Management and Cost Accounting

Both authors hold a chair and teach at ESB Business School, Reutlingen University. They have been researching and teaching in the field of management and accounting and management control for many years.Andreas Taschner holds a diploma and a doctoral degree from Wirtschaftsuniversitat Wien (Vienna University of Economics and Business). He has more than 10 years of industry experience. He was appointed professor of management accounting at ESB Business School at Reutlingen University in 2011. His teaching and research interests include comparative management accounting, management reporting, investment appraisal techniques, and supply chain accounting.Michel Charifzadeh holds a diploma in business administration from Ludwig-Maximilians University Munich and received his doctoral degree from EBS Universitat fur Wirtschaft und Recht, Oestrich-Winkel. He has worked for several years as a project manager in mergers & acquisitions at Siemens AG. As a professor of finance and accounting he was employed at the International University of Bad Honnef-Bonn before he was appointed in 2011 to ESB Business School at Reutlingen University. His teaching and research interests include value based management, performance measurement, company valuation and International Financial Reporting Standards (IFRS).

• Preface xiChapter 1 Introduction to Management Accounting and Cost Accounting 1The Purpose of Accounting 2Information Needs in Business 2Different Sources of Information for Businesses 4A Definition of Accounting 5The Job of an Accounting System 5The “Accounting Family” 6Financial Accounting 7Cost and Management Accounting 9Is Accounting a Universal Language? 10Differences in Financial Accounting 11Differences in Cost and Management Accounting 13National Differences in Management Accounting – Problem or Strength? 15German “Controllers” versus “Management Accountants” 16The Role of a Controller in a Business Organization 17Ethical Aspects of Accounting 19Chapter 2 Cost Terms and Cost Concepts 23The Meaning of “Cost” in Business 24Comparing Cost with Other Accounting Measures 26Company Goals as Starting Point of Accounting Measures 26Different Accounting Measures for Different Purposes 26Receipts and Payments: Changes in a Company’s Cash Position 26Proceeds and Expenditures: Changes in a Company’s Monetary Assets 27Income and Expenses: Changes in a Company’s Total Assets 28Revenues and Costs: Changes in a Company’s Required Assets 29Comparing Different Value Concepts in Business Operations 30Cost Revisited: An Overview of Different Cost Concepts 39Overview 39Cost Concepts for Predicting Cost Behavior 39Cost Concepts for Comparing Cost 43Cost Concepts for Differentiating Time Reference 44Cost Concepts for Decision making 46Cost Concepts for Assigning Cost to Different Objects 48Cost Concepts for Analyzing Cash Relevance 50Cost Concepts for Preparing Financial Statements 52Relevance of Cost Categories for Business Management 53Chapter 3 Cost Behavior and Cost Estimation 61Things to Know About Cost Behavior 62No Costs without Cost Drivers! 63Typical Shapes of Cost Functions 64Cost Stickiness and Cost Elasticity 67Mathematical Models of Cost Behavior: Cost Functions 69Methods for Estimating Cost 72Heuristics 72Conference Method 73Account Analysis Method 73Scatterplots and Visual Fit Method 74High-low Method 75Regression Analysis 76Engineering Method (Physical Measurement) 78Comparison of Methods and Examples 79Chapter 4 The Basic Structure of a Cost Accounting System 89Cost Accounting as Information Source in Business 90Defining the Conceptual Framework for a Cost Accounting System 92Defining Relevant Cost Objects 93The Minimum Set-Up 93The Advanced Set-Up 95Defining Principles for Recording and Allocating Cost 96Comparing Cost Allocation Principles 101Comparison 105Defining Time Reference and Cost Accounting Periods 106General Cost Accounting Principles 109The Basic Layout of a Cost Accounting System 111IT as an Enabler of Cost Accounting Systems 113Chapter 5 Cost Type Accounting 117Purpose and Nature of Cost Type Accounting 118Cost Categorizations Used in Cost Type Accounting 119Cost Categorization Chart and Chart of Accounts 119How to Value Resource Consumption 122Main Cost Types in Detail 123Cost of Material 124Cost of Labor 128Asset-related Cost 129Cost of Financing / Cost of Capital 130Third Party Cost 130Taxes and Public Fees 131Imputed Cost 132Imputed Depreciation 133Imputed Interest 138Imputed Risk Charges 142Imputed Management Salaries 144Imputed Rent 145Chapter 6 Cost Center Accounting 151Purpose and Nature of Cost Center Accounting 152Splitting the Organization into Cost Centers 154Number of Cost Centers in Practice 155Primary Cost Allocation 157The Cost Allocation Chart 159Overview Cost Allocation Chart for Comparing Multiple Cost Centers 160Detailed Cost Allocation Chart for Managing Sub-unit Cost 160Determining the Allocation Base for Overhead Costs 161Determining Overhead Allocation Rates 165Internal Support Department Cost Allocation 165Cost Allocation Problems in Internal Support Departments 166Combining Support Cost Allocation Principles – An Example 168Allocating Costs of Multiple Support Departments 171Direct Method 175Step-Down Method 177Reciprocal Method 180Iterative Method 182Does Support Department Cost Allocation Really Matter? 184Chapter 7 Cost Unit Accounting (Product Costing) 191Purpose of Product Costing 192Overview of Product Costing Methods 194Process Costing 195Single-Stage Process Costing 196Two-Stage Process Costing 196Multi-Stage Process Costing 197Equivalence Coefficient Costing 199Multi-Stage Equivalence Coefficient Costing 202Job Order Costing 203Simple Job Order Costing 204Extended Job Order Costing 206Department-based Costing 209Machine Hour-Based Costing 212Joint Product Costing 214Chapter 8 Absorption Costing versus Variable Costing 221Accounting for Profits 222Absorption Costing 223Absorption Costing Example 224Strengths of Absorption Costing 226Weaknesses of Absorption Costing 227Variable Costing 229Multi-Step Variable Costing 231Variable Costing Example 233Decision making with Variable Costing 235Product Portfolio Decisions 235Product Mix Decisions 237Product Mix Decisions under Capacity Constraints 238Special Orders 240Outsourcing Decisions 242Outsourcing Decisions and Opportunity Costs 245Qualitative Factors Influencing Outsourcing Decisions 248Cost-Volume-Profit Decisions 249Break-Even Analysis 249Graph Method for Break-Even Analysis 252Target Operating Income 253Sensitivity Analysis for Cost-Volume-Profit Decisions 254Assumptions in Cost-Volume-Profit Analysis 256Strengths of Variable Costing 257Weaknesses of Variable Costing 257Chapter 9 Cost Planning, Standard Costing and Variance Analysis 263The Importance of Cost Planning 264Conceptual Approaches to Cost Planning 265Static Cost Planning 266Flexible Cost Planning 268Flexible Cost Planning Based on Full Absorption Cost 269Flexible Cost Planning Based on Variable Cost 273Standard Costs as Basis for Cost Planning and Cost Management 274Variance Analysis for Cost Management 275Types of Cost Variances 277The Problem of Overlapping Sub-variances 279Approaches to Dealing With Overlapping Cost Variances 282Alternative Method 285Proportional Method 286Cumulative Method 288Differential-Cumulative Method 292Bibliography 297Index 301

"...Management Accounting wird immer internationaler. Das Lehrbuch in englischer Sprache bietet einen Überblick über die Konzepte und Instrumente der Kosten- und Leistungsrechnung und fokussiert sich dabei auf praktische Anwendungsfälle. Herzstück des Buches ist ein System für Vollkostenrechnung nach deutschem und mitteleuropäischem Standard." (Controlling & Management Review, 06_2016) "Dieses Buch ist das erste Buch, welches die Kosten und Leistungsrechnung aus mitteleuropäischer Sicht in englischer Sprache erklärt. DAS ist sehr hilfreich."(Danile Schlosser; Hochschule Fulda, Dez. 2017)