Additional Information
Book Details
Abstract
It has never been more important for businesses to operate within a framework of strategic planning and decision making. This popular introductory text teaches you how to make the best choices in managerial and other business roles.
This text is aimed at undergraduate students who wish to grasp key elements of management accounting and those seeking a foundation for further study.
New to this edition
· Expanded discussion of relevant costs for decision making
· Increased coverage of cost management in a competitive environment
· Increased coverage of inventories’ management techniques
· New chapter on managing risk
· More activities throughout the text to enhance reader interaction and to encourage critical thinking.
· More diagrams and real world examples to help illustrate issues and concepts
Table of Contents
Section Title | Page | Action | Price |
---|---|---|---|
Cover | Cover | ||
Inside Front Cover | IFC | ||
Title Page | iii | ||
Copyright Page | iv | ||
Brief Contents | v | ||
Contents | vii | ||
Preface | xvii | ||
How to use this book | xix | ||
Acknowledgements | xxi | ||
1 Introduction to management accounting | 1 | ||
Introduction | 1 | ||
Learning outcomes | 1 | ||
What is the purpose of a business? | 2 | ||
How are businesses organised? | 3 | ||
How are businesses managed? | 6 | ||
Establish mission, vision and objectives | 7 | ||
Undertake a position analysis | 9 | ||
Identify and assess the strategic options | 10 | ||
Select strategic options and formulate plans | 10 | ||
Perform, review and control | 11 | ||
The changing business landscape | 11 | ||
What is the financial objective of a business? | 12 | ||
Balancing risk and return | 14 | ||
What is management accounting? | 16 | ||
How useful is management-accounting information? | 17 | ||
Providing a service | 18 | ||
Further qualities | 19 | ||
Weighing up the costs and benefits | 20 | ||
Management accounting as an information system | 23 | ||
It’s just a phase | 24 | ||
What information do managers need? | 26 | ||
Reporting non-financial information | 27 | ||
Influencing managers’ behaviour | 28 | ||
Reaping the benefits of information technology | 29 | ||
From bean counter to team member | 30 | ||
Reasons to be ethical | 31 | ||
Management accounting and financial accounting | 33 | ||
Summary | 35 | ||
Key terms | 37 | ||
References | 38 | ||
Further reading | 38 | ||
Review questions | 38 | ||
Exercises | 38 | ||
2 Relevant costs and benefits for decision making | 40 | ||
Introduction | 40 | ||
Learning outcomes | 40 | ||
Cost–benefit analysis | 41 | ||
What is meant by ‘cost’? | 42 | ||
Relevant costs: opportunity and outlay costs | 43 | ||
Irrelevant costs: sunk costs and committed costs | 46 | ||
Sunk cost fallacy | 47 | ||
Determining the relevant cost of labour and materials | 48 | ||
Labour | 48 | ||
Materials | 50 | ||
Non-measurable costs and benefits | 54 | ||
Summary | 56 | ||
Key terms | 56 | ||
Further reading | 57 | ||
Review questions | 57 | ||
Exercises | 57 | ||
3 Cost–volume–profit analysis | 64 | ||
Introduction | 64 | ||
Learning outcomes | 64 | ||
Cost behaviour | 65 | ||
Fixed cost | 65 | ||
Variable cost | 67 | ||
Semi-fixed (semi-variable) cost | 68 | ||
Analysing semi-fixed (semi-variable) costs | 68 | ||
Finding the break-even point | 70 | ||
Contribution | 75 | ||
Contribution margin ratio | 76 | ||
Margin of safety | 76 | ||
Achieving a target profit | 78 | ||
Operating gearing and its effect on profit | 79 | ||
Profit–volume charts | 81 | ||
The economist’s view of the break-even chart | 82 | ||
The problem of breaking even | 83 | ||
Weaknesses of break-even analysis | 85 | ||
Using contribution to make decisions: marginal analysis | 87 | ||
Pricing/assessing opportunities to enter contracts | 88 | ||
The most efficient use of scarce resources | 91 | ||
Make-or-buy decisions | 93 | ||
Closing or continuation decisions | 95 | ||
Summary | 98 | ||
Key terms | 99 | ||
Further reading | 99 | ||
Review questions | 99 | ||
Exercises | 100 | ||
4 Full costing | 105 | ||
Introduction | 105 | ||
Learning outcomes | 105 | ||
What is full costing? | 106 | ||
Why do managers want to know the full cost? | 106 | ||
Single-product businesses | 108 | ||
Process-costing problems | 109 | ||
Multi-product businesses | 111 | ||
Direct and indirect cost | 111 | ||
Job costing | 113 | ||
Full costing and cost behaviour | 114 | ||
The problem of indirect cost | 115 | ||
Overheads as service renderers | 115 | ||
Job costing: a worked example | 116 | ||
Selecting a basis for charging overheads | 120 | ||
Segmenting the overheads | 123 | ||
Dealing with overheads on a cost centre basis | 123 | ||
Batch costing | 133 | ||
Non-manufacturing overheads | 135 | ||
Full (absorption) costing and estimation errors | 136 | ||
Full (absorption) costing and relevant costs | 137 | ||
Full (absorption) costing versus variable costing | 138 | ||
Which method is better? | 140 | ||
Summary | 142 | ||
Key terms | 144 | ||
Reference | 144 | ||
Further reading | 144 | ||
Review questions | 144 | ||
Exercises | 145 | ||
5 Costing and cost management in a competitive environment | 150 | ||
Introduction | 150 | ||
Learning outcomes | 150 | ||
Cost determination in the changed business environment | 151 | ||
Costing and pricing: the traditional way | 151 | ||
Costing and pricing: the new environment | 151 | ||
Cost management systems | 153 | ||
The problem of overheads | 153 | ||
Taking a closer look | 153 | ||
Activity-based costing | 154 | ||
Assigning overheads | 155 | ||
ABC and the traditional approach compared | 156 | ||
ABC and service industries | 157 | ||
Benefits and costs of ABC | 161 | ||
ABC in practice | 163 | ||
Managing costs over the product life cycle | 165 | ||
Total life-cycle costing | 165 | ||
Target costing | 168 | ||
Kaizen costing | 171 | ||
Other approaches to managing costs in the modern environment | 174 | ||
Value chain analysis | 174 | ||
Benchmarking | 176 | ||
Total quality management | 180 | ||
Managing quality costs | 182 | ||
An alternative view | 184 | ||
Summary | 187 | ||
Key terms | 188 | ||
Reference | 189 | ||
Further reading | 189 | ||
Review questions | 189 | ||
Exercises | 189 | ||
6 Budgeting | 193 | ||
Introduction | 193 | ||
Learning outcomes | 193 | ||
How budgets link with strategic plans and objectives | 194 | ||
Exercising control | 195 | ||
Time horizon of plans and budgets | 197 | ||
Budgets and forecasts | 198 | ||
Periodic and continual budgets | 198 | ||
Limiting factors | 199 | ||
How budgets link to one another | 199 | ||
How budgets help managers | 202 | ||
The budget-setting process | 204 | ||
Step 1: Establish who will take responsibility | 204 | ||
Step 2: Communicate budget guidelines to relevant managers | 205 | ||
Step 3: Identify the key, or limiting, factor | 205 | ||
Step 4: Prepare the budget for the area of the limiting factor | 205 | ||
Step 5: Prepare draft budgets for all other areas | 205 | ||
Step 6: Review and co-ordinate budgets | 206 | ||
Step 7: Prepare the master budgets | 206 | ||
Step 8: Communicate the budgets to all interested parties | 206 | ||
Step 9: Monitor performance relative to the budget | 206 | ||
Using budgets in practice | 208 | ||
Incremental and zero-base budgeting | 209 | ||
Preparing budgets | 212 | ||
The cash budget | 212 | ||
Preparing other budgets | 215 | ||
Activity-based budgeting | 218 | ||
Non-financial measures in budgeting | 220 | ||
Budgets and management behaviour | 221 | ||
Who needs budgets? | 221 | ||
Beyond conventional budgeting | 223 | ||
Long live budgets! | 225 | ||
Summary | 229 | ||
Key terms | 231 | ||
References | 231 | ||
Further reading | 231 | ||
Review questions | 231 | ||
Exercises | 232 | ||
7 Accounting for control | 239 | ||
Introduction | 239 | ||
Learning outcomes | 239 | ||
Budgeting for control | 240 | ||
Types of control | 241 | ||
Variances from budget | 243 | ||
Flexing the budget | 243 | ||
Sales volume variance | 244 | ||
Sales price variance | 247 | ||
Materials variances | 248 | ||
Labour variances | 249 | ||
Fixed overhead variance | 250 | ||
Reconciling the budgeted profit with the actual profit | 251 | ||
Reasons for adverse variances | 255 | ||
Variance analysis in service industries | 257 | ||
Non-operating-profit variances | 257 | ||
Investigating variances | 257 | ||
Variance analysis in practice | 260 | ||
Compensating variances | 260 | ||
Standard quantities and costs | 261 | ||
Setting standards | 262 | ||
Who sets the standards? | 262 | ||
How is information gathered? | 262 | ||
What kind of standards should be used? | 262 | ||
The learning-curve effect | 263 | ||
Other uses for standard costing | 264 | ||
Some problems . . . | 265 | ||
The new business environment | 267 | ||
Making budgetary control effective | 268 | ||
Behavioural issues | 269 | ||
The impact of management style | 270 | ||
Failing to meet the budget | 271 | ||
Budgets and innovation | 272 | ||
Summary | 273 | ||
Key terms | 275 | ||
Reference | 275 | ||
Further reading | 275 | ||
Review questions | 275 | ||
Exercises | 276 | ||
8 Making capital investment decisions | 280 | ||
Introduction | 280 | ||
Learning outcomes | 280 | ||
The nature of investment decisions | 281 | ||
Investment appraisal methods | 282 | ||
Accounting rate of return (ARR) | 284 | ||
ARR and ROCE | 285 | ||
Problems with ARR | 286 | ||
Payback period (PP) | 288 | ||
Problems with PP | 290 | ||
Net present value (NPV) | 292 | ||
Why does time matter? | 293 | ||
Interest lost | 293 | ||
Risk | 293 | ||
Inflation | 294 | ||
What should managers do? | 294 | ||
Dealing with the time value of money | 295 | ||
Calculating the net present value | 297 | ||
Using present value tables | 298 | ||
The discount rate and the cost of capital | 299 | ||
Why NPV is better | 300 | ||
NPV and economic value | 300 | ||
Internal rate of return (IRR) | 301 | ||
Problems with IRR | 305 | ||
Some practical points | 306 | ||
Investment appraisal in practice | 309 | ||
Investment appraisal and strategic planning | 312 | ||
Managing investment projects | 313 | ||
Stage 1: Determine investment funds available | 313 | ||
Stage 2: Identify profitable project opportunities | 314 | ||
Stage 3: Evaluate the proposed project | 314 | ||
Stage 4: Approve the project | 314 | ||
Stage 5: Monitor and control the project | 315 | ||
Summary | 319 | ||
Key terms | 320 | ||
Reference | 320 | ||
Further reading | 321 | ||
Review questions | 321 | ||
Exercises | 321 | ||
9 Managing risk | 328 | ||
Introduction | 328 | ||
Learning outcomes | 328 | ||
Dealing with risk | 329 | ||
Assessing the level of risk | 329 | ||
Sensitivity analysis | 329 | ||
Scenario analysis | 334 | ||
Expected values | 336 | ||
Reacting to the level of risk | 342 | ||
Risk management in practice | 343 | ||
Summary | 345 | ||
Key terms | 346 | ||
Further reading | 346 | ||
Review questions | 346 | ||
Exercises | 346 | ||
10 Strategic management accounting: performance evaluation and pricing in a competitive environment | 352 | ||
Introduction | 352 | ||
Learning outcomes | 352 | ||
What is strategic management accounting? | 353 | ||
Facing outwards | 354 | ||
Competitor analysis | 354 | ||
Customer profitability analysis | 358 | ||
Competitive advantage through cost leadership | 362 | ||
Non-financial measures of performance | 364 | ||
The balanced scorecard | 366 | ||
Scorecard problems | 371 | ||
Measuring shareholder value | 372 | ||
The quest for shareholder value | 372 | ||
How can shareholder value be created? | 373 | ||
The need for new measures | 374 | ||
Economic value added (EVA®) | 375 | ||
Shareholder value-based management in practice | 381 | ||
Just another fad? | 381 | ||
Pricing | 382 | ||
Economic theory | 382 | ||
Some practical considerations | 390 | ||
Full cost (cost-plus) pricing | 391 | ||
Pricing on the basis of marginal cost | 393 | ||
Target pricing | 395 | ||
Pricing strategies | 396 | ||
Summary | 399 | ||
Key terms | 401 | ||
References | 401 | ||
Further reading | 401 | ||
Review questions | 401 | ||
Exercises | 402 | ||
11 Measuring divisional performance | 407 | ||
Introduction | 407 | ||
Learning outcomes | 407 | ||
Divisionalisation | 408 | ||
Why do businesses divisionalise? | 408 | ||
Devolving decisions | 408 | ||
Divisional structures | 410 | ||
Is divisionalisation a good idea? | 410 | ||
Measuring divisional profit | 415 | ||
Contribution | 415 | ||
Controllable profit | 416 | ||
Divisional profit before common expenses | 416 | ||
Divisional profit for the period | 417 | ||
Divisional performance measures | 418 | ||
Return on investment (ROI) | 418 | ||
Residual income (RI) | 422 | ||
Looking to the longer term | 423 | ||
Comparing performance | 425 | ||
EVA® revisited | 426 | ||
Transfer pricing | 427 | ||
The objectives of transfer pricing | 428 | ||
Transfer pricing and tax mitigation | 430 | ||
Transfer pricing policies | 432 | ||
Market prices | 432 | ||
Variable cost | 434 | ||
Full cost | 434 | ||
Negotiated prices | 435 | ||
Divisions with mixed sales | 436 | ||
Differential transfer prices | 438 | ||
Transfer pricing and service industries | 439 | ||
Non-financial measures of performance | 439 | ||
What is measured? | 440 | ||
Choosing non-financial measures | 443 | ||
Who should report? | 443 | ||
Summary | 445 | ||
Key terms | 447 | ||
Further reading | 447 | ||
Review questions | 448 | ||
Exercises | 448 | ||
12 Managing working capital | 453 | ||
Introduction | 453 | ||
Learning outcomes | 453 | ||
What is working capital? | 454 | ||
Managing working capital | 455 | ||
The scale of working capital | 455 | ||
Managing inventories | 458 | ||
Budgeting future demand | 460 | ||
Financial ratios | 460 | ||
Recording and reordering systems | 461 | ||
Levels of control | 462 | ||
Inventories management models | 464 | ||
Managing trade receivables | 471 | ||
Which customers should receive credit and how much should they be offered? | 471 | ||
Length of credit period | 473 | ||
An alternative approach to evaluating the credit decision | 476 | ||
Cash discounts | 476 | ||
Debt factoring and invoice discounting | 477 | ||
Credit insurance | 477 | ||
Collection policies | 477 | ||
Reducing the risk of non-payment | 481 | ||
Managing cash | 482 | ||
Why hold cash? | 482 | ||
How much cash should be held? | 482 | ||
Controlling the cash balance | 483 | ||
Cash budgets and managing cash | 484 | ||
Operating cash cycle | 485 | ||
Cash transmission | 489 | ||
Bank overdrafts | 490 | ||
Managing trade payables | 490 | ||
Taking advantage of cash discounts | 491 | ||
Controlling trade payables | 492 | ||
Managing working capital | 492 | ||
Summary | 495 | ||
Key terms | 498 | ||
Further reading | 498 | ||
Review questions | 498 | ||
Exercises | 499 | ||
Appendix A Glossary of key terms | 505 | ||
Appendix B Solutions to self-assessment questions | 514 | ||
Appendix C Solutions to review questions | 526 | ||
Appendix D Solutions to selected exercises | 535 | ||
Appendix E Present value table | 575 | ||
Index | 577 | ||
A | 577 | ||
B | 577 | ||
C | 579 | ||
D | 581 | ||
E | 582 | ||
F | 582 | ||
G | 583 | ||
H | 583 | ||
I | 583 | ||
J | 583 | ||
K | 584 | ||
L | 584 | ||
M | 584 | ||
N | 585 | ||
O | 585 | ||
P | 586 | ||
Q | 586 | ||
R | 587 | ||
S | 587 | ||
T | 588 | ||
U | 589 | ||
V | 589 | ||
W | 589 | ||
X | 589 | ||
Y | 589 | ||
Z | 589 | ||
Back Cover | Back Cover |