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
