Management and Cost Accounting

Cover
Brief Contents
Contents
In Memoriam
Preface
About the Authors
Acknowledgements
Part 1: Introduction to Management and Cost Accounting
	Chapter 1: Introduction to Management Accounting
		The Users of Accounting Information
		Differences between Management Accounting and Financial Accounting
		The Decision-Making, Planning and Control Process
		The Impact of the Changing Business Environment on Management Accounting
		Focus on Customer Satisfaction and New Management Approaches
		Functions of Management Accounting
		Summary of the Contents of This Book
		Guidelines for Using This Book
	Chapter 2: An Introduction to Cost Terms and Concepts
		Cost Objects
		Manufacturing, Merchandising and Service Organizations
		Direct and Indirect Costs
		Period and Product Costs
		Cost Behaviour
		Relevant and Irrelevant Costs and Revenues
		Avoidable and Unavoidable Costs
		Sunk Costs
		Opportunity Costs
		Incremental and Marginal Costs
		The Cost and Management Accounting Information System
Part 2: Cost Accumulation for Inventory Valuation and Profit Measurement
	Chapter 3: Cost Assignment
		Assignment of Direct and Indirect Costs
		Different Costs for Different Purposes
		Cost-Benefit Issues and Cost Systems Design
		Assigning Direct Costs to Cost Objects
		Plant-Wide (Blanket) Overhead Rates
		The Two-Stage Allocation Process
		An Illustration of the Two-Stage Process for a Traditional Costing System
		An Illustration of the Two-Stage Process for an ABC System
		Extracting Relevant Costs for Decision-Making
		Budgeted Overhead Rates
		Under- and Over-Recovery of Overheads
		Non-Manufacturing Overheads
		Cost Assignment in Non-Manufacturing Organizations
		The Indirect Cost Assignment Process
		Appendix 3.1: Inter-Service Department Reallocations
	Chapter 4: Accounting Entries for a Job-Costing System
		Materials Recording Procedure
		Pricing the Issues of Materials
		Control Accounts
		Recording the Purchase of Raw Materials
		Recording the Issue of Materials
		Accounting Procedure for Labour Costs
		Accounting Procedure for Manufacturing Overheads
		Non-Manufacturing Overheads
		Accounting Procedures for Jobs Completed and Products Sold
		Costing Profit and Loss Account
		Job-Order Costing in Service Organizations
		Interlocking Accounting
		Accounting Entries for a Just-in-Time Manufacturing System
	Chapter 5: Process Costing
		Flow of Production and Costs in a Process Costing System
		Process Costing When All Output Is Fully Complete
		Process Costing with Ending Work in Progress Partially Complete
		Beginning and Ending Work in Progress of Uncompleted Units
		Partially Completed Output and Losses in Process
		Process Costing in Service Organizations
		Batch/Operating Costing
		Appendix 5.1: Losses in Process and Partially Completed Units
	Chapter 6: Joint and By-Product Costing
		Joint Products and By-Products
		Methods of Allocating Joint Costs
		Irrelevance of Joint Cost Allocations for Decision-Making
		Accounting for By-Products
	Chapter 7: Income Effects of Alternative Cost Accumulation Systems
		External and Internal Reporting
		Variable Costing
		Absorption Costing
		Variable Costing and Absorption Costing: A Comparison of Their Impact on Profit
		Some Arguments in Support of Variable Costing
		Some Arguments in Support of Absorption Costing
		Alternative Denominator-Level Measures
		Appendix 7.1: Derivation of the Profit Function for an Absorption Costing System
Part 3: Information for Decision-Making
	Chapter 8: Cost-Volume-Profit Analysis
		Curvilinear CVP Relationships
		Linear CVP Relationships
		A Numerical Approach to CVP Analysis
		The Contribution Margin Ratio
		Relevant Range
		Margin of Safety
		Constructing the Break-Even or CVP Chart
		Alternative Presentation of CVP Analysis
		Multi-Product CVP Analysis
		Operating Leverage
		CVP Analysis Assumptions and Limitations
		The Impact of Information Technology
	Chapter 9: Measuring Relevant Costs and Revenues for Decision-Making
		Identifying Relevant Costs and Revenues
		Importance of Qualitative/Non-Financial Factors
		Special Pricing Decisions
		Product Mix Decisions When Capacity Constraints Exist
		Replacement of Equipment - The Irrelevance of Past Costs
		Outsourcing and Make-or-Buy Decisions
		Discontinuation Decisions
		Determining the Relevant Costs of Direct Materials
		Determining the Relevant Costs of Direct Labour
		Appendix 9.1: The Theory of Constraints and Throughput Accounting
	Chapter 10: Pricing Decisions and Profitability Analysis
		The Role of Cost Information in Pricing Decisions
		A Price-Setting Firm Facing Short-Run Pricing Decisions
		A Price-Setting Firm Facing Long-Run Pricing Decisions
		A Price-Taking Firm Facing Short-Run Product Mix Decisions
		A Price-Taking Firm Facing Long-Run Product Mix Decisions
		Surveys of Practice Relating to Pricing Decisions
		Limitations of Cost-Plus Pricing
		Reasons for Using Cost-Plus Pricing
		Pricing Policies
		Customer Profitability Analysis
		Appendix 10.1: Calculating Optimal Selling Prices Using Differential Calculus
	Chapter 11: Activity-Based Costing
		The Need for a Cost Accumulation System in Generating Relevant Cost Information for Decision-Making
		Types of Cost System
		A Comparison of Traditional and ABC Systems
		The Emergence of ABC Systems
		Volume-Based and Non-Volume-Based Cost Drivers
		Designing ABC Systems
		Activity Hierarchies
		ABC Profitability Analysis
		Cost versus Benefits Considerations
		Time-Driven ABC
		Resource Consumption Models and Unused Capacity
		Periodic Review of an ABC Database
		ABC Cost Management Applications
	Chapter 12: Decision-Making under Conditions of Risk and Uncertainty
		Risk and Uncertainty
		Probability Distributions and Expected Value
		Measuring the Amount of Risk
		Attitudes to Risk by Individuals
		Decision Tree Analysis
		Buying Perfect and Imperfect Information
		Maximin, Maximax and Regret Criteria
		Risk Reduction and Diversification
	Chapter 13: Capital Investment Decisions: Appraisal Methods
		The Opportunity Cost of an Investment
		Compounding and Discounting
		The Concept of Net Present Value
		Calculating Net Present Values
		The Internal Rate Of Return
		Relevant Cash Flows
		Timing of Cash Flows
		Comparison of Net Present Value and Internal Rate of Return
		Techniques That Ignore the Time Value of Money
		Payback Method
		Accounting Rate of Return
		The Effect of Performance Measurement on Capital Investment Decisions
		Qualitative Factors
	Chapter 14: Capital Investment Decisions: The Impact of Capital Rationing, Taxation, Inflation and Risk
		Capital Rationing
		Taxation and Investment Decisions
		The Effect of Inflation on Capital Investment Appraisal
		Calculating Risk-Adjusted Discount Rates
		Risk-Adjusted Discount Rates and the Weighted Average Cost of Capital
		Sensitivity Analysis
		Initiation, Authorization and Review of Projects
Part 4: Information for Planning, Control and Performance Measurement
	Chapter 15: The Budgeting Process
		The Strategic Planning, Budgeting and Control Process
		The Multiple Functions of Budgets
		Conflicting Roles of Budgets
		The Budget Period
		Administration of the Budgeting Process
		Stages in the Budgeting Process
		A Detailed Illustration
		Computerized Budgeting
		Activity-Based Budgeting
		The Budgeting Process in Non-Profit-Making Organizations
		Zero-Based Budgeting
		Criticisms of Budgeting
	Chapter 16: Management Control Systems
		Control at Different Organizational Levels
		Different Types of Control Mechanism
		Feedback and Feed-Forward Controls
		Harmful Side-Effects of Controls
		Management Accounting Control Systems
		Responsibility Centres
		The Nature of Management Accounting Control Systems
		The Controllability Principle
		Setting Performance Targets and Determining How Challenging They Should Be
		Determining How Much Influence Managers Should Have in Setting Targets
		Different Approaches That Managers Use to Evaluate Budgetees' Performance
		Contingency Theory
		Alternative Uses of Management Accounting Information
	Chapter 17: Standard Costing and Variance Analysis 1
		Operation of a Standard Costing System
		Establishing Cost Standards
		Purposes of Standard Costing
		A Summary of Variance Analysis for a Variable Costing System
		Material Variances
		Labour Variances
		Variable Overhead Variances
		A Generic Routine Approach to Variance Analysis for Variable Costs
		Fixed Overhead Expenditure or Spending Variance
		Sales Variances
		Reconciling Budgeted Profit and Actual Profit
		Standard Absorption Costing
		Reconciliation of Budgeted and Actual Profit for a Standard Absorption Costing System
		Appendix 17.1: A Generic Routine Approach to Variance Analysis
	Chapter 18: Standard Costing and Variance Analysis 2: Further Aspects
		Recording Standard Costs in the Accounts
		Direct Materials Mix and Yield Variances
		Sales Mix and Sales Quantity Variances
		Distinguishing between Planning and Operating Variances
		The Investigation of Variances
		The Role of Standard Costing When ABC Has Been Implemented
	Chapter 19: Divisional Financial Performance Measures
		Divisional Organizational Structures
		Advantages and Disadvantages of Divisionalization
		Prerequisites for Successful Divisionalization
		Distinguishing between the Managerial and Economic Performance of the Division
		Alternative Divisional Profit Measures
		Surveys of Practice
		Return on Investment
		Residual Income
		Economic Value Added (EVA(TM))
		An Illustration of the Calculation of EVA(TM)
		Determining Which Assets Should Be Included in the Investment Base
		The Impact of Depreciation
		The Effect of Performance Measurement on Capital Investment Decisions
		Addressing the Dysfunctional Consequences of Short-Term Financial Performance Measures
	Chapter 20: Transfer Pricing in Divisionalized Companies
		Purpose of Transfer Pricing
		Alternative Transfer Pricing Methods
		Market-Based Transfer Prices
		Cost Plus a Mark-Up Transfer Price
		Marginal/Variable Cost Transfer Prices
		Full Cost Transfer Prices without a Mark-Up
		Negotiated Transfer Prices
		Marginal/Variable Cost Plus Opportunity Cost Transfer Prices
		Comparison of Cost-Based Transfer Pricing Methods
		Proposals for Resolving Transfer Pricing Conflicts
		Domestic Transfer Pricing Recommendations
		International Transfer Pricing
		Appendix 20.1: Economic Theory of Transfer Pricing
Part 5: Strategic Performance and Cost­Management, Value­Creation and Challenges for the Future
	Chapter 21: Strategic Performance Management
		The Performance Management Framework
		Strategy and Strategic Positioning
		Performance Measurement and Performance Management Systems
		Alternative Performance Management Frameworks
		The Balanced Scorecard
		Linking Performance Evaluation with the Balanced Scorecard
		Benefits and Limitations of the Balanced Scorecard Approach
	Chapter 22: Strategic Cost Management and Value Creation
		Cost Management and the Value Chain
		Life Cycle Cost Management
		Target Costing
		Kaizen Costing
		Activity-Based Management
		Benchmarking
		Business Process Reengineering
		Just-in-Time Systems
		Quality Cost Management
	Chapter 23: Challenges for the Future
		A Brief Historical Review of Management Accounting
		Globalization and Management Accounting Practices
		Environmental and Sustainability Issues
		Focus on Ethical Behaviour
		Information Technology and Digitalization
		Intellectual Capital and the Knowledge-Based Economy
		Integrated Reporting
		Implications for Management Accounting
Part 6: Addendum: The Application of Quantitative Methods to Management Accounting
	Chapter 24: Cost Estimation and Cost Behaviour
		General Principles Applying to Estimating Cost Functions
		Cost Estimation Methods
		Tests of Reliability
		Relevant Range and Non-Linear Cost Functions
		A Summary of the Steps Involved in Estimating Cost Functions
		Cost Estimation When the Learning Effect Is Present
		Estimating Incremented Hours and Incremental Cost
		Appendix 24.1: Multiple Regression Analysis
	Chapter 25: Quantitative Models for the Planning and Control of Inventories
		Why Do Firms Hold Inventories?
		Relevant Costs for Quantitative Models under Conditions of Certainty
		Determining the Economic Order Quantity
		Assumptions of the EOQ Formula
		Application of the EOQ Model in Determining the Optimum Batch Size for a Production Run
		Quantity Discounts
		Determining When to Place the Order
		Uncertainty and Safety Stocks
		The Use of Probability Theory for Determining Safety Stocks
		Control of Inventory through Classification
		Other Factors Influencing the Choice of Order Quantity
		Materials Requirement Planning
		Just-in-Time (JIT) Purchasing Arrangements
	Chapter 26: The Application of Linear Programming to Management Accounting
		Linear Programming
		Graphical Method
		Simplex Method
		Uses of Linear Programming
Bibliography
Glossary
Appendices
Answers to Review Problems
Index