Management Accounting For Business

by Drury, Colin

• ISBN13: 9781844801527
• ISBN10: 1844801527
• Edition: 3rd
• Format: Paperback
• Copyright: 2009-08-10
• Publisher: CENGAGE Lrng Business Press

Summary

"Management Accounting for Business is the ideal introductory text for students studying management accounting on a modular one or two-semester undergraduate degree course, or as part of an MBA course."--BOOK JACKET.

Author Biography

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

Table of Contents

Preface and walk-through tour	xv
PART 1 Introduction to Management and Cost Accounting	2	(44)
Introduction to management accounting	5	(22)
The users of accounting information	6	(1)
Differences between management accounting and financial accounting	7	(1)
The decision-making process	8	(4)
Changing competitive environment	12	(1)
Changing product life cycles	13	(1)
Focus on customer satisfaction and new management approaches	13	(3)
The impact of information technology	16	(2)
International convergence of management accounting practices	18	(1)
Functions of management accounting	18	(2)
A brief historical review of management accounting	20	(1)
Summary of the contents of this book	21	(1)
Guidelines for using this book	22	(1)
Summary	22	(2)
Note	24	(1)
Key terms and concepts	24	(1)
Assessment material	25	(2)
An introduction to cost terms and concepts	27	(19)
Cost objects	28	(1)
Direct and indirect costs	28	(2)
Period and product costs	30	(1)
Cost behaviour	30	(5)
Relevant and irrelevant costs and revenues	35	(1)
Avoidable and unavoidable costs	36	(1)
Sunk costs	36	(1)
Opportunity costs	36	(1)
Incremental and marginal costs	37	(1)
Job costing and process costing systems	37	(1)
Maintaining a cost database	38	(1)
Summary	39	(1)
Key terms and concepts	40	(1)
Assessment material	41	(5)
PART 2 Information for Decision-making	46	(214)
Cost-volume-profit analysis	49	(30)
The economist's model	50	(3)
The accountant's cost--volume--profit model	53	(2)
Application to longer-term horizons	55	(1)
A mathematical approach to cost-volume-profit analysis	55	(5)
Margin of safety	60	(1)
Constructing the break-even chart	60	(2)
Alternative presentation of cost-volume-profit analysis	62	(1)
Multi-product cost-volume-profit analysis	63	(3)
Cost-volume-profit analysis assumptions	66	(2)
Cost-volume-profit analysis and computer applications	68	(1)
Separation of semi-variable costs	68	(1)
Summary	69	(1)
Key terms and concepts	70	(1)
Assessment material	71	(8)
Measuring relevant costs and revenues for decision-making	79	(32)
The meaning of relevance	80	(1)
Importance of qualitative factors	81	(1)
Special pricing decisions	81	(5)
Product-mix decisions when capacity constraints exist	86	(3)
Replacement of equipment -- the irrelevance of past costs	89	(1)
Outsourcing and make or buy decisions	90	(4)
Discontinuation decisions	94	(2)
Determining the relevant costs of direct materials	96	(1)
Determining the relevant costs of direct labour	97	(1)
Summary	98	(1)
Key terms and concepts	99	(2)
Assessment material	101	(10)
Cost assignment	111	(30)
Assignment of direct and indirect costs	112	(1)
Different costs for different purposes	113	(1)
Cost-benefit issues and cost systems design	114	(1)
Assigning direct costs to cost objects	115	(1)
Plant-wide (blanket) overhead rates	116	(1)
The two-stage allocation process	117	(1)
An illustration of the two-stage process for a traditional costing system	118	(8)
Extracting relevant costs for decision-making	126	(1)
Budgeted overhead rate	126	(1)
Under- and over-recovery of overheads	127	(1)
Maintaining the database at standard costs	128	(1)
Non-manufacturing overheads	129	(1)
Summary	130	(2)
Key terms and concepts	132	(1)
Assessment material	133	(8)
Activity-based costing	141	(34)
The need for a cost accumulation system in generating relevant cost information for decision-making	142	(2)
Types of cost systems	144	(1)
A comparison of traditional and ABC systems	144	(2)
The emergence of ABC systems	146	(1)
Volume-based and non-volume-based cost drivers	146	(3)
An illustration of the two-stage process for an ABC system	149	(3)
Designing ABC systems	152	(3)
Activity hierarchies	155	(1)
Activity-based costing profitability analysis	156	(1)
Resource consumption models	157	(3)
Cost versus benefit considerations	160	(1)
Periodic review of an ABC data base	161	(1)
ABC in service organizations	162	(2)
ABC cost management applications	164	(1)
Summary	165	(3)
Key terms and concepts	168	(1)
Assessment material	169	(6)
Pricing decisions and profitability analysis	175	(32)
Economic theory	176	(4)
Difficulties with applying economic theory	180	(1)
The role of cost information in pricing decisions	180	(1)
A price setting firm facing short-run pricing decisions	181	(1)
A price setting firm facing long-run pricing decisions	182	(5)
A price taker firm facing short-term product-mix decisions	187	(1)
A price taker firm facing long-term product-mix decisions	188	(2)
Cost-plus pricing	190	(4)
Pricing policies	194	(1)
Customer profitability analysis	194	(3)
Summary	197	(2)
Note	199	(1)
Key terms and concepts	199	(2)
Assessment material	201	(6)
Decision-making under conditions of risk and uncertainty	207	(22)
Risk and uncertainty	208	(1)
Probabilities	208	(1)
Probability distributions and expected value	209	(2)
Measuring the amount of uncertainty	211	(3)
Attitudes to risk by individuals	214	(1)
Decision-tree analysis	215	(2)
Buying perfect and imperfect information	217	(1)
Maximin, maximax and regret criteria	217	(2)
Portfolio analysis	219	(1)
Summary	220	(1)
Key terms and concepts	221	(2)
Assessment material	223	(6)
Capital investment decisions	229	(31)
The opportunity cost of an investment	230	(1)
Compounding and discounting	231	(2)
The concept of net present value	233	(1)
Calculating net present values	233	(2)
The internal rate of return	235	(3)
Relevant cash flows	238	(1)
Timing of cash flows	239	(1)
Comparison of net present value and internal rate of return	239	(2)
Techniques that ignore the time value of money	241	(1)
Payback method	241	(2)
Accounting rate of return	243	(3)
The effect of performance measurement on capital investment decisions	246	(1)
Qualitative factors	247	(1)
Taxation and investment decisions	248	(2)
Weighted average cost of capital	250	(1)
Summary	251	(2)
Notes	253	(1)
Key terms and concepts	253	(2)
Assessment material	255	(5)
PART 3 Information for Planning, Control and Performance Measurement	260	(166)
The budgeting process	263	(38)
Stages in the planning process	264	(3)
The multiple functions of budgets	267	(2)
Conflicting roles of budgets	269	(1)
The budget period	269	(1)
Administration of the budgeting process	270	(1)
Stages in the budgeting process	271	(3)
A detailed illustration	274	(3)
Sales budget	277	(1)
Production budget and budgeted stock levels	278	(1)
Direct materials usage budget	279	(1)
Direct materials purchase budget	279	(1)
Direct labour budget	280	(1)
Factory overhead budget	280	(1)
Selling and administration budget	281	(1)
Departmental budgets	281	(1)
Master budget	282	(1)
Cash budget	283	(1)
Final review	284	(1)
Computerized budgeting	284	(1)
Activity-based budgeting	285	(4)
Zero-based budgeting	289	(1)
Summary	290	(2)
Note	292	(1)
Key terms and concepts	292	(1)
Assessment material	293	(8)
Management control systems	301	(38)
Control at different organizational levels	302	(1)
Different types of controls	302	(4)
Cybernetic control systems	306	(1)
Feedback and feed-forward controls	307	(1)
Harmful side-effects of controls	308	(1)
Advantages and disadvantages of different types of controls	309	(1)
Management accounting control systems	310	(1)
Responsibility centres	310	(2)
The nature of management accounting control systems	312	(1)
The controllability principle	313	(5)
Setting financial performance targets	318	(3)
Participation in the budgeting and target setting process	321	(2)
Side-effects arising from using accounting information for performance evaluation	323	(2)
Summary	325	(2)
Notes	327	(1)
Key terms and concepts	328	(1)
Assessment material	329	(10)
Standard costing and variance analysis	339	(34)
Operation of a standard costing system	340	(3)
Establishing cost standards	343	(3)
Types of cost standards	346	(2)
Variance analysis	348	(1)
Material variances	349	(1)
Material price variances	349	(3)
Material usage variance	352	(1)
Total material variance	353	(1)
Labour variances	354	(1)
Wage rate variance	354	(1)
Labour efficiency variance	354	(1)
Total labour variance	355	(1)
Variable overhead variances	355	(2)
Variable overhead expenditure variance	357	(1)
Variable overhead efficiency variance	357	(1)
Similarities between materials, labour and overhead variances	358	(1)
Fixed overhead expenditure or spending variance	358	(1)
Sales variances	359	(1)
Total sales margin variance	359	(1)
Sales margin price variance	360	(1)
Sales margin volume variance	361	(1)
Difficulties in interpreting sales margin variances	361	(1)
Reconciling budgeted profit and actual profit	361	(2)
Performance reports	363	(1)
Summary	364	(1)
Key terms and concepts	365	(2)
Assessment material	367	(6)
Divisional financial performance measures	373	(24)
Functional and divisionalized organizational structures	374	(2)
Profit centres and investment centres	376	(1)
Advantages of divisionalization	376	(1)
Disadvantages of divisionalization	377	(1)
Prerequisites for successful divisionalization	377	(1)
Distinguishing between the managerial and economic performance of the division	377	(1)
Alternative divisional profit measures	378	(3)
Return on investment	381	(1)
Residual income	382	(1)
Economic value added (EVA™)	383	(1)
Determining which assets should be included in the investment base	384	(1)
The impact of depreciation	384	(2)
Addressing the dysfunctional consequences of short-term financial performance measures	386	(2)
Summary	388	(1)
Key terms and concepts	389	(2)
Assessment material	391	(6)
Transfer pricing in divisionalized companies	397	(29)
Purposes of transfer pricing	398	(1)
Alternative transfer pricing methods	399	(1)
Market-based transfer prices	400	(4)
Marginal cost transfer prices	404	(1)
Full cost transfer prices	405	(1)
Cost-plus a mark-up transfer prices	406	(1)
Negotiated transfer prices	406	(1)
Marginal cost plus opportunity cost	407	(1)
An illustration of transfer pricing	408	(3)
Proposals for resolving transfer pricing conflicts	411	(2)
International transfer pricing	413	(2)
Summary	415	(3)
Key terms and concepts	418	(1)
Assessment material	419	(7)
PART 4 Cost Management and Strategic Management Accounting	426	(65)
Cost management	429	(32)
Life-cycle costing	430	(1)
Target costing	431	(5)
Kaizen costing	436	(1)
Activity-based management	436	(4)
Business process re-engineering	440	(2)
Cost of quality	442	(2)
Cost management and the value chain	444	(2)
Benchmarking	446	(1)
Environmental cost management	446	(2)
Just in time systems	448	(3)
Summary	451	(2)
Key terms and concepts	453	(2)
Assessment material	455	(6)
Strategic management accounting	461	(30)
What is strategic management accounting?	462	(4)
Surveys of strategic management accounting practices	466	(2)
The balanced scorecard	468	(3)
The balanced scorecard as a strategic management system	471	(1)
Benefits and limitations of the balanced scorecard approach	472	(1)
Establishing objectives and performance measures	473	(1)
The financial perspective	473	(1)
The customer perspective	473	(3)
The internal business perspective	476	(3)
The learning and growth perspective	479	(1)
Performance measurement in service organizations	480	(3)
Summary	483	(1)
Note	484	(1)
Key terms and concepts	484	(1)
Assessment material	485	(6)
Case studies available from the website	491	(4)
Bibliography	495	(4)
Appendices	499	(6)
Appendix A: Present value of £1	500	(2)
Appendix B: Present value of £1 received annually for n years	502	(3)
Answers to Review problems	505	(38)
Index	543