Cost Accounting

The Chapter 8: Cost AccountingIn this chapter I introduce the importance of knowing the cost of products/services within a business. In accounting for costs, particularly indirect costs, considerable judgement is employed in the process of apportionment and absorption to products and/or services. How such judgement based apportionment and absorption is applied I will review in section 8.4.The final section introduces Activity based costing. This approach has a claimed advantage over traditional methods, because it attempts to relate the costs of an organisation to those activities responsible for generating them.Chapter 9: Cost-Volume-Profit AnalysisThe focus of this chapter is on those decisions which require the analysis of cost behaviour and its application in what is now popularly called cost-volume-profit analysis; also incorporates break-even. This type of approach can be useful for studying such issues as, what is the effect on profit when a new product range is introduced?It is also relevant to managers in not-for-profit organisations, mainly because knowledge of how costs fluctuate in response to changes in volume is valuable regardless of whether profit is an objective. No organisation has unlimited resources! Finally, I introduce the concept of relevant costs, together with a couple of examples.Chapter 10: Contribution AnalysisIn the previous chapter, I introduced relevant costs which must be differential between alternative choices and relate to the future. I will now reinforce these two requirements and, where appropriate, apply the principles of CVP analysis with reference to five common applications of short-term decision techniques.Whether to continue with apparently unprofitable products, divisions, branches; How to make the best use of available scarce resources;Whether to make/use internal resources or buy from outside;Whether or not to use competitive tendering;Whether or not to accept a special order. To answer the above, we need to use contribution analysis.Contribution analysis puts the emphasis on maximising contribution, which in turn will maximise profit. The focus on contribution also helps to highlight those variables that have an immediate impact on profit, i.e. those items that will change OR can be changed.The John Robertson, Dip ML (Lancaster), Phd. (Brunel), now retired, was Head of the Defence Management Group and Deputy Head of the Department of Defence Management and Security Analysis at Cranfield University, Shrivenham Campus.He taught accounting and finance to 2nd and 3rd year undergraduates following degrees in Engineering, Computing and Logistics, also full and part time Masters programmes in Defence Administration (MDA).He gave regular guest lectures in a number of Universities.A Fellow of the Chartered Institute of Management Accountants (FCMA)., and author of numerous articles on financial ratios and ratio models. Author of “Accounting Principles for Non-Accounting Students” 2nd edition; a research monograph, “Measuring Changes in Financial Health through Ratio Analysis”. Co-author of “Fundamentals of Managerial Accounting and Finance” 4th edition.