Cost and Management Accounting

109 Pages·2001·2.64 MB·English

COST and MANAGEMENT
ACCOUNTING

SIXTH EDITION
C O S T a n d M A N A G E M E N T
A C C O U N T I N G
AN INTRODUCTION
COLIN DRURY
Australia (cid:1) Canada (cid:1) Mexico (cid:1) Singapore (cid:1) Spain (cid:1) United Kingdom (cid:1) United States
Cost and Management Accounting 6th edition
Colin Drury
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ABBREVIATED CONTENTS
PART 1
Introduction to Management and Cost Accounting 2
1 Introduction to management accounting 5
2 An introduction to cost terms and concepts 27
PART 2
Cost Accumulation for Inventory Valuation
and Profit Measurement 50
3 Accounting for direct costs 53
4 Cost assignment for indirect costs 87
5 Accounting entries for a job costing system 129
6 Process costing 157
7 Joint and by-product costing 195
8 Income effects of alternative cost accumulation systems 215
PART 3
Information for Decision-making 238
9 Cost–volume–profit analysis 242
10 Cost estimation and cost behaviour 273
11 Measuring relevant costs and revenues for decision-making 295
12 The application of linear programming to management accounting 331
13 Activity-based costing 347
14 Decision-making under conditions of risk and uncertainty 375
15 Capital investment decisions 391
PART 4
Information for Planning, Control and
Performance Measurement 422
16 The budgeting process 425
17 Management control systems 455
18 Standard costing and variance analysis 489
v

CONTENTS
Preface and Acknowledgements xv
Walk through tour xxii
About the website xxv
PART 1
Introduction to Management
and Cost Accounting
2
1 Introduction to management accounting 5
The users of accounting information 6
Differences between management accounting and financial accounting 7
The decision-making process 8
Changing competitive environment 12
Focus on customer satisfaction and new management approaches 13
The impact of information technology 16
International convergence of management accounting practices 17
Functions of management accounting 18
Summary of the contents of this book 20
Guidelines for using this book 20
Key terms and concepts 22
Key examination points 23
Review questions 25
2 An introduction to cost terms and concepts 27
Cost objects 28
Direct and indirect costs 28
Period and product costs 30
Cost behaviour 31
Relevant and irrelevant costs and revenues 35
Avoidable and unavoidable costs 37
Sunk costs 37
Opportunity costs 37
Incremental and marginal costs 38
Job costing and process costing systems 39
Maintaining a cost database 39
Summary 41
Key terms and concepts 42
Key examination points 42
vii
viii CONTENTS
Review questions 43
Review problems 44
PART 2
Cost Accumulation for Inventory
Valuation and Profit Measurement
50
3 Accounting for direct costs 53
Accounting for labour costs 54
Payroll accounting 55
Accounting treatment of various labour cost items 56
Materials recording procedure 57
Pricing the issues of materials 60
Issues relating to accounting for materials 64
Quantitative models for the planning and control of stocks 65
Relevant costs for quantitative models under conditions of certainty 65
Determining the economic order quantity 66
Assumptions of the EOQ formula 69
Determining when to place the order 69
Control of stocks through classification 70
Materials requirement planning 72
Just-in-time systems 73
Summary 75
Key terms and concepts 77
Key examination points 77
Review questions 79
Review problems 80
4 Cost assignment for indirect costs 87
Assignment of direct and indirect costs 88
Different costs for different purposes 89
Cost–benefit issues and cost systems design 90
Assigning direct costs to cost objects 91
Plant-wide (blanket) overhead rates 92
The two-stage allocation process 93
An illustration of the two-stage process for a traditional costing system 94
Extracting relevant costs for decision-making 102
Budgeted overhead rates 103
Under- and over-recovery of overheads 103
Maintaining the database at standard costs 104
Non-manufacturing overheads 105
Summary 107
Appendix 4.1: Inter-service department reallocation 108
Appendix 4.2: Other allocation bases used by traditional systems 113
Key terms and concepts 115
Key examination points 116
Review questions 117
Review problems 118
CONTENTS ix
5 Accounting entries for a job costing system 129
Control accounts 130
Recording the purchase of raw materials 130
Recording the issue of materials 131
Accounting procedure for labour costs 134
Accounting procedure for manufacturing overheads 136
Non-manufacturing overheads 137
Accounting procedures for jobs completed and products sold 138
Costing profit and loss account 138
Interlocking accounting 139
Contract costing 139
Work in progress valuation and amounts recoverable on contracts 144
Summary 145
Key terms and concepts 146
Key examination points 146
Review questions 149
Review problems 150
6 Process costing 157
Flow of production and costs in a process costing system 158
Process costing when all output is fully complete 158
Process costing with ending work in progress partially complete 166
Beginning and ending work in progress of uncompleted units 169
Partially completed output and losses in process 173
Process costing for decision-making and control 174
Batch/operating costing 175
Surveys of practice 176
Summary 177
Appendix 6.1: Losses in process and partially completed units 179
Key terms and concepts 183
Key examination points 183
Review questions 185
Review problems 186
7 Joint and by-product costing 195
Distinguishing between joint products and by-products 196
Methods of allocating joint costs 196
Irrelevance of joint cost allocations for decision-making 204
Accounting for by-products 204
By-products, scrap and waste 206
Summary 207
Key terms and concepts 208
Key examination points 208
Review questions 209
Review problems 210
x CONTENTS
8 Income effects of alternative cost
accumulation systems 215
External and internal reporting 216
Variable costing 217
Absorption costing 219
Variable costing and absorption costing: a comparison of their impact
on profit 220
A mathematical model of the profit functions 222
Some arguments in support of variable costing 223
Some arguments in support of absorption costing 224
Summary 226
Appendix 8.1: Derivation of the profit function for an absorption
costing system 227
Key terms and concepts 228
Key examination points 228
Review questions 231
Review problems 232
PART 3
Information for Decision-making
238
9 Cost–volume–profit analysis 241
The economist’s model 242
The accountant’s cost–volume–profit model 243
A mathematical approach to cost–volume–profit analysis 246
Margin of safety 250
Constructing the break-even chart 250
Alternative presentation of cost–volume–profit analysis 251
Multi-product cost–volume–profit analysis 253
Cost–volume–profit analysis assumptions 256
Cost–volume–profit analysis and computer applications 258
Summary 259
Key terms and concepts 260
Key examination points 260
Review questions 263
Review problems 264
10 Cost estimation and cost behaviour 273
General principles applying to estimating cost functions 274
Cost estimation methods 275
Tests of reliability 282
A summary of the steps involved in estimating cost functions 286
Summary 287
Key terms and concepts 288
Key examination points 288
Review questions 289
Review problems 289