Controllership: The Work of the Managerial Accountant, Eighth Edition

812 Pages·2009·7.92 MB·English

by  Steven M. Bragg(auth.)

Controllership
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Controllership
The Work of the
Managerial Accountant
Eighth Edition
STEVEN M. BRAGG
JohnWiley&Sons,Inc.
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LibraryofCongressCataloging-in-PublicationData:
Controllership,theworkofthemanagerialaccountant/StevenM.Bragg.–8thed./
StevenM.Bragg.
p.cm.
Includesindex.
Rev.ed.of:Controllership,theworkofthemanagerialaccountant/
JamesD.Willson.6thed.1999.
ISBN978-0-470-48198-1(cloth)
1.Managerialaccounting. I.Bragg,StevenM. II.Willson,JamesD.Controllership,
theworkofthemanagerialaccountant.
HG4026.H432009
658.15(cid:3)11–dc22
2009010887
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
Contents
AbouttheAuthor xvii
Preface xix
PART I THE BROAD MANAGEMENT ASPECTS OF CONTROLLERSHIP 1
CHAPTER1 Accounting in the Corporation 3
Tasks of the Accounting Function 3
Role of the Accounting Function 5
Role of the Controller 6
Impact of Ethics on the Accounting Role 7
Evolving Role of Accounting 10
CHAPTER2 Controller’s Responsibilities 13
Variations on the Title 13
Planning Function 14
Control Function 15
Reporting Function 15
Accounting Function 16
Additional Controller Functions in Smaller Companies 17
Controller’s Job Description 19
Relationship of the Controller to the Chief Financial Officer 21
CHAPTER3 Cost Accounting and Costing Systems 23
Purpose of Cost Accounting Information 23
Input: Data Collection Systems 24
Processing: Data Summarization Systems 27
Processing: Job Costing 29
Processing: Process Costing 34
Processing: Standard Costing 38
Processing: Direct Costing 40
Processing: Throughput Costing 43
v
vi Contents
Processing: Activity-Based Costing 48
Processing: Target Costing 50
Outputs: Cost Variances 52
CHAPTER4 Ratio and Trend Analysis 57
How to Use Ratios and Trends 57
A Caveat 58
Measures for Profitability 60
Measures for the Balance Sheet 62
Measures for Growth 66
Measures for Cash Flow 68
Measures for Nonfinancial Performance 70
Interrelationship of Ratios 85
Setting Up a System of Ratios and Trend Analyses 85
CHAPTER5 Internal Control Systems 89
Objectives 89
Responsibility for Internal Controls 90
Examples of Internal Controls 92
When to Eliminate Controls 102
Types of Fraud 104
Preventing Fraud 105
How to Deal with a Fraud Situation 109
CHAPTER6 Internal Audit Function 113
Reporting Relationships 113
Role of the Audit Committee 116
Internal Audit Objectives 117
Internal Audit Activities 119
CHAPTER7 Recruiting, Training, and Supervision 123
Recruiting Sources 123
Factors to Consider when Recruiting 125
Factors to Consider When Promoting 127
Importance of Reduced Turnover 128
Importance of Developing Career Plans for Employees 132
How to Motivate Employees 134
CHAPTER8 Controller’s Role in Investor Relations 137
Objectives of the Investor Relations Function 137
Communication Vehicles for Investor Relations 138
Contents vii
Investor Relations Message Recipients 138
Information Needs of the Financial Analyst 139
Information Needs of Other Groups 141
Providing Guidance 141
Forward-Looking Statements 144
Organization Structure for Investor Relations 146
Role of the Controller and Other Principals 147
PART II THE PLANNING FUNCTION OF CONTROLLERSHIP 151
CHAPTER9 Business Plans and Planning: Interrelationship of Plans,
Strategic Planning 153
Business Planning Defined 153
Framework for Business Planning 154
Time as Related to Planning 154
Planning Period: How Long Is “Long Range”? 155
System of Plans 156
Strategic Plan: An Overview 156
Corporate Development Plan 157
Operations Plan 158
Basic Elements in Any Plan 158
Planning Process 159
Plan Frequency 161
Plan Guidelines 162
Supplemental Planning: Alternative Scenarios 162
Planning Timetable or Schedule 163
Strategic Planning: An In-Depth Review 163
Environmental Analysis 165
Critical Success Factors 167
Business Mission or Purpose 168
Long-Range Business Planning Objectives 170
Developing Strategies 174
Strategies and the Planning Period 177
Role of the Controller 177
CHAPTER10 Financial Impact of the Strategic Plan: Long-Range
Financial Plan 181
Key Elements of a Strategic Plan 181
Capital Investments 182
Risk Analysis 183
Objectives of the Long-Range Financial Plan 184
viii Contents
Consolidation and Testing Process 185
Illustrative Financial Exhibits in the Plan Presentation 186
Role of the Controller 193
CHAPTER11 Profit Planning: Annual Plan 201
Purpose of Budgeting 201
Planning Benefits 202
Coordination Benefits 203
Control Benefits 205
Problems with the Annual Plan 205
Annual Planning Cycle: Illustrative 206
Supportive Financial Statements and Budgets 208
Sales Budget 209
Production Budget 210
Purchases Budget 210
Direct Labor Budget 211
Manufacturing Expense Budget 211
Inventory Budget 212
Operating Expense Budget 212
Capital Expenditures Budget 213
Cost of Goods Sold 213
Statement of Estimated Income and Expense 214
Cash Budget 214
Statement of Estimated Financial Condition 216
Approval of Budget 218
Linking the Bonus Plan to the Budget 218
Controller’s Role: A Key Player 219
Management Approval of the Plan 223
CHAPTER12 Profit Planning: Supporting Financial Analysis
for the Annual Plan 225
General Comments on the Cost-Volume-Profit Relationship 225
Breakeven Chart 226
Changes in Sales Revenue 228
Changes in Sales Mixture 228
Changes in Sales Price 230
Changes in Costs 231
Analysis by Product 232
Application of Cost-Volume-Profit Analysis 235
Selecting the Most Profitable Products 236
Increased Sales Volume to Offset Reduced Selling Prices 236
Contents ix
Most Profitable Use of Scarce Materials 237
Advisability of Plant Expansion 238
Some Practical Generalizations 239
Program Evaluation Using Discounted Cash Flow 240
Financial Analysis of Unacceptable Operating Results 243
More Sophisticated Analyses 258
CHAPTER13 Taxation Planning 259
Accumulated Earnings Tax 260
Cash Method of Accounting 261
Inventory Valuation 262
Mergers and Acquisitions 262
Net Operating Loss Carryforwards 263
Nexus 264
Passive Activity Losses 265
Project Costing 266
Property Taxes 267
S Corporation 267
Sales and Use Taxes 268
Transfer Pricing 269
Unemployment Taxes 271
Management of the Taxation Function 272
PART III PLANNING AND CONTROLLING OPERATIONS 275
CHAPTER14 General Discussion of Standards 277
Definition of Standards 277
Advantages of Standards 278
Relationship of Entity Goals to Performance Standards 280
Types of Standards Needed 281
Trend to More Comprehensive Performance Measures 285
Benchmarking 287
Setting the Standards 289
Use of Standards for Control 291
Procedure for Revising Standards 293
CHAPTER15 Planning and Control of Sales 295
Sales Management Concerns 295
Controller’s Assistive Role in Sales Management Problems 296
x Contents
Controller’s Independent Role in the Planning
and Control of Sales 299
Sales Analysis 300
Sales Planning: Basis of All Business Plans 304
Steps in Developing the Near-Term Sales Plan/Budget 305
Methods of Determining the Sales Level 308
Useful Sources of Forecasting Information 311
Forecasting the Business Cycle 312
Sales Standards 318
Sales Reports 322
Product Pricing: Policy and Procedure 328
CHAPTER16 Planning and Control of Marketing Expenses 339
Definition 339
Factors Increasing the Difficulty of Cost Control 341
Marketing Expense Analysis 341
Types of Analyses 342
Planning Marketing Expenses 353
Special Comments on Advertising and Sales Promotion Expense 354
Marketing Expense Standards 360
CHAPTER17 Planning and Control of Manufacturing Costs: Direct Material
and Direct Labor 367
Direct Material Costs: Planning and Control 372
Labor Costs: Planning and Control 379
CHAPTER18 Planning and Control of Manufacturing Costs: Manufacturing
Expenses 389
Proper Departmentalization of Expenses 389
Variations in Cost Based on Fixed and Variable Costs 390
Variations in Cost Based on Direct Labor 392
Variations in Cost Based on Batch Size 394
Variations in Cost Based on Overhead 396
Variations in Cost Based on Time 398
Cost Estimation Methods 399
Normal Activity 404
Allocation of Indirect Production Costs 405
Budgetary Planning and Control of Manufacturing Expenses 407