CA Intermediate PAPER 4: COST AND MANAGEMENT ACCOUNTING Flashcards

24 sample cards from the PAPER 4: COST AND MANAGEMENT ACCOUNTING deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. Define Overheads and give their three functional classifications.

   Overheads = aggregate of indirect material, indirect labour and indirect expenses. Functional classifications: Factory/Works overheads, Administration (office) overheads, and Selling & Distribution overheads.

2. Differentiate Allocation, Apportionment and Absorption of overheads.

   Allocation = charging a whole overhead item directly to one cost centre. Apportionment = splitting common overheads over several cost centres on a suitable basis. Absorption = charging overheads of a cost centre to cost units (via an absorption rate).

3. What is a Blanket (single) overhead rate vs a Departmental overhead rate?

   Blanket rate = a single overhead absorption rate for the entire factory. Departmental rate = a separate rate for each department/cost centre, giving more accurate product costing where departments differ in overhead intensity.

4. State the Machine Hour Rate formula for absorbing overheads.

   Machine Hour Rate = Total overheads relating to the machine ÷ Total machine hours worked. It charges overheads in proportion to machine time used by each job.

5. What is over-absorption and under-absorption of overheads, and how are they treated?

   Over-absorption = absorbed overheads exceed actual; under-absorption = absorbed less than actual. Treatment: transfer to Costing P&L, or use a supplementary rate to adjust cost of sales/stocks, depending on the cause (normal vs abnormal) and amount.

6. Differentiate Primary and Secondary distribution of overheads.

   Primary distribution = allocation and apportionment of overheads to all departments (production and service). Secondary distribution = re-apportionment of service department costs to production departments.

7. Name three methods of re-apportioning service department costs.

   Direct (Re)distribution Method, Step (Step-ladder/Non-reciprocal) Method, and Reciprocal Service Methods (Repeated Distribution / Simultaneous Equation / Trial-and-Error).

8. What is Activity Based Costing (ABC)?

   ABC is a costing method that assigns overheads to products/services based on the activities that drive costs, using cost pools and cost drivers — giving more accurate product costs than traditional volume-based absorption.

9. Define 'Cost Pool' and 'Cost Driver' in ABC.

   Cost Pool = a grouping of individual costs associated with a single activity (e.g., machine set-ups). Cost Driver = the factor that causes a change in the cost of an activity (e.g., number of set-ups, number of orders).

10. List the broad steps in implementing ABC.

    1) Identify activities; 2) Group costs into activity cost pools; 3) Identify cost driver for each activity; 4) Compute cost driver rate (pool cost ÷ driver volume); 5) Assign costs to products using driver rates.

11. Why may costs be reconciled between Cost and Financial accounts (non-integrated system)?

    Because the two sets are kept separately, differences arise from items in financials only (e.g., interest, dividends, donations), items in cost only (notional rent/interest), and different stock valuation/overhead absorption (over/under absorption). Reconciliation explains the profit difference.

12. What is an Integrated (Integral) Accounting System?

    A single set of accounts that records both cost and financial transactions together, avoiding the need for separate ledgers and reconciliation. It maintains one general ledger combining cost and financial data.

13. List three items that appear only in Financial Accounts (not Cost Accounts).

    Purely financial charges/incomes such as: interest on loans, dividends received, loss/profit on sale of fixed assets, donations, income tax, and goodwill/preliminary expenses written off.

14. What is Single (Output/Unit) Costing and where is it used?

    A method used where production is a single uniform product in a continuous flow (e.g., mines, quarries, cement, breweries). Cost per unit = Total cost ÷ Total units produced, presented via a cost sheet.

15. What is Job Costing and where is it applied?

    A costing method where costs are collected and ascertained for each distinct job/work order separately. Used where production is to customer order and jobs differ — e.g., printing press, repair shops, construction, foundries.

16. What is Batch Costing and how is cost per unit found?

    Batch Costing is a form of job costing where identical items are produced in batches; the batch is the cost unit. Cost per unit = Total cost of batch ÷ Number of units in the batch. Used in pharmaceuticals, bakeries, toys.

17. State the Economic Batch Quantity (EBQ) formula.

    EBQ = √(2 × D × S / C), where D = annual demand, S = set-up cost per batch, C = carrying (holding) cost per unit per annum.

18. What is Process Costing and a key feature of it?

    Process Costing is used where production passes through continuous distinct processes (chemicals, textiles, oil, paint). Cost is ascertained per process; output of one process becomes input of the next. Costs are averaged over output.

19. What are Equivalent Units (Equivalent Production) in process costing?

    Equivalent Units express incomplete (work-in-progress) units in terms of fully completed units, by multiplying physical units by their percentage of completion — enabling fair allocation of cost between completed output and closing WIP.

20. How are Normal Loss and Abnormal Loss treated in process costing?

    Normal loss is expected; its cost is borne by good units (scrap value credited to the process). Abnormal loss (loss exceeding normal) is valued at normal cost per good unit and transferred to Costing P&L; abnormal gain is treated oppositely.

21. How is cost per unit calculated for a service like transport?

    By using composite/operating cost units. For transport, cost per passenger-kilometre or tonne-kilometre = Total operating cost ÷ Total passenger-km (or tonne-km). Composite unit combines two factors (e.g., distance × load).

22. What is Standard Costing?

    A control technique that sets predetermined (standard) costs, compares them with actual costs, computes variances, and analyses the causes — enabling cost control and performance evaluation through 'management by exception'.

23. What is Marginal Costing and what is Contribution?

    Marginal Costing charges only variable (marginal) costs to products; fixed costs are written off against contribution for the period. Contribution = Sales − Variable Cost = Fixed Cost + Profit.

24. State the Break-Even Point and Margin of Safety formulas.

    Break-Even Point (units) = Fixed Cost ÷ Contribution per unit; BEP (₹) = Fixed Cost ÷ P/V Ratio. Margin of Safety = Actual (or budgeted) Sales − Break-Even Sales (also = Profit ÷ P/V Ratio). P/V Ratio = Contribution ÷ Sales × 100.

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PAPER 4: COST AND MANAGEMENT ACCOUNTING flashcards FAQ