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Cost Accounting For Dummies Paperback – March 4, 2013
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From the Back Cover
- Master important cost accounting concepts
- Apply your skills with real-world examples
- Score your highest in a cost accounting course
Get a grip on cost accounting? Easy.
Cost Accounting For Dummies tracks to a typical cost accounting course and provides in-depth explanations and reviews of the essential concepts you'll encounter in your studies: how to define costs as direct materials, direct labor, fixed overhead, variable overhead, or period costs; how to use allocation methodology to assign costs to products and services; how to evaluate the need for capital expenditures; how to design a budget model that forecasts changes in costs based on expected activity levels; and more.
- Cost Accounting 101 find out how cost accounting relates to other areas of accounting, which types of costs are most important, and step-by-step explanations on cost-volume-profit and activity-based costing
- Plan for it take a stroll through the budgeting process, analyze the differences between your budget and actual results using variances, and get the lowdown on overhead costs
- Make good decisions get the scoop on cost drivers and how they determine product price to make good decisions in running a business
- Take action discover how to allocate costs, analyze business profitability, use shared resources, and more
Open the book and find:
- Cost accounting terms and their purposes
- How to use cost-volume-profit analysis
- The hows and whats of activity-based costing
- Why budgeting is important
- The concept of relevance in cost accounting
- Considerations for process costing
- How to search for measures of quality
About the Author
Ken Boyd is a former CPA with over 27 years of experience in accounting, education, and financial services. Ken is the owner of St. Louis Test Preparation (www.stltest.net). He provides online tutoring in accounting and finance to both undergraduate and graduate students.
Top customer reviews
It's well written, with lots of detail. And, because it's a For Dummies book, you can count on a direct, simple approach to all topics, and a lot of light moments. I own about 20 For Dummies books and I'm never disappointed.
Whether you're in manufacturing, retail, or service, this is a good book for you.
For example, a passage says you can identify direct materials by visualizing the end product. Fair enough. If I see the material in the product I can imagine it is a direct cost for that item. Then it says you can visualize the person making it also, and this should all prove "that material and labor are direct costs." Really? The visualization exercise would be useful if it told you WHICH materials and labor costs are direct, but if you think it means all materials and labor are direct costs, what was the point of visualizing? (I believe labor is sometimes direct, but if I had all the answers I wouldn't need the book.)
A table on Proper Use of Job Costing looks like someone took some text and put it in a table format but didn't read what it said. After staring at it for a while I could eventually sort out what went with what.
When it gives an example of activity based costing via a series of six tables, I'm pretty sure it leaves out key details that would allow someone to follow. We look at a windshield shop and consider how to allocate indirect cost items such as molding setup, machine operation and installation. We are told to allocate these indirect cost items over labor hours and machine hours, presumably to get an indirect cost per windshield.
We're given the "total cost" of these indirect items and a "total hours" with each. Total cost divided by total hours is given as the "allocation rate/hour."
Now, are these the "total hours" spent on THESE activities? For instance, molding setup lists $20k in total cost and 150 total hours for an allocation rate of $133/hr. Are those 150 hours the time spent on molding setup? But if they are, then the "allocation rate" is actually just the cost of molding setup per hour spent on molding setup. How does that help? I'm still assuming here that the molding hours (like the "total hours" listed for each of these indirect items) are the indirect costs since, well, we were told these are "indirect cost activities" and that's the reason we're trying to allocate these costs. (I do get from the book that direct costs are assigned whereas indirect costs are allocated). I'll come back to this assumption.
What I really need, though, is molding setup cost per windshield. I assumed the point here was to divy the total molding cost over direct labor hours spent on each windshield, to get a molding cost per windshield that's weighted according to direct labor cost. Thus if I divide the total molding cost by the total direct labor hours, I could get a cost per direct hour, and since direct hours are assigned to individual windshields, I've thus assigned my indirect costs too.
But the example has different hours listed for each item (e.g., molding setup, installation, etc.) which implies they are dividing by hours spent on that item rather than total direct hours as I had in mind. Continuing with their example, I'm then expecting to apply the allocation rate and, presto, to allocate these indirect costs to windshields. It turns out we're allocating the costs to sedan windshields vs. van windshields. That's fine, but as far as I can tell... we don't actually use their allocation rate to do it. Instead, they next give us the percent of hours that each indirect item actually requires from each type of windshield. For example, we're told molding setup divides 67/33 between sedan and van by "percent hours". Then, presto, they multiply the given percent by the total cost for each indirect item to give the share of cost for each type of windshield.
I'm thinking: wait a second, isn't that 67/33 split just giving us the allocation "answer" without using a rate at all? That's what they actually used to divvy the costs between windshields. Of the original 20k total molding cost, 13.3k went to sedans and 6.7k went to vans. The "allocation rate/hour" that they originally set up doesn't play any role if you're simply told that 67% of the costs now go here and 33% now go there.
After a good deal of puzzling, I believe the writers intended that "total hours" for each cost area actually refers to direct hours in that area, while total cost includes the indirect costs. Thus, for an activity, we are allocating the indirect costs to direct costs devoted to that activity. If I have that right, it makes some sense of activity based accounting. Maybe I should thank the book, but I think it would have been a lot easier with better tables and labeling (and if they had included the last step showing the multiplication with the allocation rate, rather than skipping over it).
Ideally a Dummies book holds your hand through basic concepts to get you going on a subject. The bad way is if they just erase the tricky details and make you figure it out. Unfortunately I think this book is more of the second kind.
I do like the idea of "peanut butter accounting" as a contrast to all of what I went over above.