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TitleManagement Accounting Made Easy
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This material is prepared by Prof.K.S.Ranjani for PGP/RAK MAC-II at IIM Indore Page - 2 -

Session Plan for MAC II


Session 1 Introduction

Reading(s) 1. Basics of Cost Accounting (MACME)

2. Breezy Boat Company(MAC)

Session 2 Cost terms, purpose& approach

Reading(s) Classification of Cost(MACME)

Case Cost classification exercise (IIMA/F&A 377)

Session 3 Break Even Analysis

Reading(s) Break Even Analysis(MACME)

―Do you know where your "break even" point is?‖ By John H. Nardozzi, CPA

―Using Break-Even Analysis to Determine Your Company‘s Financial Health‖Arthur F. Rothberg,

Managing Director, CFO Edge, LLC

Case: The Craddock Cup(MAC)


Session 4 Absorption Costing

Reading(s) Absorption Costing(MACME)

Case Class Exercise(MACME)

Session 5 Job Costing and Process Costing

Reading(s) Job Costing and Process Costing(MACME)

Wendy‘s Chili: A costing Conundrum(MAC)

Session 6 Activity Based Costing

Readings: Activity Based Costing(MACME)

Case: Classic Pen Company: Developing an ABC Model (HBS/9-198-117)

Session 7 Activity Based Management and use of ABC in service industries

Reading(s) ABM (MACME)

Activity Based Costing at UPS

2. Activity Based Costing & Capacity (HBS/9-105-059)

Case Wilkerson Co (HBS/9-101-092)

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This material is prepared by Prof.K.S.Ranjani for PGP/RAK MAC-II at IIM Indore Page - 30 -

Joint product costing- Joint product is defined as a costing of a production process that yields

multiple products simultaneously.

By-products costing- By product costing is defined as, costing of products in the joint

production process with low sales value. The costing is done at the time of production or at the

time of sales.

Common costs: These costs cannot be identified with a particular joint product. By definition,

joint products incur common costs until they reach the split-off point.

Split-off point: At this stage, the joint products acquire separate identities. Costs incurred prior

to this point are common costs, and any costs incurred after this point are separable costs.

Separable costs: These costs can be identified with a particular joint product. These costs are

incurred for a specific product, after the split-off point.

At or beyond the split off point, decisions relating to the sale or further processing of each

identifiable product can be made independently of decisions about the other products. The

characteristic feature of joint products is that all costs incurred prior to the split-off point are

common costs, and cannot be identified with individual products that are derived at split-

off.Distinction among main products, joint products and byproducts are not so definite in

practice. For example some companies may classify kerosene obtained when refining crude oil

as a byproduct because they believe kerosene has a low total sales value relative to the total

sales values of gasoline and other products. Other companies may consider the vice versa.

Moreover the classification of products can change over time depending on the price of the

product in that year.

Illustration 8

Work out the estimated pre separation cost per ton of by - products Y & Z from the following


Costs of manufacturer before separation: 25, 60,000.

Main product is X. There are two by-products Y & Z whose normal selling price is as follows:

Sales price of Y: 500 per ton

Sales price of Z: 800 per ton

Selling and distribution expenses have been estimated to be 25% of SP and the net profit is

expected to be 10% of SP.

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This material is prepared by Prof.K.S.Ranjani for PGP/RAK MAC-II at IIM Indore Page - 31 -

Costs to manufacture each ton after separation from the main product are :

95 (Y) and 145 (Z).

Assume equal weight for Y and Z


Particulars Product Y Product Z

Selling Price 500 800

Less: Selling and Distribution Exps (25% of SP) 125 200

375 600

Less: Net profit(10% of SP) 50 80

325 520

Less: Post separation cost 95 145

Pre Separation Cost 230 375

Illustration 9

Two products P & Q are obtained in a crude form and require further processing at a cost of

Rs.5 for P and Rs. 4 for Q unit before sale. Assuming a net margin of 25% on cost, their sales

are fixed @ Rs.13.75 and Rs.8.75 per unit respectively. During the process, joint cost incurred

was Rs. 88,000 and the outputs were:

P- 8,000 units, Q-6,000 units.

Ascertain the joint cost per unit

Product Q Product P

Output(units) 6000 8000

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