Contents About the author I-5 Acknowledgement I-7 Preface I-9 Chapter-heads I-11 1 MARGINAL COSTING AND DECISION MAKING-I COST VOLUME PROFIT ANALYSIS 1.1 Concept 1.1 1.1-1 Assumptions of Cost-Volume-Profit Analysis 1.1 1.1-2 Margin of Safety 1.2 1.2 Introductory problems 1.4 1.3 Multiple products 1.19 1.4 Semi-fixed and semi-variable costs 1.23 1.5 Cost indifference point 1.37 1.6 Breakeven charts 1.40 1.6-1 Angle of Incidence 1.41 1.7 Profit Volume Charts 1.42 THEORETICAL QUESTIONS 1.43 2 MARGINAL COSTING AND DECISION MAKING-II RELEVANT COSTING 2.1 Concept of relevancy 2.1 2.2 Sunk costs 2.2 I-13
CONTENTS I-14 2.3 Three aspects of decision making problems 2.3 2.3-1 Management Information System Aspect 2.3 2.3-2 Fixed Cost Aspect 2.4 2.3-3 Opportunity Cost Aspect 2.5 2.4 Incremental/differential costing 2.6 2.5 Introductory decision making problems 2.6 2.6 Discontinuance of product 2.17 2.6-1 Shut Down Point 2.22 2.6-2 Closing Down 2.28 2.7 One input as key factor 2.29 2.8 Multiple key factors 2.42 2.9 Purchase v/s manufacture 2.44 2.10 Opportunity cost 2.58 2.11 Allocation of joint cost among joint products 2.70 2.12 Decision-making under uncertainty 2.74 2.13 General problems 2.77 THEORETICAL QUESTIONS 2.99 3 VARIABLE COSTING V/S ABSORPTION COSTING 3.1 Concept 3.1 THEORETICAL QUESTION 3.16 APPENDIX : COST CONTROL ACCOUNTS 3.16 4 STANDARD COSTING AND BALANCED SCORECARD STANDARD COSTING 4.1 Concept 4.1 4.1-1 Material Cost Variance 4.6 4.1-2 Labour Cost Variance 4.13 4.1-3 VO Cost Variance 4.18 4.1-4 FO Cost Variance 4.22 4.1-5 Interdependence of Variances 4.30 4.1-6 Sales Variances 4.31 4.1-7 Reconciling Budgeted Profit with Actual Profit 4.40 4.1-8 Reconciling Standard Profit with Actual Profit 4.54 4.1-9 Single Plan v/s Partial Plan 4.55 4.1-10 Ratios in Standard Costing 4.70 4.1-11 Joint-Products & By-Products 4.72
I-15 CONTENTS 4.1-12 Revision Variance 4.75 4.1-13 Investigation of Variances 4.83 4.1-14 Output Method for Variable Overheads 4.83 4.1-15 Output Method for Fixed Overheads 4.84 BALANCED SCORE CARD 4.2 Concept 4.85 4.2-1 The Four Perspectives 4.85 4.2-2 Balance Score Card - As a Tree 4.86 4.2-3 Analysis of Operating Income for Balanced Score Card 4.87 THEORETICAL QUESTIONS 4.91 5 BUDGETARY CONTROL 5.1 Process of budgeting 5.1 5.2 Flexible budgeting 5.18 5.3 Conflicting roles in budgeting 5.41 5.4 Performance budgeting 5.42 5.5 Zero base budgeting (ZBB) 5.42 5.5-1 Characteristics of ZBB 5.42 5.5-2 Process of ZBB 5.42 5.5-3 Advantages of ZBB 5.43 5.5-4 Limitations of ZBB 5.43 5.5-5 Superiority of ZBB 5.43 5.5-6 ZBB and Productivity Improvements 5.43 THEORETICAL QUESTIONS 5.44 6 ACTIVITY-BASED COSTING 6.1 Concept 6.1 6.2 Value-added and non-value-added activities 6.2 6.3 Four different categories of activities 6.3 6.4 Need for emergence of activity based costing 6.31 6.5 Corporate strategy and ABC 6.32 6.6 Difference between ABC system and traditional costing system 6.32 6.7 ABC for highly automated plants 6.33 THEORETICAL QUESTIONS 6.33
CONTENTS I-16 7 SERVICE-SECTOR COSTING 7.1 Concept 7.1 7.1-1 Special Features of Service Sector Costing 7.33 7.1-2 Methods of Costing in Service Sector 7.34 7.2 Activity based costing (ABC) in service sector 7.34 7.3 Customer costing 7.35 7.4 Direct product profitability 7.35 THEORETICAL QUESTIONS 7.36 8 PRICING 8.1 Concept 8.1 8.2 Minimum price 8.2 8.3 Regular price or cost plus price 8.11 8.4 General problems 8.21 8.5 General guidelines 8.29 8.6 Pricing strategies 8.29 8.6-1 Penetration Pricing 8.29 8.6-2 Price Skimming 8.30 8.6-3 Price Discrimination 8.30 8.7 Service Sector Pricing 8.30 8.8 Pareto Analysis 8.31 8.9 Selling below marginal cost 8.32 THEORETICAL QUESTIONS 8.33 9 TRANSFER PRICING 9.1 Concept 9.1 9.2 Objectives of transfer pricing 9.1 9.3 Methods 9.2 9.3-1 Cost based Methods 9.2 9.3-2 Market Price based methods 9.2 9.3-3 Profit shared method/contribution shared method 9.2 9.3-4 Negotiated price method 9.2 THEORETICAL QUESTIONS 9.39
I-17 CONTENTS 10 TARGET COSTING 10.1 Concept 10.1 10.2 Target costing principles 10.14 10.2-1 Requirement of Market Research 10.15 10.3 Benefits of target costing 10.15 10.4 Steps of target costing 10.16 10.5 Controlling the costs and pricing of the products 10.16 10.6 Fostering team work 10.17 THEORETICAL QUESTIONS 10.17 11 THE THEORY OF CONSTRAINTS 11.1 Concept 11.1 11.2 Throughput accounting (also referred as Throughput Costing) 11.3 11.3 Three measurements of TOC 11.14 11.4 Synchronous manufacturing 11.14 Theoretical Questions 11.15 12 JUST - IN - TIME AND BACKFLUSH COSTING 12.1 JIT 12.1 12.1-1 JIT Purchasing 12.1 12.1-2 JIT Production 12.2 12.2 Backflush costing 12.6 12.3 Competitive environment 12.16 12.4 Profitability 12.17 12.5 Eliminating wastage of resources 12.17 12.6 Impact on overheads 12.17 12.7 Kanban 12.18 THEORETICAL QUESTIONS 12.18 13 TOTAL QUALITY MANAGEMENT 13.1 Concept 13.1 13.2 Advantages/benefits 13.1 13.3 Six Cs of TQM 13.2 13.3-1 Four Ps of Quality Improvement Principles 13.2 13.4 Quality costs 13.2
CONTENTS I-18 13.5 Critical success factors for the implementation of TQM 13.18 13.6 Value additions 13.18 13.7 P.R.A.I.S.E. 13.19 THEORETICAL QUESTIONS 13.19 14 LIFE CYCLE COSTING 14.1 Concept 14.1 14.1-1 Total Cost of Ownership 14.1 14.1-2 Product Life Cycle Costing 14.1 14.2 Stages of Life Cycle 14.2 14.3 Essential features of life cycle costing 14.15 14.4 Benefits/importance 14.16 14.5 Structural and executional cost drivers 14.16 THEORETICAL QUESTIONS 14.16 15 THEORETICAL ASPECTS VALUE CHAIN ANALYSIS 15.1 Concept 15.1 15.1-1 Grouping of Activities 15.2 15.1-2 Assessing the Competitive Advantage 15.3 15.1-3 Strategic Framework 15.3 15.1-4 Importance for Cost Management 15.4 15.1-5 Cost Reduction 15.4 UNIFORM COSTING 15.2 Concept 15.8 15.2-1 Advantages of Uniform Costing 15.8 15.2-2 Essential Requisites for Installation 15.9 VALUE ENGINEERING 15.3 Concept 15.9 COST PLUS CONTRACTS 15.4 Concept 15.11 15.4-1 Advantages 15.11 15.4-2 Disadvantages 15.11 BENCHMARKING 15.5 Concept 15.12 15.5-1 The Benchmarking Process 15.12
I-19 CONTENTS 15.5-2 Prerequisites for Effective Benchmarking 15.13 15.5-3 Types of Benchmarking 15.13 15.5-4 Limitation 15.14 15.5-5 Benchmarking Code of Conduct 15.14 MRP 15.6 Concept 15.15 15.6-1 Two Plans of MRP 15.15 15.6-2 Objectives of MRP 15.15 15.6-3 Requirements/Input/Data Requirement of MRP 15.15 15.6-4 Prerequisites for Successful Operation 15.16 15.6-5 Benefits 15.16 ENTERPRISE RESOURCES PLANNING 15.7 Concept 15.17 15.7-1 Features 15.18 15.7-2 Benefits of ERP 15.19 15.7-3 Limitations of ERP 15.19 GENERAL TOPICS 15.8 Operational Database 15.20 15.8-1 Routinely Recorded Data 15.20 15.9 Disinvestment 15.21 15.10 Qualitative factors affecting outsourcing decisions 15.22 15.11 Changing manufacturing costs 15.22 15.12 Inventory holding during inflationary conditions 15.23