CIMA - C1 Fundamentals of Management Accounting

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Introduction

Moving on...

However you study, when you are ready to embark on the practice and revision phase of the BPP Learning Media Effective

Study Package, you should still refer back to this Study Text, both as a source of

reference (you should find the index

particularly helpful for this) and as a way to

review (the Fast forwards, Assessment focus points, Chapter roundups and

Quick quizzes help you here).

And remember to keep careful hold of this Study Text – you will find it invaluable in your work.

More advice on Study Skills can be found in BPP Learning Media's Learning to Learn Accountancy book.

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Introduction

Learning outcomes and Syllabus

Paper C01 Fundamentals of Management Accounting

Fundamentals of Management Accounting is an introduction to management accounting for students with limited

knowledge or no knowledge of this subject. While this paper focuses on the application of fundamental methods and

techniques, students are also expected to have an understanding of when and when not to use them. Students must also

appreciate the contribution made by information technology to management accounting.

Learning aims

This syllabus aims to test the student's ability to:

• Explain and use concepts and processes to determine product and service costs

• Explain direct, marginal and absorption costs and their use in pricing

• Apply CVP analysis and interpret the results

• Apply a range of costing and accounting systems

• Explain the role of budgets and standard costing within organisations

• Prepare and interpret budgets, standard costs and variance statements

Assessment

The assessment is computer-based lasting 2 hours and comprises 50 compulsory questions with one or more parts. A

varied range of objective test questions will be used.

Learning outcomes and syllabus content.

Learning outcomes and syllabus content

C01A Cost determination – 25%

Learning outcomes

On completion of their studies students should be able to:

(i) Explain why organisations need to know how much products, processes and services cost and why they need

costing systems

(ii) Explain the idea of a ‘cost object’

(iii) Explain the concept of a direct cost and indirect cost

(iv) Explain why the concept of a “cost” needs to be qualified as direct, full, marginal etc, in order to be meaningful

(v) Distinguish between the historical cost of an asset and the economic value of an asset to an organisation

(vi) Apply first-in-first-out (FIFO) and average cost (AVCO) methods of accounting for stock, calculating stock values

and related gross profit.

(vii) Explain why FIFO is essentially a historical cost method, while LIFO approximates economic cost

(viii) Prepare cost statements for allocation and apportionment of overheads, including reciprocal service departments

(xi) Calculate direct, variable and full costs of products, services and activities using overhead absorption rates to trace

indirect costs to cost units

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Introduction

(x) Explain the use of cost information in pricing decisions, including marginal cost pricing and the calculation of “full

cost” based prices to generate a specified return on sales or investment

Syllabus content Covered in chapter

1 Classification of costs and the treatment of direct costs (specifically

attributed to a cost object) and indirect costs (not specifically attributable)

in ascertaining the cost of a ‘cost object’ eg a product, service, activity,

customer.

1, 3, 4

2 Cost measurement: historical versus economic costs. 1

3 Accounting for the value of materials on FIFO, LIFO and AVCO bases. 5

4 Overhead costs: allocation, apportionment, re-apportionment and

absorption of overhead costs.

Note. The repeated distribution method only

will be used for reciprocal service department costs.

5 Marginal cost pricing and full cost-pricing to achieve specified return on

sales or return on investment.

Note: Students are not expected to have detailed knowledge of activity based

costing (ABC).

C01B Cost behaviour and breakeven analysis – 10%

Learning outcomes

On completion of their studies students should be able to:

(i) Explain how costs behave as product, service or activity levels increase or decrease

(ii) Distinguish between fixed, variable and semi-variable costs

(iii) Explain step costs and the importance of time-scales in their treatment as either variable or fixed

(iv) Compute the fixed and variable elements of a semi-variable cost using the high-low method and “line of best fit”

method

(v) Explain the contribution concept and its use in cost-volume profit (CVP) analysis

(vi) Calculate and interpret the breakeven point, profit target, margin of safety and profit/volume ratio for a single

product or service

(vii) Prepare breakeven charts and profit/volume graphs for a single product or service

(viii) Calculate the profit maximising sales mix for a multi-product company that has limited demand for each product

and one other constraint or limiting factor.

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Introduction

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Syllabus content Covered in chapter

1 Fixed, variable and semi-variable costs 2

2 Step costs and the importance of time-scale in analysing cost behaviour 2

3 High-low and graphical methods to establish fixed and variable elements of

a semi-variable cost. Note. Regression analysis is not examined

4 Contribution concept and CVP analysis 6

5 Breakeven chart. Profit volume graphs, breakeven points, profit target,

margin of safety, contribution/sales ratio

6 Limiting factor analysis 6

C01C Standard costing – 15%

Learning outcomes

On completion of their studies students should be able to:

(i) Explain the difference between ascertaining costs after the event and planning by establishing standard costs in

advance.

(ii) Explain why planned standard costs, prices and volumes are useful in setting a benchmark for comparison and so

allowing managers’ attention to be directed to areas of the business that are performing below or above

expectation

(iii) Calculate standard costs for the material, labour and variable overhead elements of a cost of a product or service

(iv) Calculate variances for materials, labour, variable overhead, sales prices and sales volumes

(v) Prepare a statement that reconciles budgeted contribution with actual contribution

(vi) Interpret statements of variances for variable costs, sales prices and sales volumes including possible

interrelations between cost variances, sales price and volume variances, and cost and sales variances

(vii) Describe the possible use of standard labour costs in designing incentive schemes for factory and office workers

Syllabus content Covered in chapter

1 Principles of standard costing 7

2 Preparation of standards for the variable elements of cost: material, labour,

variable overhead

3 Variances: materials – total, price and usage: labour – total, rate and

efficiency; variable overhead – total, expenditure and efficiency; sales price

and volume contribution.

Note. Students will be expected to calculate the

sales volume contribution variance.

4 Reconciliation of budgeted and actual contribution 8

5 Piecework and the principles of incentive schemes based on standard hours

versus actual hours taken.

Note. The details of a specific incentive scheme

will be provided in the examination.

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Introduction

C01D Costing and accounting systems – 30%

Learning outcomes

On completion of their studies students should be able to:

(i) Explain the principles of manufacturing accounts and the integration of the cost accounts with the financial

accounting systems

(ii) Prepare a set of integrated accounts, given opening balances and appropriate transactional information, and show

standard cost variances

(iii) Compare and contrast job, batch and process costing

(iv) Prepare ledger accounts for job, batch and process costing system

(v) Prepare ledger accounts for contrast costs

(vi) Explain the difference between subjective and objective classifications of expenditure and the importance of tracing

costs both to products/services and to responsibility centres

(vii) Construct coding systems that facilitate both subjective and objective classification of costs

(viii) Prepare financial statements, that inform management

(ix) Explain why gross revenue, value–added, contribution, gross margin, marketing expenses, general and

administration expenses, etc night be highlighted in management reporting

(x) Compare and contrast managerial reports in a range of organisations including commercial enterprises, charities

and public sector undertakings

Syllabus content Covered in chapter

1 Manufacturing accounts including raw materials, work-in-progress, finished

goods and manufacturing overhead control accounts

2 Integrated ledgers including accounting for over and under absorption of

production overhead

3 The treatment of variances as period entries in integrated ledger systems 11

4 Job, batch, process and contract costing.

Note. Only the average cost

method will be examined for process costing but students must be able to

deal with differing degrees of completion of opening and closing stocks,

nominal gains and abnormal gains and losses, and the treatment of scrap

value

12, 13

5 Subjective, objective and responsibility classifications and design and

coding systems to facilitate these analyses

6 Cost accounting statements for managerial information in production and

service companies and not-for-profit organisations

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Introduction

C01E Financial planning and control – 20%

Learning outcomes

On completion of their studies students should be able to:

(i) Explain why organisations set out financial plans in the form of budgets, typically for a financial year

(ii) Prepare functional budgets for material usage and purchase, labour and overheads, including budgets for capital

budgets

(iii) Prepare a master budget: income statement, balance sheet and cash flow statement, based on the functional

budgets

(iv) Interpret budget statements and advise managers on financing projected cash shortfalls and/or investing projected

cash surpluses

(v) Prepare a flexible budget based on the actual levels of sales and production and calculate appropriate variances

(vi) Compare and contrast fixed and flexible budgets

(vii) Explain the use of budgets in designing reward strategies for managers

Syllabus content Covered in chapter

1 Budgeting for planning and control 9

2 Budget preparation; interpretation and use of the master budget 9

3 Reporting of actual against budget 10

4 Fixed and flexible budgeting 10

5 Budget variances 10

6 Interpretation and use of budget statements and budget variances 9, 10

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Introduction

The assessment

Format of computer-based assessment (CBA)

The CBA will not be divided into sections. There will be a total of fifty objective test questions and you will need to answer

ALL of them in the time allowed, 2 hours.

Frequently asked questions about CBA

What are the main advantages of CBA?

• Assessments can be offered on a continuing basis rather than at six-monthly intervals

• Instant feedback is provided for candidates by displaying their results on the computer screen

Where can I take CBA?

•

CBA must be taken at a 'CIMA Accredited CBA Centre'. For further information on CBA, you can email CIMA

at cba@cimaglobal.com.

How does CBA work?

• Questions are displayed on a monitor

• Candidates enter their answers directly onto a computer

• Candidates have 2 hours to complete the Fundamentals of Financial Accounting examination

• The computer automatically marks the candidate's answers when the candidate has completed the

examination

• Candidates are provided with some indicative feedback on areas of weakness if the candidate is

unsuccessful

What sort of questions can I expect to find in CBA?

Your assessment will consist entirely of a number of different types of objective test question. Here are some possible

examples.

• MCQs. Read through the information on page (xviii) about MCQs and how to tackle them.

• Data entry. This type of OT requires you to provide figures such as the correct figure for payables in a statement of

financial position.

• Multiple response. These questions provide you with a number of options and you have to identify those which

fulfil certain criteria.

This text provides you with plenty of opportunities to practise these various question types. You will find OTs within

each chapter in the text and the Quick quizzes at the end of each chapter are full of them. The Question Bank contains

more than one hundred and twenty objective test questions similar to the ones that you are likely to meet in your CBA.

Further information relating to OTs is given on page (xviii).

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Introduction

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The Practice and Revision Kit for this paper was published in December 2009 and is full of OTs, providing you with vital

revision opportunities for the fundamental techniques and skills you will require in the assessment.

BPP Learning Media’s MCQ Cards were also published in February 2010 and provide you with 100 MCQs to practice on,

covering the whole syllabus.

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Introduction

Tackling multiple choice questions

In a multiple choice question on your paper, you are given how many incorrect options?

A Two

B Three

C Four

D Five

The correct answer is B.

The MCQs in your assessment contain four possible answers. You have to choose the option that best answers the

question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and correctly. By

practising MCQs you can develop this skill, giving you a better chance of passing the exam.

You may wish to follow the approach outlined below, or you may prefer to adapt it.

Step 1

Skim read all the MCQs and identify what appear to be the easier questions.

Step 2

Attempt each question – starting with the easier questions identified in Step 1. Read the question

thoroughly. You may prefer to work out the answer before looking at the options, or you may prefer to look

at the options at the beginning. Adopt the method that works best for you.

Step 3

Read the four options and see if one matches your own answer. Be careful with numerical questions, as

the distracters are designed to match answers that incorporate common errors. Check that your calculation

is correct. Have you followed the requirement exactly? Have you included every stage of the calculation?

Step 4

You may find that none of the options matches your answer.

• Re-read the question to ensure that you understand it and are answering the requirement.

• Eliminate any obviously wrong answers.

• Consider which of the remaining answers is the most likely to be correct and select the option.

Step 5

If you are still unsure make a note and continue to the next question.

Step 6

Revisit unanswered questions. When you come back to a question after a break you often find you are able

to answer it correctly straight away. If you are still unsure have a guess. You are not penalised for incorrect

answers, so never leave a question unanswered!

Assessment focus. After extensive practice and revision of MCQs, you may find that you recognise a question when you

sit the exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the

requirement and options carefully – do not assume that it is identical.

BPP Learning Media's i-Pass for this paper provides you with plenty of opportunity for further practice of MCQs.

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Introduction

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Tackling objective test questions

Of the total marks available for the paper, objective test questions (OTs) comprise 20/50 per cent. Questions will be worth

between 2 to 4 marks.

What is an objective test question?

An OT is made up of some form of stimulus, usually a question, and a requirement to do something.

(a) Multiple choice questions

(b) Filling in blanks or completing a sentence

(d) Stating a definition

(e) Identifying a key issue, term, figure or item

(f) Calculating a specific figure

(g) Completing gaps in a set of data where the relevant numbers can be calculated from the information given

(h) Identifying points/zones/ranges/areas on graphs or diagrams, labelling graphs or filling in lines on a graph

(i) Matching items or statements

(j) Stating whether statements are true or false

(k) Writing brief (in a specified number of words) explanations

(l) Deleting incorrect items

(m) Choosing right words from a number of options

(n) Complete an equation, or define what the symbols used in an equation mean

OT questions in CIMA assessment

CIMA has offered the following guidance about OT questions in the assessment.

• Credit may be given for workings where you are asked to calculate a specific figure.

• If you exceed a specified limit on the number of words you can use in an answer, you will not be awarded any

marks.

Examples of OTs are included within each chapter, in the quick quizzes at the end of each chapter and in the objective

test question bank.

BPP Learning Media's i-Pass for this paper provides you with plenty of opportunity for further practice of OTs.

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