Webcast
on Strategy to Qualify & Excel
in Intermediate (IPC) Course Paper 3:
Part – 1: Cost Accounting
CA. B. Saravana Prasath, FCA
July 13, 2013
Agenda
1
• Relevance
2
• Coverage & Questions Areas
3
• Exam Analysis - Questions
4
• Strategy to Qualify & Excel
Chapters & Question Areas
An Intro.
Chapter 1: Basic Concepts
Meaning of Cost, Cost A/cg
Objectives & Importance
Basic Cost Accounting Terms
Cost Accounting vs Financial Accounting
Installation of Cost Accounting System
Classification of Costs
Types and Methods of Costing
Chapter 1: Basic Concepts - Question Areas
Cost Sheet
Preparation
Cost
Estimation for
New Jobs /
Orders
Income
Statement vs
Cost
Statement
Use of
Simultaneous
Equations
Basic Pricing
Decisions with
Cost Sheet
Chapter 2: Materials
Material Cost,
need &
importance.
Purchase,
Storage &
Issue
Aspects.
Material
Management
Techniques EOQ, Stock
Levels, ABC
Analysis, etc.
Methods of
valuing
Materials
Usage.
Normal and
Abnormal
Loss of
Materials.
Accounting
for Waste,
Scrap,
Spoilage and
Defectives.
Chapter 2: Materials Question Areas
EOQ
Stock
Levels
ABC
Analysis
Material
Turnover
Ratio
Landed
Cost of
Materials
Methods
of Pricing
Material
Issues
Normal
and
Abnormal
Loss of
Materials
Chapter 3: Labour
Labour Cost – Importance
Attendance & Payroll Procedure
Accounting for Idle Time and Overtime
Labour Turnover, Methods and Effects
Various Systems of Wage and Incentives
Efficiency Rating Procedures
Wage Components for Costing Purposes
Chapter 3: Labour Question Areas
Accounting for Idle Time
Accounting for Overtime
Labour Turnover Rates
Wage Payment Systems
Group Bonus Schemes
Chapter 4: Overheads
Overheads – Meaning, Types
Concepts of Allocation, Apportionment, Re-apportionment and Recovery of Overheads.
Methods of Recovery / Absorption
Under-absorption and Over-absorption of Overheads.
Analysis of Administrative, Selling and Distribution Overheads.
Treatment of various Expenses in Costing
Chapter 4: Overheads - Question Areas
Capacity Concepts
Re-apportionment - Direct Method, Step Method and Reciprocal
Services Methods
Various Methods of Recovery
Computation of Direct, Simple and Comprehensive Machine Hour Rates
Settlement of Absorption Differences
Chapter 5: Non-Integrated Accounts
Integrated vs Non-Integrated System
Journal Entries for both Integrated and Non-Integrated
systems of Accounting.
Ledgers maintained by Financial as well as Cost
Departments.
Reasons for differences between Financial and Cost
Accounts and Reconciliation Statement
Chapter 5: Non-Integrated A/cs Question
Areas
Accounting under Non-Integrated System
Accounting under Integrated System
Reconciliation between Cost and Financial Accounting Profits
Chapter 6: Job Costing & Batch Costing
Meaning and
Features
Cost Accounting
Procedures
Question Areas
• Job Cost Sheet
• Batch Cost Sheet
• Economic Batch
Quantity
Chapter 7: Contract Costing
Contract, Contractor, Contractee
Cost Recognition in Contracts
Income Recognition on Contracts – Work Certified, Work Uncertified, etc.
Profit Recognition on Incomplete Contract, based on Notional Profit, Estimated Total Profit
Provisioning for Losses on Contract
Effect of Escalation Clause in Contract
Chapter 7: Contract Costing Question
Areas
Preparation of Contract Account
Profit Recognition using Notional Profit
Profit Recognition using Estimated Total Profit
Loss Provisioning on Contracts
Escalation Clause Effect
Chapter 8: Operating Costing
Meaning and Features of Operating Costing.
Cost Units used in different Service Industries.
Multiple Costing
Question Areas
• Computation of Deemed Cost Unit
• Operating Cost Statement for different services
Chapter 9: Process & Operation Costing
Meaning of Process and Operation Costing.
Accounting for Normal and Abnormal Process Losses.
Accounting for Abnormal Gain.
Inter Process Profits
Equivalent Production Concept, and Inventory Valuation Techniques
Chapter 9: Process and Operation Costing
Question Areas
Process Accounting with Normal Loss, Abnormal Loss and Abnormal Gains
Inter Process Profits – Process Accounts
Accounting in Operation Costing
Equivalent Production Concept – Process Accounts for First and Subsequent
Processes, with FIFO and WAC Methods
Chapter 10: Joint Products & By Products
Meaning of Joint, Co and By Products.
Significance of Split Off Point
Methods of Joint Cost Apportionment
By-Products Income Accounting
Further Processing Decision
Question Areas - Same as in last three items above
Chapter 11: Standard Costing
Meaning of Standard Costs and Variances.
Controllable & Uncontrollable Variances
Computation of Material, Labour, OH and and Sales Variances.
Disposition of Variances.
Merits & Demerits of Standard Costing
Relationship with Budgetary Control
Chapter 11: Standard Costing Question Areas
Material Cost Variances
Labour Cost Variances
Variable OH Cost Variances
Fixed OH Cost Variances
Capacity, Efficiency, Calendar and Activity Ratios
Sales Variances under Total Approach & Margin Approach
Chapter 12: Marginal Costing
Meaning of Basic Terms - Marginal Cost, Fixed Cost, Contribution, Profit and Loss
Profit Volume Ratio
Break Even Point
Margin of Safety
Indifference Point
Shut Down Point
Merits & Demerits of Marginal Costing
Chapter 12: Marginal Costing Question
Areas
Computation of PVR, BEP & MOS
Indifference Point – Computation
Shut Down Point – Computation
Effect of Change in Output, Costs, Prices, etc. by Sensitivity Analysis
Basic Decisions as to Pricing, Cost Reduction, etc. using Marginal Costing
Chapter 13: Budgetary Control
Importance of Budgeting
Objectives of Budgetary Control
Merits & Demerits of Budgeting
Various types of Budgets.
Preparation of Functional Budgets
Production, Material Usage, Purchase, Labour
Requirement, Fixed and Flexible Budgets for OH, etc.
Chapter 13: Budgeting Question Areas
Production Budget
Material Usage and Cost Budget
Material Purchase and Cost Budget
Manpower Budget – in terms of Hours, Cost and Number of Workers
Fixed and Flexible Budgets for Overheads
Sample Presentation for 5 Mark Q
v From
the following particulars compute a conservative estimate
of Profit by 4 methods on a contract which has 80% complete:
Total Expenditure to date
Estimate further expenditure to
complete the contract
Contract Price
Work Certified
Work not Certified
Cash received
8,50,000
1,70,000
15,30,000
10,00,000
85,000
8,16,000
Answer and Marks Allocation
in a Professional Exam
1. % of Completion =
Rs.75 Lakhs
Work Certified
=
Rs.85 Lakhs
Contract Pr ice
= 88.24%
2. Current Yr Profit = Income till date (i.e. WC + WUC) less Expenditure till date
= (` 10,00,000 + ` 85,000) - ` 8,50,000
= ` 2,35,000
3. Estimated Total Profit = Contract Price Less Estimated Total Cost
= ` 15,30,000 – (` 8,50,000 + ` 1,70,000)
= ` 5,10,000
½M
½M
½M
(a) ETP ×
Work Certified
= 5.10 ×
Contract Pr ice
` in Lakhs
10.00
15.30
= 3.33 ½ M
10.00
Work Certified
Cash Re ceived
= 5.10 ×
×
Contract Pr ice
15.30
Work Certified
8.50
Cost till date
(c) ETP ×
= 5.10 ×
10.20
Estimated Total Costs
(b) ETP ×
(d) ETP ×
8.16
10.00
= 2.72 ½ M
= 4.25 ½ M
Cost till date
Cash Re ceived
8.50
8.16
×
= 5.10 ×
×
Estimated Total Costs
Work Certified
10.20
10.00
(e) Notional Profit ×
(f)
×
Work Certified
Contract Pr ice
= 2.35 ×
Cash Re ceived
2
=
× Notional Profit ×
Work
Certified
3
2
3
10.00
15.30
× 2.35 ×
= 3.47 ½ M
= 1.54 ½ M
8.16
10.00
Profit transferred to P&L A/c = Least of the above = Rs.1.28 Lakhs
= 1.28 ½ M
½M
8 Examination Marks Break-up
Chapter
1
2
3
4
5
6
7
8
9
10
11
12
13
Particulars
Basic Concepts
Material
Labour
Overheads
Non Integrated Accounts
Job Costing & Batch Costing
Contract Costing
Operating Costing
Process & Operation Costing
Joint Products & By Products
Standard Costing
Marginal Costing
Budget and Budgetary Control
Total
Marks
30
32
43
50
Average
Marks
3.75
4.00
5.38
6.25
48
6.00
0
37
15
54
12
48
50
24
0.00
4.63
1.88
6.75
1.50
6.00
6.25
3.00
Thank You
Wishing you all the very best