CMA (Cost & Management Accountancy) Intermediate: Management Accounting and Operations Syllabus

Intermediate: Management Accounting and Operations syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Intermediate: Management Accounting and Operations in CMA (Cost & Management Accountancy), not a summary of it.

1. 1

   Cost and Management Accounting Techniques

   3 topics

   • Marginal Costing and CVP Analysis
     • Break-even analysis and margin of safety
     • Decision making: make or buy, key factor
   • Standard Costing and Variance Analysis
     • Material and labour variances
     • Overhead and sales variances
   • Budgeting and Budgetary Control
     • Flexible and cash budgets
     • Zero-based budgeting
2. 2

   Management Accounting Tools for Decision Making

   3 topics

   • Relevant Costing and Short-term Decisions
   • Activity Based Costing
   • Ratio Analysis and Fund Flow Statement
3. 3

   Operations Management

   4 topics

   • Production Planning and Control
     • Plant location and layout
     • Capacity planning
   • Inventory and Materials Management
   • Maintenance and Project Management
     • PERT and CPM basics
   • Productivity, Quality and Total Quality Management
4. 4

   Corporate Laws and Compliance

   3 topics

   • Companies Act, 2013: Key Provisions
     • Incorporation and prospectus
     • Shares, debentures and dividends
   • Board of Directors and Meetings
   • SEBI Laws and Regulatory Framework Overview

Intermediate: Management Accounting and Operations flashcards for CMA (Cost & Management Accountancy)

25 of 51 cards from the Intermediate: Management Accounting and Operations deck — real questions with worked answers.

1. Define marginal cost and contribution in marginal costing.

   Marginal cost is the additional cost of producing one extra unit, equal to total variable cost per unit. Contribution is the difference between sales and variable cost: $\text{Contribution} = \text{Sales} - \text{Variable Cost} = \text{Fixed Cost} + \text{Profit}$.

2. State the formula for the Profit/Volume (P/V) ratio.

   $$\text{P/V Ratio} = \frac{\text{Contribution}}{\text{Sales}} \times 100 = \frac{\text{Sales} - \text{Variable Cost}}{\text{Sales}} \times 100$$ It can also be computed as $\frac{\text{Change in Profit}}{\text{Change in Sales}} \times 100$.

3. How is the Break-Even Point (BEP) calculated in units and in value?

   $$\text{BEP (units)} = \frac{\text{Fixed Cost}}{\text{Contribution per unit}}, \qquad \text{BEP (value)} = \frac{\text{Fixed Cost}}{\text{P/V Ratio}}$$

4. What is the margin of safety and how is it expressed?

   Margin of safety (MOS) is the excess of actual/budgeted sales over the break-even sales: $\text{MOS} = \text{Actual Sales} - \text{BEP Sales}$. As a ratio: $\text{MOS}\% = \frac{\text{Profit}}{\text{P/V Ratio}} \div \text{Sales} \times 100$, or $\text{MOS} = \frac{\text{Profit}}{\text{P/V Ratio}}$ (in value).

5. Give the formula for sales required to earn a desired (target) profit.

   $$\text{Required Sales (value)} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{P/V Ratio}}, \quad \text{Required Sales (units)} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{Contribution per unit}}$$

6. In CVP analysis, what is the angle of incidence and what does a large angle indicate?

   The angle of incidence is the angle formed at the break-even point between the sales line and the total cost line on a break-even chart. A large angle indicates a high rate of profit earning (high margin), reflecting a favourable, high-profit business position above BEP.

7. In a make-or-buy decision, what is the basic decision rule?

   Make the component in-house if its relevant/marginal cost to make (variable cost plus any avoidable fixed cost) is less than the supplier's buying price. If buying price is lower than the relevant cost to make, buy from outside. Spare capacity and opportunity cost of alternative use must be considered.

8. What is a key (limiting) factor, and how are products ranked when one exists?

   A key/limiting factor is a resource (e.g., labour hours, machine hours, material) that restricts output. Products are ranked by contribution per unit of the limiting factor: $\frac{\text{Contribution per unit}}{\text{Limiting factor per unit}}$, prioritising the product with the highest value.

9. Define standard costing and a standard cost.

   Standard costing is a technique of cost control that uses predetermined standard costs as a benchmark, compares them with actual costs, and analyses variances. A standard cost is a scientifically pre-established estimate of the cost of a product/operation under specified conditions.

10. Define a variance and distinguish favourable from adverse variances.

    A variance is the difference between standard (budgeted) cost and actual cost. It is favourable (F) when actual cost is less than standard (or actual profit/revenue exceeds standard) and adverse/unfavourable (A) when actual cost exceeds standard.

11. Give the formulas for Material Cost Variance, Material Price Variance, and Material Usage Variance.

    $$MCV = (SQ \times SP) - (AQ \times AP)$$ $$MPV = AQ \times (SP - AP)$$ $$MUV = SP \times (SQ - AQ)$$ where SQ/AQ are standard/actual quantity and SP/AP are standard/actual price. Note $MCV = MPV + MUV$.

12. How are Material Mix Variance and Material Yield Variance computed?

    $$\text{Mix Variance} = SP \times (\text{Revised Standard Quantity} - \text{Actual Quantity})$$ $$\text{Yield Variance} = SP \times (\text{Standard Quantity} - \text{Revised Standard Quantity})$$ Revised standard quantity allocates total actual input in standard proportions. Usage variance = Mix variance + Yield variance.

13. Give the formulas for Labour Cost, Rate, and Efficiency variances.

    $$LCV = (SH \times SR) - (AH \times AR)$$ $$\text{Rate Variance} = AH \times (SR - AR)$$ $$\text{Efficiency Variance} = SR \times (SH - AH)$$ where SH/AH = standard/actual hours, SR/AR = standard/actual rate. Here AH is hours paid for productive work.

14. What are the Labour Idle Time Variance and Labour Yield Variance?

    Idle Time Variance $= \text{Idle Hours} \times SR$ (always adverse). Labour Yield (or Sub-efficiency) Variance $= SR \times (\text{Standard hours for actual output} - \text{Revised standard hours})$, measuring output efficiency. Efficiency variance = Mix + Yield variances.

15. State the Variable Overhead Cost, Expenditure, and Efficiency variances.

    $$VOH\ Cost\ Variance = (SH \times SR) - \text{Actual VOH}$$ $$\text{Expenditure} = (AH \times SR) - \text{Actual VOH}$$ $$\text{Efficiency} = SR \times (SH - AH)$$ where SR is standard variable overhead rate per hour.

16. State the Fixed Overhead Cost, Expenditure, and Volume variances.

    $$FOH\ Cost\ Variance = \text{Absorbed FOH} - \text{Actual FOH}$$ $$\text{Expenditure} = \text{Budgeted FOH} - \text{Actual FOH}$$ $$\text{Volume} = \text{Absorbed FOH} - \text{Budgeted FOH}$$ Volume variance further splits into Capacity and Efficiency variances.

17. How are Sales Value Variance, Sales Price Variance, and Sales Volume Variance calculated (turnover method)?

    $$\text{Sales Value Variance} = \text{Actual Sales} - \text{Budgeted Sales}$$ $$\text{Price Variance} = AQ \times (AP - SP)$$ $$\text{Volume Variance} = SP \times (AQ - BQ)$$ where BQ/AQ are budgeted/actual quantities.

18. How are sales variances measured under the profit (margin) method?

    $$\text{Total Sales Margin Variance} = \text{Actual Profit} - \text{Budgeted Profit}$$ $$\text{Margin Price Variance} = AQ \times (\text{Actual margin} - \text{Standard margin})$$ $$\text{Margin Volume Variance} = \text{Std margin} \times (AQ - BQ)$$ Volume variance splits into mix and quantity variances.

19. Define a budget and budgetary control.

    A budget is a quantitative/financial statement prepared before a defined period expressing the policy to be pursued to attain an objective. Budgetary control is the establishment of budgets, continuous comparison of actual with budgeted results, and taking corrective action to secure objectives or revise budgets.

20. Distinguish a fixed budget from a flexible budget.

    A fixed budget is prepared for a single level of activity and is not adjusted for actual volume changes. A flexible budget is designed to change with the level of activity by classifying costs into fixed, variable, and semi-variable, giving relevant budgeted figures for the actual output achieved.

21. What is a cash budget and what are its three main components/sections?

    A cash budget is a statement of estimated cash receipts and payments over a period, showing the opening balance, receipts, payments, and closing balance to plan liquidity. Common methods: receipts-and-payments method, adjusted profit-and-loss method, and balance-sheet method.

22. Define Zero-Based Budgeting (ZBB) and its core principle.

    ZBB is a budgeting method in which every activity starts from a 'zero base' each period; all expenditures must be justified afresh rather than based on the previous year's figures. Activities are evaluated and ranked through 'decision packages', allocating resources by cost-benefit justification.

23. List two key advantages of Zero-Based Budgeting over traditional (incremental) budgeting.

    (1) It eliminates inefficient and obsolete activities by requiring fresh justification of every cost. (2) It promotes efficient resource allocation based on priorities and cost-benefit analysis, increasing cost awareness and avoiding the automatic carry-forward of past inefficiencies.

24. What is a relevant cost, and which costs are typically irrelevant for short-term decisions?

    A relevant cost is a future cash-flow cost that differs between decision alternatives (e.g., avoidable, incremental, opportunity costs). Irrelevant costs include sunk costs (already incurred), committed costs, and unavoidable/absorbed fixed costs that do not change with the decision.

25. Define opportunity cost and sunk cost.

    Opportunity cost is the value of the benefit foregone by choosing one alternative over the next best alternative; it is relevant to decisions. Sunk cost is a historical cost already incurred that cannot be changed by any future decision; it is irrelevant to decision making.

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