1. CIMA P1 Management Accounting
Lecturer: Fang Fang

2. Lecturer Name: 方芳 Mobile phone:13576019083
To find out more about CIMA and P1, pls visit the website:

3. Aim of This Paper….
To develop knowledge and skills in the application of management accounting techniques to quantitative information and qualitative information for planning, decision-making, performance evaluation, and control.

4. Syllabus A Specialist cost and management accounting techniques B
Decision-making techniques C
Budgeting and control D
Performance measurement and control

5. Relational Diagram of Main Capabilities

6. Level 1: Knowledge and comprehension Level 2: Application and analysis
Intellectual Levels
The specific capabilities which the student should have are assessed at one of three intellectual or cognitive levels:
Level 1: Knowledge and comprehension
Level 2: Application and analysis
Level 3: Synthesis and evaluation

7. Let’s start
ACCA Paper F5

8. Overview
A revision of concepts you will have covered in your previous study from Paper F2, which is still examinable at this level.
What is costing?
Absorption costing VS Marginal costing

9. TDirect costs VS Indirect costs
Costing
Costing is the process of determining the costs of products, services or activities.
TDirect costs VS Indirect costs
Text
ext
Costing
Text
Text

10. The problem of overheads
Using absorption
costing– a fair share of
overheads added to
cost per unit
Using marginal
costing– fixed overheads
are treated as period cost

11. Cost inclusion: nature of costs in POH
Fixed Costs
Variable Costs
Absorption
Costing
DM + DL
POH +
Gross Profit
VARIABLE COSTS
DM + DL
VPOH +
Marginal
Costing
Variable Costs
Contribution
+Variable Sales & Admin. costs
Notes: POH- abbr. for production overheads 11

12. A revision of absorption costing
‘3A’ process A A A
Allocation
Apportionment
Absorption

13. Three-Stage absorption costing
Stage One:
OHs allocatedto cost centers
Indirect
Materials
Expenses
Labor
Adm. Dept.
SellingDept.
OH cost center
Pro. Dept.
Pro. Service Dept.

14. Three-Stage absorption costing
Stage One:
OHs allocatedto cost centers
Indirect
Materials
Expenses
Labor
Adm. Dept.
SellingDept.
OH cost center
Pro. Dept.
Pro. Service Dept. 14

15. Three-Stage absorption costing
Stage One:
OHs allocated to cost centers
Indirect
Materials
Expenses
Labor
Adm. Dept.
SellingDept.
OH cost center
Pro. Dept.
Pro. Service Dept. 15

16. Three-Stage absorption costing
Stage Two:
Costs apportioned to departments
Indirect
Materials
Expenses
Labor
Adm. Dept.
SellingDept.
Pro. Dept.
Pro. Service Dept.
OH cost center
Apportion Ⅰ-general OH
Apportion Ⅱ-costs of service cost center 16

17. Three-Stage absorption costing
Stage One:
OHs allocated
to cost centers
Indirect
Materials
Expenses
Labor
Stage Two:
Costs apportioned
to departments
Pro.
Dept.1
Dept. 2
Dept. 3
cost units
Stage Three:
Costs absorbed
to cost units 17

18. Three-Stage absorption costing
Stage One:
OHs assigned
To cost centers
Indirect
Materials
Expenses
Labor
Stage Two:
Costs absorbed
to departments
Pro.
Dept. 1
Dept. 2
Dept. 3
Direct
Labor
Hours
Machine
Rate
per unit
Absorption Bases
cost units
Stage Three:
Costs absorbed
to cost units 18

19. Example Textbook P7 question 1
-- Which are production depts and which are service depts? 2
What will we do step by step?

20. Overhead absorption Reasons for using a predetermined overhead rate
Overhead is not incurred uniformly during the year.
Predetermined rate makes it possible to estimate job costs sooner.
Actual overhead rate might vary from month to month. 20

21. Adjusting of Over-/Under-absorbed OH
The result will be either under-absorbed or over-absorbed overhead and we will adjust Profit and Loss account at the end of the period.
Let’s see Textbook P50.
The POHR is based on estimates.
What happens if actual results differ from the estimates? 21

22. -- Only variable costs are charged as product cost.
Marginal costing
-- Only variable costs are charged as product cost.
-- Closing stocks of WIP or finished goods are valued at variable production cost.
-- Fixed costs are treated as a period cost.
Marginal cost of sales—variable production costs + variable selling costs 22

23. Differences in profit If Opening Stock > Closing Stock
then MC Profit > TAC Profit
If Opening Stock < Closing Stock
then MC Profit < TAC Profit
If Opening Stock = Closing Stock
then MC Profit = TAC Profit

24. Example Textbook P13 question Attention variable non-production costs
inventory
periods

25. Absorption costing and marginal costing compared
Reconciling the profit given by the two methods
Basically, marginal costing is more suitable for internal reporting (help decision-making), absorption costing is more suitable for external reporting. 25

26. Thank You !