Cost and Management Accounting: An Introduction

by Drury, Colin

• ISBN13: 9781861529053
• ISBN10: 1861529058
• Edition: 5th
• Format: Paperback
• Copyright: 2003-03-20
• Publisher: Cengage Learning EMEA

Summary

Cost & Management Accounting: An Introduction (previously entitled Costing: An Introduction) is a rigorous, clear and easy-to-understand introduction to management accounting, with a tried, tested and successful format that has enabled literally thousands of students to pass their exams. It is intended primarily for accounting students taking a one-or two-semester introductory course and covers all of the basic topics required. The book is a companion volume to the author's best-selling Management & Cost Accounting, which includes more advanced topics not suitable for introductory courses. The strong pedagogic emphasis of Cost & Management Accounting: An Introduction enables students to learn effectively -- each chapter contains learning objectives, examples, exhibits, review problems (with answers), questions (with answers divided between the Students' and Instructors' Manuals), summary, key terms and concepts, and key examination points. Book jacket.

Author Biography

Colin Drury is Professor of Accounting at the University of Huddersfield, UK

Table of Contents

Preface	xiii
Part One Introduction to Cost and Management Accounting	1	(38)
Introduction to management accounting	3	(16)
The users of accounting information	4	(1)
Differences between management accounting and financial accounting	5	(1)
The decision-making process	5	(5)
Changing competitive environment	10	(1)
Focus on customer satisfaction and new management approaches	10	(3)
The impact of the changing environment of management accounting systems	13	(1)
Functions of management accounting	14	(2)
Summary of the contents of this book	16	(3)
An introduction to cost terms and concepts	19	(20)
Cost objects	19	(1)
Direct and indirect costs	20	(2)
Period and product costs	22	(1)
Cost behaviour	22	(5)
Relevant and irrelevant costs and revenues	27	(1)
Avoidable and unavoidable costs	28	(1)
Sunk costs	28	(1)
Opportunity costs	28	(1)
Incremental and marginal costs	29	(1)
Job costing and process costing systems	30	(1)
Maintaining a cost database	30	(9)
Part Two Cost Accumulation for Inventory Valuation and Profit Measurement	39	(158)
Accounting for labour and materials	41	(30)
Accounting for labour costs	42	(2)
Accounting treatment of various labour cost items	44	(1)
Materials recording procedure	45	(2)
Pricing the issues of materials	47	(4)
Issues relating to accounting for materials	51	(2)
Quantitative models for the planning and control of stocks	53	(1)
Relevant costs for quantitative models under conditions of certainty	53	(1)
Determining the economic order quantity	54	(3)
Assumptions of the EOQ formula	57	(1)
Determining when to place the order	57	(1)
Control of stocks through classification	58	(1)
Materials requirement planning	59	(1)
Just-in-time systems	60	(11)
Cost assignment	71	(36)
Assignment of direct and indirect costs	72	(1)
Different costs for different purposes	72	(2)
Cost-benefit issues and cost systems design	74	(1)
Assigning direct costs to objects	75	(1)
Plant-wide (blanket) overhead rates	75	(2)
The two-stage allocation process	77	(1)
An illustration of the two-stage process for a traditional costing system	78	(7)
Extracting relevant costs for decision-making	85	(1)
Budgeted overhead rates	85	(1)
Under-and over-recovery of overheads	86	(1)
Maintaining the database at standard costs	87	(1)
Non-manufacturing overheads	88	(4)
Appendix 4.1: Inter-service department reallocations	92	(4)
Appendix 4.2: Other allocation bases used by traditional systems	96	(11)
Accounting entries for a job costing system	107	(24)
Control accounts	108	(1)
Recording the purchase of raw materials	109	(1)
Recording the issue of materials	109	(3)
Accounting procedure for labour costs	112	(1)
Accounting procedure for manufacturing overheads	113	(2)
Non-manufacturing overheads	115	(1)
Accounting procedures for jobs completed and products sold	115	(1)
Costing profit and loss account	116	(1)
Interlocking accounting	116	(1)
Contract costing	117	(5)
Work in progress valuation and amounts recoverable on contracts	122	(9)
Process costing	131	(32)
Flow of production and costs in a process costing system	132	(1)
Process costing when all output is fully complete	133	(6)
Process costing with ending work in progress partially complete	139	(3)
Beginning and ending work in progress of uncompleted units	142	(5)
Partially completed output and losses in process	147	(1)
Process costing for decision-making and control	147	(1)
Batch/operating costing	148	(1)
Surveys of practice	149	(3)
Appendix 6.1: Losses in process and partially completed units	152	(11)
Joint and by-product costing	163	(16)
Distinguishing between joint products and by-products	163	(2)
Methods of allocating joint costs	165	(7)
Irrelevance of joint cost allocations for decision-making	172	(1)
Accounting for by-products	173	(1)
By-products, scrap and waste	174	(5)
Income effects of alternative cost accumulation systems	179	(18)
External and internal reporting	180	(1)
Variable costing	181	(1)
Absorption costing	182	(1)
Variable costing and absorption costing: a comparison of their impact on profit	183	(3)
A mathematical model of the profit functions	186	(1)
Some arguments in support of variable costing	187	(1)
Some arguments in support of absorption costing	188	(1)
Surveys of company practice	189	(2)
Appendix 8.1: Derivation of the profit function for an absorption costing system	191	(6)
Part Three Information for Decision-making	197	(112)
Cost-volume--profit analysis	199	(30)
The economist's model	200	(2)
The accountant's cost--volume--profit model	202	(2)
A mathematical approach to cost-volume--profit analysis	204	(4)
Margin of safety	208	(1)
Constructing the break-even chart	208	(1)
Alternative presentation of cost--volume--profit analysis	208	(2)
Multi-product cost--volume--profit analysis	210	(3)
Cost--volume--profit analysis assumptions	213	(3)
Cost--volume--profit analysis and computer applications	216	(1)
Separation of semi-variable costs	216	(13)
Measuring relevant costs and revenues for decision-making	229	(28)
The meaning of relevance	230	(1)
Importance of qualitative factors	230	(1)
Special pricing decisions	231	(4)
Product-mix decisions when capacity constraints exist	235	(2)
Replacement of equipment -- the irrelevance of past costs	237	(2)
Outsourcing and make or buy decisions	239	(4)
Discontinuation decisions	243	(2)
Determining the relevant costs of direct materials	245	(1)
Determining the relevant costs of direct labour	245	(12)
Activity-based costing	257	(28)
The role of a cost accumulation system in generating relevant cost information for decision-making	258	(1)
Types of cost systems	259	(1)
A comparison of traditional and ABC systems	260	(2)
The emergence of ABC systems	262	(1)
Volume-based and non-volume-based cost drivers	262	(3)
An illustration of the two-stage process for an ABC system	265	(4)
Designing ABC systems	269	(3)
Activity hierarchies	272	(1)
Cost versus benefits considerations	273	(1)
Periodic review of an ABC data base	274	(1)
ABC in service organizations	274	(1)
ABC cost management applications	275	(10)
Capital investment decisions	285	(24)
The opportunity cost of an investment	286	(1)
Compounding and discounting	286	(2)
The concept of net present value	288	(2)
Calculating net present values	290	(1)
The internal rate of return	291	(3)
Relevant cash flows	294	(1)
Timing of cash flows	294	(1)
Techniques that ignore the time value of money	295	(1)
Payback method	295	(3)
Accounting rate of return	298	(1)
Qualitative factors	299	(2)
Appendix 12.1: Taxation and investment decisions	301	(8)
Part Four Information for Planning, Control and Performance Measurement	309	(106)
The budgeting process	311	(28)
Relationship between budgeting and long-term planning	312	(1)
The multiple functions of budgets	312	(2)
Conflicting roles of budgets	314	(1)
The budget period	314	(1)
Administration of the budgeting process	315	(1)
Stages in the budgeting process	316	(4)
A detailed illustration	320	(1)
Sales budget	320	(3)
Production budget and budgeted stock levels	323	(1)
Direct materials usage budget	324	(1)
Direct materials purchase budget	324	(1)
Direct labour budget	325	(1)
Factory overhead budget	325	(1)
Selling and administration budget	326	(1)
Departmental budgets	327	(1)
Master budget	327	(2)
Cash budgets	329	(1)
Final review	329	(1)
Computerized budgeting	330	(9)
Management control systems	339	(28)
Different types of controls	340	(3)
Cybernetic control systems	343	(1)
Feedback and feed-forward controls	343	(1)
Management accounting control systems	344	(1)
Responsibility centres	344	(2)
The nature of management accounting control systems	346	(1)
The controllability principle	347	(4)
Setting financial performance targets	351	(1)
Participation in the budgeting and target setting process	352	(2)
Non-financial performance measures	354	(1)
Activity-based cost management	355	(12)
Standard costing and variance analysis	367	(48)
Operation of a standard costing system	368	(3)
Establishing cost standards	371	(3)
Types of cost standards	374	(4)
Variance analysis	378	(1)
Material variances	378	(1)
Material price variances	379	(2)
Material usage variance	381	(1)
Total material variance	382	(1)
Labour variances	382	(1)
Wage rate variance	382	(1)
Labour efficiency variance	383	(1)
Total labour variance	384	(1)
Variable overhead variances	384	(1)
Variable overhead expenditure variance	384	(1)
Variable overhead efficiency variance	385	(1)
Similarities between materials, labour and overhead variances	386	(1)
Fixed overhead expenditure or spending variance	386	(1)
Sales variances	387	(1)
Total sales margin variance	387	(1)
Sales margin price variance	388	(1)
Sales margin volume variance	389	(1)
Reconciling budgeted profit and actual profit	389	(1)
Standard absorption costing	389	(2)
Volume variance	391	(1)
Volume efficiency variance	392	(1)
Volume capacity variance	393	(1)
Summary of fixed overhead variances	393	(1)
Reconciliation of budgeted and actual profit for a standard absorption costing system	393	(2)
Performance reports	395	(3)
Recording standard costs in the accounts	398	(17)
Questions	415	(126)
Bibliography	541	(4)
Appendices	545	(4)
Appendix A	546	(1)
Appendix B	547	(2)
Index	549