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SAMPLE WORK

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KASNEB SYLLABUS: MANAGEMENT ACCOUNTING

GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply management accounting principles and concepts in business

 

LEARNING OUTCOMES

 

A candidate who passes this paper should be able to:

• Estimate the cost of goods and services
• Analyse product costs for manufacturing and non-manufacturing activities
• Prepare marginal and absorption cost statements
• Analyse an organisation’s activities through budgetary control process
• Analyse variances for decision making

 

CONTENT

1. The context of management accounting:

1.1 Definition and scope of Cost and Management accounting

1.2 Role of Management Accounting in decision making

1.3 Users of Management accounting information

1.4 Cost accounting as a subset of management accounting

1.5 Management accounting and financial accounting

1.6 Difference between management accounting and financial accounting

1.7 Relationship between Management accountant and other managers

1.8 Limitations of management accounting

 

2. Costing terms and concepts

2.1 Cost definition and identification

2.2 Cost classification

2.3 Cost classification bases; by time; by behaviour; by function; identification with  stock; by relevance for decision making; by management control

2.4 Types of cost systems

2.5 Maintaining a cost database

 

3. Introduction to cost estimation

3.1 Non-mathematical methods

3.1.1 Accounts Analysis method

3.1.2 High-Low method

3.1.3 Industrial Engineering method

 

3.2 Mathematical methods

3.2.1 Scatter graph method

3.2.2 Ordinary Least Square method (simple regression only)

 

4. Cost accumulation

4.1 Accounting for direct material cost

4.1.1 Introduction to Material costing

4.1.2 Objectives of material control

4.1.3 Essential requirements of material control system

4.1.4 Centralised and decentralized purchasing

4.1.5 Periodic inventory system

4.1.6 Perpetual inventory system

4.1.7 Setting stock levels

4.1.8 Factors influencing stock levels

4.1.9 Relevant cost for inventory management

4.1.10 The Economic Order Quantity

4.2 Valuing inventory issues using FIFO, LIFO, standard cost method, weighted average, simple average and replacement cost method

4.3 Accounting for direct labour cost

4.3.1 Methods of labour remuneration

4.3.2 Bonus schemes

4.3.3 Factors influencing wages

4.4 Accounting for overhead cost

4.4.1 Overhead apportionment

4.4.2 Primary overhead distribution

4.4.3 Secondary overhead distribution methods (continuous allocation method, algebraic method, direct allocation method, sequential allocation method)

4.4.4 Absorption of overheads

 

5. Activity based costing

5.1 Meaning of activity-based costing

5.2 Distinction between activity-based costing and the Traditional absorption costing

5.3 Classification of cost drivers

5.4 The hierarchy of cost drivers

5.5 Overhead absorption rates – ABC

5.6 Income statements – one unit

5.7 Income statement – total output/sales

 

6. Product costing methods

6.1 Introduction to costing methods

6.2 Specific order costing; Job order costing; Batch costing

6.3 Continuous operation costing; Process costing (normal process losses; abnormal process losses/gains); treatment of closing work in progress; treatment of opening work in progress (FIFO and Weighted Average cost methods); Process costing for joint products and by-products; distinction between joint-products and by-products

6.4 Service costing

 

7. Marginal and absorption costing

7.1 Differences between marginal costing and absorption costing

7.2 comparative income statements

7.3 Arguments for the use of marginal costing

7.4 Arguments for the use of absorption costing

7.5 Reconciliation statement

 

8. Cost-volume profit analysis (break-even analysis)

8.1 Introduction to C-V-P analysis

8.2 Assumptions of C-V-P analysis

8.3 Break-even chart

8.4 Profit-volume chart

8.5 Single product C-V-P analysis

8.6 Multiple product C-V-P analysis

8.7 Limitations of C-V-P Analysis

8.8 Applications of marginal costing in decision making (make/buy decisions; discontinue a product; choice of a product where limiting factor exists; acceptance of a special offer); overriding considerations to the above decisions

 

9. Budgetary control

9.1 Introduction to budgets

9.1.1 Essential features of a budget

9.1.2 Objectives of budgetary control

9.1.3 Difference between forecasts and budgets

9.2 Types of budgets

9.2.1 Classification based on time (long-term budgets, short-term budgets and current budgets)

9.2.2 Classification based on functions (functional/subsidiary budgets, master budgets)

9.2.3 Classification based on capacity (fixed budgets, flexible budgets)

9.3 Preparation of budgets

9.3.1 Functional budgets including cash budget and master budget

9.3.2 Fixed and flexible budgets

 

10. Standard costing and variance analysis

10.1 Introduction

10.1.1 Types of standards (basic standards, ideal standards, attainable standards)

10.1.2 Advantages and disadvantages of standard costing

10.2 Variance analysis

10.2.1 Material cost variances (usage variance, price variance)

10.2.2 Labour cost variances (efficiency variance, rate variance)

10.2.3 Variable overhead variances (expenditure variance, efficiency variance)

10.2.4 Fixed overhead variances (expenditure variance, capacity variance, efficiency variance and volume variance)

10.2.5 Sales variances

10.3 Causes of the various variances and remedies

 

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PART A

 

KASNEB PAST EXAMINATION QUESTIONS 

 

 

TOPIC 1

 

THE CONTEXT OF MANAGEMENT  ACCOUNTING

 

QUESTION 1

September 2021 Question Two A

Examine four limitations of financial accounting that have made organisations introduce management accounting.                                                                                        (8 marks)

 

QUESTION 2

September 2021 Question Four A

Evaluate three benefits that would accrue to an organisation that has a cost accounting department              (6 marks)

 

QUESTION 3

May 2021 Question Five A

Jeremy Awuor established a fast food business one year ago and has achieved good sales but a small profit. In a recent business networking event, he was advised to consider employing a management accountant to enhance and improve his business.

Required:

• Explain to Jeremy Awuor six changes in the business environment that could have contributed to the growth and importance of management accounting in the recent past.                                                                       (6 marks)

 

• Describe four roles played by a management accountant that would enhance and improve Jeremy Awuor’s business. (4 marks)

 

QUESTION 4

November 2020 Question Three A

Describe four limitations of management accounting in an organisation.             (4 marks)

 

 

QUESTION 5

May 2019 Question One A

Financial accounting is the branch of accounting that organises accounting information for presentation to interested parties outside the business.

Management accounting on the other hand uses information provided by both financial accounting and cost accounting with the purpose of providing information to managers for policy formulation, planning and decision making.

Required:

With regard to the above statement, describe four differences between management accounting and financial accounting.                                                                       (8 marks)

 

QUESTION 6

May 2018 Question One A

Describe four limitations of management accounting.                                          (4 marks)

SAMPLE WORK

Complete copy of CPA MANAGEMENT ACCOUNTING Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

QUESTION 7

November 2017 Question One A

Explain four purposes of cost accounting.                                                             (8 marks)

 

QUESTION 8

November 2016 Question One A

Describe six skills that a management accountant should possess                         (6 marks)

 

 

QUESTION 9

November 2015 Question One A

Describe three benefits of management accounting.                                              (6 marks)

 

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PART B

 

SUGGESTED SOLUTIONS AND ANSWERS

 

 

 

TOPIC 1

 

THE CONTEXT OF MANAGEMENT  ACCOUNTING

 

QUESTION 1

September 2021 Question Two A

Limitations of financial accounting that have made organisations introduce management accounting.

• Financial accounts disclose the overall profit of the concern but it does not disclose the profit or loss of each department, process or product etc.
• Labour or wages are not recorded department wise or product wise.
• Expenses are not classified as direct or indirect, controllable or uncontrollable, fixed or variable etc.
• No proper procedure to determine the standard or efficiency of an organisation in the use of materials or other resources.
• It does not provide the information of losses due to idle time, idle plant and tools, defective materials and the difference between normal and abnormal losses.
• Cost information is not available and therefore it is not a guide in determining the price of the product or services
• It does not provide any information to the management about the price to be quoted for the future supply of goods and services or predetermined price.
• It does not guide the management for proper planning, control and decision-making.
• There is no system of computing day to day cost and it provides information only at the end of accounting period.

 

 

QUESTION 2

September 2021 Question Four A

Benefits that would accrue to an organisation that has a cost accounting department     

• Evaluates the reasons for losses
• Control over stock
• Price Reduction
• Fixing Prices
• Identification of Unprofitable Activities
• Measuring and Improving Efficiency
• Aid Future Planning

 

 

QUESTION 3

May 2021 Question Five A

• Technology – business entity always look for ways to leverage technology. Any type of technology that can increase production, reduce cost.
• Lean practices – a lean business model is one which an organization strives to eliminate wastes to its products, services and processes, while still fulfilling company’s’ mission.
• Total quality management – in TQM management and employees reveal waste and errors, streamline the supply chain, improve customer relation and confirm that employees are informed and properly trained.
• Just in time manufacturing – this system increase efficiency and decrease waste by receiving goods only as they are needed within the production process.
• Lean six stigmas – is quality control program that depend on a combined effort of many team members to enhance performance by analytically removing waste.
• Kaizen – is a process improvement by eliminating waste and increasing efficiencies.

SAMPLE WORK

Complete copy of CPA MANAGEMENT ACCOUNTING Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

 

QUESTION 4

November 2020 Question Three A

Limitations of management accounting in an organization

1. Evolutionary stage: management accounting is still in a development stage and has not yet reached a final stage. The techniques and tools used by this system give varying and differing results. It is still named as internal accounting and / or operational accounting.
2. Lack of knowledge: the use of management accounting requires the knowledge of number of related subjects. Deficiency in knowledge in related subjects like accounting principles, statistics, economics and principle of management e.t.c will limit the use of management accounting
3. Based on accounting information: Management accounting is based on data and information provided by financial accounting and cost accounting. As such, the correctness and effectiveness of managerial decisions will depend upon the quality of data provided by cost and financial accounts so effectiveness limited to the reliability of sources of information.
4. Psychological resistance: Changes in traditional accounting practices and organization set up are required to install management accounting system. It calls for a rearrangement of the personnel and their activities and framing of new rules and regulations which generally may not be liked by the people involved
5. Unquantifiable variables: Management accounting seeks to interpret and evaluate an objective historical event on record in terms of money. But, in practice, the business organization is facing many problems which cannot be quantified.
6. Costly installation: The cost of installation of management accounting system is very high. Hence, a small business organization cannot bear the cost of such installation. Moreover, the utility of this system is restricted only to big and complex organizations
7. Broad based scope: The scope of management accounting is very wide since it considers both monetary and non-monetary transactions of the business organization. The limited knowledge and experience of the management accountant can lead to prepare data unreliable and undependable.
8. Continuity and participation: The decisions are taken by the management. The implementation is vested in the hands of management accountants. The continuous efforts of management accountant and full participation of all levels of management are necessary for successful operation of management accounting system.
9. Lack of objectivity: There is every possibility of personal bias and manipulation from the collection of data to the interpretation stage in financial accounting. Thus, it losses objectivity and validity

 

QUESTION 5

May 2019 Question One A

Difference between management accounting and financial accounting

• Financial accounting is developed for definite period, usually a year, half year or quarter but management accounting reports and statements can be prepared whenever needed
• Financial accounting follows the double entry system of recording classifying and summarizing businesses transactions. The data under management accounting can be gathered for small or large segments or activities of an organization and monetary as well as other measures can be used for different activities in the organization.
• Limited liability companies must by law prepare financial accounts. There is no legal requirement to prepare management accounts.
• The format of published financial accounts is determined by local law, by international financial reporting standards.
• In principle the accounts of different organizations can therefore be easily compared, the format of management accounts is entirely at management discretion, no strict rules govern the way they are prepared or presented. Each organization can device its own management accounting system and format or reports.
• Financial accounts concentrate on the business as a whole, aggregating revenues and costs from different operations and are end in themselves. Management accounts can focus on specific areas of an organizations activities. Information may be produced to aid a decision rather than to be an end product of a decision.
• Most financial accounting information is of a monetary nature, management accounts incorporate non-monetary measures. Management may need to know for example, tons of alluminium produced, monthly machine hours or miles travelled by salesmen.
• Financial accounts present an essentially historic picture of past operations. Management accounts are both an historical record and a future planning tool.
• Financial accounts are for external reporting purposes. Management accounts are for internal reporting purposes.

 

QUESTION 6

May 2018 Question One A

Limitations of managements accounting

• Unquantifiable variables: Management accounting seeks to interpret and evaluate an objective historical event on record in terms of money. But, in practice, the firm is facing many problems which cannot be exposed.
• Evolutionary state: Management accounting is a recent development discipline. The utility of management accounting is dependent upon the intelligent interpretation of the data available for managerial use. Hence, it is pre mused that the management accounting stands in evolutionary stage.
• Resistance to change: The installation of management accounting system brings some changes in the organizational set up and accounting practice. The personnel concerned may resist such changes unless they are getting confidence.
• Costly installation: Installation cost is very high. Hence a small firm cannot bear the cost of such an installation. Moreover, the utility of this system is restricted to big and complex firms.

 

SAMPLE WORK

Complete copy of CPA MANAGEMENT ACCOUNTING Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com