Prepare & Analyse Management Accounting Information – FNSACC613A
Topic Objectives / Syllabus Requirements
Direct Costing
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Differentiate between direct and absorption costing with regard to treatment of
fixed overhead costs and under/over applied overhead.
Outline the arguments in favour of using direct costing instead of absorption
costing.
Outline the requirements of AASB 102 Inventories and taxation requirements
relating to direct costing and the effect on inventory valuations of using direct
costing.
Prepare income statements using normal absorption costing.
Prepare income statements using normal direct costing.
Reconcile net profits calculated using the two alternative methods.
Outline the effect on the general ledger of using direct costing.
Activity Based Costing (ABC)
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Describe the major differences between the traditional system of applying overhead
and activity based costing in regard to product costing and cost control.
Identify the advantages and disadvantages of adopting activity based costing,
particularly emphasising the circumstances where activity based costing may be
beneficial.
List and describe the steps in designing an activity based costing system.
Identify examples of activity cost drivers for several manufacturing activity areas.
Identify examples of activity cost drivers for several service organisations.
Compute cost application rates using activity based costing for manufacturing and
service organisations.
Compute total manufacturing costs and unit product costs for a typical activity
based costing application.
Prepare journal entries for a typical activity based costing system.
Process Costing
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Calculate equivalent completed units for direct materials and conversion costs for
F.I.F.O. and weighted average methods of inventory valuation where there is one
department and no spoilage.
Calculate costs to be applied to Work in Process and Finished Goods using F.I.F.O.
and weighted average methods of inventory valuation where there is one
department and no spoilage.
Prepare journal entries for process cost systems where there is one department and
no spoilage, and post to the general ledger (single ledger system).
Calculate equivalent completed units for direct materials and conversion costs for
F.I.F.O. and weighted average methods of inventory valuation where there is more
than one department and both normal and abnormal spoilage.
Prepare journal entries for process cost systems where there is more than one
department and normal and abnormal losses. Post to general ledger.
Operations Costing
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Describe the application of an operations costing system (a hybrid system) in
relation to job costing and process costing.
Relate the term batch to the terms production run, work orders and production
orders.
Define operation and relate it to department and process.
Calculate direct materials to be charged to each batch in each operation (no
opening or closing work in process).
Calculate for each operation conversion costs to be charged to each batch (no
opening or closing work in process).
For a single operation, value ending work in process where conversion costs require
the calculation of equivalent completed units (no opening work in process).
Prepare journal entries for a traditional operations costing system, and post to
general ledger.
Joint and by-product Costing
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Describe the split-off point/s in a joint cost situation.
Distinguish between joint products and by-products.
Describe three reasons for allocating joint costs to individual products.
Allocate costs to joint products using each of the following methods:
 Relative physical units produced
 Sales value at split-off
 Estimated net realisable value method
Demonstrate the irrelevance of joint costs in deciding whether to sell at split-off or
to process further.
Illustrate the following methods of accounting for by-products:
 Recognised when produced and treated as a reduction of cost.
 Recognised when sold and treated as a reduction of cost.
“Syllabus” and Objectives
Topic 6 - Standard costing
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Describe the features of a standard costing system.
{p.483-485}
Compare alternative types of standards and their uses and appraise the advantages
and disadvantages of each. Outline the requirements of AASB 102 Inventories in
relation to standard costs.
{p.486}
Compute the price and quantity variances for direct materials where:
 Price variance is calculated at the time of purchase.
{p. 488-491}
Compute the rate and efficiency variances for direct labour.
{p.492-494}
Compute spending, efficiency and volume variances for factory overhead. {p.495501}
Identify the typical responsibilities for controlling variances.
{p.502-504}
Explain possible causes of variances and discuss strategies to eliminate these
causes.
{p.502-504}
Prepare journal entries for a typical standard costing system where variances are
recorded as early as possible. Include the disposition of variances. {p.505-509 &
p.514-515}}
Do not need to cover the situation where opening or closing WIP is partially
complete {p.510-513} – calculation of equivalent units will be assessed in Process
Costing.
Assessment Approach
This is typically one of the larger, but high-scoring, questions. Students should be able
to:
1. calculate all seven variances and classify them as favourable/unfavourable
2. prepare a selection of general journals to record the variances
3. answer short questions on “theory”
Question practice is the key to this topic to build fluency; practice showing your
workings. The calculations are quite “mechanical” but the interpretation and journals
need more thought. Students will also need to draw on their knowledge of flexible
budgeting and the calculation of fixed and variable overhead application rates at
different activity levels.