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Management Accounting for Decision Makers 9th edition

Management Accounting for Decision Makers 9th edition

Peter Atrill | Eddie McLaney

(2018)

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
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