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Management and Cost Accounting

Management and Cost Accounting Tools and Concepts in a Central Eurporean Context

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9783527508228
  • Published In: September 2016
  • Format: Paperback , 318 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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    Management and cost accounting has been the basic toolbox in business administration for decades. Today it is an integral part of all curricula in business education and no student can afford not to be familiar with its basic concepts and instruments. At the same time, business in general, and management accounting in particular, is becoming more and more international. English clearly has evolved as the "lingua franca" of international business. Academics, students as well as practitioners exchange their views and ideas, discuss concepts and communicate with each other in English. This is certainly also true for cost accounting and management accounting.

    Management Accounting is becoming increasingly international. "Management and Cost Accounting" is a new English language textbook covering concepts and instruments of cost and management accounting at an introductory level (Bachelor, but also suited for MBA courses due to strong focus on practical applications and cases). This textbook covers all topics that are relevant in management accounting in business organizations and that are typically covered in German and Central European Bachelor classes on cost accounting and management accounting.

    After an introduction to the topic, including major differences between the German approach and the purely Anglo-Saxon approach of management accounting, the book describes different cost terms and concepts applied in German cost accounting, The book is much more specific here compared to US-American standard textbooks. Based on different cost concepts, the topic of cost behavior is discussed, including the determination of cost functions. The heart of the book guides the reader through the general structure of a fully developed cost accounting system following the German and Central European standard: It starts with cost type accounting, moves on to cost center accounting and finally deals with cost unit accounting, assigning cost to goods and services offered in the market.

    The remaining parts of the book deal with decision making and how management and cost accounting data can support managers in this task. A comparison of absorption costing and variable costing introduces the reader to management decisions such as product portfolio and outsourcing decisions. Additionally, cost-volume-profit analysis (break-even-analysis) is covered. The book closes with a comprehensive treatment of cost planning and variance analysis.

  • Preface xi


    CHAPTER 1 Introduction to Management Accounting and Cost Accounting 1

    The Purpose of Accounting 2

    Information Needs in Business 2

    Different Sources of Information for Businesses 4

    A Definition of Accounting 5

    The Job of an Accounting System 5

    The “Accounting Family” 6

    Financial Accounting 7

    Cost and Management Accounting  9

    Is Accounting a Universal Language? 10

    Differences in Financial Accounting 11

    Differences in Cost and Management Accounting 13

    National Differences in Management Accounting – Problem or Strength? 15

    German “Controllers” versus “Management Accountants” 16

    The Role of a Controller in a Business Organization 17

    Ethical Aspects of Accounting 19


    CHAPTER 2 Cost Terms and Cost Concepts 23

    The Meaning of “Cost” in Business 24

    Comparing Cost with Other Accounting Measures 26

    Company Goals as Starting Point of Accounting Measures 26

    Different Accounting Measures for Different Purposes 26

    Receipts and Payments: Changes in a Company’s Cash Position 26

    Proceeds and Expenditures: Changes in a Company’s Monetary Assets 27

    Income and Expenses: Changes in a Company’s Total Assets 28

    Revenues and Costs: Changes in a Company’s Required Assets 29

    Comparing Different Value Concepts in Business Operations 30

    Cost Revisited: An Overview of Different Cost Concepts 39

    Overview 39

    Cost Concepts for Predicting Cost Behavior 39

    Cost Concepts for Comparing Cost 43

    Cost Concepts for Differentiating Time Reference 44

    Cost Concepts for Decision making 46

    Cost Concepts for Assigning Cost to Different Objects 48

    Cost Concepts for Analyzing Cash Relevance 50

    Cost Concepts for Preparing Financial Statements 52

    Relevance of Cost Categories for Business Management 53


    CHAPTER 3 Cost Behavior and Cost Estimation 61

    Things to Know About Cost Behavior 62

    No Costs without Cost Drivers! 63

    Typical Shapes of Cost Functions 64

    Cost Stickiness and Cost Elasticity 67

    Mathematical Models of Cost Behavior: Cost Functions 69

    Methods for Estimating Cost 72

    Heuristics 72

    Conference Method 73

    Account Analysis Method 73

    Scatterplots and Visual Fit Method 74

    High-low Method 75

    Regression Analysis 76

    Engineering Method (Physical Measurement) 78

    Comparison of Methods and Examples 79


    CHAPTER 4 The Basic Structure of a Cost Accounting System 89

    Cost Accounting as Information Source in Business 90

    Defining the Conceptual Framework for a Cost Accounting System 92

    Defining Relevant Cost Objects 93

    The Minimum Set-Up 93

    The Advanced Set-Up 95

    Defining Principles for Recording and Allocating Cost 96

    Comparing Cost Allocation Principles 101

    Comparison 105

    Defining Time Reference and Cost Accounting Periods 106

    General Cost Accounting Principles 109

    The Basic Layout of a Cost Accounting System 111

    IT as an Enabler of Cost Accounting Systems 113


    CHAPTER 5 Cost Type Accounting 117

    Purpose and Nature of Cost Type Accounting 118

    Cost Categorizations Used in Cost Type Accounting 119

    Cost Categorization Chart and Chart of Accounts 119

    How to Value Resource Consumption 122

    Main Cost Types in Detail 123

    Cost of Material  124

    Cost of Labor 128

    Asset-related Cost 129

    Cost of Financing / Cost of Capital 130

    Third Party Cost 130

    Taxes and Public Fees 131

    Imputed Cost 132

    Imputed Depreciation 133

    Imputed Interest 138

    Imputed Risk Charges 142

    Imputed Management Salaries 144

    Imputed Rent 145


    CHAPTER 6 Cost Center Accounting 151

    Purpose and Nature of Cost Center Accounting 152

    Splitting the Organization into Cost Centers 154

    Number of Cost Centers in Practice 155

    Primary Cost Allocation 157

    The Cost Allocation Chart 159

    Overview Cost Allocation Chart for Comparing Multiple Cost Centers 160

    Detailed Cost Allocation Chart for Managing Sub-unit Cost 160

    Determining the Allocation Base for Overhead Costs 161

    Determining Overhead Allocation Rates 165

    Internal Support Department Cost Allocation 165

    Cost Allocation Problems in Internal Support Departments 166

    Combining Support Cost Allocation Principles – An Example 168

    Allocating Costs of Multiple Support Departments 171

    Direct Method 175

    Step-Down Method 177

    Reciprocal Method 180

    Iterative Method 182

    Does Support Department Cost Allocation Really Matter? 184


    CHAPTER 7 Cost Unit Accounting (Product Costing) 191

    Purpose of Product Costing 192

    Overview of Product Costing Methods 194

    Process Costing 195

    Single-Stage Process Costing 196

    Two-Stage Process Costing 196

    Multi-Stage Process Costing 197

    Equivalence Coefficient Costing 199

    Multi-Stage Equivalence Coefficient Costing 202

    Job Order Costing 203

    Simple Job Order Costing 204

    Extended Job Order Costing 206

    Department-based Costing 209

    Machine Hour-Based Costing 212

    Joint Product Costing 214


    CHAPTER 8 Absorption Costing versus Variable Costing 221

    Accounting for Profits 222

    Absorption Costing 223

    Absorption Costing Example 224

    Strengths of Absorption Costing  226

    Weaknesses of Absorption Costing  227

    Variable Costing  229

    Multi-Step Variable Costing 231

    Variable Costing Example 233

    Decision making with Variable Costing 235

    Product Portfolio Decisions 235

    Product Mix Decisions 237

    Product Mix Decisions under Capacity Constraints 238

    Special Orders 240

    Outsourcing Decisions  242

    Outsourcing Decisions and Opportunity Costs 245

    Qualitative Factors Influencing Outsourcing Decisions 248

    Cost-Volume-Profit Decisions  249

    Break-Even Analysis 249

    Graph Method for Break-Even Analysis 252

    Target Operating Income 253

    Sensitivity Analysis for Cost-Volume-Profit Decisions  254

    Assumptions in Cost-Volume-Profit Analysis 256

    Strengths of Variable Costing 257

    Weaknesses of Variable Costing 257


    CHAPTER 9 Cost Planning, Standard Costing and Variance Analysis 263

    The Importance of Cost Planning 264

    Conceptual Approaches to Cost Planning 265

    Static Cost Planning 266

    Flexible Cost Planning 268

    Flexible Cost Planning Based on Full Absorption Cost 269

    Flexible Cost Planning Based on Variable Cost 273

    Standard Costs as Basis for Cost Planning and Cost Management 274

    Variance Analysis for Cost Management 275

    Types of Cost Variances 277

    The Problem of Overlapping Sub-variances 279

    Approaches to Dealing With Overlapping Cost Variances 282

    Alternative Method 285

    Proportional Method 286

    Cumulative Method 288

    Differential-Cumulative Method 292

    Bibliography 297

    Index 301

  • 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 Wirtschaftsuniversität 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 Universität für 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).

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