This must-have reference covers all of the major areas of cost accounting and analysis including product costing, relevant costs, cost-volume analysis, performance evaluation, transfer pricing, and capital budgeting. - Includes methods of reorganizing, classifying, allocating, aggregating, and reporting actual costs and comparing them with standard costs.
- Equips experienced cost accountants with a reference tool and students with a thorough textbook.
- Provides numerous examples, succinct language, chapter review, glossary, and appendices.
- Includes an abundance of exercises, many of which are based on exam questions from the CPA and CMA exams.
Table of Contents:
Preface xv
About the Authors xix
CHAPTER 1
The Changing Role of the CFO: From Accounting to Accountable 1
SOX Act of 2002 and the CFO 2
Expanded Responsibilities of the CFO 6
Our Agenda 14
Part One
Funding 15
CHAPTER 2
Capital Structure Decisions 17
Debt versus Equity 18
Concept of Leverage 21
Capital Structure and Financial Leverage 25
Financial Leverage and Risk 29
Capital Structure and Taxes 31
Capital Structure and Financial Distress 37
Cost of Capital 41
Agency Relationship 43
Optimal Capital Structure: Theory and Practice 47
A Capital Structure Prescription 51
Bottom Line 52
Appendix: Capital Structure Theory—The Modigliani-Miller Theory and Beyond 53
CHAPTER 3
Types of Debt Financing 63
General Features of Debt Obligations 64
Term Loans 65
Syndicated Bank Loans 69
Notes and Bonds 71
Short-Term Financing 86
Off-Balance-Sheet Financing 93
Bottom Line 95
CHAPTER 4
Equity Funding 99
Common Stock 100
Preferred Stock 115
Bottom Line 121
CHAPTER 5
Structured Financing: Asset Securitization and Structured Notes 123
Asset Securitization 124
Structured Notes 139
Bottom Line 149
Part Two
Strategy, Taxes, and Risk Management 151
CHAPTER 6
Strategy and Financial Planning 153
Strategy and Value 155
Financial Planning and Budgeting 158
Importance of Financial Planning 158
Budgeting Process 160
Sales Forecasting 161
Seasonal Considerations 163
Budgeting 165
Pro Forma Financial Statements 172
Long-Term Financial Planning 179
Financial Modeling 179
Performance Evaluation 183
Strategy and Value Creation 191
Bottom Line 195
CHAPTER 7
Basics of Corporate Taxes and Tax Risk Management 197
Tax Management 199
Tax Risk 200
U.S. Tax Law and Taxation of Corporations 205
State and Local Taxes 218
Non-U.S. Taxes 218
Bottom Line 224
CHAPTER 8
Corporate Risk Management 227
Risk Defined 228
Enterprise Risk Management 230
Managing Risks 235
Risk Transfer 237
Bottom Line 255
Part Three
Performance Evaluation 259
CHAPTER 9
Financial Ratio Analysis 261
Ratios and Their Classification 262
Return-on-Investment Ratios 264
Liquidity 271
Profitability Ratios 279
Activity Ratios 282
Financial Leverage Ratios 284
Common-Size Analysis 289
Using Financial Ratio Analysis 290
Illustration: Pfizer, Inc., 1990–2005 292
Bottom Line 307
CHAPTER 10
Cash Flow Analysis 309
Difficulties with Measuring Cash Flow 309
Cash Flows and the Statement of Cash Flows 311
Free Cash Flow 316
Calculating Free Cash Flow 318
Net Free Cash Flow 320
Usefulness of Cash Flows in Financial Analysis 322
Bottom Line 327
CHAPTER 11
Decentralized Operations and Responsibility Accounting 329
Organization Structures and Concepts 330
Examples of Types of Organization Structure and Resposibility Reporting 331
Decentralization Problems 337
Responsibility Accounting 338
Controllable Costs 345
Costs of Service Departments 346
Executive Incentive Compensation Plans and Dysfunctional Decision Making 347
Bottom Line 351
CHAPTER 12
Responsibility Center Performance Evaluation 353
Basis for Comparison 354
Cost Center Performance Evaluation 356
Profit Center Performance Evaluation 364
Profit Center Decision Making 372
Investment Center Performance Evaluation 373
Bottom Line 394
Appendix: Gross Profit Analysis 394
CHAPTER 13
Transfer Pricing 405
Transfer Pricing Methods 407
Dual Transfer Pricing System 418
International Transfer Pricing 419
Bottom Line 424
Part Four
Asset Management 427
CHAPTER 14
Capital Budgeting and Cash Flow Analysis 429
The Investment Problem 430
Capital Budgeting 432
Cash Flow from Investments 437
Bottom Line 454
Appendix 14.A: Expected Cash Flows from the Disposition of an Asset 455
Appendix 14.B: Expansion of the Williams 5 & 10 457
CHAPTER 15
Capital Budgeting Techniques 463
Evaluation Techniques 464
Net Present Value 466
Profitability Index 471
Internal Rate of Return 472
Modified Internal Rate of Return 477
Payback Period 480
Discounted Payback Period 482
Issues in Capital Budgeting 483
Comparing Techniques 486
Capital Budgeting Techniques in Practice 489
Conflicts with Responsibility Center Performance Evaluation Measures 490
Capital Budgeting and the Justification of New Technology 491
Bottom Line 495
CHAPTER 16
Capital Budgeting and Risk 497
Project Risk 498
Measurement of Project Risk 500
Measuring a Project’s Market Risk 505
Incorporating Risk in the Capital Budgeting Decision 514
Real Options 518
Certainty Equivalents 525
Assessment of Project Risk in Practice 526
Bottom Line 528
CHAPTER 17
Leasing 531
How Leasing Works 532
Types of Equipment Leases 533
Full-Payout Leases versus Operating Leases 535
Reasons for Leasing 536
Types of Lessors 541
Lease Brokers and Financial Advisers 541
Lease Programs 542
Financial Reporting of Lease Transactions by Lessees 543
Leveraged Lease Fundamentals 546
Federal Income Tax Requirements for True Lease Transactions 556
Synthetic Leases 558
Valuing a Lease: The Lease or Borrow-to-Buy Decision 560
Bottom Line 574
CHAPTER 18
Managing Short-Term Assets 579
Cash Management 581
Marketable Securities 589
Receivables Management 591
Inventory Management 601
Bottom Line 607
Part Five
Cost and Managerial Accounting 609
CHAPTER 19
Classifying Costs 611
Elements of a Product 612
Relationship to Production 615
Relationship to Volume 616
Ability to Trace 622
Department Where Incurred 623
Functional Areas 624
Period Charge in Income 625
Relationship to Planning, Controlling, and Decision Making 626
Techniques for New Product Cost Estimation 629
Bottom Line 633
CHAPTER 20
Costing and Control of Materials, Labor, and Factory Overhead 635
Materials (Stores) 636
Labor 641
Factory Overhead Costs 646
Activity-Based Costing 660
Bottom Line 664
CHAPTER 21
Job Order and Process Costing 667
Comparison of Job Order and Process Cost Accumulation Systems 668
Job Order Costing 669
Operation Costing 673
Project Costing 674
Process Costing 676
Backflush Costing 694
Bottom Line 695
Appendix: Spoiled Units, Defective Units, Scrap Material, and Waste Material in Job Order and Process Costing Systems 697
CHAPTER 22
Joint Product and By-Product Costing 703
Joint Products 703
By-Products 711
Effects of Joint Cost Allocation upon Decision Making 715
Bottom Line 716
CHAPTER 23
Master Budget 719
Conventional Master Budget System 721
Budgeted Schedules 723
Budgeted Summaries 740
Bottom Line 744
CHAPTER 24
Standard Costing 749
Actual, Normal, and Standard Costing 750
Uses of Standard Costs 751
Types of Standards 752
Establishment of Standards 753
Just-in-Time Philosophy and Cost Accounting 764
Variance Analysis 769
Disposition of All Variances 786
Bottom Line 788
CHAPTER 25
Direct and Absorption Costing 791
Meaning of Direct Costing 791
Direct Costing versus Absorption Costing 792
Advantages of Direct Costing 802
Disadvantages of Direct Costing 805
Adjusting Financial Statements for External Reports 807
Bottom Line 807
Index 809
About the Author :
Frank J. Fabozzi, PhD, CFA, CPA, is Professor in the Practice of Finance in the School of Management at Yale University. He is a Fellow of the International Center for Finance at Yale University and serves on the Advisory Council for the Department of Operations Research and Financial Engineering at Princeton University. He has authored and edited numerous books in finance.
Pamela Peterson Drake, PhD, CFA, is the J. Gray Ferguson Professor of Finance and Department Head of Finance and Business Law at James Madison University, Harrisonburg, Virginia. She is author or coauthor of numerous books and articles.
Ralph S. Polimeni, PhD, CPA, is the Vice Provost for Accreditation and Assessment and holds the Chaykin Endowed Chair in Accounting at Hofstra University, Long Island, New York. He has authored numerous articles and books on accounting.
