ATSWA Study Pack - Cost Accounting - The Institute of Chartered

504 Pages·2012·2.34 MB·English

COST ACCOUNTING

FOR

ACCOUNTING TECHNICIANS SCHEME OF WEST
AFRICA
(ATSWA)
STUDY PACK
NOTE: This is a work in progress. All topics in the syllabus are covered but editing
for necessary corrections is in progress.
Thanks.

PREFACE

INTRODUCTION
The Council of the Association of Accountancy Bodies in West Africa (ABWA) has
recognised the difficulty of students when preparing for the Accounting Technicians
Scheme West Africa examinations. One of the major difficulties has been the non-
availability of study materials purposely written for the Scheme. Consequently, students
relied on text books written in economic and socio-cultural environments quite
different from the West African environment.
AIM OF THE STUDY PACK
In view of the above, the quest for good study materials for the subjects of the
Accounting Technicians Scheme examinations and the commitment of the ABWA
Council to bridge the gap in technical accounting training in West Africa has led to the
production of this Study Pack.
The Study Pack assumes a minimum prior knowledge and every chapter reappraises basic
methods and ideas in line with the syllabus.
READERSHIP
The Study Pack is primarily intended to provide comprehensive study materials for
students preparing to write the ATSWA examinations.
Other beneficiaries of the Study Pack include candidates of other Professional
Institutes, students of Universities and Polytechnics pursuing first degree and post
graduate studies in Accounting, advanced degrees in Accounting as well as Professional
Accountants who may use the Study Pack as a reference material.

APPROACH
The Study Pack has been designed for independent study by students and as such
concepts have been developed methodically or as a text to be used in conjunction
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NOTE: This is a work in progress. All topics in the syllabus are covered but editing
for necessary corrections is in progress.
Thanks.

with tuition at schools and colleges. The Study Pack can be effectively used as a
course text and for revision. It is recommended that readers have their own copies.
STRUCTURE OF THE STUDY PACK
The layout of the chapters has been standardized so as to present information in a
simple form that is easy to assimilate.

The Study Pack is organised into chapters. Each chapter deals with a particular area
of the subject, starting with learning objective and a summary of sections contained
therein.

The introduction also gives specific guidance to the reader based on the contents of
current syllabus and the current trends in examinations. The main body of the
chapter is subdivided into sections to make for easy and coherent reading. However, in
some chapters, the emphasis is on the principles or applications while others emphasize
methods and procedures.
At the end of each chapter is found the following:
• Summary;
• Points to note (these are used for purposes of emphasis or clarification);
• Examination type questions; and
• Suggested answers.

HOW TO USE THE STUDY PACK
Students are advised to read the Study Pack, attempt the questions before checking
the suggested answers.
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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

ACKNOWLEDGEMENTS
The ATSWA Harmonisation Committee, on the occasion of the publication of the first edition
of the ATSWA Study Packs acknowledge the contributions of the following groups of people.
The ABWA Council, for their inspiration which gave birth to the whole idea of having a West
African Technicians programme. Their support and encouragement as well as financial support
cannot be overemphasized. We are eternally grateful.
To The Councils of Institute of Chartered Accountants of Nigeria (ICAN), and Institute of
Chartered Accountants, Ghana (ICAG), for their financial commitment and the release of staff
at various points to work on the programme and for hosting the several meetings of the
Committee, we say kudos.
The contributions of various writers, reviewers, imprimaturs and workshop facilitators, who
spent precious hours writing and reviewing the Study Packs cannot be overlooked. Without
their input, we would not have had these Study Packs. We salute them.
Lastly, but not the least, to the members of the Committee, we say well done.
Mrs. E. O. Adegite
Chairperson
ATSWA Harmonisation Committee

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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

FOREWORD

The ABWA Council, in order to actualize its desire and ensure the success of students at the
examinations of the Accounting Technicians Scheme West Africa (ATSWA), put in place a
Harmonisation Committee, to among other things, facilitate the production of Study Packs for
students. Hitherto, the major obstacle faced by students was the dearth of study texts which they
needed to prepare for the examinations.

The Committee took up the challenge and commenced the task in earnest. To start off the process, the
existing syllabus in use by some member Institutes were harmonized and reviewed. Renowned
professionals in private and public sectors, the academia, as well as eminent scholars who had
previously written books on the relevant subjects and distinguished themselves in the profession,
were commissioned to produce Study Packs for the twelve subjects of the examination.

A minimum of two Writers and a Reviewer were tasked with the preparation of a Study Pack for
each subject. Their output was subjected to a comprehensive review by experienced imprimaturs. The
Packs cover the following subjects:

PART I
1. Basic Accounting Processes and Systems
2. Economics
3. Business Law
4. Communication Skills
PART II
1. Principles and Practice of Financial Accounting
2. Public Sector Accounting
3. Quantitative Analysis
4. Information Technology
PART III
1. Principles of Auditing
2. Cost Accounting
3. Preparation Tax Computation and Returns
4. Management

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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

Although, these Study Packs have been specially designed to assist candidates preparing for the
technicians examinations of ABWA, they should be used in conjunction with other materials listed in
the bibliography and recommended text.

PRESIDENT, ABWA

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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

PAPER 10: COST ACCOUNTING
AIM:
To examine candidates‟ knowledge and understanding of Cost Accounting Princples, Methods and Techniques
LEARNING OBJECTIVES:
On completion of this paper, candidates are expected to be able to:
 understand the concepts and principles of cost accounting and their applications to
support
management processes of planning, decision-making, and control;
 identify the various types of costs by behaviour and classification;
 collect , classify and present cost information using appropriate methods and techniques;
 accurately determine product and service costs ;
 relate the various costing methods to different business entities and other activities; and
 prepare information for performance appraisals.
STRUCTURE OF PAPER:
The paper is a three –hour paper divided into two sections:

SECTION A NUMBER OF MARKS
50 compulsory questions made up of 30 multiple-choice questions and 20
short answer questions covering the entire syllabus. 50
SECTION B
Six questions out of which candidates are expected to answer any four 50
{Each of the questions is to attract 12½ marks}.
TOTAL 100

CONTENTS:
1. Introduction to Cost Accounting 10%
(a) Definition of Cost Accounting and related terms.
(b) Nature, Purpose and Scope of Cost Accounting.
(c) Value of cost information (financial and non- financial) in management decision-
making process
(d) Impact of information technology on the generation, evaluation and presentation
of cost information.
(e) Roles required of accounting technicians in collection, analysis and presentation
of cost information.

2. Cost Classifications and Behaviour 10%

(a) Classifications of cost according to nature, functions, elements, responsibilities
and behaviour patterns.
(b) Cost coding systems.
(c) Identification and use of fixed, variable and semi- variable costs in cost analysis.
(d) Analysis of the effect of changing activity levels on unit costs.
3. Elements of Costs 10%
(a) Materials:
(i) Definition and basic classifications
(ii) Procedure and documentation of :
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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

 Procurement
 Receipts, storage and issues
(iii) Inventory control and valuation:
 Methods of pricing issues including FIFO, LIFO, Weighted Average Cost,
Standard Cost and Replacement Cost Methods.
 Just- In- Time purchasing and production.
 ABC Analysis Techniques.
 Inventory control system including basic control levels, re-ordering
Procedures and Economic order quantity.
 Types and procedures of stock taking.
(b) Labour:
(i) Basic methods of remuneration.
(ii) General features of incentive schemes.
(ii) Labour costing and labour cost control.
(iv) Job evaluation, merit rating, work study, methods study and work measurement
(c) Overheads:
(i) Definition, classifications and analysis
(ii) Allocation and apportionment – bases and methods
(iii) Absorption – bases and calculation of overhead absorption rates
(iv) Activity Based Costing
4. Integrated Accounts 10%
(a) Book-keeping entries for costing systems, integrated and interlocking systems.
(b) Reconciliation of financial and cost accounting profits.
(c) Budget classifications and Chart of Accounts.
(d) Computer Assisted Costing Techniques.

5. Costing Methods 10%
(a) Specific order costing methods – Job, Batch and Contract costing
(b) Non-specific order costing methods – Service and Output costing
(c) Process costing including determination of WIP, Equivalent Units, Treatment of
Losses, Gains and Accounting for Scrap
(d) Accounting treatment of By – Products and Joint Products

6. Standard Costing Technique 10%
(a) Types and bases of setting Standards
(b) Methods of determining Standard Cost and the uses of Standard Cost
(c) Basic Materials, Labour, Overheads and Sales Variances
(d) Computation of Standard Ratios - Activity, Capacity and Efficiency Ratios

7. Costing Techniques and Decision-Making Tools 10%
(a) Use of Marginal and Absorption Costing Techniques in the preparation of Income
Statements.
(b) Decision Making:
- Concept of Relevant Cost.
- Short Term Decisions.
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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

- Optimal Production Plan, given a Scarce Resource.
(c) Cost Volume – Profit Analysis.
Break Even - Analysis
- Computation and Graphical Presentations.
- Limitations.
- Methods of calculating Breakeven Point and other levels of activities.
- Margin of Safety and Angle of Incidence.
- Target Profit.
- Contribution/Sales ratio
(d) Discounted Cash Flow Techniques:
(i) Discounted Cash Flow
(ii) Pay Back Period
(iii) Annuities and Perpetuities

8. Recent developments in Cost Accounting 10%
- Just-In- Time
- Kanban Inventory Control
- Back-Flush Accounting
- Life Cycle Costing
- Target Costing
- Advanced Manufacturing Technique (AMT)

9. Cost Reduction and Control 10%
- Value Analysis
- Value Engineering
- Organisation and Methods
- Zero Base Budgeting methods, Programme Planning Budgeting System
- Work Study
- Cost Audit

10. Budgeting and Budgetary Control 10%
- Types of Budgets
- Budget Procedures, Budget Committee, Budget Manual
- Preparation of budgets – functional, master, cards and capital budgets
- Simple Investment Appraisal techniques
- Meaning and objectives of budgetary control
- Preparation of operating statements and variances including flexible budget
- Budgetary control improvement techniques
- Zero-based-budgeting, incremental based budgeting, planning, programming and budgeting
system.

RECOMMENDED TEXT BOOKS
1. ATSWA Study Pack on Cost Accounting and Budgeting
2. Adeniyi A. Adeniji……Cost Accounting: A Managerial Approach
3. Appiah-Mensah, K.B - Principles of Cost Accounting, Fiona Press, Accra

OTHER REFERENCE BOOK
Lucey, T. …………………..Costing, DP Publications Limited, London
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NOTE: This is a work in progress. All topics in the syllabus are covered but editing for
necessary corrections is in progress.
Thanks.

CONTENT

CHAPTER ONE
NATURE AND PURPOSES OF COST ACCOUNTING
Learning objectives
Section One Introduction to Cost Accounting
1.1 What is Cost Accounting?.……………………………………….……………… 1
1.2 The Objectives of Cost Accounting.…………………………………………..… 2
1.3 Functions of Cost Accounting.……………………………….………………….. 3
1.4 Advantages of Cost Accounting.………………………………..………………. 4
1.5 Disadvantages of Cost Accounting.…………………………….………………. 5
1.6 Conditions Necessary for an Effective Cost Accounting System………………. 5
1.7 Steps in Installing a Cost Accounting System…………………….…………….. 6
1.8 Problems Inherent In the Installation of a Cost Accounting System………….... 8
1.9 Principles of a Good Cost Accounting System………………….……………… 8

Section Two: Scope of Cost Accounting
2.1 Elements of cost.………………………………………………………………... 9
2.2 Methods of Costing……………………………………………………………. 13
2.3 Techniques of Costing…………………………………………….…………… 14
2.4 Information Exclusively Generated From a
Cost Accounting System………………………………………………………. 14
2.5 Cost Accounting as Part of the Management Information System…................. 15
2.6 Relationship between Cost Accounting and Financial Accounting…………… 16
2.7 Organisations other than Manufacturing Companies
Where Cost Accounting Can be Applied………………………....................... 19

Section Three : Cost Classifications
3.1.1 What is cost? …………………………………………………………………. 20
3.2 Classification of Cost …………………………………………...……………. 21
3.3 Cost Objectives And Possible Cost Classification………………....………… 34

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