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• Half Title
• Title Page
• Copyright Page
• Brief contents
• Contents
• Preface
• How to use this book
• Acknowledgements
• 1 Introduction to management accounting
• Introduction
• Learning outcomes
• What is the purpose of a business?
• How are businesses organised?
• How are businesses managed?
• Establish mission, vision and objectives
• Undertake a position analysis
• Identify and assess the strategic options
• Select strategic options and formulate plans
• Perform, review and control
• The changing business landscape
• What is the financial objective of a business?
• Balancing risk and return
• What is management accounting?
• How useful is management accounting information?
• Providing a service
• Weighing up the costs and benefits
• Management accounting as an information system
• It’s just a phase
• What information do managers need?
• Reporting non-financial information
• Influencing managers’ behaviour
• Reaping the benefits of information technology
• From bean counter to team member
• Reasons to be ethical
• Management accounting and financial accounting
• Summary
• Key terms
• References
• Further reading
• Critical review questions
• Exercises
• 2 Relevant costs and benefits for decision making
• Introduction
• Learning outcomes
• Cost–benefit analysis
• What is meant by ‘cost’?
• Relevant costs: opportunity and outlay costs
• Irrelevant costs: sunk costs and committed costs
• Sunk cost fallacy
• Determining the relevant cost of labour and materials
• Labour
• Materials
• Non-measurable costs and benefits
• Summary
• Key terms
• Further reading
• Critical review questions
• Exercises
• 3 Cost–volume–profit analysis
• Introduction
• Learning outcomes
• Cost behaviour
• Fixed cost
• Variable cost
• Semi-fixed (semi-variable) cost
• Analysing semi-fixed (semi-variable) costs
• Finding the break-even point
• Contribution
• Contribution margin ratio
• Margin of safety
• Achieving a target profit
• Operating gearing and its effect on profit
• Profit–volume charts
• The economist’s view of the break-even chart
• The problem of breaking even
• Weaknesses of break-even analysis
• Using contribution to make decisions: marginal analysis
• Pricing/assessing opportunities to enter contracts
• The most efficient use of scarce resources
• Make-or-buy decisions
• Closing or continuation decisions
• Summary
• Key terms
• Further reading
• Critical review questions
• Exercises
• 4 Full costing
• Introduction
• Learning outcomes
• What is full costing?
• Why do managers want to know the full cost?
• Single-product businesses
• Process-costing problems
• Multi-product businesses
• Direct and indirect cost
• Job costing
• Full costing and cost behaviour
• The problem of indirect cost
• Overheads as service renderers
• Job costing: a worked example
• Selecting a basis for charging overheads
• Segmenting the overheads
• Dealing with overheads on a cost centre basis
• Batch costing
• Non-manufacturing overheads
• Full (absorption) costing and estimation errors
• Full (absorption) costing and relevant costs
• Full (absorption) costing versus variable costing
• Which method is better?
• Summary
• Key terms
• Reference
• Further reading
• Critical review questions
• Exercises
• 5 Costing and cost management in a competitive environment
• Introduction
• Learning outcomes
• Cost determination in the changed business environment
• Costing and pricing: the traditional way
• Costing and pricing: the new environment
• Cost management systems
• The problem of overheads
• Taking a closer look
• Activity-based costing
• Assigning overheads
• ABC and the traditional approach compared
• ABC and service industries
• Benefits and costs of ABC
• ABC in practice
• Managing costs over the product life cycle
• Total life-cycle costing
• Target costing
• Kaizen costing
• Other approaches to managing costs in the modern environment
• Value chain analysis
• Benchmarking
• Total quality management
• Managing quality costs
• An alternative view
• Summary
• Key terms
• Reference
• Further reading
• Critical review questions
• Exercises
• 6 Budgeting
• Introduction
• Learning outcomes
• How budgets link with strategic plans and objectives
• Exercising control
• Time horizon of plans and budgets
• Budgets and forecasts
• Periodic and continual budgets
• Limiting factors
• How budgets link to one another
• How budgets help managers
• The budget-setting process
• Step 1: Establish who will take responsibility
• Step 2: Communicate budget guidelines to relevant managers
• Step 3: Identify the key, or limiting, factor
• Step 4: Prepare the budget for the area of the limiting factor
• Step 5: Prepare draft budgets for all other areas
• Step 6: Review and coordinate budgets
• Step 7: Prepare the master budgets
• Step 8: Communicate the budgets to all interested parties
• Step 9: Monitor performance relative to the budget
• Using budgets in practice
• Incremental and zero-base budgeting
• Preparing budgets
• The cash budget
• Preparing other budgets
• Activity-based budgeting
• Non-financial measures in budgeting
• Budgets and management behaviour
• Problems with budgets
• Beyond conventional budgeting
• The future of budgeting
• Summary
• Key terms
• References
• Further reading
• Critical review questions
• Exercises
• 7 Accounting for control
• Introduction
• Learning outcomes
• Budgeting for control
• Types of control
• Variances from budget
• Flexing the budget
• Sales volume variance
• Sales price variance
• Materials variances
• Labour variances
• Fixed overhead variance
• Reconciling the budgeted profit with the actual profit
• Reasons for adverse variances
• Variance analysis in service industries
• Non-operating-profit variances
• Investigating variances
• Variance analysis in practice
• Compensating variances
• Standard quantities and costs
• Setting standards
• Who sets the standards?
• How is information gathered?
• What kind of standards should be used?
• The learning-curve effect
• Other uses for standard costing
• Some problems
• The new business environment
• Making budgetary control effective
• Behavioural issues
• Failing to meet the budget
• Budgets and management autonomy
• Types of management control
• Direct control
• Indirect control
• Summary
• Key terms
• Reference
• Further reading
• Critical review questions
• Exercises
• 8 Making capital investment decisions
• Introduction
• Learning outcomes
• The nature of investment decisions
• Investment appraisal methods
• Accounting rate of return (ARR)
• ARR and ROCE
• Problems with ARR
• Payback period (PP)
• Problems with PP
• Net present value (NPV)
• Why does time matter?
• Interest lost
• Risk
• Inflation
• What should managers do?
• Dealing with the time value of money
• Calculating the net present value
• Using present value tables
• The discount rate and the cost of capital
• Why NPV is better
• NPV and economic value
• Internal rate of return (IRR)
• Problems with IRR
• Some practical points
• Investment appraisal in practice
• Investment appraisal and strategic planning
• Managing investment projects
• Stage 1: Determine investment funds available
• Stage 2: Identify profitable project opportunities
• Stage 3: Evaluate the proposed project
• Stage 4: Approve the project
• Stage 5: Monitor and control the project
• Summary
• Key terms
• References
• Further reading
• Critical review questions
• Exercises
• 9 Managing risk
• Introduction
• Learning outcomes
• Dealing with risk
• Assessing the level of risk
• Sensitivity analysis
• Strengths and weaknesses of sensitivity analysis
• Scenario analysis
• Expected values
• Reacting to the level of risk
• Summary
• Key terms
• Further reading
• Critical review questions
• Exercises
• 10 Strategic management accounting: performance evaluation and pricing in a competitive environment
• Introduction
• Learning outcomes
• What is strategic management accounting?
• Facing outwards
• Competitor analysis
• Customer profitability analysis
• Competitive advantage through cost leadership
• Non-financial measures of performance
• The balanced scorecard
• Scorecard problems
• Measuring shareholder value
• The quest for shareholder value
• How can shareholder value be created?
• The need for new measures
• Economic value added (EVA® )
• Shareholder value-based management in practice
• Just another fad?
• Pricing
• Economic theory
• Some practical considerations
• Full cost (cost-plus) pricing
• Pricing on the basis of marginal cost
• Target pricing
• Pricing strategies
• Summary
• Key terms
• References
• Further reading
• Critical review questions
• Exercises
• 11 Measuring divisional performance
• Introduction
• Learning outcomes
• Divisionalisation
• Why do businesses divisionalise?
• Devolving decisions
• Divisional structures
• Is divisionalisation a good idea?
• Measuring divisional profit
• Contribution
• Controllable profit
• Divisional profit before common expenses
• Divisional profit for the period
• Divisional performance measures
• Return on investment (ROI)
• Residual income (RI)
• Looking to the longer term
• Comparing performance
• EVA® revisited
• Transfer pricing
• The objectives of transfer pricing
• Transfer pricing and tax mitigation
• Transfer pricing policies
• Market prices
• Variable cost
• Full cost
• Negotiated prices
• Divisions with mixed sales
• Differential transfer prices
• Transfer pricing and service industries
• Non-financial measures of performance
• What is measured?
• Choosing non-financial measures
• Who should report?
• Summary
• Key terms
• Further reading
• Critical review questions
• Exercises
• 12 Managing working capital
• Introduction
• Learning outcomes
• What is working capital?
• Managing working capital
• The scale of working capital
• Managing inventories
• Budgeting future demand
• Financial ratios
• Recording and reordering systems
• Levels of control
• Inventories management models
• XYZ inventories management
• Managing trade receivables
• Which customers should receive credit and how much should they be offered?
• Length of credit period
• An alternative approach to evaluating the credit decision
• Cash discounts
• Debt factoring and invoice discounting
• Credit insurance
• Collection policies
• Reducing the risk of non-payment
• Managing cash
• Why hold cash?
• How much cash should be held?
• Controlling the cash balance
• Cash budgets and managing cash
• Operating cash cycle
• Cash transmission
• Bank overdrafts
• Managing trade payables
• Taking advantage of cash discounts
• Controlling trade payables
• Managing working capital
• Summary
• Key terms
• Further reading
• Critical review questions
• Exercises
• Appendix A Glossary of key terms
• Appendix B Solutions to self-assessment questions
• Appendix C Solutions to critical review questions
• Appendix D Solutions to selected exercises
• Appendix E Present value table
• Index
• Credits
• Back Cover