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CIMA BA1 study materials
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CIMA BA1: Fundamentals of Management Accounting: Costing, CVP and Variances

CIMA BA1 · Work through your exam, one topic at a time.

All guide sections

Fundamentals of Management Accounting: Costing, CVP and Variances

Management accounting supplies internal information for planning, control and decision-making. BA1 tests cost classification and behaviour, marginal versus absorption costing, breakeven analysis, budgeting and basic variances - almost always through a short numerical scenario.

Cost classification and behaviour

  • Fixed costs are constant in total within the relevant range; variable costs vary with activity; semi-variable costs contain both elements and are split using the high-low method.
  • Direct costs attach to the product; indirect costs are overheads. Product costs are held in inventory; period costs are expensed.
  • Absorption costing applies a predetermined overhead absorption rate = budgeted overhead ÷ budgeted activity (labour or machine hours) to units produced.

Marginal costing and CVP analysis

  • Contribution per unit = selling price − variable cost per unit. Profit = total contribution − fixed costs.
  • Breakeven units = fixed costs ÷ contribution per unit. Target profit units = (fixed costs + target profit) ÷ contribution per unit. Margin of safety = (budgeted units − breakeven units) ÷ budgeted units.
  • Absorption and marginal profit differ only by fixed overhead carried in inventory: difference = change in inventory units × fixed overhead per unit.

Relevant costing, budgeting and variances

  • Relevant costs are future, incremental and cash. Ignore sunk costs, committed costs and apportioned fixed overheads.
  • Functional budgets feed a master budget; incremental, zero-based and rolling approaches trade effort against accuracy.
  • Material price variance = actual quantity × (standard price − actual price). Material usage variance = (standard quantity for actual output − actual quantity) × standard price. Adverse means actual cost exceeded standard.

Worked example

Price $25, variable cost $15, fixed costs $60,000. Contribution = $10 per unit. Breakeven = 60,000 ÷ 10 = 6,000 units. At budgeted sales of 8,000 units, margin of safety = 2,000 ÷ 8,000 = 25%, and profit = (8,000 × $10) − $60,000 = $20,000. If 9,000 units are produced but only 8,000 sold, absorption profit exceeds marginal profit by 1,000 × fixed overhead per unit.

Traps

Deducting fixed costs per unit in marginal analysis; using budgeted output instead of standard quantity for actual output in a usage variance; treating apportioned central overheads as relevant; forgetting closing inventory when reconciling absorption and marginal profit.