SCHAUM'S OUTLINE OF COST ACCOUNTING

427 Pages·2016·49.61 MB·English

by  RALPH S. POLIMENI

RALPH S. POLIMENI is Chairman of the Department of Accounting and Business Law, and
Chaykain Distinguished Professor of Accounting, at Hofstra University. He is also Director of the
Chaykain CPA Review Program at Hofstra.
Dr. Polimeni is a recipient of the Hofstra University Distinguished Teaching Award. He has authored
seven textbooks and written extensively in both domestic and international accounting journals
including The International Journal of Accounting Education and Research, Cost and Management,
and The CPA Journal. His article in The Internal Auditor won the outstanding contribution award for
that year.
Dr. Polimeni received his Ph.D. degree in accounting from the University of Arkansas and is a CPA
in New York State and a Certified Cost Analyst (CCA). He was employed as an auditor for Deloitte
and Touche and has served as a consultant to Coopers and Lybrand, the City of New York, the New
York State Special Prosecutor’s Office, and several law firms.
SHEILA A. HANDY is an Instructor of Accounting at Hofstra University, where she is also an
instructor in the Chaykain CPA Review Program. Prior to teaching at Hofstra, she was employed in
the Tax Department of Arthur Andersen and Co.
Mrs. Handy received her B.B. A. in accounting and her M.B.A. in taxation from Hofstra University
and is a CPA in New York State. She is a consultant to a law firm and is a member of the AICPA and
the New York Society of CPAs.
JAMES A. CASHIN, deceased. Emeritus Professor of Accounting, was formerly Chairman of the
Accounting Department of Hofstra University. He also taught in the Graduate School of City
University of New York and at New York University. Professor Cashin earned a B.S. degree in
Accounting from the University of Georgia and an M.B.A. degree from New York University; he
was a CPA and Certified Internal Auditor and had wide experience in business and government
agencies.
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Preface
This book, the third edition, combines previous editions of Cost Accounting I and Cost Accounting
II and reflects the latest issues, concepts, and procedures in the field of cost accounting. As in prior
editions, the solved problems approach is used, with emphasis on the practical application of
fundamental cost accounting concepts and techniques. The student is provided with:
1. Concise definitions and explanations in easily understood terms
2. Examples which illustrate the concepts and techniques developed in each chapter
3. Fully worked-out solutions to a large range of representative problems (against which students
can check their own solutions)
This volume parallels the full-year cost accounting course offered in most schools. The subject
matter has been carefully coordinated with leading textbooks, so that any topic can easily be found in
the table of contents or the index.
The modern use of cost accounting in all phases of business activity reflects its usefulness as a
management tool for planning, control, and decision making. Indeed, the diversity of its uses has
stimulated its own growth, so that today cost accounting embraces such sophisticated advances as
those in quantitative techniques and decision models, productivity and performance standards,
behavioral science concepts, human resources accounting, learning curve theory, and advanced
marketing concepts. In addition, important changes have been made in the field. These include the
establishment of the Cost Accounting Standards Board (CASB) and the examination program for the
Certificate in Management Accounting (CMA) given by the National Association of Accountants
(NAA). Thus, cost accounting, once concerned primarily with manufacturing operations, is now
recognized as appropriate for nonmanufacturing activities of all kinds.
The topics treated in this book comprise perhaps the most difficult area of study in the accounting
curriculum. Cost accounting is a highly specialized field, requiring an in-depth understanding and
mastery of complex concepts and techniques that are unparalleled in other accounting courses. The
theory-and-solved-problems approach of this book is designed to clarify the detailed subject matter
and provide students with the practical applications they need to be completely familiar with the
methodology.
In addition to its usefulness in formal course work, this book will provide excellent preparation
and review for the Uniform CPA Examination and for the CMA Examination. It will also serve the
needs of those interested in acquiring cost accounting knowledge through independent study, such as
students majoring in business and economics areas outside accounting, and business owners,
managers, and executives.
We wish to thank Jeanne Flagg, a sponsoring editor for the Schaum’s Outline Series, and Jeffrey
Hecht for their assistance on this project.
Ralph S. Polimeni
Sheila A. Handy
Contents
Chapter 1 THE ROLE, CONCEPTS, AND CLASSIFICATIONS OF COST ACCOUNTING
1.1 Place in the Company
1.2 Managerial Functions
1.3 Organization Charts
1.4 Line and Staff Responsibility
1.5 The Cost Department
1.6 Nature of Cost Accounting
1.7 Costs and Their Classification
1.8 Cost Systems
1.9 Unit Costs
1.10 Fixed and Variable Costs
1.11 Income Statements
Chapter 2 COSTING AND CONTROL OF MATERIALS AND LABOR
2.1 Characteristics of Materials and Labor
2.2 Systems of Accounting for the Purchase of Materials
2.3 Issuance of Materials
2.4 Costing Materials Issued and Ending Materials Inventory
2.5 Comparison of Inventory Methods
2.6 Lower of Cost or Market (LCM)
2.7 Control Procedures
2.8 Labor Costs
2.9 Overtime and Shift Premium
2.10 Bonus
2.11 Vacation and Holiday Pay
2.12 Pensions
2.13 Fringe Costs
2.14 Accounting for Labor
Chapter 3 FACTORY OVERHEAD AND THE FACTORY LEDGER
3.1 Factory Overhead Defined
3.2 Applied Factory Overhead
3.3 Base to Be Used
3.4 Activity Level to Be Used
3.5 Journalizing Factory Overhead
3.6 Over-or Underapplied Overhead
3.7 Allocation of Service Department Costs to Producing Departments
3.8 The Factory Ledger
Chapter 4 JOB ORDER COST SYSTEM
4.1 Job Order Cost System
4.2 Journal Entries for Job Order Cost System
4.3 Job Order Cost Sheet
4.4 Spoiled and Defective Units
Chapter 5 PROCESS COST SYSTEM
5.1 Introduction
5.2 Accumulation of Costs
5.3 Departmental Transfers
5.4 Flow of Units
5.5 Equivalent Units of Production
5.6 Cost of Production Report
5.7 Journal Entries
5.8 Second Department and Introduction of Additional Materials
5.9 Cost of Production Report—Second Department
5.10 Spoiled Units (Goods)
5.11 Accounting for Spoiled Units
Chapter 6 BY-PRODUCT AND JOINT PRODUCT COSTING
6.1 Joint Costs
6.2 Difficulties Associated with Joint Costs
6.3 By-Products Defined
6.4 Accounting for By-Products
6.5 Joint Products Defined
6.6 Accounting for Joint Products
Chapter 7 THE MASTER BUDGET
7.1 Nature of the Budget
7.2 Developing the Master Budget
7.3 Sales Budget
7.4 Production Budget
7.5 Direct Materials Purchase Budget
7.6 Direct Materials Usage Budget
7.7 Direct Labor Budget
7.8 Factory Overhead Budget
7.9 Ending Inventories Budget
7.10 Cost of Goods Sold Budget
7.11 Selling Expense Budget
7.12 Administrative Expense Budget
7.13 Budgeted Income Statement
7.14 Cash Budget
7.15 Budgeted Balance Sheet
Chapter 8 STANDARD COSTS AND GROSS PROFIT ANALYSIS
8.1 Standard Costs Defined
8.2 Types of Standards
8.3 Establishment of Standards
8.4 Establishing Standards in Process and Job Order Cost Systems
8.5 Quality Control
8.6 Just-in-Time Philosophy
8.7 Variance Analysis
8.8 Computation of Variances
8.9 Journal Entries in a Standard Cost System
8.10 Disposition of All Variances
8.11 Gross Profit Analysis Defined
8.12 Change in Gross Profit
8.13 Multiproducts
Chapter 9 DIRECT COSTING, BREAK-EVEN ANALYSIS, AND COST-VOLUME-PROFIT
PLANNING
9.1 Meaning of Direct Costing
9.2 Direct Costing: Product and Period Costs
9.3 Direct Costing vs. Absorption Costing: Income Statements
9.4 Uses of Direct Costing
9.5 Advantages and Disadvantages of Direct Costing
9.6 Use of Break-Even Analysis
9.7 Equation Method
9.8 Contribution Margin Method
9.9 Graphic Method
9.10 Use of Cost-Volume-Profit Planning
9.11 Risk and Profit Analysis
Chapter 10 CAPITAL BUDGETING
10.1 Capital Budgets
10.2 Methods of Evaluation
10.3 Payback Method
10.4 Accounting Rate of Return
10.5 Internal-Rate-of-Return Method (IRR)
10.6 Net-Present-Value Method (NPV)
10.7 Index of Profitability Method (IP)
10.8 Discounted-Payback Method
10.9 Replacement Chains
10.10 Computation of Cash Flow from Operations
Chapter 11 RELEVANT COSTING IN DECISION MAKING AND PERFORMANCE
MEASUREMENT
11.1 Introduction
11.2 Relevant vs. Irrelevant Costs
11.3 Differential or Incremental Costs
11.4 Sunk Costs
11.5 Opportunity Costs
11.6 Segmental Analysis
11.7 Discontinuing a Segment
11.8 Sell or Process Further
11.9 Special Orders—Accept or Reject
11.10 Make-or-Buy Decisions
11.11 Product Mix Decision
11.12 Approaches to Performance Measurement
11.13 Return on Investment
11.14 Return-on-Investment Ratio
11.15 Advantages and Disadvantages of ROI
11.16 Total Company Evaluation
11.17 Divisional Evaluation
11.18 Residual Income
Chapter 12 DECISION THEORY AND ECONOMIC ORDER QUANTITY
12.1 An Outline of the Decision-Theory Method
12.2 General Approach to Uncertainty
12.3 Project Proposals and Uncertainty