Chartered Global Management Accountant (CGMA) Performance Pillar: Cost, Decision-Making, and Risk Management Syllabus

Performance Pillar: Cost, Decision-Making, and Risk Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Performance Pillar: Cost, Decision-Making, and Risk Management in Chartered Global Management Accountant (CGMA), not a summary of it.

1. 1

   Cost Accounting Systems and Concepts

   4 topics

   • Cost Classification and Behavior
     • Fixed, variable, semi-variable, and step costs
     • Direct versus indirect costs and cost objects
     • Relevant versus sunk and committed costs
   • Costing Methods
     • Absorption costing and overhead allocation
     • Marginal (variable) costing and reconciliation of profit
     • Job, batch, and process costing
   • Activity-Based Costing and Management
     • Cost pools, drivers, and activity hierarchies
     • ABC versus traditional absorption costing
     • Activity-based management and customer profitability
   • Digital Cost Information and Big Data in Costing
2. 2

   Planning, Budgeting, and Forecasting

   4 topics

   • The Budgeting Framework
     • Purposes and limitations of budgets
     • The master budget and functional budget linkages
     • Cash budgets and working capital implications
   • Budgeting Approaches
     • Incremental, zero-based, and activity-based budgeting
     • Rolling budgets and beyond budgeting
     • Fixed and flexible budgets
   • Forecasting Techniques
     • Time series analysis and trend extrapolation
     • Regression analysis and the high-low method
     • Learning curve theory and applications
   • Behavioral Aspects of Budgeting
     • Participation, slack, and motivation
     • Budget-related performance evaluation
3. 3

   Standard Costing and Variance Analysis

   4 topics

   • Setting and Using Standards
     • Ideal, attainable, and basic standards
     • Standard cost cards and standard hours
   • Variance Calculation
     • Material price and usage variances
     • Labor rate, efficiency, and idle time variances
     • Variable and fixed overhead variances
     • Sales price and volume variances
   • Advanced and Planning/Operational Variances
     • Mix and yield variances
     • Planning versus operational variance split
   • Interpretation, Operating Statements, and Reconciliation
4. 4

   Short-Term Decision-Making

   5 topics

   • Relevant Costing for Decisions
     • Identifying relevant and incremental cash flows
     • Opportunity costs and avoidable costs
   • Cost-Volume-Profit Analysis
     • Breakeven point, margin of safety, and target profit
     • Multi-product CVP and the breakeven chart
   • Common Decision Scenarios
     • Make-or-buy and outsourcing decisions
     • Special order pricing and acceptance
     • Limiting factor analysis and product mix
     • Shutdown and discontinuation decisions
   • Pricing Strategies
     • Cost-plus and target costing
     • Price elasticity and market-based pricing
   • Decision-Making Under Risk and Uncertainty
     • Expected values, decision trees, and payoff tables
     • Maximin, maximax, and minimax regret
     • Sensitivity analysis and value of information
5. 5

   Risk Management and Internal Control

   5 topics

   • Risk Identification and Categorization
     • Strategic, operational, financial, and compliance risk
     • Risk registers and heat maps
   • Risk Assessment and Response
     • Likelihood and impact assessment
     • TARA framework: transfer, avoid, reduce, accept
     • Enterprise risk management and the COSO framework
   • Internal Control Systems
     • Control environment and control activities
     • Segregation of duties and authorization controls
   • Cyber Risk and Information Security
   • Internal Audit and Assurance Functions

Performance Pillar: Cost, Decision-Making, and Risk Management flashcards for Chartered Global Management Accountant (CGMA)

19 of 66 cards from the Performance Pillar: Cost, Decision-Making, and Risk Management deck — real questions with worked answers.

1. What are the three main cost classifications by behavior, and how does each respond to changes in activity level?

   Variable costs change in total in direct proportion to activity (constant per unit); fixed costs stay constant in total regardless of activity (decrease per unit as volume rises); semi-variable (mixed) costs contain both a fixed and a variable element.

2. What is a stepped (step-fixed) cost?

   A cost that is fixed over a relevant range of activity but jumps to a new fixed level once a threshold is crossed (e.g., hiring an additional supervisor when output exceeds a capacity band).

3. Using the high-low method, how do you calculate the variable cost per unit?

   $$\text{VC per unit} = \frac{\text{Cost at highest activity} - \text{Cost at lowest activity}}{\text{Highest activity} - \text{Lowest activity}}$$ Then fixed cost = total cost at either point minus (VC per unit $\times$ that activity).

4. Distinguish direct costs from indirect costs (overheads).

   Direct costs can be traced economically and specifically to a single cost object (e.g., direct materials, direct labor); indirect costs (overheads) cannot be traced directly and must be apportioned or allocated across cost objects.

5. What is the formula for prime cost and for total production (manufacturing) cost?

   $$\text{Prime cost} = \text{Direct materials} + \text{Direct labor} + \text{Direct expenses}$$ $$\text{Total production cost} = \text{Prime cost} + \text{Production overheads}$$

6. How does absorption costing differ from marginal (variable) costing in the treatment of fixed production overheads?

   Absorption costing treats fixed production overhead as a product cost (absorbed into units and carried in inventory); marginal costing treats fixed production overhead as a period cost charged in full to the period's profit.

7. When inventory levels rise during a period, which costing method reports higher profit and why?

   Absorption costing reports higher profit because some fixed overhead is carried forward in closing inventory rather than expensed; under marginal costing all fixed overhead is expensed in the period.

8. What is the overhead absorption rate (OAR) formula, and what causes over- or under-absorption?

   $$\text{OAR} = \frac{\text{Budgeted overheads}}{\text{Budgeted activity level}}$$ Over/under-absorption arises when actual overhead or actual activity differs from budget; absorbed > actual = over-absorbed (credit to profit), absorbed < actual = under-absorbed (charge to profit).

9. Define process costing and the treatment of normal versus abnormal loss.

   Process costing averages costs over homogeneous units passing through processes. Normal loss is expected/unavoidable and its cost is absorbed by good units (scrap value credited); abnormal loss/gain is costed at the full per-unit cost and taken to the income statement separately.

10. What are equivalent units, and why are they used in process costing?

    Equivalent units convert partially complete work-in-progress into the equivalent number of fully complete units, so that costs can be spread fairly between finished output and closing WIP based on degree of completion.

11. What is job costing versus batch costing?

    Job costing accumulates costs for a single, unique, identifiable job/order; batch costing accumulates costs for a group of identical units produced together, with cost per unit = total batch cost divided by units in the batch.

12. What are the four steps of Activity-Based Costing (ABC)?

    1) Identify major activities; 2) determine the cost driver for each activity; 3) collect costs into cost pools for each activity; 4) charge overheads to products using a cost driver rate ($\text{cost pool} \div \text{driver volume}$).

13. In ABC, what is a cost driver and what is a cost pool?

    A cost driver is the factor that causes the cost of an activity to change (e.g., number of set-ups, orders, inspections); a cost pool is the grouping of all costs associated with a particular activity.

14. Why does ABC often give more accurate product costs than traditional absorption costing for diverse product ranges?

    Traditional costing absorbs overhead using volume-based rates (e.g., labor hours), over-costing high-volume products and under-costing low-volume/complex ones; ABC traces overheads to the activities that actually drive them, better reflecting consumption of resources.

15. What is Activity-Based Management (ABM) and the distinction between value-added and non-value-added activities?

    ABM uses ABC information to manage activities and improve customer value and profitability. Value-added activities increase product/service worth to the customer; non-value-added activities consume resources without adding worth and are targets for elimination.

16. List benefits that Big Data and digital cost information bring to costing and cost management.

    More accurate and granular cost drivers, real-time cost tracking, improved forecasting and predictive analytics, better identification of cost-saving opportunities, and enhanced decision support; the 'V's of big data include volume, velocity, variety, and veracity.

17. What are the main purposes of budgeting?

    Planning, coordination, communication, motivation, control, performance evaluation, and authorization of expenditure (often remembered by the acronym PRIME/PCCMCEA-style lists).

18. What is the principal (key) budget factor and why is it identified first?

    The principal budget factor is the constraint that limits the organization's activity (often sales demand, sometimes a scarce resource or production capacity). It must be identified first because all other budgets are built around it.

19. Define incremental budgeting and state its main drawback.

    Incremental budgeting bases the new budget on the previous period's actuals/budget adjusted for changes (e.g., inflation, growth). Its main drawback is that it perpetuates past inefficiencies and 'budget slack' without questioning whether activities are still needed.

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