Table Of Content

CMA Part 1 Volume 2: Sections D – E Financial Reporting, Planning, Performance and, Control HOCK international books are licensed only for individual use and may not be lent, copied, sold or otherwise distributed without permission directly from HOCK international. If you did not download this book directly from HOCK international, it is not a genuine HOCK book. Using genuine HOCK books assures that you have complete, accurate and up-to-date materials. Books from unauthorized sources are likely outdated and will not include access to our online study materials or access to HOCK teachers. Hard copy books purchased from HOCK international or from an authorized training center should have an individually numbered orange hologram with the HOCK globe logo on a color cover. If your book does not have a color cover or does not have this hologram, it is not a genuine HOCK book. Sixth Edition CMA Preparatory Program Part 1 Volume 2: Sections D – E Financial Reporting, Planning, Performance and Control Brian Hock, CMA, CIA and Lynn Roden, CMA with Kevin Hock HOCK international, LLC P.O. Box 204 Oxford, Ohio 45056 (866) 807-HOCK or (866) 807-4625 (281) 652-5768 www.hockinternational.com [email protected] Published July 2014 Acknowledgements Acknowledgement is due to the Institute of Certified Management Accountants for permission to use questions and problems from past CMA Exams. The questions and unofficial answers are copyrighted by the Certified Institute of Management Accountants and have been used here with their permission. The authors would also like to thank the Institute of Internal Auditors for permission to use copyrighted questions and problems from the Certified Internal Auditor Examinations by The Institute of Internal Auditors, Inc., 247 Maitland Avenue, Altamonte Springs, Florida 32701 USA. Reprinted with permission. 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Sincerely, Brian Hock, CMA, CIA President and CEO CMA Part 1 Table of Contents Table of Contents Section D – Cost Management ......................................................................................... 1 Why Cost Management? ................................................................................................... 2 Classifications of Costs .................................................................................................... 3 The Difference Between Costs and Expenses 3 Direct Versus Indirect Costs 3 Costs Based on Level of Production (Fixed, Variable and Mixed Costs) 4 Production vs. Period Costs 7 Cost of Goods Sold (COGS) and Cost of Goods Manufactured (COGM) 13 The Flow of Manufacturing Costs .................................................................................. 15 1. Materials Inventory 15 2. Payroll 15 3. Factory Overhead Control 16 4. Work-in-Process Inventory 16 5. Finished Goods Inventory 17 6. Cost of Goods Sold 17 Costing Systems .............................................................................................................. 19 Introduction to Cost Measurement Systems 19 Benefits and Limitations of Each Cost Measurement System 24 Introduction to Cost Accumulation Methods 26 Introduction to Methods of Allocating Overhead 27 Accounting for Direct Manufacturing Inputs in Standard Costing .............................. 28 Overhead Allocation ........................................................................................................ 31 Manufacturing Overhead Allocation 31 Traditional (Standard) Allocation Method 32 Process Costing .............................................................................................................. 50 Steps in Process Costing 51 Process Costing Diagram – FIFO 62 Process Costing Diagram – Weighted Average 63 Process Costing Summary 64 Process Costing Examples 65 Spoilage in Process Costing 70 Job-Order Costing ........................................................................................................... 75 Operation Costing ........................................................................................................... 77 Activity-Based Costing ................................................................................................... 78 Life-Cycle Costing ........................................................................................................... 87 Customer Life-Cycle Costing.......................................................................................... 89 Joint Products and Byproducts ..................................................................................... 90 © 2014 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited. i Table of Contents CMA Part 1 Methods of Allocating Costs to Joint Products 90 Accounting for Byproducts 98 Variable and Absorption Costing ................................................................................. 106 Fixed Factory Overheads Under Absorption Costing 106 Fixed Factory Overheads Under Variable Costing 106 Effects of Changing Inventory Levels 107 Income Statement Presentation 108 Shared Services Cost Allocation ................................................................................. 121 Allocating Costs of A Single (One) Service or Support Department to Multiple Users 121 Allocating Costs of Multiple Service or Support Departments 125 Estimating Fixed and Variable Costs ........................................................................... 133 High-Low Points Method 133 Regression Analysis 135 Forecasting Total Costs 137 Supply Chain Management ........................................................................................... 138 What is Supply Chain Management? 138 Lean Manufacturing 138 Just-in-Time (JIT) Inventory Management Systems 141 Kanban 142 Introduction to MRP, MRPII, and ERP 143 Outsourcing 145 Theory of Constraints (TOC) 146 Capacity Level and Management Decisions 156 Business Process Improvement .................................................................................. 165 The Value Chain and Competitive Advantage 165 Process Analysis 169 Business Process Reengineering 170 Benchmarking Process Performance 171 Activity-Based Management (ABM) 172 The Concept of Kaizen 172 The Costs of Quality 173 ISO 9000 183 Quality Management and Productivity 183 Other Quality Related Issues 183 Accounting Process Redesign 186 ii © 2014 HOCK international, LLC. 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CMA Part 1 Table of Contents Section E – Internal Controls ........................................................................................ 191 Governance, Risk, and Compliance ............................................................................. 193 Corporate Governance 193 Internal Control .............................................................................................................. 200 Internal Control Definition 200 The Importance of Objectives 201 Who Is Responsible for Internal Control? 201 Components of Internal Control 202 Internal Control Objectives 213 Types of Transaction Control Activities 213 Safeguarding Controls 214 Responsibilities, Authority and Requirements of the Audit Committee of the Board 217 Foreign Corrupt Practices Act (FCPA) 222 Sarbanes-Oxley Act 224 What Internal Control Can and Cannot Do 239 External Auditors’ Responsibilities and Reports 240 Internal Auditing ............................................................................................................ 242 Definition of Internal Auditing 242 The Internal Audit Charter 243 Independence and Objectivity in Internal Auditing 243 Requirement for Internal Auditor Proficiency 243 Responsibilities and Limit of Responsibilities 244 Types of Engagements 248 Quality Auditing 254 Quality Assurance Reviews of the Internal Audit Function 254 The Auditing Process 255 Audits of Financial Controls 272 Detection and Prevention of Fraud 275 Internal Audit Reports 278 Auditor Follow-Up 282 Computerized Audit Techniques 283 Systems Controls and Security Measures .................................................................. 286 Introduction to Systems Controls 286 Threats to Information Systems 287 The Classification of Controls 288 General Controls 289 Application Controls 301 Controls Classified as Preventive, Detective and Corrective 307 Controls Classified as Feedback, Feedforward and Preventive 307 Internet Security ............................................................................................................ 309 Viruses, Trojan Horses and Worms 310 © 2014 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited. iii Table of Contents CMA Part 1 Cybercrime 311 Business Continuity Planning ...................................................................................... 315 Disaster Recovery 317 Answers to Questions ................................................................................................... 319 iv © 2014 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.