Management Accounting Demystified

by Berry, Leonard Eugene

• ISBN13: 9780071459617
• ISBN10: 0071459618
• Edition: 1st
• Format: Paperback
• Copyright: 2005-12-14
• Publisher: INGRAM

Summary

This hands-on self-teaching guide covers the fundamentals of management accounting as they apply to both for-profit companies and non-profits.

Author Biography

Leonard Eugene Berry, Ph.D., C.I.A., is Professor Emeritus and Director Emeritus in the School of Accountancy at Georgia State University. He is also a retired C.P.A.

Table of Contents

Introduction	xix
What Is Management Accounting?	1	(8)
Information for Decision Making	1	(3)
Strategic Analysis Information	2	(1)
Planning Information	2	(1)
Organizing and Directing Information	3	(1)
Performance Evaluation Information	3	(1)
The Key Accounting and Finance Players in a Large Business	4	(1)
Changing Roles of the Controller and Management Accountant	5	(1)
The Profession of Accounting	6	(1)
Management Accounting Compared to Financial Accounting	6	(1)
Summary	7	(2)
Basic Cost Terms and Concepts	9	(28)
Cost as an Asset or Expense	10	(3)
Costs That Become Assets	10	(1)
Costs That Become Expenses	11	(1)
Identification of Costs and Expenses in Three Types of Businesses	11	(2)
Tracing Costs to Cost Objects	13	(3)
Cost Objects	13	(1)
Direct Costs	13	(1)
Indirect Costs	14	(2)
Costs Based on Cost Behavior	16	(3)
Total Variable Costs	16	(1)
Relevant Range	17	(1)
Total Fixed Costs	17	(1)
Mixed Variable Costs	18	(1)
Stepped Fixed Costs	18	(1)
Unit vs. Total Costs	18	(1)
Cost Definitions for Decision Making	19	(1)
Summary of Cost Definitions	20	(2)
Cost Flows in a Manufacturing Business	22	(2)
Preparation of Financial Statements	24	(2)
The Balance Sheet	24	(1)
The Income Statement	24	(2)
Summary	26	(1)
Practice Problems	27	(5)
Solutions to Practice Problems	32	(5)
Job Order Cost Systems	37	(30)
Factors in Designing a Cost System	37	(2)
Job Order Cost System	38	(1)
The Accounting Components of a Job Order Costing System	39	(5)
Source Documents Used in the System	39	(2)
The General Ledger and Subsidiary Ledgers	41	(3)
The Major Steps in Designing a Job Order Cost System	44	(4)
Disposition of Overallocated or Underallocated Overhead	48	(11)
Summary	59	(1)
Practice Problems	60	(3)
Solutions to Practice Problems	63	(4)
Cost Allocation Systems	67	(22)
Why Allocate Indirect Costs?	68	(1)
Nature of Cost Allocation	69	(1)
Issues to Address in Cost Allocation	70	(3)
An Overview of Cost Flows in a Manufacturing Cost Allocation System	73	(1)
Methods of Allocating Support Department Costs	74	(5)
Direct Method	74	(3)
Step-Down Method	77	(2)
Other Methods for Allocating Support Department Overhead	79	(1)
Summary	79	(1)
Practice Problems	80	(5)
Solutions to Practice Problems	85	(4)
Process Cost Systems	89	(26)
Process Costing and Job Order Costing Compared	89	(1)
A Description of Process Costing	90	(2)
Concept of Equivalent Units	92	(1)
An Overview of the Major Steps in a Process Cost System	93	(1)
A Visual Look at Computing Unit Costs Under the Weighted Average Method and the FIFO Method	93	(8)
Weighted Average Method	93	(2)
FIFO Method	95	(1)
Assigning Costs Using the Weighted Average Method	95	(3)
Assigning Costs Using the FIFO Method	98	(3)
Costs Transferred in from Other Departments	101	(6)
Transferred-In Costs Using the Weighted Average Method	101	(3)
Transferred-In Costs Using the FIFO Method	104	(3)
Summary	107	(1)
Practice Problems	108	(3)
Solutions to Practice Problems	111	(4)
Activity-Based Management Systems	115	(26)
Activity-Based Management Systems	116	(2)
ABC as a Management System	116	(1)
ABC in Product Costing	117	(1)
An Overview of the Flow of Costs in an ABM System	118	(13)
Summary	131	(1)
Practice Problems	131	(6)
Solutions to Practice Problems	137	(4)
Costs for Decision Making: Cost Estimation and Cost-Volume-Profit Analysis	141	(32)
Why Cost Behavior and Cost Estimation Is So Important	142	(1)
Review of Cost Behavioral Terms	142	(2)
The Basic Linear Cost Function	144	(2)
Assumptions Underlying the Linear Cost Model	145	(1)
Methods for Estimating Variable and Fixed Costs	146	(6)
The Account Analysis Method	146	(2)
Industrial Engineering Method	148	(1)
Scatter Diagram Method	148	(2)
The High-Low Method	150	(1)
Regression Analysis	151	(1)
Putting It All Together---The Steps in Developing a Cost Estimation or Prediction Formula	152	(2)
Cost-Volume-Profit Analysis (CVP) and Its Uses	154	(1)
The CVP Model	155	(1)
Total Costs vs. Unit Costs	156	(1)
Contribution Margin Approach in CVP Analysis	157	(4)
The Formula Approach in CVP Analysis	161	(3)
Shortcut Approaches to CVP Analysis	164	(1)
CVP Analysis and the Multiproduct Firm	165	(1)
Summary	166	(1)
Practice Problems	167	(3)
Solutions to Practice Problems	170	(3)
Costs for Decision Making: Relevant Costing and Capital Expenditure Analysis	173	(26)
Decision Making Model	174	(3)
Important Accounting Concepts for Decision Making	177	(1)
Hazards in Using Relevant Costing	178	(1)
Problem: Should a Product, Service, or Business Segment Be Dropped?	178	(2)
Problem: How to Make Capital Investment Decisions	180	(5)
The Payback Method of Evaluating Capital Investment Projects	181	(1)
The Discounted Cash Flow (DCF) Method of Evaluating Capital Investment Projects	182	(3)
Problem: Should a Product or Service Be Produced Internally or Outsourced?	185	(2)
Problem: Which Product Mix Provides the Greater Profitability?	187	(2)
Summary	189	(1)
Appendix: Computing Present Value of a Lump Sum of Money	190	(2)
The Present Value of Money	190	(1)
Computing the Present Value of Money	190	(2)
Practice Problems	192	(3)
Solutions to Practice Problems	195	(4)
Costs for Decision Making: Setting Prices	199	(18)
Economics of Pricing	199	(1)
Short-Term Pricing Decisions	200	(2)
Long-Term Pricing Decisions	202	(2)
Cost-Plus Pricing	202	(2)
Contribution Margin Approach to Pricing	204	(2)
Target Costing	206	(5)
The Basic Concepts of Target Costing	206	(1)
Steps in Computing the Target Cost	207	(4)
Summary	211	(1)
Practice Problems	212	(3)
Solutions to Practice Problems	215	(2)
Profit Planning Using Master Budgets	217	(28)
Purposes and Benefits of Profit Planning	217	(1)
The Behavioral Aspects of Profit Planning and Budgeting	218	(2)
Budgeting Obstacles	220	(1)
The Master Budget Framework	221	(1)
Steps in Preparing the Master Budget	221	(19)
Budget Gap	240	(1)
Activity-Based Budgeting	240	(1)
Summary	240	(1)
Practice Problems	241	(3)
Solutions to Practice Problems	244	(1)
Planning and Performance Evaluation: Using Flexible Budgets	245	(18)
Flexible Budgets for Planning	246	(2)
Flexible Budgets for Activities and Planning of Overhead Costs	248	(2)
General Model for Evaluating Financial Performance	250	(2)
Flexible Budgets for Control	252	(1)
Flexible Budgeting in Action	252	(2)
Illustration of Flexible Budget for Control at the Senior Management Level	252	(2)
Determining the Cause of Flexible Budget Variances	254	(1)
Activity-Based Flexible Budgeting and Variance Analysis	254	(2)
Summary	256	(1)
Practice Problems	257	(3)
Solutions to Practice Problems	260	(3)
Performance Evaluation: Standard Costing and Variances Analysis	263	(28)
What Is a Standard?	264	(1)
Ideal Standards	264	(1)
Practical Standards	264	(1)
Advantages of Standard Costing	265	(1)
Criticisms of Standard Costing	265	(1)
Standard Costing in Performance Evaluation	266	(1)
Who Is Responsible for Setting Standards?	267	(1)
Purchasing	267	(1)
Industrial Engineering	267	(1)
Human Resources	267	(1)
Management Accountant	268	(1)
Using Standard Costing in Material and Labor Cost Variance Analysis	268	(3)
Causes of Direct Material and Direct Labor Variances	271	(1)
Variable Manufacturing Overhead Variances	272	(3)
Explanation and Causes of Variable Manufacturing Overhead Variances	275	(1)
Fixed Manufacturing Overhead Variances	276	(2)
Explanation and Causes of Fixed Manufacturing Overhead Variances	278	(1)
Different Approaches for Analyzing Manufacturing	279	(2)
Cost Variances in the General Ledger	281	(3)
Disposition of Cost Variances	284	(1)
Summary	285	(1)
Practice Problems	286	(3)
Solutions to Practice Problems	289	(2)
Performance Evaluation: Sales Variances and the Balanced Scorecard	291	(30)
Sales Variances	292	(4)
Total Sales Budget Variance	294	(1)
Sales Price Variance	295	(1)
Sales Volume Variance	296	(4)
Sales Mix Variance	296	(1)
Sales Quantity Variance	297	(1)
Sales Market Share Variance	298	(1)
Sales Market Size Variance	299	(1)
Evaluating the Success of a Strategic Initiative	300	(1)
Balancing Financial and Nonfinancial Success Factors	301	(1)
Some Guidelines for Adopting the Balanced Scorecard	302	(1)
Measuring the Key Success Areas	303	(8)
Vision and Strategy	304	(1)
Learning and Innovation	304	(1)
Learning and Innovation Measures of Performance	305	(1)
Internal Business Processes	305	(1)
Internal Business Process Performance Measures	306	(2)
Customer Focus	308	(1)
Customer Performance Measures	308	(2)
Financial Performance	310	(1)
Financial Performance Measures	310	(1)
Six Sigma and the Balanced Scorecard	311	(1)
Six Sigma in Action	311	(1)
Performance Dashboard	312	(1)
Benchmarking	312	(1)
Summary	313	(1)
Practice Problems	314	(3)
Solutions to Practice Problems	317	(4)
Performance Evaluation in Decentralized Companies	321	(30)
Nature of Decentralization	322	(1)
Advantages of Decentralization	322	(1)
Disadvantages of Decentralization	323	(1)
Responsibility Accounting System	324	(5)
The Issue of Controllability	324	(1)
Managerial Evaluation Compared to Segment Evaluation	325	(1)
Responsibility Centers	325	(4)
Measuring Investment Center (Divisional) Performance	329	(5)
Return on Investment (ROI)	329	(1)
Residual Income (RI)	330	(2)
Economic Value Added (EVA)	332	(2)
Measuring Income and the Investment Base	334	(3)
How Is Income Measured?	334	(1)
What Is Included in the Investment Base?	335	(1)
How Is the Investment Base Valued?	336	(1)
Activity-Based Costing and Responsibility Accounting	337	(1)
Transfer Pricing	337	(5)
Transfer Pricing When There Is No External Market	337	(1)
Transfer Pricing When There Is an External Market	338	(1)
Transfer Pricing When the Producing Division Has Excess Capacity	338	(2)
Transfer Pricing When the Producing Division Can Use Idle Facilities for Other Purposes	340	(1)
Transfer Pricing When Producing Division Has No Excess Capacity	341	(1)
Transfer Pricing in a Multinational Environment	342	(1)
A Synthesis of Performance Evaluation Methodologies	342	(1)
Summary	343	(2)
Practice Problems	345	(3)
Solutions to Practice Problems	348	(3)
Final Exam	351	(30)
Glossary	381	(18)
Index	399