MANAGEMENT AND COST ACCOUNTING Alnoor Bhimani Charles T Horngren Srikant M Datar Madhav Rajan This popular text offers clear and comprehensive coverage of management and cost accounting for students and professionals Management and Cost Accounting is the European adaptation of Horngren, Datar and Rajan’s leading US text, Cost Accounting: A Managerial Emphasis, 15th edition The content has been significantly revised to reflect management accounting syllabuses across Europe Rich in examples and real-life applications, Management and Cost Accounting brings technical and theoretical concepts to life The international focus of the text is supported by a wealth of case studies featuring companies from around the world, and all coverage is fully updated in line with recent research Key features • Up-to-date coverage, including new sections on decision-making in uncertainty, sustainable accounting, plus a discussion on the behavioural aspects of accounting • Increased number of practice exercises and end-of-chapter questions provide opportunities to apply and develop techniques • Wide-ranging European and Harvard Business School case studies illustrate how management accounting applies in various contexts, locations and situations • ‘Concepts in action’ boxes show how accounting techniques are put into practice by managers in the business world • Accessible step-by-step approach helps you master the subject one step at a time This title can be supported by MyAccountingLab, an online homework and tutorial system designed to test and build your understanding MyAccountingLab provides a personalised approach, with instant feedback and numerous additional resources to support your learning Charles T Horngren was the Edmund W Littlefield Professor of Accounting at Stanford University Use the power of MyAccountingLab to accelerate your learning You need both an access card and a course ID to access MyAccountingLab: Srikant M Datar is the Arthur Lowes Dickinson Professor of Business Administration at Harvard University Is your lecturer using MyAccountingLab? Ask your lecturer for your course ID Has an access card been included with the book? Check the inside back cover of the book If you have a course ID but no access card, go to http://www.myaccountinglab.com to buy access to this interactive study programme Madhav V Rajan is the Robert K Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs at Stanford University CVR_BHIM3461_06_SE_CVR.indd MANAGEMENT AND COST ACCOUNTING Alnoor Bhimani Charles T Horngren Srikant M Datar Madhav Rajan Sixth Edition Front cover image: © Getty Images www.pearson-books.com Sixth Edition Bhimani Horngren Datar Rajan Join over 10 million students benefiting from Pearson MyLabs Alnoor Bhimani is Professor of Management Accounting and Director of LSE Entrepreneurship at the London School of Economics and Political Science MANAGEMENT AND COST ACCOUNTING Sixth Edition 25/02/2015 11:29 MANAGEMENT AND COST ACCOUNTING A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM Sixth Edition MANAGEMENT AND COST ACCOUNTING Alnoor Bhimani London School of Economics and Political Science Charles T Horngren Stanford University Srikant M Datar Harvard University Madhav V Rajan Stanford University A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk Original edition, entitled Cost Accounting published by Prentice-Hall Inc., Upper Saddle River, New Jersey, USA © 1999 by Prentice-Hall, Inc First edition published in Great Britain under the Prentice Hall Europe imprint in 1999 (print) Second edition published in 2002 (print) Third edition published 2005 (print) Fourth edition published 2008 (print) Fifth edition published in 2012 (print and electronic) Sixth edition published in 2015 (print and electronic) The rights of Alnoor Bhimani, Charles T Horngren, Srikant M Datar and Madhav V Rajan to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 The print publication is protected by copyright Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners Pearson Education is not responsible for the content of third-party Internet sites ISBN: 978-1-292-06346-1 (print) 978-1-292-06353-9 (PDF) 978-1-292-06348-5 (eText) British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for the print edition is available from the Library of Congress 10 18 17 16 15 14 Front cover image: Getty Images Print edition typeset in 10/12pt Sabon MT Pro Regular by 35 Print edition printed in Slovakia by Neografia NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM In memory of Charles T Horngren 1926–2011 Chuck Horngren revolutionised cost and management accounting He loved new ideas and introduced many new concepts He had the unique gift of explaining these concepts in simple and creative ways He epitomised excellence and never tired of details, whether it was finding exactly the right word or working and reworking assignment materials He combined his great intellect with genuine humility and warmth and a human touch that inspired others to their best He taught us many lessons about life through his amazing discipline, his ability to make everyone feel welcome, and his love of family It was a great privilege, pleasure, and honour to have known Chuck Horngren Few individuals will have the enormous influence that Chuck had on the accounting profession Fewer still will be able to it with the class and style that was his hallmark He was unique, special and amazing in many, many ways and, at once, a role model, teacher, mentor and friend He is deeply missed Alnoor Bhimani London School of Economics and Political Science Srikant M Datar Harvard University Madhav V Rajan Stanford University AB: For all children whose lives were lost in meaningless violent circumstances in 2014 SD: Swati, Radhika, Gayatri, Sidharth MVR: Gayathri, Sanjana, Anupama A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM BRIEF CONTENTS Contents Guide to the case studies Preface Authors’ acknowledgements Publisher’s acknowledgements PART I Management and cost accounting fundamentals The accountant’s role in the organisation An introduction to cost terms and purposes Job-costing systems Process-costing systems Cost allocation Cost allocation: joint-cost situations Income effects of alternative stock-costing methods Part I Case study problems PART II 10 11 12 13 Part II Case study problems 14 15 16 17 207 216 244 282 312 344 380 409 Planning and budgetary control systems Motivation, budgets and responsibility accounting Flexible budgets, variances and management control: I Flexible budgets, variances and management control: II Measuring yield, mix and quantity effects Part III Case study problems A01_BHIM3461_06_SE_FM.indd 30 56 85 123 152 178 Accounting information for decision making Cost–volume–profit relationships Determining how costs behave Relevant information for decision making Activity-based costing Pricing, target costing and customer profitability analysis Capital investment decisions PART III ix xvi xix xxii xxv 424 462 492 526 548 2/25/15 2:00 PM viii Brief contents PART IV Management control systems and performance issues 18 Control systems and transfer pricing 19 Control systems and performance measurement 560 586 Part IV Case study problems 615 PART V Quality, time and the strategic management of costs 20 Quality and throughput concerns in managing costs 21 Accounting for just-in-time systems 22 Strategic management accounting and emerging issues 636 659 695 Part V Case study problems 728 Appendix A: Solutions to selected exercises Appendix B: Notes on compound interest and interest tables Glossary Names index Subject index 760 825 833 846 848 A01_BHIM3461_06_SE_FM.indd 2/25/15 2:00 PM CONTENTS Guide to the case studies Preface Authors’ acknowledgements Publisher’s acknowledgements xvi xix xxii xxv PART I Management and cost accounting fundamentals CHAPTER The accountant’s role in the organisation Accounting, costing and strategy Accounting systems and management controls Costs, benefits and context Themes in the design of management accounting systems t Concepts in action: Management accounting beyond the numbers Forces of change in management accounting Summary Appendix: Professional ethics Key terms References and further reading Assessment material CHAPTER An introduction to cost terms and purposes Costs in general Direct costs and indirect costs Cost drivers and cost management Two types of cost behaviour pattern: variable costs and fixed costs Total costs and unit costs t Concepts in action: How Zipcar helps reduce Twitter’s transport costs Financial statements and cost terminology A01_BHIM3461_06_SE_FM.indd Service-sector companies Merchandising- and manufacturing-sector companies The many meanings of product costs Classification of costs Summary Key terms References Assessment material CHAPTER Job-costing systems 10 12 15 16 19 19 21 21 23 30 31 32 33 34 37 38 40 The building block concept of costing systems Job-costing and process-costing systems Job costing in service organisations using actual costing Normal costing Job costing in manufacturing An illustration of a job-costing system in manufacturing Budgeted indirect costs and end-of-period adjustments Summary Key terms Assessment material CHAPTER Process-costing systems Illustrating process costing Case 1: Process costing with no opening or closing work-in-progress stock Case 2: Process costing with no opening but a closing work-in-progress stock Case 3: Process costing with both some opening and some closing work-in-progress stock Weighted-average method First-in, first-out method t Concepts in action: ExxonMobil and accounting differences in the oil patch Comparison of weighted-average and FIFO methods Standard-costing method of process costing 41 41 44 45 46 46 47 48 56 57 57 58 61 62 66 71 75 76 77 85 86 87 88 92 92 95 99 100 101 2/25/15 2:00 PM www.downloadslide.net NAMES INDEX Adamy, J 474 Ahrens, T 554 –7, 700 Alawattage, C 17 Allen, D 17 Anderson, S.R 328 Arellano, J 294 Arrington, M 707 Atkinson, A 708 Ax, C 708 Baiman, S 600 Baker, W 361 Baraldi, E 351 Barlow, B.H 624 Bartlett, C.A 624 Bates, K 411–13 Beaulieu, P 705, 708 Benmosche, R 595 Bhimani, A 11, 17, 18, 154, 363, 390, 395, 662, 699, 714 Bjornenak, T 708 Blair, N 595 Bontis, N 708 Bouwens, J 592 Bromwich, M 17, 154, 699, 714 Brown, D 615 Bruggen, A 191 Busco, C 18 Carr, C 395 Champy, J 701 Chapman, C 554 –7, 700 Chartrand, S 662 Chesley, J.A 708 Chiapello, E 709, 710 Christiansen, A 207 Chui, M 714 Clarke, A 562 Colvin, G 456 Connell, B 711 Cooper, D 708 Cooper, R 141, 338, 351, 357, 363, 413 –18 Creelman, J 708 Crowther, D 426, 454 Dash, E 16 Dassler, Adi 698 Dassler, Armin 698 Dassler, R 698 Datar, S.M 258 Davenport, T 11, 715 Davidson, S 552 –3 Z04_BHIM3461_06_SE_NIDX.indd 846 Davis, S 637 Deboehmler, J 351 Delmond, M 709 Demos, T 602 Ding, S 705, 708 Dixit, A 390 Dodd, A.J 684 Dolan, K 30 Dorsey, J 38 Downes, L 699 Eining, M.M 207 Eisenhardt, K 430 Elizabeth II (Queen) 645 Emmanuel, C 615 –19 England, H 708 Epstein, M 708, 709 Erchr, E 507 Evans, E 507 Fiegenbaum, A 637 Foo, K 216 Ford, Bill 38 Fraser, R 428, 476 Friedland, J 294 Friedman, A 334 Frost, M 226 – 9, 231– Gage, J 441, 471 Garling, W 16 Garrity, J 16 Gehrke 708 Ghosn, C 380 Giridharadas, A 358 Goering, L 294 Goetsch, D 637 Goff, J 471 Gollakota, K 16 Gordon, J 441 Gosselin, M 334 Govindarajan, V 550 –1 Grant, R 209 Greene, W.H 289 Groot, T.L.C.M 708 Gumbus, A 16 Gundersen, E 225 Gupta, V 16 Guy, J 419 –21 Guyon, J 698 Halper, M 698 Hammer, M 701 Harris, C 474 Harris, S 395 Harrison, G 12 Hart, S 17, 699 Hartmann, F 18 Henning, K.L 334 Holm, E 595 Holmes, J.S 650 Hope, J 428, 476 Hopper Wruck, K 413 –18 Hopwood, A 334, 457, 458 Hoque, Z 705 Hoskin, K 696 Hoyle, D 637 Huddart, S 599 Humphrey, C 17 Humphries, S 662 Innes, J 211–13, 472 Itami, H 508 Ittner, C 587 Janos, L 459 Jargon, J 474 Jeacle, I 17 Johnson, J 441 Kaminska, I 99 Kaplan, R.S 258, 328, 338, 363, 587, 700 Kasurinen, T 705 Kay, A 369 Keasey, K 708 Keegan, P 38 Kesmodel, D 474 Kloot, L 705 Kraus, K and Lind, J 18 Kripalani, M 358 Krishnan, R 191 Lampe, S 441 Langfield-Smith, K 696, 699 Lapsley, I 17 Larckner, D 587 Larker, D.F 706, 708 Larsen, M.M 296 Lawrence, A 345 Lebas, M 709, 710 Lee, L 106 Lord, B.R 696, 713 Lotte, Karl-Heinz 413 Lyne, S 334 Lyons, B 16 2/23/15 11:43 AM www.downloadslide.net Names index Macve, R 696 Maher, M.W 552 –3 Malmi, T 334, 705 Manzoni, J 709 March, A 258 Margonelli, L 351 Martin, J 705 Matau, R 575 McKinnon, J 12 McMaster, J 575 Melumad, N 599 Mendoza, C 708 Mintzberg, H 696 Misawa, M 384 Mitchell, F 17, 211–13, 472, 548 –51, 700, 706 Moll, J 17 Montgomery, R 106 Mosley, E 602 Mourdoukoutas, P 707 Mulally, A 588 Murray, J 38 Nadella, S 564 Norreklit, H 700, 706, 708, 709 Norton, D 587, 700 Novak, J 575 O-Byrne, S.F 592 O’Shea, P 138 – Ollila, J 698 Olsen, E 38 Opdal, K 369 Otley, D 409 –11, 454, 615 Pearson, P 441 Pedersen, T 296 Perkins, P 441 Pezet, A 709 Pilkington, M 425 Pindyck, R 390 Pogue, D 477 Z04_BHIM3461_06_SE_NIDX.indd 847 Porter, M.E 328 Porter, M 696, 697, 699 Putin, V 431 Qu, S 708 Quinn, B 696 Radnofsky, L 328 Rao, H 602 Rees, D.G 248 Reichelstein, S 599 Reilly, D 99 Rich, B 459 Ringstrom, T 351 Roberts, H 18, 716 Roslender, R 17, 699 Rousseau, P 705 Rousseau, Y 705 Ryan, N 441, 471 847 Speklé, R 592 Stern, J 592 Stewart, G.B 592, 594 Stickney, C.P 552 –3 Stone, J 696 Strömsen, T 351 Sullivan, M 594 Sung Park 106 Tait, N 106 Tata, R 358 Taylor, A 456, 588, 645 Taylor, E 30 Terdiman, D 351 Tesco, H 369 Tomlinson, R 698 Tracer, Z 595 Tripeny, T 477 Undahn, F.W 334 Saly, J 419 –21 Scapens, R Schemo, D.J 294 Schonfeld, E 665 Schumpeter, J.A 603 Sedatole, K.L 191 Sedgwick, D 294 Segarra, M 191 Seifert, R 106 Shank, J 550 –1, 696, 699 Shankar, S 30 Shervington, P 645 Shih, W 369 Simmonds, K 696 Simons, R 603 Slagmulder, R 357 Slepniov, D 296 Smith, C 662 Smith, M 363 Son, H 595 Soonawalla, K 715, 716 Sorkin, A.R 16 Vaassen, E.H 18 Van BusKirk, E 662 Vink, J 665 Voser, P 85 Wallander, J 459 Watson, C.J 289 Weil, R.L 552 –3 Welch, J 428 Welch, S 428 Wenger, M.S 708 Wickramasinghe, D 17 Wilkinson, C 615 Willcocks, L 714 Young, S.D 592 Zeitz, J 698 Zrihen, R 708 Zuboff, S Zuckerberg, M 5, 707 2/23/15 11:43 AM www.downloadslide.net SUBJECT INDEX Entries in bold refer to terms defined in the Glossary absorption costing 42, 179 – 83, 833 breakeven point 195 –7 capsule comparison of 188 – denominator-level concepts 191– income statements 182, 187 – and operating profit 187 – performance measures 189 – 91 and variable costing 179 – 83 account analysis method 250, 833 accountants, expected values and behaviours 19 –21 accountants in Europe 11 accounting-based performance measures 587 – accounting process failures AIG 594 –5, 711 budgetary slack, shortages, strikes 435 Chrysler 191 Enron 711 Ford 191 General Motors 191 Lego 296 Lehman Brothers 711 Northern Rock 15 Polly Peck 711 price discounting 368 purchasing 475 Satyam 711 stand closer to the railing 445 WorldCom 16 accounting rate of return method 394 –5, 833 Accounting Standards Board (ASB) accounting systems –16 design 12 –16 feedback –10 functions 10 –11 planning and control – purposes –7 activity 318, 833 activity-based accounting 833 activity-based budgeting 442 –3, 833 activity based budgeting 442 –3 activity-based costing (ABC) 312 –35, 673, 833 alternative systems, comparing 327 – championing 333 cost drivers 257 – and cost estimation 257 – and cost management 328 –30 Z05_BHIM3461_06_SE_SIDX.indd 848 and department-costing systems 330 –1 and flexible budgets 477 – implementing 322 – 6, 331–2 organisational context 334 –5 and profit management 328 –30 refining 317 –18 undercosting and overcosting 313 and variance analysis 512 –16 activity-based management (ABM) 328 –30, 833 actual costing 58, 189, 508 –12, 833 actual costs 31, 833 Adidas 106, 698 adjusted allocation rate approach 72 Aérospatiale 124 Ahamed Company 443 Ahamed & Partners 41 AIG 594 –5, 711 Air France 709 Amazon.com 6, 11, 492, 648 American Airlines 605 Analog Devices 264, 646 analytical firms 11 Apple 6, 648, 698 appraisal costs of quality 638 – 40, 833 Aran Sweaters Ltd 113 artificial costs 136, 833 Asda 562, 697 Association of Chartered Certified Accountants (ACCA) 19 membership requirements 20 Astel Computer Company 348 – 60 Atilla-Parfums 164 –5 AT&T 660 attention directing 10, 833 audit trails, in just-in-time systems 672 Australia performance measures used 594 Australian Accounting Standards Board (AASB) autocorrelation 269 autonomy 565, 833 Autorité des Normes Comptable (ANC) average cash flow return 384 average cost 37, 833 Avis Budget 38 B-Sky-B 427 backflush accounting 833 backflush costing 665 –73, 833 special considerations 671 standard job costing 666 – variances, accounting for 670 –3 balanced scorecard 700 –11, 833 aligning to strategy 703 experiences of 708 features of 703 – international usage 709 in management control 561 and performance measures 587 perspectives on 701–2 pitfalls 706 quality improvement and reengineering in 701 Baldridge, Malcolm Quality Award 637 Banca di America e di Italia 701 banks free services from 332 Barclays Bank 11, 703 Barclays PLC 562 bargaining power and strategy 696 batch costs 478 – batch-level costs 321, 833 BBC 289 BBR plc (case study) 615 –19 Beijing Engineering 291 Belgium, accountants 11 belief systems 604, 833 benchmark 462, 833 benchmarking 14 –15, 833 and relative performance evaluation 601–2 and variance analysis 481–2 BHP Hilton 603 BIC 697 Big Data 345, 714 big data analysis Bjǿrnstjerne 299 –300 Blackberry 288 BlackBerry 648 BMW 30, 295 Bocca-Negra 296 – book value 833 equipment replacement decisions 299 Boots 431, 592 bottlenecks 647 –50, 833 boundary systems 604, 833 brand names breakeven point 195 –7, 218 –21, 833 British Airways 289 2/23/15 11:33 AM www.downloadslide.net Subject index British American Tobacco 701 British Petroleum 99, 443, 604 oil spill 637 British Telecom 426, 637, 701, 706 Brumaire SA 289 – 95 budgetary control systems 423 –53 budgetary slack 435, 833 budgeted costing 130 –1, 833 budgeted indirect costs 71–2 budgets/budgeting abandonment of 425, 431 anchoring 131 capital, stages 382 –3 cash budgets 447 –52 changes to traditional methods 446 and controllability 445 – definition of 425 difficulty of 429 fixed-overhead rates 499 indirect costs 71–5 methods used survey 477 performance, judging 426 –7 and responsibility 443 – roles of 425 – setting in non-linear cost functions 264 small businesses 425 – strategy and plans 426 type of budget 430 – types 430 – 42 web technology 441 bundled product 834 Burton Group 592 business function costs 834 business governance 711–12, 834 by-products 153, 166 – 8, 834 Canada capital budgeting methods 395 capacity constraints 291–3 product-mix decisions under 291– capital budgeting 380 – 400, 381, 382 –3, 834 capital investment decisions 380 – 400 accounting rate of return method 394 –5 budgeting, stages 382 –3 cost analysis 381–2 discounted cash flow methods 384 – cash flows 390 –2 income tax factors 396 –7 and inflation 397 – internal rate of return method 386 – international comparisons 395 managing project 396 net present value method 385 – payback methods 392 – non-uniform cash flows 394 uniform cash flows 392 – sensitivity analysis 389 – 90 Capital One 11 capitalised costs 40 –1, 834 Z05_BHIM3461_06_SE_SIDX.indd 849 Cargill Fertilisers 527 carrying costs 834 of goods for sale 670 stock 293 of stock 293 – case studies BBR plc 615 –19 Clayton Industries 624 –34 Colombo Frozen Yogurt 419 –21 Coors Brewers Ltd 755 – Cresta Plating Company Ltd 619 –24 Electronic Boards plc 211–13 Empire Glass 735 –50 European Savings Bank 207 – Fiddler Ltd 552 – Hereford Steak Houses 554 –7 High-Tech Limited 728 –34 Instrumental Ltd 530 –51 Northlake, ethical dilemma 209 –11 Osram 750 –5 Permaclean Products plc 409 –11 Siemens electric Motor Works 413 –18 Tankmaster Manufacturing Company 411–13 Zeros plc 548 –50 cash budgets 447 –52, 834 cash cycle 449, 834 Caterpillar 258, 604 cause-and-effect diagrams 642, 834 Cellular Products 42 – Centurion 179 – 82 CEO compensation 594 –5 Chartered Institute of Management Accountants (CIMA) 3, 19, 699, 834 ethical guidelines 20 membership requirements 20 strategic scorecard 712 Chevron 603 chicken processing, joint-cost allocation 162 –3 chief accounting officer 834 China Accounting Standards Committee (CASC) Chipset Ltd 696 –707 choice criterion 231, 834 Chrysler 191 Cisco 648 Citibank 706 Citizen Watch 442 Clayton Industries 624 –34 cloud computing 714 Co-operative Bank 258, 317 Coca-Cola 13, 592, 697 Cocobot 191– coefficient of determination 267, 834 collusive pricing 834 Colombo Frozen Yogurt (case study) 419 –21 combined variance analysis 502 –3, 834 common costs 138 – 9, 834 849 communication 16, 426, 427 competitive advantage 707 competitors 696 and diversification 317 loss of market share to 313 and pricing 318 complete reciprocated cost 135 – 6, 834 composite product unit 537, 834 computer-aided design (CAD) 834 computer-aided manufacturing (CAM) 834 computer-based financial planning models 440 computer-integrated manufacturing (CIM) 662, 834 concert management just-in-time production 662 U2 (rock band) 225 conference method (of cost estimation) 249, 834 conformance quality 637 – Conseil National de la Comptabilité (CNC) constant 834 constant gross-margin percentage method 160 –1, 161–2, 169, 834 constant in cost functions 245 constant variance 269 constraints in linear programming 302 –3, 834 consumers, self-determination continuous improvement 14 –15 budgeted cost 475 – continuous improvement budgeted cost 834 contribution income statement 834 contribution margin 229 –30, 834 contribution margin method in CVP analysis 219 –20 contribution margin percentage 229 –30, 834 control – 9, 834 JIT production 684 –5 strategy and levers 603 –5 control charts 641, 834 control systems and performance measurement 587 – 605 controllability 834 controllability in budgeting 445 – 6, 834 controllable cost 445, 834 Convent 10, 681 conversion costs 43, 86 –115, 834 coordination in budgetary control 426 Coors Brewers Ltd 424 case study 755 – Corning 477 corporate governance 711–12, 835 corporate-sustaining costs 364 cost 31, 835 cost accounting – 4, 835 cost accumulation 31–2, 835 2/23/15 11:33 AM www.downloadslide.net 850 Subject index cost allocation 31, 124 – 41, 835 in ABC 318 budgeted versus actual rates 130 –1 budgeted versus actual usage 130 –1 common costs 138 – and cost hierarchies 141 and costing systems 125 – direct allocation method 132 – 4, 137 – inappropriate base, consequences of 140 incremental allocation method 138 – indirect cost pools 126 – from one department to another 128 –30 purposes 124 –5 reciprocal allocation method 135 – 6, 137 – stand-alone cost-allocation method 138 step-down allocation method 134 –5, 137 – of support departments 132 – cost-allocation base 57, 835 cost analysis 381–2 cost assignment 31–2, 835 and cost hierarchies 141 cost-based transfer pricing 565, 569 –72 cost behaviour patterns 245 –74 activity-based costing cost drivers 257 – and cost estimation 257 – cost drivers and activity-based costing 257 – evaluating 256 –7 cost estimation approaches 249 –50 and cost functions 260 estimating cost functions assumptions 245 – basic terms 246 –7 cost object, choice of 247 high-low method 253 – regression analysis method 254 – relevant range 247 – steps 250 –2 time span 247 learning curves 260 – non-linearity 260 cost–benefit approach 835 cost centres 444, 564, 835 cost drivers 33 – 4, 35 – 6, 835 and activity-based costing 257 – and allocation bases 140 choosing 248 – 9, 256 –7 as cost allocation base 57 evaluating 256 –7 cost estimation 245 –71, 835 and activity-based costing 257 – cost functions assumptions 245 – basic terms 246 –7 cost object, choice of 247 Z05_BHIM3461_06_SE_SIDX.indd 850 high-low method 253 – and non-linearity 260 regression analysis method 254 – 6, 265 –74 relevant range 247 – steps 251 time span 247 cost hierarchies 141, 835 and ABC 320 –1 and cost assignment 141 and flexible budgeting 479 cost incurrence 354 –5, 835 cost leadership 697, 707, 835 cost management –5, 33 – 4, 835 cost objects 31, 57, 835 choice of 247 cost planning and (CVP) analysis 226 – cost-plus contract 835 cost-plus pricing 358 – 60 cost pools 57, 314 –18, 835 and activity based costing 322 indirect 126 – cost predictions 247, 835 cost reduction 328 cost smoothing 313, 835 cost tables 835 cost tracing 31, 835 cost-volume-profit (CVP) analysis 216 –35, 835 assumptions 218 breakeven point 218 –21 contribution and gross margins 229 –30 cost planning and 226 – decision models and uncertainty 231– and income taxes 223 – not-for-profit organisations 228 – PV graph 222 revenue and cost drivers 217 –18 revenue mix 228 – sensitivity analysis and uncertainty 224 –5 costs, benefits and context 10 –11 costs/costing systems benefits and context 10 –12 building block concept of 57 classification of 45 long run 348 –51 and pricing 317, 318 short run 346 – costs of quality 638 – 40, 835 Credit Suisse Group 425 Cresta Plating Company Ltd (case study) 619 –24 Cross 697 cross-sectional data 252 Crysel 637 culture and investment decisions 384 Cummins Engines 660 cumulative average-time learning model 261, 835 current cost as performance measure 595 – 6, 835 customer batch-level costs 364 customer cost hierarchy 364, 835 customer costs 364 – customer focus 12, 15 customer-level costs 365 – customer level of control 561 customer life-cycle costs 835 customer output unit-level costs 364 customer perspective on balanced scorecard 702 customer profitability 296 – analysis 363, 835 profiles 367 – customer relationship management (CRM) 368 – customer-response time 835 customer revenues 363 – 4, 835 customer satisfaction 587 customer satisfaction, non-financial measures 646 –7 customer service 13, 835 customer sustaining costs 364 customer value, assessing 369 customers bargaining power and strategy 696 and pricing 317, 318 DAF Trucks 660 Daimler-Chrysler 352, 603 data warehousing systems 369 Daxenberger 183 – 90, 195 –7 decentralisation 562 – 4, 835 benefits 562 – costs of 563 – decision making 283 –305 capacity constraints 291–3 carrying costs of stock 293 – customer profitability 296 – information and 283 – opportunity costs 291–3 output levels, choosing 286 – outsourcing 288 – 91 past costs, irrelevance of 299 product-mix decisions 294 – qualitative factors 285 – relevant costs and revenues 284 –5 decision model 283, 835 CVP analysis 231– decision table under uncertainty 234, 835 Deen’s Grossierderij BV 166 – delayed costing 666, 835 Dell 697 Deming Prize 637 Denmark, accountants 11 denominator level 835 denominator level variance 836 2/23/15 11:33 AM www.downloadslide.net Subject index department-costing systems 330 –1 dependent variable in cost functions 251, 836 depreciation 44, 397 design decisions 329 –30 design of products, services or processes 13, 836 designed-in costs 354, 836 Diageo 431, 443 diagnostic control systems 604 diagnostic controls 836 differential approach 836 differential costs 285, 836 direct allocation method 132 –3, 137 – 8, 836 direct cost tracing 318 direct costing 836 direct costs of a cost object 32 –3, 57, 836 direct manufacturing labour costs 42, 836 direct manufacturing labour yield 531– direct materials costs 42, 836 direct materials efficiency 527 –31 direct materials mix variance 530 –1 direct materials stock 42, 836 direct materials yield variance 527 –31 direct method 132 – 4, 836 discount rate 385, 836 discounted cash flow methods 384 – 9, 836 cash flows 390 –2 discretionary costs 508, 836 Disney 384 distress prices 569 distributed capitalism distribution 13, 836 distribution-channel costs 364 disturbance term, in regression analysis 269 Do-All software 226 – 9, 231– dot-com companies 707 downsizing 836 dual pricing 571–2, 836 dual-rate cost-allocation method 128 –30, 836 Duke Power Company 604 DuPont 604 DuPont method of profitability analysis 590 Durban-Watson statistic 270, 272 e-business 836 strategies 15, 17 –18, 19 technologies 714 e-commerce 836 e-float eBay economic order quantity (EOQ) 674 – 8, 836 economic value added (EVA) 836 as performance measure 592 –3, 599 effectiveness 475, 836 efficiency 475, 836 Z05_BHIM3461_06_SE_SIDX.indd 851 efficiency variance 478 – 9, 836 for inputs 468 –72 effort 562, 565, 836 Electrolux 431 Electronic Boards plc (case study) 211–13 Empire Glass (case study) 735 –50 employee empowerment, and quality 646 employee satisfaction, and quality 646 end-of-period adjustments 506 endpoint costing 666, 836 engineered costs 507 – 8, 836 English Tea Company 346 – Enron 604, 711 enterprise governance 711–12, 836 enterprise resource planning (ERP) systems 664 –5 environmental accounting 715 environmental quality 637 environmental responsibilities 603 equation method in CVP analysis 219 equipment-replacement decisions 299 equivalent products 697 equivalent units 89 – 95, 836 Ericsson 431 error term, in regression analysis 269 estimated net realisable value (NRV) method 155, 159 – 60, 836 ethical guidelines 20 ethical responsibilities 603 ethics, case studies 207 –13 Euro-Défense SA 87 –111 European Quality Award 637 European Savings Bank (case study) 207 – events in uncertainty 232, 837 excess capacity 837 expected monetary value under uncertainty 232 –3, 837 expected value under uncertainty 232 –3, 837 Expedia.com 492 experience curves in non-linear cost functions 260 – 4, 837 extended normal costing 837 external failure costs of quality 638 – 9, 837 Exxon Mobil 99 Facebook 6, 707 facility-sustaining costs 321, 837 factory overhead costs 42, 837 Farmers’ Dairy 155 – 64 favourable variance 463, 837 feedback –10, 444, 599 Fiat 33, 352 Fiddler Ltd (case study) 552 – Fiji Islands Revenue and Customs Authority (FIRCA) 575 Fiji Water 575 finance director 837 financial accounting – 4, 837 financial budget 431, 837 851 financial goals 587 financial performance measures 476 –7, 508 – 9, 587, 601 financial perspective on balanced scorecard 702 financial planning models 440, 837 Financial Reporting Council (FRC) financial statements 40 –1 master-budget utilisation, effect of 193 – finished goods completion in JIT 667 – 9, 672 finished goods sales in JIT 670 –3 finished goods stock 42, 837 Finland, accountants 11 first-in, first-out process costing method 95 –101, 837 and transferred-in costs 109 –11 and weighted-average method 100 –1 fishbone diagram 642, 837 fixed costs 34 –7, 837 CVP analysis 226 – of quality improvement 644 fixed manufacturing overhead costs 504 –5 fixed overhead cost variances 499 –500 fixed overhead costs 493 – fixed overhead spending variance 502 Fjalar AS 361–2 flexible budgets 462 – 82, 463, 837 and activity-based costing 477 – analysis 495 – for fixed set-up overhead costs 514 –15 for variable set-up overhead costs 512 –13 developing 465 – performance measures 508 – and price variances 465 –7 variances 466 –7, 535 – 6, 535 – 41, 837 flexible manufacturing system 837 Fontaine Infomatique 125 –32 Ford 191 Ford Motors 6, 38, 363, 888 Foreningen af Statsautoriserede Revisorer (FSR) France ABC systems 334 accountants 11 capital budgeting methods 395 performance management systems 709 –11 FRx Software Corporation 441 Fujifilm 605 Fujitsu 637 full-cost bases in transfer pricing 569 –71 full product costs 837 functional analysis 837 Gaz du Cameroun 216 General Electric 637 2/23/15 11:33 AM www.downloadslide.net 852 Subject index general ledgers 66 –71 General Motors 191, 352, 363 Germany accountants 11 capital budgeting methods 395 performance measures used 594 Gillette 481 Gjuensidige NOR 369 Global Air 535 Globoforce 602 goal congruence 562, 565, 602, 837 goodness of fit in regression analysis 267 goods for sale 673 – Google 603 Gorilla Glass 477 graph method in CVP analysis 220 –1 Greece, accountants 11 gross margin in CVP analysis 229 –30, 837 gross margin percentage 229 –30, 837 Guinness 594 Halifax 703 Hallmark UK 288 Harley-Davidson 430 Häussermann-Plattenvertreibs AG 649 –50 health care costs 328 Health South 604 Hendrick Motorsports 441 Hereford Steak Houses (case study) 554 –7 heteroscedasticity 269 Hewlett Packard 288, 431, 637, 701 Hewlett-Packard 663 – high-low method in cost functions 253 – 4, 837 High-Tech Limited (case study) 728 –34 Home Appliances 283 – homogeneous cost pool 128, 837 homoscedasticity 269 Honda Motors 660 Honnigsvåg AS 132 – Hôpital-Nord 383 – 95 Hôtel Desfleurs 588 – 99 Hotel Ibis 444 Huber GMBH 286 – Hudson Corporation 684 human capital 717 hurdle rate 385, 837 hybrid-costing system 111–12, 837 Hyundai 697 IBM 605, 709 ice-cream 527 Iglo Group 428 Ikea 603 IKEA 13, 351, 431 Imbro-Glio 296 – imputed cost of investment 591, 837 incentives in performance measures 601 income taxes and CVP analysis 223 – income-to-revenue (sales) ratio 593 Z05_BHIM3461_06_SE_SIDX.indd 852 incongruent decision making 563, 837 incremental cost-allocation method 138 – 9, 837 incremental costs 837 in decision making 288 incremental unit-time learning model 261–3, 837 independent variable in cost functions 251–2, 838 indirect cost pools 126 – 8, 318 indirect costs cost allocation 126 – of a cost object 32 –3, 57, 838 indirect manufacturing costs 42, 838 individual-activity level of control 561, 602 –3 individual-facility level of control 561 industrial engineering method of cost estimation 249, 838 inflation 397 – 9, 838 information and budgeting 445 – infrastructure costs 508, 838 innovation 14 input-efficiency variance 468 –72, 838 input-price variance 468, 838 insourcing 288, 838 Institute of Chartered Accountants of England and Wales (ICAEW) 20 Institute of Chartered Accountants of Scotland (ICAS) 20 Institute of Management Accountants (IMA) 838 Instituto de Contabilidad y Auditoria de Cuentas (ICAC) Instrumental Ltd (case study) 530 –51 integrity 16 Intel 527 intellectual capital 715 –17 interactive control systems 605 interactive controls 838 intercept in cost functions 245, 838 intermediate product 565, 838 internal business process perspective on balanced scorecard 702 internal failure costs of quality 638 – 9, 838 internal rate of return method 386 – 8, 838 and NPV, comparisons 388 – 9, 399 International Federation of Accountants 16, 711, 715 International Organisation for Standardisation 637 internet 713 –14, 838 intrinsic motivation 605 inventoriable costs 42 – 4, 838 investment 838 definitions of 595 performance measures 587 – 98 investment centres 444, 564, 838 investment programmes 380 – 400, 838 investment projects 380 – 400, 838 Ireland, performance measures used 594 ISO 9000 certification 637 ISO 14000 637 Italy accountants 11 capital budgeting methods 395 performance measures 594 Japan performance measures used 594 Jazz Society, University of Antwerp 37 – 40 J.D Power and Associates 645 job cost record 63, 65, 838 job cost sheet 838 job-costing systems 56 –75, 838 of an audit engagement 58 – 62 building block concept 57 – general approach 59 – 60 in manufacturing 62 –71 general ledgers 66 –71 subsidiary ledgers 66 –71 transactions 66 –71 normal costing 61–2 and process-costing systems 57 – source documents 60 –1, 63 – John Deere 258, 317 Johnson & Johnson 4, 604 joint cost 153, 838 examples 153 – joint-cost allocations 152 – 69 accounting for by-products 166 – approaches to 155 – 63 by-products 166 – constant gross-margin percentage method 155, 160 –1, 161–2 estimated net realisable value method 155, 159 – 60 irrelevance of 164 –5 no allocation of 163 physical measure method 155, 157 – reasons for allocating 154 sales value at split-off method 155, 156 –7, 161–2, 161–3 sell or process further 164 –5 joint product 153, 838 journal entries of conversion costs 114 –15 for overhead cost and variances 505 – in process-costing systems 91–5 and standard costs 479 – 80 just-in-time production 838 performance measures and control 684 –5 just-in-time purchasing 663, 680 –3, 838 EOQ implications 680 –3 relevant benefits and costs 681 supplier evaluation 681–2 just-in-time systems 660 – 86, 664 –5 audit trails 672 and enterprise resource planning 664 –5 2/23/15 11:33 AM www.downloadslide.net Subject index features of 660 –5 financial benefits 663 product-costing benefits 663 quality and costs 684 Kaizen budgeting 442, 838 see also learning curves kanban system 660 Kanthal 317 Kelkoo 345 key success factors 14, 838 knowledge management 715 –17 Kodak 605 Krones 594 labour-paced operations 139, 838 labour time record 65, 838 Land Rover 10 last-in, first-out (LIFO) accounting 106 –7 learning and growth perspective on balanced scorecard 702 learning curves see also Kaizen budgeting learning curves in non-linear cost functions 260 – 4, 838 Lehman Brothers 711 Levi Strauss 106 life-cycle budgeting 361–3, 838 life-cycle costing 125, 361–3, 381–2, 838 life-cycle reports 362 –3 Lindsay & Associates 58 – 62 line management 838 linear cost functions 245, 838 linear programming 301–5 Lloyds TSB Bank 332, 592 locked-in costs 354 –5, 644, 839 Lockheed-Martin 604 Lombard Odier & Cie 10 long run costing systems 348 –51 long run planning 426 long run pricing 348 –51 long-term assets as performance measure 597 – Lucas 592 Lyco Brass Works 478, 512 –16 M-PESA machine-paced operations 139, 839 main product 153, 839 make-or-buy decisions 288 – 91, 839 Malcolm Baldridge Quality Award 637 management accounting – 4, 839 design of systems 12 –16 emerging issues 713 –17 force of change 16 –18 information needs 16 and marketing management 699 and strategic decisions – management by exception 9, 462, 839 management control 462 – 82 Z05_BHIM3461_06_SE_SIDX.indd 853 management control of investment activity 396 management control systems 561, 839 and decentralisation 562 – evaluating 561–2 organisational structure 562 – responsibility centres 564 managers 599 – 602 manufacturing general ledgers 66 –71 job-costing systems 62 –71 source documents 63 – subsidiary ledgers 66 –71 transactions 66 –71 manufacturing cells 660, 839 lead time and set-up time 660 –2 organising 660 –1 manufacturing costs 42 – manufacturing lead time 660, 839 manufacturing overhead allocated 71–2, 839 manufacturing overhead control 72 manufacturing overhead cost analysis 503 – manufacturing overhead costs 42, 356 –7, 839 manufacturing-sector companies 41– 4, 839 margin of safety in CVP analysis 225, 839 market-based transfer pricing 565, 568 – Market Insights (MI) 481–2 market level of control 561 market-share variance 537 – 41, 839 market size variance 537 – 41, 839 marketing 13, 839 marketing management 699 Maruti Suziki 358 mass customisation 106 master budget 425, 431– 4, 839 master-budget utilisation 192, 839 materials purchases in JIT 666 – materials requirement planning (MRP) 684, 839 materials requisition record 63, 65, 839 Mayne Nickless 594 Mbarara University Hospital 10 Mercedes 645 merchandising-sector companies 41–2, 839 Microsoft 564, 698 Microsoft dynamics, enterprise resource planning system 665 Microsoft Forecaster 441 Mitsui 594 mix variances, and direct manufacturing labour yield 529 –31, 531– mixed cost functions 246 mixed costs 246, 839 moral hazard in performance measures 600 –1, 839 motivation 15, 562, 839 motivational role of the aspirations budget 428 – 853 multicollinearity in regression analysis 273 – 4, 839 multiple regression analysis 254, 839 and cost hierarchies 271–3 multiple tasks, performance measures on 602 –3 multiskilled workers in JIT systems 661 NASCAR 441 negotiated transfer prices 565, 572 net present value method 385 – 6, 839 and inflation 398 – and IRR, comparisons 388 – 9, 399 net profit in CVP analysis 216, 839 net relevant cost 839 Netherlands, accountants 11 new economy 839 Nissan Motor Company 264, 363, 431, 462 Nissan-Renault 358, 380 Nokia 698 nominal approach to NPV 398 nominal rate of return 398, 840 non-financial measures of customer satisfaction 646 –7 non-financial measures of quality 646 –7 non-financial performance measures 476 –7, 508 – 9, 587, 601 non-financial performance measures of internal performance 646 –7 non-linear cost functions 258 – 9, 840 and learning curves 260 – non-substitutable materials 527 non-uniform cash flows in payback methods 394 non-value-added cost 493, 840 normal costing 61–2, 189, 508 –12, 840 normal spoilage 840 normal utilisation 192, 840 Norsk Hydro 443 Northern Rock 15 Northlake, ethical dilemma (case study) 209 –11 not-for-profit organisations, CVP analysis 229 Novo Nordisk 603 numerical control machine 840 objective function in linear programming 302, 840 Oculus Rift one-off special orders 286 – 8, 346 –7, 444 online virtual community operating budget 434 – 9, 840 preparation 434 – operating costs 42, 840 operating cycle 449, 840 operating decisions 425 operating department 132, 840 operating leverage in CVP analysis 227, 840 2/23/15 11:33 AM www.downloadslide.net 854 Subject index operating profit 840 CVP analysis 217 differences 187 – sales and production on 187 – operation 112 –15, 840 operation costing 112 –15, 840 opportunity cost of capital 840 opportunity costs 291–3, 840 outsourcing 293 – opportunity costs of capital 385 Oracle, enterprise resource planning system 665 ordering costs of goods for sale 673, 840 organisational processes in budgetary control 426 organisational structure 443 – 4, 840 and decentralisation 562 – organisational units in performance measures 599 – 602 Osram (case study) 750 –5 out-of-pocket costs 840 outcomes under uncertainty 234, 840 outlay costs 840 output-level overhead variance 500, 840 output-unit-level costs 321 outsourcing 288 – 91, 840 and capacity constraints 291–3 and idle facilities 288 – 91 opportunity cost 293 – and opportunity costs 291–3 overabsorbed indirect costs 76, 840 overallocated indirect costs 71, 840 overapplied indirect costs 71, 840 overcosting 313 overhead cost variances, analysis of 502 –3 overhead costs control 493 –516 journal entries for 505 – overhead variances and end-of-period adjustments 506 journal entries for 505 – Owens and Minor 317 Oyak-Renault 34 –5 Pace 427 padding 435, 840 Panasonic 352 Pareto diagrams 642, 840 past costs, irrelevance of 299 payback methods 392 – 4, 840 non-uniform cash flows 394 uniform cash flows 392 – Pepsi-Cola 13 perfectly competitive markets 568 – 9, 840 performance measures accounting-based 587 – budgetary control 426 –7 current cost 595 – economic value added (EVA) 592 –3, 599 Z05_BHIM3461_06_SE_SIDX.indd 854 feedback, timing of 599 financial 476 –7, 508 – 9, 587, 601 incentives 601 at individual-activity level 602 –3 JIT production 684 –5 long-term assets 597 – managers 599 – 602 moral hazard 600 –1 on multiple tasks 602 –3 non-financial 476 –7, 508 – 9, 587, 601 organisational units 599 – 602 residual income 590 –1 return on investment 589 – 90 return on sales 593 – risk 600 targets, choosing 598 – using variances 474 –5 period costs 42 Permaclean Products plc (case study) 409 –11 petroleum industry, joint-cost allocation 165 Philips 560, 564 physical measure method 155, 157 – 9, 840 Pirelli 592, 594 Pitney Bowes Inc 16 Pizza Hut 446 Plan Compable Général (PCG) planning – 9, 841 decisions in ABC 330 planning systems 423 –53 Plastim Limited 313 –30 Portugal, Chart of Accounts post-deduct costing 666, 841 post-investment audit 396 potential entrants and strategy 696 practical capacity and stock-costing 191–2, 841 predatory pricing 841 prediction error, cost of 679 – 80 present value 841 prevention costs of quality 638 – 9, 841 previous department costs 107, 841 price discounting 364, 841 price variances 478 – 9, 527 – 9, 841 for inputs 468 –72 PriceGrabber 345 prices/pricing 328 – and activity-based costing 328 –30 influences on 345 –70 long run 348 –51 alternative approaches 348 –51 product-cost categories 346 setting in non-linear cost functions 264 short run 346 –7 prime costs 42, 841 pro forma statements 431, 841 probability 232, 841 probability distribution 232, 841 problem solving 10, 841 process-costing systems 57 – 8, 85 –122, 841 comparison of methods 100 –1 first-in, first-out method 95 –101 hybrid-costing 111–12 operation costing 112 –15 standard-costing methods 101– transferred-in costs 105 –11 weighted-average method 92 –5, 100 –1 without work-in-progress stock 87 – with work-in-progress stocks 88 – 95 process improvement decisions 329 –30 product 153, 841 product cost 44 –5, 841 calculating 348 –51 product-cost cross-subsidisation 313, 841 product differentiation 697, 707, 841 product life-cycle 361–3, 841 product line 841 product-mix decisions 295 – and activity-based costing 328 –30 product output and batch costs 478 – product overcosting 313, 841 product-sustaining costs 321, 841 product undercosting 313, 841 production 13, 841 effect on operating profit 187 – production budget 435 – production denominator level 841 production denominator volume 841 production department 132, 841 production-volume variance 500 –1, 500 –2, 841 productivity 841 Professional Accountants in Business Committee 16 Professional Accountants in Business (PAIB) Committee 711 professional ethics 20 profit centres 444, 564, 841 profit plan 431 proration approach 72 – 4, 841 transfer pricing 571 prosumers 714 pull systems 683 Puma 696 purchase-order lead time 674, 841 purchasing costs of goods for sale 673, 841 push systems 683 PV graph in CVP analysis 222, 841 Quaker Oats 594 qualitative factors 841 qualititative factors in decision process 285 – quality 637 –50 benefits of 643 –5 as competitive weapon 637 – cost of 638 – 40, 643 –5 identifying problems 641–2 2/23/15 11:33 AM www.downloadslide.net Subject index non-financial measures of 646 –7 performance, evaluating 647 quality costs of goods for sale 674, 841 quality improvement 637 quality improvement in balanced scorecard 701 quality of design 637 – quantitative factors 285 – quantitative factors in decision process 841 radio frequency ID (RFID) 665 rate variance 468, 841 real approach to NPV 398 real rate of return 398, 842 reciprocal allocation method 135 – 6, 137 – 8, 842 Reebok 603 reengineering in balanced scorecard 701, 842 refined costing system 317 –18, 842 regression analysis 265 –70, 842 cost functions, estimating 254 – 6, 265 –74 estimating regression line 265 –70 goodness of fit 267 independent variables, significance of 267 – residual term 255, 269 specification analysis 271 regression analysis method in cost functions 254 – relational capital 717 relative performance evaluation 601–2 relevance as concept 284 – output levels, choosing 286 – potential problems with 288 qualitative factors 285 – relevant costs/costing 284 – 8, 842 adding a customer 298 – customer profitability and 296 – dropping a customer 297 – JIT purchasing 684 stock-related, estimating 678 – relevant range 842 of cost driver 36 cost functions 247 – relevant revenues in decision process 284 – 6, 842 Renault 34 –5, 352, 637, 660 Renault-Nissan 358 reorder point 676 – 8, 842 required rate of return (RRR) 385, 842 research and development 13, 842 residual income as performance measure 590 –1, 842 residual term in regression analysis 255, 269, 842 responsibility accounting 443 – 4, 842 feedback 444 Z05_BHIM3461_06_SE_SIDX.indd 855 responsibility centres 444, 842 choices 564 retail organisations, cost associated with sales 673 – return on investment (ROI) 394, 589 – 90, 842 variations used 589 return on sales 593 – revenue centres 444, 564, 842 revenue costs 41, 842 revenue drivers in CVP analysis 217 –18, 842 revenue mix in CVP analysis 228 – 9, 842 revenue variances 534 –5 revenues 217, 842 reverse engineering 345 rework 66 reworked units 842 risk performance measures 600 sharing between departments 130 Rogo-Letto 296 – Rolex 697 rolling budget 430, 842 Royal Dutch Shell 85, 99 Saab 289 SABMiller 85 Safaricom safety stock 677, 842 Sage, enterprise resource planning system 665 sales effect on operating profit 187 – sales mix in CVP analysis 228, 842 sales-mix variance 536 –7, 842 sales-quantity variance 536, 842 sales value at split-off method 155, 156 –7, 161–2, 161–3, 842 sales variances 534 –5 sales-volume variance 466 – 8, 535 – 41, 842 Samsung 562, 637, 697, 698 Sandoz 507 SAP, enterprise resource planning system 665 Scandinavian balanced scorecard 708 scorekeeping 10, 842 scrap 153, 842 Sears Canada 289 segment 842 Selexys 665 self-determination of consumers self-liquidating cycle 449, 842 sell or process further 164 –5 selling-price variance 467, 842 Semco 428 semivariable cost functions 246, 842 sensitivity analysis 842 capital investment decisions 389 – 90 CVP analysis 224 –5 linear programming 304 –5 855 separable costs 153, 843 sequential allocation method 134 –5, 843 sequential tracking 666, 843 serial correlation in regression analysis 269 service department 132, 843 service-sector companies 41, 843 service-sustaining costs 321, 843 set-up 843 set-up time 662 shareholder’s equity as definition of investment 595 Sharp 352 short run costing systems 346 –7 short run planning 426 short run pricing 346 –7 Siemens 10, 352, 561, 592, 603, 660, 662, 701 Siemens electric Motor Works (case study) 413 –18 simple regression analysis 254, 843 simplex method 303 single indirect-cost pool system 314 –17 single-rate cost-allocation method 128 –30, 843 slope coefficient 843 slope coefficient in cost functions 245, 246 small businesses budgetting 425 – social networking sites 707, 713 –14 Sofiya Company 463 – 82, 493 –512 source documents 60 –1, 63 – 6, 843 South Africa Accounting Standards Board 3–4 Southwest Airlines 605 Spain, accountants 11 specification analysis 271, 843 split-off point 153, 843 spoilage 843 Spring Distribution Company 363 – staff management 843 stand-alone cost-allocation method 138, 843 standard cost 468 – 9, 843 control feature of 479 – 80 journal entries 478 – standard costing 189, 508 –12, 843 standard-costing methods of process costing 101– standard error of the estimated coefficient 267 – 8, 843 standard input 468, 843 standards 482 setting of 264 Starbucks 474 static budgets 463, 843 analysis 495 – variances 463 –5, 535 statistical process control (SPC) 641 statistical quality control (SQC) 641 2/23/15 11:33 AM www.downloadslide.net 856 Subject index Stavanger-Oil AS 566 –75 step allocation method 134 –5, 843 step cost functions 259 – 60, 843 step-down allocation method 134 –5, 137 – 8, 843 step fixed-cost function 260 step variable-cost function 259 – 60 stock carrying costs 293 stock-costing methods 179 – 97 absorption costing 179 – 83 capsule comparison of 188 – comparison of methods 183 – 6, 188 – denominator-level concepts 191– performance measures 189 – 91 practical capacity 191–2 theoretical capacity 191–2 variable costing 179 – 93 stock, costs and management of 683 – stock management 673, 843 stock-related costs 42, 843 estimating 678 – prediction error, cost of 679 – 80 stockbuilding, undesirable 189 – 90 stockout 843 costs of goods for sale 673, 843 stocks and variance analysis 472 –3 straight-line depreciation (SL) 397, 843 strategic analysis 426, 843 strategic decisions – strategic implementation 712 strategic investment appraisal (SIA) 843 strategic management accounting (SMA) 18, 696 –718, 844 balanced scorecard (see balanced scorecard) concepts 696 –700 definition 699 –700 evaluating 707 – potential 712 –13 tableau de bord 709 –11 strategic options 712 strategic position 711 strategic risk 712 strategic scorecard 711, 712, 844, see also balanced scorecard strategy 426, 427 –30, 930 strikes 435 structural capital 717 suboptimal decision making 563, 844 subsidiary ledgers 66 –71 substitutable materials 527 Sumitomo Electric Industries 15 sunk costs 300, 844 supplier relationships 663 suppliers, bargaining power and strategy 697 supply chain 13 –14, 844 support department 132 – 8, 844 cost allocation methods 132 – Suziki 358 Z05_BHIM3461_06_SE_SIDX.indd 856 Svenska Handelsbanken 431 Sweden accountants 11 performance measures used 594 Swedish Match 594 SWOT analysis 699 synchronous tracking 666, 844 tableau de bord 709 –11, 844 Tankmaster Manufacturing Company (case study) 411–13 target cost per unit 352 target costing 352 – implementing 352 – per unit, achieving 355 –7, 844 target operating profit in CVP analysis 221, 844 target operating profit per unit 352 target pricing 352 – 8, 844 target rate of return on investment 358 – 60, 844 targeting 431 Tarmac 348 Tata Motors 358 taxation 396 –7 transfer pricing 573 – 4, 574 –5 Telecom Italia Group 592 theoretical capacity and stock-costing 191–2, 844 theory of constraints 647 –50, 844 throughput accounting 844 throughput concerns 637 –51 throughput contribution 647, 844 throughput costing 844 Tiilikainen 295, 302 –5 time-adjusted rate of return 387, 844 time coverage of budgets 430 –1 time driver 844 time horizon in CVP analysis 228 time-series data in cost drivers 252 time value of money 381–2 total alternatives approach 291 total annual relevant costs (TRC) 674 –7 total assets available 595 total assets employed 595 total costs 37 – 40 of quality improvement 643 –5 total direct manufacturing labour mix variance 844 total direct manufacturing labour yield variance 531– 4, 844 total direct materials mix variance 530 –1, 531– 4, 844 total direct materials yield variance 529 –30, 844 total-organisation level of control 561 total quality management (TQM) 662 Toyota 289, 352 Trans-Europe Transport Company (TETC) 36 transactions 844 transfer pricing 565 –76, 844 cost-based 565, 569 –72 guideline for 573 – illustration of 566 – market-based 565, 568 – negotiated 565, 572 and taxation 573 – transferred-in costs in process-costing 105 –11, 844 and FIFO method 109 –11 and weighted average method 107 – Twitter 38 Tycol 604 Uchimi 13 UK Quality Award 637 uncertainty in CVP analysis 224 –5, 844 and decision models 231– underabsorbed indirect costs 71, 844 underallocated indirect costs 71, 844 underapplied indirect costs 71, 844 undercosting 313 unfavourable variance 463, 845 uniform cash flows in payback methods 392 – Unilever 10, 427 – Union Bank of Norway 369 unit costs 37 – 40, 845 meaning of 37 use of 37 – 40 United Kingdom capital budgeting methods 395 United States capital budgeting methods 395 EVA, use of 594 performance management systems 709 performance measures used 594 University of Antwerp Jazz Society 37 – 40 unused capacity 845 USA health care costs 328 usage variance 468, 845 value-added activities 33, 845 value-added cost 493, 845 value chain 13 –14, 845 value engineering 351–7, 845 variable cost percentage 230, 845 variable costing 42, 179 – 83, 845 and absorption costing 179 – 83 breakeven point 195 –7 capsule comparison of 188 – income statements 182, 185, 188 variable costs 34 –7, 845 CVP analysis 226 – of quality improvement 643 –5 variable manufacturing overhead costs 503 – variable overhead cost variances 496 – 2/23/15 11:33 AM www.downloadslide.net Subject index variable overhead costs developing 494 planning 493 variable-overhead efficiency variance 496 –7, 511, 845 variable-overhead spending variance 498, 512 –14, 845 variable set-up overhead costs 512 –14 variance 9, 462 – 82, 845 accounting for 103 – 4, 670 –3 backflush costing 670 –3 flexible budgets 466 –7, 535 – 41 investigation of 476 management use of 474 –7 variance analysis 472, 473 – and activity-based costing 512 –16 benchmarking for 481–2 for fixed set-up overhead costs 514 –15 for multiple products 535 – 41 and organisational learning 476 Z05_BHIM3461_06_SE_SIDX.indd 857 for variable set-up overhead costs 512 –14 Video Galore 674 – 83 virtual community virtual organisations 18 Volkwagen 294 Volvo 352, 363, 431 Wallace Company 62 –75 Walt Disney Company 384 Web 2.0 713 weighted-average cost of capital (WACC) 592 weighted-average process-costing method 92 –5, 100 –1, 845 and FIFO methods 100 –1 and transferred-in costs 107 – Wi-Fi Direct 648 wireless data bottlenecks 648 work cell 845 857 work in process 845 work-in-progress 845 work-in-progress inventory in process costing 86 – 95 work-in-progress stock 42, 86 – 95, 845 work-measurement method of cost estimation 249, 845 working capital as definition of investment 595 working-capital cycle 449, 845 World Wide Web 845 WorldCom 16, 604 WS Industries 333 Yahoo! 11, 288, 492 Yokogowa Hewlett-Packard 264 YouTube Zeros plc (case study) 548 –50 Zipcar 38 2/23/15 11:33 AM www.downloadslide.net Z05_BHIM3461_06_SE_SIDX.indd 858 2/23/15 11:33 AM www.downloadslide.net Z05_BHIM3461_06_SE_SIDX.indd 859 2/23/15 11:33 AM www.downloadslide.net Z05_BHIM3461_06_SE_SIDX.indd 860 2/23/15 11:33 AM ... to cost terms and purposes Costs in general Direct costs and indirect costs Cost drivers and cost management Two types of cost behaviour pattern: variable costs and fixed costs Total costs and. .. Evaluating and choosing cost drivers Cost drivers and activity-based costing t Concepts in action: Activity-based costing and cost estimation Non-linearity and cost functions Learning curves and non-linear... analysis and standard costing: helping Sandoz manage overhead costs Engineered, discretionary and infrastructure costs Financial and non-financial performance measures Actual, normal and standard costing