CiNii Books - Cost accounting

Take control of overhead, budgeting, and profitability with cost accounting Cost accounting is one of the most important skills in business, and its popularity as a course in undergraduate and graduate business and management programs speaks to its usefulness. But if you've ever felt intimidated by the subject's jargon or concepts, you can stop worrying. Cost accounting is for everyone! In Cost Accounting For Dummies, you'll be taken step-by-step through the basic and advanced topics found in a typical cost accounting class, from how to define costs and how to allocate them to products or services. You'll learn how to determine if a capital expenditure is worth it and how to design a budget model that forecasts changes in costs based on activity levels. Whether you're a student in your first cost accounting course or a professional trying to get a grip on your books, you'll benefit from: Simple methods to evaluate business risks and rewards Explanations of how to manage and control costs during periods of business change and pivots Descriptions of how to use cost accounting to price IT projects Cost Accounting For Dummies is the gold standard in getting a firm grasp on the challenging and rewarding world of cost accounting.

Table of Contents

Introduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 2 Beyond the Book 3 Where to Go from Here 3 Part 1: Understanding the Fundamentals of Costs 5 Chapter 1: So You Want to Know about Cost Accounting 7 Comparing Accounting Methods 8 Considering your shareholders 8 Mulling over creditors 9 Addressing concerns of regulators 9 Using management accounting 9 Fitting in cost accounting 10 Using Cost Accounting to Your Advantage 11 Starting with cost-benefit analysis 11 Planning your work: Budgeting 12 Controlling your costs 12 Setting a price 13 Improving going forward 14 Chapter 2: Brushing Up on Cost Accounting Basics 17 Understanding the Big Four Terms 17 Comparing direct and indirect costs 18 Mulling over fixed and variable costs 20 Fitting the costs together 21 Covering Costs in Different Industries 22 Reviewing manufacturing costs 22 Considering costs for retailers 23 Adding up costs for e-commerce firms 23 Finding costs most companies incur 24 Why Are You Spending? Cost Drivers 25 Pushing equipment too hard and relevant range 25 Previewing inventoriable costs 26 Following the Rules of the Cost Accounting Road 27 Understanding generally accepted accounting principles (GAAP) 27 Deciding on accrual basis or cash basis 29 Finishing with conservatism 30 Chapter 3: Using Cost-Volume-Profit Analysis to Plan Your Business Results 31 Understanding How Cost-Volume-Profit Analysis Works 32 Calculating the breakeven point 32 Financial losses: The crash of your cash 34 Contribution margin: Covering fixed costs 35 Lowering the breakeven point to reach profitability sooner 36 Target net income: Setting the profit goal 37 Using operating leverage 38 Assessing e-commerce businesses 40 Timing is everything when it comes to costs 41 Using Cost-Volume-Profit Analysis to Make Savvy Business Decisions 42 Deciding to advertise 43 Lowering your price without losing your profit 44 Combining the results of two products 45 Costing and pricing a new product 48 The Tax Man Cometh, the Profits Goeth 51 Understanding pre-tax dollars 51 Adjusting target net income for income taxes 52 Chapter 4: Estimating Costs with Job Costing 53 Understanding How Job Costing Works 54 Cost objects: The sponges that absorb money 55 Charging customers for direct and indirect costs 56 Implementing job costing in manufacturing: An example 57 Deciding on costing for IT consulting projects 61 Taking a Closer Look at Indirect Costs using Normal Costing 64 Budgeting for indirect costs 65 Following a normal job costing system 66 Following the Flow of Costs through a Manufacturing System 67 Control starts with control accounts 67 Explaining the debit and credit process 68 Walking through a manufacturing cost example 70 Applying the methodology to other control accounts 73 Chapter 5: More Activity, More Cost: Activity-Based Costing 75 Avoiding the Slippery Peanut Butter Costing Slope 76 Recognizing a single indirect cost allocation 77 A fly in the peanut butter: Dealing with different levels of client activity 77 Missing the mark: Undercosting and overcosting 79 Designing an Activity-Based Costing System 81 Refining your approach 81 Grouping costs using a cost hierarchy 82 Testing your ABC design 83 Using Activity-Based Costing to Compute Total Cost, Profit, and Sale Price 87 Allocating indirect costs evenly by product 88 Analyzing and reallocating cost activities 88 Changing allocations to cost pools 89 Changing prices after ABC 90 Implementing ABC Costing for a Business Pivot 91 Deciding whether to pivot 92 Mulling over a pivot example 93 Using ABC Costing for a New Business Model 94 Considering sunk costs 94 Reviewing food and labor costs 95 Allocating new overhead costs 95 Applying ABC costing to overhead costs 96 Evaluating your results 98 Part 2: Planning and Control 99 Chapter 6: What's the Plan, Stan? Budgeting for a Better Bottom Line 101 Brushing Up on Budgeting Basics 102 Seeing the master budget and its component parts 102 Why budgeting is important 103 Considering the costs and benefits of data collection 104 Leveraging AI and data analytics for effective budgeting 106 Planning strategically 107 Planning How to Plan: Factors That Impact Your Budgeting Process 108 Experience counts 109 Timing is everything 109 People get you headed in the right direction 110 Sales projections pay off 111 The Nuts and Bolts (and Washers) of Budgeting 112 Understanding the budgeting financials 113 Reviewing revenue and production budgets 116 Budgeting with Cash Accounting or Accrual Accounting 119 Cash basis accounting: Using your checkbook to budget 119 I accrue, you accrue, we all accrue with accrual accounting 121 Budgeting to Produce the Income Statement and Balance Sheet 122 The well-balanced balance sheet 122 The incredible income statement 123 Chapter 7: Constant Change: Variance Analysis 125 Variance Analysis and Budgeting 126 Using management by exception to recognize large variances 126 Seeing the problem in using a static budget 127 Opting for a flexible budget 131 Investigating budget variances 134 Analyzing in Material Price and Efficiency Variances 135 Applying price variances to direct materials 136 Applying efficiency variances to direct materials 137 Implementing price variances for direct labor 139 Sizing up efficiency variances for direct labor 139 Using Your Findings to Make Decisions 140 Following up on variances 141 Judging the effectiveness of your employees 143 Tying supply chain concepts to variance analysis 145 Attaching ABC costing concepts to variance analysis 145 Chapter 8: Focusing on Overhead Costs 149 Using Cost Allocation to Minimize Overhead 150 Paying for the Security Guard: Fixed Overhead Costs 151 Planning fixed overhead costs 151 Allocating fixed overhead costs 152 Assessing potential causes of fixed overhead variances 155 Those Vexing Variable Manufacturing Costs 156 Working with variable overhead costs 156 Implementing variance analysis 159 Finding the reasons for a variable overhead variance 161 Chapter 9: What's on the Shelf? Inventory Costing 163 Working with Inventoriable Costs 164 Using the matching principle to calculate profit on sale 164 Erring on the conservative side 166 Costing Methods for Inventory 166 Using the first-in, first-out (FIFO) method 168 Accounting with the last-in, first-out (LIFO) method 169 Weighing the merits of weighted-average cost 170 Considering specific identification method 171 Analyzing profit using FIFO and LIFO 171 Using Variable and Absorption Costing to Allocate Fixed Manufacturing Costs 173 Defining period costs and product costs 174 Applying variable and absorption costing 175 Relating Capacity Issues to Inventory 177 Reviewing theoretical and practical capacity 178 Understanding capacity issues for e-commerce firms 179 Using normal and master-budget capacity 181 Choosing a capacity level 182 Part 3: Making Decisions 185 Chapter 10: Cost Drivers and Cost Estimation Methods 187 Working with Cost Behavior 188 Understanding linear and nonlinear cost functions 188 Discovering how cost drivers determine total costs 189 Considering Cost Estimation Methods 190 Walking through the industrial engineering method 190 Agreeing on the conference method 191 Reviewing the account analysis method 191 Checking out the quantitative analysis method 192 Choosing a cost estimation method 196 Exploring Nonlinear Cost Functions 197 Changing cost functions and slope co-efficients 198 Understanding the impact of quantity discounts 198 Assessing the Impact of Learning Curves 198 Considering how AI and Data Analytics Impact Learning Curves 200 Reviewing AI and data analytics 200 Throwing in the learning curve 200 Simplifying a procedure 201 Finding and using better data 201 Chapter 11: Making Smart Business Decisions with Relevant Information 203 Navigating the Geography of Relevance 204 Introducing the decision model 205 Applying a model to an equipment decision 206 Understanding IT purchasing issues 208 Considering relevant qualitative factors in decision-making 210 Special Orders Don't Upset Us, Do They? 211 Deciding between Outsourcing and In-house Production 213 Weighing opportunity costs 217 Contemplating the carrying cost of inventory 218 Maximizing Profit When Capacity Is Limited 220 Managing capacity and product mix 220 Analyzing customer profit and capacity 222 Chapter 12: Making Smart Pricing Decisions: Figuring Total Costs 227 Understanding Influences on Prices 228 Customers 228 Competitors 228 Suppliers 229 Special orders 229 Pricing for Profits Down the Road 231 Reviewing market-based and cost-based pricing 231 Aiming at the target: Target costing 232 Arriving at a Reasonable Profit 236 Using cost-plus pricing 237 Using product life-cycle budgeting 239 Managing IT product costs and pricing 245 Part 4: Allocating Costs and Resources 249 Chapter 13: Analysis Methods to Improve Profitability 251 Processing Cost Allocation 252 Why bother? Purposes of cost allocation 252 Justifying cost allocation decisions 253 Implementing Cost Allocation 254 Using cost hierarchy to allocate costs 254 Allocating tricky corporate costs 256 Keeping track of customer revenues and costs 260 Going Over Sales Mix and Sales Quantity Variances 264 Remembering variances and contribution margin 265 Getting the story about sales mix variance 265 Calculating sales quantity variance 269 Chapter 14: Behind the Scenes: Accounting for Support Costs and Common Costs 271 Not Everyone Generates Revenue: Support Costs 272 Introducing single rate cost allocation method 272 Checking out dual rate cost allocations 275 Using practical capacity to determine cost allocation rates 277 Going Over Variance Analysis and Department Costs 281 Choosing budgeted versus actual rate of usage 281 Implications for the rate of usage selected 284 Allocating to multiple departments 285 Focusing on Common Costs 290 Mulling over stand-alone cost allocation 290 Stepping up to incremental cost allocation 291 Making a Commitment: Contracts 292 Contracting with the government 292 Thinking about reasonable and fair costs 293 Chapter 15: Joint Costs, Separable Costs, and Using Up the Leftovers 295 Working with Joint Costs 296 Explaining joint cost terms 296 Appreciating the importance of allocating joint costs 297 Considering joint cost allocation methods 298 Continuing Production: Computing Separable Costs After Splitoff 301 Exploring the net realizable value method 301 Introducing the constant gross margin percentage NRV method 303 Choosing a Joint Cost Allocation Method 308 Making the case for sales value at splitoff 308 Falling back to other joint costing methods 308 Deciding to sell or process further 309 Holding a Garage Sale: Making the Most of Byproducts 310 Chapter 16: Tracing Similar Products with Process Costing 313 Process Costing: Presenting the Basic Approach 314 Leading off with direct material costs 314 Following up with conversion costs 315 Sitting on the Factory Floor: Dealing with Work in Process 315 Using Equivalent Units to Compare Apples to Apples 316 Counting the units for equivalent units 317 Hunting down the total costs of production 318 Putting units and costs together 319 Seeing different percentages of completion 321 Using the Weighted Average Method for Process Costing 325 Handling beginning work in process 325 Continuing with equivalent units 326 Introducing the First In, First Out Method of Process Costing 328 Comparing Processing Costing Methods 331 Mulling over weighted average and FIFO methods 331 Debating transferred-in costs 333 Part 5: Considering Quality Issues 335 Chapter 17: What a Waste! Getting the Most from Spoilage, Scrap, and Reworked Products 337 Accounting for Waste 338 Determining the inspection point 338 Understanding spoilage and scrap 338 Spoilage and process costing 341 Reworking a product to recoup some profit 346 Applying Process Costing Methods to Spoilage 346 Weighing in on the weighted average costing method 347 Doing the FIFO Hokey Pokey: Put your first in first, take your first out first 349 Job Costing for Spoilage, Reworked Products, and Scrap 352 Making adjustments for normal and abnormal spoilage 352 Reworking and selling a product 355 Making allocation decisions about scrap 357 Chapter 18: Making Smart Ordering Decisions 359 Considering the Costs of Inventory 360 Going through the ordering sequence 361 Taking a closer look at stockout costs 362 Calculating Inventory Quantity with the Economic Order Quantity Formula 363 Figuring a Favorable Reorder Point 365 Introducing safety stock: Creating a cushion 366 Computing safety stock 366 Evaluating Prediction Error 367 Calculating relevant total costs 367 Acting on a prediction error 369 Buying more and ignoring EOQ 370 Practicing Just-In-Time Purchasing 371 Kicking around JIT benefits and risks 371 Putting in a JIT purchasing system 373 Adjusting total purchasing cost 376 SCM and Customer Demand Issues 377 Pulling apart the supply chain 378 Analyzing demand 378 Chapter 19: Quality: Building a Better Mousetrap 381 Considering Quality Benefits and Costs 382 Listing the benefits of quality 382 Listing the costs of quality 383 Taking steps to ensure quality 384 Compiling a Cost of Quality Report 385 Putting Quality Practices in Place 387 Quality in job costing 387 Taking a spin through inventory 388 Customer Satisfaction: Measuring and Improving It 389 Customer satisfaction's non-financial measurements 389 Is measuring customer satisfaction worth the effort? 391 Doing More in Less Time 392 Analyzing performance related to time 392 Calculating average waiting time 394 Adding in manufacturing lead-time 395 Eliminating the Constraint of the Bottleneck 396 Fewer bottlenecks mean increased contribution margin 396 Clearing bottlenecks 397 Part 6: The Part of Tens 401 Chapter 20: Ten Common Costing Mistakes and How to Avoid Them 403 Pricing a Product Incorrectly 403 Listing Fixed Costs As Variable Costs 404 Labeling Period Costs As Product Costs 404 Misusing Target Net Income 404 Forgetting About Taxes 405 Assigning Costs to the Wrong Product 405 Not Reviewing Variances Correctly 406 Redlining: Pushing Production Activity Above Relevant Range 406 Ignoring the Timing of Costs 407 Not Implementing Activity-Based Costing 407 Chapter 21: Ten Ways to Increase Profits Using Costing 409 Selling More Of The Right Products 409 Implementing Sales Mix Analysis to Increase Total Profits 410 Building a Higher Margin of Safety 410 Deciding How Much You Need: Production and Scheduling Issues 410 Who Does What: Handling Costs and Employee Issues 411 Reducing and Managing Scrap 411 Moving It off the Shelf: Inventory Issues 411 Effectively Taking Special Orders 412 Making Accurate Cost Allocations 412 Addressing the Issue of Spoilage 412 Index 415

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