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TABLE OF CONTENTS
Note: click the cross-reference below for easy navigati . Click Q or
press Ctrl+H0me to see table ofcontents.
TABLE OF CONTENTS ........................................................

KEY TERMS ................................................................................................ .. 3
AUTHOR'S PROFILE .....................................................
IMPORTANT! .........................................................................................
Chapter 1: ACCOUNTING FOR M . . ... . ... . . ... . ... . ... . . ... ..
Chapter 2: SOURCES OF DAT ................................................. ..
Chapter 3: COST CLASSIF ............. ..
Chapter 4: PRESENTING INF ..................... ..
Chapter 5: ACCO ..................................................74
.............................................79
................................................ ..82
G ................................................ ..84
....................................................................86
17: CAPITAL BUDGETING & DISCOUNTED CASH FLOWS ............ .. 103

Chapter 18: BUDGETARY CONTROL & REPORTING ........................................ .. 106
Chapter 19: BEHAVIOURAL ASPECTS OF BUDGETING ................................... .. 108
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Chapter 20: STANDARD COSTING SYSTEMS ....................................................... .. 110

Chapter 21: VARIANCE ANALYSIS ............................................................................ .. 112
Chapter 22: RECONCILIATION OF BUDGETED &ACTUAL PROFIT ........... .. 114
Chapter 23: PERFORMANCE MEASUREMENT OVERVIE
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KEY TERMS
BROWSE BYKEY TERM
A Blanket Rate 0 - Factory Wide

Rate . . . . . . . . . . . . . . . . . . .. 106
Absorption Costing .................. ..106 118
Accurate .................................... .. 41 ___.I _ _ I _ . _ _ _ _ __
Achievable ............................... .. 147 ____________ “
Acid Test Ratio ......................... ..
Activity Based Costing (ABC)
Additive Model ...................... ..
.................. .. 104, 143
gets ............................ .. 123
in Based Index Number ...... ..121
Clear ......................................... ..147
Clustered Sampling .................... ..55
Coefficient of Correlation ......... .. 120
Coefficient of Determination .... ..120
Committed Cost ....................... ..127
Competitive Benchmarking ...... ..147
Competitive Performance ........ ..147
Benchmarking ----------------------- "147 Complete .................................... ..41
Compound Interest .................. ..127
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Compounding .......................... .. 127 Departmental Overhead Absorption

Rate ...................................... ..106
Consumer Price Index (CPI) ...... .. 120
Deseasonalisation .................... ..120
Contribution ............................ .. 108
Determinants ..
Control ....................................... .. 39
Control Reports ........................ .. 130 IIIIIIIIIIIIIIII n
Controllability .......................... .. 147
Controllable Cash Flows ........... ..127
Conversion Cost ....................... .. 1
Cost Centres ....................... ..

Cost Objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . lIlIIIlIu
.................. .. 106
Cost Units . . . . . . . . . . . . . . . . . . . . . . . ..
ship ............... .. 76, 77
Cost Value..
ttributable Fixed Cost..127
ounted Cash Flow ...... .. 126, 127
Discounting .............................. ..127
Discretionary Costs .................. .. 145
Dispatch Note ............................ ..98
Distribution ................................ ..51
Dividend Cover ......................... ..142
Easy to use. ................................ ..41

Delivery Note (DN) ..................... .. 98
Economy .................................. .. 143
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Effective Interest Rate ............. .. 127 Flexibility .................................. ..147
Effectiveness ............................ .. 143 Forecasting ............................... ..120
Efficiency ................................. .. 143 Free Inventory ............................ ..98
Efficiency Ratio ................ .. 104, 143
Equity ....................................... .. 147
Equivalent Cost Units ............... .. 112
Esteem Value ........................... .. 145
Exchange Value ........................ .. 1
Extrapolation ..................... ..
us Schemes ............. ..103
Heterogeneity .......................... ..143
High Low Method ....................... ..73
Holding Cost ............................. ..100
Hourly Rate Basis ..................... .. 103
Fixed P duction Overhead Capacity Idle Time Costs ......................... ..103

Variance ............................... .. 136
Incremental Piece Work System. 103
Fixed Production Overhead
Index Numbers ......................... ..120
Variance ............................... .. 136
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Indirect Cost .............................. .. 62

L
Indirect Expenses ....................... .. 64
Labour Cost Variance ............... ..136
Indirect Labour .......................... .. 64
Labour Turnover ................... ..103
Indirect Materials ...................... .. 64
Life Cycle C .......... ..116
Indirect Relationship .................. .. 76
LIFO first 0 .............. ..lOO
Individual Bonus Schemes ........ .. 103
L' e t ........ ..
Information ................................ ..40

' ear Rela
Innovation ............................... .. 1
M
Intangibility ........................ ..
emen counti ; ........... ..36
Interest Cover ....................... ..
rgin ............................... ..lOO

Internal Rate of R
‘ 0' ng ...................... ..108
Interpolatio
, .................................... ..100
Mster Budgets ........................ ..123
Material Cost Variance ............. ..136
Material Requisition Note (MRN).98
Maximum Inventory Level ........ ..100
Minimum Guaranteed Pay ....... ..103
Minimum Inventory Level ........ ..100
Mission Statement ................... ..140
Motivation ............................... ..147
Key Performance Indicators (KPI) Moving Averages ...................... ..120

............................................. .. 142
Multiplicative Model ................ ..120
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Multistage Sampling .................. .. 56 P
N Payback Period ......................... ..128
Net Present Value (NPV) .......... .. 127 Periodic Inventor

Non Controllable Cash Flows 127 I '- ------- -
Non Financial Performance -------- -

Measures .............................. .. 142
Non Linear Relationship ............. .. 76
Non-production costs ................ ..
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------
Operating Profi ........................... ..49
ined Overhead
ption Rate ............ .. 105, 106
Prlme Cost ................................ ..112

...... H Principle Budget Factor..............123
Probability .................................. ..52
Process Costing ........................ ..112
Production Budget ................... ..123
Production costs ........................ ..60
Production or Factory Overheads

Budget _____________________ __123 (F.O.H) .................................... ..64
Overtime Premiums ................. .. 103 Production Volume Rati0104, 143
Ownership _______________________________ __147 Profit Centres ............................. ..79
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Purchase Invoice (PI) or Supplier Resource Utilization ................. ..147

Invoice .................................... .. 98
Responsibility Accounting .. 129, 130
Purchase Order (PO) .................. .. 98
Responsibility Centres ................ ..78
Purchase Requisition Note (PRN).98
Purchase Return Notes or Debit

Note ....................................... .. 98
Q
Quality ..................................... ..147
Quick Ratio ............................ ..
Quota Sampling ............ ..
R
Random Sa
....................................... ..103
..... .. Sales Budget..............................123
.... .. Sales Invoice.................................98
Sales Return Notes or Credit Note.

................................................ ..98
Sales Value Method ................. ..112
Sales Variance .......................... ..136
Sample ....................................... ..49
Sample Size ................................ ..50
Re-Order Quantity ................... .- 100 Scatter Graph ............................. ..92
Residual Income (RI) ................ .. 143 Scenario Planning ..................... ..123
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Seasonal Variations .................. .. 120 Stratified Sampling ..................... ..53
Selling & Distribution Overheads . 61 Sunk Cost ................................. ..127
Semi-Variable Costs ................... .. 72 Systematic Sampling .................. ..53
Share Options .......................... .. 132
Simple Aggregate Index Numbers

............................................. .. 121
Simple Interest ......................... ..127
Simultaneity ............................. ..143
Spread Sheet .......................... ..
Spurious Relationship
Standard Costing ...................... ..
Standard Devi
Total Cost ................................... ..73
Total Quality Management (TQM)

.............................................. ..116
Trade Payable Turnover ........... .. 142
Trade Receivable Turnover ....... ..142
Trend ........................................ ..120
Strateg' Objectives ................. .. 140 U
Strategic Planning ...................... .. 4O Unavoldable Cash Flows """""" "127
Strategies ................................... .. 39 Unavoldable Idle Time Cost """ "103
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Under & Over Absorption ........ .. 106 Variable Costs per Unit ............... ..68
Unit Costs .................................. .. 78 Variable Production Overhead

Variance ................................ ..136
Use Value ................................. .. 145
User-targeted. ........................... .. 41
Value Analysis .......................... ..145
Value for Money ...................... .. 143
Variable Cash Flows ................ ..
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AUTHOR'S PROFILE
Name: Murtaza Lanewala
Career Status:
Freelance Writer & tutor for

professional accountancy
qualifications. Professional bodies
include ACCA, CIMA and ICAEW.
Author & CEO of accasupportcorn
E-mail:
kabuli l;2@hotmail.com o
murtaza@accasupport.c
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Chapter 1: ACCOUNTING FOR MANAGEMENT
Chapter 1:
ACCOUNTING FOR MANAGEMENT

Sub Headings
S.no Headings (click the cross—ref below for easy r . g.tion) Pg.no
1 Purpose & Role of Management Accounting 15
2 Financial Accounting Vs Cost & Manage t Accoun _ 16
3 Planning, Decision Making & Control ' * s 7
4 Types of Planning 1
5 Difference between Data & Infor : 1 2\
6 Attributes of Good Informatio 20
7 Limitations of Management ting In ‘ t 20
8 Practice Questions & Sol i . 21
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1 Purpose & Role of Management Accounting

1.1 Purpose of Management Accounting
Cost and management accounting is about providing necessary
financial and non-financial information to management and
employees at all levels inside the organization for decision making
purpose, so that they can better be able to make ratio al decisions in
timely manner.
Example:
Reporting information on a cost ofproduc
the selling price ofthe product can be d
For this purpose, cost and management accounti also involves

information gathering from insi ' s well awutside the organization.
Example:
Inside information can b ofu ' made i rot v
department each mon
Outside information can be m \ d o the 0 1 ct ofi‘ered by

the organizatio '
‘ —
Diayra ‘ _
‘
Strategic
\ Management u o
Accountant / pp I
Tactical Management ]
Macro environment
Operational
/ Management
of Management Accounting
Cost and na ment accounting can have different types of roles in
different organlzations.
Followi are the roles, which are commonly performed by the cost and
mana ment accounting function or management accountant.
| Roles l Details
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Setting product
Management accountant works out the product cost
costs & selling
using suitable costing techniques such as absorption
price and marginal costing methods (see later). They
calculate selling prices based on mark—up (Profit % on
cost) set by the senior management.
Budgeting and Management accountant prepares budgets based on
forecasting present and future objectives awaitegies of the
organization. For this purpose, ey forecasxestimate)
many variables such as sales volume a d cost changes. ,
Communicating Management accountant athers data a inform 'on l
& Reporting from internal and extefi sources. They compile this
information in an appropriate format, struct and
report it to appropriateg‘level of management (strategic,
tactical or operational) in an organization in timely
manner. ‘~ gi ‘\ "‘ z
Assisting in Management accour‘ant provi es financial and on—
decision financial inform tion,v which can assist managers to
making makefiiformed decisions. They use techni es such as
Linear programming (nol‘Xsyllabus) and marginal
i cgisting method (see later) etc.
Performance . Management accountant establis performance
manageme t & measures (such as‘ROCE, RI et gainst which
control performance of individuals & organization as a whole
can be evaluated. e/she gathers information and
compares i‘t'against tandard so that performance can
kbejpevlarded pr penalized.
" 'I/[anagement Accounting
‘7 Management Accounting
required by law.
to liance can result in
pena‘fiies d unishmylts.
Financial accounting is for Management accounting is for
providingxilnformation to external providing information to internal
parties suc as areholders parties such as Board of directors,
government a d bankers etc. managers and employees.
Financial accounting uses Management accounting adopts
interna " nal and local flexible approach to internal
frame orks and accounting l reporting. Format, structure, level
standards to prepare standardized of details and channel of
financial statements. l communication depend on situation
to situation.
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Financial accounting mostly Management accounting provides

provides financial information both financial and non-financial
along with minimum non— information. Usually explanation
financial disclosure required by and interpretation of technical
accounting standards in notes to financial figures.
. . A
the flnanclal statements.
Financial accounting information Management ccountin is present
is historical and do not provides and forward/okinglt 'sts
information on future prospects of managemenxinkeffig'ent and
an organization. effective opera on 0 an
orggpization. I
Financial accounting provides Management accounting Evide
information on performance and information decision—ma ing
position of an organization at purpose when er neede so tha
regular intervals usually 12 organifiional objectives can b
months. imieved.
3 Planning, Decisio '

Diagram:
Decis on Making Control
’ - Feedback
3.1 'ng I
Planning 1 about oking in’ye future.
‘a
It involveisking following questions.
9 Where w are? '

9 Where we want to be?
éx'low do we g’et there?
9 How external factors will influence the organization? (PESTEL
factéis)
9 What skills and resources will be needed? (SWOT analysis)
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After considering all above questions at minimum, Organizational

Objectives are set and strategies are decided to achieve those objectives
as part of planning process.
Everything considered during the planning process should be recorded

and updated each time plan is revised.
3.1.1 Objectives
Objectives are long term SMART (specific, mygureabl attainable,
relevant and time bounded) targets set by the organizatio,
Examples:
Increase Profitability (specific) oft '
(measureable, attainable) in two
objective ofprofit motive orga
Increase number of users

(measurable, attainabl
objective ofNotfor pr fit 0
Objectives shoul - - nsistent 'th the mission of the rganization.
Example -' ‘
~ 0 provide hi a y goods or services to
' - st r ucti ill not leadfulfilment of
' t e objective oflowering no of
St , egies . re sho \-term plafs made to achieve organizational

obje ' es.
p I
1 new products and selling them into existing market.
‘ no a ucts into new market.
Provu. 1 rious environment to golfclub members.
Strate; es made by the organization should be consistent with mission,

objectives.
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Example:
Iforganization set the objective implies very fast growth then use of
internal savings (retained earnings) will not lead tofulfilment of
objective. Rather organization should raisefinance (shares or loan) to
support the objective of very fast growth.
3.2 Decision Making

Management at all levels needs to take decisions fulfil o Jectives.
Decisions made by the managers must be consistent wit the
organizational mission, objectives and strategies.
All decision made by the managers should be recorded so that they can
be made accountable for their decisions.\
Control is exercised to evalu

3.3 Control the r ults of decision— aking.
Whether the decisions m de are correc differe course of action

should be taken. ;\ k I
\ I
Actual results should be compared with plan a variance (divergence)
from plan needsfibe investigated to determine causes.
Any inform 10 obtained iduring thkontrol procegsy is feedback into
the planning process so that realistic plans can be made next time and
informed decision can be taken.
A’PPW
‘ . ic .g Operational Planning
Long Planning? Mediunmrm Short term planning.
’ \ \ plannitig.
nBrief‘flanning— \ Moderate planning. Detailed planning.
Largely planning Break up of strategic Planning based on
basedpn e rnal /'plans into plans internal historical data
environmental capable of (past experiences).
information. implementation.
Issues covered% the Deciding, how much Issued covered by
strat‘e ic planning units would be operational planning
would e product manufactured for each would be, how
development and product? What kind of frequent machine
marketing strategy. pricing technique to maintenance should
adopt? be carried out?
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5 Difference between Data & Information

Data Information
Data is the collection of raw facts Information is the meaningful
and figures compilation of data.
Data do not support decision— Information supp s decision—
making. making.
Statement of comprehensive Reports to th ement on
income and statement of financial organizati lperformarhe are an
position are examples of data. exampl f information.
6 Attributes of Good Information A

Attributes l
Accurate Information sh
grammaticfal stakesk
Complete Informati Sl’lOilk. noMless th&100%.
Cost— Benefi’u’o'f obtainingfiiforrn tion must exce its costs.
beneficial
User—targeted Information should be targeted to ap roiriate person i.e.
I who have the ability to make decisio based on such
AL ' information. *1
Relevant ; Information should be elevant to the matter under
considera @. _
I Aut ritative Information should be II‘O’EI'US’EWOI’EIIY source. If
anyone has to believe to be true.
Timely \ Information Should beicommunicated in time. Example
\ news wouldnot‘bé'b’f any use if communicated late.
Users of the inmmation must able to understand and
apply‘ for decision—making purpose.
' ns of Ma gement Accounting Information
Limitaions of management information for decision—making purpose
are given below.
7.1‘ “Heal expertise

Managers may not have enough knowledge and experience to
unders (1 technical jargons and methodologies used for preparing
reports.
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7.2 Lack oftime

Managers may not have enough time to read every report thoroughly
present to them or management accountant may not able to supply
information within time.
7.3 Lack ofunderstanding

Managers may not understand the importance and ole management
accounting information for decision—making puqge. They 1*‘ consider
provision of such information useless or reduc io I‘
making decisions. of th 'r autonomy to
7.4 Lack ofRelevant & Reliable Informatlon

Sufficient (relevant) and appropriatefieliable) information may e no
available to management accountant to analyze and report inf rmatio
based on them. '
8 Practice Questions ' ns \

8.1 Question
The following assertions relate to financial'accounting a d
accounting:
(i) The main sers of financial accollnting informa ' n are external to an
organisati .
(ii) Cost accounting is that part of financia counting, which records

theklash received and payments made by organisation.
Which of tlaollowing statements are‘true?
/ . Asse ionsTY) and (ii) are both correct.

B. Only assertion‘ii) is co ct.
C. Orkssertion (it) is orrect.
- n: 4
Correct answer is B.
(i) l,
The m n objective of financial accounting information (financial
statements) is to provide information to shareholders on the
performance of the company those are external to the organization.
However, it is also useful for other stakeholders (interested parties) such
as bankers, suppliers, tax authorities, customers etc. Management and
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other employees of the company needs detailed information those are

internal to the company. Detailed information can be on elements of
product cost such as material, labour and production overheads.
(ii)
Management accounting is separate function from financial accounting.
They are both sub departments of accounting department. Management
accounting department is not responsible for rec ing cash rQeipts and
payments it is the responsibility of financial accounting epartment.
Management accounting only make use of f'nancial accot ting
information for providing feedback to m gement on their
performance. 2
8.2 Question 1
Which of the following stateme re a mg to management information
are true? \
1. It is produced for pagies external to the organisation 7
2. There is usually a legal reqx'irementfokhe 1 formation» to be

produced
3. No strict les govern th.e way in‘which the infortgation is presented
4. Itfilily be presented in mo etary no‘Il—‘monetary terms

A. 1 and 2 * i
B. 3 and
C_1\a d 3
is
1)
Management accounting information is produced for internal
management and other employees to the organization.
I
2)
Management accounting information is not required by law.
an
3)
Management accounting information is presented flexibility depending
on urgency, relevance to the user and reliability (estimated or actual) of
information required.
4)
Management accounting information can be presented in mflietary
terms such as variable cost and non—monetary terflsiich as ngmber of
goods reworked. Please! Remember that non—mo etary formation can
be alphabetic as well as numerical. A k
8.3 Question
Management accounting informatiojfis financial as well as .pon—
financial. Management accounting reportsalso involves interpretation
of fact and figures and recomwdatidfi‘s oifihe course of action tak
by the management.
\ ‘a
Data is information tha as been processe in such way as to be
meaningful to its recip ents. \ } 4
Is this statement
\
r false? (1 mark)
\ '
' separately bits of information. Data has to be processed in some
meaningful)
Data/is not formatio in itself; it is merely raw facts and figure used to
produce information.
ement does not provide informationfor investment

vestor has to perform ratio analysis to obtain information
tment decisions.
Return on investment (ROI) of14% calculated based on data given in

financial statement to obtain information on profit generated on
investment in the company.
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8.4 Question
The following statement refers to a quality of good information:
The cost of producing information should be greater than the value of

the benefits of that information to management.
Is this statement true or false? (1 mark)
A. True
B. False \
Solution:
Correct answer is A. .
p
Ex lanation: ‘ !
In general sense, you might have thougKt B. However, ifimsiness sense,
quality of information is, related tocost. Business activities are pursued
to increase economic véalth. If cost 0 ' g informatio does not
exceed benefits then it will lead to reduc 'on in ealth. ‘
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Chapter 2: SOURCES OF DATA
Chapter 2:
SOURCES OF DATA
Sub Headings
S.no Headings (click the cross—ref below for easy Pg.no
1 Sources of Data & Information
@U‘l-bOQIO Uses & Limitations of published Infor'mat'
Impact of Economic Environment on C
Sampling Methods or Techniques
Choosing Sampling Methods
Practice Questions & Solutions
1 Sources of Data & Information

1.1 Sources outside the organization
9 Newspaper, magazines and published books.
9 Work done by government departments such as monetary policy and
fiscal policy.
9 References from other organizations. These ca e competi’Qrs,
suppliers and customers. \
9 Tele communication media such as tel’evision and internet.
9 Labour unions, trade associations d shareholders through general

meetings.
9 External market research. \ \ \
1.2 Sources inside the organ 3

9 Invoice, GRN, Vouchers an other internal documents.
A
9 Informal ossip (grapevine) around the organiwn.
9 Forma am meetings.
9 M o‘ andH reports. ' /'
91ntranetand e—mails. ’
9 Surveys inthe form qu lonnai es to employees.
9 bserMg ermoyees attitud and morale.
Limitation published Information/ Data

ublished ormation
9 Pu lished information is used as cost effective way gathering
informawr initial planning.
9 Published information is used for those areas where information
gatl?fig by organization is not possible due to lack of expertise or
cos associated with obtaining information.
9 It is used where information is immediately needed.
an
2.2 Limitations of Published Information

9 Published information may not be available in a format and
medium organization wants.
9 Published information can be too general and not precisely
applicable to the type of organization in questio
9 Published information can create informati overload such as
lengthy books. \
9 Information from media such as interpet may not be reliable unless
we have the information on know dge an‘ experience of
publisher.
9 They take no responsibi ' for informa on provi d as oppos to
in—house employees w 0 can be held
3 Impact of Economic En
9 Economic en - e n ent deci the demand for goo s or services.
Business ' as recession b‘r growth can fiuence what and
how 'lon produce. '
9 Eponom ent decides th ri or goods or services. If
'00 o ‘ 'ng higher prici g can be charged to customer
than i contraciing. \ J‘
9 Qono$c environment a? the investment decision. If inflation
increases, it will afqt th net present value of future cash flows of the
organi 'on. /
9 Econqr‘nic environment affects source and duration of finance to be
used foropgating organization and growth. If interest rate is
expected to rise then, organization will prefer issuing shares to avoid
intefi' expense.
9 Rise in foreign exchange rate of home currency will make exports
expensive for buying organization in other country. So reduced sales.
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4 Sampling Methods or Techniques

4.1 Statistical Terms
4.1.1 Population
Population is the whole set of items subject to statistical matter under
consideration.
Example:
4.1.2 Sample
Sample denotes individual items sele ed from population.
Example:
Selection of10% ofworkforce presents 5
population.
Samples are used to re e the amount ofw rk, time and co associated
with research work. Conclusions based on ex ination of samples are
assumed as conclusion for whole population.
Example:
Sample size epends o judgement of researcher, which in turn is

influenced by time available, and cost required and need for accuracy of
Frequenc IS the average distance among samples in a population.
Lower distance leads to higher frequency and higher distance leads to

lower frequency.
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Example:
Ifwe take number ofyears ofexperience at one axis and number of
workers in workforce at other axis thenfrequency depends on different
between numbers ofyear experience among workforce. If diflerence
between highly experienced and least experienced wor er is of30 years
then it is said to have lowerfrequency than difi‘erenc een highly
experienced and least experienced worker would b
Diagram
Low Frequency High Frequency
2 ong the graph paper.
Normz&tribu\on is also called bell shaped curve. It means frequency

of s . \ ples will be i‘educed we vxdll move farther from means or average.
Normal Distribution
Mean ~ Distribution
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4.1.6 Standard Error

Standard error is difference in conclusion reached or decision taken
because of using sample rather than whole population is used.
In case of low frequency, risk of standard error increase as there can be

situation sufficiently different, which is not covered bysample.
Therefore, sample size has to be increased to cover very po ible
situation. / K
4.1.7 Standard Deviation

Standard deviation is the probability that estimated results wi 1 be
different from actual results. ‘ \
4.1.8 Probability
Probability is the likelihood of on—occurrence of
particular outcome.
4.2 Random Sampling \ \ /

Random sampling is a ype .f non—statistickmpl ng met (1. It is also
called non—probability samplin .
A
Random saming involves selectio. of number ofi s within

population iout any planning. In ndom sai mg, each sample in a
population h s an equal chance of being selected.
Ex
4.2.
Ran m sampling is cost effective, efficient method and does not require
any t h ical knowledge, resources and planning time for determining
sam es. 0
Wations
andom
may sampl' g involves
deliberatelglchoose thesamples
those risk of bias by the
which researcher.
are easy Researcher
to interview.
Exam}?
Resea her may choose workers, which he/she considers cooperative.
Samples selected based random sampling may not be representative of

whole population even if samples are fairly selected by researcher. This
will expose the sample selected to standard error.
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Example:
Random selection ofmay lead to selection ofmost experienced workers
those are likely to good attitudes towards. This will lead to wrong
conclusion ofresearch work because inexperienced workers are not
interviewed in the research.
4.3 Systematic Sampling

Systematic sampling makes use of statistical tec ques.
Systematically sampling is used to reduce t e chances of

It involves usage of unbiased (fair) form
Example: I
Selection of5th worker in a pa n each
subsequent sa ' ' lected a ‘ rsfrom recent
is achieved.
les se
. ected
O‘ ased on syesfnatic sampling depends on statistical
used to select sampl from the population.
(1 Sampliny
Sj'atums Range in $ Average sales revenue

500 customers (Poor)i i 50 — 15o 5olooo
300 customers (Middle class) 151 — 500 I 97,650
150 ‘ stomers (Rich) 501 — 1000 I 112,575
Stratifled sampling makes use of stratums (layers).
Samples in a population having identical characteristics are combined

into layers. Range is established for each layer so that characteristics of
each sample can be determined.
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Example:
Number of customers who brought goods or services ofvalue from $50
to $150 are grouped into one layer. Similarly, number ofcustomers
who brought goods or services ofvaluefrom $151 to $500 are grouped
second layer, which is placed below first layer. J;
This
to each layer.continues until all the samples in a population a F\
process e allocated
From each layer certain percentages of samples are chose

examination. I
Example:
10% samplesfrom top layer, 200/ . JIIL C
percent samples from third la
4.4.1 Benefits ‘
It provides the basis fowistification in case data gathered re .
undesired outcome. \ \ ‘
It allows sampllsj of high importance can be identified and makes certain

that no sam n e 0 hi h importance is examined.
' ore, : ganizatio spent least time and money to secure small
ofsales revenue.
4. .2 Limit 0
Stra 1. ie sam ling is very time consuming in terms of allocation of
samplé into layers. However, spreadsheet software can do this quickly
and acgirately.
Stratified sampling requires data to be available in electronic format in

order to use spreadsheet software. If data is not available in electronic
format then additional cost will be incurred to convert data into
electronic format.
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Stratified sampling involves selection of samples from each layer

randomly.
4.5 Clustered Sampling

Clustered sampling makes use of groups.
Clustered sampling involves grouping of samples in a population into

physically identifiable blocks.
Example:
Grouping ofcustomers with respect to lo We orth~ I
South).
Samples inside each group must be different in characteristic from each

other. '
Example:
At the East (cluster) of
difi‘erent economic sta us 5
interviewed.
st location (cluster) is chosen then all the customers (samples)

“1 erent economic status should be interviewed.
Result of cluster examined is assumed as result for whole population.
Examp :
Ifthe East location is interviewed, then interviews ofcustomers in the
East location are considered as viewpoints ofcustomers in other
locations (West, North and South).
mu
4.5.1 Multistage Sampling

Multistage sampling is advanced form of clustered sampling.
It also makes use of groups. It sub divided each groups into sub groups.
Example:
Locations inside the country, can be sub dividend i , towns can
be sub dividend into blocks and soon.
These sub groups are also known as secondary groups. \
It is useful where primary group is too laé to be used for the purpose of
research.
It allows the selection seconda

least cost.
Example:
Quota sampling involves selectiqn oiklefin umber of samples from

varioiis categories of population. Populati can be categorized with
respect tofige, sex, ec nornic status, cultural background, language etc.
rviewing personsfrom ag_e 25 to 40

viewing personsfrom figTe 41 to 55.
selected from each segment depends on
judgenEnt of researcher.
Quota samplin 5 especially useful when demographic balance of

different groulgs known.
Exam]?
Suppo e demographic balance oftwofemalesfor each male in a
country. Based on that researcher can select samplesfrom a particular
category in the ratio of (female to male) 2:1.
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5 Choosing Sampling Methods

Choosing an appropriate sampling method is a skill, it is not knowledge
that you can learn. Therefore, you need to know following factors to
choose between various sampling techniques. Effectiveness of choice of
sampling method depends on skills of researcher.
Factors Details
Cost Cost of sampling must exceed benefifi Cost of @ining
information must not exceed benefits. \
Efficiency Sampling method should ena le researcher to conclud¥s
researcher within available
Risk Sampling method shoul ye able‘) reduce or eli ate the
risk of standard error. \ i I
Resources Sampling method i ' .le using thehien, equip ent,

availab‘lmhe organizationqx.
Relevance Sampling metho'd should‘ke helpful ' targeting required I
samples depending on r_esearch work.
I
I Factors Random Systems

I Cost _ Low Low 9
I Efficiency W ' High Low‘ I High
IRisk ‘High ‘. Low Low ‘ Low ILow IHigh
IResources Less Less ‘ Mote re More ILess
IReleydlwee Low Low m1) )HHigh High Low
h sam ling metho oes every member of the target

op tion have an equal chance of being in the sample?
. ' ied sampli

B. Random sampling
C. Systematic sampling
D. Cluster sa pling
Solu
Correct swer is B.
mu
Explanation:
A
Stratified sampling involves categorizing samples into layers. Samples
are categorized based on some established criteria. Therefore, each
member of population does not have equal chance of ein in the
sample. \
B
Random sampling is the selection of sampl withou anjwanning. It
means it does not involve any bias and e opportu ity of being
selected is available to every single samp e in the population.
D \
Cluster sampling involves cate orizing sample 'nto roups. Samples
having particular cteristics‘of includedin a gro p. Therefore, each
member of p ulation oes not have equal chance elng 1n the
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Chapter 3: COST CLASSIFICATION & BEHAVIOUR
Chapter 3:
COST CLASSIFICATION & BEHAVIOUR

Sub Headings
S.no Headings (click the cross—ref below for easy ‘ ion) Pg.no
1 Production & Non Production Costs 38
2 Elements of Non Production Costs 39
3 Elements of Production Cost 40
4 Reason for Distinction b/w Producti v ' rod ion 1
Costs A
5 Costs Behaviour '‘ 44
6 High Low Method 50
7 Structure of Linear Funct' ' .> _ ions 5
8 Cost Units, Unit Costs, ' st Objects & ost Cent . ,
9 Responsibility Centr 55
10 Information Nee - * ibil * Centre 58
11 Practice Questio s & t I ‘ 58
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1 Production & Non Production Costs

1.1 Production costs
Production costs are the costs incurred in manufacturing products
(goods or services). It includes all the cost relating to activities
performed inside the production department.
Example:
In chair manufacturing company, costs incurre n manu ing of
chair can befollowing: \
9 Cutting cost is incurred to cut wood inf) pieces.

9 Assembling cost is incurred to join pieces tolhiake a chair.
A
9 Finishing cost is incurred to make chair of merchantable quality.
9 Inspection cost is incurre ensure chair meets quality require ents
of the customer. \ \
9 Packaging cost is in urred to ensure chai eaches to cusér in good
condition.
1.2 Non-P u \(Period Cos

Non—production costs are overhead costs incurr d for the purpose other
than manufacturing of product No production overheads are incurred
to ‘etable fluent operation of pro ucti n and other organizational
actl t1es. \ /
fer raw materialfrom warehouse to
For management accounting purpose, it depends upon organization

policy whether to include non-production overheads into product cost or
not. Organization may want to include non—production overheads for
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pricing products to ensure full recovery of all the cost incurred by the
organization from customers.
For financial accounting purpose, these costs are treated as period cost
(Period cost is the cost incurred during an accounting period. It is stated
below the gross profit as operating cost).
2 Elements of Non Production Costs

2.1.1 Selling & Distribution Overheads
It includes every costs incurred after the manufacturing 0.
delivery to the end costumer (user of thegiroduct).
Examples:
Storage cost incurred to be able '
the customer.
Freight cost incurred whi'
Insurance COST t0 COUQ the
2.1.2 Adminis'r " erheads

Administrati n overhea . include a 1 costs incurre planning,
coordinatih controlling the activities and resources of the
organization; ‘
,P l I “
These costs are incurred to ensure the fflLt and effective operation
(manufacturing or service provision) o? the organization.
\I *5
rovide placefor contact to customers
ipments used to record oftransactions made
' intenance ofworkplace to provide better working

ployee so that they can work ejficiently.
investment in resources, which are needed for administration of

organization and manufacturing of products.
mu
Examples:
Interest paid on bank loans, debentures, overdrafts etc.
Dividend paid to preference (redeemable) shareholders.
Dividend paid to equity (ordinary) shareholders aga'

invested is not considered asfinance overheads as roprietor
(owners) of the organization.
3 Elements of Production Cost

3.1 Types of Production Costs
Direct Cost \ ' my‘ 5* i
Identifiable to individual units of Non—identiFable‘to individual units
product or type of product or cos 7 of products or‘type of product or
centre.
Example:
Quantity ofwood use
chair.
Significant moneta value. Insignificant monetary value
Example:
determined reasonably.
‘Example:
Polished used in finishing ofeach
chair cannot determined
reasonably.
For cost to be classified as direct Indirect cost lacks one or more of

cost all the bov conditions should the conditions required to be
be ihet. V classified as direct cost.
Eleme ts of Product cost are as follows:
3.2 D' ect Materials [direct costs)

Material used in the manufacturing of products having properties of
direct costs.
mu
Example:
In Car manufacturing, Quantity ofiron used is direct material.
3.3 Direct Labour [direct costs)

Labour used in the manufacturing of products having properties of direct
costs.
Skilled labour used in manufacturing of product

direct Labour
Reasons:
product separately.
They are paid higher wages a
Their cost is determined r
3.4 Direct Expense

Direct expenses incurred in the manufacturing f a Product or operating
a cost centre ha .'ng properties of direct cost.
35 dick Overheads (F.O.H)

Thoqare costs having propev of indirect costs.
These costs are incurred for the manufacturing of products in the

productioNepartmen}
Followin are the components of factory overhead costs.
3. . aterials
Indirect ma erials are the material costs having properties of indirect
costs.
Example:
Amount ofadhesive material used to join pieces wood in making chair.
mu
3.5.2 Indirect Labour

Labour costs having properties of indirect costs.
Semi—skilled & unskilled Labours are considered indirect costs.
Reasons:
They do multiplejobs ofgeneral nature.
Example:
Handling material and providing tools to s
Indirect expenses are costs having properti f indirect cost.
They are not ide ' ' le to individual prod cts.
L _ \ i'
iil ' g of livery routine maintenance.
Sufficieiwiancial records may not be available.
le: '
in most organizations to group all small expenses into single
un y expenses. Therefore, value ofeach individual
be determined.
an
Diagram:
Full Cost
Product Cost period Cost
Production Cost Non Production Cost

%
‘
r— |
Direct Cost Indirect Cost Indlrect Cost
-
—
Direct Materials Production Dlsetlrlllggtlgtn
Overhead Cost '8 I U to
Overhead Cost
Direct Labour
Indirect Materials A
Administration
L
Direct Expense Overhead Cost
Indirect Labour
- Finance Overhead
Indirect Expense Cost
4 ea nfor Di tion b/w P- u ion & Non Production

S'CE
l my Details
Pl nin . Budgeting Dis 'nction b/w production and non—
production costs allow allocation of
i , resources between resources needed for
, production and resources needed for
undertaking operating (administration,
selling & distribution) activities.
Forecasting It allows estimating production and non—
production cost separately. Production cost
usually changes with production and sales
volume. Non—production cost such as
administration cost usually changes with
operating philosophy of the organization
than production and sales volume.
Decision Pricing It enables management to set product

making selling price more rationally. Production
costs which are directly identifiable to the
products can be justified to customer where
as non production costs areAtreated as
period cost because it would be unfair to
charge customers for mi‘nistr' ion and
selling cost. They ar ost to‘the
organization itsel .
Product mix It allows finding appropriatAroduct
(combinatioy of productskfonpr ductio
and sale by recognizing proddcts ording
to the abilityIIto incu perating cost to the
organization. So that t ose products
generating lowQgross profit than operating
cost incu ed could be weeded out.
Control Performance It enableskkior man‘agement‘o hel
measurement accountable operational managers"for their
area of respon'simity such as production,
sales, administration and finance etc.
Reporting \ Financial reporting standards require
separate‘ disclosure offioduction and non—
productioimcost. Separate information
availab for production and non—
producti n co ‘ help to discharge
responsibly under financial reporting
‘ requireme'nt.
types of costs discusserfabove can have one or more of the

llowin qt behavidl'irs.
/ riab Costs (Mat'ginal Costs)

Variable costs change in proportion with change in the activity level
(sales volu e, units produced).
ost will increase as each additional unit is made. If there is no

produ on then there will be no material cost.
In theory it results in diagonal straight line when plotted on graph, but in

practice this may not be the case because of economies of scale (bulk
mu
purchase discounts) or diseconomies of scale (penalties for additional

usage).
Example:
Supplier may ofi‘er 10% discountfor each additional unit purchased
afterfirst 10,000 units.
Taxable income above certain level is subject to er ta
Diagram:
Cost
‘variable cost
I Artivlty Level H
I
" \éjaria _ Un
Varia le costs per unit remain consta t regardless of change in activity
level. \ *
Exa le:
te ost per unit 0th unit will be same material cost per unit
uni .
In theory it results in horizontal straight line when plotted on graph, but

in practice it is)ifferent because of economies of scale (bulk purchase
discounts) or diseconomies of scale (penalties for additional usage).
Exam
Mater al cost per unitfor 101th unit would be lower ifsupplier oflers
discount on each extra unit purchased after 100 units.
mu
Diagram:
Cost
variable cost per unit
QJ
Activity Level >1
‘ t \ \
5.3 Fixed Costs
Fixed costs are costs, ich remain constant regardless f c ange in
activity level.
However, fixed costs only’ remain constant within 1' ted range of
activity levpl'. Beyond that range, it may no longer e fixed.
‘
It me ns fixed costs are fixed only i1 hort—term. In the longer—term
org 1zation’s act' 'ty‘level may be di erelrf resulting in different fixed
When plotted on graph, it gives horizontal straight line same as variable

cost per unit.
an
Diagram:
Cost
Fixed cost
QJ
Activity Level it
I -\ \
5.4 Fixed Costs per UH? \ \

Fixed costs per unit de rease with the increa‘n the activit evel.
Reason is that, total fixed cost will be charged to mo

(activity level i i
if budgetedfixed cost ofsame

nfixed cost per unit will be equal
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Diagram:
Cost
Fixed cost perunit
\
\
Activity Level X
I _
5.5 Step-Fixed Costs ‘
Step—fixed costs reicosts, which ise in steps. These osts remain
constant wit ' ‘tie range of activi‘fy level, and\the
the next ra e of activity level.
In longer term, fixed costs t tob tep fixed.
nection, base package can be of

eed mit, additional 812 can be charged
mu
Diagram:
Y.
Step-fixed cuet \
a I
Activity level H
5.6 Semi-Variable Cos \ “\

Semi—variable costs are costs, hich have both variable and fixed
elements. A\
Semi— variable costs start 'th certain amount of f' ed cost, and then
subsequent costs are Varia 1e cost.
. ., \
Do Mt get confused t‘ it with step-fixed c . Step fixed costs does not
netessary arise in prognortion (linearfashion). While in semi—variable
cost, variable (part rises in‘p‘l‘oportion.
mu
Diagram
v
Sernl- variable
\\cast .f/
f/
/
X \
E /
D
o /
Activity Level E
r s
5.7 Total Cost X
Total cost is the sum 0 all a ove costs. If it" '11 involve fixe cost then it
will be greater than zero at zero activity level.
Total cost
\
Cnet
activity Level E
It is u d to split total cost and semi variable cost into its fixed and
variable components.
To forecast total cost at given activity level.
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Formula:
Highest total cost — Lowest total cost
Variable cost p er unit = Highest
_ . . level — Lowest activity
activity . . level
Fixed cost I Total cost at highest A. L — (Highest A.L >< Varible cost per unit)
Total cost : Fixed cost + (Forecast activity level X Va
6.1 Applying High Low Method
Illustration
Following data relates to ABC plc.
— 11,000 ; 12,500
9,000 $12Qg) i
Requirgl \ y
Calculate th d and varia om nents f the total cost.
I ‘i .
"tion : i
dentifying highest and lowest activit evel as in this case is production
VO urnes. \ \ '7
§ .
‘
9 wiest product1 0 volume = 13,000 unlts.
I .
owest {oduction we = 9,000 units.
Determining variable cost per units using highest and lowest production
volume and corresponding costs.
_r
Highest total cost — Lowest total cost

Varia cost per unit =
Highest activity level — Lowest activity level
$13,200 — $12,000 _ $1,200

Variable cost per unis = 13,000 — 9,000 _ 4,000 : $0.3
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Step3:
Determining fixed cost.
Fixed cost = Total cost at highest A. L — (Highest A. L

X Variable cost per unit) L
Fixed Cost = $13,200 — (13,000 X $0.3 $9,300
7 Structure of Linear Functions & Equat'

7.1 Linear Relationship
Linear means straight. Linear line mean raight line.
Similarly, linear relationship is the ashion in which variablgincreases r

decreases resulting in the straig me if plotted on raph paper.
Example:
Sales volume 2,000, 4,0
ifplotted on graph pa
linear.
Similarly, corr ' 000 and $6,000

units if divi ' ice per unit of $1,
$1 and $1
Thisgn be said as linear relati i n sales volume and sales

rev. uebecause selling price per unit will result in a straight or linear
line 1 lotted on graph paper.
7.2 of Lin \ Lships

Th@ are following t es of refltionship exists between variables, such
5 prod ction volume (x) and total cost (y).
9 Dirakp ositive Lifléar relationship.

9 Inversp or Negative Linear relationship.
9 Non—linear r ationship.
9 Spurious Linear relationship (having linear relationship but do not
have any meaning).
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7.2.1 Direct Relationship

Diagram:
Increase or decrease in one variable lea s to inc ease or decrease in

other respectively. /. '
7.2.2 Indirect Relationship ‘

Increase or decrease in one varia e lead to dec se or ncrease in
other variable respectifily. 4
Diagram:
straig line.
mu
Diagram:
decrease/decrease
7.2.4 Spurious
Increase orin
increase
Relationship
or decrease i . * resullin
one variab = “ . : 1ale respectively.
increase or However,
.
variables are not responsible . the change 1 other.
Example:
Increase in birth rate . d n 1 inc 0t an increase
and decrease at the same tim ‘ 0 t me the. 'onal income is
responsible incre '1 birth rate.
Similarly, i - ket deman and decrease in total

cost can I 0 e time. It do an that increase in
marke v - i a ' or digtrea total cost.
‘ ‘ ’
*1
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8 Cost Units, Unit Costs, Cost Objects & Cost Centres

Cost Units Unit Costs Cost Objects Cost Centres
Cost unit is Unit cost is Cost objects are Cost centre is
individual measurement inputs used to department or
product for basis for make products. area of the
which cost is product. organization
calculated. Exam '16-‘ mespon ible for
Example: Material costingrred.
Example: Unit costfor Oil
Cost unitsfor can be per
automobile litres
company can
be can Unit costfor
metals can be
per kg or
pounds.
9 Responsi ‘
Responsibi ' centre are collective term for all be 4
organiza ion. . I
Investment centre
(Head Office)
Profit centre 2
(East branch)
Cost re Revenue centre Cost centre Revenue centre

(Pro ction) (Sales) (Purchase) (Sales)
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9.1 Cost Centres

Cost centres are those functions or departments of the organization
having an authority to incur costs within the limits of their authority
and assume equal responsibility to account for those costs.
Example:
Production department having authority to incur
products and having equally responsible to acco
Similarly, marketing and research & develoEment depar§ents havmg

authority to incur costs for product pro n and developme t
respectively and having equally responsi le fdfi costs incurred ' hin the
limits of their authority.
9.2 Revenue Centres /

Revenue centres are those fun ions 0 departments of a organiza on
having an authority to generate reve es probfiily by selling products
and are equally respony'ole to account f
the organization.
Example:
, divisions and branches of an

having authority to generate profits and are equally
ed in branches such as east and west

branch has complete authority to set
and incur costfor goods or services according to local
'"ditions.
Profit centres c include several cost and revenue centres.
ProfiRentres are higher in organizational hierarchy at tactical level,

rather wan cost and revenue centres which are at operational level in an
organization.
All cost and revenue centres report to/from their respective profit
centres.
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Example (continued):
Each ofthe branch (profit centre) has their own sales (revenue centre)
and production & marketing (cost centre) departments. These cost and
revenue centres report on their performance to their respective
branches.
9.4 Investment Centre

Investment centre are autonomous entity having thority ake
investments and responsibility to account those invesiwnts.
It does not mean that other responsibilitwentres cannot make

investments. They can, but their authority is limited to certainfigoun of
investment. ,
Example:
Purchase of new printer by anch.
Investment centre are yually head office of the organization ere

major investment decisions‘are made. \ \
Example:
it r organization.
untry. These subsidiaries report on their performance to head
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10 Information Needs of Responsibility Centres

Cost centre Revenue centre Profit centre Investment
centre
Cost centres Revenue centres Profit centres Investment
need detailed need detailed need moderate centres need
information information information t brief
for day—to-day for day—to—day be able to / information
decision—making decision—making control form'fior
purpose. purpose. performances of planning a d
their 0st and controlling
I‘OVALIIC centres.
.perfo ance f
theirpgfit
centres and cost
and revenue ‘
centres. i
Cost centres Revenue centres fit centr Investment
need frequent need equent ne d relative centres need
information on inf ation on moderately leagt frequent
timely basis, timely basis frequent formation,
such as on such as on ‘ information, uch as on
weakly, daily 0 weakly, daily 0 . such as on yearly basis.
unplanney unplan’ ed monthlfia '
basis. 3 basis. H—
Information Information I Informafion Information
wo on ‘kwrgild be on would be would be
costs an 8 re e'nues and variance reports, financial and
production sale volume ’ ch as on non-financial,
volume forecasts. material wastage such as on cash
requirem§ts and machine flow position
/ break down. and government
policy on
Us 7 taxation.
‘Ce Questions & Solutions

‘Tl
organisa lon manufacturing a number of different products in one
large ctoflthe rent of that factory is an example of a direct expense
when cgsting a product.
Is this statement true or false? (1 mark)
A. True
B. False
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Solution:
Explanation:
In this case, cost object is a product rather than a factgry. Rent expense
relates to factory and factory is used to make more an one roduct.
Therefore, amount of rent is not directly identifi e to the p uct.
Therefore, it is not a direct cost for the produc \
However, if factory is only used to make 5' gle product than we coul
identify rent expense as cost related toAthat type of productbut r nt
expense will be still unidentifiable to number of units of two ct.
11.2 Question ' \ \

A manufacturing organisatio curs osts re ating to the following:
(1) Commission payable to salespersons.

I
(3) Inspecting
(2) Packing theall products.
prriiucts at the en of the ma ufact
ng process prior to
moving they to the warehouse.
Which of these costs are classified as producti n costs?
Abfind (2) only I’ I
B. 1) and (3) only\ ‘
0km (3) only .1
- (1 , )and‘ts) ~
Commission payable to sales person is obviously classified as selling

cost.
(2)
Inspection of products is done in production department. It is because
inspection is part of production process. Inspection is made to check the
quality of earlier production processes.
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(3)
Packing products is part of the product. Packaging adds value to the
product just as main product itself. Therefore, it is considered as
production cost.
11.3 Question (12/06, 012):

Which one of the following should be classified as indirect labour?
A. Assembly workers on a car production line

B. Bricklayers in a house building company
C. Machinists in a factory producing c thes
D. Forklift truck drivers in the stores f an‘engineering company.
Solution:
Correct answer is D.
Explanation:
A
Assembly is core activity in th (manufacturing f ca . Cost of assembly
7
work can be dire d reliably identifiabli) each ar.
B
Same
& Creasoni as a ve are) applicable fo bricklayers and machinists.
D
Flrklift truck drivers are used in the stbres department outside the
production department. Stores department is established to facilitate
efficient upplyof raw materials forproduction and finished goods for
sel ' 1g. reforejsalaries of to ift drivers cannot be directly identified
product or departmen . Hence, it is classified as indirect labour
wvstio (12/06, ((5)

A semi— ariable cost is one that, in the short term, remains the same over
a iven range of ctivity but beyond that increases and then remains
co tant at the Higher level of activity.
Is thisynent true or false?

A. True
B. False
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Solution:
Explanation:
Semi variable cost has an element of both fixed and variable cost. Semi
variable cost remains constant until it starts to change. Once 't begins to
change, it changes in proportion (straight lineyh each adckinal unit
increase in activity level.
$
The above statement represents the definition of step fixed cost rather
than semi variable cost. 3
11.5 Question ‘1 l
Up to a given level of activity in c pe he purc ase price per 1%

of a raw material is constant ter th point, a lower price per unit
applies both to further un'ts purchase (1 retro ectively to all units
already purchased. \
/
Which of the following graphs depicts the tota cost of the raw materials
for a period?
‘ H
E A E
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Solution:
Correct answer is D.
Explanation:
Broken line suggest subsequent fall in raw material cost since zero
activity level after availing bulk purchase discount. .
A
Cost of raw material is usually variable unle s suppliers Montracfid to
supply particular quantity raw materialsxegular intervals. Therefore,
we will assume raw material cost as tota variable cost in the a nce of
additional information.
B ‘
Graph A does not represent raw mate 'al cost ecause after availing bulk
purchase discount it does liot decrease zero at ro activity level.
Graph B does not repr sent raw material ecause it is rlzero at

zero activity level from beginning.
esent raw material cost bec se it does not reflect
Graph D rep \‘sent raw material cost because it reflects retrospective

change lIKfiW material cost after availing bulk purchase discount.
lLac‘uestion \ r
or which of the following a profit centre manager responsible?
A. Cos§nly *
B. Revenues only
C. Cost and evenues.
Explanation:
Profit centre must be responsible for cost as well as revenues so that it

can be held responsible for profits of the organization.
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11.7 Question
The following statements relate to responsibility centres:
(1) Return on capital employed is a suitable measure of performance in

both profit and investment centres. ‘
(2) Cost centres are found in manufacturing organisations b t not in

service organisations.
(3) The manager of a revenue centre is responsible for b0 sales a

costs in a part of an organisation. I
Which of the statements, if any, is tr
A. 1 only \
B. 2 only
C. 3 only
D. None of them
\
Solu tion .'

Correct answer is
(1) - .-
ROQE(return on capi l employed) takes count of investment made by
the organization. 1 efore, profit centres performance should not be
evaluated based on ROCE because it does not have 100% control over
investme ts. ROCE is useful for evaluating performance of investment
ce re an heir managers. ~
exists in bot anufacturing organization as well as service
ere mechanic repairs vehicles.
IClassro in the school where professor delivers lectures.
(3)
Manager of revenue centre is only responsible for sales. Revenue centre
is different from profit centre. Later is responsible for revenues as well as
costs.
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Chapter 4: PRESENTING INFORMATION
Chapter 4:
PRESENTING INFORMATION
Sub Headings
S.no Headings (click the cross—ref below for easy
1 Preparing & Representing Reports
2 Presenting Information Using Tables, Gr
3 Interpreting Tables, Charts and Graph
4 Practice Questions & Solutions
1 Preparing & Representing Reports

1.1 Users of Reports
Management information reports are different from reports such as
annual report, which are required for external reporting purpose.
Users of management information reports are internal to the

organization. Management at different levels (strate ic, tactical and
operational) require information for planning, (1 sion makirsand
control purpose. \
1.2 Purpose of Reports

Purpose 5etaila \
Planning Planning requires both financial and non—finagcial ,

information. Planning involves downwards communication
from senior man mentfd'jmn management. Seniry
management nee to co unicate lan to‘junior managers
for effective implemeptati of Ian. I ‘h 1
Control Control ufially requires financial information ch as
variances. Control involves upwaigis communication from
juniolmanagement to senior management. Senior
managemept need information from junior management
flnvolved in day—to—daybperations to% able to exercise
control.
ecision—making requ'mes both financial and non—financial
information. Decision—making requires the use of planning
and control reports as well as reports on ad hoc
\ (unplannedlbasis according to opportunity or threat faced
bymanage ent‘at different levels.
Date repre ents the time at which report is written. However, date of
receipt’an be different from date it was written depending on the
channel of communication (electronic, post etc) selected to send report.
an
1.3.4 Subject
Purpose of report is mentioned. It should be brief no more than one line
so that reported person can quickly get an idea about the subject matter
(topic) and urgency of action needed.
1.3.5 Introduction
Scope of report is mentioned. Introduction give brief descrip ion of
information contain in the following report. Intr ctio_n‘sh enable
manager concerned to quickly get an overview he re rt. It should be
no more than three to four lines.
1.3.6 Body Text 0

Body text contains the detailed info najon. Body text may caita
several headings and sub headin
Headings should be descripti and s ould enable manager to have an

idea about the underlying informition. anager s‘uld be able to
navigate to relevant infprmation quickly. I
Order of writing should be lcgcal. It means it ould present all

necessary informa-tion at single place without requirin manager to move
back and forth again and again. However, supporti information can be
represente 1 appendix.
1.3.7 vppendix »~
Ap n contains all for supporting and ated information in the body
text. Appendix should be properly cross—referenced so that reader can
quickly find informatiorfiappendix.
1.3 Aut riza% ‘

Aut rization is the igning of report before it is sent to the manager
eingl re orted. Authoi’izatilorn suggests the recipient that report is sent
and revigw by appropriate person.
~ nting Information Using Tables, Graphs & Charts
Table are st effective and easy to present.
Tables’are used to compare data and information.
Tables are used to analyse trend.
Tables are used to summaries information.
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Tables save time as it avoids relabeling data and information each time
they are presented.
2.1.2 Limitations
Tables have only two dimensions. Therefore, it can only accommodate
only two variables.
Tables are not useful for explaining and discussin manc non
financial issues.
Tables require the understanding of language to present and read.
2.2 Line Graphs

Diagram:
Selling price
unit
Currency
v:
.I\
Cost per unit
Sales volume X
2.1 efits
Line’ rap are time co uming to present manually.
Line graphs are also difficult to present manually. It requires artistic skill
to draw neat at? clean graph. However, spreadsheet programs such as
Mi‘c'rosoft Exce or Lotus can do it automatically and cost effectively
using‘data fed.
Line giéplhs are used to present data visually.
Line graphs can be used to graphically present the pattern of one

variable due to increase or decrease in other variable.
mu
Line graphs have three dimensions such as X, Y & Z axis. It can be used
to present relationship up to three variables.
Line graphs can be used to show trends.
Line graphs also show extreme increase or decrease in variable.

L
Line graphs can accommodate more than one lin he‘perfgnance of
different entities (organizations or individuals) gardin same ariable
(for example, sales) could be compared.
2.2.2 Limitations
Line graphs cannot accommodate alphabetic data so there it cannot b
used to present non—financial info atio\n.\
Graphs require statistical kno edge to be read.
2.3 Scatter Graph \

2.3.1 Benefits
Scatter graphs can be quickly drawn manuallyx
Scatter graphs can be used to find relationshi (dire or indirect)

between twyariables. )
Scatter graphs can be use to find trqid‘fincreasing or decreasing).

K ‘ ‘F’
er graphs are used for forecasting wh'ere accuracy is not necessary.
'oined using one straight line.
Graphs re§dre statistiommowledge to be read.
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2.4 Bar Charts

Diagram:
$4k Sales revenue

Qgst of saJlg
6 Scale = $(000) \
,Q1 Q2 Q3 Q4
2.4.1 Benefits i
Bar charts can he used {present ata visually.
Bar charts have two dimensions. Barhiarts enabl comparison of

variable more accurately as it provi es scale for’measurement of
variables along the
' leis along the verticalf-Tax-is.
horizontal X—axis H weve'it can also present those
iable. Bar charts can be used to present

quarter during the year on X axis and
unit (Pounds) at Y-axis.
Bar charts canrcommodate more detailed analysis of variable. Each

variable can be assigned different colour.
Exam];
Sales revenue generated by each product at each quarter during the
year.
Similarly, bar charts can use more than one variable.
an
Example:
Bar charts can accommodate barsfor sales revenue and cost ofsales at
each quarter during the year.
2.4.2 Limitations
Bar charts are not suitable for presenting trends.
Bar charts only show position of variable (sales) articu erval

such as Quarters. Bar charts do present moveme t in va 'ables between
two intervals. \
Bar charts are time consuming to draw manually. Howev , adsheet

software can quickly do it. i
Bar charts cannot be used for f cas 'i'ng purpose.
Graphs require statistical linowledge to e read.
2.5 Pie Charts

Diagram:
‘
Sales Volume
M___——___an, F‘rucluct
Product A:e = ‘fellow
Green
Product 0 = Green
f)...‘- ‘RH
‘ilk-"~43
\ lll'ill
||l ‘Eula ||l
iI I
II |
‘i If
t r
i f
x I
4.. 5______;#,.#
Pic charts are used to present data and information visually.
Pie charts gives information in fraction. Fractions are understandable by

non—financial managers easily.
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Example:
Let sales volume be the variable. Pie chart can be used to present sales
volume generated by each product.
2.5.2 Limitations
Pie charts have only one dimension. Therefore, it cannot accommodate
more than one variable. f‘
Pie charts do not provide 100% accurate infor a on. It ' because it
provides visuals rather than numbers.
3 Interpreting Tables, Charts andACraph

See the benefits and limitations of presefiting tables, charts and graph
If you know how to present them then youcan interpret them too.
4 Practice Questions & ions \

4.1 Question
A company’s sales in t ast year in its three different mark were as
follows
—i
I Market 1 1531000
I Market 21£0,000
I Market!" 5o‘,ooo \
I Tot i 300,000 1
In a pie c rt, representing the proportion of sales made by each region
what ould be the angle of the section representing Market 3?
s.
. rees
50 degrees
C. .6 degrees
1&grees
‘Q "
Correct answer is C.
Exp 1 n:
Pie ch is round in shape therefore it represent 3600 degrees angle for

total sales or 100% sales.
50,000
Sales % = m X 100 = 60% or degrees
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e6)
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Chapter 5: ACCOUNTING FOR MATERIALS
Chapter 5:
ACCOUNTING FOR MATERIALS

Sub Headings
S.no Headings (click the cross—ref below for easy ion) Pg.no
1 Types of Inventory 75
2 Inventory Cost Composition. 75
3 Ordering, Receiving & Issuing Material i \
4 Inventory Control
5 Accounting for Material Inventory .6 c . _
6 Ordering & Holding Inventory ‘
7 Optimal or Economic Order fr (E0 0
8 Optimal Re—Order Quant -- hase D1
9 Optimal or Economic 5 ch Quantity BQ)
10 Inventory Level Ma 7 nt 77
11 Inventory Valuati v_ i 77
12 Practice Questio s & 77
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1 Types of Inventory
1.1 Raw Materials
1.2 Work in Progress (WIP)
1.3 Finished Goods
1.4 Administration Related Inventory
2 Inventory Cost Composition.
2.1 Direct Raw Material
2.2 Direct Labour
2.3 Direct Expenses
2.4 Production Overheads (indirect mater‘
expenses)
3 Ordering, Receiving & Issuin ‘
3.1 Documents & Procedure for O '
3.3.4.1 Contents ofSales Return Note

4 Inventory Control
4.1 Store Ledger Card
4.2 Free Inventory
an
4.3 Physical Stock Taking

4.3.1 Continuous & Periodic Stock Taking
5 Accounting for Material Inventory Account
5.1 Iournal Entries
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5.2 Ledger Entries

6 Ordering & Holding Inventory
6.1 Ordering Cost
6.1.1 Calculating Inventory Ordering Cost
6.2 Holding Cost
6.2.1 Calculating Inventory Holding Cost
6.3 Stock Out Costs
6.4 Buffer Stock
6.4.1 Calculating Holding Cost Including Buffe Inve 1tory
7 Optimal or Economic Order Quanti y (EOQ)
7.1 Calculating Economic Order Quanti
7.2 Limitations of EOQ
8 Optimal Re-Order Quantity
9 Optimal or Economic
9.1 Calculating Economi '
10 Inventory Level '
10.1 Reorder Level
10.1.1 '
10.2 Re-Order '
10.3 Maxim
ventory V uation Using LIFO

' hted Average Method
Inventory Valuation Using Weighted Average
Vs Weighted average
g Cost of Sales, Purchase, Opening &Closing Inventory
11.6 Pe 1c Inventory System
Margin
11.6.2 Mark up
12.1 Question (12/06, Q4: P/P, Q43):
12.2 Question (12/06, Q23: P/P, Q20):
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12.3 Question
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Chapter 5: ACCOUNTING FOR LABOUR
Chapter 6:
ACCOUNTING FOR LABOUR

Sub Headings
S.no Headings (click the cross—ref below for easy :1 .tion) Pg.no
1 Direct & Indirect Labour Costs 80
“GUI-DO M Methods for Relating Labour Cost to Wor 0 one
Accounting for Labour
Remuneration Schemes
Labour Turnover
Efficiency, Capacity & Producti ' n Volum a
‘. -
Practice Questions & Solutio '
1 Direct & Indirect Labour Costs

1.1 Direct Labour Costs
1.2 See calculations later.
2 Methods for Relating Labour Cost to Work Done
2.1 Documents Used to Record Labour Costs
2.1.1 Attendance Sheet
2.1.2 Time Sheet
2.1.3 Iob Sheet
2.2 Steps involved in Relating Labour Cost to
3 Accounting for Labour
3.1 Journal Entries for Labours
3.2 Ledger Entries
4 Remuneration Schemes
4.1 Time Based Schemes
4.1.1 Characteristics of Tim
4.1.2 Hourly Rate Basis
4.5 Gr p Bonus Schemes

5 Labour Turnover
5.1 Labour Turnover Causes
5.2 Labour Turnover Costs
5.3 Calculation of Labour Turnover Rate
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6 Efficiency, Capacity & Production Volume Ratios

6.1 Efficiency Ratio
6.1.1 Limitation of Efficiency Ratio
6.2 Capacity Ratio
6.3 Production Volume Ratio
6.4 Calculate Efficiency, Capacity & Production Volu
7.1 Question
7.2 Question
7.3 Question
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Financial Management, Ferlurmance Management Business Analisis, Ehusiness / Ecummerce Guide Free Duwnluad
Chapter 7: ABSORPTION COSTING SYSTEM
Chapter 7:
ABSORPTION COSTING SYSTEM

Sub Headings
S.no Headings (click the cross—ref below for easy ‘ ion) Pg.no
1 Treatment of Direct & Indirect Expenses 83
2 Absorption Costing i
3 Calculating Products Cost Using Abso Li; {
4 Allocation (Step1) & Apportionment rod ‘ ion
Overheads A
5 Re—Apportion of Service Costs ' Produc v-ntre
(Steps)
6 Pre—determined Overhea .. . _ \ Rate (s ‘ .
7 Accounting for Overhe . .
8 Under or Over absor ' f Ov eads 83
9 Practice Question 1s 83
an
Chapter 7: ABSORPTION COSTING SYSTEM
-I>UJNH Treatment of Direct & Indirect Expenses

Absorption Costing
Calculating Products Cost Using Absorption Costing
Allocation (Step1) & Apportionment (step2) of Production
Overheads
4.1
4.2 Allocation of Overheads to Production Cost C .
4.2.1 Allocating Overheads to Cost Centers
4.3 Apportion Overheads to Cost Centres
4.3.1 Apportioning Overheads to Cost Ce
(Step3)
5.1.1 Reciprocal Method (Repea '
5.1.3 Other Methods

5.1.3.1 Direct Method
5.1.3.2 Step Down Method
6 Pre-deter '
6.1 Blanket !
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Chapter 8: ABSORPTION & MARGINAL COSTING
Chapter 8:
ABSORPTION & MARGINAL COSTING

Sub Headings ‘
1 Marginal Costing
2 Contribution
3 Absorption Costing & Marginal Costin;
4 Calculate Profit or Loss under Absor ' ' rg1n
.\
Costing
01 der Ab . v
Reconciliation of Profit & Loss
Marginal Costing
6 Practice Questions & Solu‘ .
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Financial Management, Ferlurmance Management Business Analisis, Ehusiness / Ecnmmerce Guide Free Duwnluad
Chapter 8: ABSORPTION & MARGINAL COSTING
1 Marginal Costing
2 Contribution
2.1 Calculating Contribution & Profit in Marginal Costing
2.2 Uses of Contribution
2.3 Contribution Vs Profit
3 Absorption Costing & Marginal Costing
3.1 Relationship between Profit, Cost OfSales & CI
3.2 Effects ofAbsorption & Marginal Costing o
3.3 Summary
3.4 Behavioural Aspects of Absorption Co
Costing
6 Practice Questions & So
6.1 Question
6.2 Question
mu
Chapter 9: JOB & BATCH COSTING
Chapter 9:
IOB & BATCH COSTING

Sub Headings
1 Job Costing & Batch Costing
@U‘l-bODIO Uses of Job & Batch Costing
Benefits of Internal Job Costing
Accounting for Jobs & Batches
Calculating Job & Batch Costs
Chapter 9: JOB & BATCH COSTING
1 job Costing & Batch Costing

1.1 job Costing
1.2 Batch Costing
2 Uses ofjob & Batch Costing
3 Benefits of Internal job Costing
4 Accounting for Jobs & Batches
4.1 journal Entries
4.2 Ledger Entries
5 Calculating job 81 Batch Costs
6.1 Question i
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Chapter10: PROCESS COSTING SYSTEM
Chapter 10:
PROCESS COSTING SYSTEM

Sub Headings
S.no Headings (click the cross—ref below for easy a; . tion) Pg.no
6©O \1O\U1-l>-OQNH Prime Cost & Conversion Cost 89
Process Costing 89
Normal & Abnormal Losses or Gains \
Steps Involved in Process Costing
Preparing Process Accounts
Process Costing Involving Wor 'n Proce ‘
By Products & Joint Product
Allocating Costs to Joint P . - . -
Accounting for Joint P ' ucts
Practice Questions t ' ons
Chapter10: PROCESS COSTING SYSTEM
1 Prime Cost & Conversion Cost

1.1 Prime Cost
1.2 Conversion Cost
2 Process Costing
3 Normal & Abnormal Losses or Gains
4 Steps Involved in Process Costing
4.1 Calculate Cost per Unit of Process Output
4.2 Allocating Cost between Actual Output & A
5 Preparing Process Accounts
5.1 Equivalent Cost Units
6.2.1 Calculating Equival nt Cost U» 'ts fo losing

6.2.2 Calculating Equi .- 'Cost Unit enin
rage Method
mu
Chapter 11: SERVICE COSTING SYSTEM
Chapter 11:
SERVICE COSTING SYSTEM

Sub Headings
1 Applications of Service Costing System
2 Unit Costs for Services Industry
3 Analyze Service Costs
Chapter 11: SERVICE COSTING SYSTEM
1 Applications of Service Costing System

2 Unit Costs for Services Industry
3 Analyze Service Costs
4 .1 Question i
an
Chapter 12: ALTERNATIVE COST ACCOUNTING
Chapter 12:
ALTERNATIVE COST ACCOUNTING

Sub Headings
1 Activity Based Costing (ABC)
@U‘l-bOQIO Life Cycle Costing
Target Costing
Total Quality Management (TQM)
Traditional Vs Modern Costing Te n
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Chapter 12: ALTERNATIVE COST ACCOUNTING
1 Activity Based Costing (ABC)

2 Life Cycle Costing
2.1.1 Design or Development
2.1.2 Introduction
2.1.3 Growth
2.1.4 Maturity
2.1.5 Decline
3 Target Costing
4 Total Quality Management (TQM)
5 Traditional Vs Modern Costing Te
5.1 Traditional Costing Techniques
5.2 Modern Costing Techniques
6 Practice Questions & Solu '
6.1 Question
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Chapter 13: NATURE & PURPOSE OF BUDGETING
Chapter 13:
NATURE & PURPOSE OF BUDGETING

Sub Headings
1 Budgeting
@U‘l-bODIO Uses of Budgeting
Planning & Control Cycle
Administrative Procedures of Budge '
Stages in the Budgeting Process
Chapter 13: NATURE & PURPOSE OF BUDGETING
UJNH Budgeting
Uses of Budgeting
Planning & Control Cycle
4 Administrative Procedures of Budgeting
4.1 Budget Period
4.2 Budget Policy Manual
4.3 Delegation of Responsibilities
4.4 Establishment of Budget Committee
5 Stages in the Budgeting Process
6.1 Question
6.2 Question ;
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Chapter 14: STATISTICAL TECHNIQUES
Chapter 14:
STATISTICAL TECHNIQUES
Sub Headin s
S.no Headin s (click the cross—ref below for ea 'on) P .no
H l-li-l
i-l
Forecastin
cIQNHO©Ofi>\lQ‘\IlJ1-l>wN) Forecastin Techni ues
Forecastin Usin Hi h Low Method
Scatter Gra h Dia s & Line of B
Coefficient of Correlation
Re ession Anal sis
Calculatin Re ession Line
Ad'ustment for Inflation
Advanta es & Disadv es of Re 'on Line
Product Life cle tin
Time Series Ana
Movin Avera
Seasonal Variations
i-i -l
(II-B Advanta ' advanta
Index
H O“\ Calc bers
\l
H S heet
00
H est1 'o
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1 Forecasting
1.1 Interpolation
1.2 Extrapolation
2 Forecasting Techniques
2.1 Reliability of Forecast
3 Forecasting Using High Low Method
3.1 Advantages & Disadvantages of High-Low Met
4 Scatter Graph Diagrams & Line of Best
5 Coefficient of Correlation
5.1 Calculating co-efficient of correlation
5.2 Coefficient of Determination
5.3 Calculating Coefficient of Deter '
6 Regression Analysis
7 Calculating Regression
7.1 Assumptions of Regres
13.2 M iplicative Model

13.2.1 Assumption
13.3 Deseasonalisation
14 Advantages & Disadvantages of Time Series Analysis
15 Index Numbers
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16 Calculating Index Numbers

16.1 Simple Aggregate Index Numbers
16.2 Fixed & Chain Based Index Number
17 Spread Sheet
17.1 Features ofSpread Sheet
17.2 Roles of Spread Sheet
18.1 Question
18.2 Question
18.3 Question
18.4 Question
18.5 Question
18.6 Question
18.7 Question
an
Chapter 15: BUDGET PREPARATION
Chapter 15:
BUDGET PREPARATION
Sub Headings ‘
1 Importance of Principle Budget Factor lOO
“GUI-DO M Sales Budget
Functional Budgets
Cash Budgets
Master Budgets
What if Analysis & Scenario Pl ~ ing
Practice Questions & Solutio '
Chapter 15: BUDGET PREPARATION
1 Importance of Principle Budget Factor

2 Sales Budget
3 Functional Budgets
3.1 Production Budget
3.1.1 Raw Materials Budget
3.1.2 Direct Labour Budget
3.1.3 Variable & Fixed Production Overhead Budge
4 Cash Budgets
5 Master Budgets
6 What if Analysis & Scenario Plan '
6.1 Scenario Planning
6.2 What IfAnalysis
7 Practice Questions & Solu '
7.1 Question
7.2 Question
7.3 Question
Q
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Chapter 16: FLEXIBLE BUDGETS
Chapter 16:
FLEXIBLE BUDGETS
Sub Headings
1 Importance of Flexed Budgets
()1-l>-OQIO Disadvantages of Fixed budget
Uses of Fixed & Flexible Budgets
Prepare Flexible Budget
Chapter 16: FLEXIBLE BUDGETS
UT-PUJNH Importance of Flexed Budgets
Disadvantages of Fixed budget
Uses of Fixed 81 Flexible Budgets
Prepare Flexible Budget
5.1 Question
5.2 Question
an
| Page 103 of 126
Chapter 17: CAPITAL BUDGETING & DISCOUNTED CASH FLOWS
Chapter 17:
CAPITAL BUDGETING & DISCOUNTED

CASH FLOWS
Sub Headings
S.no Headings (click the cross—ref below for e . ga Pg.no
:6\O O\1@U'l-l>O Nl-‘ Importance of Capital Investment in P1 g & Q ~ ntrol
Capital Vs Revenue Expenditure
Capital Expenditure Budget
Types of Interest & Interest Rats "
Compounding & Discounting
Profit Vs Cash Flow
Relevant Cash Flows fo vestment I > ision i
Irrelevant Cash Flow
Discounted Cash
Annuity & Perp -
Practice Questions & S .
it
\ que
v
E?
nvest * ent Deci 'on 104
104
105
105
an
I Page 104 of 126
1 Importance of Capital Investment in Planning & Control

2 Capital Vs Revenue Expenditure
3 Capital Expenditure Budget
3.1 Issues Involved in Capital Expenditure Budgeting
3.1.1 Inflation/Deflation
3.1.2 Liquidity
3.1.3 Cost of Capital
3.1.4 Opportunity Cost
3.1.5 Technological Change
3.1.6 Disposal Proceeds
3.1.7 Other Issues to Consider in Capital
3.2 Steps Involved in Preparing Capi
4 Types of Interest 81 Interes
4.1 Simple Vs Compound Inter
4.1.1 Simple Interest
4.1.2 Compound Interest
4.2 Nominal Vs Real I
4.3 Fisher Formula
ent Decision
8 ash Flows for Investment Decision

8.1 . t or Past Cost
8.2
8.3
8.4 Non Controllable Cash Flows
8.5 Unavoidable Cash Flows
9 Discounted Cash Flow Techniques
9.1 Net Present Value (NPV)
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I Page 105 of 126
9.1.1 Calculate Net Present Value (NPV)

9.2 Internal Rate ofReturn (IRR)
9.2.1 Calculate Internal Rate of Return (IRR)
9.3 Payback Period
9.3.1 Calculating Payback Period
10 Annuity & Perpetuity
10.1 Calculating Annuity Factor
10.2 Perpetuity
11.1 Question
11.2 Question
11.3 Question
11.4 Question
11.5 Question
11.6 Question
11.7 Question
11.8 Question
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Chapter 18: BUDGETARY CONTROL & REPORTING
Chapter 18:
BUDGETARY CONTROL & REPORTING

Sub Headings
S.no Headings (click the cross—ref below for easy. I
1 Variance b/w Fixed, Flexed Budget & Actual
@U‘l-bODIO Relative Significance of Variances
Potential Actions
Responsibility Accounting & Contro
Controllable Vs Non Controllable
Prepare Control Reports
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Chapter 18; BUDGETARY CONTROL & REPORTING
Chm-PUJNH Variance b/w Fixed, Flexed Budget & Actual
Relative Significance of Variances
Potential Actions
Responsibility Accounting & Control
Controllable Vs Non Controllable Costs
Prepare Control Reports
as
an
Chapter 19: BEHAVIOURAL ASPECTS OF BUDGETING
Chapter 19:
BEHAVIOURAL ASPECTS OF
BUDGETING
Sub Headings _
S.no Headings (click the cross—ref below for e . naviga - Pg.no
1 Importance of Motivation in Performa ' “ i anag Q ent
GUI-ROOM Budgetary Planning & Control Syste '
Impact of Targets on Motivation
Managerial Incentive Schemes "
Approaches to Budget Settin ss
Advantages & Disadvanta; - . 'pative
Budgeting
Top down Vs Botto proa 1 to Budgting
OO\1
Practice Question \S 109
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Chapter 19: BEHAVIOURAL ASPECTS OF BUDGETING
1 Importance of Motivation in Performance Management

2 Budgetary Planning & Control System
3 Impact of Targets on Motivation
4 Managerial Incentive Schemes
4.1 Salary
4.2 Bonus
4.3 Shares
4.4 Share Options
4.5 Pension
4.6 Benefits
5 Approaches to Budget Setting P ocess
6 Advantages & Disadvantage ' '
Budgeting
7 Top down Vs Bottom u
8 Practice Questions
8.1 Question
8.2 Question
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Chapter 20: STANDARD COSTING SYSTEMS
Chapter 20:
STANDARD COSTING SYSTEMS

Sub Headings
1 Standard Costing 111
2 Standard Vs Marginal Vs Absorption Cost'
3 Implementing Standard Costing
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Chapter 20: STANDARD COSTING SYSTEMS
1 Standard Costing
1.1 Definition of Standard Cost & Budgeted Cost
1.2 Purpose of Standard Costing
1.3 Principles of Standard Costing
2 Standard Vs Marginal Vs Absorption Costing
2.1 Standard Cost Card
2.2 Actual Data
3 Implementing Standard Costing
an
Chapter 21: VARIANCE ANALYSIS
Chapter 21:
VARIANCE ANALYSIS
Sub Headings
6©O \IO\U1-l>-OQNH Total Sales Variance 113
Total Material Cost Variance 113
Total Labour Cost Variance \
Total Variable Production Overhead
Total Fixed Production Overhead . r1
Interpreting Variances
Investigating Variances
Interrelationship betwee . . .
Calculating Standard 0 .‘ ctual Cost
Practice Questions ; ' 'ons
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Chapter 21: VARIANCE ANALYSIS
1 Total Sales Variance

1.1 Sales Price Variance
1.2 Sales Volume Profit or Contribution Variance
2 Total Material Cost Variance
2.1 Material Price Variance
2.2 Material Usage Variance
3 Total Labour Cost Variance
3.1 Labour Rate Variance
3.2 Labour Efficiency Variance
3.3 Idle Time Variance
4 Total Variable Production Overhe ad 2 riai'ic
5.2.1 Fixed Production ahead Effi enriance

5.2.2 Fixed Production -dCapaci_ "
6 Interpreting "a 'ances
7 Investiga' ngVaria ces
7.1 Reaso or
8 Inte'rela 'ons 'p be ween Va ian
9 i culating “tan i a or Ac. a 05
1 ract e Quest ’ i { Solutions
estio .
. - tion
10. Ques n
10.4 ‘ estion
.5 1 tion
ue 3
estion
tion
\
10.
10.11 b on
mu
Chapter 22: RECONCILIATION OF BUDGETED & ACTUAL PROFIT
Chapter 22:
RECONCILIATION OF BUDGETED &

ACTUAL PROFIT
Sub Headings
S.no Headings (click the cross—ref below for e
1 Under Absorption Costing
2 Under Marginal Costing
Chapter 22: RECONCILIATION OF BUDGETED & ACTUAL PROFIT
1 Under Absorption Costing

2 Under Marginal Costing
3.1 Question
63$)
an
Chapter 23: PERFORMANCE MEASUREMENT OVERVIEW
Chapter 23:
PERFORMANCE MEASUREMENT
OVERVIEW
Sub Headings
S.no Headings (click the cross—ref below for e . ga u
1 Mission Statement
(Tl-ROOM Objectives
Macro Economics & Performance > - .
Government Regulation & Perfo mance ‘m
Practice Questions & Solutio v
Chapter 23: PERFORMANCE MEASUREMENT OVERVIEW
1 Mission Statement
1.1 Purpose of Mission Statement
1.2 Role of Mission Statement in Performance Measurement
2 Objectives
2.1 Purpose of Objectives
2.1.1 Strategic Objectives
2.1.2 Tactical Objectives
2.1.3 Operational Objectives
2.2 Role of Objectives in Performance Measu
2.2.1 Strategic Objectives
2.2.2 Tactical Objectives
2.2.3 Operational Objectives
3 Macro Economics & Perfor
4 Government Regulation
5 Practice Questions &
5.1 Question
Chapter 24: PERFORMANCE MEASUREMENT-APPLICATION
Chapter 24:
PERFORMANCE MEASUREMENT -
APPLICATION
Sub Headin s
S.no Headin s (click the cross—ref below for navi a
l—‘l—‘H
H Ratios for Financial Performance Meas ent
NHO\O O\IU\U‘I-I>O I\D Non Financial Performance Mea
Balance Score Card
Benefits & Limitations of Balan Score
Critical Success Factors & K rmanc
Value for Mone
Divisional Performanc easures
Advanta es & Disad es of th ROC RI
Characteristics of
Performance M
Inte retation of Perfo
Practice ' ns & Solu
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1 Ratios for Financial Performance Measurement

1.1 Profitability ratios
1.1.1 Gross Profit Margin
1.1.2 Net/Operating Profit Margin
1.1.3 Cost of Sales Percentage
1.1.4 Operating Cost Percentage
1.1.5 Sales Growth or Decline Percentage
1.2 Working Capital or Liquidity Ratios
1.2.1 Trade Receivable Turnover
1.2.2 Inventory Turnover
1.2.3 Trade Payable Turnover
1.2.4 Current Asset Ratio
1.2.5 Quick Ratio or Acid Test Rati
1.3 Gearing Ratios
1.3.1 Financial Gearing Ratio
1.3.1.1 Debt to Debt plus E
1.3.2 Operational Geari
1.3.2.1 Contribution to rofi
1.3.3 Interest Cover (Times)
1.4 Investor Ra '
5.2 -, erformance Indicators (KPI)

5.3 Relationships between Mission, Objectives, CSF & KPI
5.3.1 Mission
5.3.2 Objectives
5.3.3 Strategy
an
5.3.4 CSF
5.3.5 KPI
5.4 Organization Specific CSF & KPI
6 Value for Money
6.1 Economy
6.2 Efficiency
6.3 Effectiveness
6.4 Performance Indicators
6.4.1 Economy
6.4.2 Efficiency
6.4.3 Effectiveness
6.5 Efficiency, Capacity&Activity Ra '
6.5.1 Efficiency Ratio
6.5.1.1 Limitation of Efficiency R
6.5.2 Capacity Ratio
6.5.3 Activity Ratio
6.5.4 Calculate Eff‘ 'ency, .city
7 Divisional Performan a Measu
7.1 Return on Capital Employee
7.2 Calculatin ’ ‘ ROI
7.3 Return a ]
7.4 Calcu ing ‘s
7.5 Re com
7.6 '. ‘
8 .‘ dva tages & b ' vantages of o h ROCE & RI
racte istics ‘ ‘ces
9. . abili
9.2 Hetergeneit
9.3 \ angibility
4 ‘ taneity
.1 '. sfer ofOw ship
10 Pe ‘ ormance Measures for Service Industries
1 Interp. etation of Performance Measures
1 ractice Qfiestions & Solutions
12.1 b
12.2 Qu on
12.3 Q stion
12.4 Question
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Chapter 25: COST REDUCTIONS & VALUE ENHANCEMENT
Chapter 25:
COST REDUCTIONS & VALUE

ENHANCEMENT
Sub Headings
S.no Headings (click the cross—ref below for e
1 Cost Reduction & Value Enhancement
2 Cost Reduction Methods
3 Value Analysis
4 Practice Question & Solutions
Chapter 25: COST REDUCTIONS & VALUE ENHANCEMENT
1 Cost Reduction & Value Enhancement

1.1 Cost Control Vs Cost Reduction
2 Cost Reduction Methods
2.1 Methods ofCost Reduction
2.1.1 Spending
2.1.2 Efficiency
2.2 Ways ofCost Reduction
2.2.1 Variable Costs
2.2.2 Fixed Costs
2.2.3 Discretionary Costs
2.2.4 IIT
2.2.5 TQM
2.2.6 Target Costing
2.2.7 Value Analysis
2.2.8 Market Research
2.2.9 Outsourcing
2.2.10 Automation
2.2.11 Training
2.2.12 Communication
2.2.13 Wo ‘ a‘ '
2.2.14 urces of ance
2.2.15 lax nning
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Chapter 26: MONITORING PERFORMANCE & REPORTING
Chapter 26:
MONITORING PERFORMANCE &

REPORTING
Sub Headings _
S.no Headings (click the cross—ref below for e . naviga .
1 Non Financial Performance Measures
$00M Short & Long Term Performance
Performance Measurement in Se ' - .
Performance Measurement in n Profi
Organizations
O'\U‘l
00\1
Benchmarking 7‘ ‘
Types of Benchmarkin
Performance Measur
Practice Question
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Chapter 26: MONITORING PERFORMANCE & REPORTING
1 Non Financial Performance Measures

2 Short & Long Term Performance
3 Performance Measurement in Service Industries
3.1 Standards
3.1.1 Equity
3.1.2 Ownership
3.1.3 Achievable
3.2 Rewards
3.2.1 Motivation
3.2.2 Clear
3.2.3 Controllability
3.3 Dimensions
3.3.1 Determinants
3.3.1.1 Quality of Service
3.3.1.2 Flexibility
3.3.1.3 Innovation
3.3.1.4 Resource Utiliza '
3.3.2 Results
3.3.2.1 Financial Performance
I >8 lDlllOllC
ce Measurement
urement Reports
ice Questions & Solutions
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Management Accounting | Page 1 of 126

TABLE OF CONTENTS ........................................................

17: CAPITAL BUDGETING & DISCOUNTED CASH FLOWS ............ .. 103

Chapter 20: STANDARD COSTING SYSTEMS ....................................................... .. 110

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A Blanket Rate 0 - Factory Wide

Absorption Costing .................. ..106 118

Accurate .................................... .. 41 ___.I _ _ I _ . _ _ _ _ __

Achievable ............................... .. 147 ____________ “

Acid Test Ratio ......................... ..

Activity Based Costing (ABC)

Additive Model ...................... ..

.................. .. 104, 143

gets ............................ .. 123

in Based Index Number ...... ..121

Clear ......................................... ..147

Clustered Sampling .................... ..55

Coefficient of Correlation ......... .. 120

Coefficient of Determination .... ..120

Committed Cost ....................... ..127

Competitive Benchmarking ...... ..147

Competitive Performance ........ ..147

Benchmarking ----------------------- "147 Complete .................................... ..41

Compound Interest .................. ..127

Compounding .......................... .. 127 Departmental Overhead Absorption

Controllability .......................... .. 147

Controllable Cash Flows ........... ..127

Conversion Cost ....................... .. 1

Cost Centres ....................... ..

ounted Cash Flow ...... .. 126, 127

Discounting .............................. ..127

Discretionary Costs .................. .. 145

Dispatch Note ............................ ..98

Distribution ................................ ..51

Dividend Cover ......................... ..142

Easy to use. ................................ ..41

Effective Interest Rate ............. .. 127 Flexibility .................................. ..147

Effectiveness ............................ .. 143 Forecasting ............................... ..120

Efficiency ................................. .. 143 Free Inventory ............................ ..98

Efficiency Ratio ................ .. 104, 143

Equity ....................................... .. 147

Equivalent Cost Units ............... .. 112

Esteem Value ........................... .. 145

Exchange Value ........................ .. 1

us Schemes ............. ..103

Heterogeneity .......................... ..143

High Low Method ....................... ..73

Holding Cost ............................. ..100

Hourly Rate Basis ..................... .. 103

Fixed P duction Overhead Capacity Idle Time Costs ......................... ..103

Indirect Cost .............................. .. 62

Information ................................ ..40

rgin ............................... ..lOO

Mster Budgets ........................ ..123

Material Cost Variance ............. ..136

Material Requisition Note (MRN).98

Maximum Inventory Level ........ ..100

Minimum Guaranteed Pay ....... ..103

Minimum Inventory Level ........ ..100

Mission Statement ................... ..140

Motivation ............................... ..147

Key Performance Indicators (KPI) Moving Averages ...................... ..120

Ownership _____________________________ 147 Profit Centres ............................. ..79