Managerial and Cost Accounting

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MANAGERIAL AND COST
ACCOUNTING
LARRY M. WALTHER & CHRISTOPHER J. SKOUSEN

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Managerial and Cost Accounting
© 2009 Larry M. Walther, under nonexclusive license to Christopher J. Skousen & Ventus Publishing ApS. All material in this publication is copyrighted, and the exclusive property of Larry M. Walther or his licensors (all rights reserved). ISBN 978-87-7681-491-5

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2

Managerial and Cost Accounting

Contents

Contents
Part 1. Introduction to Managerial Accounting

9

1.
1.1

Managerial Accounting
Professional Certifications in Management Accounting

10
10

2.
2.1
2.2
2.3
2.4
2.5
2.6
2.6.1
2.6.2
2.6.3
2.7
2.7.1
2.7.2

Planning, Directing, and Controlling
Decision Making
Planning
Strategy
Positioning
Budgets
Directing
Costing
Production
Analysis
Controlling
Monitor
Scorecard

11
11
12
13
14
16
16
17
19
21
22
22
23

3.

Cost Components

26

4.
4.1

Product Versus Period Costs
Period Costs

28
28

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Managerial and Cost Accounting

Financial Statement Issues that are Unique to Manufacturers
Schedule of Raw Materials
Schedule of Work in Process
Schedule of Cost of Goods Manufactured
Schedule of Cost of Goods Sold
The Income Statement
Reviewing Cost of Flow Concepts for a Manufacturer
Critical Thinking About Cost Flow

29
29
30
31
31
32
32
34

Part 2. Cost-Volume-Profit and Business Scalability

36

6.
6.1
6.2
6.3
6.4
6.5
6.6

Cost Behavior
The Nature of Costs
Variable Costs
Fixed Costs
Business Implications of the Fixed Cost Structure
Economies of Scale
Dialing in Your Business Model

37
37
37
38
40
40
42

7.
7.1
7.2
7.3
7.4

Cost Behavior Analysis
Mixed Costs
High-Low Method
Method of Least Squares
Recap

44
44
45
46
49

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5.
5.1
5.2
5.3
5.4
5.5
5.6
5.7

Contents

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Managerial and Cost Accounting

Contents

8.
8.1
8.2
8.3
8.4
8.5
8.6

Break-Even and Target Income
Contribution Margin
Contribution Margin: Aggregated, per Unit, or Ratio?
Graphic Presentation
Break-Even Calculations
Target Income Calculations
Critical Thinking About CVP

50
50
50
51
52
53
54

9.
9.1
9.2
9.3
9.4
9.5
9.6

Sensitivity Analysis
Changing Fixed Costs
Changing Variable Costs
Blended Cost Shifts
Per Unit Revenue Shifts
Margin Beware
Margin Mathematics

55
55
56
57
57
58
59

10.
10.1

CVP for Multiple Products
Multiple Products, Selling Costs, and Margin Management

60
61

11.

Assumptions of CVP

62

Part 3. Job Costing and Modern Cost Management Systems

63

Basic Job Costing Concepts
Cost Data Determination
Conceptualizing Job Costing
Tracking Direct Labor
Tracking Direct Materials

64
64
64
66
66

12.
12.1
12.2
12.3
12.4

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Managerial and Cost Accounting

Contents

Tracking Overhead
Job Cost Sheets
Expanding the Illustration
Another Expansion of the Illustration
Database Versus Spreadsheets
Moving Beyond the Conceptual Level

67
69
69
71
71
72

13.
13.1
13.2
13.3

Information Systems for the Job Costing Environment
Direct Material
Direct Labor
Overhead and Cost Drivers

73
73
73
74

14.
14.1
14.2
14.3
14.4
14.5
14.6
14.7
14.8

Tracking Job Cost Within the Corporate Ledger
Direct Material
Direct Labor
Applied Factory Overhead
Overview
Financial Statement Impact Scenarios...
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