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Management Accounting and Control: Tools and Concepts in a Central European Context

Management Accounting and Control: Tools and Concepts in a Central European Context

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9783527508211
  • Published In: October 2017
  • Format: Paperback , 350 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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    Management 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 management accounting and control.
    Management Accounting is becoming more and more international. ?Management Accounting and Control? is a new textbook in English covering concepts and instruments of management accounting at an introductory level (primarily at the Bachelor level, but also suited for general management and MBA courses due to a strong focus on practical relevance). This textbook covers all topics that are relevant in management accounting in business organizations that are typically covered in German and Central European Bachelor courses on management accounting and control.


    After a general introduction to the field of management accounting and control the book discusses cost management as an extension of cost accounting. Typical cost management instruments such as target costing, life cycle costing and process-based costing approaches are explained in detail. Differences between Anglo-American activity-based costing (ABC) and German process-based costing are highlighted. The book then turns to an extensive discussion of planning and budgeting tasks in management accounting with a strong focus on the practical application of the topic such as developing a budget in practice. Another chapter is dedicated to a comparison of traditional budgeting with modern /alternative budgeting approaches.

    A major part of the book is dedicated to the broad area of performance management. The relevance of financial statement information for performance management purposes is discussed in detail. In addition, the most widely spread financial performance indicators are illustrated using real-world examples. The book also includes detailed content on value-based management control concepts. In a consecutive chapter, performance measurement is linked with strategy while extensively discussing the Balanced Scorecard as a key tool in strategic performance management.

    The remaining parts of the book deal with management reporting as one of the main operative tasks in management accounting practice. The book closes with insight into new fields and developments that currently influence management accounting practices and research and promise to play an increasingly important role in the future.

  • Preface xiii

    CHAPTER 1 Introduction to Management Accounting and Control  1

    The Concepts of Management, Accounting, and Control   2

    A Definition of Management    2

    A Definition of Accounting    3

    A Definition of Control 4

    Bringing it Together: Management Accounting and Management Control   5

    Management Accounting   5

    Management Control   6

    The Role of a Controller in an Organization   9

    Skill Set of a Controller    10

    The Management Control Function in a Corporation    12

    Management Accounting vs. Financial Accounting     14

    Financial Accounting      14

    Contrasting Management Accounting and Financial Accounting    15

    Performance Measurement and Performance Reporting   17

    An Example of Performance Reporting        17

    Performance Measurement beyond Financials 19

    Trends in Management Accounting and Control      20

    Ethical Aspects of Management Accounting and Control 23

    CHAPTER 2 Management Reporting      29

    Information Needs in Business   30

    What is “Information”?  31

    Information Supply vs. Information Demand  32

    Management Reporting as a Key Information Tool  34

    Scope and Definition of Management Reporting 35

    The Management Reporting Process   36

    Management Reporting Dimensions   38

    “What For?” – Management Reporting Purposes 40

     “What?” – Content of Management Reports       42

    Inductive Methods 42

    Deductive Methods 43

    Information Sources        44

    “How?” – Preparing and Communicating Management Reports       46

    Amount of Information      46

    Order and Structure        47

    Relationships between Pieces of Information       49

    Presentation and Visualization    50

    “When?” – Timing Issues in Management Reporting    50

    Reporting Cycles      50

    Duration of Report Preparation  51

    Timeliness and Punctuality        52

    “Who?” – Parties Involved in the Management Reporting Process       53

    Emerging Trends in Management Reporting       54

    Reporting Factories        54

    Self-Reporting      55

    Cooperative Reporting      56

    CHAPTER 3 Managing Cost   61

    Cost Management        62

    Cost Accounting vs   Cost Management  62

    The Focus of Cost Management  63

    Cost Management Tools      65

    An Overview   65

    Problems of Volume-Based Cost Allocation  65

    Activity-Based Costing and Process-Based Costing    67

    How Activity-Based Costing Works   67

    How Process-Based Costing Works   70

    Activity-Based Costing and Process-Based Costing – a Comparison       71

    Process- and Activity-Based Management Control    73

    Cost Reduction and Process Efficiency Improvements       74

    Pricing and Product Mix        74

    Product and Service Design      74

    Planning and Budgeting        75

    Target Costing        75

    Determining the Cost Gap in Target Costing    76

    The Target Costing Process      77

    Splitting Target Cost into its Sub-Values    79

    Target Cost Index and Target Cost Diagram  81

    A Critical Reflection: When is Target Costing Appropriate?       82

    Life Cycle Costing        83

    Cost and Revenue Elements Across the Product Life Cycle       85

    Contribution Margin Method of Life Cycle Costing    86

    Discounting Method of Life Cycle Costing  88

    A Critical Reflection: What Life Cycle Costing Can and Cannot Do     91

    CHAPTER 4 Budgeting  97

    Planning in Management Control      98

    The Budgeting Cycle      100

    Uses of Budgets      101

    The Master Budget        102

    Preparing an Operating Budget      104

    The Revenue Budget      105

    The Production Budget      106

    The Direct Materials Budget    107

    The Direct Labor Budget      108

    The Manufacturing Overhead Budget    108

    The Manufacturing Costs Per Unit   109

    The Cost of Goods Sold Budget    110

    The Non-Manufacturing Costs Budgets    111

    The Budgeted Income Statement   112

    Discussing the Operating Budget      113

    Preparing a Financial Budget      114

    The Cash Budget      114

    Preparation of the Cash Budget  115

    The Budgeted Cash Flow Statement   118

    Discussing the Cash Budget and the Budgeted Cash Flow Statement     119

    Motivational Aspects of Budgeting  121

    Motivation Versus Planning      122

    Top-Down versus Bottom-Up Budgeting       123

    Budget Manipulation      125

    Strengths and Weaknesses of Traditional Budgeting       126

    The Strengths of Budgets      126

    The Weaknesses of Budgets      127

    CHAPTER 5 Alternative Approaches to Budgeting       133

    Budgeting – Necessary Evil or Valuable Management Tool?       134

    Overview of Alternative Budgeting Approaches       134

    Approaches Complementing Traditional Budgeting    135

    Incremental Budgeting      135

    Setting Up a Zero-Based Budget  138

    Zero-Based Budgeting Example  139

    Activity-Based Budgeting      141

    Activity-Based Budgeting Example   142

    Improvement Approaches to Budgeting   144

    Better Budgeting      144

    Continuous Improvement (“Kaizen”) Budgeting  146

    Abolishing Budgets – The Beyond Budgeting Approach    147

    CHAPTER 6 Performance Measurement – Financial

    Statements    153

    The Importance of Performance Measurement    154

    Measuring Financial Performance   156

    Sources of Financial Information  156

    The Balance Sheet      157

    Five Major Elements of the Balance Sheet  158

    Non-current Assets        159

    Current Assets        162

    Non-Current Liabilities      162

    Current Liabilities    163

    Owners’ Equity        163

    Market Values Versus Book Values   163

    Important Balance Sheet Concepts  164

    Total Assets      164

    Financial Debt      165

    Identifying Financial Debt    166

    Net Debt        167

    Net Working Capital      170

    Capital Employed    172

    The Income Statement        173

    The Multi-Step Profit Cascade        176

    Earnings Before Taxes (EBT)      177

    Earnings Before Interest and Taxes (EBIT)  178

    Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)     179

    The Statement of Cash Flows      180

    Preparing a Statement of Cash Flows   182

    Sources and Uses of Cash      182

    Determining Cash Flow with the Indirect Method       183

    Cash Flows from Operating Activities    184

    Cash Flows from Investing Activities   186

    Cash Flows from Financing Activities   187

    Analyzing the Statement of Cash Flows  189

    Change in Net Working Capital    191

    CHAPTER 7 Performance Measurement –

    Key Performance Indicators   199

    Performance Indicators      200

    A Note of Caution      202

    Financial Ratios      203

    Profitability Ratios        205

    Profit Margin        205

    EBIT Margin (Return on Sales)      207

    Gross Profit Margin        207

    Return on Investment Ratios    208

    Return on Equity (ROE)      209

    Return on Assets (ROA)        209

    Return on Capital Employed (ROCE)   210

    A Note on the Time Dimension      211

    Asset Management Ratios      213

    Total Asset Turnover      213

    Fixed Asset Turnover      214

    Inventory Turnover        215

    Days’ Sales in Inventory (DSI)      215

    Days Receivables Outstanding (DRO)    216

    Days Payables Outstanding (DPO)   217

    Cash Conversion Cycle        217

    Days Working Capital (DWC)      218

    A Comparison        220

    Capital Structure and Financial Leverage Ratios       222

    Total Debt Ratio      222

    Debt-to-Equity Ratio      224

    Equity Multiplier      224

    Interest Coverage and EBITDA-to-interest Ratio    224

    Net Debt-to-EBITDA      225

    Financial Leverage        228

    Calculating the Leverage Effect    230

    Liquidity Ratios      231

    Current Ratio        232

    Quick Ratio        232

    Cash Ratio   233

    Systems of Performance Measures  233

    The DuPont System        234

    Non-Financial Performance Measures   237

    Typical Performance Measures in Logistics    237

    Delivery Reliability      237

    Supply Chain Cycle Time        238

    Replacement Time      238

    Typical Performance Measures in Human Resource Management       238

    Employee Satisfaction    239

    Absenteeism Rate        239

    Staff Fluctuation Rate    239

    Typical Performance Measures in Manufacturing    240

    Productivity      240

    Capacity Utilization        240

    Reject Rate        241

    Throughput Time    241

    Typical Performance Measures in Marketing  241

    Customer Churn Rate    241

    Click Through Rate (CTR)      242

    Price Elasticity of Demand    242

    Using Performance Measures in Business  243

    Time Trend Analysis        243

    Peer Group Analysis (Benchmarking)   244

    A Benchmarking Example      245

    Problems of Benchmarking        247

    Major Criticism of Key Performance Indicators    247

    CHAPTER 8 Value-Based Performance Measurement       257

    The Goal of a Business Firm        258

    Shareholder Value as the Overall Goal   260

    A Justification of Shareholder Value   261

    Shareholders vs   Stakeholders    263

    Shortcomings of Traditional Performance Measures       264

    Measuring the Creation of Shareholder Value  265

    Residual Income      266

    Economic Value Added (EVA)    267

    The EVA Formulas        267

    Net Operating Profit After Taxes (NOPAT)  269

    Capital Employed (CE)        269

    Return on Capital Employed (ROCE)   271

    Weighted Average Cost of Capital (WACC)  271

    Cost of Equity        272

    A Numerical Example of Calculating EVA    274

    EVA Adjustments        277

    Using EVA as a Superior Performance Measure    278

    Three Competing Metrics      278

    The Underinvestment Problem of ROCE    279

    Ways to Increase EVA – The Value Driver Tree  282

    Portfolio Management Decisions with EVA    286

    Criticism of EVA      289

    Alternative Value Concepts        290

    Economic Profit        290

    Cash Value Added        291

    Market Value Added      293

    Value-Based Management Systems  294

    CHAPTER 9 Strategic Management Accounting

    and the Balanced Scorecard   303

    Strategic vs   Operating Management Accounting    304

    Phases in the Strategic Management Process and the Role of the Controller   307

    Finding and Formulating a Strategy   307

    Implementing a Strategy        308

    Corporate-Level Strategies vs   Business-Unit Level Strategies     309

    Corporate-Level Strategies      310

    Business-Unit Level Strategies    311

    Selected Instruments of Strategic Management Accounting    312

    External vs   Internal Factors      312

    Environmental Analysis        313

    Industry Analysis – Porter’s Five-Forces Model  315

    Generic Strategies        317

    Value Chain Analysis      318

    Product Life Cycle Analysis        319

    BCG’s Portfolio Matrix        321

    SWOT Analysis        323

    The Balanced Scorecard      326

    Genesis of the Balanced Scorecard   327

    Key Characteristics of the Balanced Scorecard    328

    Structure of a Balanced Scorecard   329

    Financial Perspective      331

    Customer Perspective        332

    Internal Business Process Perspective  332

    Learning and Growth Perspective (Innovation and Learning)       334

    Cause-and-Effect Links      335

    The Strategy Map    335

    Features of a Balanced Scorecard   337

    Developing a Balanced Scorecard    339

    Step 1: Formulate the Strategy and Clarify the Strategic

    Objectives Along the Perspectives  339

    Step 2: Set up the Strategy Map    340

    Step 3: Define Measures for the Strategic Objectives    341

    Step 4: Define Initiatives and Responsibilities for Each Objective    341

    Step 5: Feedback and Continuous Improvement  342

    The Balanced Scorecard as a Strategic Management System    342

    Application in Corporate Practice    345

    Criticism of the Balanced Scorecard   347

    CHAPTER 10 New Developments in Management

    Accounting and Control  355

    Hot Issues and Future Challenges in Management Accounting     356

    Management Accounting in Networks and Supply Chains     357

    Management Accounting for Quality – Six Sigma  359

    The Role of Management Control in Six Sigma  361

    Six Sigma in Practice        362

    Integrating Human Behavior into Management Accounting    363

    Environmental Management Accounting    366

    Integrated Reporting    368

    Integrating Financial and Management Reporting       370

    The Integrated Reporting (IR) Framework  371

    Management Accounting and Control with Big Data       372

    The Role of the Controller in Big Data   374

    A Critical View on Big Data        375

    Bibliography        381

    Index     387

  • Both authors hold chairs and teach at the ESB Business School, Reutlingen University. They have been researching and teaching in the field of management accounting for many years.
    Michel Charifzadeh holds a diploma in business administration from the Ludwig-Maximilians University Munich and received his doctoral degree from the EBS Universität für Wirtschaft und Recht, Oestrich-Winkel. He has worked as a project manager in mergers & acquisitions at Siemens AG for several years. As a professor of finance and accounting he was employed at the International University of Bad Honnef-Bonn before he was appointed to the ESB Business School at Reutlingen University in 2011. His teaching and research interests include value based management, performance measurement, company valuation and International Financial Reporting Standards (IFRS).
    Andreas Taschner holds a diploma and a doctoral degree from the 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 the 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.

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