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Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

Book Description

Cost accounting has become an increasingly important tool for managers and accountants alike. The second edition helps them achieve professional success by bridging the gaps between knowledge, skills and abilities. It has been revised to focus on decision-making while still examining the procedural detail. It also emphasizes the analysis and application of concepts. Additional examples and illustrations draw comparisons between government and manufacturing. Real-world scenarios and ethical decision-making sections demonstrate how the material is applied. Accountants and managers will also view Excel spreadsheets to give them a better understanding of the material.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. About the Authors
  5. Preface
    1. BRIDGING THE GAP
    2. ORGANIZATION OF COST ACCOUNTING CONTENT
    3. CHAPTER FOCUS
    4. TARGET AUDIENCE
    5. CHAPTER FEATURES
    6. REVIEW
    7. END-OF-CHAPTER ASSIGNMENT MATERIAL
    8. INSTRUCTOR RESOURCES
    9. STUDENT RESOURCES
  6. Acknowledgments
  7. Brief Contents
  8. Contents
  9. PART ONE: MEASURING AND USING COSTS FOR MANAGEMENT DECISIONS
    1. CHAPTER 1: The Role of Accounting Information in Management Decision Making
      1. MOTOROLA'S IRIDIUM PROJECT: LOOK BEFORE YOU LEAP
      2. STRATEGIC MANAGEMENT AND DECISION MAKING
      3. LEVERS OF CONTROL
      4. COST ACCOUNTING AND STRATEGIC MANAGEMENT
      5. INFORMATION SYSTEMS AND STRATEGIC MANAGEMENT
      6. RELEVANT INFORMATION FOR DECISION MAKING
      7. SNOW-BLADE SNOWBOARDS IDENTIFYING RELEVANT COSTS
      8. BUSINESS RISK
      9. DECISION-MAKING BIASES
      10. RISK OF BIASED DECISIONS Nonrational Escalation of Commitment
      11. QUALITY OF MANAGEMENT DECISION-MAKING
      12. ETHICAL DECISION MAKING
      13. FOCUS ON ETHICAL DECISION MAKING Ethical Considerations in Outsourcing Decisions
      14. APPENDIX 1A Steps for Better Thinking: A Decision-Making Process
    2. CHAPTER 2: The Cost Function
      1. FLYING LOW DURING AN ECONOMIC DOWNTURN
      2. IDENTIFYING RELEVANT COSTS FOR A DECISION
      3. COST BEHAVIOR
      4. FOCUS ON ETHICAL DECISION MAKING Discretionary Costs
      5. INFORMATION USED TO ESTIMATE COSTS
      6. COST ESTIMATION TECHNIQUES
      7. RISK OF BIASED DECISIONS Insensitivity to Sample Size
      8. ESTIMATING THE COST FUNCTION
      9. SMALL ANIMAL CLINIC (PART 1) CREATING A COST FUNCTION
      10. REGRESSION ANALYSIS
      11. SMALL ANIMAL CLINIC (PART 2) TWO-POINT METHOD AND REGRESSION ANALYSIS
      12. STRATEGIC RISK MANAGEMENT Small Animal Clinic (Part 2)
      13. USES AND LIMITATIONS OF COST ESTIMATES
      14. APPENDIX 2A Regression Analysis–Additional Topics
      15. MULTIPLE REGRESSION ANALYSIS
      16. PRINT MASTERS PRINT SHOP USING MULTIPLE REGRESSION TO ESTIMATE A COST FUNCTION
      17. REGRESSION ANALYSIS ASSUMPTIONS
      18. ADDITIONAL REGRESSION ANALYSIS CONSIDERATIONS
      19. APPENDIX 2B Learning Curves
    3. CHAPTER 3: Cost-Volume-Profit Analysis
      1. WIRED OR WIRELESS: ADJUSTING TO NEW MARKETS
      2. COST-VOLUME-PROFIT ANALYSIS
      3. DIE GEFLECKTE KUH EIS (THE SPOTTED COW CREAMERY) (PART 1) CVP ANALYSIS WITH INCOME TAXES
      4. RISK OF BIASED DECISIONS Optimism Bias
      5. PERFORMING CVP ANALYSES WITH A SPREADSHEET
      6. DIE GEFLECKTE KUH EIS (THE SPOTTED COW CREAMERY) (PART 2) THE INFLUENCE OF SALES MIX ON PROFITABILITY
      7. STRATEGIC RISK MANAGEMENT Spotted Cow Creamery (Part 2)
      8. ASSUMPTIONS AND LIMITATIONS OF COST-VOLUME-PROFIT ANALYSIS
      9. SMALL ANIMAL CLINIC NOT-FOR-PROFIT ORGANIZATION CVP ANALYSIS WITH TWO RELEVANT RANGES
      10. MARGIN OF SAFETY AND DEGREE OF OPERATING LEVERAGE
      11. FOCUS ON ETHICAL DECISION MAKING Temporary Labor
    4. CHAPTER 4: Relevant Information for Decision Making
      1. INTERNATIONAL OUTSOURCING: THE GOOD, THE BAD, AND THE CONTROVERSIAL
      2. RELEVANT INFORMATION FOR DECISION MAKING
      3. SPECIAL ORDERS
      4. BARKLEY BASKETBALLS SPECIAL ORDER
      5. STRATEGIC RISK MANAGEMENT Barkley Basketballs
      6. KEEP OR DROP DECISIONS
      7. HOME AIDE SERVICES KEEP OR DROP
      8. STRATEGIC RISK MANAGEMENT Home Aide Services
      9. RISK OF BIASED DECISIONS Confirmation Bias
      10. INSOURCE OR OUTSOURCE (MAKE OR BUY) DECISIONS
      11. ROADRUNNER PUBLISHERS (PART 1) INSOURCE OR OUTSOURCE
      12. FOCUS ON ETHICAL DECISION MAKING Offshoring Surgery
      13. PRODUCT EMPHASIS DECISIONS
      14. ROADRUNNER PUBLISHERS (PART 2) CONSTRAINED RESOURCE
      15. STRATEGIC RISK MANAGEMENT Roadrunner Publishers (Part 2)
      16. PRODUCT EMPHASIS: MULTIPLE RESOURCE CONSTRAINTS AND MULTIPLE PRODUCTS
      17. BERTRAM GOLF CARTS MULTIPLE CAPACITY CONSTRAINTS AND MULTIPLE PRODUCTS
      18. STRATEGIC RISK MANAGEMENT Bertram Golf Carts
      19. METHODS FOR RELAXING CONSTRAINTS
      20. QUALITY OF OPERATING DECISIONS
      21. ROADRUNNER PUBLISHERS (PART 3) INSOURCE OR OUTSOURCE WITH OPPORTUNITY COSTS
      22. APPENDIX 4A Using Excel Solver for Product Emphasis and Constrained Resource Decisions
  10. PART TWO: MEASURING AND ASSIGNING COSTS FOR INTERNAL AND EXTERNAL REPORTING
    1. CHAPTER 5: Job Costing
      1. BOMBARDIER: CUSTOM MANUFACTURING
      2. ASSIGNING PRODUCT COSTS TO INDIVIDUAL GOODS OR SERVICES
      3. JOB COSTING IN MANUFACTURING
      4. ALLOCATING OVERHEAD
      5. ALUMINUM BENDERS (PART 1) ALLOCATING OVERHEAD COSTS IN JOB COSTING
      6. GENERAL LEDGER ENTRIES FOR A MANUFACTURER
      7. SERVICE SECTOR JOB COSTING
      8. NIGHTHAWK, LLP JOB COSTING IN A LAW FIRM
      9. STRATEGIC RISK MANAGEMENT Nighthawk, LLP
      10. JOB COST INFORMATION, DECISION MAKING, AND INCENTIVES
      11. ALUMINUM BENDERS (PART 2) JOB COSTS RELEVANT FOR DECISION MAKING
      12. RISK OF BIASED DECISIONS Hindsight Bias
      13. FOCUS ON ETHICAL DECISION MAKING Overbilling Clients for Expenses
      14. SPOILAGE, REWORK, AND SCRAP IN JOB COSTING
      15. ALUMINUM BENDERS (PART 3) ASSIGNING SPOILAGE COSTS
      16. PRODUCTION QUALITY AND BEHAVIOR IMPLICATIONS
    2. CHAPTER 6: Process Costing
      1. NESTLÉ: BOTTLING WATER IN TENNESSEE
      2. ACCOUNTING FOR THE COST OF MASS-PRODUCED GOODS
      3. PROCESS COSTING METHODS
      4. RISK OF BIASED DECISIONS Lake Wobegon Effect
      5. GENERAL LEDGER ACCOUNTS FOR PROCESS COSTING
      6. PREMIER PLASTICS (PART 1) CHOOSING A PROCESS COSTING METHOD
      7. FOCUS ON ETHICAL DECISION MAKING Humane Treatment of Chickens
      8. PROCESS COSTING UNDER DIFFERENT ASSUMPTIONS
      9. PREMIER PLASTICS (PART 2) COSTS TRANSFERRED FROM ANOTHER DEPARTMENT AND DIRECT MATERIALS ADDED LATER IN THE PROCESS
      10. ALTERNATIVE SYSTEMS FOR COSTING MASS PRODUCTION
      11. ACCOUNTING FOR SPOILAGE IN PROCESS COSTING
      12. PREMIER PLASTICS (PART 3) FIFO COST REPORT WITH NORMAL AND ABNORMAL SPOILAGE
      13. STRATEGIC RISK MANAGEMENT Premier Plastics (Part 3)
      14. PROCESS COST INFORMATION AND MANAGER'S INCENTIVES AND DECISIONS
    3. CHAPTER 7: Multi-Pool, Multi-Driver Costing Methods
      1. SUN LIFE: ANALYZING THE COST OF CLAIMS PROCESSING
      2. ACTIVITY-BASED COSTING (ABC)
      3. ABC COST HIERARCHY
      4. ASSIGNING COSTS USING AN ABC SYSTEM
      5. KEENER DOORS AND WINDOWS (PART 1) COMPARISON OF ABC AND TRADITIONAL JOB COSTING
      6. STRATEGIC RISK MANAGEMENT Keener Doors and Windows (Part 1)
      7. ABC IN SERVICE ORGANIZATIONS
      8. ACTIVITY-BASED MANAGEMENT
      9. KEENER DOORS AND WINDOWS (PART 2) CUSTOMER PROFITABILITY ANALYSIS, WARRANTY COST ANALYSIS, AND ABM
      10. SWISS WATCH ABM AND THE COST OF QUALITY
      11. STRATEGIC RISK MANAGEMENT Swiss Watch
      12. FOCUS ON ETHICAL DECISION MAKING Promoting Inappropriate Uses of ABC
      13. OTHER MULTI-POOL, MULTI-DRIVER COST ACCOUNTING SYSTEMS
      14. RISK OF BIASED DECISIONS Status Quo Bias
      15. MULTI-POOL, MULTI-DRIVER SYSTEMS, DECISION MAKING, AND INCENTIVES
    4. CHAPTER 8: Measuring and Assigning Support Department Costs
      1. ALLOCATING SUPPORT DEPARTMENT COSTS IN SEATTLE
      2. SUPPORT DEPARTMENT COST ALLOCATION
      3. PROCESS FOR ALLOCATING SUPPORT DEPARTMENT COSTS
      4. DIRECT METHOD
      5. MIDDLETOWN CHILDREN'S CLINIC (PART 1) DIRECT METHOD ALLOCATION
      6. STEP-DOWN METHOD
      7. MIDDLETOWN CHILDREN'S CLINIC (PART 2) STEP-DOWN METHOD ALLOCATION
      8. RECIPROCAL METHOD
      9. MIDDLETOWN CHILDREN'S CLINIC (PART 3) RECIPROCAL METHOD ALLOCATION
      10. STRATEGIC RISK MANAGEMENT Middletown Children's Clinic (Part 3)
      11. SINGLE- VERSUS DUAL-RATE ALLOCATIONS
      12. MIDDLETOWN CHILDREN'S CLINIC (PART 4) DUAL RATES AND RECIPROCAL METHOD WITH THREE SUPPORT DEPARTMENTS
      13. STRATEGIC RISK MANAGEMENT Middletown Children's Clinic (Part 4)
      14. SUPPORT COST ALLOCATIONS, DECISION MAKING, AND INCENTIVES
      15. RISK OF BIASED DECISIONS Fairness Bias
      16. FOCUS ON ETHICAL DECISION MAKING Classifying Overhead Costs at Stanford University
      17. APPENDIX 8A Using Solver to Calculate Simultaneous Equations for the Reciprocal Method
    5. CHAPTER 9: Joint Product and By-Product Costing
      1. HYPERION–TURNING WASTE INTO PROFIT
      2. JOINT PRODUCTS AND COSTS
      3. ALLOCATING JOINT COSTS
      4. CHOOSING AN APPROPRIATE JOINT COST ALLOCATION METHOD
      5. MERRITT BROTHERS (PART 1) CHOOSING AN APPROPRIATE ALLOCATION METHOD
      6. PROCESSING A JOINT PRODUCT BEYOND THE SPLIT-OFF POINT
      7. MERRITT BROTHERS (PART 2) JOINT PRODUCT DECISION MAKING
      8. STRATEGIC RISK MANAGEMENT Merritt Brothers (Part 2)
      9. RISK OF BIASED DECISIONS Joint-Versus-Separate Preference Reversals
      10. JOINT PRODUCTS AND BY-PRODUCTS
      11. JOINT PRODUCT COSTING WITH A SALES MIX
      12. PREMIUM PINEAPPLE COMPANY JOINT PRODUCT COSTING WITH A SALES MIX
      13. STRATEGIC RISK MANAGEMENT Premium Pineapple Company
      14. JOINT COST ALLOCATIONS, DECISION MAKING, AND INCENTIVES
      15. FOCUS ON ETHICAL DECISION MAKING: Hazardous Cement
  11. PART THREE: PLANNING, MONITORING, AND MOTIVATING
    1. CHAPTER 10: Static and Flexible Budgets
      1. PLANNING FOR A MOVING TARGET
      2. BUDGETS AND THE STRATEGIC MANAGEMENT PROCESS
      3. MASTER BUDGET
      4. RISK OF BIASED DECISIONS Recency Effect
      5. UNIQUE SINKS (PART 1) DEVELOPING A MASTER BUDGET
      6. STRATEGIC RISK MANAGEMENT Unique Sinks (Part 1)
      7. FLEXIBLE BUDGETS
      8. UNIQUE SINKS (PART 2) DEVELOPING AND USING A FLEXIBLE BUDGET
      9. STRATEGIC RISK MANAGEMENT Unique Sinks (Part 2)
      10. BUDGETS AS PERFORMANCE BENCHMARKS
      11. UNIQUE SINKS (PART 3) DEVELOPING A VARIANCE REPORT
      12. STRATEGIC RISK MANAGEMENT Unique Sinks (Part 3)
      13. PEOPLE: THE CENTER OF THE BUDGETING PROCESS
      14. FOCUS ON ETHICAL DECISION MAKING: Timely Reporting of Budget Problems
      15. BEYOND TRADITIONAL BUDGETING
    2. CHAPTER 11: Standard Costs and Variance Analysis
      1. RESPONDING TO UNEXPECTED CHANGES IN RESOURCE SUPPLIES AND PRICES
      2. VARIANCE ANALYSIS AND THE STRATEGIC MANAGEMENT PROCESS
      3. STANDARD COSTING
      4. CEMENTOS JUAREZ (PART 1) SETTING STANDARD COSTS
      5. RISK OF BIASED DECISIONS Anchoring Trap
      6. STRATEGIC RISK MANAGEMENT Cementos Juarez (Part 1)
      7. DIRECT COST VARIANCES
      8. CEMENTOS JUAREZ (PART 2) VARIANCES FOR DIRECT MATERIALS AND DIRECT LABOR
      9. ANALYZING DIRECT COST VARIANCE INFORMATION
      10. CEMENTOS JUAREZ (PART 3) ANALYZING DIRECT COST VARIANCE INFORMATION
      11. OVERHEAD VARIANCES
      12. CEMENTOS JUAREZ (PART 4) OVERHEAD VARIANCES
      13. ANALYZING OVERHEAD VARIANCE INFORMATION
      14. COST VARIANCE ADJUSTMENTS
      15. FOCUS ON ETHICAL DECISION MAKING Wasted Soup
      16. APPENDIX 11A Profit-Related Variances
    3. CHAPTER 12: Strategic Investment Decisions
      1. KEEPING AN EYE ON CHINESE MANUFACTURING CAPACITY
      2. STRATEGIC INVESTMENT DECISIONS
      3. NET PRESENT VALUE METHOD
      4. BUSINESS RISK AND SENSITIVITY ANALYSIS
      5. RISK OF BIASED DECISIONS Overconfidence Trap
      6. BOULDER MEDICAL SUPPLY (PART 1) NET PRESENT VALUE WITH OPPORTUNITY COST AND SENSITIVITY ANALYSIS
      7. STRATEGIC RISK MANAGEMENT Boulder Medical Supply (Part 1)
      8. INTERNAL RATE OF RETURN
      9. PAYBACK METHOD
      10. ACCRUAL ACCOUNTING RATE OF RETURN METHOD
      11. OTHER CONSIDERATIONS FOR STRATEGIC INVESTMENT DECISIONS
      12. FOCUS ON ETHICAL DECISION MAKING The Right Thing To Do
      13. INCOME TAXES AND THE NET PRESENT VALUE METHOD
      14. BOULDER MEDICAL SUPPLY (PART 2) NET PRESENT VALUE WITH INCOME TAXES
      15. APPENDIX 12A Inflation and the Net Present Value Method
      16. CENTRAL IRRIGATION, INC. NPV ANALYSIS WITH INCOME TAXES AND INFLATION
      17. APPENDIX 12B Present and Future Value Tables
    4. CHAPTER 13: Strategic Pricing and Cost Management
      1. COMPETITION AND STRATEGIC LOSSES
      2. SECTION 1 Continuous Cost Improvement
      3. VALUE CHAIN ANALYSIS
      4. BUILDING DESIRED PROFIT INTO DECISIONS
      5. TARGET COSTING
      6. MOUNT RAINIER BIKES (PART 1) TARGET COSTING
      7. KAIZEN COSTING
      8. MOUNT RAINIER BIKES (PART 2) KAIZEN COSTING
      9. LIFE CYCLE COSTING
      10. RISK OF BIASED DECISIONS Positive Illusions
      11. LEAN ACCOUNTING
      12. SECTION 2 Price Management
      13. PRICING METHODS
      14. PROFIT-MAXIMIZING MARKET-BASED PRICE
      15. FRENCH PERFUMERY USING PRICE ELASTICITY TO CALCULATE PRODUCT PRICES
      16. OTHER MARKET-BASED PRICING METHODS
      17. COST-BASED VERSUS MARKET-BASED PRICING
      18. OTHER INFLUENCES ON PRICE
      19. FOCUS ON ETHICAL DECISION MAKING Price Gouging after Tragedy
      20. PRICING IN NOT-FOR-PROFIT ORGANIZATIONS
      21. GOVERNMENT REGULATIONS AND PRICING
    5. CHAPTER 14: Measuring and Assigning Costs for Income Statements
      1. INVENTORY: SCARCITY OR ABUNDANCE?
      2. ABSORPTION COSTING AND VARIABLE COSTING
      3. RISK OF BIASED DECISION MAKING Weasel Words
      4. BOATS AFLOAT YACHT COMPANY (PART 1) ABSORPTION COSTING AND VARIABLE COSTING INCOME STATEMENTS
      5. BOATS AFLOAT YACHT COMPANY (PART 2) RECONCILING ABSORPTION COSTING AND VARIABLE COSTING INCOME STATEMENTS
      6. THROUGHPUT COSTING
      7. COMPARISON OF ABSORPTION, VARIABLE, AND THROUGHPUT COSTING
      8. ABSORPTION COSTING USING NORMAL COSTING
      9. SKI DOODLE COMPARING RESULTS USING ACTUAL PRODUCTION VOLUMES AND NORMAL CAPACITY
      10. FLYING FORTRESS ABSORPTION AND VARIABLE INCOME STATEMENTS WITH BEGINNING INVENTORIES
      11. DECISION MAKING AND MANAGER INCENTIVES
      12. FOCUS ON ETHICAL DECISION MAKING Channel Stuffing at Bristol-Myers Squibb
    6. CHAPTER 15: Performance Evaluation and Compensation
      1. NUCOR: A GROUP OF PEOPLE IN HEADLONG PURSUIT OF A SHARED PURPOSE*
      2. AGENCY THEORY
      3. DECISION-MAKING AUTHORITY AND RESPONSIBILITY
      4. RESPONSIBILITY ACCOUNTING
      5. INVESTMENT CENTER PERFORMANCE EVALUATION
      6. COMPUTER WIZARDS (PART 1) RETURN ON INVESTMENT AND DUPONT ANALYSIS
      7. COMPUTER WIZARDS (PART 2) COMPARING ALTERNATIVE INVESTMENT CENTER MEASURES
      8. MOTIVATING PERFORMANCE WITH COMPENSATION
      9. RISK OF BIASED DECISIONS Regression to the Mean
      10. FOCUS ON ETHICAL DECISION MAKING Bailouts and Bonuses
      11. TRANSFER PRICE POLICIES
      12. COMPUTER WIZARDS (PART 3) NEGOTIATED TRANSFER PRICES
      13. ADDITIONAL TRANSFER PRICE CONSIDERATIONS
    7. CHAPTER 16: Strategic Performance Measurement
      1. WAL-MART STORES: MAINTAINING A LOW-COST STRATEGY
      2. STRATEGIC MANAGEMENT AND DECISION MAKING
      3. MEASURING ORGANIZATIONAL PERFORMANCE
      4. BALANCED SCORECARD
      5. ROYAL PHILIPS ELECTRONICS ADOPTING A BALANCED SCORECARD
      6. RISK OF BIASED DECISIONS Information Overload
      7. IMPLEMENTING A BALANCED SCORECARD
      8. COMMUNITY HOSPITAL IMPLEMENTING A BALANCED SCORECARD
      9. STRATEGIC RISK MANAGEMENT Community Hospital
      10. BALANCED SCORECARD, STRATEGIC MANAGEMENT, AND INCENTIVES
      11. FOCUS ON ETHICAL DECISION MAKING Economic Medicalization of Research Studies
      12. ENVISIONING THE FUTURE OF COST ACCOUNTING
    8. CHAPTER 17: Sustainability Accounting
      1. THE SCOOP ON SOCIAL AND ENVIRONMENTAL REPORTING AT BEN & JERRY'S®
      2. SUSTAINABLE MANAGEMENT
      3. FOCUS ON ETHICAL DECISION MAKING Rooting Out Bribery
      4. SUSTAINABILITY ACCOUNTING AND REPORTING
      5. EXTERNAL SUSTAINABILITY REPORTING
      6. RISK OF BIASED DECISIONS Greenwashing
      7. SUSTAINABILITY MANAGEMENT ACCOUNTING TOOLS
      8. PREMIER PLASTICS (PART 4) MATERIAL FLOW FIFO COST REPORT
      9. STRATEGIC RISK MANAGEMENT Premier Plastics (Part 4)
  12. Glossary
  13. Credits
  14. Organization and People Index
  15. Subject Index