Cost and Management Accounting

THE COUNCIL OF COMMUNITY COLLEGES OF JAMAICA
COURSE NAME:
Cost and Management Accounting
COURSE CODE:
ACCT3501
CREDITS:
CONTACT HOURS:
45 (45 hours theory)
PRE-REQUISITE(S):
Fundamental of Accounting (ACCT1101)
CO-REQUISITE(S):
None
SEMESTER:
COURSE RATIONALE:
This course is designed to expose students to various methods, practices and standards used in
Management Accounting and to develop the relevant skills to fit into the broad scheme of
todays business environment.
COURSE DESCRIPTION:
This course is designed to provide a comprehensive coverage of different aspects of
Management Accounting, and to provide students with an understanding of the importance of
Management Accounting in a globalized business environment. The course will concentrate on
budgetary controls, standard costing, CVP Analysis and Investment Appraisal.
GENERAL OBJECTIVES:
Upon successful completion of this course, students should:
1.
2.
3.
appreciate the significance of Management Accounting in the business environment

understand the nature, purpose and scope of Management Accounting
understand how Management Accounting is used in business
UNIT I Introduction to Cost and Management Accounting
(2 hours)
Specific Objectives:
Upon successful completion of this unit, students should be able to:
1.
2.
3.
describe how cost accounting supports management accounting and financial accounting
understand how management accountants affect strategic decisions
describe the set of business functions in the value chain and identify the dimensions of
performance that customers are expecting of companies
The Council of Community Colleges of Jamaica 2009 - Updated: August 2012
Page 249
4.
5.
6.
7.
8.
identify the major users of accounting information

explain the five-step decision-making process and its role in management accounting
describe three guidelines management accountants follow in supporting managers
understand how management accounting fits into an organizations structure
understand what professional ethics means to management accountants
Content:
1.
Compare and contrast:

a.
Cost accounting
b.
Financial accounting
c.
Management accounting
2.
Decision making process:

a.
Identify the problem
b.
Obtain information
c.
Make predictions about outcomes
d.
Make a decision
e.
Implement the decision
3.
4.
5.
Planning and control for product life cycles and the value chain
Users of Accounting Information
Ethical responsibilities of a Management Accountant
UNIT II Costing Terminologies
(2 hours)
1.
2.
3.
4.
5.
6.
7.
8.
9.
define and illustrate a cost object

distinguish between direct costs and indirect costs
explain variable costs and fixed costs
interpret unit costs cautiously
distinguish among manufacturing companies, merchandising companies, and service-sector
companies
describe the three categories of inventories commonly found in manufacturing companies
distinguish inventoriable costs from period costs
explain why product costs are computed in different ways for different purposes
describe a framework for cost accounting and cost management
Page 250
Content:
1.
2.
Users of accounting information

Compare and contrast:
a.
Cost
b.
Management
c.
Financial accounting
3.
Costing terms:
a.
Cost
b.
Cost object
c.
Cost centre
d.
Profit centre
e.
Investment centre
4.
5.
6.
7.
8.
9.
Direct and indirect costs

Variable cost and fixed costs
Product and period costs
Controllable and non-controllable costs
Manufacturing companies, merchandising companies, and service-sector companies
Inventories:
a.
Finished goods
b.
WIP
c.
Raw material inventories
UNIT III Job Costing
(6 hours)
1.
2.
3.
4.
5.
6.
7.
describe the building-block concepts of costing systems

distinguish job costing from process costing
outline the six (6) step approach to job costing
distinguish actual costing from normal costing
track the flow of costs in a job-costing system
calculate the total cost of a job
apply variations from normal costing
Content:
1.
2.
3.
4.
Actual and Normal Costing

Job costing vs. Process costing
Six step approach to job costing
Documents for job costing systems:
Page 251
5.
6.
7.
8.
Job cost record

Materials requisition record
Labour-time record
Seven step approach to job costing:
Step 1:
Identify the job that is the chosen cost object.
Step 2:
Identify the direct costs of the job.
Step 3:
Select the cost-allocation bases to use for allocating indirect costs to the
job.
Step 4:
Identify the indirect costs associated with each cost-allocation base.
Step 5:
Compute the rate per unit of each cost-allocation base used to allocate
indirect Costs to the Job.
Step 6:
Compute the indirect costs allocated to the job.
Step 7:
Compute the total cost of the job by adding all direct and indirect costs
assigned to the job.
9.
10.
Application of job costing

Job costing sheet and statement
UNIT IV Activity Based Costing
(6 hours)
1.
2.
3.
4.
5.
6.
discuss the increasing importance of overhead accounting in modern production

identify stages involved in ABC
identify types of cost
calculate activity rate, using appropriate cost driver
calculate the overhead charged to a job using activity based costing
distinguish between activity based costing and traditional costing
Content:
1.
2.
3.
Increased significance of overheads in production costs

Stages of the ABC process
Types of cost:
a.
Facility sustaining
b.
Product level
c.
Batch level
d.
Unit level
4.
5.
6.
Relationship among activities, resources, costs and cost drivers

Calculating overhead to be charged to job and (or) product using ABC
ABC vs. traditional absorption costing
Page 252
UNIT V Cost -Volume Profit (CVP) Analysis
(6 hours)
1.
2.
3.
4.
5.
6.
explain the features of cost-volume-profit (CVP) analysis

determine the breakeven point and output level needed to achieve a target operating income
understand how income taxes affect CVP analysis
explain CVP analysis in decision making and how sensitivity analysis helps managers cope
with uncertainty
use CVP analysis to plan variable and fixed costs
apply CVP analysis to a company producing multiple products
Content:
1.
2.
3.
Definition of CVP Analysis

Assumptions, benefits and Limitations
Approaches to CVP Analysis:
a.
Graphical Approach
b.
Contribution Margin Approach
c.
Formula Approach
4.
Application of CVP Analysis:

a.
Breakeven point (single & multi product)
b.
Relevant range
c.
Margin of safety
d.
Sales unit & sales revenue to achieve target profit
e.
Contribution/sales ratio
f.
Break even and taxation
g.
Projecting fixed asset, variable cost and price
5.
CVP and Sensitivity analysis
UNIT VI Budget, Planning and Control
(7 hours)
1.
2.
3.
4.
5.
define key terms used in Budgeting, Planning & Control following terms
identify the purpose of Budgetary Planning and Control System
discuss the constraints involved in setting Budgets
explain the functions of a Budgetary Control System
outline the benefits of Budgeting
Page 253
6.
7.
8.
9.
10.
11.
12.
discuss the limitations of Budgeting

prepare functional Budgets
explain the uses of a Cash Budget
prepare Cash Budget from given information
distinguish between Cash and Master Budgets and prepare Master Budget from given data
prepare Master Budget from given data
prepare a flexible budget from given data
Content:
1.
Define the following terms:a.

Planning
b.
Budgeting
c.
Management by Exception
d.
Budgetary Control
e.
Zero-Based Budgeting
f.
Activity Based Budgeting
g.
Rolling Budget
h.
Master Budget
i.
Flexible Budget
j.
Principal Budget factor ( Limiting Budgeting)
2.
3.
4.
5.
The nature of Budgetary Planning and Control - Budget Cycle

Constraints in setting Budgets
Benefits and limitations of Budgets
Preparation of Functional Budgets
a.
Sales
b.
Production
c.
Material Usage & Purchases
d.
Labour
6.
Preparation of Cash and Master Budgets
UNIT VII Flexible Budget and Variance Analysis
(6 hours)
1.
2.
3.
4.
5.
distinguish a static budget from a flexible budget

develop flexible budgets and compute flexible-budget variances and sales-volume
variances
explain why standard costs are often used in variance analysis
calculate the standard cost of a product
compute price variances and efficiency variances for direct-cost categories
Page 254
6.
7.
8.
explain the reasons for variances

understand how managers use variances
describe benchmarking and explain its role in cost management
Content:
1.
2.
3.
4.
5.
Static budget vs. Flexible budget

Flexible budget variance
Definition of Standard Costing
Objective of Standard Costing
Behavioural aspect of standards:
a.
Participation
b.
Motivation
6.
7.
8.
9.
Types of Standards
Calculation of standards
The purpose of Variance Analysis
Calculation of Variances:
a.
Material: price and efficiency
b.
Labour: price and efficiency
c.
Overheads
d.
Sales
10.
11.
12.
Causes of Variances
Application of Variance as a Management Decision Tool
Variance analysis and flexible budget
UNIT VIII Capital Budgeting
(6 hours)
1.
2.
3.
4.
5.
6.
7.
recognize the multiyear focus of capital budgeting

understand the five stages of capital budgeting for a project
use and evaluate the two main discounted cash flow (DCF) methods: the net present value
(NPV) method and the internal-rate-of-return (IRR) method
use and evaluate the payback method
use and evaluate the accrual accounting rate-of-return (AARR) method
identify and reduce conflicts from using DCF for capital budgeting decisions and accrual
accounting for performance evaluation
identify relevant cash inflows and outflows for capital budgeting decisions
Page 255
Content:
1.
2.
3.
Long-run decision making

Stages of capital budgeting
Investment Appraisal Techniques:
a.
Payback
b.
ARR
c.
IRR
d.
MIRR
e.
NPV
f.
Profitability Index
4.
5.
Relevant Cash Flows of potential Investments

Cost of Capital
UNIT IX Responsibility Accounting
(2 hours)
1.
2.
3.
4.
5.
6.
describe responsibility centers and responsibility accounting

explain how controllability relates to responsibility accounting
develop performance measures and use them to monitor the achievements of an
organization
explain the importance of evaluating performance and describe how it impacts motivation,
goal congruence, and employee effort
describe the difficulties of management control in service and non-profit organizations
explain how controllability and management by objectives (MBO) aid the implementation
of management control systems
Content:
1.
2.
3.
4.
5.
Management control system and organizational goals

Responsibility centre: Cost, Profit and investment centre
Performance measures
Motivating employees: goal congruence, managerial effort
MBO programmes
Page 256
METHODS OF DELIVERY:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Lectures
Demonstration
Case Studies
Discussions
Presentation
Problem solving
Guest lecture
Research
Group work
METHODS OF ASSESSMENT AND EVALUATION:

1.
2.
Case study and (or) projects(Common) and test

Examination
40%
60%
RESOURCE MATERIAL:
Prescribed:
Horngreen, C.T., Cary L.S. and Williams, O.S. (2007), Introduction to management
accounting (14th ed.)., NJ: Prentice Hall.
Bhimani, A., Horngreen, C.T., Datar, S & Foster, G.(2008). Management and cost accounting
(4th ed.). NY: Financial Times.
Page 257

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What are the objectives of the Cost and Management Accounting course?

What are the objectives of the Cost and Management Accounting course?

What are some of the costing terminologies discussed in the course?

What are some of the costing terminologies discussed in the course?

THE COUNCIL OF COMMUNITY COLLEGES OF JAMAICA

45 (45 hours theory)

Fundamental of Accounting (ACCT1101)

appreciate the significance of Management Accounting in the business environment

UNIT I Introduction to Cost and Management Accounting

identify the major users of accounting information

Compare and contrast:

Decision making process:

UNIT II Costing Terminologies

define and illustrate a cost object

The Council of Community Colleges of Jamaica 2009 - Updated: August 2012

Users of accounting information

Direct and indirect costs

UNIT III Job Costing

describe the building-block concepts of costing systems

Actual and Normal Costing

The Council of Community Colleges of Jamaica 2009 - Updated: August 2012

Job cost record

Application of job costing

UNIT IV Activity Based Costing

discuss the increasing importance of overhead accounting in modern production

Increased significance of overheads in production costs

Relationship among activities, resources, costs and cost drivers

The Council of Community Colleges of Jamaica 2009 - Updated: August 2012

UNIT V Cost -Volume Profit (CVP) Analysis

explain the features of cost-volume-profit (CVP) analysis

Definition of CVP Analysis

Application of CVP Analysis:

CVP and Sensitivity analysis

UNIT VI Budget, Planning and Control

discuss the limitations of Budgeting

Define the following terms:a.

The nature of Budgetary Planning and Control - Budget Cycle

Preparation of Cash and Master Budgets

UNIT VII Flexible Budget and Variance Analysis

distinguish a static budget from a flexible budget

explain the reasons for variances

Static budget vs. Flexible budget

UNIT VIII Capital Budgeting

recognize the multiyear focus of capital budgeting

The Council of Community Colleges of Jamaica 2009 - Updated: August 2012

Long-run decision making

Relevant Cash Flows of potential Investments

UNIT IX Responsibility Accounting

describe responsibility centers and responsibility accounting

Management control system and organizational goals

The Council of Community Colleges of Jamaica 2009 - Updated: August 2012

METHODS OF ASSESSMENT AND EVALUATION:

Case study and (or) projects(Common) and test

The Council of Community Colleges of Jamaica 2009 - Updated: August 2012

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