Cost Accounting and Financial Management

Level of Knowledge : Working knowledge.

Objectives . . .

1. To gain understanding of costing concepts and the detailed procedure and documentation involved in cost ascertainment systems.
2. To gain understanding of the various basic concepts of decision-making process in financial management.

Contents . . .

Section - A: Cost Accounting [60 Marks]

1. Objectives, Importance and Advantages of Cost Accounting, cost concepts; Types of costing; Installation of a costing system; Essentials of a good Cost Accounting system; Difference between Cost Accounting and Financial Accounting; Elements of cost; Cost unit, Cost centre and Profit centre.
2. Cost ascertainment:
   1. Material accounting:
      1. Procurement procedures; Store procedures and Documentation in respect of receipts, Issues of stock, Stock verification.
      2. Inventory control; Conventional techniques such as fixing of minimum/maximum and re-order levels.
      3. Valuation of receipts, issues of inventories.
      4. Consumption; Identification with products of cost centers; Basis for consumption entries in financial ac-counts; Monitoring consumption.
   2. Employee-related cost:
      1. Attendance and Payroll procedures; Overview of statutory requirements; Overtime and incentives.
      2. Utilisation of labour; classification into direct and indirect as demanded by circumstances of the unit identifying with cost centers; labour booking procedures; identifying labour hours with work-orders or batches or capital jobs or overhead work-orders; absorption rates.
      3. Efficiency rating procedures.
   3. Direct expenses:
      Sub-contracting; Control on material movements; identification with the main product or ser-vices; Documentation requirements.
   4. Overheads:
      1. Functional analysis; Factory Administration, Selling, Distribution, Research and development. Behavioural analysis; Fixed, Variable, Semi-variable.
      2. Factory overheads; Primary allocation to all cost centers; Secondary allocation of service/utility cost centersto production cost centers; Criteria for choosing suitable basis for allotment; Activity-based cost allocations; Capacity cost adjustments; Fixed absorption rates for absorbing overheads to products or services.
      3. Administration overheads; Activity analysis for control; Method of allocation to cost centers or products.
      4. Selling and distribution overheads; Analysis and absorption of the expenses in products/customers; Impact of marketing strategies; Cost effectiveness of various methods of sales promotion; Segment-wise/customer-wise/region-wise cost analysis.
3. Methods of costing: Job/Contract costing system; Process costing system; operating costing system.
4. Cost accounts systems, Cost control accounts (non-integrated accounts), Reconciliation of cost and financial accounts.
5. General introduction to Cost Accounting records and rules (industry-wise details are not expected).
6. Cost system installation and operation; Structuring the organisation into cost/activity centers; criteria and purpose.
7. Product cost sheets:
   1. Valuation of work-in-progress; Procedures in Job order method and in Process costing.
   2. Profitability statements; Product-wise/ segment-wise/ customer-wise profitability.
8. Uniform costing and inter-firm comparison.
9. Cost Reduction.

Recommended Books

• Suchitra Prakashan Pvt. Ltd.
  1. Cost Accounting for C A
     • Dr. N.K. Agrawal
• Mahavir Publications
  1. Cost Accounting (Problem and Theory)
     • SN. Maheshwari
• Academic Publisher (Calcutta)
  1. Cost Accounting (Methods & Problems)
     • B.K. Bhar
• A. H. Wheeler publisher
  1. Principles and Practices of Cost Accounting
     • Ashish K. Bhattacharya

Other Relevant Books

Section - B: Financial Management [40 Marks]

1. Meaning, Importance and Objectives of Financial Management; Time value of money; Conflicts in profit versus value maximisation principle; Functions of chief financial officer.
2. Tools of Financial Analysis and Planning; Ratio Analysis to evaluate performance and financial health; Application of ratio analysis in financial decision-making; Analysis of cash flow and Funds Flow statements.
3. Management of working capital; Cash and Marketable securities management; Treasury management, Receivables management, Inventory management, Financing of working capital.
4. Investment decisions: Capital budgeting; Techniques for evaluation like payback method, accounting rate of return, Internal rate of return, Net present value and Profitability index - simple problems; Relationship between risk and re-turn.
5. Financing decisions: Cost of capital; Cost of different sources of finance, Weighted average cost of capital, Marginal cost of capital; Concepts of operating and financial leverage; Capital structure patterns; Designing optimum capital structure; Constraints; Various capital structure theories; Different sources of finance: Long, medium, and Short-term finance.

Recommended Books

• Prentice Hall of India Pvt. Ltd., New Delhi
  1. Financial Management and Policy
     • Van Home and C. James
• Sultan Chand & Sons
  1. Management Accounting & Financial Analysis
     • SN. Maheshwari
• Tata McGraw Hill Publishing Co. Ltd.
  1. Financial Management Text & Problems
     • M.Y. Khan & P.K. Jam
• Tata McGraw Hill Book Co.
  1. Financial Management Theory and Practice
     • Prasanna Chandra
• Chaitanya Publishing House
  1. Financial Management An Analytical and Conceptual Approach
     • S.C. Kuchhal
• Vikas Publishing House Pvt. Ltd.
  1. Financial Management
     • IM. Pandey
• Galgotia Publiishing Company ()New Delhi)
  1. Principles of Financial Management
     • R.P. Rastogi

Other Relevant Books