MANAGERIAL ACCOUNTING

Transcription

1 MANAGERIAL ACCOUNTING DECISION MAKING AND PERFORMANCE MANAGEMENT Fourth Edition Ray Proctor With contributions from Nigel Burton, Adrian Pierce and Gary Burmiston V PEARSON Hartow, England London " New York Boston San Francisco Toronto Sydney Auckland Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town Sao Paulo Mexico City Madrid Amsterdam Munich Paris Milan

2 Contents Introduction to the book for students Introduction to the book for lecturers About the authors Acknowledgements Publisher's acknowledgements Parti FOUNDATIONS xv xx xxiv xxvi xxvii 1 Cost behaviour 3 Introduction 3 Learning objectives 4 Types of business 4 Product and period costs 5 Variable and fixed costs 6 Analysis of semi-variable costs into their fixed and variable elements 8 Absorption costs: direct and indirect 11 Comparison of alternative cost analyses 12 Cost analysis by activity 12 Relevant and irrelevant costs The difference between profit and cash 16 Introduction 16 Learning objectives 18 Example 2.1: The Pizza Wagon 18 The lifetime view Answer to self-assessment question Part 2 FINANCIAL MANAGEMENT 27! 3 Ratio analysis and financial management 29 Introduction 30 Learning objectives 30 Financial statements and ratio analysis 30 Performance ratios: profitability 31 Return on capital employed 35 Profit margin 35 Asset utilization 36 Cross margin and cost control 38 Performance ratios: working capital 39 Stock turnover ratio 39 Debtor collection period 40 Creditor payment period 41 The cash cycle 42 Position ratios: liquidity 43 Position ratios: gearing/capital structure 44 Limitations of ratio analysis of ratio formulae Case study: jrp Ltd Working capital management 64 Introduction 64 Learning objectives 65 Definition of working capital 66 Objectives of working capital management 67 Effect of working capital financing policies on profitability 68 Stock 70

3 X CONTENTS Debtors Cash Creditors Cycles and ratios Case study: Kindorm Ltd Part 3 1 DECISION MAKING IOI ; 5 Variable costing and breakeven analysis Introduction Learning objectives Cost behaviour Contribution Breakeven point Margin of safety Operational gearing Activity levels for target profits Profit-volume relationships Effect of alternative sales mixes Limitations of variable costing Case study 7: the Hutton Vinification Company Case study 2: the Muesli Company 6 Short-term decisions using variable costing Introduction Learning objectives Cessation of activities Scarce resources One-off contracts Make or buy Limitations of short-term decision making using variable costing Case study: Sara Wray Enterprises Short-term decisions usine relevant costing 158 Introduction 158 Learning objectives 159 Definition of relevant cost/revenue 159 Types of relevant cost 159 Types of irrelevant cost 160 Example 7.1: relevant costing 161 Opportunity benefits 162 Relevant cost of materials 162 Example 7.2: relevant cost of materials 163 Qualitative factors 165 Limitations of decision making using relevant costing Case study: Roverco Capital investment appraisal for long-term decisions 179 Introduction 180 Learning objectives 181 Method 1: accounting rate of return (ARR) 181 Converting profits to cash flows 183 Method 2: payback period (PBP) 184 Discounting cash flows 185 Method 3: net present value (NPV) 187 Example 8.1: Eastshore Airport, NPV calculation 189 Method 4: internal rate of return (IRR) 190 Comparing NPV with IRR 192 Capital rationing and the profitability index 192 Discounted PBP? 194 Choice of method 195

4 CONTENTS xi Sensitivity analysis 195 Example 8.2: sensitivity analysis 195 The financing decision 198 Qualitative factors 199 Limitations of capital investment appraisal techniques Case study 1: Nufone 207 Case study 2: The Private Healthcare Croup Present value factor table 219 Cumulative present value factor table (annuities) 220 Part 4 PRODUCT COSTING AND PRICING i 221 j 9 Product costs using absorption costing 223 Introduction 223 Learning objectives 224 Direct and indirect costs 224 The absorption cost of products 225 Attaching overheads to products / 226 Single- and multi-product companies 228 Example 9.1: overhead attachment 229 Limitations of absorption costing Case study: Travelsound Product costs using activitybased costing 245 Introduction 245 Learning objectives 247 A new philosophy 248 The ABC process 249 Example 10.1: Storrit Ltd 249 Example 10.1 (continued): Storrit Ltd 251 Cross-subsidization of costs 253 ABC in service businesses 254 Activity-based management 256 Limitations of ABC Case study: Danbake Comparison of profits under absorption and variable costing 274 Introduction 274 Learning objectives 275 Treatment of fixed production overheads 275 Predetermination of overhead absorption rates 275 Under- and overabsorption of overheads. 277 Example 11.1: the Jinasy Umbrella Company 278 Limitations Answer to self-assessment question 285 Case study: Canco Foods Pricing your products 294 Introduction 294 Learning objectives 295 The economist's view 295 The accountant's view 298 The marketer's view 301 Target pricing and costing: an integrated ^ strategy 302 Limitations of pricing theory Case study: the Hydrogen Car Project

5 CONTENTS XIII Moving future sales to the present 417 Moving present sales to the future 418 The utility of budgetary control systems 419 The 'Beyond Budgeting' philosophy 419 Devolved leadership: structure and principles 422 Adaptive (or flexible) processes 423 Example 16.1: Svenska Handelsbanken 426 Example 16.2: the Toyota production system 430 Membership of the BBRT 432 Limitations 433 The counter point of view 434 Better Budgeting Case study 1: Medibed 442 Case study 2: Freeshire Hospital Trust Balanced scorecards 453 Introduction ' 454 Learning objectives 455 Structure and internal relationships 456 Practical application r 459 Flexibility 461 Cascading and employee involvement 462 Strategy maps 464 Example 17.1: a multinational pharmaceutical company 465 Example 17.2: 'Tesco's steering wheel',. 467 Successful implementation of a balanced scorecard 467 Strategy formulation 468 Multiple benefits 469 Financial incentives 470 A note of caution 470 Limitations The way forward Case study 7: Chumpy Lighting Ltd Case study 2: Parnham Clarke (UK) pic Performance improvement techniques 492 Introduction 493 Learning objectives 494 Life cycle costing 494 Business process re-engineering (BPR) 496 Theory of constraints 498 Kaisen costing 500 Just in time 501 Total quality management 504 Activity-based management 508 Benchmarking 514 Economic Value Added 516 Value analysis and engineering 519 Six sigma 521 Lean production and lean accounting 524 Performance dashboards 528 Strategic management accounting 533 Environmental accounting 536 Overview of performance improvement techniques Glossary 547 Answers to end-of-chapter questions 554 Index 606