segregation
     • Introduction to Non-integrated and Integrated Accounting system
     • Items included in cost accounts only but financial accounts and vice versa
     • Reconciliation of profit as per Cost and Financial Accounts (under Non-Integrated Accounting System)
3. 3

   Methods of Costing

   5 topics

   • Single Output/ Unit Costing
   • Job Costing
     • Job cost cards and databases, collecting direct costs of each job, attributing overheads to jobs, Application of job costing
   • Batch Costing
     • Determination of optimum batch quantity, Ascertainment of cost for a batch, Preparation of batch cost sheet, Treatment of spoiled and defective work
   • Process/ Operation Costing
     • Process cost recording, Process loss, Abnormal gains and losses, Equivalent units of production, Inter-process profit, Valuation of work in process
     • Joint Products-Apportionment of joint costs, Methods of apportioning joint cost over joint products
     • By-Products-Methods of apportioning joint costs over by products, treatment of By-Product cost
   • Costing of Service Sectors
     • Determination of Costs and Prices of services
4. 4

   Cost Control and Analysis

   3 topics

   • Standard Costing
     • Setting up of Standards, Types of Standards, Standard Costing as method of performance measurement
     • Calculation and Reconciliation of Material Cost, Labour cost, Variable Overhead, Fixed Overhead
   • Marginal Costing
     • Basic concepts of marginal costing, Contribution margin, Break even analysis, Break–even and profit volume charts, Contribution to sales ratio, Margin of Safety, Angle of Incidence, Cost-Volume Profit Analysis (CVP)
     • Determination of Cost of a product/ service under marginal costing method, determination of cost of finished goods, work-in progress
     • Comparison of Marginal costing with absorption costing method Reconciliation of profit under both the methods
     • Short term decision making: Make or buy decision, Discontinuation decision, Multiproduct break-even analysis, Limiting factor (key factor)
   • Budget and Budgetary Control
     • Meaning of Budget, Essentials of Budget, Budget Manual, Budget setting process, Preparation of Budget and monitoring procedures
     • The use of budget in planning and control
     • Flexible budget, Preparation of Functional budget for operating and non-operating functions, Cash budget, Master budget
     • Introduction to Principal/ Key budget factor, Zero Based Budgeting (ZBB), Performance budget, Control ratios and Budget variances
     • Budgets and motivation
     • Feedback and Feed forward controlling in budgeting

CA Intermediate PAPER 4: COST AND MANAGEMENT ACCOUNTING flashcards — 51 questions with answers

1. Define Cost Accounting.

   Cost Accounting is the process of accounting for costs — it involves the classification, recording, allocation and reporting of costs to determine the cost of products, services or activities, and to aid cost control and decision-making.

2. What is the difference between Cost Accounting and Management Accounting?

   Cost Accounting deals with ascertainment, allocation and control of costs (cost data). Management Accounting is broader — it uses cost and other financial/non-financial data to help management in planning, decision-making and control.

3. Define 'Cost', 'Costing', and 'Cost Centre'.

   Cost = amount of expenditure (actual or notional) incurred on a given thing. Costing = techniques and processes of ascertaining costs. Cost Centre = a location, person or item of equipment for which costs are ascertained and used for control.

4. What is a Cost Unit? Give two examples.

   A Cost Unit is a unit of product, service or time (or combination) in relation to which costs are ascertained or expressed. Examples: per tonne (cement), per kilometre/passenger-km (transport), per 1,000 bricks.

5. List the three main elements of cost.

   Material Cost, Labour (Employee) Cost, and Expenses. Each can be further classified as Direct or Indirect.

6. State the formula for Prime Cost.

   Prime Cost = Direct Material + Direct Labour + Direct Expenses (Direct Chargeable Expenses).

7. How is Works/Factory Cost computed in a cost sheet?

   Works (Factory) Cost = Prime Cost + Factory/Works Overheads + Opening Work-in-Progress − Closing Work-in-Progress.

8. How is Cost of Production calculated from Works Cost?

   Cost of Production = Works Cost + Administration (office) Overheads relating to production. Cost of Goods Sold = Cost of Production + Opening Finished Goods − Closing Finished Goods.

9. State the formula for Cost of Sales and for Sales (selling price).

   Cost of Sales = Cost of Goods Sold + Selling & Distribution Overheads. Sales = Cost of Sales + Profit.

10. What are the three stages of the cost build-up beyond Prime Cost in order?

    Prime Cost → Factory/Works Cost (add factory OH) → Cost of Production (add admin OH) → Cost of Sales (add S&D OH) → Sales (add profit).

11. State the Economic Order Quantity (EOQ) formula.

    EOQ = √(2 × A × O / C), where A = annual demand/consumption, O = ordering cost per order, C = carrying cost per unit per annum.

12. How is Re-order Level computed?

    Re-order Level = Maximum Usage × Maximum Lead Time. Alternatively = Minimum Level + (Average Usage × Average Lead Time).

13. State the formulas for Minimum Stock Level and Maximum Stock Level.

    Minimum Level = Re-order Level − (Average Usage × Average Lead Time). Maximum Level = Re-order Level + Re-order Quantity − (Minimum Usage × Minimum Lead Time).

14. How is the Average Stock Level calculated?

    Average Stock Level = Minimum Level + ½ × Re-order Quantity. (Or = (Minimum Level + Maximum Level) / 2.)

15. What is ABC analysis of inventory?

    A selective inventory control technique classifying items by value: 'A' = few items, high value (tight control); 'B' = moderate items and value; 'C' = many items, low value (loose control). Based on the principle of 'control by importance and exception'.

16. Define Inventory Turnover Ratio and what a low ratio indicates.

    Inventory Turnover Ratio = Cost of Materials Consumed ÷ Average Stock of Materials. A low ratio indicates slow-moving stock, over-investment in inventory and possible obsolescence.

17. Differentiate FIFO and LIFO methods of material pricing.

    FIFO (First-In-First-Out): materials issued at the price of earliest purchases; closing stock valued at latest prices. LIFO (Last-In-First-Out): issued at latest prices; closing stock at older prices. In rising prices FIFO gives lower cost/higher profit, LIFO the reverse.

18. What is the difference between Bin Card and Stores Ledger?

    Bin Card records only quantity of materials, kept by the storekeeper at the bin/storage location. Stores Ledger records both quantity and value, maintained in the costing department.

19. Define Material Price Variance and Material Usage Variance.

    Material Price Variance = (Standard Price − Actual Price) × Actual Quantity. Material Usage Variance = (Standard Quantity for actual output − Actual Quantity) × Standard Price.

20. Distinguish between Normal and Abnormal loss of material/wastage.

    Normal loss is unavoidable, inherent in the process; its cost is absorbed by good output. Abnormal loss is avoidable, beyond normal limits; it is charged to the Costing P&L Account, not to product cost.

CA Intermediate PAPER 4: COST AND MANAGEMENT ACCOUNTING FAQ