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Management Accounting

Late R.C. Sekhar and A.V. Rajagopalan

Publication Date - 29 November 2013

ISBN: 9780195683608

664 pages

In Stock

Management Accounting is a comprehensive textbook that is specially designed to meet the needs of management students.


Management Accounting is a comprehensive textbook that is specially designed to meet the needs of management students. It explores core concepts of management accounting through managerial applications and supplements them through numerous solved problems and detailed case studies.

The exposition provides in-depth coverage of the four key components of management accounting from an Indian perspective: management accounting fundamentals, tools for management accounting, management accounting in decision making, and management control systems. Among the important topics discussed are financial accounting and financial statement analysis, cost-profit-volume analysis, activity-based costing, costing in inventory valuation, costing for pricing, management control systems, responsibility accounting and budgeting, job and process costing, balanced score card and strategic costing, and ethics in managerial accounting.

Users will find this book highly useful for its coverage of the key concepts of management accounting explained through solved problems, small cases, tables, flow charts, and diagrams.


  • examines the challenges faced by business organizations in management accounting
  • explores the emerging issues in management accounting from an Indian perspective
  • contains cases and examples in the key areas of management accounting
  • provides chapter-end exercises with concept review and critical-thinking questions, and suggests interesting classroom and field projects

About the Author(s)

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.

Table of Contents

    1. Introduction to Managerial Accounting
    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
    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
    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
    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
    4. Cost-Volume-Profit Analysis
    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
    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
    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
    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
    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
    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
    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
    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
    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
    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
    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
    14. Professional Ethics and Behavioural Issues
    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
    Managing Conflict
    Behavioural issues and the management accountant
    Behavioural issues and employee morale
    Not a 'sweet' Dilemma
    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 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
    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