PIPFA Cost Accounting Syllabus

Cost Accounting syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Cost Accounting in PIPFA, not a summary of it.

1. 1

   Introduction to Cost Accounting

   2 topics

   • Cost Concepts and Classification
   • Elements of Cost
2. 2

   Material Costing

   3 topics

   • Inventory Valuation Methods
   • Economic Order Quantity
   • Inventory Control Levels
3. 3

   Labour Costing

   3 topics

   • Remuneration Methods
   • Labour Turnover
   • Idle Time and Overtime
4. 4

   Factory Overheads

   3 topics

   • Allocation and Apportionment
   • Absorption of Overheads
   • Over and Under Absorption
5. 5

   Job and Batch Costing

   2 topics

   • Job Order Costing
   • Batch Costing
6. 6

   Process Costing

   3 topics

   • Normal and Abnormal Loss
   • Equivalent Units
   • Joint and By-products
7. 7

   Marginal and Absorption Costing

   3 topics

   • Contribution Concept
   • Cost-Volume-Profit Analysis
   • Reconciliation of Profits

Cost Accounting flashcards for PIPFA

20 of 60 cards from the Cost Accounting deck — real questions with worked answers.

1. In cost accounting, what is meant by 'cost'?

   Cost is the amount of expenditure (actual or notional) incurred on, or attributable to, a specified thing or activity, i.e. the resources sacrificed to achieve a particular objective.

2. How are costs classified by their behaviour with changes in activity level?

   Into fixed costs (remain constant in total within a relevant range), variable costs (vary in total in direct proportion to activity), and semi-variable/mixed costs (contain both a fixed and a variable element).

3. Distinguish between direct costs and indirect costs.

   Direct costs can be economically traced wholly to a specific cost object (e.g. direct materials, direct labour). Indirect costs (overheads) cannot be traced to a single cost object and must be apportioned/absorbed.

4. What is a product cost versus a period cost?

   Product (inventoriable) costs attach to goods and are carried in inventory until sold (e.g. direct materials, direct labour, factory overhead). Period costs are charged to the period in which they are incurred (e.g. selling and administrative expenses).

5. What is the difference between a cost unit and a cost centre?

   A cost unit is a unit of product or service to which costs are assigned (e.g. per tonne, per litre). A cost centre is a location, person, or item of equipment for which costs are accumulated.

6. Define a sunk cost and explain its relevance to decision-making.

   A sunk cost is a past, already-incurred cost that cannot be changed by any future decision. It is irrelevant and should be ignored in decision-making.

7. What is an opportunity cost?

   The value of the benefit foregone (the next best alternative) when one course of action is chosen over another. It is a relevant cost for decision-making even though it involves no cash outlay.

8. What are the three main elements of cost?

   Materials, labour, and expenses (overheads). Each can be further classified as direct or indirect.

9. State the formula for Prime Cost.

   Prime Cost = Direct Materials + Direct Labour + Direct Expenses.

10. How is Factory (Works) Cost calculated?

    Factory Cost = Prime Cost + Factory/Production Overheads (indirect materials, indirect labour, indirect expenses of the factory).

11. How do you build up from Factory Cost to Total Cost (Cost of Sales)?

    Cost of Production = Factory Cost + Administration Overheads; Total Cost / Cost of Sales = Cost of Production + Selling and Distribution Overheads.

12. Give examples of direct expenses (chargeable expenses).

    Costs of hiring special tools or equipment for a job, royalties paid per unit produced, cost of special designs or patterns, and sub-contracting costs for a specific job.

13. Under FIFO inventory valuation, how are issues and closing stock valued?

    FIFO assumes the earliest (oldest) materials received are issued first, so issues are valued at the oldest prices and closing stock is valued at the most recent prices.

14. Under LIFO inventory valuation, how are issues and closing stock valued?

    LIFO assumes the most recently received materials are issued first, so issues are valued at the latest prices and closing stock is valued at the oldest prices.

15. How does the Weighted Average Cost (AVCO) method value inventory?

    A new weighted average cost per unit is calculated after each receipt (Total cost of stock / Total units in stock), and both issues and closing stock are valued at this average.

16. In a period of rising prices, which method (FIFO or LIFO) gives a higher closing stock value and higher profit?

    FIFO gives a higher closing stock value (valued at recent higher prices) and therefore higher reported profit; LIFO gives lower closing stock and lower profit.

17. Why is LIFO generally not permitted for external financial reporting under IAS 2?

    IAS 2 (Inventories) prohibits LIFO because it can distort the balance sheet inventory value (stated at outdated old prices) and does not faithfully reflect the actual flow of inventory.

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

    EOQ = square root of (2 x annual demand x cost per order) / cost of holding one unit per year, i.e. EOQ = √(2DCo / Ch).

19. What is the objective of the EOQ model?

    To determine the order quantity that minimises total inventory cost by balancing ordering costs (which fall as order size rises) against holding/carrying costs (which rise as order size rises).

20. At the EOQ, what is the relationship between total ordering cost and total holding cost?

    At the EOQ the total annual ordering cost equals the total annual holding cost; total inventory cost is minimised at this point.

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