PIPFA Management Accounting Syllabus

Management Accounting syllabus — full chapter and topic list

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

1. 1

   Cost-Volume-Profit Analysis

   2 topics

   • Break-even and Margin of Safety
   • Target Profit Analysis
2. 2

   Relevant Costing and Decision Making

   3 topics

   • Relevant and Irrelevant Costs
   • Make or Buy Decisions
   • Limiting Factor Analysis
3. 3

   Budgeting and Budgetary Control

   3 topics

   • Functional and Master Budgets
   • Flexible Budgets
   • Cash Budgets
4. 4

   Standard Costing and Variance Analysis

   3 topics

   • Material Variances
   • Labour Variances
   • Overhead Variances
5. 5

   Pricing and Transfer Pricing

   3 topics

   • Cost-plus Pricing
   • Target Costing
   • Transfer Pricing
6. 6

   Capital Budgeting

   3 topics

   • Payback and Accounting Rate of Return
   • Net Present Value
   • Internal Rate of Return
7. 7

   Working Capital Management

   2 topics

   • Cash and Receivables Management
   • Inventory Management
8. 8

   Performance Measurement

   2 topics

   • Return on Investment and Residual Income
   • Balanced Scorecard

Management Accounting flashcards for PIPFA

18 of 62 cards from the Management Accounting deck — real questions with worked answers.

1. What is the break-even point and what is the formula in units?

   The break-even point is the activity level where total revenue equals total cost, giving zero profit. Break-even units = Fixed Costs / Contribution per unit (where Contribution per unit = Selling price per unit - Variable cost per unit).

2. How do you calculate the break-even point in sales revenue (value)?

   Break-even revenue = Fixed Costs / Contribution to Sales (C/S) ratio. Alternatively, Break-even units x Selling price per unit. The C/S ratio = Contribution per unit / Selling price per unit.

3. What is the Margin of Safety and how is it expressed?

   The Margin of Safety is the amount by which budgeted (or actual) sales exceed the break-even sales. It measures how far sales can fall before a loss occurs. MOS = Budgeted sales - Break-even sales; MOS % = (Budgeted sales - Break-even sales) / Budgeted sales x 100.

4. What is the contribution to sales (C/S) ratio, also called the profit-volume (P/V) ratio?

   The C/S (P/V) ratio expresses contribution as a proportion of sales. C/S ratio = Contribution / Sales = Contribution per unit / Selling price per unit. A higher ratio means more contribution earned per rupee of sales.

5. In target profit analysis, what is the formula for the units required to achieve a desired profit?

   Units for target profit = (Fixed Costs + Target Profit) / Contribution per unit. For target sales revenue, use (Fixed Costs + Target Profit) / C/S ratio.

6. How is the sales revenue needed for a required target profit calculated using the C/S ratio?

   Required sales revenue = (Fixed Costs + Target Profit) / C/S ratio. This gives the rupee value of sales needed to cover fixed costs and achieve the target profit.

7. What does a break-even (CVP) chart plot, and what point is identified by the intersection of the total cost and total revenue lines?

   A break-even chart plots total revenue and total cost (fixed plus variable) against the level of activity on the horizontal axis. The intersection of the total revenue and total cost lines identifies the break-even point. The wedge to the right shows profit; to the left shows loss.

8. On a profit-volume (P/V) chart, what does the line represent and where does it cross the horizontal axis?

   A P/V chart plots profit (vertical axis) against sales volume or revenue (horizontal axis). The line starts at a loss equal to fixed costs at zero sales and rises by the C/S ratio. It crosses the horizontal (zero profit) axis at the break-even point.

9. Define relevant costs and the three characteristics they must have.

   Relevant costs are costs that should be considered when making a decision. They are: (1) future costs (not already incurred), (2) cash flows (not notional/book entries), and (3) incremental/differential costs that change as a result of the decision.

10. What is a sunk cost and why is it irrelevant to decision making?

    A sunk cost is a cost that has already been incurred and cannot be changed by any future decision. It is irrelevant because relevant costs must be future costs; past spending cannot be altered by the decision under consideration.

11. Define opportunity cost and explain whether it is relevant in decision making.

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

12. Why is a committed cost treated as irrelevant in decision making?

    A committed cost is a future cash outflow that will be incurred regardless of the decision being made because of a prior, binding commitment. Since it does not change between alternatives, it is not incremental and is therefore irrelevant.

13. In a make-or-buy decision (with no scarce resources), what is the basic decision rule?

    Compare the relevant cost to make in-house (usually the variable/incremental cost of internal production plus any directly attributable fixed costs) with the cost to buy externally. Choose the option with the lower relevant cost; only relevant, future, incremental costs are considered.

14. In a make-or-buy decision, how are general fixed overheads that continue regardless of the decision treated?

    Unavoidable general fixed overheads are irrelevant because they will be incurred whether the item is made or bought. Only avoidable/incremental fixed costs that would be saved by buying externally are relevant to the comparison.

15. When a scarce resource exists, how is a make-or-buy decision evaluated?

    Rank components by the extra (incremental) cost of buying per unit of scarce resource saved by buying out. Make in-house the products that use the scarce resource most efficiently (lowest extra cost of buying per unit of limiting factor), and buy in the rest, to minimise total cost.

16. What is a limiting factor (key factor) and give common examples.

    A limiting factor is a scarce resource that restricts an organisation's level of activity, preventing it from satisfying all demand. Examples include scarce materials, limited labour hours, limited machine hours, or limited cash/finance.

17. What is the decision rule for maximising profit when one limiting factor exists?

    Rank products by contribution per unit of the limiting factor (e.g. contribution per machine hour). Allocate the scarce resource to products in order of highest contribution per unit of limiting factor first, until the resource is exhausted, to maximise total contribution and profit.

18. In single limiting factor analysis, why is contribution per unit of limiting factor used rather than contribution per unit of product?

    Because the constraint is the scarce resource, profit is maximised by earning the most contribution from each unit of that scarce resource. Ranking by contribution per unit of limiting factor ensures the scarce resource generates the greatest total contribution.

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