ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

(Department of Commerce)

MANAGERIAL ACCOUNTING (8508)

CHECK LIST

SEMESTER: AUTUMN, 2016

This packet comprises of the following material:-

1. Text Book (One)

2. Course Outline
3. Assignment No. 1 & 2
4. Assignment Forms (2 sets)

In this packet, if your find anything missing out of the above-mentioned material, please
contact at the address given below:

The Mailing Officer

Allama Iqbal Open University
H-8, Islamabad
Ph: 051:9057611-12

Dr. Syed Muhammad Amir Shah

(Course Coordinator)

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 ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
(Department of Commerce)

WARNING
1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING
THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD
OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
2. SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM
OTHER(S) AS ONES OWN WILL BE PENALIZED AS DEFINED IN
AIOU PLAGIARISM POLICY.

Course: Managerial Accounting (8508)

Level: M.Com Semester: Autumn, 2016
Total Marks: 100 Pass Marks: 50
ASSIGNMENT No. 1
(Units 14)
Q.1 Costs may be classified in a variety of ways according to their nature and the
information needs of management. Explain and discuss this statement, illustrating
with examples of the classifications required for different purposes. (15)

Q.2 Corcoran Ltd operated several manufacturing processes. In process G, joint

products (P1 and P2) are created in the ratio 5:3 by volume from the raw materials
input. In this process a normal loss of 5 percent of the raw material input is
expected. Losses have realizable value of Rs. 5 per liter. The company holds no
work in progress. The joint costs are apportioned to the joint products using the
physical measure basis. The following information relates to process G for last
month: (20)
Raw materials input: 60,000 liters (at a cost of Rs. 381000)
Abnormal gain: 1000 liters
Other costs incurred:
Direct labour: Rs. 180,000
Direct expenses: Rs. 54,000
Production overheads: 110% of direct labour cost

Required:
a) Prepare the process G account for last month in which both the output
volumes and values for each of the joint products are shown separately.
The company can sell products P1 for Rs. 20 per liter at the end of process G.
It is considering a proposal to further process P1 in process H in order to
create product PP1. Process H has sufficient spare capacity to do this work.
The further processing in process H would cost Rs. 4 per liter input from
process G. In process H there would be a normal loss in volume of 10 per

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 cent of the input to that process. This loss has no realizable value. Product
PP1 could then be sold for Rs. 26 per liter.
b) Determine, based on financial considerations only, whether product P1
should be further processed to create product PP1.
c) In the context of process G in Corcoran Ltd, explain the difference between
direct expenses and production overheads.

Q.3 XYZ Ltd produces two products and the following budget applies for 20 x 15: (15)
Product X Product Y
(Rs.) (Rs.)
Selling price 6 12
Variable costs 2 4
Contribution margin 4 8
Fixed costs apportioned 100 000 200 000
Units sold 70 000 30 000
You are required to calculate the break-even points for each product and the
company as a whole and comment on your findings.

Q.4 XY provides accountancy services and has three different categories of client:
limited companies, self employed individuals and employed individuals requiring
taxation advice. XY currently charges its clients a fee by adding a 20% mark-up to
total costs. Currently the costs are attributed to each client based on the hours spend
on preparing accounts and providing advice. (15)
XY is considering changing to an activity based costing system. The annual costs
and the causes of these costs have been analyzed as follows:
Accounts preparation and advice Rs. 580, 000
Requesting missing information 30, 000
Issuing fee payment reminders 15, 000
Holding client meetings 60, 000
Travelling to clients 40, 000

The following details relate to three of XYs clients and to XY as a whole:

Particulars Clients XY
A B C
Hours spent on preparing accounts and
1000 250 340 18000
providing advice
Requests for missing information 4 10 6 250
Payment reminders sent 2 8 10 400
Client meetings held 4 1 2 250
Miles travelled to meet clients 150 600 0 10000

Required: Prepare calculations to show the effect on fees charged to each of these
three clients of changing to the new costing system.

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Q.5 Thorne Co. values, advertises and sells residential property on behalf of its
customers. The company has been in business for only a short time and is preparing
a cash budget for the first four months of 2013. Expected sales of residential
properties are as follows. (20)
2012 2013 2013 2013 2013
Month December January February March April
Unit Sold 10 10 15 25 30

The average price of each property is Rs. 180 000 and Thorne Co. charges a fee of 3
percent of the value of each property sold. Thorne Co. receives 1 percent in the month
of sale and the remaining 2 percent in the month after sale. The company has nine
employees who are paid on a monthly basis. The average salary per employee is Rs. 35
000 per year. If more than 20 properties are sold in a given month, each employee is
paid in that month a bonus of Rs. 140 for each additional property sold. Variable
expenses are incurred at the rate of 0.5 percent of the value of each property sold and
these expenses are paid in the month of sale. Fixed overheads of Rs. 4300 per month
are paid in the month in which they arise. Thorne Co. pays interest every three months
on a loan of Rs. 200 000 at a rate of 6 percent per year. The last interest payment in
each year is paid in December. An outstanding tax liability of Rs. 95,800 is due to be
paid in April. In the same month Thorne Co. intends to dispose of surplus vehicles,
with a net book value of Rs. 15000, for Rs. 20 000. The cash balance at the start of
January 2012 is expected to be a deficit of Rs. 40 000.
Required:
a) Prepare a monthly cash budget for the period from January to April. Your
budget must clearly indicate each item of income and expenditure, and the
opening and closing monthly cash balance.
b) Discuss the factors to be considered by Thorne Co. when planning ways to
invest any cash surplus forecast by its cash budgets.
c) Discuss the advantages and disadvantages to Throne Co. of using overdraft
finance to fund any cash shortages forecast by its cash budgets.
Q.6 A major information source within many businesses is a system of standard costing
and variance analysis. (15)
Required:
a) Describe briefly four purposes of a system of standard costing.
b) Explain three different levels of performance which may be incorporated into
a system of standard costing and comment on how these may relate to the
purposes set out in (a) above.
c) Comment on whether standard costing applies in both manufacturing and
service businesses and how it may be affected by modern initiatives of
continuous performance improvement and cost reduction.
d) A standard costing system enables variances for direct costs, variable and
fixed overheads to be extracted. Identify and briefly discuss some of the
complexities and practical problems in calculation which may limit the
usefulness of those variances.

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 GUIDELINES FOR ASSIGNMENT # 1
The student should look upon the assignments as a test of knowledge, management skills,
and communication skills. When you write an assignment answer, you are indicating your
knowledge to the teacher:

Your level of understanding of the subject;

How clearly you think;
How well you can reflect on your knowledge & experience;
How well you can use your knowledge in solving problems, explaining situations,
and describing organizations and management;
How professional you are, and how much care and attention you give to what you
do.

To answer a question effectively, address the question directly, bring important related
issues into the discussion, refer to sources, and indicate how principles from the course
materials apply. You must also be able to identify important problems and implications
arising from the answer.

For citing references, writing bibliographies, and formatting the assignment, APA format
should be followed.

ASSIGNMENT No. 2
Total Marks: 100 Pass Marks: 50

This assignment is a research-oriented activity. You are required to select any trading/
manufacturing/ non-trading organization of your interest which supports you in preparing
a report of about 1000 words on the topic allotted to you, to be submitted to your teacher
for evaluation.

Select one of the following topics according to the last digit of your roll number. For
example, if your roll number is P-3427180 then you will select issue # 0 (the last digit): -

TOPICS:

0. Identify the value added and non-value added activities in your selected
organization and apply the concept of activity based management.
1. Evaluate the procedures for materials procurement and use of your chosen business
organization.
2. How does an organization works out the labour costing?
3. How the efficiency of a manager as well as the business can be improved by using
the CVP analysis techniques?
4. Report the Budgeting procedure, which exists in the organization.
5. Managerial usefulness of variance analysis

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6. Prepare a comprehensive report on a managerial accounting information system.
7. How the deferential cost analysis is performed in the organization?
8. Describes the complete cost accumulation procedures in manufacturing
organizations.
9. Explain the concept of departmentalization and describes that how the various
Factory overheads have been assigned to different departments.

The report should follow the following format:

1. Title page
2. Acknowledgements
3. An abstract (one page summary of the paper)
4. Table of contents
5. Introduction to the issue (brief history & significance of issue assigned)
6. Practical study of the organization (with respect to the issue)
7. Data collection methods
8. SWOT analysis (strengths, weaknesses, opportunities & threats) relevant to the
issue assigned
9. Conclusion (one page brief covering important aspects of your report)
10. Recommendations (specific recommendations relevant to issue assigned)
11. References (as per APA format)
12. Annexes (if any)

GUIDELINES FOR ASSIGNMENT # 2

1.5 line spacing
Use headers and subheads throughout all sections
Organization of ideas
Writing skills (spelling, grammar, punctuation)
Professionalism (readability and general appearance)
Do more than repeat the text
Express a point of view and defend it.

WORKSHOPS

The workshop presentations provide you opportunity to express your communication

skills, knowledge & understanding of concepts learned during practical study assigned in
assignment # 2.
You should use transparencies and any other material for effective presentation. The
transparencies are not the presentation, but only a tool; the presentation is the
combination of the transparencies and your speech. Workshop presentation transparencies
should only be in typed format.

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The transparencies should follow the following format:
1. Title page
2. An abstract (one page summary of the paper)
3. Introduction to the issue (brief history & significance of issue assigned)
4. Practical study of the organization (with respect to the issue)
5. Data collection methods
6. SWOT analysis (strengths, weaknesses, opportunities & threats) relevant to the
issue assigned
7. Conclusion (one page brief covering important aspects of your report)
8. Recommendations (specific recommendations relevant to issue assigned)

GUIDELINES FOR PRESENTATION

Make eye contact and react to the audience. Don't read from the transparencies or
from report, and don't look too much at the transparencies (occasional glances are
acceptable to help in recalling the topic to cover).
A 15-minute presentation can be practiced several times in advance, so do that until
you are confident enough. Some people also use a mirror when rehearsing as a
substitute for an audience.

WEIGHTAGE OF THEORY & PRACTICAL ASPECTS IN ASSIGNMENT # 2 &

WORKSHOP PRESENTATIONS

Assignment # 2 & workshop presentations are evaluated on the basis of theory & its
applicability. The weightage of each aspect would be:
Theory: 60%
Applicability (practical study of the organization): 40%

Note:
Assignments and Presentation carry 300 Marks:

Assignment 01............................................................................................100 Marks

Assignment 02 (Submission).....................................................................100 Marks
Assignment 02 (Presentation)...................................................................100 Marks

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 MANAGERIAL ACCOUNTING
(Course Outline)

UNIT 1 COST AND MANAGEMENT ACCOUNTING SYSTEMS

1.1 The Concept of Cost Management
1.2 The Basics of Cost Accounting Information System
1.3 The Manufacturing Cost Accounting Cycle
1.4 Cost of goods manufactured statement
1.5 Job Order Cost Accumulation Procedures
1.6 Process Costing
1.7 The Cost of Production Report
1.8 Difficulties Encountered in Process Costing

UNIT 2 COSTING BY-PRODUCTS AND JOINT PRODUCTS

2.1 Nature of By-Products and Joint Products
2.2 Costing By-Products and Joint Products
2.3 Methods of Costing By-Products
2.3.1 Recognition of Gross Revenue Method
2.3.2 Recognition of Net Revenue Method
2.3.3 Replacement of Cost Method
2.3.4 Market Value Method
2.4 Methods of Allocating Joint Production Cost to Joint Products
2.4.1 Market Value Method
2.4.2 Average Unit Cost Method
2.4.3 Weighted Average Method
2.4.4 Quantitative Unit Method
2.5 Use of Joint Cost Analysis in Managerial Decisions

UNIT 3 MATERIAL AND LABOR COSTING

3.1 Material Procurement and Use
3.2 Material Costing Methods
3.3 Economic Order Quantity
3.4 Material Controls
3.5 Basics of Labor Cost Control
3.6 Labor Performance Reports
3.7 Recording Labor Costs
3.8 Incentive Wage Plans

UNIT.4 PLANNING AND CONTROL OF FACTORY OVERHEAD

4.1 Factory Overhead (Pre-determined rate, applied & actual)
4.2 FOH Variance Analysis
4.3 The Concept of Departmentalization
4.4 Departmental Overhead Rates and Variances
4.5 Overhead Departmentalization in Non-Manufacturing Business

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UNIT 5 COST BEHAVIOR ANALYSIS AND USE
5.1 Cost Behavior Patterns
5.2 Variable Costs Its Implications
5.3 Fixed Costs and Relevant Range
5.4 The Contribution Format
5.5 Cost Volume Profit Relationships
5.6 Cost Structure
5.7 Applications of CVP Concept
5.8 Break Even Analysis
5.9 The Margin of Safety

UNIT 6 BUDGETING
6.1 The Basic Framework of Budgeting
6.2 Difference between Planning and Control
6.3 Definition, Advantages of Budgets
6.4 Principles of Budgeting
6.5 The Budget Committee
6.6 The Master Budget A Network of Inter-relationship
6.7 Sales, Production and Cash Budgets
6.8 Zero-based Budgeting
6.9 Projected Financial Statements
6.10 The concept of Flexible Budget Different Dimensions

UNIT 7 CONTROL THROUGH STANDARD COSTS

7.1 Standard Cost Defined
7.2 Comparison of Budgets and Standards
7.3 Setting Standards Ideal Versus Practical Standards
7.4 Variances, calculation and analysis
7.5 Responsibility and Control of Variances

UNIT 8 COSTS IN DECISION MAKING

8.1 The Absorption Vs Direct costing
8.2 Fixed overhead and Absorption cost of product
8.3 Reconciliation of direct Costing and absorption Costing
8.4 The Contribution Approach
8.5 Cost Concepts for Decision Making
8.6 Identifying Relevant Costs
8.7 Make Versus Buy Decision
8.8 The Matter of Opportunity Costs

UNIT 9 ACTIVITY BASED COSTING (ABC)

9.1 Limitations of traditional costing systems
9.2 Activity-Based Costing
9.3 Activity Identification and Classification
9.4 Levels of Cost and Drivers

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 9.4.1 Unit Level Costs
9.4.2 Batch Level Costs
9.4.3 Product Level Costs
9.4.4 Plant Level Costs
9.5 ABC and Product Cost Distortion
9.6 Strategic Advantage of ABC
9.7 Activity-Based Management

Recommended Books

1. Cost Account Planning and Control, Matz Usry, published by National Book
Foundation Islamabad.)
2. Managerial Accounting by Ronald W. Hilton (Latest Edition)
3. Managerial Accounting, Ray H. Garrison, Irvine, USA. (Latest Edition)
4. Management and cost accounting, By Alnoor Bhimani, Charles T. Horngren,
Srikant Datar, George Foster
5. Cost Management Accounting and Control, by Hansen & Mowen

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