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Table of ContentsIntroduction ....................................................................................................................................1

Chapter 1 Introduction to Cost Management ............................................................................3Learning Objectives ...................................................................................................................3Nature and Scope of Cost Accounting and Cost Management ................................................4Financial Accounting versus Management Accounting ............................................................5Cost Accounting versus Management Accounting ..................................................................6The Organizational Aspect of Management Function ..............................................................7Controllership ............................................................................................................................5Cost Accounting Standards Board ..........................................................................................11Cost Management in the New Production Environment ........................................................12

Chapter 1 Review Questions .....................................................................................................17

Chapter 2 Cost Classifi cations, Terminology, and Profi t Concepts .......................................21Learning Objectives .................................................................................................................21Cost Classifi cations ..................................................................................................................21Merchandising versus Manufacturing Organizations .............................................................30Income Statements and Balance Sheets Manufacturer ...........................................................32

Chapter 2 Review Questions ......................................................................................................37

Chapter 3 Cost Accounting Systems— Job Order Costing ....................................................43Learning Objectives .................................................................................................................43Job Order Costing and Process Costing Compared ................................................................43Job Order Costing ....................................................................................................................44Job Cost Records .....................................................................................................................44Job Order Costing - Illustration ..............................................................................................45Factory Overhead Application .................................................................................................54

Chapter 3 Review Questions ......................................................................................................61

Chapter 4 Activity-Based Costing ............................................................................................65Learning Objectives .................................................................................................................65Overhead Costing: A Single-Product Situation .......................................................................66Overhead Costing: A Multiple-Product Situation ...................................................................67Activity-Based Product Costing ..............................................................................................72CASB No.418 Allocation of Indirect Cost Pools ...............................................................84Using Activity-Based Costing To Make Marketing Decisions ..............................................85Activity-Based Management ...................................................................................................85

Chapter 4 Review Questions ......................................................................................................91

Chapter 5 Cost Volume Profi t Analysis.....................................................................................95Learning Objectives .................................................................................................................95Questions Answered By CVP Analysis ..................................................................................95Graphical Approach in a Spreadsheet Format ........................................................................99Some Applications of CVP Analysis and What If Analysis .................................................103Sales Mix Analysis ................................................................................................................105CVP Analysis with Step-Function Costs ..............................................................................108

Cost Management: Accounting and Control

Assumptions Underlying Break Even and CVP Analysis ....................................................110Chapter 5 Review Questions ....................................................................................................111

Chapter 6 Analysis of Cost Behavior ......................................................................................115Learning Objectives ...............................................................................................................115A Further Look at Costs by Behavior ...................................................................................115Types of Fixed Costs – Committed or Discretionary ...........................................................117Analysis of Mixed (Semi-Variable) Costs ............................................................................117Engineering Analysis .............................................................................................................118Account Analysis ...................................................................................................................118The High – Low Method .......................................................................................................119Regression Analysis ...............................................................................................................121Regression Statistics ..............................................................................................................124

Chapter 6 Review Questions ....................................................................................................127

Chapter 7 Budgeting For Profi t Planning .............................................................................131Learning Objectives ...............................................................................................................131Types of Budgets ...................................................................................................................131Monthly Cash Collections from Customers ..........................................................................135

Chapter 7 Review Questions ....................................................................................................155

Chapter 8 Responsibility Accounting, Standard Costs, and Variances ...............................159Learning Objectives ...............................................................................................................159Standard Costs and Variance Analysis ..................................................................................162General Model for Variance Analysis ...................................................................................164

Chapter 8 Review Questions ...................................................................................................183

Chapter 9 Control of Profi t Centers........................................................................................189Learning Objectives .............................................................................................................189Segmental Reporting For Profi t Centers ...............................................................................189Profi t Variance Analysis ........................................................................................................192

Chapter 9 Review Questions ....................................................................................................201

Chapter 10 Performance Measurement, Balanced Scorecard, and Transfer Pricing .......205Learning Objectives ...............................................................................................................205ROI and Profi t Planning ........................................................................................................208Residual Income (RI) ............................................................................................................211Performance and Management Compensation Decisions ...................................................218Transfer Pricing .....................................................................................................................220

Chapter 10 Review Questions .................................................................................................225

Chapter 11 Nonroutine Decisions and Life-Cycle and Target Costing ...............................231Learning Objectives ...............................................................................................................231Relevant Costs Defi ned .........................................................................................................231Keeping or Dropping a Product Line....................................................................................239

Chapter 11 Review Questions...................................................................................................251

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Chapter 12 Capital Budgeting ................................................................................................257Learning Objectives ...............................................................................................................257What are The Types of Investment Projects? .......................................................................257What Are The Features Of Investment Projects? .................................................................258Understanding the Concept of Time Value Of Money .........................................................258How to Select the Best Mix of Projects with a Limited Budget .........................................270

Chapter 12 Review Questions ..................................................................................................277

Chapter 13 Capital Budgeting and Income Taxes ................................................................281Learning Objectives ...............................................................................................................281The Long And Short Of After – Tax Cash Flows ................................................................285Types of Depreciation Methods ............................................................................................290How Does MACRS Affect Investment Decisions? ..............................................................293

Chapter 13 Review Questions ..................................................................................................297

Chapter 14 Process Costing, Cost Allocation and Joint Product Costing ..........................301Learning Objectives ...............................................................................................................301Identifi cation of System Problems and Choice of a System ................................................301Product Flow ..........................................................................................................................302Steps in Process Costing Calculations ..................................................................................303Cost-Of-Production Report ....................................................................................................304Weighted Average vs. First In First Out (FIFO) ...................................................................308Estimating Degree of Completion .........................................................................................313Managerial Use of Process Cost Data ..................................................................................314Process Costing and Decision Making .................................................................................314Spoilable in General ..............................................................................................................315Cost Allocation: Allocation of Service Department Costs to Production Departments ........................................................................................................................318Procedure for Service Department Cost Allocation..............................................................319Joint Product and Byproduct Costs .......................................................................................321Methods of Accounting for Byproduct Costs .......................................................................322

Chapter 14 Review Questions ..................................................................................................325

Chapter 15 Total Quality Management and Quality Costs ..................................................331Learning Objectives ...............................................................................................................331Quality Defi ned ......................................................................................................................331Total Quality Management .................................................................................................333Cost of Quality ......................................................................................................................336Two Different Views Concerning Optimal Quality Costs ....................................................337Quality Cost and Performance Reports .................................................................................338

Chapter 15 Review Questions ..................................................................................................347

Chapter 16 Inventory Management and Just-In-Time ........................................................353Learning Objectives ...............................................................................................................353Economic Order Point (EOQ) and Reorder Point ................................................................353Determination of Safety Stock ..............................................................................................359

Chapter 16 Review Questions ..................................................................................................369

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Glossary ......................................................................................................................................379

Final Examination Questions ...................................................................................................387

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