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Management Accounting
SESSION 3
Study Methodology & Class Discipline

• Ensure you attend class with A PEN, A NOTEBOOK AND A CALCULATOR.

• At IBA we follow Blended Learning Methodology, we will make use of online
resources available like videos, MOOCs, etc as a part of our learning.
• Concepts will be thoroughly explained. If you have any questions, please do not
hesitate to ask.
• Some numerical problems may be solved in the class but the responsibility of
attempting remaining exercises and problems rests with the students
• In Accounting, PRACTICE is essential to gauge the concepts clearly.
• You will NOT be allowed to use phones and/or laptops during the class.
• Attendance can be taken at anytime during the class.
• You are NOT allowed to leave the class after the attendance has been taken.
Product Costs Versus Period Costs

Product costs include direct Period costs include all selling

materials, direct labor, and costs and administrative
manufacturing overhead. costs.

Inventory Cost of Good Sold Expense

Sale

Balance Income Income

Sheet Statement Statement
Cost Behaviour

Cost behaviour is the way in which costs are affected by changes in the
volume of output.
Management decisions will often be based on how costs and revenues
vary at different activity levels.
Examples of such decisions are as follows.
 What should the planned activity level be for the next period?
 Should the selling price be reduced in order to sell more units?
 Should a particular component be manufactured internally or bought
in?
 Should a contract be undertaken?
 Question – Determine per annum total costs
Deinfa has a fleet of company cars for sales representatives. Running costs have been estimated as follows.
(a) Cars cost Rs.1,200,000 when new, and have a guaranteed trade-in value of Rs.600,000 at the end of two
years. Depreciation is charged on a straight-line basis.
(b) Petrol and oil cost Rs.15 per mile.
(c) Tyres cost Rs. 30,000 per set to replace; replacement occurs after 30,000 miles.
(d) Routine maintenance costs Rs. 20,000 per car (on average) in the first year and $45000 in the second year.
(e) Repairs average Rs. 40,000 per car over two years and are thought to vary with mileage. The average car
travels 25,000 miles per annum.
(f) Tax, insurance, membership of motoring organisations and so on cost Rs. 40,000 per annum per car.
Requirement
• Calculate the cost of cars which travel 15,000 miles per annum and 30,000 miles per annum for year 1 and
year 2.
• Calculate the average cost of cars which 15,000 miles per annum and 30,000 miles per annum for 2 years.
Solution – Determine per annum total costs

15,000 Miles 30,000 Miles

Y1 Y2 Y1+Y2 Y1 Y2 Y1+Y2

Dep 300,000 300,000 300,000 300,000

Petrol 225,000 225,000 450,000 450,000
Tyre Replacement - - - 30,000
Maintenance 20,000 45,000 20,000 45,000
Repairs 12,000 12,000 24,000 24,000
Tax 40,000 40,000 40,000 40,000

597,000 622,000 1,219,000 834,000 889,000 1,723,000

Average Cost per annum 609,500 861,500