Management Accounting

R C Sekhar was Professor Emeritus, T A Pai Institute of Management, Manipal, with over fifteen years of teaching experience in management and cost accounting at the postgraduate level. He was also a visiting faculty at the Indian Institute of Management, Ahmedabad; XLRI, Jamshedpur, and MDI, Gurgaon. Besides contributing important articles to numerous research papers in leading journals, he also held extensive experience in training and consultancy programmes. A.V. Rajagopalan is currently Adjunct Professor (Research) with T.A. Pai Management Institute, Manipal. A doctorate and double M.Phil holder, he has over twelve years of academic experience, both in India and abroad, and has several years of industry experience prior to that. He has also conducted several executive training programmes and has been a consultant for various government projects.

PART - I: MANAGEMENT ACCOUNTING FUNDAMENTALS; 1. INTRODUCTION TO MANAGERIAL ACCOUNTING; INTRODUCTION; THE USERS OF ACCOUNTING SYSTEMS AND ACCOUNTING INFORMATION; ROLES OF AN ACCOUNTANT; ACCOUNTANTS AS ATTENTION DIRECTORS, PROBLEM SOLVERS, AND SCOREKEEPERS; IJIRI'S ACCOUNTEE-ACCOUNTER-ACCOUNTANT MODEL; PACIOLI'S DOUBLE-ENTRY BOOKKEEPING AND ACCOUNTING SYSTEMS; THE ESSENCE OF FINANCIAL ACCOUNTING; COST ACCOUNTING; COST AUDIT REGULATIONS IN INDIA; PUBLIC REGULATIONS TO CONTROL COST ACCOUNTANTS; MANAGEMENT ACCOUNTING; THE ACCOUNTANT IN THE ORGANIZATIONAL STRUCTURE; A DAY IN THE LIFE OF A MANAGEMENT ACCOUNTANT; ATTITUDES TOWARDS ACCOUNTING SYSTEMS; MANAGERS AND ACCOUNTING SYSTEMS; A COMPARATIVE SURVEY OF NATIONAL ATTITUDES TOWARDS ACCOUNTING; MANAGEMENT ACCOUNTING IN DEVELOPING COUNTRIES; STATUTORY CONTROLS ON ACCOUNTING; MORAL AND ETHICAL IMPERATIVE OF ACCOUNTANTS; COST OF ACCOUNTING; CASE STUDY 1: COST BENEFIT OF THE KAUP POWER PLANT; CASE STUDY 2: EXCELLENT ENGINEERING: SUBMERSIBLE PUMP DIVISION; 2. FINANCIAL ACCOUNTING AND FINANCIAL STATEMENT ANALYSIS; INTRODUCTION; BASIC CONCEPTS IN FINANCIAL ACCOUNTING; THE ENTITY CONCEPT; THE DUALITY CONCEPT; ACCOUNTING EQUATION; THE MEANING OF DEBIT AND CREDIT; MONEY MEASUREMENT CONCEPT; THE COST CONCEPT; THE GOING CONCERN CONCEPT; PERIODICITY CONCEPT; ACCRUAL CONCEPT; THE MATCHING CONCEPT; THE CONCEPT OF PRUDENCE OR CONSERVATISM; THE REALIZATION CONCEPT; MATERIALITY CONCEPT; SYSTEMATIC DOCUMENTATION OF TRANSACTIONS; COLUMNAR SALES DAY BOOKS, PURCHASE DAY BOOKS, CASH BOOKS, AND BANK BOOKS; T ACCOUNTS, GENERAL LEDGERS, SUBSIDIARY LEDGERS, AND GROUP LEDGERS; TRIAL BALANCE; PERIODIC ADJUSTMENTS IN ACCOUNTS; THE PRACTICAL APPLICATION OF CONCEPTS; FINANCIAL STATEMENT ANALYSIS; CASH FLOW AND FUND FLOW STATEMENTS-ACCOUNTING STANDARD OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA; FINANCIAL RATIO ANALYSIS THROUGH STANDARD RATIOS; LIQUIDITY ANALYSIS RATIOS; PROFITABILITY ANALYSIS RATIOS ACTIVITY ANALYSIS RATIOS; CAPITAL STRUCTURE ANALYSIS; CAPITAL MARKET RATIOS; DISCERNMENT ANALYSIS; ACCOUNTING STANDARDS; THE ACCOUNTING ORIGINS OF THE ENRON, WORLDCOM, PARMALAT, AND TATA FINANCE FRAUDS; CASE STUDY 1: KAMATH'S STUDENT MESS; CASE STUDY 2: JYOTI PRAKASH HIGHWAY RESTAURANT; 3. TERMINOLOGY OF COSTING; INTRODUCTION; NATURAL DESCRIPTIVE CLASSIFICATION AND FUNCTIONAL CLASSIFICATION COST OBJECTS; RESPONSIBILITY CENTRES; CLASSIFICATION OF COSTS ACCORDING TO BEHAVIOUR TOWARDS DRIVERS AND OVER A RANGE; CONTROLLABLE COSTS AND UNCONTROLLABLE COSTS; DIRECT AND INDIRECT COSTS; PRIME COSTS, OUT OF POCKET, AND CONVERSION COSTS; UNIT COST AND AVERAGE COST; COST OF GOODS SOLD; COST OF GOODS MANUFACTURED; WORK-IN-PROCESS; PERIOD COSTS AND PRODUCT COSTS; DIFFERENT COSTS FOR DIFFERENT PURPOSES; A FRAMEWORK FOR COST MANAGEMENT WITH EMPHASIS ON STRATEGY; CASE STUDY 1: BANSIRAM BHUJIAS; CASE STUDY 2: MATSYARAJA MOULDED BOATS; PART - II: TOOLS FOR MANAGEMENT ACCOUNTING; 4. COST-VOLUME-PROFIT ANALYSIS; INTRODUCTION; CHANGES IN COSTS AND PROFITS WITH CHANGES IN VOLUME; WHY DO COST PER UNIT AND REVENUE PER UNIT CHANGE WITH VOLUME?; CHANGES IN TOTAL PROFITS WITH CHANGE IN VOLUME; BREAK-EVEN ANALYSIS; METHODS OF BREAK-EVEN ANALYSIS; LIMITATIONS OF BREAK-EVEN ANALYSIS; BREAK-EVEN ANALYSIS AND CVP ANALYSIS FOR MULTIPLE PRODUCTS; PLANNING FOR TARGET INCOME; ADJUSTING PLAN FOR TAXATION; 'WHAT IF' AND SENSITIVITY ANALYSIS USING COMPUTERS; MEASURES OF RISK; MARGIN OF SAFETY; OPERATING LEVERAGE; RISK SHARING AND CVP ANALYSIS; CHANGING TIME HORIZON FOR ANALYSIS; DECISION OPTIONS; COST-VOLUME ANALYSIS FOR NON-PROFIT ORGANIZATIONS; USING MULTIPLE COST DRIVERS; DECISIONS ON ADVERTISING PLANS; DECISIONS IN RAISING OR REDUCING SALE PRICES; PRESENTATION OF PROFIT IN THE CONTRIBUTION FORMAT; CASE STUDY 1: GUMMIDIPUNDI SINTERED PRODUCTS; CASE STUDY 2: FRANCHISING MONEY ORDER BUSINESS; 5. JOB AND PROCESS COSTING; INTRODUCTION; JOB COSTING VS PROCESS COSTING; COST FLOWS IN A MANUFACTURING JOB COSTING SYSTEM; COSTING OF PRODUCTS AND PROCESSES; STEPS IN COST ASCERTAINMENT; SOURCE DOCUMENTS; NORMAL COSTING; ACCOUNTING MECHANICS OF NORMAL COSTING; NON-MANUFACTURING COSTS AND JOB COSTING; MULTIPLE OVERHEAD COST POOLS; NEGOTIATED OR ADMINISTERED PRICES AND COSTPLUS CONTRACTS; BATCH COSTING; CONTRACT AND PROJECT COSTING; PROCESS COSTING; COST FLOW; EQUIVALENT UNITS OF PRODUCTION; COST SHEET 187; PROCESS LOSS; ABNORMAL LOSS; INTER PROCESS PROFIT; SIMPLE OVERHEAD ALLOCATION; CASE STUDY 1: POORNIMA BIOTECH; CASE STUDY 2: BONDA EARTHMOVER REPAIRS; CASE STUDY 3: PRAKASH COMPUTER HARDWARE; CASE STUDY 4: SIVA ENTERPRISES; CASE STUDY 5: THE ETHICAL DILEMMA; 6. ACTIVITY-BASED COSTING; INTRODUCTION; ABC-AN EXTENSION OF INDIRECT COSTS; ABC AND THE SEVEN STEPS IN COST ASCERTAINMENT; NORMAL COSTING AND ABC; PROBLEMS OF MEASUREMENT OF ACTIVITIES IN ABC; USE OF WORK SAMPLING IN ABC; GPK-THE GERMAN COSTING AND FLEXIBLE MANUFACTURING SYSTEMS; ACCOUNTING MECHANICS AND ABC; ABC AND COST-VOLUME-PROFIT ANALYSIS; ABC HIERARCHY OF COSTS; ABC IN SERVICE AND MERCHANDISING SECTORS; ACTIVITY-BASED COSTING WITH TWO ACTIVITIES; IMPACT OF THESE DIFFERENT ALLOCATION TECHNIQUES AND OVERHEAD RATES ON THE PER UNIT COST; OTHER USES OF ABC; ABC AND CONTROLS; ABC AND PRODUCT MIX DECISIONS; WHEN TO AND WHEN NOT TO USE ABC; 7. RESPONSIBILITY ACCOUNTING AND BUDGETING; INTRODUCTION; RESPONSIBILITY ACCOUNTING; ACCOUNTABILITY IN ORGANIZATIONS; RESPONSIBILITY CENTRES; TYPES OF RESPONSIBILITY CENTRES; HIERARCHY OF RESPONSIBILITY CENTRES; RESPONSIBILITY CENTRE REPORT; EFFECTIVE RESPONSIBILITY ACCOUNTING; THE FOUR LEVERS OF CONTROL; PARTICIPATIVE BUDGETS; STRATEGY AND ITS RELATION TO BUDGETS; THE BUDGETING PROCESS; THE BUDGETING CYCLE; KEY FACTORS IN BUDGET MAKING; ADMINISTRATIVE MACHINERY FOR BUDGETS; STRUCTURE AND CONTENT OF BUDGETS; BUDGETING FOR DISCRETIONARY COSTS AND ENGINEERED COSTS; ABC AND BUDGETING; RESPONSIBILITY AND CONTROLLABILITY; INCREMENTAL, KAIZEN, AND ZERO-BASED BUDGETS; LOOSE BUDGET AND SLACK BUDGET; BEHAVIOURAL PROBLEMS IN BUDGETS; 8. FLEXIBLE BUDGETS AND VARIANCE ANALYSIS; INTRODUCTION; RELATIONSHIP BETWEEN ACTUAL COST AND STANDARD COST; VARIANCES RELATING TO DIRECT LABOUR; DEFINITION OF STANDARD COSTING; COMPARATIVE ANALYSIS OF VARIATIONS OF ACTUAL PROFITS FROM BUDGETS; FACTORS THAT DEVIATE FROM THE BUDGETS AND ISOLATE THE VARIANCES FOR RESPONSIBILITY CENTRES; CAUSE FOR DEVIATION FROM BUDGET-SALES AND SECOND LEVEL ANALYSIS OF VARIANCES; THE THIRD LEVEL ANALYSIS OF VARIANCES; SALES MIX; THE GENERAL PROBLEM OF SHARING OF COMMON VARIANCE; THE VARIED MEANING OF OVERHEADS; EFFICIENCY VARIANCE DUE TO CHANGE IN BATCH SIZE IN ACTUAL AND BUDGET; PRODUCTION VOLUME VARIANCE, FIXED SPENDING VARIANCE, AND CAPACITY UTILIZATION; FORMULAE FOR CALCULATING VARIANCE ANALYSIS-A MEMORY AID; INVESTIGATING A VARIANCE; COMPARISON OF NORMAL COSTING AND STANDARD COSTING; DIFFERENCE BETWEEN BUDGETARY CONTROL AND CONTROL THROUGH STANDARD COSTING; VARIANCE ANALYSIS AND INVENTORY VALUATION; THE TEDIOUSNESS AND PAPERWORK INVOLVED IN VARIANCE ANALYSIS; KEEPING ALL ACCOUNTS AT STANDARDS AND REDUCING WORK OF ACCOUNTING; ABC ANALYSIS, STANDARD COSTING, AND VARIANCE ANALYSIS; LIMITATIONS OF STANDARD COSTING AND ITS NEGATIVE IMPACT ON BEHAVIOUR; 9. DEVELOPING STANDARD COSTS AND THEIR USE IN PRICING AND ESTIMATIONS FOR CONTRACT BIDS; INTRODUCTION; STANDARD COSTING FOR PRICING; STANDARD COST IN PUBLIC SERVICES AND BIDDING; PROCESSES OF STANDARD SETTING; USING PAST INTERNAL DATA AND INTERNAL BENCHMARKING; FOCUS GROUPS AND PARTICIPATIVE PROCESSES; INDUSTRIAL ENGINEERING; WORKING BACK TO TARGET COSTS FROM TARGET PRICES AND USING VALUE ENGINEERING; EXTERNAL BENCHMARKING; USING SECONDARY DATA FOR BENCHMARKING; COMPETITIVE BENCHMARKING AND EXTERNALITIES; LEARNING CURVE; ELEMENT OF STRATEGIC INNOVATIONS; 10. COST INFORMATION FOR INVENTORY VALUATION AND INVENTORY MANAGEMENT; INTRODUCTION; VALUATION OF INVENTORIES; ACTUAL COST OPTIONS; STANDARD COST; NORMAL COSTING; ITEMS TO BE INCLUDED IN THE INVENTORY COSTS; PERIODICITY OF INVENTORY VALUATION; INCOME TAX PROVISIONS; IMPLICATIONS OF CATEGORIES OF COSTS INCLUDED IN INVENTORY VALUATION; IMPACT OF INVENTORY ACCOUNTING ON PRICING; HOW MUCH STOCKS SHOULD ONE HAVE AND WHEN?; FUNCTIONAL CLASSIFICATION OF INVENTORIES; CYCLE INVENTORIES; SAFETY STOCK; ANTICIPATION INVENTORY; PIPELINE INVENTORY; ECONOMIC ORDER AND BATCH QUANTITY; COST OF ERRORS IN ESTIMATION; RADICAL TRANSFORMATION OF THE COST STRUCTURE; COUNTING ON DISCOUNTS FOR BULK PURCHASES; WHEN TO BUY AND MANUFACTURE; WHEN TO ORDER WITH UNCERTAIN DEMAND AND SUPPLY PATTERN; ECONOMIC BATCH QUANTITY; PRACTICAL DIFFICULTIES IN ORDERING ONLY AT THE REORDER POINT WITH AN EOQ MODEL; CONVERTING IMPUTED COSTS OF INTEREST TO REAL COST; THE BUDGETARY PROCESS AND ITS DIVERGENCE FROM ECONOMIC ORDERING FOR INVENTORIES; ABC, XYZ, VED, AND FSN ANALYSIS OF INVENTORY; ILLUSTRATION OF ABC ANALYSIS; JUST IN TIME CONCEPT; ACCOUNTING MODIFICATION TO MATCH JIT; THROUGHPUT COSTING; BACK FLUSH COSTING; SUPPLY CHAIN MANAGEMENT; MATERIAL RESOURCE PLANNING AS A TOOL; ECONOMIC RESOURCE PLANNING AS A TOOL; PROJECT WORK; 11. DECISION-MAKING AND RELEVANT COSTING; INTRODUCTION; SPECIAL COST TERMINOLOGY OF RELEVANT COSTS; DETERMINING RELEVANT REVENUES AND RELEVANT COSTS FOR ELECTRIC EQUIPMENTS; VARIETY OF ALGORITHMS USED IN RELEVANT COST ANALYSIS; SPECIAL ONE-TIME ORDERS; REPLACEMENT OF MACHINES AND DEALING WITH HISTORICAL COSTS; TIMING OF INTRODUCTION OF A NEW PRODUCT AND DROPPING OFF OF AN EXISTING PRODUCT; MAKE OR BUY, AND THE ECONOMICS OF OUTSOURCING; PRODUCT MIX AND ALLOTMENT OF PRODUCT TO SCARCE RESOURCES; CLOSING DOWN AND OPENING SEGMENTS OF AN ORGANIZATION; DROPPING OFF AND ADDING A CLASS OF CUSTOMERS; THEORY OF CONSTRAINTS; AMBUSHING THE CONSTRAINTS; 12. CAPTURING THE COMPLEX BEHAVIOUR OF COSTS; INTRODUCTION; BASIC OBJECTIVE OF DEVELOPING COST FUNCTIONS; COST CLASSIFICATION; CHOICE OF COST OBJECTS AND RELATED COST/REVENUE DRIVERS; INTERNATIONAL VARIATIONS IN CLASSIFICATORY PRACTICES; TIME HORIZON 441; RELEVANT RANGE; COST ESTIMATION METHODS; SIX STEPS TO BUILDING A COST FUNCTION USING QUANTITATIVE METHODS; EVALUATING COST DRIVERS; THE RELATIVE STRENGTH OF ALTERNATIVE COST DRIVERS; COST DRIVERS, ABC, AND ESTIMATES OF OVERHEADS; HANDLING NON-LINEARITY; USE OF ACTUAL COST DATA TO DECIDE PARAMETERS OF LEARNING CURVE; DATA COLLECTION; UNDERSTANDING MACRO-LEVEL AND PUBLIC POLICY IMPLICATIONS OF COST BEHAVIOUR; COPING UP WITH IMPERFECT DATA; CASE OF DECISION DILEMMA AT HEARTY FOODS LTD; 13. COSTING FOR PRICING DECISIONS; INTRODUCTION; MODERATING ADAM SMITH'S INVISIBLE HAND; THREE C'S OF PRICING; PRICING OBJECTIVES; WHO DECIDES THE PRICES?; ROLE OF THE THREE C'S IN VARIED PRICING STRATEGIES; LIFE CYCLE COSTING; DEFINITION; LIMITATIONS; TARGET COSTING, LOCKED-IN COSTS, AND PRICING REVISITED; YIELD MANAGEMENT-A NEW CONCEPT IN PRICING NON-INVENTORIABLE PRODUCTS; APPLICATION OF YIELD ALGORITHM IN HOTEL INDUSTRY; APPLICATION TO AIRLINES; APPLICATION TO MOTHER DAIRY VEGETABLE AND FRUIT SHOP; LAWS AND GOVERNMENT REGULATIONS WHICH HEM PRICING OPTIONS; CHAPTER II OF COMPETITION ACT 2002* PROHIBITION OF CERTAIN AGREEMENTS, ABUSE OF DOMINANT POSITION AND REGULATION OF COMBINATIONS; THE ESSENCE EMERGING FROM THESE EXTRACTS OF LAW; PART - III: MANAGEMENT ACCOUNTING FOR DECISION-MAKING; 14. PROFESSIONAL ETHICS AND BEHAVIOURAL ISSUES; INTRODUCTION; INTEGRITY IN A COMPETITIVE WORLD; TECHNICAL STANDARDS; PROFESSIONAL STANDARDS; BEHAVIOURAL/ETHICAL STANDARDS; THE INDIAN CODE OF ETHICS FOR COST ACCOUNTANTS; ETHICS AND SOCIAL RESPONSIBILITY; INSTITUTE OF MANAGEMENT ACCOUNTANTS (IMA) OF THE US; COMPETENCE; CONFIDENTIALITY; INTEGRITY; CREDIBILITY; MANAGING CONFLICT; BEHAVIOURAL ISSUES AND THE MANAGEMENT ACCOUNTANT; BEHAVIOURAL ISSUES AND EMPLOYEE MORALE; NOT A 'SWEET' DILEMMA; PART - IV: MANAGEMENT CONTROL SYSTEMS; 15. MANAGEMENT CONTROL SYSTEMS; SINGLE FOCUS AND DUAL FOCUS; THE HUMAN IMPACT ON CONTROL; THE RATIONALITY ISSUE; THE ETHICAL ISSUE ORGANIZATIONAL TENSIONS; SELF-DEFEATING CONTROLS; FORMAL AND INFORMAL CONTROLS; LEVERS OF CONTROL; DIAGNOSTIC SYSTEMS; INTERACTIVE CONTROL SYSTEMS; INTERACTIVE CONTROLS IN A DAIRY COMPANY; INTERACTIVE CONTROLS IN SNACKS OUTLETS; BOUNDARY CONTROL SYSTEMS; BELIEF CONTROL SYSTEMS; TRADITIONAL CONTROLS; CULTURAL AND ETHICAL CONTROLS; EFFECTIVE AND EFFICIENT CONTROLS; SHIFTS IN CONTROL SYSTEMS; EXTERNAL FACTORS; INTERNAL FACTORS; DEGREE OF CONTROLS; CONTROL OPTIMIZATION; CONTROL FAILURE; PERFORMANCE MEASURES; COSTS OF CONTROL; MYTHS OF ACCOUNTABILITY AND CONTROLS; 16. BALANCED SCORECARD; STRATEGY; STRATEGY MAPS; RELEVANCE OF THE SCORECARDS; CHARACTERISTICS OF THE SCORECARD; INTERNAL BUSINESS PROCESSES PERSPECTIVE; CUSTOMER PERSPECTIVE; THE LEARNING AND GROWTH PERSPECTIVE; FINANCIAL PERSPECTIVE; MODEL SCORECARD; NUMBER OF SCORECARDS; WEIGHTAGE OF THE SCORECARDS; BALANCING THE BALANCED SCORECARD; THE CAUSE-AND-EFFECT RELATIONSHIPS; BARRIERS TO SUCCESS; THE COST OF IMPLEMENTING BALANCED SCORECARD; GOVERNMENT AND NON-PROFIT ORGANIZATIONS; THE TEN COMMANDMENTS FOR SUCCESSFUL IMPLEMENTATION OF BSC; BUDGETS AND THE BALANCED SCORECARD; PART - V: APPENDICES; APPENDIX 1: E-BUDGETING; HOW E-BUDGETING WORKS; BENEFITS OF E-BUDGETING; SHORTCOMINGS OF E-BUDGETING; APPENDIX 2: COST AUDIT; LANDMARKS IN THE DEVELOPMENT OF COST AUDIT; THE LEGAL PROVISIONS; DEFINITION EXPANDING THE SCOPE; RATIONALE FOR COST AUDIT; THE HEALTHY COST; SCOPE OF COST AUDIT; COSTING IN ESSENTIAL SERVICES; THE COST AUDITOR; APPENDIX 3: COST ACCOUNTING STANDARDS; PREPARATION OF CAS; APPENDIX 4: COSTING IN GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS; COSTING IN GOVERNMENT; COST ACCOUNTING IN NOT-FOR-PROFIT ORGANIZATIONS; THE NEED FOR COST ACCOUNTING IN NOT-FOR-PROFIT ORGANIZATIONS