Contents
Preface
INTRODUCTION
vii
TO
MANAGEMENT ACCOUNTING:
A USER PERSPECTIVE
CHAPTER
1
Management Accounting: Its Environment
and Future
1
What Is Management Accounting? 2
Where Accounting Fits in a Company 5
The Origin and Evolution of Management Accounting 6
Challenges and Trends in Management Accounting 11
Consumers of Management Accounting Information 13
Summary 14
Key Terms 14
Review the Facts 14
Apply What You Have Learned 15
CHAPTER
2
Classifying Costs
Major Cost Classifications 19
Product Cost Identification for Merchandising Firms 22
Product Cost Identification for Manufacturing Firms 24
Product Cost Identification for Service Firms 35
Hybrid Firms 38
Merchandising, Manufacturing, and Service Firms—A Comparison
Summary 41
Appendix—Recording Basic Manufacturing Costs 41
Appendix Summary 44
Key Terms 45
Review the Facts 45
Apply What You Have Learned 46
17
38
CHAPTER
3
Determining Costs of Products
67
Accumulating Product Cost—Cost Accounting 68
Units of Product as Cost Objects 68
Traditional Manufacturing Overhead Allocation 69
Manufacturing Overhead Allocation Using Activity-Based Costing 71
Product Costing Methods 74
Job Order Costing 76
Process Costing 90
Summary 93
Appendix—Recording Manufacturing Costs and the Allocation of
Manufacturing Overhead 94
Appendix Summary 97
Key Terms 97
Review the Facts 98
Apply What You Have Learned 98
CHAPTER
4
Cost Behaviour
Common Cost Behaviour Patterns 119
Relevant Range 123
Mixed Costs 125
Identifying the Fixed and Variable Elements of a Mixed Cost
Summary 136
Key Terms 137
Review the Facts 137
Apply What You Have Learned 138
CHAPTER
5
118
126
Business Decisions Using Cost Behavior
150
The Contribution Income Statement 152
Cost-Volume-Profit Analysis 155
Summary 169
Key Terms 169
Review the Facts 170
Apply What You Have Learned 170
CHAPTER
6
Making Decisions Using Relevant Information
Relevant Costs 186
Equipment Replacement 188
Special Orders 192
Outsourcing: The Make-or-Buy Decision 194
Summary 199
Key Terms 199
Review the Facts 200
Apply What You Have Learned 200
iv
Contents
185
CHAPTER
7
The Capital Budget: Evaluating Capital
Expenditures
The Business Planning Process 219
The Capital Budget: What Is It? 223
The Cost of Capital and the Concept of Scarce Resources
Evaluating Potential Capital Projects 229
Capital Budgeting Decision Methods 231
Factors Leading to Poor Capital Project Selection 240
Summary 242
Appendix: The Time Value of Money 242
Key Terms 249
Review the Facts 250
Apply What You Have Learned 250
CHAPTER
8
218
225
The Operating Budget
268
Part One: An Overview of the Operating Budget 270
Benefits of Budgeting 270
Contents of the Operating Budget 273
Different Approaches to Budgeting 278
The Sales Forecast 282
Part Two: Preparing and Using the Operating Budget 284
Using (and Misusing) the Operating Budget 301
Summary 306
Key Terms 307
Review the Facts 307
Apply What You Have Learned 308
CHAPTER
9
Standard Costing
330
Why Is Standard Costing Used? 331
Standards—A Closer Look 332
Basic Standard Costing for a Manufacturer 337
Setting Direct Material Standards 338
Setting Direct Labour Standards 340
Setting Variable Manufacturing Overhead Standards 341
Setting Fixed Manufacturing Overhead Standards 342
Variance Analysis 343
Using Standard Cost Variances to Manage by Exception 357
Summary 357
Appendix—Recording Product Cost Using Standard Costing 357
Appendix Summary 363
Key Terms 364
Review the Facts 365
Apply What You Have Learned 365
Contents
v
CHAPTER
10
Evaluating Performance
Business Segments 385
The Segment Income Statement 386
The Pitfall of Allocating Common Fixed Costs—A Closer Look
Service Department Cost Allocation 391
Activity-Based Service Department Cost Allocation 392
Approaches to Segment Management 394
Evaluation of Business Segments 395
Return on Investment 398
Residual Income 401
Transfer Pricing 403
Nonfinancial Performance Measures 405
Just-in-Time Philosophy 409
Summary 411
Key Terms 412
Review the Facts 412
Apply What You Have Learned 413
GLOSSARY
INDEX
vi
Contents
OF
ACCOUNTING TERMS
384
389
424
431