Management Accounting
What this domain tests
Management Accounting tests cost classification, cost behaviour, budgeting, variance analysis, relevant costing, pricing, transfer pricing and performance measurement. The exam expects you to support internal decisions rather than prepare statutory accounts.
Core rules
- Separate fixed, variable and mixed costs; total fixed cost is constant in the relevant range, but fixed cost per unit falls as volume rises.
- Use contribution margin for short-term decisions: contribution = sales − variable costs.
- Break-even units = fixed costs ÷ contribution per unit.
- For target profit, add the target profit to fixed costs before dividing by contribution per unit.
- In relevant costing, ignore sunk costs and allocated common fixed costs; include incremental cash flows and opportunity costs.
- Analyse variances by price, quantity, rate and efficiency, and distinguish planning from operational variances.
Worked example
Fixed costs are MMK 120,000; selling price is MMK 50; variable cost is MMK 30. Contribution per unit = MMK 20. Break-even = 120,000 ÷ 20 = 6,000 units. For a target profit before tax of MMK 40,000, required units = (120,000 + 40,000) ÷ 20 = 8,000. If the target after-tax profit is MMK 30,000 and tax is 25%, pre-tax profit = 30,000 ÷ 0.75 = 40,000, so the same 8,000 units are required.
Traps
- Treating fixed cost per unit as constant when volume changes.
- Including sunk research costs in a go/no-go decision.
- Using absorption cost per unit for a special order when idle capacity exists.
- Mixing profit targets with after-tax targets without grossing up for tax.