Management Accounting Fundamentals (FMAF)

Syllabus overview

Management Accounting Fundamentals is an introduction to management accounting for students with limited knowledge or no knowledge of this subject. While this paper focuses on the application of fundamental methods and techniques, students are also expected to have an understanding of when and when not to use them. Students must also appreciate the contribution made by information technology to management accounting.

Aims

This syllabus aims to test the student’s ability to:

• explain the basic concepts and processes used to determine product and service costs;
• explain absorption cost, marginal cost, opportunity cost, notional cost and relevant cost concepts;
• apply CVP analysis and interpret the results:
• apply a range of costing and accounting systems;
• explain the role of budgets and standard costing within organisations;
• prepare and interpret budgets, standard costs and variance statements.

There will be a written paper of three hours. Section A will use objective testing and will account for 50% of the marks. Section B will be a compulsory question for 25% of the marks. Section C will offer a choice of one question from two for 25% of the marks.

On completion of their studies students should be able to:

• explain why organisations use costing systems;
• explain raw material accounting and control procedures;
• explain and calculate reorder quantity, reorder level, maximum stock, minimum stock and economic order quantity;
• explain FIFO, LIFO and weighted average stock valuation methods;
• calculate stock, cost of sales and gross profit under LIFO, FIFO and weighted average;
• explain labour accounting and control procedures;
• discuss and calculate factory incentive schemes for individuals and groups;
• explain absorption costing;
• prepare cost statements for allocation and apportionment of overheads including reciprocal service departments;
• calculate and discuss overhead absorption rates;
• calculate under/over-recovery of overheads;
• calculate product costs under absorption and marginal costing;
• compare and contrast absorption and marginal costing.

• Classification of costs.
• Materials: accounting and control procedures.
• Labour: accounting and control procedures.
• Factory incentive schemes for individuals and groups.
• Overhead costs: allocation, apportionment, reappointment and absorption of overhead costs. NB: the repeated distribution method only will be used for reciprocal service department costs.
• Absorption costing.
• Marginal costing.
• Materials: reorder quantity, reorder level, maximum stock, minimum stock, economic order quantity.

On completion of their studies students should be able to:

• explain the principles of standard costing;
• prepare the standard cost for a product/service;
• calculate and interpret variances for sales; materials; labour; variable overheads and fixed overheads;
• prepare a report reconciling budget gross profit/contribution with actual profit.

• Principles of standard costing.
• Preparation of standard costs under absorption and marginal costing.
• Variances: materials: total, price and usage; labour: total, rate and efficiency; variable overhead: total, expenditure and efficiency; fixed overhead: total, expenditure and volume (absorption costing); fixed overhead: expenditure (marginal costing); sales: total sales margin variance.

On completion of their studies students should be able to:

• compare and contrast job, batch, contract and process costing systems;
• prepare ledger accounts for job, batch, contract (in accordance with SSAP 9) and process costing systems. NB: the average cost method will only be used for process costing and students must be able to calculate normal losses and abnormal loss/gains and deal with opening and closing stocks;
• prepare and contrast cost statements for service and manufacturing organisations;
• prepare profit and loss accounts from the same data under absorption and marginal costing and reconcile and explain the differences in reported profits;
• prepare accounting entries for an integrated accounting system using standard costs;
• explain the difference between integrated and interlocking accounting systems.

• Job, batch, contract and process costing.
• Cost accounting statements for services and service industries.
• Marginal and absorption costing profit and loss accounts.
• Accounting entries for an integrated accounting system.
• Interlocking accounting.

On completion of their studies students should be able to:

• identify relevant costs and revenues;
• identify cost behaviour;
• explain the contribution concept;
• calculate and interpret the break-even point, profit target, margin of safety and profit/volume ratio for a single product;
• prepare break-even charts and profit/volume graphs for a single product;
• calculate the profit-maximising sales mix for a company with a single resource constraint which has total freedom of action;
• discuss CVP analysis.

• Relevant cost concepts, including sunk costs, committed costs and opportunity costs.
• Fixed, variable and semi-variable costs.
• Contribution concept.
• Break-even charts, profit/volume graphs, break-even point, profit target, margin of safety, contribution/sales ratio.
• Limiting factor analysis.

On completion of their studies students should be able to:

• explain why organisations prepare budgets;
• explain how organisations prepare budgets;
• explain the use of IT in the budget process;
• prepare functional budgets, profit and loss account, balance sheet and a simple cash budget;
• calculate simple cost estimates using high – low method and line of best fit;
• prepare simple reports showing actual and budgeted results;
• explain the differences between fixed and flexible budgets;
• prepare a fixed and flexible budget;
• calculate expenditure, volume and total budget variances.

• Budget theory.
• Budget preparation.
• IT and budgeting.
• Cost estimation and estimating techniques.
• Reporting of actual against budget.
• Fixed and flexible budgeting.