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Syllabus: CICTA 203
SYLLABUS CICTA 203 - COST AND MANAGEMENT ACCOUNTING 2 - INTERMEDIATE 2
16.0 COST AND MANAGEMENT ACCOUNTING II INTERMEDIATE II


16.1 Course Objective

The course provides an outline of the advanced scope, principles and objectives of cost and management accounting at an advanced stage. It serves as the precursor to the advanced part of the whole management accounting course. The course seeks to delve more into the advanced cost and management accounting variables that will aid in collection, analysis and presentation of information.

The syllabus is based on practical industry applications. Students build on their capabilities and competencies and apply the principles studied from Intermediate I, as related to manufacturing sectors as well as service-oriented organizations.


16.2 Course Description

The course is centred on the full application of performance management analysis and interpretation of information required by management at all levels, for the purpose of formulation of organisational policies, planning of organisational activities in the long, medium and short term. Controlling of organisational activities, decision making and performance appraisal are among the hallmarks of the course.

16.3 SYNOPSIS

16.3
.1 Budgets and Budgetary Control

a. Description of the nature and background of budget and budgetary control

b. Analysis and purpose of preparing budgets.

c. Discussion of conflicting roles of departmental budgets.

d. Description of the stages in budgeting process.

e. Definition of budget period.

f. Description and administration of budget.

g. Discussion of the importance of budget manual.

h. Evaluation of the various types of budgets and their contribution to preparing the master budget.

i. Difference between fixed and flexible budgets.

j. Walk through the process for the preparation of cash and functional budgets.

k. Preparation of a detailed master budget.

l. Discuss differences between zero-based, incremental and rolling budgets


16.3
.2 Costing Techniques (Absorption and Marginal Costing)

a. Discussion of the elements of absorption costing and marginal costing.

b. The income statements under absorption and marginal costing.

c. Discussion of reported profits under the two methods.

d. Preparation and computation of statement to reconcile profits/(loss) obtained under the two methods (using the same data).


16.3
.3 Cost-Volume-Profit (CVP) Analysis

a. The Concept of Cost Volume Profit Analysis

b. Assumptions/Conditions underlying the concept of CVP

c. The Drawbacks of the Concept

d. The mechanics of CVP analysis using single product ( Algebraic, Graphical & Columnar/Scheduler Computation)

e. CVP mechanics using multi-product analysis

f. The Profit Volume Ratio Graph

g. The interface between Break even analysis and marginal costing/direct costing

h. The Incidence of Partial Attributable Fixed Costs of production and the effect on reported profit.


16.3
.4 Activity-Based Costing (ABC)

a. Analyses of the principles underlying the design of ABC systems.

b. Discussion of the shortcomings of traditional costing systems.

c. Activity-based and traditional costing systems compared.

d. Calculation of the product costs using ABC system.

e. Evaluation of the limitations of ABC System.


16.3
.5 Standard Costing and Variance Analysis

a. Explanation of the terms associated with standard costing.

b. Explanation of “the standard cost card” for a unit of output.

c. Assessment of operation of a standard costing system.

d. Explanation of standard costs.

e. Types of cost standards.

f. The purpose of standard costing.

g. Computation of material, labour, overhead and sales variances, the meaning, computation and causes.

h. Explanation of mix and yield variances.


16.3.6 Pricing Decisions

a) Explain the factors that influence the pricing of a product or service.

b) Explain the price elasticity of demand.

c) Derive and manipulate a straight line demand equation. Derive an equation for the total cost function (including volume-based discounts).

d) Calculate the optimum selling price and quantity for an organisation, equating marginal cost to marginal revenue

e) Evaluate a decision to increase production and sales levels, considering incremental costs, incremental revenues and other factors.

f) Determine prices and output levels for profit maximisation using the demand based approach to pricing (both tabular and algebraic methods)

g) Explain different price strategies, including:

i) All forms of cost-plus

ii) Skimming

iii) Penetration

iv) Complementary product

v) Product - line

vi) Volume discounting

vii) Discrimination

viii) Relevant cost

h) Calculation of price from a given strategy



16.3
.7 Cost for Decision Making

a. Relevant cost analysis

b. Explain the concept of relevant costing.

c. Identify and calculate relevant costs for a specific decision situations from given data.

d. Explain and apply the concept of opportunity costs.

e. The decision making process and assessment of the type of cost information needed for decision making.

f. How to use strategic cost analysis to make special decisions on orders.

g. Useful and strategic cost analysis in the make, buy, lease and shut down decisions.

h. Cost analysis in the decision to sell before or after additional processing.

i. Design of strategic cost analysis in keeping or dropping products or services.

j. Strategic cost analysis to evaluate programmes / projects.

k. Decisions with multiple products/services and limited resources.

l. Assessment of the attitudinal, behavioural, implementation, and legal & ethical issues in decision making.



16.3
.8 Performance Evaluation and Control of Responsibility Centres

a. Explanation of the responsibility accounting and types of responsibility centres.

b. Assessment of the merits and demerits of decentralisation.

c. Basis of comparison used in performance evaluation and standard setting.

d. Return On Investment (ROI), Accounting Rate of Return (ARR), Residual Income (RI) and Economic Value Added (EVA).

e. Definition and calculation of shadow prices.

f. What is Transfer Pricing? Examination of its objectives.

g. Different Transfer Pricing methods and when each method should be used.

h. Examination of the importance of international tax issues in transfer pricing.



16.3.9 Target Costing

a) Derive a target cost in manufacturing and service industries.

b) Explain the difficulties of using target costing in service industries.

c) Suggest how a target cost gap might be closed.

3. Life-cycle costing

a) Identify the costs involved at different stages of the life-cycle.

b) Derive a life cycle cost in manufacturing and service industries.

c) Identify the benefits of life cycle costing.



16.3.10 Throughput Accounting

a) Discuss and apply the theory of constraints.

b) Calculate and interpret a Throughput Accounting Ratio (TPAR)

c) Suggest how a TPAR could be improved.

d) Apply throughput accounting to a multi-product decision-making problem.


16.3.11 Environmental Accounting

a) Discuss the issues business face in the management of environmental costs.

b) Describe the different methods a business may use to account for its environmental costs.


16.3.12 Decision-Making Techniques

1 Relevant cost analysis

a) Explain the concept of relevant costing.

b) Identify and calculate relevant costs for a specific decision situations from given data.

c) Explain and apply the concept of opportunity costs.


16.3.13 Breakeven Analysis

Cost volume profit analysis

a) Explain the nature of CVP analysis.

b) Calculate and interpret break-even point and margin of safety.

c) Calculate the contribution to sales ratio, in single and multi-product situations, and demonstrate an understanding of its use.

d) Calculate target profit or revenue in single and multi-product situations, and demonstrate an understanding of its use.

e) Prepare break even charts and profit volume charts and interpret the information contained within each, including multi-product situations.

f) Discuss the limitations of CVP analysis for planning and decision making.

3. Limiting factors

a) Identify limiting factors in a scarce resource situation and select an appropriate technique

b) Determine the optimal production plan where an organisation is restricted by a single limiting factor, including within the context of “make” or “buy” decisions.

c) Formulate and solve multiple scarce resource problem both graphically and using simultaneous equations as appropriate.



16.3.14 Performance Analysis and Behavioural Aspects

a) Analyse and evaluate past performance using the results of variance analysis.

b) Use variance analysis to assess how future performance of an organisation or business can be improved.

c) Identify the factors which influence behaviour.

d) Discuss the issues surrounding setting the difficulty level for a budget.

e) Discuss the effect that variances have on staff motivation and action.

f) Explain the benefits and difficulties of the participation of employees in the negotiation of targets.

g) Describe the dysfunctional nature of some variances in the modern environment of JIT and TQM.

h) Discuss the behavioural problems resulting from using standard costs in rapidly changing




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