Paper 1.2 - Financial Information for Management
 

Aim

To develop knowledge and understanding of the application of management accounting techniques to support the management processes of planning, control and decision making.

Objectives

On completion of this paper candidates should be able to:

  • explain the role of management accounting within an organisation and the requirement for management information
  • describe costs by classification and purpose
  • identify appropriate material, labour and expense costs
  • understand the principle methods of costing and apply them in straightforward scenarios
  • understand and demonstrate the cost factors affecting production and pricing decisions
  • understand the basic principles of performance management and
  • demonstrate the skills expected in Part 1.

Content

Accounting for management management processes, nature of decision making, management information requirements, contribution and scope of management accounting, maintenance and improvement of accounting information systems.

Cost accounting role and purpose, cost and revenue classification, different costs for different purposes, nature of internal reporting function (cost, revenue, profit and investment centres), comparison with external financial reporting.

Elements of cost standard and actual cost for materials (including methods of materials pricing) labour, direct and indirect expenses, allocation and apportionment methods, calculation of absorption rates, treatment of capacity variations, reciprocal service, stock control and re-ordering.

Costing systems the operation of systems and the calculation of cost under job, batch, contract, process and standard costing methods, full absorption and marginal costing, application of costing methods to service based industries, activity based methods (outline only).

Decision making cost behaviour - fixed, variable and semi-variable costs, opportunity costs and relevant cost concepts, cost volume profit analysis, break-even charts, “make or buy” type situations.

Pricing policies and procedures preparation of cost estimates, tendering and quotations, pricing methods (full cost plus, demand based, marginal).

Performance measurement use of indicators to measure productivity, unit costs, resource utilisation, profitability, quality of service.

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