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PIPFA Cost Accounting Syllabus
The Cost Accounting syllabus for PIPFA in full: 7 chapters and 19 topics, every one listed below, plus 60 Cost Accounting flashcards with answers.
Cost Accounting syllabus: all 7 chapters
Expand any chapter to see its topics and sub-topics.
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Introduction to Cost Accounting
2 topics- Cost Concepts and Classification
- Elements of Cost
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Material Costing
3 topics- Inventory Valuation Methods
- Economic Order Quantity
- Inventory Control Levels
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Labour Costing
3 topics- Remuneration Methods
- Labour Turnover
- Idle Time and Overtime
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Factory Overheads
3 topics- Allocation and Apportionment
- Absorption of Overheads
- Over and Under Absorption
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Job and Batch Costing
2 topics- Job Order Costing
- Batch Costing
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Process Costing
3 topics- Normal and Abnormal Loss
- Equivalent Units
- Joint and By-products
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Marginal and Absorption Costing
3 topics- Contribution Concept
- Cost-Volume-Profit Analysis
- Reconciliation of Profits
PIPFA Cost Accounting flashcards — 60 questions with answers
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.
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).
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.
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).
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.
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.
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.
What are the three main elements of cost?
Materials, labour, and expenses (overheads). Each can be further classified as direct or indirect.
State the formula for Prime Cost.
Prime Cost = Direct Materials + Direct Labour + Direct Expenses.
How is Factory (Works) Cost calculated?
Factory Cost = Prime Cost + Factory/Production Overheads (indirect materials, indirect labour, indirect expenses of the factory).
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.
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.
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.
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.
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.
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.
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.
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).
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).
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.
Show the other 40 Cost Accounting flashcards
How is the Re-order Level calculated?
Re-order Level = Maximum usage x Maximum lead time. It is the stock level at which a fresh order is placed.
How is the Minimum Stock Level (buffer/safety stock) calculated?
Minimum Level = Re-order Level − (Average usage x Average lead time).
How is the Maximum Stock Level calculated?
Maximum Level = Re-order Level + Re-order Quantity − (Minimum usage x Minimum lead time).
How is the Average Stock Level calculated?
Average Level = Minimum Level + ½ x Re-order Quantity, or alternatively (Minimum Level + Maximum Level) / 2.
What is the Re-order Quantity and when is it normally set equal to the EOQ?
The Re-order Quantity is the quantity ordered each time stock reaches the re-order level; it is set equal to the EOQ when the firm seeks to minimise total inventory cost.
Distinguish between time-rate (day-rate) and piece-rate remuneration.
Time-rate pays a fixed amount per hour/day regardless of output (Wages = Hours x Rate). Piece-rate pays per unit produced (Wages = Units x Rate per unit), linking pay directly to output.
Explain the Halsey premium bonus scheme.
The worker is paid for actual hours plus a bonus of 50% of the time saved at the hourly rate. Bonus = 50% x (Time allowed − Time taken) x Rate per hour.
Explain the Rowan premium bonus scheme.
Bonus = (Time saved / Time allowed) x Time taken x Rate per hour. Total earnings = (Time taken x Rate) + Bonus; the bonus proportion is based on the ratio of time saved to time allowed.
What is a differential piece-rate system (Taylor's plan)?
A system paying a low piece-rate for output below standard and a higher piece-rate for output at or above standard, to reward efficient workers and penalise slow ones.
Define labour turnover.
Labour turnover is the rate at which employees leave and are replaced in an organisation during a period, indicating workforce instability.
State a common formula for the labour turnover rate (separation method).
Labour Turnover Rate = (Number of separations during the period / Average number of workers during the period) x 100.
Distinguish between avoidable and unavoidable causes of labour turnover.
Avoidable causes can be controlled by management (low pay, poor conditions, lack of promotion, dissatisfaction). Unavoidable causes are beyond control (retirement, death, marriage, illness, dismissal for misconduct).
What is idle time and how is it classified?
Idle time is paid time during which workers are not productively employed. It is classified as normal (unavoidable, e.g. tea breaks, machine set-up — treated as overhead) and abnormal (avoidable, e.g. machine breakdown, strikes — charged to costing P&L).
How is normal idle time cost treated in cost accounts?
The cost of normal idle time is treated as a production overhead and absorbed into the cost of all units, since it is an inherent and unavoidable part of production.
What is overtime premium and how is it normally treated?
Overtime premium is the extra amount paid above the normal rate for hours worked beyond normal hours. If due to general pressure it is treated as overhead; if at a specific customer's request it is charged direct to that job.
Differentiate between allocation and apportionment of overheads.
Allocation assigns whole overhead items directly to a single cost centre that incurred them. Apportionment divides shared/common overheads among several cost centres on a fair basis (e.g. floor area, number of employees).
Give suitable apportionment bases for: (a) rent and rates, (b) lighting, (c) depreciation of machinery, (d) canteen costs.
(a) Floor area; (b) Number of light points or floor area; (c) Value/cost of machinery; (d) Number of employees in each department.
What is the re-apportionment of service department costs?
It is the secondary distribution of service cost centre overheads (e.g. canteen, maintenance, stores) to production cost centres, since service departments do not directly make products.
Name the methods used to deal with reciprocal services in overhead re-apportionment.
The repeated distribution (continuous allotment) method, the simultaneous equation (algebraic) method, and the elimination/step-down method.
What is overhead absorption?
Overhead absorption is the charging of overheads to cost units by applying a predetermined overhead absorption rate, so that each unit bears a share of indirect costs.
State the formula for a predetermined Overhead Absorption Rate (OAR).
OAR = Budgeted (estimated) overheads / Budgeted level of activity (e.g. budgeted labour hours, machine hours, or units).
Name common bases for absorbing production overheads.
Machine hour rate, direct labour hour rate, percentage of direct wages, percentage of prime cost, percentage of direct materials, and rate per unit of output.
What causes over-absorption and under-absorption of overheads?
They arise because absorption uses a predetermined rate; differences occur when actual overheads differ from budgeted overheads and/or actual activity differs from budgeted activity.
How do you determine whether overheads are over- or under-absorbed?
Compare overhead absorbed (Actual activity x OAR) with actual overhead incurred. Absorbed > Actual = over-absorption (credit); Absorbed < Actual = under-absorption (debit).
How is over/under-absorbed overhead treated in the accounts?
It is transferred to the costing Profit and Loss Account for the period (over-absorption increases profit, under-absorption reduces profit), or apportioned across cost of sales and inventory if material.
What is job order costing and where is it used?
A costing method where costs are accumulated separately for each distinct job or order made to a customer's specification. Used in printing, repairs, construction, and custom manufacturing.
What is batch costing and how is the unit cost found?
Batch costing accumulates costs for a batch (group) of identical items produced together. Cost per unit = Total batch cost / Number of units in the batch. Used in pharmaceuticals, footwear, bakeries.
Distinguish normal loss from abnormal loss in process costing.
Normal loss is the expected, unavoidable loss inherent in the process (charged to good output). Abnormal loss is loss in excess of normal expectation, valued at the cost of good units and written off to P&L.
How is normal loss treated and how is scrap value of normal loss handled?
Normal loss bears no process cost; its cost is absorbed by good units. Any scrap/sale value of the normal loss is credited to the process account, reducing the cost of good output.
What is abnormal gain and how is it treated?
Abnormal gain occurs when actual loss is less than normal loss, i.e. actual output exceeds expected output. It is valued at the cost per good unit, debited to the process account, and credited to the costing P&L.
What are equivalent units of production?
Equivalent units express partially completed (work-in-process) units in terms of equivalent fully completed units, e.g. 400 units that are 50% complete equal 200 equivalent units, enabling cost-per-unit calculation.
What is the difference between joint products and by-products?
Joint products are two or more main products of significant sales value arising together from a common process. A by-product is incidental output of relatively minor value produced alongside the main product(s).
Name common methods of apportioning joint costs to joint products.
Physical units (quantity) method, sales value at split-off point method, net realisable value (NRV) method, and the average unit cost method.
What is the split-off point in joint product costing?
The split-off (separation) point is the stage in the joint process at which the joint products become separately identifiable; joint costs are incurred up to this point and apportioned among the products.
Define contribution.
Contribution = Sales − Variable Costs. It is the amount that contributes first to covering fixed costs and then to profit. Contribution per unit = Selling price per unit − Variable cost per unit.
State the formula for the Contribution to Sales (C/S) ratio.
C/S ratio (P/V ratio) = (Contribution / Sales) x 100, or (Contribution per unit / Selling price per unit) x 100.
How is the break-even point calculated in units and in revenue?
BEP (units) = Fixed Costs / Contribution per unit. BEP (revenue) = Fixed Costs / C/S ratio.
What is the margin of safety?
The amount by which actual or budgeted sales exceed the break-even sales. Margin of Safety = Total Sales − Break-even Sales; it can be expressed in units, value, or as a percentage of sales.
How do you calculate the sales level required to achieve a target profit?
Required sales (units) = (Fixed Costs + Target Profit) / Contribution per unit; Required sales (value) = (Fixed Costs + Target Profit) / C/S ratio.
State the key assumptions underlying Cost-Volume-Profit (CVP) analysis.
Costs split clearly into fixed and variable; selling price, variable cost per unit, and fixed costs remain constant; production equals sales (no stock change); a single product or constant sales mix; and activity is the only factor affecting costs.
PIPFA Cost Accounting FAQ
What is in the PIPFA Cost Accounting syllabus?
PIPFA Cost Accounting is split into 7 chapters: Introduction to Cost Accounting, Material Costing, Labour Costing, Factory Overheads, Job and Batch Costing, Process Costing and Marginal and Absorption Costing. Together they contain 19 topics.
How many chapters are in PIPFA Cost Accounting?
7 chapters, containing 19 topics. The largest chapter is Material Costing, with 3 topics.
Are there flashcards for PIPFA Cost Accounting?
Yes — a 60-card Cost Accounting deck, printed in full in the flashcards section of this page and available in the Examius app with spaced repetition. The free plan covers one exam of your choice, including its flashcards; Examius Pro, a one-time purchase, unlocks every other exam and deck.