Cost Accounting

The following sections are included:

• Preface
• Acknowledgements
• About the Authors
• Contents

The following sections are included:

• How Cost Accounting Supports Corporate Management
  • The management’s leadership tasks
  • Objectives of cost accounting: Information for management
• Cost Accounting and Its Relation to Corporate Accounting
  • Management accounting versus financial accounting
  • Cost accounting versus capital budgeting
  • Nonfinancial performance indicators
• Designing a Cost Accounting System
  • The cost-benefit approach to design
  • How information from cost accounting facilitates and influences decisions
  • Behavioral effects of information
  • Competitive strategies and the value chain
  • Industrial and service companies
  • Complexity and simplifications
• Cost Accounting Systems

The following sections are included:

• Cost Terminology
  • What are costs and revenues?
  • How to differentiate costs and revenues from other accounting terms
  • How to distinguish cash outflows, expenses, and costs
  • How to distinguish cash inflows, income, and revenues
• Cost Terms and Their Meaning
  • Total costs and unit costs
  • Direct costs and indirect costs
  • Variable costs and fixed costs
  • How different cost categorizations relate to each other
  • Standalone costs and incremental costs
  • Inventoriable costs and period costs
  • Relevant costs
  • Opportunity costs and sunk costs
  • Levelized product cost
• Overview of the Components of a Cost Accounting System and Their Tasks

The following sections are included:

• The Tasks and the Design of Product and Service Costing
  • The tasks of product and service costing
  • Classification of cost objects
  • The relationship between program type, product characteristics, and the costing method
• Product and Service Costing for Job Shop Production
  • The general approach to job costing
  • Job costing with multiple overhead rates
  • Machine-hour costing
  • Actual costing, interim costing, and normal costing
  • Bookkeeping for job shop production
• Product or Service Costing for Mass and Variant Production
  • Single-stage process costing
  • Multi-stage process costing
  • Equivalence number costing
  • Cost allocation for joint products and byproducts
  • Bookkeeping for mass and variant production

The following sections are included:

• Tasks and Problems of Cost-Center Accounting
  • Tasks of cost-center accounting
  • Structure of cost centers
  • Problems of cost tracing and cost allocation
• Structure of the Cost Allocation Sheet
• Allocation of Overhead Costs to the Cost Centers
• Methods for Service-Department Allocation
  • Reciprocal method based on equations
  • Implementation of the reciprocal method based on equations with Excel
  • How service-department allocation is represented by the account of a cost center
  • Reciprocal method based on iterations
  • Method of credits and debits
  • Step-ladder method
  • Direct method
  • Selection of a suitable method for service-department allocation
• Determining Overhead Rates for Product and Service Costing

The following sections are included:

• Tasks of Cost-Type Accounting
• Cost-Type Accounting and Financial Accounting
  • Cost categories in business practice
• Material Costs
  • Important types of materials
  • Recording material consumption
  • Valuing material consumption
• Personnel Costs
• Machine Costs
  • Types of machine costs
  • Types and causes of depreciation
  • Depreciation methods
  • Interest costs
• Other Cost Categories
  • Imputed entrepreneurs’ salary and imputed rents
  • Imputed risk costs
  • Other costs

The following sections are included:

• Typical Cost Functions
  • Elementary cost functions
  • Combinations of elementary cost functions
  • Cost function, cost drivers, and the time horizon
• Determining Cost Functions
  • Simplifying cost functions and the relevant range
  • Analytical methods
  • Statistical methods
  • Determining cost functions using linear regressions in Excel
  • Evaluating the results of linear regressions
  • Conditions for the application of statistical methods
  • Comparing analytical and statistical methods
• Documenting Cost Forecasts
  • Cost-center summary sheets
  • Separate reporting of fixed and variable costs
  • Flexible plans for several levels of activity
• Appendix: Regression Analysis

The following sections are included:

• Purposes of Profit and Loss Calculation
  • Linking costs and revenues
  • Profit per unit
  • Net profit for a period
• Methods for Preparing an Income Statement
  • Nature of expense method
  • Cost-of-sales method
• Income Statements with Absorption and Variable Costing
  • Comparing operating income under absorption and variable costing
  • Comparing operating income for multiple periods
  • Incentives for undesirable buildup of inventory under absorption costing
• Contribution Margin Accounting
  • Simple contribution margin accounting
  • Multi-level contribution margin accounting

The following sections are included:

• Objectives and Assumptions of Cost-Volume Profit Analysis
• Cost-Volume Profit Analyses for a Single Product
  • Basic formulas for profits and the contribution margin
  • Calculating the break-even point
  • Considering taxes in a cost-volume profit analysis
  • Limitations of cost-volume profit analyses
• Cost-Volume Profit Analyses for Multiple Products
  • From a break-even point to a break-even line
  • Cost-volume profit analyses with a constant sales mix
  • Cost-volume profit analyses with Excel
• Analysis of Uncertainty
  • Sensitivity analyses
  • Margin of safety percentage
  • Approximations of cost accounting
• Cost-Volume Profit Analyses and Cost-Structure Flexibility
  • Insourcing versus outsourcing
  • Cost-structure risks and operating leverage

The following sections are included:

• Decision-Making for Operational Decisions
  • Planning objects, horizon, objectives, and constraints
  • Quantitative and qualitative information
  • Characteristics of decisions under uncertainty
• Relevant Costs for Operational Decisions
  • Relevant, accurate, and timely information
  • Sunk costs and operational decisions
  • Opportunity costs and operational decisions
  • The effects of using full-cost information
• Product-Mix Decisions
  • Determining the optimal product mix
  • Make-or-buy decisions
  • Operational decisions in production of joint and byproducts
• Pricing Decisions
  • Price maker versus price taker
  • Price floors for negotiations and tenders
  • Long-term pricing decisions

The following sections are included:

• Basics of Standard Costing
  • Cost monitoring using standard costs
  • Product costing with standard costs
  • Objectives of variance analysis
• Variance Analysis for Rigid and Flexible Budgets
  • Forecast costing
  • Deriving standard costs
  • Rigid standard costing
  • Flexible standard costing
  • Sales-volume variances and flexible-budget variances
• Analyzing Variances for Direct Costs
  • Direct material costs
  • Direct labor costs
  • Responsibility for relevant cost variances
  • Recording standard direct costs in bookkeeping
• Analyzing Variances for Overhead Costs
  • Standards for overhead costs
  • Variable overhead costs
  • Recording standard variable overhead costs in bookkeeping
  • Fixed overhead costs
  • Standard costing on a full-cost basis
  • Responsibility for higher-order variances

The following sections are included:

• Objectives and Characteristics of GPK
• Basic Structure of GPK
• Cost Planning in GPK
  • Separation of fixed and variable costs
  • Planning direct costs
  • Planning overhead cost
  • Planning depreciations and interests
• Cost Monitoring and Variance Analysis
  • Monitoring of overhead costs
  • Evaluating causes of variances
• Supporting Decisions with GPK
  • Contribution margin as an instrument to decide about a special order
  • Analyzing the profitability of individual divisions with multi-level contribution-margin statements
  • Analyzing the profitability of customers, regions, and products with a multi-dimensional contribution-margin statement

The following sections are included:

• Background, Characteristics, and Objectives of Activity-Based Costing
  • Reasons for the development of activity-based costing
  • Characteristics of activity-based costing
  • Objectives of activity-based costing
• Allocating Costs to Processes
  • Activity analysis and definition of subprocesses
  • Determining cost rates of subprocesses
  • Aggregating subprocesses to main processes
  • Determining cost rates of main processes
• Product Costing Based on Process Costs
• Customer Profitability Analysis Based on Process Costs
• Supporting Decisions with Activity-Based Costing
  • Basic effects of activity-based costing
  • How to support individual decisions using activity-based costing
• Advantages and Disadvantages of Activity-Based Costing

The following sections are included:

• Characteristics of Target Costing
  • Market-driven specification of target costs
  • Influencing costs early in the product development process
  • Other characteristics of target costing
  • The main steps of target costing
• Determining Product-Level Target Costs
  • Methods to determine product-level target costs
  • Market-oriented approach to determining target costs
• Splitting Product-Level Target Costs Into Functional-Level and Component-Level Target Costs
  • Functional weights
  • Component weights
  • Component-level proportion of costs
  • Component-level target costs and cost gaps
• Cost Monitoring in Target Costing
• Measures to Achieve Target Costs
• Benefits and Limitations of Target Costing
• Product Life-Cycle Accounting

The following sections are included:

• Purposes of Budgeting
  • Linkages between planning and budgeting
  • Purposes of budgets
• Important Budgeting Techniques
  • Development of a master budget for profit planning
  • Activity-based budgeting
  • Carry-forward budgeting
  • Overhead value analysis
  • Zero-base budgeting
• Budgeting as an Instrument for Performance Measurement
  • Budget variances
  • Fixed and flexible budgets
  • Better budgeting and beyond budgeting
• Behavioral Effects of Budgets
  • Participation in budgeting
  • Budget manipulation and truthful reporting

The following sections are included:

• Transfer Prices and Transfer Pricing Systems
  • What are transfer prices?
  • Transfer prices and decentralization
  • Responsibility accounting
  • An ideal-typical approach to determine transfer prices
  • Components of transfer pricing systems
• Functions of Transfer Prices
• Methods for Determining Transfer Prices
  • Market-based transfer prices
  • Cost-based transfer prices
  • Negotiated transfer prices
• Determining Tax-Compliant Transfer Prices
• Multiple Transfer Prices

The following section is included:

• Index