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DA5-Cost Accounting

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DA5-Cost Accounting

Course Features

Course Details

DA5-Cost Accounting

Learning outcomes

On successful completion of D5, students should be able to:
  1. Explain the purpose and importance of cost accounting for an organisation
  2. Distinguish between the various cost classifications and explain the reasons for the different classifications
  3. Identify and calculate cost information for use in decision-making
  4. Explain and apply the accounting methods for materials
  5. Explain and apply the accounting methods for labour
  6. Explain and apply the accounting methods for overheads
  7. Apply absorption costing, marginal costing and activity-based costing
  8. Apply a range of costing systems including job, batch, contract, service and process costing
  9. Record cost and revenue data in the accounting system
Topic  Weighting
Introduction to costing accounting 5%
Cost classification 5%
Cost behaviour 10%
Materials 10%
Labour 10%
Overheads 10%
Absorption costing, Marginal costing and Activity based costing 15%
Application of cost accounting information 30%
Cost bookkeeping  5%

Content

  1. Introduction to cost accounting
    1. Meaning and scope of cost accounting
      1. Explain why accounts are prepared
      2. Illustrate how an organisation’s accounting system is affected by the nature of the business
      3. Define cost accounting
      4. List the users of accounting information
    2. Role and function of cost accounting within the organisational framework
      1. Explain the role and function of cost accounting for an organisation
      2. Understand the range of information that could be provided by the cost accounting system.
    3. Relationship between cost accounting, management accounting and financial accounting
      1.  State the relationship of cost accounting to management accounting and to financial accounting.
  2. Cost classification

    1. The concept of cost
      1. Define historic cost and economic value
    2. Importance of cost recording, cost analysis and reporting
      1. Explain the importance of cost recording, cost analysis and reporting
    3. Cost objects and cost accumulation
      1. Explain the terms cost object, cost unit, cost centre, revenue centre, profit centre, responsibility centre
    4. Manufacturing cost elements: direct, indirect, prime, product, service, period, production and non-production costs
      1. Identify and give examples of each cost elements
      2. Distinguish between direct and indirect cost
      3. Distinguish between production, administration, selling and distribution overheads
  3. Cost behaviour

    1. A Cost classification for decision purposes
      1.  List the three elements of a cost unit
      2. Illustrate the meaning of cost classification
    2. Cost behaviour: variable, fixed, semi-variable and stepped fixed costs
      1. Explain the basic principle of cost behaviour
      2. Distinguish between the behaviour patterns of different types of cost
      3. Prepare a graph of each cost type
      4. Distinguish a graph for accountants and economists
    3. Methods of splitting semi variable costs
      1. Calculate fixed and variable elements of cost using the high/low method
      2. Calculate fixed and variable elements of cost using the scatter graph method
  4. Materials

    1. Purchasing and cost control systems and procedures
      1. Explain the objectives and principles of inventory recording
      2. Describe the procedures and documents used for ordering and receiving inventory
      3. Calculate free inventory
    2. Inventory valuation methods
      1. Valuation of inventory issues and closing inventory using FIFO, LIFO and AVCO
    3. Inventory control techniques
      1. Describe the procedures and documents used for inventory issues
      2. Calculate inventory control levels (minimum, maximum, average and reorder level)
      3. Explain principles of EOQ  Calculate inventory reorder quantity using EOQ
      4. Explain inventory count
      5. Describe the main features of Just in Time systems
  5. Labour

    1. Types of labour and Modes of remuneration
      1. Distinguish between direct and indirect labour
      2. Describe the main categories of remuneration and their features e.g. day rate systems, piecework systems and bonus/incentive scheme
    2. Procedures and documentation for effective recording and cost analysis
      1. Describe labour records such as clock cards and time sheets
      2. Calculate labour costs
      3. Calculate the labour ratios (efficiency, capacity, production volume and idle time)
    3. Incentive schemes
      1. Describe the features of incentive schemes and its advantage and disadvantage
    4. Labour turnover
      1. Explain labour turnover
      2. Identify labour turnover costs
      3. Calculate labour turnover rate
  6. Overheads and Absorption Costing

    1. Characteristics of overheads
      1. Describe the characteristics of overheads
    2. Cost allocation, apportionment and absorption
      1. Describe the three stages of allocation, apportionment and absorption
      2. Explain how to deal with overheads of service departments
      3. Calculate absorption rate using various bases
      4. Explain the reasons for applying absorption rates
    3. Over and under absorption
      1. Describe the reasons for under and over absorption
      2. Calculate under- and over absorption
  7. Marginal costing, absorption costing and activity based costing

    1. A Marginal costing
      1. Explain what is meant by marginal costing and contribution
      2. Calculate marginal cost
      3. Prepare profit statement
      4. Calculate closing inventory value at marginal cost
      5. Explain how to deal with fixed costs using marginal costing
    2. Absorption costing versus marginal costing
      1. Differentiate between an Absorption Costing and Marginal Costing
      2. Prepare profit statement
      3. Explain the arguments for against Marginal and Absorption
    3. Reconciliation of absorption costing and marginal costing
      1. Reconcile marginal profit with absorption costing profit
    4. Activity-based costing
      1. Describe activity –based costing
      2. Define cost pool and cost driver
      3. Calculate the product cost using ABC
  8. Application of cost accounting information

    1. Job and batch costing
      1. Describe the features of job and batch costing
      2. Calculate the job cost, the batch cost
      3. Prepare a job and batch quotation
      4. Prepare the bookkeeping record entries for job and batch costing
    2. Contract costing
      1. Describe the characteristics of contract costing
      2. Prepare the contract account
      3. Explain how to deal with uncompleted contracts
      4. Calculate attributable profit on a contract
    3. Service costing
      1. Describe the specific characteristics of services
      2. Calculate the average cost per unit of service
    4. Process costing (WIP Valuation, Joint and by-product costing)
      1. Describe the features of processing costing
      2. Prepare a process account
      3. Calculate normal losses, abnormal losses and abnormal gains
      4. Calculate scrap value
      5. Explain the concept of equivalent units
      6. Calculate equivalent units where there is closing WIP
      7. Calculate opening work in progress values using both weighted average and FIFO Methods
      8. Distinguish between joint and by-products.
      9. Explain the methods of cost treatment of joints costs to joint products.
  9. Standard costing

    1. Types of Standards
      1. Define standard costing
      2. Explain the types of standards and how to establish the standards
    2. Standard Cost Card
      1. Prepare a standard cost card
    3. Basic Variances
      • Define variances
      • Calculate the following basic variances
        1. Materials total cost, materials price and materials usage variances
        2. Labour total cost, labour rate and labour efficiency variances
        3. Labour idle variance
        4. Variable overhead total cost, variable overhead expenditure and variable overhead efficiency variances
        5. Fixed overhead expenditure and volume variances
        6. Sales price and volume margin variances
  10. Cost bookkeeping

    1. A Recording of transactions under cost accounting
      1. Explain why many organisations maintain a cost accounting system
    2. Interlocking bookkeeping system
      1. Define an interlocking system
      2. Illustrate the basic entries in an interlocking system
      3. State the advantage and disadvantage of an interlocking system
    3. Integrated bookkeeping systems
      1. Define an integrated system
      2. Illustrate the basic entries in an integrated system
      3. State the advantage and disadvantage of an integrated system

Format of the exam

Section Marks
Section A: 10 compulsory multiple choice questions, 2 marks each 20
Section B: Any 4 out of 5 questions, 20 marks each 80
TOTAL 100
Time allowed: 3 hours, plus 15 minutes reading time

Recommended reading

  1. ZiCA D5 Study Manual
  2. Drury, C, Management and Cost Accounting, 7th edition, Cengage Learning EMEA, 2008
  3. Lucey, T, Costing, 7th edition, Cengage Learning EMEA, 2008
This course does not have any sections.

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