MAC.Primer - THE CRIMSON PRESS CURRICULUM CENTER THE...

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THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. MANAGEMENT ACCOUNTING FOR MANAGERS AN INTERACTIVE, USER-ORIENTED PRIMER Inspection Copy: Chapters 1 and 2 Only To order the complete copy of the primer go to www.thecrimsongroup.org Click on Curriculum Center and follow the links David W. Young, D.B.A. Professor of Accounting and Control Boston University School of Management Boston, Massachusetts www.davidyoung.org December 2005 _________________________________________________________________________________________________________ Copyright © 2005 by David W. Young and The Crimson Group, Inc. To order copies or request permission to reproduce this docu- ment, contact The Crimson Press Curriculum Center at 617-497-9600 (Voice) or 617-576-7693 (Fax), or go to our Web site: www.thecrimsongroup.net. Under provisions of United States and international copyright laws, no part of this document may be re- produced, stored, or transmitted in any form or by any means without written permission from The Crimson Group, Inc. If you believe that you have an illegal copy of this document, please notify the Crimson Press Curriculum Center of this fact immedi- ately. Thank you.
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Copyrighted Material. Do not reproduce without written permission. Table of Contents Introduction .................................................................................................................................................. vii KEY CHARACTERISTICS OF THIS TEXT ................................................................................................ viii User Orientation ........................................................................................................................................ viii Organizational Focus ................................................................................................................................ viii Interactive Learning Process ...................................................................................................................... viii ORGANIZATION OF THE PRIMER ............................................................................................................ ix Chapter 1. Essentials of Full Cost Accounting .......................................................................................... 1 ORGANIZATION OF THE CHAPTER .......................................................................................................... 1 USES OF FULL COST INFORMATION ...................................................................................................... 1 Pricing ......................................................................................................................................................... 1 Profitability Assessments ............................................................................................................................. 2 Comparative Analyses .................................................................................................................................. 2 ISSUES TO CONSIDER IN CALCULATING FULL COSTS ...................................................................... 3 Role of Senior Management ........................................................................................................................ 3 RESOURCE USAGE: A CONCEPTUAL FRAMEWORK ........................................................................... 4 Land ............................................................................................................................................................. 4 Labor ........................................................................................................................................................... 5 Capital ......................................................................................................................................................... 5 Units of Measure ......................................................................................................................................... 5 THE FULL COST ACCOUNTING METHODOLOGY ................................................................................ 5 Decision #1. Defining the Cost Object ........................................................................................................ 6 Decision #2. Determining Cost Centers ...................................................................................................... 7 Decision #3. Distinguishing Between Direct and Indirect Costs .................................................................. 9 Decision #4. Choosing Allocation Bases for Service Center Costs ............................................................ 11 Decision #5. Selecting an Allocation Method ............................................................................................ 13 Decision #6. Attaching Costs to Cost Objects ........................................................................................... 17 EFFECT OF THE METHODOLOGY ON PRICING DECISIONS ............................................................ 17 Defining the Cost Object ........................................................................................................................... 18 The Importance of the Cost Center Choice ................................................................................................ 18 SUMMARY OF COST ACCOUNTING CHOICES .................................................................................... 19 PRACTICE CASE. MOSSY BOG TRANSPORTATION AGENCY ........................................................... 21 Appendix. The Reciprocal Method of Cost Allocation ............................................................................... 22 Chapter 2. Cost Behavior ............................................................................................................................ 25 ORGANIZATION OF THE CHAPTER ........................................................................................................ 25 THE NATURE OF COSTS ........................................................................................................................... 25 Fixed Costs ................................................................................................................................................ 26 Step-Function Costs .................................................................................................................................. 26 Variable Costs ............................................................................................................................................ 26 Semi-Variable Costs .................................................................................................................................. 26 Estimating Cost-Volume Relationships ...................................................................................................... 26 Relation of Cost Behavior to Full Cost Accounting ................................................................................... 28 Cost Behavior in Organizations ................................................................................................................. 29 Cost Behavior as an Organization Grows .................................................................................................. 29 COST-VOLUME-PROFIT ANALYSIS ........................................................................................................ 31 Unit Contribution Margin .......................................................................................................................... 32 Incorporating Other Variables into a CVP Analysis ................................................................................... 32 SPECIAL CONSIDERATIONS IN COST-VOLUME-PROFIT ANALYSIS .............................................. 33 CVP Analysis with Semi-Variable Costs ......................................................................................................... 33 CVP Analysis with Step-Function Costs ......................................................................................................... 33 CVP Analysis with Multiple Products or Services .......................................................................................... 34 TOTAL CONTRIBUTION ............................................................................................................................ 36 Contribution Income Statement .................................................................................................................. 37 PRACTICE CASE. CASA ELECTRÓNICA, S.A .......................................................................................... 40
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