Cost Accounting For Dummies, 2ed

Introduction

About This Book  

Foolish Assumptions  

Icons Used in This Book  

Beyond the Book  

Where to Go from Here  

Part 1: Understanding the Fundamentals of Costs 

Chapter 1: So You Want to Know about Cost Accounting 

• Comparing Accounting Methods  
• Considering your shareholders  
• Mulling over creditors  
• Addressing concerns of regulators  
• Using management accounting  
• Fitting in cost accounting  
• Using Cost Accounting to Your Advantage  
• Starting with cost-benefit analysis  
• Planning your work: Budgeting  
• Controlling your costs  
• Setting a price  
• Improving going forward  

Chapter 2: Brushing Up on Cost Accounting Basics 

• Understanding the Big Four Terms  
• Comparing direct and indirect costs  
• Mulling over fixed and variable costs  
• Fitting the costs together  
• Covering Costs in Different Industries  
• Reviewing manufacturing costs  
• Considering costs for retailers  
• Adding up costs for e-commerce firms  
• Finding costs most companies incur  
• Why Are You Spending? Cost Drivers  
• Pushing equipment too hard and relevant range  
• Previewing inventoriable costs  
• Following the Rules of the Cost Accounting Road  
• Understanding generally accepted accounting principles (GAAP)  
• Deciding on accrual basis or cash basis  
• Finishing with conservatism  

Chapter 3: Using Cost-Volume-Profit Analysis to Plan Your Business Results 

• Understanding How Cost-Volume-Profit Analysis Works  
• Calculating the breakeven point  
• Financial losses: The crash of your cash  
• Contribution margin: Covering fixed costs  
• Lowering the breakeven point to reach profitability sooner  
• Target net income: Setting the profit goal  
• Using operating leverage  
• Assessing e-commerce businesses  
• Timing is everything when it comes to costs  
• Using Cost-Volume-Profit Analysis to Make Savvy Business Decisions  
• Deciding to advertise  
• Lowering your price without losing your profit  
• Combining the results of two products  
• Costing and pricing a new product  
• The Tax Man Cometh, the Profits Goeth  
• Understanding pre-tax dollars  
• Adjusting target net income for income taxes  

Chapter 4: Estimating Costs with Job Costing 

• Understanding How Job Costing Works  
• Cost objects: The sponges that absorb money  
• Charging customers for direct and indirect costs  
• Implementing job costing in manufacturing: An example  
• Deciding on costing for IT consulting projects  
• Taking a Closer Look at Indirect Costs using Normal Costing  
• Budgeting for indirect costs  
• Following a normal job costing system  
• Following the Flow of Costs through a Manufacturing System  
• Control starts with control accounts  
• Explaining the debit and credit process  
• Walking through a manufacturing cost example  
• Applying the methodology to other control accounts

Chapter 5: More Activity, More Cost: Activity-Based Costing 

• Avoiding the Slippery Peanut Butter Costing Slope  
• Recognizing a single indirect cost allocation  
• A fly in the peanut butter: Dealing with different levels of client activity  
• Missing the mark: Undercosting and overcosting  
• Designing an Activity-Based Costing System  
• Refining your approach  
• Grouping costs using a cost hierarchy  
• Testing your ABC design  
• Using Activity-Based Costing to Compute Total Cost, Profit, and Sale Price  
• Allocating indirect costs evenly by product  
• Analyzing and reallocating cost activities  
• Changing allocations to cost pools  
• Changing prices after ABC  
• Implementing ABC Costing for a Business Pivot  
• Deciding whether to pivot  
• Mulling over a pivot example  
• Using ABC Costing for a New Business Model  
• Considering sunk costs  
• Reviewing food and labor costs  
• Allocating new overhead costs  
• Applying ABC costing to overhead costs  
• Evaluating your results  

Part 2: Planning and Control 

Chapter 6: What's the Plan, Stan? Budgeting for a Better Bottom Line 

• Brushing Up on Budgeting Basics  
• Seeing the master budget and its component parts  
• Why budgeting is important  
• Considering the costs and benefits of data collection  
• Leveraging AI and data analytics for effective budgeting  
• Planning strategically  
• Planning How to Plan: Factors That Impact Your Budgeting Process  
• Experience counts  
• Timing is everything  
• People get you headed in the right direction  
• Sales projections pay off  
• The Nuts and Bolts (and Washers) of Budgeting  
• Understanding the budgeting financials  
• Reviewing revenue and production budgets  
• Budgeting with Cash Accounting or Accrual Accounting  
• Cash basis accounting: Using your checkbook to budget  
• I accrue, you accrue, we all accrue with accrual accounting  
• Budgeting to Produce the Income Statement and Balance Sheet  
• The well-balanced balance sheet  
• The incredible income statement  

Chapter 7: Constant Change: Variance Analysis 

• Variance Analysis and Budgeting  
• Using management by exception to recognize large variances  
• Seeing the problem in using a static budget  
• Opting for a flexible budget  
• Investigating budget variances  
• Analyzing in Material Price and Efficiency Variances  
• Applying price variances to direct materials  
• Applying efficiency variances to direct materials  
• Implementing price variances for direct labor  
• Sizing up efficiency variances for direct labor  
• Using Your Findings to Make Decisions  
• Following up on variances  
• Judging the effectiveness of your employees  
• Tying supply chain concepts to variance analysis  
• Attaching ABC costing concepts to variance analysis  

Chapter 8: Focusing on Overhead Costs 

• Using Cost Allocation to Minimize Overhead  
• Paying for the Security Guard: Fixed Overhead Costs  
• Planning fixed overhead costs  
• Allocating fixed overhead costs  
• Assessing potential causes of fixed overhead variances  
• Those Vexing Variable Manufacturing Costs  
• Working with variable overhead costs  
• Implementing variance analysis  
• Finding the reasons for a variable overhead variance

Chapter 9: What's on the Shelf? Inventory Costing 

• Working with Inventoriable Costs  
• Using the matching principle to calculate profit on sale  
• Erring on the conservative side  
• Costing Methods for Inventory  
• Using the first-in, first-out (FIFO) method  
• Accounting with the last-in, first-out (LIFO) method  
• Weighing the merits of weighted-average cost  
• Considering specific identification method  
• Analyzing profit using FIFO and LIFO  
• Using Variable and Absorption Costing to Allocate Fixed Manufacturing Costs  
• Defining period costs and product costs  
• Applying variable and absorption costing  
• Relating Capacity Issues to Inventory  
• Reviewing theoretical and practical capacity  
• Understanding capacity issues for e-commerce firms  
• Using normal and master-budget capacity  
• Choosing a capacity level  

Part 3: Making Decisions 

Chapter 10: Cost Drivers and Cost Estimation Methods 

• Working with Cost Behavior  
• Understanding linear and nonlinear cost functions  
• Discovering how cost drivers determine total costs  
• Considering Cost Estimation Methods  
• Walking through the industrial engineering method  
• Agreeing on the conference method  
• Reviewing the account analysis method  
• Checking out the quantitative analysis method  
• Choosing a cost estimation method  
• Exploring Nonlinear Cost Functions  
• Changing cost functions and slope co-efficients  
• Understanding the impact of quantity discounts  
• Assessing the Impact of Learning Curves  
• Considering how AI and Data Analytics Impact Learning Curves  
• Reviewing AI and data analytics  
• Throwing in the learning curve  
• Simplifying a procedure  
• Finding and using better data  

Chapter 11: Making Smart Business Decisions with Relevant Information 

• Navigating the Geography of Relevance  
• Introducing the decision model  
• Applying a model to an equipment decision  
• Understanding IT purchasing issues  
• Considering relevant qualitative factors in decision-making  
• Special Orders Don't Upset Us, Do They?  
• Deciding between Outsourcing and In-house Production  
• Weighing opportunity costs  
• Contemplating the carrying cost of inventory  
• Maximizing Profit When Capacity Is Limited  
• Managing capacity and product mix  
• Analyzing customer profit and capacity

Chapter 12: Making Smart Pricing Decisions: Figuring Total Costs 

• Understanding Influences on Prices  
• Customers  
• Competitors  
• Suppliers  
• Special orders  
• Pricing for Profits Down the Road  
• Reviewing market-based and cost-based pricing  
• Aiming at the target: Target costing  
• Arriving at a Reasonable Profit  
• Using cost-plus pricing  
• Using product life-cycle budgeting  
• Managing IT product costs and pricing

Part 4: Allocating Costs and Resources 

Chapter 13: Analysis Methods to Improve Profitability 

• Processing Cost Allocation  
• Why bother? Purposes of cost allocation  
• Justifying cost allocation decisions  
• Implementing Cost Allocation  
• Using cost hierarchy to allocate costs  
• Allocating tricky corporate costs  
• Keeping track of customer revenues and costs  
• Going Over Sales Mix and Sales Quantity Variances  
• Remembering variances and contribution margin  
• Getting the story about sales mix variance  
• Calculating sales quantity variance  

Chapter 14: Behind the Scenes: Accounting for Support Costs and Common Costs 

• Not Everyone Generates Revenue: Support Costs  
• Introducing single rate cost allocation method  
• Checking out dual rate cost allocations  
• Using practical capacity to determine cost allocation rates  
• Going Over Variance Analysis and Department Costs  
• Choosing budgeted versus actual rate of usage  
• Implications for the rate of usage selected  
• Allocating to multiple departments  
• Focusing on Common Costs  
• Mulling over stand-alone cost allocation  
• Stepping up to incremental cost allocation  
• Making a Commitment: Contracts  
• Contracting with the government  
• Thinking about reasonable and fair costs

Chapter 15: Joint Costs, Separable Costs, and Using Up the Leftovers 

• Working with Joint Costs  
• Explaining joint cost terms  
• Appreciating the importance of allocating joint costs  
• Considering joint cost allocation methods  
• Continuing Production: Computing Separable Costs After Splitoff  
• Exploring the net realizable value method  
• Introducing the constant gross margin percentage NRV method  
• Choosing a Joint Cost Allocation Method  
• Making the case for sales value at splitoff  
• Falling back to other joint costing methods  
• Deciding to sell or process further  
• Holding a Garage Sale: Making the Most of Byproducts  

Chapter 16: Tracing Similar Products with Process Costing 

• Process Costing: Presenting the Basic Approach  
• Leading off with direct material costs  
• Following up with conversion costs  
• Sitting on the Factory Floor: Dealing with Work in Process  
• Using Equivalent Units to Compare Apples to Apples  
• Counting the units for equivalent units  
• Hunting down the total costs of production  
• Putting units and costs together  
• Seeing different percentages of completion  
• Using the Weighted Average Method for Process Costing  
• Handling beginning work in process  
• Continuing with equivalent units  
• Introducing the First In, First Out Method of Process Costing  
• Comparing Processing Costing Methods  
• Mulling over weighted average and FIFO methods  
• Debating transferred-in costs  

Part 5: Considering Quality Issues 

Chapter 17: What a Waste! Getting the Most from Spoilage, Scrap, and Reworked Products 

• Accounting for Waste  
• Determining the inspection point  
• Understanding spoilage and scrap  
• Spoilage and process costing  
• Reworking a product to recoup some profit  
• Applying Process Costing Methods to Spoilage  
• Weighing in on the weighted average costing method  
• Doing the FIFO Hokey Pokey: Put your first in first, take your first out first  
• Job Costing for Spoilage, Reworked Products, and Scrap  
• Making adjustments for normal and abnormal spoilage  
• Reworking and selling a product  
• Making allocation decisions about scrap

Chapter 18: Making Smart Ordering Decisions 

• Considering the Costs of Inventory  
• Going through the ordering sequence  
• Taking a closer look at stockout costs  
• Calculating Inventory Quantity with the Economic Order Quantity Formula  
• Figuring a Favorable Reorder Point  
• Introducing safety stock: Creating a cushion  
• Computing safety stock  
• Evaluating Prediction Error  
• Calculating relevant total costs  
• Acting on a prediction error  
• Buying more and ignoring EOQ  
• Practicing Just-In-Time Purchasing  
• Kicking around JIT benefits and risks  
• Putting in a JIT purchasing system  
• Adjusting total purchasing cost  
• SCM and Customer Demand Issues  
• Pulling apart the supply chain  
• Analyzing demand  

Chapter 19: Quality: Building a Better Mousetrap 

• Considering Quality Benefits and Costs  
• Listing the benefits of quality  
• Listing the costs of quality  
• Taking steps to ensure quality  
• Compiling a Cost of Quality Report  
• Putting Quality Practices in Place  
• Quality in job costing  
• Taking a spin through inventory  
• Customer Satisfaction: Measuring and Improving It  
• Customer satisfaction's non-financial measurements  
• Is measuring customer satisfaction worth the effort?  
• Doing More in Less Time  
• Analyzing performance related to time  
• Calculating average waiting time  
• Adding in manufacturing lead-time  
• Eliminating the Constraint of the Bottleneck  
• Fewer bottlenecks mean increased contribution margin  
• Clearing bottlenecks  

Part 6: The Part of Tens 

Chapter 20: Ten Common Costing Mistakes and How to Avoid Them 

• Pricing a Product Incorrectly  
• Listing Fixed Costs As Variable Costs  
• Labeling Period Costs As Product Costs  
• Misusing Target Net Income  
• Forgetting About Taxes  
• Assigning Costs to the Wrong Product  
• Not Reviewing Variances Correctly  
• Redlining: Pushing Production Activity Above Relevant Range  
• Ignoring the Timing of Costs  
• Not Implementing Activity-Based Costing  

Chapter 21: Ten Ways to Increase Profits Using Costing 

• Selling More Of The Right Products  
• Implementing Sales Mix Analysis to Increase Total Profits  
• Building a Higher Margin of Safety  
• Deciding How Much You Need: Production and Scheduling Issues  
• Who Does What: Handling Costs and Employee Issues  
• Reducing and Managing Scrap  
• Moving It off the Shelf: Inventory Issues  
• Effectively Taking Special Orders  
• Making Accurate Cost Allocations  
• Addressing the Issue of Spoilage  

Index