CIMA P2 Advanced Management Accounting First Intro slide – change details to your own For exams in 2016 江西财经大学会计学院 吉伟莉 499159596@qq.com

Course Overview Topic and Study weighting A Cost planning and analysis for competitive advantage B Control and performance management of responsibility centres C Long-term decision making D Management control and risk % 25 30 15

Levels of learning objectives Evaluation Analysis Application Comprehension Knowledge

Introduction— A revision of basic cost accounting concepts and techniques Absorption costing Marginal costing Variance analysis First Intro slide – change details to your own

Basic cost accounting concepts Cost classfication By nature By traceablity By function By behaviour Materials cost labour cost Expenses Direct cost Indirect cost Production cost Administration cost Selling cost Distribution cost R&D cost Fixed cost Variable cost Mixed cost

Total Production Costs Absorption costing Total Production Costs Direct Costs Indirect Costs (overheads) Allocate & Apportion COST UNIT Allocate COST CENTRES Production 1 Production 2 Service Production 1 Production 2 Reapportion Absorb Example: P8-Question 1

Cost card – marginal costing $/unit Direct materials X Direct labour X Variable overhead X Marginal cost X Used to value inventory under Marginal costing Fixed overheads X Full product cost X Used to value inventory under Absorption costing Chat about how some businesses prefer to focus on VC only, as treat FC as a period cost Stress the main difference between the two methods is inventory valuation I.e. FC treated as period vs product costs

Reconciling profit figures Difference in profit=Change in inventory*OAR/unit Absorption costing profit Add: ? Less: ? Marginal costing profit Example: P12-Question 6

Variances analysis—basic calculation Standard Cost Variances Quantity Variance Price Variance The difference between the actual price and the standard price The difference between the actual quantity and the standard quantity Price variances result when we pay an actual price for a resource that differs from the standard price that should have been paid. Quantity variances are caused by using an actual amount of a resource that differs from the standard amount that should have been used.

Computing Variances Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Price Variance Quantity Variance Standard price is the amount that should have been paid for the resources acquired. Here’s a general model for computing standard cost variances. We multiply the actual quantity times the actual price and compare that to the actual quantity times the standard price. The difference is the price variance. Then we compare the actual quantity times the standard price to the standard quantity at the standard price. The difference is the quantity variance. Standard price is the amount we should pay for the resource acquired.

Materials mix and yield variances Materials costs Total variance Price variance Usage variance Yield variance Mix variance Note: Only when, (1) a product requires two or more raw materials; (2)the proportions of the materials are changeable and controllable.

Planning variances VS operational variances Total Variances Operational Variance Planning Variance Caused by inaccurate planning/faulty standards Caused by adverse /favourable operational performance Price variances result when we pay an actual price for a resource that differs from the standard price that should have been paid. Quantity variances are caused by using an actual amount of a resource that differs from the standard amount that should have been used.

This organization has entirely too much overhead! End of Introduction This organization has entirely too much overhead!