Management Accounting
Management Accounting tests cost behaviour, internal decision-making, budgeting and performance measurement. The exam favours short computations where the difficulty is choosing the right cost, not the arithmetic.
Core rules
- Cost behaviour: separate fixed, variable, stepped and semi-variable costs; the high-low method uses the highest and lowest activity levels, not the highest and lowest costs.
- CVP: contribution per unit = price − variable cost; break-even units = fixed costs ÷ contribution per unit.
- Relevant costing: include only future, incremental cash flows; exclude sunk costs, committed costs and apportioned common overhead.
- ABC: cost drivers replace volume-based absorption where overhead is driven by complexity, set-ups or orders.
- Variances: price variance uses actual quantity; efficiency variance uses standard price. Signs must be stated as favourable or adverse.
- Transfer pricing: minimum is marginal cost, maximum is the external market price; goal congruence is the test.
Worked example
Fixed costs are 36,000,000 KZT, unit price 5,000 KZT and unit variable cost 3,000 KZT, so contribution is 2,000 KZT. Break-even is 36,000,000 ÷ 2,000 = 18,000 units. To earn a target profit of 10,000,000 KZT, required volume is (36,000,000 + 10,000,000) ÷ 2,000 = 23,000 units. At budgeted sales of 25,000 units, margin of safety is (25,000 − 18,000) ÷ 25,000 = 28%. Fixed cost per unit falls as volume rises, but total fixed cost does not change.
Traps
- Treating fixed cost per unit as constant when volume changes.
- Including sunk development spend in a go/no-go decision.
- Ignoring opportunity cost of scarce capacity.
- Mixing up the quantity base in price and efficiency variances.