· 2.9-1 consideration in make or buy decisions 45 ... 6.1-3 marginal costing vs. differential...

PAGE

��PAGE

About the Author I-5

Preface to Fourth Edition I-7

Chapter-heads I-9

CHAPTER ONE

COST CONCEPTS

1.1 Present Business Environment 1

1.2 Cost, Expense and Loss 2

1.3 Cost concepts 2

1.3-1 Product and Period Costs 2

1.3-2 Common and Joint Costs 3

1.3-3 Short-run and Long-run Costs 3

1.3-4 Past and Future Costs 3

1.3-5 Controllable and Non-controllable Costs 3

1.3-6 Replacement and Historical Costs 3

1.3-7 Escapable and Unavoidable Costs 4

1.3-8 Out of Pocket and Book Costs 4

1.3-9 Imputed and Sunk Costs 4

1.3-10 Relevant and Irrelevant Costs 4

1.3-11 Opportunity and Incremental (Differential) Costs 4

1.3-12 Conversion Cost 5

1.3-13 Committed Cost 5

1.3-14 Shutdown and Abandonment Costs 5

1.3-15 Urgent and Postponable Costs 5

1.3-16 Marginal Cost 5

1.3-17 Notional Cost 5

1.4 Classification of Costs 5

1.5 Classification based on financial nature of costs 6

1.5-1 Financial Costs 6

1.5-2 Non-financial Costs 6

1.6 Elementwise classification of costs 6

1.6-1 Direct Costs (Traceable Costs) 6

1.6-2 Indirect Costs (Common Costs) 6

1.7 Functional classification of costs 7

1.7-1 Production Cost 7

I-11

7-2 Administration Cost 7

1.7-3 Selling and Distribution Cost 7

1.7-4 Research and Development Costs 7

1.8 Classification for exercising control over costs 7

1.8-1 Engineered Cost 7

1.8-2 Managed Cost 8

1.8-3 Capacity Cost 8

1.9 Classification based on cost behaviour 8

1.9-1 Variable Cost 8

1.9-2 Fixed Cost 8

1.9-3 Semi-variable cost or Semi-fixed cost 9

1.9-4 Diagrammatic presentation of cost behaviour 9

1.9-5 Importance of behaviourwise cost classification 11

1.10 Techniques for separation of costs 11

1.10-1 Industrial Engineering Method 11

1.10-2 Account Inspection Method 12

1.10-3 High and Low Method 12

1.10-4 Scattergraph Method 14

1.10-5 Visual fit Method 15

1.10-6 Least squares or simple linear regression analysis method 15

1.11 Multiple Regression Analysis 17

1.12 Assumptions in Regression Analysis 18

1.13 Precautions in using Regression Analysis 18

1.14 Research and Development Costs 18

1.15 Allocation of Common Costs 19

1.16 Criteria for common cost allocation 19

EXAMINATION QUESTIONS 20

PROBLEMS AND SOLUTIONS 20

CHAPTER TWO

MARGINAL COSTING

2.1 Methods of Costing 24

2.2 Absorption Costing 24

2.2-1 Growing importance of overheads 25

2.2-2 Criteria for absorption of overheads 25

2.2-3 Over and under recovery of overheads 25

2.2-4 Advantages of Absorption costing 25

2.2-5 Limitations of Absorption costing 26

2.3 Marginal Costing 26

2.3-1 Marginal cost 26

2.3-2 Marginal costing : Definition and Meaning 26

2.3-3 Contribution 27

CONTENTS I-12

3-4 Formulae used in Marginal Costing 27

2.3-5 Features of Marginal Costing 29

2.3-6 Arguments in favour of Marginal Costing 30

2.3-7 Criticism against Marginal Costing 30

2.3-8 Marginal Costing vs. Absorption Costing 31

2.4 Practical application of Marginal Costing technique 33

2.5 Key or limiting factors analysis 33

2.5-1 Analysis when only one limiting factor 34

2.5-2 Analysis when more than one limiting factor 34

2.5-3 Key factor control 34

2.6 Profit Planning 39

2.7 Optimising Product Mix 41

2.8 Contribution Analysis 44

2.9 Make or buy decisions 45

2.9-1 Consideration in make or buy decisions 45

2.9-2 Procedure 45

2.10 Price fixation 48

2.11 Discontinuance of Product 51

2.12 Diversification of product line 54

2.13 Accept or reject new order and Sub-contracting 56

2.14 Temporary cessation of operations or close down 58



CHAPTER THREE

BREAK-EVEN AND CVP ANALYSIS

3.1 Break-even Analysis : Introduction 187

3.2 Methods of determination of Break-even Point 187

3.2-1 Graphical Method 187

3.2-2 Algebraic Methods 191

3.3 Profit-Volume Ratio 193

3.3-1 How to improve P.V. Ratio 194

3.3-2 Limitations of P.V. Ratio 194

3.4 Margin of Safety 195

3.5 Angle of Incidence 196

3.6 Assumptions and limitations of Break-even analysis and Break-evencharting 196

3.7 Impact of selling price, Fixed cost and Variable cost on P.V. Ratio,Break-even point and Margin of Safety 197

3.8 Curvilinear Break-even Analysis 198

3.9 Cost-Volume-Profit Analysis 209

3.9-1 Procedure 209

3.9-2 Practical applications 210

3.9-3 Limitations of CVP Analysis 210

I-13 CONTENTS

10 Profit-Volume Chart 210

3.11 CVP analysis with change in selling price 212

3.12 CVP analysis in Multi product situations 212

3.13 CVP analysis under conditions of uncertainty 214

3.14 Practical application of Linear Programming technique 218

3.15 Simulated Break-even Point Analysis (SIMBEP) 219



CHAPTER FOUR

BUDGETING AND BUDGETARY CONTROL

4.1 Introduction 256

4.2 Budget 256

4.3 Budgeting 256

4.4 Budgetary Control 256

4.5 Forecast vs. Budget 256

4.6 Requirements of a sound budgeting system 257

4.7 Advantages of Budgeting 258

4.8 Problems in Budgeting 258

4.9 Budgeting Process 259

4.10 Specifications and communication of organisational objectives 260

4.11 Determination of key success factors 260

4.12 Establishment of clear lines of authority and responsibility 260

4.13 Establishment of Budget centres 260

4.14 Determination of Budget Period 260

4.15 Establishment of Budget Committee 260

4.16 Appointment of Budget Controller 261

4.17 Preparation of Budget Manual 261

4.18 Preparation of Sales or Revenue Budget 262

4.19 Preparation of other Budgets 262

4.19-1 Production Budget 262

4.19-2 Plant Utilisation Budget 262

4.19-3 Direct Materials Budget 262

4.19-4 Direct Labour Budget 262

4.19-5 Manufacturing Expenses Budget 262

4.19-6 Administrative Expenses Budget 263

4.19-7 Selling and Distribution Expense Budget 263

4.19-8 Research and Development Budget 263

4.19-9 Capital Expenditure Budget 263

4.19-10 Manpower Budget 263

4.19-11 Marketing Expenditure Budget 263

4.19-12 Capital Budget 263

4.20 Preparation of Master Budget 263

CONTENTS I-14

21 Negotiation of budgets 264

4.22 Co-ordination and review of budget 264

4.23 Acceptance and communication of budgets 264

4.24 Budget Monitoring 264

4.25 Flexible Budgeting 270

4.25-1 Steps in preparation 270

4.25-2 Importance 271

4.25-3 Disadvantages 271

4.26 Zero-base Budgeting (ZBB) 275

4.26-1 Requisites for implementation 275

4.26-2 Features 276

4.26-3 ZBB vs. Traditional Budgeting 276

4.26-4 Benefits 276

4.26-5 Criticism 277

4.27 Programme Budgeting (PPBS) 277

4.27-1 PPBS vs. Conventional Budgeting 278

4.27-2 Stages in PPBS 278

4.27-3 Advantages 279

4.28 Performance Budgeting 279

4.28-1 Requisites 280

4.28-2 Performance Budgeting vs. Traditional Budgeting 280

4.28-3 Performance Budgeting vs. Programme Budgeting 280

4.28-4 Steps in implementation 280

4.28-5 Purposes 281

4.28-6 Requirements for introduction 281



CHAPTER FIVE

STANDARD COSTING AND VARIANCE ANALYSIS

5.1 Standard Costing : Meaning and definition 347

5.2 Objectives of Standard Costing 347

5.3 Terminology on standards 348

5.4 Types of standards 349

5.5 Setting standards 349

5.6 Responsibility for setting standards 349

5.7 Standard Cost Card 350

5.8 Problems in setting standard costs 350

5.9 Advantages of standard costing 351

5.10 Criticism on Standard costing 351

5.11 Standard cost vs. Estimated Cost 352

5.12 Standard Costing vs. Budgetary Control 352

5.13 Variance Analysis 353

I-15 CONTENTS

14 Material Variances 353

5.15 Labour Variances 357

5.16 Variable Overhead Variances 361

5.17 Fixed Overhead Variances 363

5.18 Sales Variances 366

5.18-1 Sales Variances based on profit 367

5.18-2 Sales Variances based on turnover 370

5.19 Profit Variances 373

5.20 Revision of standards 378

5.21 Revision variance 378

5.22 Planning and Operational Variances 379

5.23 Benefits and problems of planning and operating variances 381

5.24 Interpretation of Variances 381

5.24-1 Causes of Variances 381

5.24-2 Reasons of cost variances 381

5.24-3 Interdependence between variances 382

5.25 Investigation of Variances 382

5.26 Techniques of investigation of variances 383

5.26-1 Heuristics 383

5.26-2 Trend Analysis 383

5.26-3 Statistical Control Charts 384

5.26-4 Decision Tree Approach 386

5.26-5 Decision Theory Approach (Game Theory) 387

5.27 Economics of control of variances 389



CHAPTER SIX

DIFFERENTIAL, OPPORTUNITY AND RELEVANT COSTING

6.1 Differential Costing 466

6.1-1 Characteristics 466

6.1-2 Differential Cost Analysis 466

6.1-3 Marginal Costing vs. Differential Costing 467

6.1-4 Cost Indifference Point 467

6.1-5 Use of Differential Cost Analysis in Investment Decisions 468

6.2 Opportunity Costing 471

6.2-1 Examples for Opportunity Cost concept 472

6.3 Relevant Costing 473

6.3-1 Features 473

6.3-2 Analysis of relevant cost with other cost concepts 473



CONTENTS I-16

PAGE

CHAPTER SEVEN

COSTING IN SERVICE SECTOR

7.1 Meaning and Definition 520

7.2 Service cost units 520

7.3 Service cost analysis 520

7.4 Application of Service costing 521

7.4-1 Internal service departments 521

7.4-2 Service organisations 521

7.5 Service costing vs. Output costing 521

7.6 Operating cost statements 521

7.7 Transport costing 522

7.8 Hotel costing 526

7.9 Canteen costing 527

7.10 Power house costing 529

7.11 Hospital costing 531


CHAPTER EIGHT

JOINT PRODUCTS AND BY-PRODUCTS


8.2 Joint Products 561

8.3 Accounting of Joint Costs 561

8.4 Co-products 562

8.5 By-products 563

8.6 Joint Product vs. By-Product 563

8.7 Scrap vs. By-Product 563

8.8 Waste 563

8.9 Joint costs - Problems in Accounting 564

8.10 Objectives for allocation of Joint Costs 564

8.11 Methods of accounting for Joint Products 564

8.11-1 Physical Units Method 564

8.11-2 Market Value Method 564

8.11-3 Average Unit Cost Method 565

8.11-4 Survey Method 565

8.11-5 Standard Cost Method 565

8.11-6 Contribution Margin Method 565

8.11-7 Direct Allocation Method 565

8.12 Methods of accounting for By-products 567

8.12-1 Cost Methods 567

8.12-2 Non-cost or Sales Value Method 567

8.13 Selection of appropriate method 568


I-17 CONTENTS

PAGE

CHAPTER NINE

PRICING STRATEGIES


9.2 Economic theory of pricing 610

9.3 Elasticity of Demand 610

9.4 Types of Markets 611

9.5 Price determination under imperfect market conditions 612

9.6 Pricing Policy 613

9.6-1 Aims and objectives of pricing policy 613

9.7 Pricing decision process 614

9.8 Role of costs in pricing 615

9.9 Pricing methods 615

9.10 Cost based or Cost plus pricing 615

9.10-1 Arguments in favour of cost plus pricing 618

9.10-2 Arguments against cost plus pricing 619

9.11 Marginal Cost Pricing 620

9.11-1 Arguments in favour of Marginal Cost Pricing 621

9.11-2 Arguments against Marginal Cost Pricing 621

9.12 Pricing for target rate of return 623

9.13 Added value method of pricing 625

9.14 Differential Cost Pricing 627

9.15 Going Rate Pricing 628

9.16 Standard Cost Pricing 629

9.17 Opportunity Cost Pricing 629

9.18 Administered Pricing 629

9.18-1 Objectives of Administered Pricing 630

9.19 Customary Pricing 630

9.20 Export Pricing 630

9.21 Methods of Export Pricing 630

9.21-1 Cost plus Pricing 630

9.21-2 Marginal Cost Pricing 631

9.21-3 Incremental or Differential Cost Pricing 631

9.22 Critical analysis of export pricing methods 631

9.23 Strategies in product pricing 633

9.24 Pricing strategies for new products 634

9.24-1 Skimming and Penetration Pricing policies 634

9.25 Pricing established products 636

9.25-1 Product life cycle in pricing established products 636

9.25-2 Symptoms of competitive degeneration 637

9.26 Price discrimination 637

9.27 Target Pricing 637

CONTENTS I-18

28 Product line pricing 638

9.28-1 Range of products 638

9.28-2 Related optional products 638

9.28-3 Captive products 639

9.29 Discounts and discounting 639

9.30 Pricing in inflation 640

9.31 Pricing when inputs are in short supply 642

9.32 Pricing during recession 644

9.33 Price cutting 645

9.34 Non-financial factors in pricing 646

9.35 Experience curve in product pricing 647

9.36 Product life cycle pricing strategies 647

9.37 Pitfalls in product pricing 647

9.38 Limiting factors in Product pricing 648

9.39 Management Accountant�s role in product pricing 648



CHAPTER TEN

RESPONSIBILITY ACCOUNTING AND DIVISIONALPERFORMANCE MEASUREMENT

10.1 Responsibility Accounting : Definition 702

10.2 Meaning 702

10.3 Basic principles 703

10.4 Basic process in implementation 704

10.5 Responsibility reporting 705

10.6 Centres of control 706

10.7 Cost centre 706

10.8 Revenue centre 707

10.9 Responsibility centre 707

10.10 Profit centre 707

10.10-1 Advantages and disadvantages of profit centre 708

10.11 Investment centre 709

10.12 How to implement Responsibility Accounting ? 713

10.13 Benefits of Responsibility Accounting 713

10.14 Difficulties in implementation 714

10.15 Organisational aspects of Responsibility Accounting 714

10.16 Responsibility centre performance measurement 714

10.17 Arguments in favour of decentralised profit responsibility 715

10.18 Arguments against decentralised profit responsibility 715

10.19 Cost of decentralisation 716

10.20 Cost benefit analysis for decentralisation 716

I-19 CONTENTS

21 Methods for measuring divisional performance 717

10.21-1 Return on Investment method 717

10.21-2 Residual Income Method 719

10.21-3 Other measures of divisional performance 720

10.22 Criteria for measurement of divisional profit 721

10.23 Divisional Performance Reporting 721

10.24 Non-financial control measures 721

10.25 Measuring managerial performance 724

10.26 Sub-optimisation 725

10.27 Strategic Business Units 726

10.27-1 Strategic decision making 726

10.27-2 Classification of SBUs 727

10.27-3 Management of an SBU 727

10.28 Contingency Theory of Management 727

10.28-1 Meaning 727

10.28-2 Contingency framework for Management Accounting 728

10.29 Agency Theory of Employment 728

10.29-1 Meaning 728

10.29-2 Important features of the model 728

10.29.3 Applications of the model in Management Accounting 729

10.29-4 Limitations 729



CHAPTER ELEVEN

TRANSFER PRICING

11.1 Transfer Pricing: Necessity 744

11.2 Transfer Pricing Methods 745

11.2-1 Pricing at cost 745

11.2-2 Standard cost plus lump sum 746

11.2-3 Market prices 746

11.2-4 Prorating the overall contribution 747

11.2-5 Dual pricing 748

11.2-6 Negotiated prices 748

11.3 Transfer pricing - A general rule 749

11.4 Guiding principles in fixing transfer prices 749

11.5 Benefits of transfer pricing policy 749

11.6 International Transfer Pricing 756



CONTENTS I-20

PAGE

CHAPTER TWELVE

COST OF LABOUR TURNOVER, STRIKE AND ECONOMICSOF TRAINING & DEVELOPMENT

12.1 Labour Turnover 793

12.2 Measurement of labour turnover 793

12.3 Causes of labour turnover 793

12.3-1 Avoidable causes 793

12.3-2 Unavoidable causes 794

12.4 How to reduce labour turnover ? 794

12.5 Cost of labour turnover 795

12.5-1 Preventive costs 796

12.5-2 Replacement costs 796

12.6 Treatment of cost of labour turnover 797

12.7 Cost benefit analysis of training and development 799


CHAPTER THIRTEEN

COST CONTROL AND COST REDUCTION


13.2 Importance of Cost control and Cost reduction 828

13.3 Cost control 829

13.4 Cost reduction 829

13.5 Cost control vs. Cost reduction 830

13.6 Cost control process 830

13.7 Cost control in individual cost elements 831

13.8 Cost reduction process 832

13.9 Precautions in implementation of cost reduction programme 833

13.10 Planning for cost reduction 834

13.10-1 Crash Programmes 834

13.10-2 Planned Programmes 834

13.11 Long-range and Short-range Programmes 835

13.12 Management Accountants� role 835

13.13 Control Accounting and Decision Accounting 835

13.14 Methods and techniques for Cost control and Cost reduction 836

13.15 Value Analysis and Engineering 836

13.15-1 Impact of Value engineering on profit 836

13.15-2 Distinction between Value engineering and Value analysis 836

13.15-3 Benefits of value analysis 837

13.16 Economics of Maintenance 837

13.16-1 Break-down maintenance 838

13.16-2 Preventive maintenance 838

13.16-3 Optimum maintenance 838

I-21 CONTENTS

17 Control of Waste, Scrap, Spoilage, Defectives 841

13.17-1 Waste control 841

13.17-2 Scrap control 841

13.17-3 Spoilage control 841

13.17-4 Defectives control 841

13.17-5 Accounting treatment 842

13.18 Improvement in material handling systems 843

13.19 Plant layout study and Plant location 843

13.20 Economics of multi-shift working 844

13.21 Reducing finance costs 844

13.22 Accident prevention 845

13.23 Production planning and control 845

13.23-1 Steps in Production planning 845

13.23-2 Production Programming 845

13.23-3 Production schedules 845

13.24 Factory automation 845

13.25 Budgetary control 846

13.26 Standard Costing 846

13.27 Cost-Volume-Profit Analysis 846

13.28 Product mix optimisation 846

13.29 Management Information System 847

13.30 Organisation charts, manuals and surveys 847

13.31 Cost-effectiveness analysis 847

13.31-1 Steps for evaluation of Cost-effectiveness 848

13.31-2 Problems in Cost-effectiveness analysis 848

13.32 Cost benefit analysis 848

13.33 Capacity Management 849

13.34 Rationalisation 849

13.35 Standardisation, Modularisation and Variety reduction 849

13.36 Detection and remedy of bottlenecks and imbalance in productionfacilities 850

13.37 Increased productivity 850

13.38 Key factor control 850

13.39 Energy Audit 850

13.40 Rectification of unbalanced plants 850

13.41 Studies at work place 851

13.41-1 Time and Motion Study 851

13.41-2 Method Study 851

13.41-3 Work Study 852

13.41-4 Activity Sampling 852

13.41-5 Work simplification 852

13.42 Wage incentive system 852

CONTENTS I-22

43 Management Audit and Efficiency Audit 852

13.43-1 Management Audit 853

13.43-2 Efficiency Audit 854

13.44 Feed back control systems 855

13.44-1 Basic components 855

13.44-2 Basic principles 855

13.45 Feed Forward control system 856

13.45-1 Definition 856

13.45-2 Basic components 856

13.45-3 Examples 856



CHAPTER FOURTEEN

ACTIVITY BASED COSTING


14.2 Inadequacies of traditional methods of overhead absorption 864

14.3 Concept of ABC 865

14.4 Kaplan and Cooper�s approach to ABC 865

14.5 Cost drivers and Cost pools 865

14.6 Main activities and its cost drivers 866

14.7 Allocation of overheads under ABC 867

14.8 Characteristics of ABC 868

14.9 How to develop an ABC system ? 868

14.10 Steps to develop ABC System 868

14.11 How to implement ABC system ? 869

14.12 Benefits from adaptation of ABC system 869

14.13 How ABC system supports corporate strategy ? 870

14.14 When to use ABC ? 870

14.15 Activity Accounting 875



CHAPTER FIFTEEN

LIFE CYCLE COSTING

15.1 Product Life Cycle Costing : Meaning 886

15.2 Phases in product life cycle 886

15.3 Characteristics of Product life cycle 888

15.4 Product life cycle and cost control 888

15.5 Experience curve in Product life cycle costing 888

15.6 Project life cycle costing 889

15.7 What are project life cycle costs ? 889

15.8 Categories of Project life cycle costs 890

I-23 CONTENTS

9 Hidden costs 890

15.10 Optimisation project life cycle costs 891



CHAPTER SIXTEEN

TARGET COSTING

16.1 Need for cost management 902

16.2 Types of Cost Accounting systems 902

16.3 Definition of Target costing 902

16.4 Meaning of Target costing 902

16.5 Nature of Target costing 904

16.6 Target costing methodology 904

16.7 Methods of establishment of target costs 907

16.7-1 Subtraction method 907

16.7-2 Addition method 908

16.7-3 Integrated method 908

16.8 Attributable costing 908

16.9 Backflush Accounting 908




CHAPTER SEVENTEEN

KAIZEN


17.2 Concept 911

17.3 Philosophy 911

17.4 Procedure for implementation 912

17.5 Evaluation 912

17.6 Benefits 913

17.7 Reasons for failure 913

17.8 Kaizan costing 913

CHAPTER EIGHTEEN

COST OF QUALITY AND TQM

18.1 Definition of quality 915

18.2 Classification of quality costs 915

18.3 Cost of conformance 915

18.3-1 Prevention Costs 915

18.3-2 Appraisal Costs 916

18.4 Cost of Non-conformance 916

18.4-1 Cost of Internal Failure 916

18.4-2 Cost of External Failure 916

CONTENTS I-24

4-3 Cost of exceeding requirements 916

18.5 Cost of lost opportunity 916

18.6 Optimisation of quality costs 916

18.7 Quality cost reporting 917

18.8 Analysis of quality costs 919

18.9 Total Quality Management 919

18.9-1 Core concepts of TQM 919

18.9-2 Benefits of TQM 921



CHAPTER NINETEEN

CAPACITY MANAGEMENT

19.1 Capacity Management: Meaning 927

19.2 Capacity planning 927

19.3 Factors affecting the capacity of resources 928

19.4 Economics of scale (Economics of mass production) 929

19.5 Impact of Government policy on capacity decisions 930

19.6 Capacity Determination 930

19.7 Levels of activity 930

19.8 Relevant range of activity 931

19.9 Approaches for capacity determination and utilisation 932

19.10 Analysis of actual production in relation to installed capacity 933

19.11 Rectification of imbalance in production facilities 933


CHAPTER TWENTY

PRODUCTIVITY


20.2 Productivity : Meaning and definition 934

20.3 Misconceptions in measuring productivity 935

20.4 Measurement of productivity 935

20.5 Ratios for measurement of productivity 936

20.6 Productivity Index 936

20.7 Total Productivity Index 937

20.8 Productivity of Labour 937

20.8-1 Methods to measure labour productivity 937

20.8-2 Factors influencing labour productivity 937

20.9 Productivity of Materials 938

20.10 Productivity of Capital 939

20.10-1 Capital productivity vs. Labour productivity 939

20.11 Productivity of other factors 940

20.12 Productivity of Management resources 940

I-25 CONTENTS

13 Importance of human factor in productivity drive 941

20.14 Productivity and Profitability 941

20.15 Higher productivity and reduced cost 941

20.16 Productivity and quality 941

20.17 Productivity and cost effectiveness 941

20.18 Advantages of higher productivity 942

20.19 Causes of low productivity 943

20.20 Concurrent ideas criticising productivity concept 944

20.21 Formulation of productivity objectives 944

20.22 Productivity and Added value concept 945

20.23 Productivity plan 945

20.24 Productivity audit 945


CHAPTER TWENTY-ONE

JUST IN TIME


21.2 Aims and objectives of JIT 947

21.3 Features of JIT 948

21.4 Methodology in implementation of JIT 948

21.5 Benefits in adaptation of JIT 954

21.6 JIT - Empirical Studies 954

21.7 Vendor development 954


21.7-2 Methodology 954

21.7-3 Strategies 955



CHAPTER TWENTY-TWO

MRP I, MRP II, ERP AND WORLD CLASS MANUFACTURING

22.1 Materials Requirement Planning (MRP I) 956


22.1-2 Meaning 956

22.1-3 Aims 956

22.1-4 Features 956


22.1-6 Method of operation 958

22.1-7 Benefits 958

22.1-8 Requirements for implementation of MRP I 958

22.2 Manufacturing Resource Planning (MRP II) 960


22.2-2 Aims 960

CONTENTS I-26

2-3 Evolution 960

22.2.4 Essential elements 960

22.3 Enterprise Resource Planning (ERP) 960


22.3-2 MIS and ERP 960

22.4 World Class Manufacturing 961

22.4-1 Meaning 961

22.4-2 Principles 961


CHAPTER TWENTY-THREE

BALANCED SCORECARD AND BENCHMARKING

23.1 Balance Scorecard 963

23.1-1 Introduction 963

23.1-2 Drawbacks of traditional financial measures 963

23.1-3 Attributes of good performance measurement system 964

23.1-4 Concept of BSC 964

23.1-5 Four perspectives of BSC 964

23.1-6 How to implement BSC ? 966

23.2 Benchmarking 967

23.2-1 Concept 967

23.2-2 Benchmarking Process 968

23.2-3 Implications for Indian industry in benchmarking 969

23.2-4 Types of benchmarking 970


CHAPTER TWENTY-FOUR

BUSINESS PROCESS OUTSOURCING AND VALUECHAIN MANAGEMENT

24.1 Business Process Outsourcing (BPO) 971


24.1-2 Concept 971

24.1-3 Major areas 971

24.1-4 Advantage of BPO 972

24.1-5 Types of Outsourcing 973

24.1-6 Essentials for success 973

24.1-7 Drawbacks in Outsourcing 973

24.1-8 Reasons for failure 973

24.1-9 Outsourcing vs. Contracting 974

24.1-10 Outsourcing vs. Business Process Outsourcing 974

24.2 Value Chain Management 974


I-27 CONTENTS

2-2 Meaning 974

24.2-3 VCM architecture 974




CHAPTER TWENTY-FIVE

BUSINESS PROCESS RE-ENGINEERING AND SYNERGY

25.1 Business Process Re-engineering (BPR) 976



25.1-3 Meaning 976

25.1-4 BPR Methodology 977

25.2 Synergy 979

25.2-1 Meaning 979

25.2-2 Characteristics of synergy 979

25.2-3 Negative synergy 979

25.2-4 Synergy as a part of management 979

25.2-5 Synergistic effect of organisation 980

25.2-6 Types of synergy 980

25.2-7 Start-up and operating synergy 980

25.2-8 Possible opportunities for synergy 981

CHAPTER TWENTY-SIX

MANAGEMENT INFORMATION SYSTEMS ANDINFORMATION ECONOMICS

26.1 Management Information Systems : Definition 984

26.2 Scope of MIS 984

26.3 Planned and unplanned MIS 985

26.4 Top-down and Bottom-up Information Systems 986

26.5 MIS Information - Timescale 986

26.6 Transaction Processing 986

26.7 MIS and Levels of Management 987

26.7-1 Operational level MIS 987

26.7-2 Tactical level MIS 988

26.7-3 Strategic level MIS 988

26.8 Integration of MIS structure 990

26.9 Limitations of MIS 990

26.10 Framework for MIS design 990

26.11 Programmed and Non-programmed decisions 991

26.12 Database concept 991

26.13 Decision Support Systems 992

26.13-1 Where to apply DSS ? 993

CONTENTS I-28

14 Executive Information Systems 993

26.15 Database Management Systems 993

26.15-1 Categories of DBMS 994

26.16 Decision Support Packages 994

26.17 Information Economics : Meaning 995

26.18 Processing Management Accounting Information 995

26.19 Quality of Information 996

26.20 Value of Information 998

26.21 Desirable properties of Management Accounting Information 998

26.22 Uncertainty and Management Accounting Information 999

26.23 Impact of Information Technology on Management Accounting 1000


CHAPTER TWENTY-SEVEN

MARKETING AND DISTRIBUTION COST ANALYSIS


27.2 Marketing and Physical distribution costs 1002

27.2-1 Order getting costs 1002

27.2-2 Order filling costs 1002

27.3 Comparison of Management Accounting for Production andmarketing activities 1003

27.4 Problems in Management Accounting for Marketing 1004

27.5 Conceptual differences between Financial Accounting and Marketing 1005

27.6 Marketing Cost Analysis 1006

27.7 Distribution Cost Analysis 1006

27.8 Techniques of Management Accounting in Marketing and Physicaldistribution 1007

27.8-1 Market segmentation 1007

27.8-2 Physical Distribution Management 1008

27.8-3 Cost benefit analysis of advertising 1010

27.8-4 Channel decisions 1011

27.8-5 Warehouse decisions 1011

27.8-6 Transport decisions 1012

27.8-7 Cost of credit 1013

27.8-8 Cost of Salesman 1013

27.8-9 Evaluation of Salesman�s performance 1014

27.8-10 Depot numbers and Depot location decisions 1015

27.8-11 Setting an advertising budget 1016


I-29 CONTENTS

PAGE

CHAPTER TWENTY-EIGHT

STRATEGIC MANAGEMENT ACCOUNTING

28.1 Strategic Management : Introduction 1029

28.2 Strategy: Definition and Meaning 1029

28.3 Elements in Business Strategy 1029

28.4 Hierarchy of Strategy 1030

28.5 Strategic Management Process 1030

28.6 Key concepts in Strategic Management 1031

28.7 Strategic planning 1031

28.8 Formulating strategic plans 1032

28.9 Steps in Strategic planning 1032

28.10 Approaches in strategic planning 1033

28.11 Strategic Management Accounting : Introduction 1033

28.12 Definition of Strategic Management Accounting 1033

28.13 Analysing definitions 1034

28.14 Real meaning of the concept 1034

28.15 Major competitive forces influencing business strategy 1034

28.16 What information should Strategic Management Accounting provide ? 1035

28.17 Factors affecting Strategic decision making 1035

28.18 Competitive advantage and Strategic cost analysis 1035

28.19 Costing product characteristics or attributes 1037

28.20 Strategic Cost Analysis 1037

28.21 Price experience 1039

28.22 Volume and Demand 1039

28.23 Return on competitive position 1039

28.24 Resources, cash flow and portfolios 1039

28.25 Strategic Management Accounting and Competitive Position Analysis 1039

28.26 Sales and Market share 1039

28.27 Profits and Return on sales 1040

28.28 Volume and unit cost 1041

28.29 Unit prices 1041

28.30 Cashflow, Liquidity and Resource availability 1043

28.31 Analysis of the future 1043

28.32 Competitive Advantage 1044

28.33 Competitive Intelligence 1044

28.33-1 Meaning 1044

28.33-2 Types of Intelligence gathering 1044

28.33-3 Elements of Competitive Intelligence 1045

28.33-4 Objectives of Competitive Intelligence Programmes 1045

28.33-5 How to introduce Competitive Intelligence ? 1045

CONTENTS I-30

PAGE

CHAPTER TWENTY-NINE

LEARNING CURVE THEORY


29.2 What is Learning Curve ? 1046

29.3 Phases in Learning Curve 1046

29.4 Graphical representation of Learning Curve 1047

29.5 Learning Curve Applications 1050

29.6 Factors affecting Learning Curve 1052

29.7 Experience Curve 1054



CHAPTER THIRTY

LINEAR PROGRAMMING


30.2 Practical applications of L.P. Technique 1074

30.3 Assumptions 1075

30.4 Steps in LP 1076

30.5 Constraints 1076

30.6 Limitations of LP Technique 1076

30.7 Formulation of LP Problems 1076

30.8 Graphical solution 1080

30.9 Advantages of Graphical solution 1081

30.10 Disadvantages of Graphical solution 1081

30.11 Simplex Method 1082

30.12 Mixed Limitations 1086

30.13 Valuation of slack variables 1088

30.14 Minimisation problems 1089

30.15 when ≥ constraints exists in the problem 1091

30.16 No feasible solution 1091

30.17 Method of conversion to Dual problems 1092

30.18 Sensitivity Analysis 1093


CHAPTER THIRTY-ONE

NETWORK ANALYSIS (PERT AND CPM)


31.2 Objectives of Network Analysis 1113

31.3 Stages in Network analysis 1113

31.4 Characteristics of a project 1114

31.5 Drawing a network diagram 1114

31.6 Dummy activities 1115

I-31 CONTENTS

7 Steps in drawing PERT Diagram 1118

31.8 PERT and CPM : Comparison 1118

31.9 Advantages of PERT 1119

31.10 Disadvantages of PERT 1119

31.11 Steps in drawing CPM diagram 1119

31.12 Critical Path, Event Times and Floats 1119

31.13 Earliest event times and latest event times 1121

31.14 Finding the critical path 1123

31.15 Float 1123

31.16 Uncertain Activity Durations 1124



CHAPTER THIRTY-TWO

ASSIGNMENT PROBLEMS


32.2 Stages in Assignment algorithm 1170

32.3 Unbalanced Assignment Problem 1175

32.4 Maximise the objective function 1178


CHAPTER THIRTY-THREE

TRANSPORTATION PROBLEMS


33.2 Applications 1204

33.3 Conditions to use transportation algorithm 1204

33.4 Stages in transportation algorithm 1204

33.5 Matrix representation 1204

33.6 The Initial Solution 1205

33.7 North-West Corner Method 1205

33.8 Low Cost First 1207

33.9 Stepping-Stone Method 1207

33.10 Vogel�s Approximation Method 1211

33.11 Modified Distribution Method 1213

33.12 Degeneracy in Transportation 1216

33.13 Unequal supply and Demand in transportation problems 1216

33.14 Practical application of Transportation Linear Programming 1217



CHAPTER THIRTY-FOUR

SIMULATION

34.1 Definition and meaning 1251

34.2 Advantages and Disadvantages 1251

CONTENTS I-32

PAGE

I-33 CONTENTS



CHAPTER THIRTY-FIVE

INVENTORY CONTROL MODELS


35.2 Direct material cost : Meaning 1277

35.3 Inventory : Meaning and classification 1280

35.4 Requirements of material stock control 1280

35.5 Waste, Scrap, Spoilage, Defectives 1281

35.5-1 Waste control 1281

35.5-2 Scrap control 1281

35.5-3 Spoilage control 1281

35.5-4 Defectives control 1281

35.5-5 Accounting treatment 1282

35.6 Economic Order Quantity 1283

35.7 Fixation of Inventory levels 1286

35.8 ABC Analysis 1288

35.9 VED Analysis 1291

35.10 FNSD Analysis 1291

35.11 Pareto Analysis (80 : 20 Rule) 1291

35.12 Two Bin System 1291

35.13 Perpetual Inventory System 1291

35.14 Continuous stock taking 1292

35.15 Periodic stock taking system 1292

35.16 Input-Output Ratio 1293

35.17 Stock Turnover Ratio 1293

35.18 Just in time - Inventory management 1294

35.19 Just in time - Supply Chain Management 1295



LATEST PROBLEMS AND SOLUTIONS 1311

MATHEMATICAL TABLES 1413

SYLLABUS FOR CA FINAL (COST MANAGEMENT) 1421

· 2.9-1 consideration in make or buy decisions 45 ... 6.1-3 marginal costing vs. differential...

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