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(eBook PDF) Textbook of Histology 4th Edition by Leslie P. Gartner
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(Original PDF) Thirteen Theories of Human Nature 7th by Leslie Stevenson
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7.4Spoilage,reworkandscrapinjobcosting219
Normalandabnormalspoilage219
Rework221
Scrap221
Spoilageopportunitycosts221
7.5Usesandlimitationsofjobcost information222
Uncertaintiesinmeasuringjobcosts222
Uncertaintiesinestimatingfuturejob costs222
Summary224
Keyterms225
Self-studyproblems226
Questions228
Exercises229
Problems232
Acknowledgements236
CHAPTER8 Processcosting systems237 8.1Accountingforthecostofmass-produced goods238
Assigningdirectmaterialsandconversion costs238
8.2Workinprocessandequivalentunits238
8.3Processcostingmethods240
Processcostreportswithoutbeginningor endingWIP—firstmonth(March)241
ProcesscostreportswithendingWIP— secondmonth(April)243
Processcostreportswithbeginningand endingWIP—thirdmonth(May)244
8.4Journalentriesforprocesscosting246
8.5Productioncostsandmultiple productiondepartments247
Transferred-incostsandtimingofdirect materials247
8.6Accountingforspoilageinprocess costing250
8.7Usesandlimitationsofprocesscosting information252
Monitoringprocessqualityandcosts253
Processcostinginformationanddecision making253
Uncertaintiesandmismeasurementofcost flows253
Workinprocessunitsatdifferentstagesof completion253
Hybridcostingsystemsandoperation costing254
Appendix8A255
Summary256
Keyterms257
Self-studyproblems258
Questions260
Exercises261
Problems262
Acknowledgements268
CHAPTER9 Absorptionandvariable costing269 9.1Differentmeasuresofcostfordifferent purposes270
Absorptioncostingandvariable costing270
Absorptioncosting270
Variablecosting271
Absorptioncostingcomparedtovariable costing272
Reconcilingabsorptionandvariablecosting incomes274
Incentivestobuildupinventories276
Disincentivestobuildupinventories276
Uncertaintiesaboutdesirableinventory levels276
9.2Acloserlookatabsorptioncosting usingnormalcosting277
Motivationfornormalcosting277
Allocationratedenominator considerations278
Volumevariancewithnormalcosting278
Evaluatingdenominatorchoices278
9.3Comparisonofabsorptionandvariable costing279
Summary283
Keyterms284 Self-studyproblems284 Questions288 Exercises289
Problems291
Acknowledgements295
CHAPTER10 Flexiblebudgets,standard costsandvariance analysis296 10.1Flexiblebudgets297
10.2Standardcosts297
Developingstandardcosts297
10.3Varianceanalysis298
Pricevariances299
Efficiencyvariances299
Decidingwhichvariancestoinvestigate300
Analysinginteractionsbetweenincentives andvariances300
10.4Flexiblebudgetinginpractice301
Managerconclusionsandactions303
Summary308
Keyterms309 Self-studyproblems309 Questions311 Exercises311
Problems313
Acknowledgements317
Processingajointproductbeyondthe split-offpoint410
Uncertaintyandbiasinincrementalrevenue andcostestimates411
Jointproductsandby-products411
Jointproductcostingwithasalesmix413
Usesandlimitationsofjointcost information416
Summary417
Keyterms420
Self-studyproblems420
Questions424
Exercises424
Problems432
Acknowledgements440
PART2 Managementaccounting, extendingperformance measurementand strategy441 CHAPTER14 Strategyandcontrol442 14.1Managementaccountingandcontrolin a‘flatworld’443
14.2Introductiontostrategyandcontrol444
14.3Frameworksforstrategyandcontrol446
FerreiraandOtley’sperformance managementsystems framework446
Simons’leversofcontrolframework448
KaplanandNorton’sstrategymap framework449
IttnerandLarcker’svalue-based managementframework450
Flamholtz’scontrolsystem framework451
14.4Managementresponsibilityand accountabilitypractices453
Summary456
Keyterms456
Self-studyproblems456
Questions457
Exercises457
Problems459
Endnotes460
Acknowledgements460
CHAPTER15 Capitalbudgetingand strategicinvestment decisions462 15.1Capitalinvestmentdecisions463
Capitalbudgeting463 Decisionalternatives463
15.2Relevantcashflows464
15.3Netpresentvalue(NPV)method465
Presentvalueofaseriesofcashflows465
Netpresentvalueofaproject466
Identifyingareasonablediscountrate467
15.4Uncertaintiesandsensitivityanalysis467
Cashflowuncertainties467
Projectlifeanddiscountrate uncertainties468
Estimationbias468
Sensitivityanalysis468
15.5Alternativemethodsusedforcapital investmentdecisions470
Internalrateofreturn470
ComparisonofNPVandIRRmethods471
Paybackmethod471
Accrualaccountingrateofreturn method472
15.6Strategicconsiderationsforinvestment decisions472
Thetypeofinformationrequiredin decisionmaking472
Movingbaselineconcept473
Projectchampion473
Costofreversingthedecision473
Reputation,risks,environment,qualityand community474
Makingandmonitoringinvestment decisions477
15.7Incometaxesandthenetpresentvalue method478
Calculatingincrementaltaxcashflows478
15.8Inflationandthenetpresentvaluemethod479
RealandnominalmethodsforNPV analysis479
Appendix15A481
Summary489
Keyterms490
Self-studyproblems491
Questions494
Exercises494
Problems498
Endnotes504
Acknowledgements504
CHAPTER16 Thestrategicmanagementof costsandrevenues505 16.1Valuechainactivitiesforcontinuous costimprovement506
Valuechainandsupplychainanalysis506
16.2Customerprofitability509
16.3Buildingdesiredprofitintodecisions514
Targetcosting515
16.4Kaizencosting519
Usingtargetandkaizencostingover time522
16.5Lifecyclecosting522 viii CONTENTS
16.6Pricemanagement:pricingmethods523
Cost-basedpricing523
Market-basedpricing525
Cost-basedversusmarket-based pricing527
Otherinfluencesonprice528
Pricinginnot-for-profitentities528
Governmentregulations,ethicsand pricing529
Summary530
Keyterms532
Self-studyproblems533
Questions534
Exercises535
Problems539
Endnotes544
Acknowledgements545
CHAPTER17 Strategicmanagement control:alean perspective546 17.1Leanthinkingphilosophy547
17.2Theoryofconstraints550
Throughputcosting551
TOCperformancemeasurement553
Benefitsandlimitationsofthetheoryof constraintsandthroughput costing553
17.3Just-in-time(JIT)production557
17.4Totalqualitymanagement(TQM): managingquality559
Valuechainapproachtoquality management560
Summary563
Keyterms564
Self-studyproblems564
Questions565
Exercises566
Problems571
Endnotes572
Acknowledgements573
CHAPTER18 Responsibilityaccounting, performanceevaluationand transferpricing574 18.1Decision-makingauthorityandresponsibility575
Centralisedanddecentralisedentities575
Generalversusspecificknowledge576
Technologyandglobalisation577
18.2Responsibilityaccounting577
Costcentres578
Revenuecentres578
Profitcentres579
Investmentcentres579
Responsibilitycentresandsuboptimal decisionmaking579
18.3Income-basedperformanceevaluation579
Returnoninvestment580
AdvantagesanddisadvantagesofROI582
Residualincome583
Advantagesanddisadvantagesofresidual income584
Economicvalueadded584
AdvantagesanddisadvantagesofEVA585
Income-basedperformanceevaluationinthe publicsector586
18.4Transferpricing586
Transferpricesandconflictsamong managers587
Settinganappropriatetransferprice588
18.5Additionaltransferpriceconsiderations592
Internationalincometaxes592
Transferpricesforsupportservices592
Settingtransferpricesforinternal services593
Transferofcorporateoverheadcosts593
Summary594
Keyterms595
Self-studyproblems596
Questions597
Exercises598
Problems601
Endnotes605
Acknowledgements606
CHAPTER19 Thebalancedscorecardand strategymaps607 19.1Measuringorganisationalperformance608
Financialandnon-financialmeasures608
19.2Strategymaps612
19.3Thebalancedscorecard614
Financialperspectiveandrelated measures615
Customerperspectiveandrelated measures615
Internalbusinessprocessperspectiveand relatedmeasures615
Learningandgrowthperspectiveandrelated measures617
Roleofsocialmediaperformance measures620
Usingthebalancedscorecarddiagnostically orinteractively(leversofcontrol)621
Beliefsystems,boundarysystemsandthe balancedscorecard622
19.4Stepsinimplementingabalanced scorecard622
Clarifyvision,corecompetenciesand strategies623
ABOUTTHEAUTHORS AlbieBrooks
DrAlbieBrooks,BCom,DipEd,MBus,PhD,FCPA,isaSeniorTeachingFellowintheDepartmentof AccountingattheUniversityofMelbourne.Histeachingispredominantlyintheareasofmanagement accountingandmanagerialcontrol.Albie’steachingexperienceincludesbothundergraduateandpostgraduatelevelsinbothdomesticandinternationalsettings.Hehasaparticularinterestincreatingand developingstudentengagementinthestudyofaccounting.Hisresearchactivitiesrelatetoteachingand learning,managementaccountingandcorporategovernanceissues.
JudyOliver DrJudyOliver,BBus,MBus,PhD,joinedSwinburneUniversityin2008asaSeniorLecturerin Accounting.Overthepast24years,shehasalsoheldappointmentsatVictoriaUniversityandthe UniversityofTasmania.Judyteachesfirst-yearaccountingandmanagementaccountingatboththe undergraduateandpostgraduatelevels.Herresearchinterestsareintheareasofmanagementaccounting controlsystemsandcorporategovernance.Shehaspublishedinjournalssuchasthe AustralianAccounting Review,InternationalJournalofQuality&ReliabilityManagement andthe JournalofAccounting& OrganizationalChange
GillianVesty
Dr GillianVesty,BBus(Acc),MBus(Res),PhD(Melb),CPA,isaSeniorLecturerinManagement Accounting.ShecoordinatesanundergraduatemanagementaccountingcourseatRMIT,teachingin campusesinAustralia,Singapore,IndonesiaandVietnam.Havingspent20yearsinthehealthcaresector, Gillian’sresearchinterestsincludepublichospitalfundingmodels,performancemeasurementandcapital budgeting.Hermorerecentresearchfocushasbeenonsustainabilitymanagementaccountingand,together withAlbieBrooks,hasbeendevelopingcomputersimulationsforenhancedstudentlearning.
RodneyDormer DrRodneyDormer,CA,B.Com(Auck.),MMgt(Well.),PhD(Well.),teachesmanagementaccountingand publicsectoraccountingandmanagementatundergraduateandpostgraduatelevelsatVictoriaUniversity ofWellington,NewZealand.Hehaspreviouslyheldseniorfinancialandoperationalmanagement positionsinboththeprivateandpublicsectors.Hisresearchinterestsarefocusedonhowinformation isusedtodefineanddirectorganisationalperformanceandhow,attimes,competingperspectivesshape thatdefinition.
VijayaMurthy
DrVijayaMurthy,MCom,MPhil,GradDipl,CMA,PhD,isaSeniorLecturerofAccountinginthe UniversityofSydneyBusinessSchool.Priortothis,VijayaworkedforNationalAustraliaBankin variouscapacities.ShestartedhercareerasaLecturerinAccountinginIndiateachingbothmanagement accountingandfinancialaccounting.Currently,Vijayaspecialisesinteachingmanagementaccounting, andhasdevelopedmanagementaccountingcurriculumandcoordinatedthemanagementandconductof theManagementAccountingProgramatundergraduatelevel.Shealsoteachesmanagementaccounting atthepostgraduatelevel.Vijayaisanactiveresearcherinthemanagementaccountingfield,specifically inrelationtotheuseofnon-financialinformationbymanagersandmanagementcontrols.
NicholasPawsey
DrNicholasPawseyisaSeniorLecturerinAccounting.DrPawseyjoinedCharlesSturtUniversity,Albury campusin2016.HehasextensiveacademicexperiencehavingpreviouslyheldthepositionsofAcademic CoordinatorfortheLaTrobeBusinessSchool,Wodongacampus,andLecturerinAccountingatCharles SturtUniversity,Bathurst.
Hisresearchinterestsincludeinternationalaccountingconvergence,waterpolicyandmanagement, publicsectoraccounting,andaccountingeducationandhehaspublishedanumberofjournalarticles, bookchaptersandconferencepapersinrelationtothesetopics.
PREFACE ManagementAccounting,fourthedition,combinesthebasictechnicalissuesassociatedwithcostmanagement,managementaccountingandcontrolwithmorerecentandemergingthemesandissues.This providesstudentsofcostandmanagementaccountingwithamorecompletepictureofthediscipline. Thetextfocusesonhelpingstudentstolearnthroughtheapplicationofcostandmanagementaccounting methodstoavarietyoforganisationalsettings,andbyprovidingadiversesetofstudenttasksattheend ofeachchapter.
Hallmarkfeaturesofthefourtheditioninclude:
• anintroductiontothevaluechainframeworkinchapter1andtheuseofthisframeworkasavehicleto explorearangeofmanagementaccountingissues
• afocusonmanagementaccountinginformationfordecisionmaking
• astudent-friendlystylewiththeuseofdiagramsforillustrativepurposesandcomprehensiveexamples withinandattheendofchapters
• expandedcoverageonjob,processandabsorptioncosting
• achapterfocusedspecificallyonsustainabilitymanagementaccountingthatisalsolinkedtoother chaptersinthetext.
TheauthorswouldliketothankDrKennethKefromCurtinUniversityforproducingthePowerPoints forthenewedition,andDrJayceNaidoofromVictoriaUniversityforupdatingthetestbank.
Chapterfocus Part1Managementaccountingandcostmanagement Chapter1Theroleofaccountinginformationinmanagementdecision making
Chapter1providesanoverviewoforganisationaldecisionmakingandintroducesstudentstotheuse ofmanagementaccountinginformationindecisionmaking.Abriefhistoryofmanagementaccounting isprovided,alongwithdiscussionoftheemergingUber-stylevaluenetworksandkeyinfluenceson managementaccountingsystemdesigns.Techniquesforidentifyingandusingrelevantinformationare reviewed.Amodelfordevelopinghigherqualitydecisionsisintroduced.Wethenprovideanintroduction tosomekeytermsanddetailthevaluechainasaframeworkforconsiderationofarangeofmanagement accountingissues.
Chapter2Costconcepts,behaviourandestimation Wefirstreviewaccountingtermsthatrelatetocostbehaviourandexplainthecostfunction.Atthispoint wealsodiscusslimitationsoftheinformationproducedbycostfunctionsandproblemswithuncertainties andbiasindevelopingcostfunctions.Thisfocusallowsstudentstoconsiderthequalityofinformation astheylearncostaccountingmethods.Wepresentandillustratecostestimationtechniquesthatareused todescribecostbehaviour(engineeredestimates,analysisattheaccountlevel,thetwo-pointmethodand regressionanalysis).Scatterplotsandregressionanalysisareintroducedasawaytoprovideadditional informationaboutcostbehaviour.Linearandnonlinear(forexample,learningcurve)costfunctionsare presented.
Chapter3Acostingframeworkandcostallocation Inthischapterwefirstexploretheconceptsofcostobjects,anddirectandindirectcosts.Wethenoutline acostingframeworkandusethisframeworktoexplorecostallocationissueswithaparticularfocuson serviceentitysettings.Wethenusethecostingframeworkinasupportdepartmentsettingbyexploring thedirect,step-down,andreciprocalmethodsofallocation.Finally,wediscusssomeofthelimitations,or risks,ofallocatedcostinformation.
Chapter4Cost–volume–profit(CVP)analysis Wefirsthighlightthemeaningofcost–volume–profitanalysisanditsimportanceindecisionmaking.Then, singleandmultipleproductexamplesareusedtoexplorethedevelopmentanduseofCVPinformation, beforeandaftertaxes.Themarginofsafetyandoperatingleverageareintroducedandusedtoanalyse riskofoperations.ExamplesshowtheuseofCVPinformationforbothdecision-makingandmonitoring
purposes.Examplesofspreadsheetswithinputsectionsandcellreferencingareintroducedintheappendix sothatstudentscaneasilyperformsensitivityanalysis.Additionalinformationisprovidedontheuseof spreadsheetsinperformingCVPanalysis.
Chapter5Planning—budgetingandbehaviour Thischapteremphasisesthestrategicnatureofplanningandbudgetingthroughaconsiderationofplanning mechanismstotestalternativecoursesofaction(strategicbudgeting),planningissuesincostcentresand contemporaryapproachestobudgeting,includingthere-invigorationofzero-basebudgetingtoreignin corporateexcesses.OthertechniquessuchasprogrambudgetingandBeyondBudgetingprinciplesare discussed.Thedysfunctionalandbehaviouralimplicationsofbudgetingarehighlighted.
Chapter6Operationalbudgets Budgetingissuesareexploredasatoolforbothshort-termandlong-termplanning.Weoutlinetherole ofthemasterbudgetanddemonstratethecompilationofkeycomponentsofthemasterbudget.We thendescribeandillustratetheroleofthecashbudget,followedbytheuseofbudgetsasperformance benchmarksthroughtheapplicationofstaticandflexiblebudgets.
Chapter7Jobcostingsystems Chapter7introducesjobcostingasitrelatestothefinancialreportingprocess.Thefirstpartofthechapter demonstratestheflowofcoststhroughthemanufacturingprocessandcalculatestheinventoriableproduct costforcustomisedproducts.Actualversusnormaljobcostingmethodsarecompared,andcalculations foroverandunderappliedoverheadareexplained.Wealsoincludeadiscussionofthecostsofspoilage, reworkandscrapinjobcosting,describingopportunitycoststhatarisefrompoorquality.Behavioural implicationsoftheaccountingmethodsusedtorecordspoilageareexplored.
Chapter8Processcostingsystems Chapter8presentsprocesscostingmethodsusingFIFOandweightedaverage.Wedevelopasingleformat thatisusedtocalculateequivalentunitsforboththeFIFOandweightedaveragemethodsandhelpstudents understandthedifferencebetweenthetwomethods.Inaddition,accountingmethodsforthespoilage, reworkandscrapthatariseinmassproductionareillustrated.Finally,weexploretheusesandlimitations ofprocesscostinformation.
Chapter9Absorptionandvariablecosting Absorptionandvariableincomestatementsarecomparedandcontrastedinthischapter.Factorsthataffect thechoiceoffixedoverheadallocationratevolumemeasures(theoretical,practical,normalandbudgeted) areexplored.Theusesandlimitationsofinformationproducedbythesethreeincomestatementsare discussed.Severalexamplesandproblemsaddresstheincentivesunderabsorptioncostingofinventory builduptoimprovethecurrentperiod’sincome.
Chapter10Flexiblebudgets,standardcostsandvarianceanalysis Thedevelopmentanduseofdirectandoverheadcoststandardsandvariancesarepresentedinthischapter. Weexplorehowstandardsareestablishedandhowvariancesarecalculatedandthenanalysed.Theuse ofstandardsallowsthe‘flexing’ofthestaticbudgettoenableactualperformancetobeassessedagainsta budgetfortheactuallevelofactivity.
Chapter11Varianceanalysis:revenueandcost
Thischapterfurtherexplorestherevenueandcostvariancesintroducedinchapter8.Thevariancesare furtherbrokendowntoprovidemoreinsightintothevariance,whetherthisisduetomarketconditionsor operatingprocesses.Tofurtherexplorethevariancesbetweenactualsalesandbudgetedsales,therevenue variancesarefurtherbrokendownintomarketsize,marketshareandproductmixvariances.Thefocus onoperatingactivitiesisseenintheanalysisofthedirectcostandoverheadcostvariancesintopriceand efficiencycomponents.
Chapter12Activityanalysis:costingandmanagement Activityanalysisforcostingandmanagementareintroducedinthischapter.Asacostingtool,comparisons aredrawnbetweenactivity-basedcosting(ABC)derivedcostsandconventionallyderivedcosts.We introducetheABCcosthierarchyandexplorethebenefits,costandlimitationsofABCandactivity-based
management.Withafocusonmorerecentdevelopmentsincosting,weillustratetime-drivenABC.We usebothservice-entityandmanufacturingsettingswithinthechapter.
Chapter13Relevantcostsfordecisionmaking Non-routinedecisionssuchasspecialorder,makeorbuy,keepordrop,productemphasisandmaximising constrainedresourcesarecoveredinthefirsthalfofthischapter.Asthechapterprogresses,weconsiderthe impactofuncertaintiesandlimitationsofnon-routineoperatingdecisionsaswellasinformationquality issues.Thesecondhalfofthechapterdiscussesandillustratesissuesassociatedwithjointcostingusing physicalvolume,salesatthesplit-offpoint,netrealisablevalueandconstantgrossmarginNRVmethods.
Part2Managementaccounting,extendingperformance measurementandstrategy Chapter14Strategyandcontrol Thischapterintroducesandreinforcesthelinksbetweenstrategyandthemanagementaccounting/control system.Weexploremanagementaccountingina‘flat’world,andanumberofexistingframeworks ofstrategyandcontrolincludingthoseproposedbyOtley(1999),Simons’s(1995)leversofcontrol framework,KaplanandNorton’s(2008)strategymapframework,IttnerandLarcker’s(2001)value-based managementframeworkandFlamholtz’s(1996)controlsystemframework.Theseprovidealternative waysofviewingthestrategyandcontrolrelationship.Weconcludethechapterwithadiscussionof managementresponsibilityandaccountabilitypractices.
Chapter15Capitalbudgetingandstrategicinvestmentdecisions Netpresentvalueanalysis,internalrateofreturnandothercapitalbudgetingtechniques(paybackand accountingrateofreturn)aredescribedandcomparedandcontrastedinthischapter.Theseareexploredin thecontextofaprocessforaddressingcapitalbudgetingdecisions.Exampleswithincreasingcomplexity developcapitalbudgetingwithincometaxes.Uncertainties,sensitivityanalysisandbiasincapitalbudget informationareemphasisedinthischapter.Thechapteralsoexploresstrategicconsiderationsforcapital investmentdecisionswhichimpacttraditionalmodelsforcapitalinvestmentdecisions.Inflationeffectsare consideredintheappendixusingboththerealrateandnominalratemethods.
Chapter16Thestrategicmanagementofcostsandrevenues Chapter14exploresarangeofissuesrelatingtothestrategicmanagementofcostsandrevenues,including valuechainanalysisandcontinualcostimprovement,customerprofitabilityanalysis,targetcostingand kaizencosting,lifecyclecosting,alternativepricingmethodsandrevenuevarianceanalysis.Eachofthese isexploredastoolstoachievelonger-termefficiencygainsandprofitabilityimprovement.
Chapter17Strategicmanagementcontrol:aleanperspective
Thefocusofthischapteristheconceptofleanaccounting,whichisexploredinsomedetail.Othertopics exploredinthechapterincludethetheoryofconstraints,totalqualitymanagement(TQM)andcostsof quality,andissuesassociatedwithjust-in-timemanufacturing(JIT).Overallthefocusisonpracticesthat utiliseforward-lookingtechniquestoreduceinventories,streamlineprocessesandeliminatewaste.
Chapter18Responsibilityaccounting,performanceevaluationandtransfer pricing
Inthischapter,weinitiallyexploreissuesassociatedwithresponsibilityaccountingandresponsibility centreclassification.Wethenexploretheuseofincome-basedperformancemeasuresandcompareuse ofreturn-on-investment(ROI),residualincome(RI)andeconomicvalueadded(EVA)askeyfinancial performancemeasuresattheinvestmentcentrelevel.Transferpricingissuesarethenaddressedthrougha considerationandcomparisonofdifferenttransferpricingmethods.
Chapter19Thebalancedscorecardandstrategymaps
Thischapterfirstlyemphasisestheroleofstrategymaps,particularlytooperationalisestrategyandasa tooltoinformthedevelopmentofbalancedscorecards.Thebalancedscorecardisthenintroducedasa methodthatcanbeusedtocombinefinancialandnon-financialperformancemeasurestogaugeprogress andmotivateemployees.Thestrengthsandweaknessesofthebalancedscorecardarediscussed,including
uncertaintiesaboutthebestchoiceofmeasures,mistakesinimplementationandtheeffectsofbiason performancemeasurechoices.
Chapter20Rewards,incentivesandriskmanagement Wecommencethischapterwithadiscussionoftherelevanceofagencytheorytorewardsystemsand incentives.Wethenfocusonarangeofissuesassociatedwiththeincentivecomponentofrewardsystems, includingthekeycomponentsofincentiveplans,theadvantagesanddisadvantagesofcashandequity askeycomponentsofincentiveplans,andhowcompensationisusedtomotivateperformance.Wethen exploreanumberofemergingthemeswithrespecttorewardsystems,includingrelativeperformance evaluation,pay-for-performanceandtheimpactofgovernmentandregulatoryauthorities.Thechapter concludeswithanexplanationofriskmanagementandtheroleofperformancemeasurementand incentivesinriskmanagement.
Chapter21Sustainabilitymanagementaccounting Chapter21emphasisestherelevanceofstrategicmanagementaccountingforasustainabilityculture. Theemergingandveryrealglobalsustainabilitylandscapehasincreasedthescrutinyonorganisational, environmentalandsocialpractices.Inthischapter,examplesofhowsustainabilitymanagementaccounting canprovidemanagerswithstrategicallyrelevantinformationforsustainabilityperformancereporting andmanagementdecisionmakingareprovided.Theaimistoincreasestudentawarenessoftheglobal sustainabilityparadigmandtherolethatsustainabilitymanagementaccountingcanplay.
Chapterfeatures ManagementAccounting,fourthedition,usesanumberofpedagogicalfeaturesandacommonstructure ineachchaptertoenhanceteachingandlearning.Eachchaptercontains:
• abriefintroductionandsetoflearningobjectives,whichalsoserveasthebasisofthechaptersummary attheendofeachchapter
• theuseofillustrativeexampleswithineachchapter,withmostcontainingoneormorecomprehensive examples
• achaptersummaryattheendofeachchapter
• self-studyproblemswithsuggestedsolutionoutlinesforstudentstochecktheirprogressandunderstanding
• gradedtasksattheendofeachchapter,classifiedintodiscussionquestions,exercisesandproblems.
PART1 MANAGEMENT ACCOUNTINGAND COSTMANAGEMENT Inpart1ofthistextweintroducearangeofmanagementaccounting/controltechniquesandpractices, withanemphasisoncost-relatedtechniques.Thecontentofthechaptersinpart1comprisesthe foundationofanymanagementaccountingsysteminanorganisation.Followinganintroductiontothe valuechainasaframeworkformanagementaccountinginchapter1,subsequentchaptersexplorea rangeofcost-relatedtechniques.Inpart2,weextendourcoveragetoarangeofbroadermanagement accounting/controlpractices.
1 Theroleofaccountinginformationinmanagementdecisionmaking2
2 Costconcepts,behaviourandestimation25
3 Acostingframeworkandcostallocation62
4 Cost–volume–profit(CVP)analysis105
5 Planning—budgetingandbehaviour141
6 Operationalbudgets167
7 Jobcostingsystems209
8 Processcostingsystems238
9 Absorptionandvariablecosting270
10 Flexiblebudgets,standardcostsandvarianceanalysis297
11 Varianceanalysis:revenueandcost319
12 Activityanalysis:costingandmanagement360
13 Relevantcostsfordecisionmaking393
Theroleofaccounting informationin managementdecision making LEARNINGOBJECTIVES Afterstudyingthischapter,youshouldbeableto:
1.1 recognisethetypesofdecisionsmanagersmakeforanorganisation
1.2 discusstheroleofcostandmanagementaccountinginformationinmanagementdecisionmaking
1.3 communicatehowmanagerscanmakehigher-qualitydecisionsusingaccountinginformation
1.4 describethevaluechainframeworkanditsapplicationsinmanagementaccounting.
INBRIEF Managersusecostandmanagementaccountinginformationtohelpthemmakedifferenttypesofdecisions. Theseincludedevelopingorganisationalstrategies,creatingoperatingplans,andmonitoringandmotivating organisationalperformance.Higher-qualitydecisionsareachievedbyusinghigher-qualityrelevantinformation anddecision-makingpractices.Thevaluechainprovidesuswithasuitableframeworkfromwhichtoexplorea rangeofmanagementdecisionsaswellasaframeworkformanyoftheissuesraisedintheremainderofthetext.
1.1Managementdecisionmaking LEARNINGOBJECTIVE1.1 Recognisethetypesofdecisionsmanagersmakeforanorganisation. Peopleatdifferentlevelswithinanentitycontinuallymakemanydifferentkindsofdecisions.Theserange fromlong-termdecisions,suchaswhichmarketsandcustomerstheorganisationwillpursue,todetailed operationalandshort-termdecisions,suchashowtorespondtospecificcustomerenquiriesonaday-todaybasis.Figure1.1presentsanoverviewofthedecisionsthatmanagersmakeinorganisations.Italso suggeststherolethatinformationsystemshaveinmeasuring,monitoringandmotivatingperformance.We willbrieflydiscusseachofthecomponentsillustratedinfigure1.1.
Organisationalvision Themostfar-reachingdecisionmanagersmakeistoidentifyandshapetheorganisation’svision.The organisationalvision isthecorepurposeandideologyoftheentity,whichguidestheentity’soverall directionandapproachestowarditsvariousstakeholdergroups.Stakeholdergroupsincludeshareholders, owners,employees,customers,suppliers,lenders,localcommunitiesandthebroadersociety.Organisationalsuccessincreaseswhenemployeesunderstandtheorganisationalvisionandworkcollectively toachieveit.Toclarifyandcommunicatethevisiontoemployeesandotherstakeholders,managers sometimesdividethevisionintooneormorewrittenstatements.Thedefinitionsofthesestatementsvary fromentitytoentity.Ingeneral,avisionstatementisatheoreticaldescriptionofwhattheorganisation shouldbecome.Amissionstatementisahigh-leveldeclarationoftheorganisation’spurpose.Acorevalues statementisasummaryofthebeliefsthatdefinetheorganisation’sculture.Somemanagersalsopublish codesofconductorstatementsdescribingtheorganisation’ssocialorenvironmentalresponsibilities.Of course,whatisreallyimportantisthatthebeliefsandvaluesunderpinmanagerialactionandare‘lived’ ratherthanjustbeingwrittenindocuments.
Organisationalcorecompetencies Organisationalcorecompetencies aretheentity’sstrengthsrelativetocompetitors.Theorganisational visionandcorecompetenciesarecloselyrelated.Tocreatevalueforstakeholders,anorganisationmust havestrengthsrelativetocompetitors.Thevisionshouldbuildonexistingandachievablestrengths.Of course,thesecorecompetenciesneedtoberevisitedfromtimetotimeasboththeinternalandexternal environmentschange.
Organisationalstrategies Organisationalstrategies arethetacticsthatmanagersusetotakeadvantageofcorecompetencieswhile workingtowardstheorganisationalvision.Althoughtheterm strategies canmeandifferentthingsto differentpeopleandorganisations,itcommonlyrelatestoprovidingdirectionandguidinglong-term decisions.Tomonitorstrategicprogress,managersestablishandmonitorlong-termgoalssuchasmarket leadershiporhigh-qualitycustomerservice.
Broad-basedorganisationalstrategiesarecommonlyclassifiedas:
• lowcost,wheretheemphasisisoncompetingoncost
• productdifferentiation,wheretheemphasisisoncompetingonpointsofdifferencesuchasqualityof serviceorproductattributes.
FIGURE1.1 Overviewofmanagementdecisionmaking
Thestrategyoftheorganisationisakeyinfluenceonthestructureandnatureoftheorganisation’s informationsystemand,inturn,themanagementaccountingandcontrolsystem.
Operatingplans Operatingplans involvespecificshort-termdecisionsthatshapetheorganisation’sday-to-dayactivities suchasdrawingcashfromabanklineofcredit,hiringanemployeeororderingmaterials.Operatingplans oftenincludespecificperformanceobjectivessuchasbudgetedrevenuesandcosts.
Actualoperations Actualoperations arethevariousactionstakenandresultsachievedoveraperiodoftime.Actual operationsincludecustomerordersreceived,revenuesearned,numberofemployeeshired,costsincurred, unitsofgoodsorservicesproduced,cashreceivedandpaid,andsoon.Dataaboutactualoperations arecollectedandmeasuredbytheorganisation’sinformationsystemandthenusedtomonitorand motivateperformance.
Measuring,monitoringandmotivatingperformance Managersneedinformationtohelpthemmakethetypesofdecisionsindicatedinfigure1.1.Forexample, managersneedinformationaboutcoststohelpthemdecidewhethertosellaparticularproductorwhat pricetoset.Theyalsoneedinformationtomeasureactualoperationssothattheycanmonitorthe successoftheirdecisionsandmotivateemployeestoworktowardstheorganisationalvision.Decisions aremonitoredbycomparingactualoperatingresultstoplans(suchasbudgets)andtolong-termgoals. Desirableemployeebehaviourisoftenmotivatedbytyingemployeeperformanceevaluationandpayto long-termorshort-termresults.Anorganisation’sinformationsystemcanbedesignedtomeasureand reportinformationusedfordecisionmakingaswellasformonitoringandmotivating.
Whileorganisationalinformationsystemswillcommonlyhaveanumberofcomponents,witheach focusingonspecificsupport(forexample,humanresourcesinformation,technologyinformation,marketinginformation,productioninformationandaccounting-relatedinformation),ourfocusinthistextison theroleofcostandmanagementaccountinginformation.
Wewillrevisitanumberoftheseissuesinchapter14,whichintroducesthesecondpartofthetext.
1.2Costandmanagementaccountingfor decisionmaking LEARNINGOBJECTIVE1.2 Discusstheroleofcostandmanagementaccountinginformationin managementdecisionmaking.
Costaccounting informationisusedforbothmanagementandfinancialaccountingactivities.TheInstitute ofManagementAccountants(IMA)defines costaccounting as‘atechniqueormethodfordetermining thecostofaproject,process,orthing’.1 Costaccountingiscommonlyregardedastheprecursortothe morerecentlydevelopedterm managementaccounting,whichhasasomewhatbroaderperspective.
Costaccountinginformationoftenservesasaninputintobroadermanagementaccountingandfinancial accountingsystems.Inthisway,costaccountingisoftenviewedasasubsetofmanagementaccounting inparticular,andfinancialaccountingtoalimitedextent. Managementaccounting istheprocessof gathering,summarisingandreportingfinancialandnon-financialinformationusedinternallybymanagers tomakedecisions.Anexampleofcostaccountinginformationthatisalsomanagementaccounting informationisabreakdownofcustomerservicecostsbybothproductlineandaveragecostpercustomer servicecall. Financialaccounting istheprocessofpreparingandreportingfinancialinformationused mostfrequentlybydecisionmakersoutsideoftheentity,suchasshareholdersandcreditors.Anexample ofcostaccountinginformationthatisalsofinancialaccountinginformationisthevaluationofending inventoryshownonthestatementoffinancialposition(alsocalledthebalancesheet).
Managersusemanytypesofinformationtohelpthemmakedecisions.Informationcanbegatheredformallyorinformally.Formalmethodsincludepoint-of-serviceopticalcharacterreaders,such asthoseusedwhencustomerspurchasemerchandiseatretailstores.Suchsystemstrackinventory levels,geographicdistributionofsales,trends,therelationshipbetweenpricesandsales,andsoon. Informalmethodsarealsoimportantforcollectinginformationfrominsideoroutsidetheorganisation.
Forexample,individualsinsideacompanyoftengatherproductpricinginformationbyreadingindustry tradejournalsorexaminingcompetitors’websites.
Mostorganisationshavemanydatabasesthatcontaininformationcollectedformallyorinformallyfrom internalorexternalsources.Accesstodatabaseinformationisoftenrestrictedtospecificindividuals.In addition,muchvaluableinformationisnotreadilyaccessiblebecauseitisheldinthemindsofemployees. Thisinformation,called intellectualcapital,isnotformallycapturedbytheinformationsystem.Thus,it isdifficultfordecisionmakers,evenwithinanorganisation,togainaccesstoalloftheinformationthey mightwishtouse.Itiseasytoarguethatmanagersshouldobtainmoreandbetterinformationtohelpthem makedecisions.However,thebenefitmustexceedthecostofgeneratingtheinformation.
Tofacilitateinternaldecisionmaking(oftenaroleformanagementaccounting)andmeetexternal reportingrequirements(akeyroleoffinancialaccounting),accountingdepartmentswithinorganisations usesoftwaretogenerateavarietyofinternalandexternalreportsthatsummariseorhighlightinformation. An internalreport isadocumentthatpresentsinformationforuseonlyinsideanorganisation.An externalreport isadocumentthatpresentsinformationpredominantlyforuseoutsideanorganisation. Figure1.2summarisescommontypesofinternalandexternalreports.
FIGURE1.2 Examplesofinternalandexternalreports
Information systems
Information gathered from inside the organisation (e.g. actual operations, design specifications for a new product)
Databases and software
External reporting
Shareholder reports
• financial statements (generally accepted accounting principles and accounting standards)
• news releases
Other stakeholder reports
• credit reports
• inventory reports for suppliers
Government reports
• tax returns
• cost reports (Medicare, defence contractors etc.)
Information gathered outside the organisation (e.g. economic trends and customer preferences)
Internal reporting
Support organisational strategies
• capital budgets
• product development
• analysis of potential acquisitions
Support operating plans
• operating budget
• analysis of product mix
• cash flow plan
Monitor and motivate
• actual versus planned performance
• bonus calculations
• supplier quality
Internalreportsaredesignedtoprovideinformationforavarietyofmanagementdecisions.Some internalreports,suchasmonthlysalessummaries,areissuedregularly.Otherinternalreports,suchas theanalysisofapotentialbusinessacquisition,aregeneratedforone-timeuseandcommonlyservea specialpurpose.
Externalreportscanbedistributedtodifferentconstituenciesformanypurposes.Someexternalreports, suchasincometaxreturns,aremandatory.Othersarediscretionary,suchasanewsreleaseaboutajoint ventureagreement.
Althoughreportsaredevelopedforaspecificaudience,theymaybeusedforotherpurposes.For example,internalreportssuchasquarterlysalesdatacanbesharedwithpeopleoutsidetheorganisation. Similarly,externalreportssuchasfinancialstatementsaresometimesusedwithintheorganisation.In addition,organisationsusereportspreparedoutsidetheorganisation(forexample,byconsultantsor vendors)forinternaldecisionmaking.Withincreasingdemandsforinformationbothinternallyand externally,somemightarguethatthedifferencesbetweeninternalandexternalinformationarebecoming increasingblurred.
Keyinfluencesonmanagementaccountingsystemstructure
Likeanysystem,themanagementaccountingsystemrequiresinput,processingandoutputstages.The managementaccountingsystemislikelytobelinkedtothefinancialaccountingsystem(asoutlined earlier)butwillcommonlyalsohaveitsowndomainandreportingmechanismstomeettheneedsof managers.Whileanymanagementaccountingsystemwillcompriseanumberofcomponents(suchas costing,performancemeasurementandevaluation,andbudgeting),someofthekeyinfluencesonthe natureofthemanagementaccountingsystemmightinclude:
• organisationalstructure,whichrelatestosuchthingsasthelevelofcentralisationversusdecentralisation andhowhierarchicalorflatthestructureis
• theavailabilityofinformationtechnologyandtheuseofthattechnologyaspartoftheinformation systeminterface
• organisationalstrategies,suchastheuseofalow-coststrategyordifferentiationstrategy
• cultureandorganisationalvision
• howthemanagementaccountingroleisviewedwithintheorganisation,whichrelatestowhether managementaccountingassumesaproactiveorreactiverole,aninformation-provider-onlyroleoran information-provider-and-decision-makerrole
• thetypesofdecisionsmanagersareconfrontedwith,suchaslong-termstrategicdecisionsandshorttermoperatingdecisions
• externalinfluences,suchasenvironmentalandotherregulations.
Themanagementaccountingsystemwillcommonlybeacombinationofregular,routinereporting andone-offspecialstudiesornon-routinereporting.Wewouldexpecttofindmanagementaccounting informationperformingarolein:
• developingstrategiesthroughtheprovisionofinformationonalternativestrategiesandpossible outcomes
• routinemeasuring,monitoringandfeedbackprocessestomanagersrelatingtooperations
• developingsuitablecostandperformancemeasures
• developingspecificinformationdatabasestomeettheneedsofindividualmanagers/departments
• participatingindecision-makingmeetingsaswellasprovidinginformationforsuchmeetings
• linkingperformancemeasurestoincentiveplans.
Costandmanagementaccounting,yesterdayandtomorrow Costaccountingtechniquesdatebacktotheindustrialrevolutionandbecamepopularintheearly1800s. Asorganisationsizeincreased,theneedformeasuring,monitoringandmotivatingperformancegrew.By themid1800s,costaccountingpracticeswerewelldeveloped.Forexample,intheUnitedStates,railroad accountantscalculatedthecostperton-mileandoperatingexpensesperdollarofrevenue.OneoftheearliestdetailedcostingsystemswasdevelopedforthesteelmillsofAndrewCarnegie(USsteelmanufacturer andphilosopher),forwhichmaterialandlabourcostinformationwasproducedonadailybasis.Then,in theearly1900s,organisationswererequiredtoprovideexternalreportssuchasfinancialstatementsandtax returns.Becausethecostofkeepingtwosetsofbooksforseparateinformationrequirementswasrelatively high,costaccountingfocusedprimarilyoninformationforincometaxreturnsandfinancialstatements.
Fromtheearly1900suntilthemid1970s,costaccountingpracticesseeminglychangedverylittle. However,asthebusinessenvironmentbecamemoreglobal,competitionincreased.Inturn,demandgrew formoresophisticatedcostaccountinginformation,andtermssuchas managementaccounting wereused toencapsulatetherangeofactivitiesnowundertaken.Recenttechnologicalinnovationhasenabledcost accountantstodeveloppreviouslyinfeasiblecostandmanagementaccountingsystems.Today,costand accountinginformationisusedforavarietyofpurposes,includinginternaldecisionmaking,measuring andmonitoringperformanceatalllevelsoftheorganisation,andaligningemployeeandstakeholder goals.Furthermore,managersnowusecostaccountinginformationtoanalysetheprofitabilityof customersandtocoordinatetransactionswithsuppliers—extendingtraditionalcostaccountingbeyond theorganisation’sboundaries.
Asorganisationscontinuetochangeandadapttotheirenvironment,managementaccountingwill similarlyneedtoadapttothechangingorganisationalenvironment.Thisiscriticalifmanagement accountingasafunction,andmanagementaccountantsasprofessionals,aretocontinuetoaddvalue totheirorganisations.Forexample,thereisanincreasingdemandfororganisationstomeasureand monitortheirenvironmentalperformancesuchasmeasuringcarbonfootprints.Managementaccounting andcontrolhasanimportantroletoplaywithinorganisationsforenvironmentalperformanceandwill
beexplainedindepthinchapter21.Throughoutthistextweexplorearangeofmanagementaccounting techniques,toolsandpracticesrelevanttoorganisations.Someofthesetechniques,toolsandpractices havebeenaroundforalongtime(suchasstandardcosting,cost–volume–profitanalysisandcapital budgeting),whileothersaremorerecentdevelopments(suchasthebalancedscorecard,activity-based costingandsustainabilitymanagementaccounting).Furtherdevelopmentsinmanagementaccounting toolswillundoubtedlysurface.Ultimately,thechallengeformanagementaccountantsandthemanagement accountingfunctionistoensurethattheorganisationaldecision-makingneedsareappropriatelymatched withtheavailablemanagementtechniques,toolsandpractices.
Thedetailandqualityoforganisationaldatahaveimprovedinrecentyears.Historically,organisations usedoneaccountingsystemthatfocusedonconformancetogenerallyacceptedaccountingprinciples, whichwereusedforbothexternalandinternalreporting.Thistypeofinformationwasnotalwaysideal formanagementdecisionmaking.Morerecently,enterprise-widesystemssuchasenterpriseresource planning(ERP)andsystemsapplicationsandproducts(SAP)systemshavebettercombinedfinancial andmanagementaccountinginformation.However,evenwiththeavailabilityoftheseERPandspecificpurposemanagementaccountingtools,theorganisationofthetwenty-firstcenturyfacessignificantrisks. Themanagementoftheserisksiscritical.Moreover,eventheavailabilityofhigh-qualityinformation systemsdoesnotguaranteesuccess.Theglobalfinancialcrisisof2008–09,inwhichwewitnessedthe collapseorbailoutofmajorbanksandcorporationsaroundtheworld,isareminderoftheneedtocontinuallydevelopsuitabledecision-makingsystemsandfororganisationstobevigilantintheirapplication.
Recentinformationsystemdevelopmentshavefocusedonbusinessintelligenceanddisruptivetechnologiesandinnovation.Theinternetandbusinessintelligencesoftwareprovideopportunitiesformanagers tosavecostsandimproveprofitabilityinthefollowingways:
• integratingsystems:
– throughoutanorganisation
– betweenanorganisationanditscustomersandsuppliers
• improvingmanagementof:
– customerrelationships
– supplychains
– workteamswithinanorganisation
• disruptivepurposes:
– newstart-upinternetcompanieswithinnovativeprofitofferings
– disruptingestablishedmarketsandchangingtraditionalrolesforindividuals.
Weshouldmakesomedistinctionbetweenmanagementaccountantsasprofessionalswithinorganisationsandthemanagementaccountingfunction.Mostorganisationswillhaveamanagementaccounting functioninoneformoranother.Evenstart-upinternetcompanieswoulddrawonamanagementaccounting function.Insomeorganisations,thisfunctionmightbeperformedbyavarietyofdifferentlyqualified andtrainedstaffsuchasaccountants(financialormanagement),costingclerks,engineers,andotherstaff withmanagementtrainingorexperience.Insomecases,thelabel managementaccountant mightnoteven beused,butthemanagementaccountingworkisstillperformedasafunction.Moreoften,though,the label managementaccountant,orsomesimilarlabelsuchas resourceanalyst or internalmanagement consultant,mightbeused.Whatevertheterminologyadopted,themanagementaccountingfunctionneeds tobeperformed.Muchofthistextrelatestothetechniques,toolsandpracticesthatcommonlycomprise themanagementaccountingfunction.
Relevantinformationfordecisionmaking Akeyfocusofmanagementaccountingistheprovisionofinformationfordecisionmaking.Thisrequires theabilitytodistinguishbetweeninformationthatisrelevanttoadecisionandinformationthatisnot. Relevantinformation helpsthedecisionmakertoevaluateandchooseamongalternativecoursesof action.Relevantinformationconcernsthefutureandvarieswiththeactiontaken.Ontheotherhand, irrelevantinformation doesnotvarywiththeactiontakenandthereforeisnotusefulfordecision making.Althoughtheinformationmaybeaccurate,itsimplydoesnothelpthedecisionmakerevaluate thealternatives.Managersarelessefficientandmakelower-qualitydecisionswhentheyallowirrelevant informationtoinappropriatelyinfluencetheirchoices.
Whetheragiventypeofinformationisrelevantorirrelevantdependsonthedecisionandotherfactors. Supposeastudentisdecidingwhethertosignupforaparticularuniversitycourse.Ifthestudenthas selectedadegreeprogramandwishestograduateasquicklyaspossible,relevantinformationincludes whetherthecoursecountstowardsgraduation.However,ifthestudent’sgoalistotakecoursesinavariety
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Transcriber's Notes:
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