Cracking CA Final Costing Exam - Exclusive ICAI Suggestions And Tips

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Introduction

Main focus of ‘Advanced Management Accounting’ is on the application of ‘Cost Management’ techniques and ‘Financial Decision Modeling’ tools in various types of decisions making at all levels of management. Application of ‘Advanced Management Accounting’ helps to understand the ways and means to maximize revenue by reducing cost without affecting the essential qualities of products (decisions on what to produce, at what price, how to manage cost to maximize profitability, quality management etc.) and imposing control by classifying divisions as responsibility centres, allocating budgets and performance evaluation by setting various standards and variance analysis. The subject of ‘Advanced Management Accounting’ focuses on developing of knowledge required for analysis of quantitative and qualitative information in order to help the management in decision making. The students are suggested to understand the concept of each topic, use of relevant tools and techniques involved in the analysis of various problem situations covered under the ‘Syllabus’. Students should keep in mind that the problem related to ‘Management Accounting’ in practical situation may often involve various issues together. Students are required to develop a comprehensive understanding of handling multiple issues involved in a problem which are closely linked and take all the factors into consideration (related to that problem) while evolving a rational solution. The basic objective of ‘Advanced Management Accounting’ subject is to apply various ‘Management Accounting’ techniques to all types of organizations for planning, decision making & control purpose in practical situation and to develop ability to apply ‘Quantitative Techniques’ to business problems.

Suggestive Approach to Study

‘Study Material’ of ‘Advanced Management Accounting’ has been developed to explain different concepts, tools and techniques related to ‘Management Accounting’ with examples and illustrations. The students are suggested to go through the ‘Study Material’ and conceptualize the topics given in the ‘Syllabus’ and understand depth of knowledge required for achieving success in the examination. In ‘Advanced Management Accounting’ examination, emphasis is on testing comprehension, self expression and ability to apply knowledge in divergent situations. Success in examinations considerably depends on style of preparation which can be achieved thorough practice, vision and objectivity. Before appearing for the examination, students need to make a comprehensive study plan. Study plan should be developed by keeping adequate time margin for study revision. Students must envisage the whole exercise of preparation before starting the actual work.

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General Guidelines for Preparation

The general guidelines for preparation of examination are given below. However, a student may modify approach to suit him most according to his convenience and reading habits. General guidelines are:

1. Successful completion of ‘Chartered Accountancy’ course needs smart hard work, doing hard work without understanding the concept is like driving a car without knowing the direction.

2. Try to visualize the problem with practical life situation and make What If analysis while solving each problem.

3. Give importance to conceptual theory part also.

4. A student should read a new concept again and again till he gets clarity about it.

5. Students should make their own note on the concept.

6. Notes may be developed on logic of the steps involved in the solution to a problem.

7. Students should prepare note on theoretical topics to improve their presentation in the examination.

8. Students should solve the problems on their own and check the differences/ incorrectness in their approach.

9. Students are advised to avoid selective study.

10. Attempt to solve a few problems from each chapter on day -to-day basis and make a target of solving 200 to 250 problems over a period of time.

11. Share your doubts with experts, seniors and friends.

12. Allocate specific time to this subject (like other subjects).

13. Answers should be to the point at the time of examination.

14. Improve your speed by practice and revision to be able to attempt all questions in limited time.

15. Focus on writing simple and correct English.

16. Never miss an exam or Mock Test.

Outline of the Syllabus

The entire ‘Syllabus’ of the ‘Advanced Management Accounting’ has been divided into sixteen chapters. The topics covered under these chapters are:

1. Cost Management

2. Cost Volume Profit Analysis

3. Pricing Decisions

4. Budgets and Budgetary Control

5. Standard Costing and Variance Analysis

6. Transfer Pricing

7. Cost Management in Service Sector

8. Uniform Costing and Inter Firm Comparison

9. Profitability Analysis-Product wise/Segment wise/Customer wise

10. Financial Decision Modeling

11. Linear Programming

12. Network Analysis-PERT/CPM, Resource Allocation and Resource Leveling

13. Transportation Problems

14. Assignment Problems

15. Simulation

16. Learning Curve Theory.

Chapter Specific Guidelines for CA FINAL COSTING

Chapters 1 to 9 emphasize the role of ‘Management Accounting’ in decision making, particularly in providing information  and  analysis  to  support  strategic  management  activity.  The  focus  is  on  evaluating  existing competitive strategies, developing new strategies, and monitoring and assessing progress towards chosen strategies.

Chapter-1, Developments in the Business Environment

This chapter introduces students to the area of modern concepts in ‘Cost Management’.  It discusses recent developments in business environment and advanced management accounting techniques such as Total Quality Management (TQM), Activity Based Costing (ABC), Target Costing, Life Cycle Costing, Value Chain Analysis, Cost Control and Cost Reduction, Computer-Aided Manufacturing, Just in Time (JIT), Manufacturing Resources Planning, Synchronous Manufacturing, Business Process Re-engineering and Theory of Constraints. While going through these topics students need to link their study with other chapters or previous studies at Intermediate (IPC) Course level. Some topic wise useful techniques are given as under:

Total Quality Management: This topic is based on continuous effort of management in maintaining quality of a product; believe in the product and improvement in the product. In this topic students need to get conversant with various techniques of ‘Quality Management’. The concept of ‘Six Sigma’ also shall be thoroughly understood by the students.

This topic is based on continuous effort of management in maintaining quality of a product; believe in the product and improvement in the product. In this topic students need to get conversant with various techniques of ‘Quality Management’. The concept of ‘Six Sigma’ also shall be thoroughly understood by the students.

Activity Based Costing: As said earlier students need to inter-connect their study with other chapters or topics. ABC is connected with ‘Absorption Costing’ studied at Intermediate (IPC) Course level under the chapter ‘Overheads’. ABC is also used as a tool for ‘Decision Making’, so their learning in this topic may be tested in succeeding chapters of ‘Decision Making’ and ‘Costing for Service Sectors’. Students should be able to use of ‘Direct’ and ‘Activity-Based Cost’ methods in tracing costs to ‘Cost Objects’, such as customers or distribution channels, and the comparison of such costs with appropriate revenues to establish ‘tiered’ contribution levels, as in the activity-based cost hierarchy.

Target Costing: Every organization is driven by a corporate strategy which fulfills the mission and goals of an organization. In doing so organizations complying with its long term goal, it fixes its desired profit without losing its market share. In this topic students shall understand how an organization maintains its selling price with variable cost targets. This topic also requires application of decision making techniques used in the succeeding topics.

Life Cycle Costing, Value Chain Analysis, Cost control and Cost Reduction, Business process re-engineering, Theory of Constraints: In these topics students are required to identify the factors which have significant implications on product manufacturing and in product’s cost.

Just in Time (JIT), Computer-aided manufacturing, Manufacturing Resource Planning and Synchronous Manufacturing: These topics are related with ‘Inventory Control’ and ‘Production Management Techniques’ to reduce or control costs.

This chapter is very important from the students prospective. Generally, students pay less attention to theory based chapters and the theoretical concepts of underlying different topics. But it is very important that students have thoroughly studied the theoretical aspects of the subject so that theoretical aspects help them in understanding the concepts and logic behind the mathematical workings and formulae while solving problems related to that particular concept.

Chapter-2, Decision Making Using Cost Concepts and CVP Analysis   

Chapter-3, Pricing Decisions

In these two chapters Students have to study Different Cost Concepts, Application of Cost Concepts in Decision Making, Cost-Volume-Profit (CVP) Analysis and Pricing Decision. ‘Management Accounting’ is fundamental in strategic planning. ‘Managerial Accounting’ information provides data-driven input to the decisions, which can improve decision-making over the long term. For example- Should a company shut down a division, Should it make or buy a product, Should it export or not, Should it accept an offer? Students should understand the concepts,  need  and  impor tance  of  ‘Marginal  Costing’  in  decision  making.  Students  should  also  have under standing  of  area  of  ‘Financial  Decision  Modeling’  and  application  of  the  same  in  predicting product/service costs. Clarity of concepts and self expression is essential for success.

Chapter-4, Budget & Budgetary Control

This chapter basically tries to impart students the concept of ‘Budgeting’. ‘Budgeting’ and ‘Financial Statement Projections’ are just a few examples of how managerial accounting information is used to provide information to help management guide the future of a company. By focusing on this data, one can make decisions that aim for continuous improvement and are justifiable based on intelligent analysis of the company data. Students are required to learn the difference between various types of budgets and process of preparation of budgets.

Chapter-5, Standard Costing

This chapter examines the functional-based standard costing systems in managing costs, improving planning and control, and facilitating decision making and product costing. This chapter has very important concepts of standard costing like computation of variances, control through variance analysis, accounting and reporting of variances. Classification of variances and interrelationship could be understood from the chart given in the ‘Study Material’. Students should be versed with variance analysis under marginal costing and absorption costing with concept of reconciliation of actual data and be familiar with the application of learning curve in standard costing. This chapter requires lots of practice. ‘Study Material’ is very helpful for clear understanding of the concept. Students should do thorough practice to avoid computational errors.

Chapter-6, Costing of Service Sector

This chapter introduces students to various costing systems in the service sectors, the different types of cost behavior and their uses for decision making and planning via CVP analysis. It is important for the students to know the concept of relevant costing in relation to pricing decisions, joint cost and service department cost allocations.

Chapter-7, Transfer Pricing

This chapter covers concepts of ‘Transfer Pricing’. ‘Transfer Pricing’ are used to evaluate the goods and services exchanged between profit centers of a decentralized firm. Students should be able to analyze the situation when a division operating at capacity. Students should also be versed with concept of ‘Multinational Transfer Pricing’. Thorough practice of the problems is required for better understanding of transfer pricing concept.

Chapter-8, Uniform Costing

This chapter basically tries to impart about ‘Uniform Costing’. It is a system of cost accounting to be used by the members of the industry. It involves adoption of same costing principles, practices and procedures by the individual members of the industry for inter-firm comparison. This is very important theoretical chapter.

Chapter-9, Cost Sheet, Profitability Analysis and Reporting

This chapter introduces students to the concept of ‘Balance Score Card’. ‘Balanced Scorecard’ is a managerial accounting measure. It can be used in any situation in which managerial accounting measures are appropriate, such as internally evaluating firm performance. Students should refer ‘Study Material’ and ‘Practice Manual’ for conceptual clarity of ‘Balance Score Card’.

Financial Decision Modeling (Chapter 10-16) has become an essential tool in business applications. Modeling and analysis play major roles in abstract representation of business systems and data analysis and the subsequent generation of relevant information for making more accurate decisions. It consists of mathematical techniques that are increasingly used in decision making process such as Linear Programming, Transportation, Simulation, Networking Analysis, Assignment and Learning Curve. ‘Syllabus’ covers applications of quantitative techniques for solving problems in manufacturing and service organizations. Key problem areas include marketing, production, logistics, procurement, and finance etc.

Chapter-10, Linear Programming

‘Linear Programming’ is a mathematical tool for determining the optimum allocation of resources and obtaining a particular objective. Students should be able to solve complex situations involving multiple constraints by various methods.

Chapter-11, Transportation Problem

This chapter deals with a special class of ‘Linear Programming’ problem in which the objective is to ‘transport’ a single commodity from several ‘sources’ to different ‘destinations’ at a minimum total cost. Students should be versed with treatment of unbalanced problem. Students should also learn different methods for finding initial basic feasible solution.

Chapter-12, Assignment Problem

This chapter deals with assigning sources so that the total cost for performing all jobs is minimum. Students should be able to crack scenario of multiple solutions, unbalanced problem and prohibited assignments.

Chapter-13, Critical Path Analysis;  

Chapter-14, Program Evaluation and Review Technique

Both ‘Critical Path Analysis’ and ‘Program Evaluation and Review Technique’ are ‘Management Accounting’ techniques for planning and control of large complex projects. Both are techniques to network analysis wherein a network is prepared to analyze interrelationships between different activities of a project. Students should be familiar with concept of Resource Leveling, Smoothing and Crashing related to the networking analysis.

Chapter-15, Simulation

It  is  important  for  the  students  to  understand  the  application  of  ‘Simulation’  techniques  in  managerial accounting practice for financial forecasting, analyzing capital investment, inventory analysis, production planning, and strategic enterprise management.

Chapter-16, Learning Curve Theory

The principle underlying learning curves is generally well understood -‘if we perform tasks of a repetitive nature, the time we take to complete subsequent tasks reduces until it can reduce no more’. This is relevant to ‘Management Accounting’ in the two key areas of ‘Cost Estimation’ and ‘Standard Costing’. Students should try to link this chapter with the concept of the ‘Management Accounting’ and try to understand application of the same in predicting product/service costs.

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