1 Introduction to Cost Accounting and Cost Management

1 Introduction to Cost Accounting and Cost Management

FINANCIAL，MANAGEMENT，AND COST ACCOUNTING

Early Accounting Systems

THE EVOLUTION OF ACCOUNTING

Accounting in the Twentieth Century

Total Quality Management

Customer Orientation

EMERGING THEMES IN COST ACCOUNTING

Advances in Information Technology

Time as a Competitive Element

Advances in the Manufacturing Environment

Growth of the Service Industry

Global Competition

A SYSTEMS APPROACH

COST MANAGEMENT-A CROSS-FUNCTIONAL PERSPECTIVE

THE ROLE OF TODAY S COST AND MANAGEMENT ACCOUNTANT

The Need for Flexibility

Behavioral Impact of Cost Information

Information for Planning，Controlling，and Decision Making

Line and Staff Positions

ACCOUNTING AND ETHICAL CONDUCT

Ethical Behavior

Standards of Ethical Conduct for Management Accountants

Ethical Conduct

CERTIFICATION

The CMA

The CPA

The CIA

2 Basic Cost Management Concepts

Part1 Fundamental Cost Management Concepts

■2 Basic Cost Management Concepts

A SYSTEMS FRAMEWORK

Accounting Information Systems

Relationship to Other Operational Systems and Functions

Different Systems for Different Purposes

COST ASSIGNMENT：DIRECT TRACING，DRIVER TRACING，AND ALLOCATION

Cost Objects

Accuracy of Assignments

PRODUCT AND SERVICE COSTS

Different Costs for Different Purposes

Product Costs and External Financial Reporting

EXTERNAL FINANCIAL STATEMENTS

Income Statement：Manufacturing Firm

Income Statement：Service Organization

ACTIVITY DRIVERS AND COST BEHAVIOR

Cost Behavior Concepts

Fixed Costs

■22 Productivity：Measurement and Control

Variable Costs

Mixed Costs

TRADITIONAL AND CONTEMPORARY COST MANAGEMENT SYSTEMS

Traditional Cost Management Systems：A Brief Overview

Contemporary Cost Management Systems：A Brief Overview

Choice of a Cost Management System

■3 Activity Cost Behavior

3 Activity Cost Behavior

COST BEHAVIOR AND THE RESOURCE USAGE MODEL

Time Horizon

Activities，Resource Usage，and Cost Behavior

Measures of Activity Output

Step-Cost Behavior

Activities and Mixed Cost Behavior

METHODS FOR SEPARATING MIXED COSTS INTO EIXED AND VARIABLE COMPONENTS

The High-Low Method

Scatterplot Method

The Method of Least Squares

RELIABILITY OF COST FORMULAS

Hypothesis Test of Parameters

Goodness-of-Fit Measures

Confidence Intervals

MULTIPLE REGRESSION

MANAGERIAL JUDGMENT

4 Product and Service Costing：Overhead Application and Job-Order System

■4 Product and Service Costing：Overhead Application and Job-Order System

Part2 Cost Accounting Systems

CHARACTERISTICS OF THE PRODUCTION PROCESS

Manufacturing Firms Versus Service Firms

Unique Versus Standardized Products and Services

Cost Accumulation

SETTING UP THE COST ACCOUNTING SYSTEM

Cost Measurement

Cost Assignment

OVERHEAD APPLICATION：A NORMAL COSTING VIEW

Predetermined Overhead Rates

Choosing the Activity Base

Choosing the Activity Level

The Basic Concept of Overhead Application

Disposition of Overhead Variances

THE JOB-ORDER COSTING SYSTEM：GENERAL DESCRIPTION

Overview of the Job-Order Costing System

Materials Requisitions

Job Time Tickets

Overhead Application

Unit Cost Calculation

JOB-ORDER COSTING：SPECIFIC COST FLOW DESCRIPTION

Accounting for Materials

Accounting for Direct Labor Cost

Accounting for Overhead

Accounting for Finished Goods

Accounting for Cost of Goods Sold

Accounting for Nonmanufacturing Costs

SINGLE VERSUS MULTIPLE OVERHEAD RATES

APPENDIX：ACCOUNTIGN FOR SPOILAGE IN A TRADITIONAL JOB ORDER SYSTEM

■5 Product and Service Costing：A Process Systems Approach

5 Product and Service Costing：A Process Systems Approach

PROCESS COSTING SYSTEMS：BASIC OPERATIONAL AND COST CONCEPTS

Cost Flows

The Production Report

Unit Cost

Service Organizations

PROCESS COSTING WITH NO WORK IN PROCESS INVENTORIES

JIT Manufacturing Firms

PROCESS COSTING WITH ENDING WORK IN PROCESS INVENTORIES

Equivalent Units as Output Measures

Cost of Production Report Illustrated

Nonuniform Application of Productive Inputs

Beginning Work in Process Inventories

FIFO COSTING METHOD

Step3：Computation of Unit Cost

Step4：Valuation of Inventories

Step1：Physical Flow Analysis

Step 2：Calculation of Equivalent Units

Step5：Cost Reconciliation

Journal Entries

WEIGHTED AVERAGE COSTING METHOD

Step1：Physical Flow Analysis

Step2：Calculation of Equivalent Units

Step3：Computation of Unit Cost

Step4：Valuation of Inventories

Production Report

Step5：Cost Reconciliation

FIFO Compared With Weighted Average

TREATMENT OF TRANSFERRED-IN GOODS

Step1：Physical Flow Schedule

Step2：Calculation of Equivalent Units

Step3：Computation of Unit Costs

Step4：Valuation of Inventories

OPERATION COSTING

Basics of Operations Costing

Operation Costing Example

APPENDIX：SPOILED UNITS

■6 Support Department Cost Allocation

6 Support Department Cost Allocation

AN OVERVIEW OF COST ALLOCATION

Types of Departments

Types of Allocation Bases

OBJECTIVES OF ALLOCATION

ALLOCATING ONE DEPARTMENT S COSTS TO ANOTHER DEPARTMENT

A Single Charging Rate

Dual charging Rates

Budgeted Versus Actual Usage

Fixed Versus Variable Bases：A Note of Caution

CHOOSING A SUPPORT DEPARTMENT COST ALLOCATION METHOD

Direct Method of Allocation

Sequential Method of Allocation

Reciprocal Method of Allocation

Comparison of the Three Methods

DEPARTMENAL OVERHEAD RATES AND PRODUCT COSTING

7 Joint Product and By-product Costing

■7 Joint Product and By-product Costing

GENERAL CHARACTERISTICS OF JOINT PRODUCTION

Cost Separability and the Need for Allocation

Distinction and Similarity Between Joint Products and Byproducts

Examples of Joint Products and By-prod-ucts

ACCOUNTING FOR JOINT PRODUCT COSTS

Benefits-Received Approaches

Allocation Based on Relative Market Value

ACCOUNTING FOR BY-PRODUCTS

Noncost Methods of Accounting for By-products

Cost Methods of Accounting for By-products

Output Decisions

EFFECT OF JOINT PRODUCT COSTS ON COST CONTROL AND DECISION MAKING

Pricing Joint Products

Further Processing Decisions

Pricing Based on Cost of Further Production

JOINT PRODUCTION OF SERVICES

Contemporary Cost Accounting

■8 Activity-Based Costing

8 Activity-Based Costing

Contemporary Cost Accounting

LIMITATIONS OF TRADITIONAL COST ACCOUNTING SYSTEMS

Plantwide and Departmental Rates

The Inadequacy of Plantwide and Departmental Rates

An Example Illustrating the Failure of Unit-Based Overhead Rates

ACTIVITY-BASED PRODUCT COSTING：GENERAL DESCRIPTION

First-Stage Procedure

Second-Stage Procedure

Comparison of Traditional and ABC Product Costs

ABC and Service Organizations

ACTIVITY IDENTIFICATION AND CLASSIFICATION

Activity Identification

Classification of Activities

Comparison with Traditional Costing

An Illustrative Example

Homogeneous Sets：Necessary or Not?

ABC DATA BASE

ASSIGNING COSTS TO ACTIVITIES

■9 Strategic Cost Management，Life Cycle Cost Management，and JIT

9 Strategic Cost Management，Life Cycle Cost Management，and JIT

STRATEGIC COST MANAGEMENT

Creating and Sustaining a Competitive Advantage

Value-Chain Framework，Linkages，and Activities

Value-Chain Analysis

LIFE CYCLE COST MANAGEMENT

Product Life Cycle Viewpoints

Interactive Viewpoint

Role of Target Costing

Short Life Cycles

JUST-IN-TIME(JIT) MANUFACTURING AND PURCHASING

Inventory Effects

Plant Layout

Grouping of Employees

Employee Empowerment

Total Quality Control

JIT and Automation

JIT AND TTS EFFECT ON THE COST MANAGEMENT SYSTEM

Traceability of Overhead Costs

Product Costing

JIT s Effect on Job-Order and Process Costing Systems

Backflush Costing

■10 Cost-Volume-Profit Analysis

10 Cost-Volume-Profit Analysis

Part3 Decision Making：Traditional and Contemporary Approaches

THE BREAK-EVEN POINTS IN UNITS

Operating-Income Approach

Contribution-Margin Approach

Profit Targets

After-Tax Profit Targets

BREAK-EVEN POINT IN SALES DOLLARS

Profit Targets

Comparison of the Two Approaches

MULTIPLE-PRODUCT ANALYSIS

Break-even Point in Units

Sales Dollars Approach

GRAPHICAL REPRESENTATION OF CVP RELATIONSHIPS

The Profit-Volume Graph

The Cost-Volume-Profit Graph

Assumptions of Cost-Volume-Profit Analysis

CHANGES IN THE CVP VARIABLES

Introducing Risk and Uncertainty

Sensitivity Analysis and CVP

CVP ANALYSIS AND ACTIVITY-BASED COSTING

Example Comparing Conventional and ABC Analysis

Strategic Implications：Conventional CVP Analysis Versus ABC Analysis

CVP Analysis and JIT

■11 Activity Resource Usage Model and Relevant Costing：Tactical Decision Making

11 Activity Resource Usage Model and Relevant Costing：Tactical Decision Making

The Tactical Decision-Making Process

TACTICAL DECISION MAKING

Qualitative Factors

RELEVANT COSTS AND REVENUES

Relevant Costs Illustrated

Irrelevant Costs Illustrated

RELEVANCY，COST BEHAVIOR，AND THE ACTIVITY RESOURCE USAGE MODEL

Resources Acquired as Used and Needed

Resources Acquired in Advance(Short Term)

Resources Acquired in Advance (Multiperiod Service Capacity)

ILLUSTRATIVE EXAMPLES OF TACTICAL DECISION MAKING

Make-or-Buy Decisions

Keep-or-Drop Decisions

Special-Order Decisions

Decisions to Sell or Process Further

Relevant Costing and Ethical Behavior

12 Capital Investment Decisions

■12 Capital Investment Decisions

TYPES OF CAPITAL INVESTMENT DECISIONS

NONDISCOUNTING MODELS

Payback Period

Accounting Rate of Return

DISCOUNTING MODELS：THE NET PRESENT VALUE METHOD

NPV Defined

An Example Illustrating Net Present Value

INTERNAL RATE OF RETURN

Example：Multiple-Period Setting with Uniform Cash Flows

Multiple-Period Setting：Uneven Cash Flows

MUTUALLY EXCLUSIVE PROJECTS

NPV Compared with IRR

Example：Mutually Exclusive Projects

Capital Investment and Ethical Lssues

COMPUTATION AND ADJUSTMENT OF CASH FLOWS

Adjusting Forecasts for Inflation

Conversion of Gross Cash Flows to After-Tax Cash Flows

CAPITAL INVESTMENT：THE CONTEMPORARY MANUFACTURING ENVIRONMENT

How Investment Differs

How Estimates of Operating Cash Flows Differ

Salvage Value

Discount Rates

APPENDIX A：PRESENT VALUE CONCEPTS

Future Value

Present Value

13 Inventory Management：Economic Order Quantity，JIT，and the Theory of Constraints

■13 Inventory Management：Economic Order Quantity，JIT，and the Theory of Constraints

BASICS OF TRADITIONAL INVENTORY MANAGEMENT

Traditional Reasons for Holding Inventory

Economic Order Quantity：The Traditional Inventory Model

Computing the EOQ

Reorder Point

Demand Uncertainty and the Reorder Point

A Manufacturing Example

EOQ and Inventory Management

JIT AND INVENTORY MANAGEMENT：A DIFFERENT VIEW

A Pull System

Setup and Carrying Costs：The JIT Approach

Due-Date Performance：The JIT Solution

Avoidance of Shutdown and Process Reliability：The JIT Approach

Discounts and Price Increases：JIT Purchasing Versus Holding Inventories

JIT s Limitations

BASIC CONCEPTS OF CONSTRAINED OPTIMIZATION

One Binding Internal Constraint

Internal Binding Constraint and External Binding Constraint

Multiple Internal Binding Constraints

THEORY OF CONSTRAINTS

Basic Concepts

Five-Step Approach

■14 Pricing and Revenue Analysis

14 Pricing and Revenue Analysis

Customer Demand

BASIC ECONOMIC PRICING CONCEPTS

Price Elasticity of Demand

Market Structure and Price

COST-BASED PRICING

TARGET COSTING AND PRICING

LIFE CYCLE PRICING

Development Stage

Introduction Stage

Growth Stage

Decline Stage

PRICES AND CONTROL

Sale Price and Price Volume Variances

Maturity Stage

Other Methods of Evaluating Revenue

LEGAL SYSTEM，ETHICS，AND PRICING

Predatory Pricing

Price Discrimination

Fairness and Pricing

■15 Profitability Analysis

15 Profitability Analysis

REASONS FOR MEASURING PROFIT

MEASURES OF PROFIT

Absorption Costing Approach to Measuring Profit

Variable Costing Approach to Measuring Profit

ANALYSIS OF PROFIT-RELATED VARIANCES

Contributin Margin Variance

Market Share and Size Variances

PROFITABILITY OF SEGMENTS

Profit by Product Line

Divisional Profit

Customer Profitability

Overall Profit

TIME AND PROFIT

Short-Run Profitability

Long-Run Profitability

THE PRODUCT LIFE CYCLE

Behavioral Decision Theory

THE IMPACT OF PROFIT ON BEHAVIOR

Ethics

LIMITATIONS OF PROFIT MEASUREMENT

16 Budgeting for Planning and Control

Part4 Cost Planning and Control Systems

■16 Budgeting for Planning and Control

THE ROLE OF BUDGETING IN PLANNING AND CONTROL

Purposes of Budgeting

The Budgeting Process

Gathering Information for Budgeting

PREPARING THE OPERATING BUDGET

PREPARING THE FINANCIAL BUDGET

The Cash Budget

Static Budgets Versus Flexible Budgets

USING BUDGETS FOR CONTROL

The Behavioral Dimension of Budgeting

Operating Budgets for Merchandising and Service Firms

Zero-Base Budgeting

OTHER TYPES OF BUDGETS

■17 Standard Costing：A Traditional Control Approach

17 Standard Costing：A Traditional Control Approach

UNIT STANDARDS

How Standards Are Developed

Types of Standards

Why Standard Cost Systems Are Adopted

STANDARD PRODUCT COSTS

VARIANCE ANALYSIS：GENERAL DESCRIPTION

Price and Efficiency Variances

The Decision to Investigate

VARIANCE ANALYSIS AND ACCOUNTING：MATERIALS AND LABOR

Direct Materials Price and Usage Variances

Direct Labor Variances

Disposition of Materials and Labor Variances

VARIANCE ANALYSIS：OVERHEAD COSTS

Four-Variance Method：Variable Overhead Variances

Four-Variance Analysis：Fixed Overhead Variances

Total Fixed Overhead Variance

Two-and Three Variance Analyses

MIX AND YIELD VARIANCES：MATERIALS AND LABOR

Materials Mix and Yield Variances

Labor Mix and Yield Variances

■18 Decentralization：Responsibility Accounting，Performance Evaluation，and Transfer Pricing

18 Decentralization：Responsibility Accounting，Performance Evaluation，and Transfer Pricing

RESPONSIBILITY ACCOUNTING

Types of Responsibility Centers

DECENTRALIZATION

Reasons for Decentralization

The Role of Information and Accountability

The Units of Decentralization

MEASURING THE PERFORMANCE OF INVESTMENT CENTERS

Return on Investment

Residual Income

Economic Value Added

Multiple Measures of Performance

Incentive Pay for Managers-Encouraging Goal Congruence

Managerial Rewards

MEASURIGN AND REWARDING THE PERFORMANCE OF MANAGERS

TRANSFER PRICING

The Impact of Transfer Pricing on Income

The Transfer Pricing Problem

SETTING TRANSFER PRICES

Market Price

Negotiated Transfer Prices

Cost-Based Transfer Prices

19 International Issues in Cost Management

■19 International Issues in Cost Management

MANAGEMENT ACCOUNTING IN THE INTERNATIONAL ENVIRONMENT

LEVELS OF INVOLVEMENT IN INTERNATIONAL TRADE

Importing and Exporting

Wholly Owned Subsidiaries

Joint Ventures

FOREIGN CURRENCY EXCHANGE

Managing Transaction Risk

Managing Economic Risk

Managing Translation Risk

DECENTRALIZATION

Advantages of Decentralization in the MNC

Creation of Divisions

MEASURING PERFORMANCE IN THE MULTINATIONAL FIRM

Political and Legal Factors Affecting Performance Evaluation

Multiple Measures of Performance

TRANSFER PRICING AND THE MULTINATIONAL FIRM

Performance Evaluation

Income Taxes and Transfer Pricing

ETHICS IN THE INTERNATIONAL ENVIRONMENT

Contemporary Control Systems

■20 Contemporary Responsibility Accounting

Contemporary Control Systems

20 Contemporary Responsibility Accounting

RESPONSIBILITY ACCOUNTING

Traditional vs．Contemporary Responsibility Accounting

Limitations of Traditional Responsibility Accounting

Activity-Based Management

PROCESS VALUE ANALYSIS

Driver Analysis：The Search for Root Causes

Activity Analysis

Performance Measurement

The Role of Interim(Currently Attainable)Standards

Benchmarking

Drivers and Behavioral Effects

ACTIVITY FLEXIBLE BUDGETING

Fixed Activity Variances：Detailed Analysis

Variable Activity Variances：Detailed Analysis

LIFE CYCLE COST BUDGETING

Whole-Life Product Cost

Budgeting Life Cycle Costs：An Example

CONTROL AT THE OPERATING LEVEL

Quality

Productivity

Materials Cost

Delivery Performance

Inventory

Machine Performance

Operational Measures：A Qualification

■21 Quality Costing：Measurement and Control

21 Quality Costing：Measurement and Control

MEASURING THE COSTS OF QUALITY

Quality Defined

Costs of Quality Defined

Measuring Quality Costs

RETORTING QUALITY COST INFORMATION

Quality Cost Reports

Optimal Distribution of Quality Cost：Traditional View

Quality Cost Function：Contemporary View

The Interface Between Cost Management and Total Quality

USING QUALITY COST INFORMATION

Using Quality Cost Information for Decision Making

Certifying Quality Through ISO 9000

CONTROLLING QUALITY COSTS

Choosing the Quality Standard

Types of Quality Performance Reports

Using Quality Reports for Control

22 Productivity：Measurement and Control

PRODUCTIVE EFFICIENCY

PARTIAL PRODUCTIVITY MEASUREMENT

Partial Productivity Measurement Defined

Partial Measures and Measuring Changes in Productive Efficiency

Advantages of Partial Measures

Disadvantages of Partial Measures

TOTAL PRODUCTIVITY MEASUREMENT

Profile Productivity Measurement

Profit-Linked Productivity Measurement

Price-Recovery Component

MEASURING CHANGES IN ACTIVITY EFFICIENCY

Activity Productivity Analysis

Process Productivity Analysis

Quality and Productivity