CIMA C1

Fundamentals Of Management Accounting

Cost Bookkeeping

CIMA C1
Fundamentals Of Management Accounting
Class Slides Ian Wilson

Learning Aims (CIMA)

Your syllabus included the following:
Explain the principles of Manufacturing
Accounts & the integration of the Cost
Accounts with the Financial Accounting
System.
Prepare a set of Integrated Accounts,
showing Standard Cost Variances.

Introduction
There is NO statutory requirement to keep
detailed costing records.
Many smaller companies will not bother,
instead relying on Financial records.
In a larger, more complex business
however, cost accounting records are vital
to monitor and control what is taking place.

Integrated Accounting
Systems
What are they?.
Defined by CIMA as:
a set of accounting records that integrate
both financial and cost accounts, using
common input data for all accounting
purposes.

Integrated Accounting
Systems
Principal accounts in an integrated system:
4 areas to deal with:
1. Resources Accounts Materials/Wages etc
2. Cost of Production Accounts costs from
start to end of manufacture, Stock,
Labour, WIP/Finished Goods/Cost of Sales
3. Sales Accounts for invoicing customers
4. Income Statement summary of
Profit/Loss

Cost Accounts
Simple Rules:
A Flow into the Account is shown on the
DEBIT side:
A Flow out of the Account is shown on the
CREDIT side:
Both are Held in a T Account:
Obviously at the end of a period the
account needs to be balanced off.

Inventory Control Accounts

Debit Entries:
Materials flowing into the Company, ie
Direct & Indirect Materials purchased by the
Company
Opening Inventory is a DEBIT Entry:
Credit Entries:
As materials are used in production, they
are shown as a CREDIT. Direct Materials are
allocated to the W.I.P. Account

Inventory Control Accounts

Credit Entries:
Indirect Materials are allocated to the
Production Overhead Account
Closing Inventory values are the balancing
figure on the Credit side of the T account.

Labour Control Account

No Opening or Closing Stock here!
Debit Entries:
Reflect wages paid out to staff/operatives

Credit Entries:
Wages split into Direct & Indirect Labour
costs

Work-in-Progress Account
Debit Entries:
Costs associated with producing Units of
output are built up on the debit side, likely
to be Materials, Labour & Production
Overheads

Credit Entries:
This is the cost build up on the Debit side,
shown on the Credit side as an output to
Finished Goods

Production Overhead
Control
Used to build up the Indirect Costs
incurred by each production cost centre.
Debit Entries:
Overheads built up on the Debit side as
they are incurred in the period
Credit Entries:
Overheads Absorbed from the Prod O/H
A/C will be charged to the W.I.P. A/C based
on the OAR (BOAR)

Over/Under Absorption
As we saw earlier, we may OVER or UNDER
Absorb Overheads.
UNDER ABSORPTION shown on CREDIT
side of Production Overhead A/C balancing
figure
OVER ABSORPTION shown on DEBIT side
of Production Overhead A/C balancing
figure
The other side of the Under/Over
Absorption entry is in the P/L A/C

Exercise 1
Write up the relevant T entries:
You will need:
1. Calculate OAR per unit
2. Stock/Inventory Control
3. Labour Control
4. WIP
5. Production Overhead Control
6. Income Statement

Exercise 2
Write up the relevant T entries:
You will need:
1. Calculate OAR per unit
2. Stock/Inventory Control
3. Labour Control
4. WIP
5. Production Overhead Control
6. Income Statement

Standard Costing Entries

In the last session we covered Standard
Costing, remember:
What is a Variance?.
Difference between a planned, budgeted or
standard cost and the actual cost incurred.
The same comparison can be made for
revenues.
The analysis of these differences is called
VARIANCE ANALYSIS.

Standard Costing Entries

Types of Variances:
FAVOURABLE VARIANCES: when actual
results are better than expected, producing
higher profits.
ADVERSE VARIANCES: when actual results
are worse than expected, producing lower
than planned profits

Standard Costing Entries

If a company uses Standard Costing
systems, account has to be taken of the
VARIANCES that occur:
Variances should be recorded in the account
in which they first appear:

Variance:

Account recorded in:

Material Price Variance

Stores/Materials Control

Labour Rate Variance

Wages Control

Materials Usage Variance

Work in Progress

Labour Efficiency variance

Work in Progress

Idle Time Variance

Work in Progress

Total Overhead Variance

Overhead Control

Standard Costing Entries

Variance Control Account (VCA):
The other side of the entry will appear in
the Variance Control Account
An ADVERSE variance is a DEBIT in the VCA
A FAVOURABLE variance is a CREDIT in the
VCA

Exercise 3 Labour
Variances
Lets try this example:
Materials & Overhead costs are given:
You have specific details for the Labour
costs including rate & efficiency variances

Exercise 4 Material
Variances

This will test you relating to Materials with

some Labour Variances thrown in.

Integrated Accounting
Systems
Advantages of integration:
1. No duplication of effort
2. No need to reconcile financial & cost
accounts
3. Simplicity

Exam: you will be presented with T accounts

on screen with missing entries.
You will have to complete the accounts.