Fundamentals of Cost and Management Accounting

Cover
Half Title
Title Page
Copyright Page
Preface to the ninth edition
Preface to the eighth edition
Preface to the seventh edition
Contents
CHAPTER 1 The context of costing
LEARNING OUTCOMES
CHAPTER OUTLINE
THE NEED FOR RELEVANT ACCOUNTING INFORMATION
THE DIFFERENT FIELDS OF ACCOUNTING
Financial accounting
Management accounting
THE PLACE AND FUNCTION OF COST ACCOUNTING
THE FUNCTION OF MANAGEMENT ACCOUNTING
Planning decisions
Control decisions
COST ACCOUNTING SYSTEMS
Cost determination
Cost recording
Cost analysis
Cost management
Cost reporting
ETHICAL CONDUCT
THE CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS (CIMA)
THE AIM OF THIS BOOK
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
EXERCISES
CHAPTER 2 Cost classification and terminology
LEARNING OUTCOMES
CHAPTER OUTLINE
THE CONCEPT OF COST
COST OBJECTS
ACCOUNTING FOR COST
COST CLASSIFICATION
Classification of costs by their nature
Classifying costs by their timing
Classifying costs by their function
Classifying costs according to their behaviour
Variable costs
Fixed cost
Step cost
Mixed cost
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 3 Elements of cost
LEARNING OUTCOMES
CHAPTER OUTLINE
MATERIAL COST
TERMINOLOGY
INVENTORY PILING
INVENTORY ACTIVITIES
Acquisition
Storage
Distribution and consumption
Inventory valuation
JUST IN TIME INVENTORY-HOLDING (JIT)
ACCOUNTING ENTRIES
SUMMARY
REVIEW PROBLEMS – MATERIAL
LABOUR
EMPLOYEE AND EMPLOYER EXPECTATIONS
Productivity
Humanitarian factors that have an influence on labour productivity
External factors that have an influence on productivity
PERSONNEL ADMINISTRATION
EMPLOYMENT RECORDS
Personnel records
Clock cards
Job cards
Production reports
ASSIMILATION OF INFORMATION
LABOUR REMUNERATION
Methods of remuneration
Important terminology
Calculation of remuneration
WAGE INCENTIVE SCHEMES
Straight piecework
Taylor’s differential piecework system
Halsey bonus scheme
Emerson’s efficiency scheme
Bonus points
Measured day work
Group bonus systems, share incentive schemes andprofit-sharing schemes
RECOVERY OF DIRECT LABOUR COSTS
LEARNING CURVE
The learning curve effect
Learning curve formula
Application value
Challenges with the application of the learning curve
SUMMARY
REVIEW PROBLEMS – LABOUR
MANUFACTURING OVERHEADS
COST PRICE CALCULATION AND MANUFACTURING OVERHEADS
Problems associated with overheads
Classification and analysis of overheads
TOTAL MANUFACTURING OVERHEADS AND THE LINEAR FUNCTION
TECHNIQUES FOR DIVIDING MANUFACTURING OVERHEADS
Scatter diagram
High-low method
Simple regression
Multiple regression
SUMMARY
REVIEW PROBLEM – MANUFACTURING OVERHEADS
MARKETING COSTS
BASES FOR APPORTIONMENT
PLANNING AND CONTROL
Products
Sales representatives
Areas
Size of orders
SUMMARY
REVIEW PROBLEM – MARKETING
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
EXERCISES
CHAPTER 4 Cost-volume profit analysis
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
MARGINAL COST ACCOUNTING APPROACH
CVP ANALYSIS USING THE MARGINAL INCOME APPROACH
CONTRIBUTION
BREAK-EVEN USING THE MARGINAL INCOME APPROACH
BREAK-EVEN USING THE MARGINAL INCOME RATIO APPROACH
APPLICATIONS OF CVP
Expected profit
Calculating the margin of safety
Evaluating the impact on profit of changes in cost and/or quantity
Change in selling price
Change in variable costs
Change in fixed costs
Product mix
CHANGE-OVER POINT
BREAK-EVEN ANALYSIS USING A GRAPHICAL APPROACH
Break-even graphs
CVP ANALYSIS USING AN ALGEBRAIC AND EQUATION APPROACH
Algebraic method
Equation method
CVP ANALYSIS IN SERVICE INDUSTRIES
COST STRUCTURE AND THE OPERATING LEVERAGE FACTOR
EVALUATING CVP ANALYSIS
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 5 Relevant information for short-termdecision making
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
COST CONCEPTS FOR DECISION-MAKING
Differential costs
Opportunity costs
Relevant costs
Imputed costs
Sunk costs
TYPES OF SHORT-TERM DECISIONS
Price determination
Acceptance of a special order
Elimination of non-profitable products
Purchasing or manufacturing of a product/part (outsourcing)
Joint products
Closing down a factory or continuing with production
Capital investment decisions
THE INFLUENCE OF LIMITING FACTORS
LINEAR PROGRAMMING (LP)
UNCERTAINTY IN DECISION-MAKING
PROBABILITY IN DECISION-MAKING
PAYOFF TABLES AND DECISION TREES
Payoff tables
Decision trees
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 6 The flow of cost information
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
PLANNING
Establishment
Factory layout
The production line
Labour
Material (Raw material)
THE MANUFACTURING PROCESS
CONTROL
THE FLOW OF COSTS
ACCOUNTING FOR A MANUFACTURING ENTERPRISE
COST FLOWS
INVENTORY ACCOUNTS IN A MANUFACTURING ENTERPRISE
THE STATEMENT OF PROFIT AND LOSS OF A MANUFACTURINGENTERPRISE
COLUMNAR FORM OF COST AND STATEMENT OF PROFIT AND LOSS
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 7 Manufacturing overhead calculation and allocation:A traditional approach
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
BUDGETED MANUFACTURING OVERHEADS
APPLIED MANUFACTURING OVERHEADS
ACTUAL MANUFACTURING OVERHEADS
Depreciation
Interest on capital/investment
Indirect material and indirect labour
Rental and maintenance of factory buildings
OVER OR UNDERAPPLIED MANUFACTURING OVERHEADS
DEPARTMENTALISATION OF MANUFACTURING OVERHEADS
PRIMARY ALLOCATION OF MANUFACTURING OVERHEADS
SECONDARY ALLOCATION OF MANUFACTURING OVERHEADS
APPLICATION TO THE PRODUCTS AND/OR JOBS
REPEATED ALLOCATION METHOD
ACTIVITY-BASED COSTING (ABC)
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 8 Variable and absorption costing
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
THE APPLICATION OF VARIABLE AND ABSORPTION COSTING
Inventory valuation
Statement of Profit or Loss: Comparing variable costingto absorption costing
Revenue, production and income relationships
Impact of revenue fluctuations
Reconciliation of the variable costing profit with the absorption costing profit
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 9 Activity-based costing (ABC)
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
ABC system design
Step 1: Identify activities
Step 2: Identify cost drivers for each activity
Step 3: Cost pool creation and allocation
Step 4: Trace activity costs to cost objectives
AN ILLUSTRATIVE EXAMPLE OF ABC
Criteria for use of an ABC system
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 10 Job costing systems
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
THE JOB DESCRIPTION
COST DETERMINATION OF A JOB
INVENTORY LEDGERS
COMPREHENSIVE EXAMPLE OF A JOB COSTING SYSTEM
The recording of material costs
The recording of labour costs
The recording of manufacturing overheads
The recording of completed/finished goods
SPOILT UNITS
Spoilt products
Wastage
Shrinkage and evaporation
Normal wastage
Abnormal wastage
Scrap
ACCOUNTING FOR SPOILT WORK IN JOB COSTING SYSTEMS
As a general manufacturing cost
Job-related normal wastage
Re-processing costs
CONTRACT COSTING
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 11 Process costing
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
DEPARTMENTALISATION AND UNIT COSTS
PRODUCT AND COST FLOWS
PROCESS COST REPORTS
SINGLE PRODUCT: SINGLE PROCESS(NO OPENING OR CLOSING INVENTORY)
SINGLE PRODUCT: MULTIPLE PROCESSES
THE CALCULATION OF INCOMPLETE UNITS IN THE CLOSING INVENTORYOF A PROCESS
EQUIVALENT COMPLETE UNITS
WAYS OF USING MANUFACTURING RESOURCES
INCOMPLETE UNITS IN CLOSING INVENTORY
INCOMPLETE UNITS IN OPENING INVENTORY
ALTERNATIVE LAYOUT FOR THE COMBINED PRODUCTIONCOST REPORT
INCREASE IN UNITS AS A RESULT OF THE ADDITION OF MATERIAL
ACCOUNTING FOR SPOILT UNITS
ACCOUNTING FOR WASTAGE WHERE THE WEIGHTED AVERAGEMETHOD IS APPLIED
ACCOUNTING FOR WASTAGE WHERE THE FIFO METHOD IS APPLIED
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 12 Joint and by-products
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
CLASSIFICATION INTO JOINT AND BY-PRODUCTS
Common costs
Additional processing costs
Costing methods for joint products
COSTING METHODS FOR BY-PRODUCTS
BY-PRODUCTS AND WASTE MATERIAL
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 13 Budgets
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
THE CONCEPTS BUDGET AND BUDGET CONTROL
Budgets
Budget control
THE FUNCTIONS OF BUDGETS AND BUDGET CONTROL
Planning
Co-ordination
Control
AIMS OF BUDGET CONTROL
ADVANTAGES OF BUDGETS AND BUDGETS CONTROL
DISADVANTAGES OF BUDGETS AND BUDGETARY CONTROL
IMPORTANT ASPECTS FOR THE PREPARATION OF BUDGETS
The human factor
Budget period
Budget personnel
Budget factor
TYPES OF BUDGETS IN A MANUFACTURING ENTERPRISE
Sales budget
Production budget
Plant utilisation budget
Trading purchases budget
Direct material or raw material budget
Labour budget
Manufacturing overheads budget
Production cost budget
Ending finished goods inventory budget
Marketing cost budget
Administrative budget
Research and development budget
Capital budget
Cash budget
Budgeted Statement of Profit and Loss
Budgeted Statement of Financial Position
Master budget
ZERO-BASED BUDGETING (ZBB)
RESPONSIBILITY ACCOUNTING AND COST CONTROL
Responsibility centres
Responsibility budgets
Controllable and uncontrollable costs
Reporting
FLEXIBLE BUDGETING
ACTIVITY-BASED BUDGETING (ABB)
NON-FINANCIAL PERFORMANCE INDICATORS
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 14 Standard costing
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
AIMS
CHARACTERISTICS OF STANDARD COSTING
THE USES OF STANDARDS AND STANDARD COSTS
THE CLASSIFICATION OF STANDARDS
ADVANTAGES OF STANDARD COSTING
THE IMPLEMENTATION OF A STANDARD COSTING SYSTEM
MATERIAL STANDARDS AND VARIANCES
MATERIAL PRICE VARIANCE
Purchase price variance
Issue price variance
MATERIAL QUANTITY VARIANCE
MATERIAL SUB-VARIANCES
RECORDING OF MATERIAL COSTS
LABOUR STANDARDS AND VARIANCES
LABOUR RATE VARIANCE
LABOUR EFFICIENCY VARIANCE
SUB-VARIANCES
RECORDING OF LABOUR COSTS
MANUFACTURING OVERHEADS STANDARDS AND VARIANCE
SEPARATE VARIABLE AND FIXED MANUFACTURING OVERHEADSVARIANCES
Variable manufacturing overheads variances
Fixed manufacturing overheads variances
Causes of manufacturing overheads variances
COMBINED VARIABLE AND FIXED MANUFACTURING OVERHEADSVARIANCES
Two-variance analysis method
Three-variance analysis method
RECORDING OF MANUFACTURING OVERHEADS
STANDARD COSTING RATIOS
SALES VARIANCES
Analysis of variances
PROBLEMS IN APPLICATION
RECONCILIATION OF ACTUAL COSTS WITH STANDARD COSTS
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 15 Performance evaluation
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
CHOICE OF ORGANISATIONAL STRUCTURE
RESPONSIBILITY CENTRES
ADVANTAGES OF DECENTRALISATION
DISADVANTAGES OF DECENTRALISATION
DIVISIONAL PERFORMANCE MEASUREMENT
Profit
Return on investment (ROI)
Advantages and disadvantages of return on investment
Residual income
Advantages and disadvantages of residual income
NON-FINANCIAL PERFORMANCE MEASUREMENT
THE BALANCED SCORECARD
Customer perspective: How do customers see us?
Internal business perspective: What must we excel at?
Innovation and learning perspective: Can we continue to improve andcreate value?
Financial perspective: How do we look to shareholders?
USING THE BALANCED SCORECARD
The Balanced Scorecard, more than a performance measurement tool
Advantages of the Balanced Scorecard
Disadvantages of the Balanced Scorecard
PERFORMANCE EVALUATION FOR NOT-FOR-PROFITS ANDTHE PUBLIC SECTOR
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 16 Transfer pricing in decentralised enterprises
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
CRITERIA FOR THE DEVELOPMENT OF TRANSFER PRICES
Goal congruence
Performance evaluation
Autonomy
Administrative cost
COMPANY POLICIES GOVERNING INTER-UNIT TRANSFERS
TRANSFER PRICING
Market-based transfer prices
Cost-based transfer prices
Negotiated price
Dual transfer prices
AN ILLUSTRATIVE EXAMPLE OF TRANSFER PRICING
INTERNATIONAL TRANSFERS
SUMMARY
PERSPECTIVES ON COSTING
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
EXERCISES
CHAPTER 17 An introduction to costing in the modernbusiness environment
LEARNING OUTCOMES
CHAPTER OUTLINE
INTRODUCTION
MATERIAL REQUIREMENTS PLANNING
MANUFACTURING RESOURCE PLANNING
ENTERPRISE RESOURCE PLANNING
TOTAL QUALITY MANAGEMENT
Just-in-Time
Lean management
Kaizen
LIFE-CYCLE COSTING
TARGET COSTING
Establishing a selling price and determining the desired profit margin
Product-level target cost
Component-level target cost
THE THEORY OF CONSTRAINTS AND THROUGHPUT ACCOUNTING
SIX SIGMA
Key principles of Six Sigma
Advantages of Six Sigma
Disadvantages of Six Sigma
BUSINESS PROCESS RE-ENGINEERING
Where to apply BPR?
How to implement Business Process Re-engineering
Practical application limitations
THE FOURTH INDUSTRIAL REVOLUTION
Challenges and opportunities
Impact on Cost Accounting
Big Data
Robotic Process Automation (RPA)
Blockchain Technology
PERSPECTIVES ON COSTING
SUMMARY
KEY TERMS AND CONCEPTS
REVIEW PROBLEMS
Index