CA25: Management Accounting

CA25: Management Accounting is an Intermediate Level paper in the KASNEB CPA qualification. It equips learners with the knowledge and practical skills required to collect, analyze, and interpret financial and non-financial information for planning, decision-making, performance evaluation, and cost control. The course emphasizes the application of management accounting techniques to improve organizational efficiency, profitability, and strategic decision-making.

Key Topics Covered

• The context of management accounting:
• Definition and scope of Cost and Management accounting
• Role of Management Accounting in decision making
• Users of Management accounting information
• Cost accounting as a subset of management accounting
• Management accounting and financial accounting
• Difference between management accounting and financial accounting
• Relationship between Management accountant and other managers
• Limitations of management accounting
• Costing terms and concepts
• Cost definition and identification
• Cost classification
• Cost classification bases; by time; by behaviour; by function; identification with stock; by relevance for decision making; by management control
• Types of cost systems
• Maintaining a cost database

• Introduction to cost estimation
• Non-mathematical methods
• Accounts Analysis method
• High-Low method
• Industrial Engineering method
• Mathematical methods
• Scatter graph method
• Ordinary Least Square method (simple regression only)
• Cost accumulation
• Accounting for direct material cost
• Introduction to Material costing
• Objectives of material control
• Essential requirements of material control system
• Centralised and decentralized purchasing

• Periodic inventory system
• Perpetual inventory system
• Setting stock levels
• Factors influencing stock levels
• Relevant cost for inventory management
• The Economic Order Quantity

• Valuing inventory issues using FIFO, LIFO, standard cost method, weighted average, simple average and replacement cost method
• Accounting for direct labour cost
• Methods of labour remuneration
• Bonus schemes
• Factors influencing wages
• Accounting for overhead cost
• Overhead apportionment
• Primary overhead distribution
• Secondary overhead distribution methods (continuous allocation method, algebraic method, direct allocation method, sequential allocation method)
• Absorption of overheads

• Activity based costing
• Meaning of activity-based costing
• Distinction between activity-based costing and the Traditional absorption costing
• Classification of cost drivers
• The hierarchy of cost drivers
• Overhead absorption rates - ABC
• Income statements - one unit
• Income statement - total output/sales

• Product costing methods
• Introduction to costing methods
• Specific order costing; Job order costing; Batch costing
• 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
• Service costing
• Marginal and absorption costing
• Differences between marginal costing and absorption costing
• comparative income statements
• Arguments for the use of marginal costing
• Arguments for the use of absorption costing
• Reconciliation statement
• Cost-volume profit analysis (break-even analysis)
• Introduction to C-V-P analysis
• Assumptions of C-V-P analysis
• Break-even chart
• Profit-volume chart

• Single product C-V-P analysis
• Multiple product C-V-P analysis
• Limitations of C-V-P Analysis
• 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

• Budgetary control
• Introduction to budgets
• Essential features of a budget
• Objectives of budgetary control
• Difference between forecasts and budgets
• Types of budgets
• Classification based on time (long-term budgets, short-term budgets and current budgets)
• Classification based on functions (functional/subsidiary budgets, master budgets)
• Classification based on capacity (fixed budgets, flexible budgets)
• Preparation of budgets
• Functional budgets including cash budget and master budget
• Fixed and flexible budgets
• Standard costing and variance analysis
• Introduction
• Types of standards (basic standards, ideal standards, attainable standards)
• Advantages and disadvantages of standard costing
• Variance analysis
• Material cost variances (usage variance, price variance)
• Labour cost variances (efficiency variance, rate variance)
• Variable overhead variances (expenditure variance, efficiency variance)
• Fixed overhead variances (expenditure variance, capacity variance, efficiency variance and volume variance)
• Sales variances
• Causes of the various variances and remedies