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Chapter 1--Management Accounting: Its Environment and Future
provides a brief overview of the environment and future of management accounting. We introduce the Institute of Management Accounting (IMA), the Certified Management Accountant (CMA) designation, and ethical standards for management accountants. We have included not only a description of how management accounting compares and contrasts with financial accounting, but also the historical forces that have led to the development of management accounting techniques. Further, we discuss the state of management accounting today and what kinds of management accounting information will be needed in the future.
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Chapter 2--Classifying Costs
presents an introduction to various cost classifications used in management accounting situations. We cover the concepts of cost objects, direct and indirect costs, and product and period costs. Students are introduced to the differences in product cost for a merchandiser and a manufacturer and learn the components of the costs included in each of the three types of inventory in a manufacturing operation. Finally, we explore the calculation of cost of goods manufactured and cost of goods sold for a manufacturer and cost of services for a service type firm. The chapter presents the journal entries associated with the information presented in the chapter.
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Chapter 3--Determining Costs of Products
introduces students to how manufacturers determine the cost of manufactured product. We present the documents used to help control the costs of manufactured products and cover how overhead costs are allocated to products using both traditional overhead allocation. We walk students through the steps required to determine the cost of manufactured product using job order and process costing. The chapter presents the journal entries associated with process costing and job order costing.
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Chapter 4--Cost Allocation and Activity Based Costing
introduces activity-based costing and how it is used to allocate overhead cost. We walk students through the steps required to determine the cost of product using activity based costing. We highlight the benefits of activity based costing and compare and contrast activity based costing with traditional overhead allocation.
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Chapter 5--Making Decisions Using Relevant Information
explores the subject of cost behavior. We explain the differences between fixed costs and variable costs, and how to classify costs by cost behavior. We also cover the concept of the relevant range and its effect on cost behavior information. We then present the characteristics of a mixed cost and discuss how to separate a mixed cost into its fixed and variable components using the engineering approach, the scatter graph, the high-low method, and regression analysis.
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Chapter 6--Business Decisions Using Cost Behavior
extends the topic introduced in Chapter 5 by using cost behavior information to make business decisions. In this chapter we present the functional income statement and contribution income statement and the differences between them. We cover the calculation of per unit amounts for sales, variable cost, and contribution margin, as well as the contribution margin ratio and its importance as a management tool. We present the contribution margin income statement for a merchandiser and introduce the concept of cost-volume-profit analysis, which we use to determine the amount of sales required to break even or to earn a targeted profit in both single-product and multiple-product situations. We use CVP to perform sensitivity analysis to changes in selling price, variable cost, and fixed cost. We explore variable and absorption costing and the differences between them.
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Chapter 7--Making Decisions Using Relevant Information
presents the topic of isolating and using relevant cost information in decision making. Included is a discussion of the characteristics of relevant and irrelevant costs, and a consideration of qualitative factors that should be considered when making business decisions. The specific decision situations covered in the chapter are equipment replacement, whether to accept or reject a special order, and the effects of fixed costs and opportunity costs on a make or buy decision.
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Chapter 8--The Capital Budget: Evaluating Capital Expenditures
covers capital budgeting. The overall business planning process is discussed and where the capital budget fits in that process. The four shared characteristics of all capital projects are presented, as well as the cost of capital and the concept of scarce resources. Students learn how to identify the information relevant to the capital budgeting decision. We present four techniques used to evaluate proposed capital projects including net present value, internal rate of return, payback, and accounting rate of return. There is an appendix to this chapter which presents the concept of the time value of money and all the calculations students need to compute net present values and internal rates of return.
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Chapter 9--The Operating Budget
presents the operating budget, its benefits, preparation, and uses. First, we introduce and discuss all the budgets included in the operating budget from a conceptual standpoint. Then we present various approaches to budgeting, including perpetual, incremental, zero-based, top-down, bottom-up, imposed, and participative approaches. Next we discuss and stress the importance of the sales forecast in the budgeting process. Finally, we walk students through the preparation of all the budgets, and then discuss appropriate and inappropriate uses of the operating budget in the management process.
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Chapter 10-- Standard Costing
presents the procedures involved in standard costing. We explore what standard costing is and why it can be an effective tool for managers. We cover management by exception, ideal and practical standards, and the weaknesses of standard costing. We compare standard costing, actual costing, and normal costing and introduce students to methods used to set standards for a manufacturing company. Finally, we walk students through the calculations of standard cost variances for direct material, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. For instructors that would like to cover them, we also present the journal entries used to record all the procedures described in the chapter.
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Chapter 11--Evaluating Performance and Emerging Management and Accounting Techniques
introduces students to various methods of evaluating performance. We discuss centralized and decentralized management styles, business segments, and the problems associated with determining segment costs. We also present the segment income statement and how it is used to evaluate segment performance. We introduce students to return on investment and residual income as methods used to evaluate performance. We discuss some nonfinancial performance measures including quality, customer satisfaction, employee morale, employee safety, efficiency, and just-in-time. We also introduce various management techniques including the balanced scorecard, E-commerce, process management, enterprise information systems, six sigma, theory of constraints, and lean manufacturing