Cost Management Accounting and Control

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ISBN: 9780324233100 | 0324233108
Cover: Hardcover
Copyright: 2/15/2005

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COST MANAGEMENT emphasizes that changing conditions often require a change in systems. Emphasizing this point stresses the dynamic and exciting nature of the field. By taking a systems approach -- one that first covers functional-based cost and control and then activity-based cost systems -- students understand how to understand and manage any cost management system.

Part 1: Foundation Concepts

(177)

Introduction to Cost Management

(25)

Financial Accounting versus Cost Management

(1)

Factors Affecting Cost Management

(6)

Global Competition

(1)

Growth of the Service Industry

(1)

Advances in Information Technology

(1)

Advances in the Manufacturing Environment

(2)

Customer Orientation

(1)

New Product Development

(1)

Total Quality Management

(1)

Time as a Competitive Element

(1)

Efficiency

(1)

A Systems Approach

(1)

Cost Management: A Cross-Functional Perspective

(1)

The Need for Flexibility

(1)

Behavioral Impact of Cost Information

(1)

The Role of Today's Cost and Management Accountant

(3)

Line and Staff Positions

(2)

Information for Planning, Controlling, Continuous Improvement, and Decision Making

(1)

Accounting and Ethical Conduct

(1)

Benefits of Ethical Behavior

(1)

Standards of Ethical Conduct for Management Accountants

(1)

Certification

(12)

The Certificate in Management Accounting

(1)

The Certificate in Public Accounting

(1)

The Certificate in Internal Auditing

(10)

Basic Cost Management Concepts

(39)

A Systems Framework

(5)

Accounting Information Systems

(3)

Relationship to Other Operational Systems and Functions

(1)

Different Systems for Different Purposes

(2)

Cost Assignment: Direct Tracing, Driver Tracing, and Allocation

(3)

Cost Objects

(1)

Accuracy of Assignments

(2)

Product and Service Costs

(4)

Different Costs for Different Purposes

(1)

Product Costs and External Financial Reporting

(2)

External Financial Statements

(4)

Income Statement: Manufacturing Firm

(3)

Income Statement: Service Organization

(1)

Functional-Based and Activity-Based Cost Management Systems

(22)

Functional-Based Cost Management Systems: A Brief Overview

(1)

Activity-Based Cost Management Systems: A Brief Overview

(2)

Choice of a Cost Management System

(19)

Cost Behavior

(54)

Basics of Cost Behavior

(6)

Measures of Activity Output

(1)

Fixed Costs

(2)

Variable Costs

(1)

Linearity Assumption

(1)

Mixed Costs

(1)

Time Horizon

(1)

Resources, Activities, and Cost Behavior

(6)

Flexible Resources

(1)

Committed Resources

(1)

Implications for Control and Decision Making

(1)

Step-Cost Behavior

(2)

Activities and Mixed Cost Behavior

(1)

Methods for Separating Mixed Costs into Fixed and Variable Components

(9)

The High-Low Method

(1)

Scatterplot Method

(3)

The Method of Least Squares

(2)

Using Regression Programs

(2)

Reliability of Cost Formulas

(4)

Hypothesis Test of Parameters

(1)

Goodness of Fit Measures

(1)

Confidence Intervals

(3)

Multiple Regression

(2)

The Learning Curve and Nonlinear Cost Behavior

(3)

Cumulative Average-Time Learning Curve

(2)

Incremental Unit-Time Learning Curve

(1)

Managerial Judgment

(23)

Activity-Based Costing

121

(57)

Unit-Level Product Costing

122

(5)

Overhead Assignment: Plantwide Rates

123

(1)

Disposition of Overhead Variances

124

(2)

Overhead Application: Departmental Rates

126

(1)

Limitations of Plantwide and Departmental Rates

127

(6)

Non-Unit-Related Overhead Costs

127

(1)

Product Diversity

128

(1)

An Example Illustrating the Failure of Unit-Based Overhead Rates

128

(5)

Activity-Based Costing System

133

(9)

Activity Identification, Definition, and Classification

134

(4)

Assigning Costs to Activities

138

(1)

Assigning Secondary Activity Costs to Primary Activities

139

(1)

Cost Objects and Bills of Activities

140

(1)

Activity Rates and Product Costing

140

(2)

Classifying Activities

142

(1)

Reducing the Size and Complexity of an ABC System

142

(4)

Approximately Relevant ABC Systems

143

(1)

Equally Accurate Reduced ABC Systems

144

(2)

ABC System Concepts

146

(32)

ABC Database

147

(1)

ABC and ERP Systems

148

(30)

Part 2: Fundamental Costing and Control

178

(306)

Product and Service Costing: Job-Order System

180

(46)

Characteristics of the Production Process

180

(5)

Manufacturing Firms versus Service Firms

181

(3)

Unique versus Standardized Products and Services

184

(1)

Setting Up the Cost Accounting System

185

(6)

Cost Accumulation

186

(1)

Cost Measurement

186

(2)

Cost Assignment

188

(2)

Choosing the Activity Level

190

(1)

The Job-Order Costing System: General Description

191

(4)

Overview of the Job-Order Costing System

191

(1)

Materials Requisitions

192

(1)

Job Time Tickets

193

(1)

Overhead Application

194

(1)

Unit Cost Calculation

195

(1)

Job-Order Costing: Specific Cost Flow Description

195

(9)

Accounting for Direct Materials

196

(1)

Accounting for Direct Labor Cost

196

(2)

Accounting for Overhead

198

(1)

Accounting for Finished Goods Inventory

199

(2)

Accounting for Cost of Goods Sold

201

(2)

Accounting for Nonmanufacturing Costs

203

(1)

Single versus Multiple Overhead Rates

204

(2)

Appendix: Accounting for Spoilage in a Traditional Job-Order System

206

(20)

Product and Service Costing: A Process Systems Approach

226

(50)

Process-Costing Systems: Basic Operational and Cost Concepts

226

(5)

Cost Flows

227

(2)

The Production Report

229

(1)

Unit Costs

230

(1)

Process Costing with No Work-in-Process Inventories

231

(2)

Service Organizations

231

(1)

JIT Manufacturing Firms

232

(1)

The Role of Activity-Based Costing

232

(1)

Process Costing with Ending Work-in-Process Inventories

233

(3)

Equivalent Units as Output Measures

233

(1)

Cost of Production Report Illustrated

234

(1)

Nonuniform Application of Productive Inputs

235

(1)

Beginning Work-in-Process Inventories

236

(1)

FIFO Costing Method

236

(5)

Step 1: Physical Flow Analysis

237

(1)

Step 2: Calculation of Equivalent Units

238

(1)

Step 3: Computation of Unit Cost

238

(1)

Step 4: Valuation of Inventories

238

(1)

Step 5: Cost Reconciliation

239

(2)

Journal Entries

241

(1)

Weighted Average Costing Method

241

(4)

Step 1: Physical Flow Analysis

241

(1)

Step 2: Calculation of Equivalent Units

241

(1)

Step 3: Computation of Unit Cost

242

(1)

Step 4: Valuation of Inventories

243

(1)

Step 5: Cost Reconciliation

243

(1)

Production Report

243

(1)

FIFO Compared with Weighted Average

243

(2)

Treatment of Transferred-In Goods

245

(4)

Step 1: Physical Flow Schedule

247

(1)

Step 2: Calculation of Equivalent Units

247

(1)

Step 3: Computation of Unit Costs

247

(1)

Step 4: Valuation of Inventories

247

(2)

Operation Costing

249

(3)

Basics of Operation Costing

249

(1)

Operation Costing Example

250

(2)

Appendix: Spoiled Units

252

(24)

Allocating Costs of Support Departments and Joint Products

276

(49)

An Overview of Cost Allocation

276

(6)

Types of Departments

277

(2)

Types of Allocation Bases

279

(1)

Objectives of Allocation

280

(2)

Allocating One Department's Costs to Another Department

282

(6)

A Single Charging Rate

282

(1)

Dual Charging Rates

283

(2)

Budgeted versus Actual Usage

285

(2)

Fixed versus Variable Bases: A Note of Caution

287

(1)

Choosing a Support Department Cost Allocation Method

288

(7)

Direct Method of Allocation

288

(2)

Sequential Method of Allocation

290

(1)

Reciprocal Method of Allocation

291

(3)

Comparison of the Three Methods

294

(1)

Departmental Overhead Rates and Product Costing

295

(1)

Accounting for Joint Production Processes

296

(29)

Cost Separability and the Need for Allocation

297

(1)

Distinction and Similarity between Joint Products and By-Products

298

(1)

Accounting for Joint Product Costs

299

(2)

Allocation Based on Relative Market Value

301

(24)

Budgeting for Planning and Control

325

(57)

The Role of Budgeting in Planning and Control

326

(5)

Purposes of Budgeting

326

(1)

The Budgeting Process

327

(2)

Gathering Information for Budgeting

329

(2)

Preparing the Operating Budget

331

(7)

Operating Budgets for Merchandising and Service Firms

337

(1)

Preparing the Financial Budget

338

(7)

The Cash Budget

338

(4)

Budgeted Balance Sheet

342

(1)

Shortcomings of the Traditional Master Budgeting Process

342

(3)

Flexible Budgets for Planning and Control

345

(6)

Static Budgets versus Flexible Budgets

345

(6)

Activity-Based Budgets

351

(4)

The Behavioral Dimension of Budgeting

355

(27)

Characteristics of a Good Budgetary System

356

(26)

Standard Costing: A Functional-Based Control Approach

382

(48)

Developing Unit Input Standards

383

(2)

Establishing Standards

383

(1)

Usage of Standard Costing Systems

384

(1)

Standard Cost Sheets

385

(2)

Variance Analysis and Accounting: Direct Materials and Direct Labor

387

(9)

Calculating Direct Materials Price and Usage Variances

388

(3)

Accounting for Direct Materials Price and Usage Variances

391

(1)

Calculating Direct Labor Variances

391

(2)

Accounting for the Direct Labor Rate and Efficiency Variances

393

(1)

Investigating Direct Materials and Labor Variances

393

(2)

Disposition of Direct Materials and Direct Labor Variances

395

(1)

Variance Analysis: Overhead Costs

396

(11)

Four-Variance Method: The Two Variable Overhead Variances

396

(4)

Four-Variance Analysis: The Two Fixed Overhead Variances

400

(4)

Accounting for Overhead Variances

404

(1)

Two- and Three-Variance Analyses

405

(2)

Mix and Yield Variances: Materials and Labor

407

(23)

Direct Materials Mix and Yield Variances

407

(1)

Direct Labor Mix and Yield Variances

408

(22)

Decentralization: Responsibility Accounting, Performance Evaluation, and Transfer Pricing

430

(54)

Responsibility Accounting

431

(1)

Types of Responsibility Centers

431

(1)

The Role of Information and Accountability

431

(1)

Decentralization

432

(3)

Reasons for Decentralization

432

(2)

The Units of Decentralization

434

(1)

Measuring the Performance of Investment Centers

435

(10)

Return on Investment

435

(4)

Residual Income

439

(2)

Economic Value Added

441

(3)

Multiple Measures of Performance

444

(1)

Measuring and Rewarding the Performance of Managers

445

(5)

Incentive Pay for Managers---Encouraging Goal Congruence

445

(1)

Managerial Rewards

445

(3)

Measuring Performance in the Multinational Firm

448

(2)

Transfer Pricing

450

(1)

The Impact of Transfer Pricing on Income

450

(1)

Setting Transfer Prices

451

(33)

Market Price

451

(1)

Negotiated Transfer Prices

452

(5)

Cost-Based Transfer Prices

457

(2)

Transfer Pricing and the Multinational Firm

459

(25)

Part 3: Advanced Costing and Control

484

(250)

Strategic Cost Management

486

(62)

Strategic Cost Management: Basic Concepts

487

(6)

Strategic Positioning: The Key to Creating and Sustaining a Competitive Advantage

487

(2)

Value-Chain Framework, Linkages, and Activities

489

(2)

Organizational Activities and Cost Drivers

491

(1)

Operational Activities and Drivers

492

(1)

Value-Chain Analysis

493

(8)

Exploiting Internal Linkages

493

(3)

Exploiting Supplier Linkages

496

(2)

Exploiting Customer Linkages

498

(3)

Life-Cycle Cost Management

501

(8)

Product Life-Cycle Viewpoints

501

(2)

Interactive Viewpoint

503

(4)

Role of Target Costing

507

(2)

Just-In-Time (JIT) Manufacturing and Purchasing

509

(4)

Inventory Effects

510

(1)

Plant Layout

511

(1)

Grouping of Employees

512

(1)

Employee Empowerment

513

(1)

Total Quality Control

513

(1)

JIT and Its Effect on the Cost Management System

513

(35)

Traceability of Overhead Costs

514

(1)

Product Costing

515

(1)

JIT's Effect on Job-Order and Process-Costing Systems

516

(1)

Backflush Costing

516

(32)

Activity-Based Management

548

(42)

The Relationship of Activity-Based Costing and Activity-Based Management

549

(1)

Process Value Analysis

550

(4)

Driver Analysis: Defining Root Causes

550

(1)

Activity Analysis: Identifying and Assessing Value Content

550

(3)

Assessing Activity Performance

553

(1)

Financial Measures of Activity Efficiency

554

(9)

Reporting Value- and Non-Value-Added Costs

554

(2)

Trend Reporting of Non-Value-Added Costs

556

(1)

Drivers and Behavioral Effects

557

(1)

The Role of Kaizen Standards

557

(1)

Benchmarking

558

(1)

Activity Flexible Budgeting

559

(3)

Activity Capacity Management

562

(1)

Implementing Activity-Based Management

563

(3)

Discussion of the ABM Implementation Model

563

(2)

Why ABM Implementations Fail

565

(1)

Financial-Based versus Activity-Based Responsibility Accounting

566

(24)

Assigning Responsibility

567

(1)

Establishing Performance Measures

568

(1)

Evaluating Performance

569

(1)

Assigning Rewards

570

(20)

The Balanced Scorecard: Strategic-Based Control

590

(31)

Activity-Based versus Strategic Based Responsibility Accounting

591

(4)

Assigning Responsibility

592

(1)

Establishing Performance Measures

592

(2)

Performance Measurement and Evaluation

594

(1)

Assigning Rewards

595

(1)

Basic Concepts of the Balanced Scorecard

595

(8)

Strategy Translation

595

(1)

The Financial Perspective, Objectives, and Measures

596

(2)

Customer Perspective, Objectives, and Measures

598

(1)

Process Perspective, Objectives, and Measures

599

(3)

Learning and Growth Perspective

602

(1)

Linking Measures to Strategy

603

(3)

The Concept of a Testable Strategy

604

(1)

Strategic Feedback

605

(1)

Strategic Alignment

606

(15)

Communicating the Strategy

606

(1)

Targets and Incentives

607

(1)

Resource Allocation

608

(13)

Quality Cost Management

621

(43)

Costs of Quality

622

(6)

The Meaning of Quality

623

(1)

Defining Quality Costs

624

(1)

Quality Cost Measurement

625

(3)

Reporting Quality Costs

628

(5)

Quality Cost Reports

628

(1)

Distribution of Quality Costs: The Acceptable Quality View

628

(2)

Distribution of Quality Costs: Zero-Defects View

630

(2)

The Role of Activity-Based Cost Management

632

(1)

Quality Cost Information and Decision Making

633

(4)

Decision Making Contexts

633

(2)

Certifying Quality Through ISO 9000

635

(2)

Controlling Quality Costs

637

(27)

Choosing the Quality Standard

637

(2)

Types of Quality Performance Reports

639

(25)

Productivity Measurement and Control

664

(31)

Productive Efficiency

665

(1)

Partial Productivity Measurement

665

(3)

Partial Productivity Measurement Defined

666

(1)

Partial Measures and Measuring Changes in Productive Efficiency

667

(1)

Advantages of Partial Measures

668

(1)

Disadvantages of Partial Measures

668

(1)

Total Productivity Measurement

668

(4)

Profile Productivity Measurement

668

(2)

Profit-Linked Productivity Measurement

670

(2)

Price-Recovery Component

672

(1)

Measuring Changes in Activity and Process Efficiency

672

(23)

Activity Productivity Analysis

673

(2)

Process Productivity Analysis

675

(1)

Process Productivity Model

676

(3)

Quality and Productivity

679

(16)

Environmental Costs: Measurement and Control

695

(39)

Defining, Measuring, and Controlling Environmental Costs

696

(9)

The Ecoefficiency Paradigm

696

(2)

Competing Paradigms

698

(1)

Environmental Costs Defined

699

(1)

Environmental Cost Report

700

(2)

Environmental Cost Reduction

702

(2)

An Environmental Financial Report

704

(1)

Environmental Costing

705

(2)

Environmental Product Costs

705

(1)

Unit-Based Environmental Cost Assignments

705

(1)

Activity-Based Environmental Cost Assignments

706

(1)

Life-Cycle Cost Assessment

707

(4)

Product Life Cycle

707

(1)

Assessment Stages

708

(3)

Strategic-Based Environmental Responsibility Accounting

711

(23)

Environmental Perspective

711

(2)

The Role of Activity Management

713

(21)

Part 4: Decision Making

734

(233)

Cost-Volume-Profit Analysis

736

(45)

The Break-Even Point in Units

737

(4)

Operating-Income Approach

737

(1)

Contribution-Margin Approach

738

(1)

Profit Targets

739

(1)

After-Tax Profit Targets

740

(1)

Break-Even Point in Sales Dollars

741

(4)

Profit Targets

744

(1)

Comparison of the Two Approaches

745

(1)

Multiple Product Analysis

745

(4)

Break-Even Point in Units

745

(3)

Sales Dollars Approach

748

(1)

Graphical Representation of CVP Relationships

749

(4)

The Profit-Volume Graph

749

(1)

The Cost-Volume-Profit Graph

749

(2)

Assumptions of Cost-Volume-Profit Analysis

751

(2)

Changes in the CVP Variables

753

(6)

Introducing Risk and Uncertainty

755

(4)

Sensitivity Analysis and CVP

759

(1)

CVP Analysis and Activity-Based Costing

759

(22)

Example Comparing Conventional and ABC Analysis

760

(1)

Strategic Implications: Conventional CVP Analysis versus ABC Analysis

761

(1)

CVP Analysis and JIT

762

(19)

Activity Resource Usage Model and Tactical Decision Making

781

(42)

Tactical Decision Making

782

(3)

The Tactical Decision-Making Process

782

(2)

Qualitative Factors

784

(1)

Relevant Costs and Revenues

785

(3)

Relevant Costs Illustrated

785

(1)

Irrelevant Cost Illustrated

786

(1)

Relevant Costs and Benefits in International Trade

786

(2)

Relevancy, Cost Behavior, and the Activity Resource Usage Model

788

(2)

Flexible Resources

788

(1)

Committed Resources

788

(2)

Illustrative Examples of Tactical Decision Making

790

(33)

Make-or-Buy Decisions

790

(4)

Keep-or-Drop Decisions

794

(3)

Special-Order Decisions

797

(2)

Decisions to Sell or Process Further

799

(2)

Relevant Costing and Ethical Behavior

801

(22)

Pricing and Profitability Analysis

823

(55)

Basic Pricing Concepts

824

(2)

Demand and Supply

824

(1)

Price Elasticity of Demand

824

(1)

Market Structure and Price

825

(1)

Pricing Policies

826

(3)

Cost Based Pricing

826

(2)

Target Costing and Pricing

828

(1)

Other Pricing Policies

829

(1)

The Legal System and Pricing

829

(3)

Predatory Pricing

829

(1)

Price Discrimination

830

(1)

Ethics

831

(1)

Measuring Profit

832

(7)

Reasons for Measuring Profit

832

(2)

Absorption-Costing Approach to Measuring Profit

834

(2)

Variable-Costing Approach to Measuring Profit

836

(3)

Profitability of Segments

839

(7)

Profit by Product Line

839

(4)

Divisional Profit

843

(1)

Customer Profitability

843

(2)

Overall Profit

845

(1)

Analysis of Profit-Related Variances

846

(3)

Sales Price and Price Volume Variances

846

(1)

Contribution Margin Variance

847

(1)

Market Share and Market Size Variances

848

(1)

The Product Life Cycle

849

(3)

Limitations of Profit Measurement

852

(26)

Capital Investment

878

(51)

Capital Investment Decisions

879

(2)

Payback and Accounting Rate of Return: Nondiscounting Methods

881

(2)

Payback Period

881

(2)

Accounting Rate of Return

883

(1)

The Net Present Value Method

883

(2)

The Meaning of NPV

884

(1)

Weighted Average Cost of Capital

884

(1)

An Example Illustrating Weighted Average Cost of Capital

885

(1)

Internal Rate of Return

885

(2)

Example with Uniform Cash Flows

885

(2)

IRR and Uneven Cash Flows

887

(1)

NPV versus IRR: Mutually Exclusive Projects

887

(3)

NPV Compared with IRR

888

(2)

Example: Mutually Exclusive Projects

890

(1)

Computing After-Tax Cash Flows

890

(9)

Inflationary Adjustments

892

(1)

Conversion of Gross Cash Flows to After-Tax Cash Flows

892

(7)

Capital Investment: Advanced Technology and Environmental Considerations

899

(6)

How Investment Differs

900

(1)

How Estimates of Operating Cash Flows Differ

900

(1)

An Example: Investing in Advanced Technology

901

(1)

Salvage Value

902

(1)

Discount Rates

903

(2)

Appendix A: Present Value Concepts

905

(3)

Future Value

905

(1)

Present Value

906

(1)

Present Value of an Uneven Series of Cash Flows

906

(1)

Present Value of a Uniform Series of Cash Flows

907

(1)

Appendix B: Present Value Tables

908

(21)

Inventory Management: Economic Order Quantity, JIT, and the Theory of Constraints

929

(38)

Just-in-Case Inventory Management

930

(5)

Justifying Inventory

930

(1)

Economic Order Quantity: A Model for Balancing Acquisition and Carrying Costs

931

(1)

Calculating EOQ

932

(1)

When to Order or Produce

933

(1)

Demand Uncertainty and Reordering

933

(1)

An Example Involving Setups

934

(1)

EOQ and Inventory Management

934

(1)

JIT Inventory Management

935

(8)

A Pull System

936

(1)

Setup and Carrying Costs: The JIT Approach

937

(1)

Due-Date Performance: The JIT Solution

938

(1)

Avoidance of Shutdown and Process Reliability: The JIT Approach

938

(3)

Discounts and Price Increases: JIT Purchasing versus Holding Inventories

941

(1)

JIT's Limitations

941

(2)

Basic Concepts of Constrained Optimization

943

(4)

One Binding Internal Constraint

943

(1)

Internal Binding Constraint and External Binding Constraint

944

(1)

Multiple Internal Binding Constraints

944

(3)

Theory of Constraints

947

(20)

Operational Measures

947

(2)

Five-Step Method for Improving Performance

949

(18)

Glossary

967

(12)

Subject Index

979

(24)

Company Index

1003

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Cost Management Accounting and Control

Summary

Author Biography

Table of Contents

Supplemental Materials