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• Title Page
• Copyright Page
• About the Author
• Preface
• Acknowledgments
• Contents
• 1 MANAGERIAL ACCOUNTING IN THE INFORMATION AGE
• GOAL OF MANAGERIAL ACCOUNTING
• Planning
• Budgets for Planning
• Control
• Performance Reports for Control
• Decision Making
• A Comparison of Managerial and Financial Accounting
• Internal versus External Users
• Need to Use GAAP
• Detail of Information
• Emphasis on Nonmonetary Information
• Emphasis on the Future
• Similarities between Financial and Managerial Accounting
• COST TERMS USED IN DISCUSSING PLANNING, CONTROL, AND DECISION MAKING
• Variable and Fixed Costs
• Variable Costs
• Fixed Costs
• Sunk Costs
• Opportunity Costs
• Direct and Indirect Costs
• Controllable and Noncontrollable Costs
• TWO KEY IDEAS IN MANAGERIAL ACCOUNTING
• Decision Making Relies on Incremental Analysis
• THE INFORMATION AGE AND MANAGERIAL ACCOUNTING
• Impact of Information Technology on Management of the Value Chain
• Information Flows between Milano and Customers
• Information Flows between Milano and Suppliers
• Using Information Technology to Gain Internal Efficiencies
• Software Systems That Impact Value Chain Management
• Enterprise Resource Planning Systems
• Supply Chain Management Systems
• Customer Relationship Management Systems
• ETHICAL CONSIDERATIONS IN MANAGERIAL DECISION MAKING
• Ethical and Unethical Behavior
• Sarbanes-Oxley Act
• A Framework for Ethical Decision Making
• IMA Statement of Ethical Professional Practice
• THE CONTROLLER AS THE TOP MANAGEMENT ACCOUNTANT
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX IMA STATEMENT OF ETHICAL PROFESSIONAL PRACTICE2
• Principles
• Standards
• Resolution of Ethical Conflict
• LINK TO PRACTICE:
• Long Supply Chains Create Opportunity Costs
• Problems Related to the Wrong Performance Measures
• Casinos Manage with Data from CRM Systems
• Feds Investigating Walmart Over Bribery in Mexico
• Are the Procurement Practices of the Hershey Company Ethical?
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 2 JOB-ORDER COSTING FOR MANUFACTURING AND SERVICE COMPANIES
• COST CLASSIFICATIONS FOR MANUFACTURING FIRMS
• Manufacturing Costs
• Direct Material
• Direct Labor
• Manufacturing Overhead
• Nonmanufacturing Costs
• Selling Costs
• General and Administrative Costs
• Product and Period Costs
• Product Costs
• Period Costs
• PRODUCT COST INFORMATION IN FINANCIAL REPORTING AND DECISION MAKING
• BALANCE SHEET PRESENTATION OF PRODUCT COSTS
• FLOW OF PRODUCT COSTS IN ACCOUNTS
• INCOME STATEMENT PRESENTATION OF PRODUCT COSTS
• Cost of Goods Manufactured
• Cost of Goods Sold
• TYPES OF COSTING SYSTEMS
• OVERVIEW OF JOB COSTS AND FINANCIAL STATEMENT ACCOUNTS
• JOB-ORDER COSTING SYSTEM
• Direct Material Cost
• Direct Labor Cost
• Journal Entry to Record Direct Labor
• Manufacturing Overhead
• Journal Entries to Record Manufacturing Overhead
• Assigning Costs to Jobs: A Summary
• EASTLAKE REVISITED: USING JOB COST INFORMATION
• RELATION BETWEEN THE COSTS OF JOBS AND THE FLOW OF COSTS IN WORK IN PROCESS, FINISHED GOODS, AND COS
• ALLOCATING OVERHEAD TO JOBS: A CLOSER LOOK
• Overhead Allocation Rates
• The Overhead Allocation Base
• Activity-Based Costing (ABC) and Multiple Overhead Rates
• PREDETERMINED OVERHEAD RATES
• Eliminating Overapplied or Underapplied Overhead
• JOB-ORDER COSTING FOR SERVICE COMPANIES
• Comprehensive Example
• MODERN MANUFACTURING PRACTICES AND PRODUCT COSTING SYSTEMS
• Just-in-Time (JIT) Production
• Lean Manufacturing
• Computer-Controlled Manufacturing
• Total Quality Management
• SUMMARY OF LEARNING OBJECTIVES
• LINK TO PRACTICE:
• Product and Period Costs at SpaceX
• Examples of Companies Using Job-Order and Process Costing Systems
• Lean Principles Are Not Just for Manufacturing Firms
• Just-in-Time or Just-in-Case
• Can There Be Too Much Emphasis on Quality?
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 3 PROCESS COSTING
• DIFFERENCE BETWEEN JOB-ORDER AND PROCESS COSTING SYSTEMS
• PRODUCT AND COST FLOWS
• Product Flows through Departments
• Cost Flows through Accounts
• Direct Material
• Direct Labor
• Manufacturing Overhead
• Transferred-in Cost
• CALCULATING UNIT COST
• Equivalent Units
• Cost per Equivalent Unit
• CALCULATING AND APPLYING COST PER EQUIVALENT UNIT: MIXING DEPARTMENT EXAMPLE
• Cost Transferred Out
• Ending Work in Process
• PRODUCTION COST REPORT
• Reconciliation of Units
• Reconciliation of Costs
• BASIC STEPS IN PROCESS COSTING: A SUMMARY
• KENT CHEMICAL REVISITED: ANSWERING STACY’S QUESTION
• DEALING WITH TRANSFERRED-IN COST: PACKAGING DEPARTMENT EXAMPLE
• PROCESS COSTING AND INCREMENTAL ANALYSIS
• “YOU GET WHAT YOU MEASURE!” AND MANUFACTURING PROCESSES
• SUMMARY OF LEARNING OBJECTIVES
• LINK TO PRACTICE:
• What Type of Costing System Is Used by ExxonMobil Corporation for the Product Mobil 1?
• Virtual Plant Tour for Company Using Process Costing
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 4 COST-VOLUME-PROFIT ANALYSIS
• COMMON COST BEHAVIOR PATTERNS
• Variable Costs
• Fixed Costs
• Discretionary versus Committed Fixed Costs
• Mixed Costs
• Step Costs
• Relevant Range
• COST ESTIMATION METHODS
• Account Analysis
• Scattergraphs
• High-Low Method
• Regression Analysis
• The Relevant Range and Cost Estimation
• COST-VOLUME-PROFIT ANALYSIS
• The Profit Equation
• Break-Even Point
• Margin of Safety,
• Contribution Margin
• Units Needed to Achieve Profit Target
• Contribution Margin Ratio
• Dollar Sales Needed to Achieve Profit Target
• “What If” Analysis
• Change in Fixed and Variable Costs
• Change in Selling Price
• MULTIPRODUCT ANALYSIS
• Contribution Margin Approach
• Contribution Margin Ratio Approach
• ASSUMPTIONS IN CVP ANALYSIS
• CODECONNECT EXAMPLE REVISITED: ANSWERING MARY’S QUESTIONS
• Planning
• Control
• Decision Making
• OPERATING LEVERAGE
• CONSTRAINTS
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX USING REGRESSION IN EXCEL TO ESTIMATE FIXED AND VARIABLE COSTS
• Setting Up the Spreadsheet
• Interpreting the Output of the Regression Program
• LINK TO PRACTICE:
• Using Less Water but Paying Higher Rates!
• Breaking Even on a Golf Course Is Harder than Making Par
• Deciding to Use the Contribution Margin per Unit or the Contribution Margin Ratio
• Which Firm Has the Higher Contribution Margin Ratio?
• Impact of Operating Leverage at Vulcan Materials
• Fixed Costs Too High—Make Them Variable!
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 5 VARIABLE COSTING
• FULL (ABSORPTION) AND VARIABLE COSTING
• Variable Costing Income Statement
• EFFECTS OF PRODUCTION ON INCOME FOR FULL VERSUS VARIABLE COSTING: THE CLAUSENTUBE EXAMPLE
• Quantity Produced Equals Quantity Sold
• Quantity Produced Is Greater Than Quantity Sold
• Quantity Produced Is Less Than Quantity Sold
• Explaining What Happened at ClausenTube
• Impact of JIT on the Income Effects of Full versus Variable Costing
• BENEFITS OF VARIABLE COSTING FOR INTERNAL REPORTING
• Variable Costing Facilitates CVP Analysis
• VARIABLE COSTING LIMITS MANAGEMENT OF EARNINGS VIA PRODUCTION VOLUME
• SUMMARY OF LEARNING OBJECTIVES
• LINK TO PRACTICE:
• German Companies More Likely to Use Variable Costing
• Overproduction to Avoid Showing a Loss
• Cut in Production at John Deere Likely to Hurt Profit Margin
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 6 COST ALLOCATION AND ACTIVITY-BASED COSTING
• PURPOSES OF COST ALLOCATION
• To Provide Information for Decision Making
• To Reduce Frivolous Use of Common Resources
• To Encourage Evaluation of Services
• To Provide “Full Cost” Information
• PROCESS OF COST ALLOCATION
• Determining the Cost Objective
• Forming Cost Pools
• Selecting an Allocation Base
• ALLOCATING SERVICE DEPARTMENT COSTS
• Direct Method of Allocating Service Department Costs
• Allocating Budgeted and Actual Service Department Costs
• PROBLEMS WITH COST ALLOCATION
• Responsibility Accounting and Controllable Costs
• Arbitrary Allocations
• Unitized Fixed Costs and Lump-Sum Allocations
• The Problem of Too Few Cost Pools
• Using Only Volume-Related Allocation Bases
• ACTIVITY-BASED COSTING
• The Problem of Using Only Measures of Production Volume to Allocate Overhead
• The ABC Approach
• Hierarchy of Activities
• Relating Cost Pools to Products Using Cost Drivers
• The ABC Approach at McMaster Screen Technologies: A Comprehensive Example
• McMaster’s Costs under the Traditional Approach
• McMaster’s Costs under the ABC Approach
• Pros and Cons of ABC
• Benefits
• Limitations
• ACTIVITY-BASED MANAGEMENT
• REMEMBER—YOU GET WHAT YOU MEASURE!
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX ACTIVITY-BASED MANAGEMENT
• Step 1: Determine Major Activities
• Step 2: Identify Resources Used by Each Activity
• Step 3: Evaluate the Performance of the Activities
• Step 4: Identify Ways to Improve the Efficiency and/or Effectiveness of the Activities
• CONCLUSION
• LINK TO PRACTICE:
• Cost-plus Contracts Create Incentive to Misallocate Costs
• Basis for Allocating Costs to Federal Grants and Contracts
• Disputes over Allocations not Limited to the Private Sector
• Avoiding a Disastrous Decision by Using ABC
• Banks and Other Service Companies Use ABM
• ABC Points to Process Improvement and Cost Control
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 7 THE USE OF COST INFORMATION IN MANAGEMENT DECISION MAKING
• INCREMENTAL ANALYSIS
• When Your Boss Asks, “What Does This Product (Service) Cost?” You Should Say, “Why Do You Want
• ANALYSIS OF DECISIONS FACED BY MANAGERS
• Additional Processing Decision
• Make-or-Buy Decisions: The General Refrigeration Example
• Dropping a Product Line
• Beware of the Cost Allocation Death Spiral!
• Summary of Incremental, Avoidable, Sunk, and Opportunity Costs
• DECISIONS INVOLVING JOINT COSTS
• Allocation of Joint Costs
• Additional Processing Decisions and Joint Costs
• QUALITATIVE CONSIDERATIONS IN DECISION ANALYSIS
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX THE THEORY OF CONSTRAINTS
• THE FIVE-STEP PROCESS OF TOC
• Step 1: Identify the Binding Constraint
• Step 2: Optimize Use of the Constraint
• Step 3: Subordinate Everything Else to the Constraint
• Step 4: Break the Constraint
• Step 5: Identify a New Binding Constraint
• IMPLICATIONS OF TOC FOR INSPECTIONS, BATCH SIZES, AND ACROSS-THE-BOARD CUTS
• LINK TO PRACTICE:
• Sell Partially Completed Superyacht?
• Boeing’s Global Outsourcing Strategy Blamed for 3-Year Delay in 787
• PACCAR Decides to Make as Well as Buy!
• Indian Wireless Company Outsources to U.S. and European Firms!
• Spike TV Drops Impact Wrestling
• Ronald H. Coase’s Contribution to Incremental Analysis
• The Sunk Cost Effect
• Qualitative Considerations in Outsourcing to China
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 8 PRICING DECISIONS, CUSTOMER PROFITABILITY ANALYSIS, AND ACTIVITY-BASED PRICING
• THE PROFIT-MAXIMIZING PRICE
• PRICING SPECIAL ORDERS
• COST-PLUS PRICING
• TARGET COSTING
• ANALYZING CUSTOMER PROFITABILITY: REVISITING THE PRICED RIGHT OFFICE SUPPLIES CASE
• CUSTOMER PROFITABILITY AND PERFORMANCE MEASURES
• ACTIVITY-BASED PRICING
• SUMMARY OF LEARNING OBJECTIVES
• LINK TO PRACTICE:
• Pricing Strategy: Apple’s Approach to Pricing
• Pricing Power More Important Than Management
• Pricing Treasure Hunt Items at Costco
• Insull’s Most Radical Innovation Wasn’t Technology—It Was Pricing!
• Target Costing Analyst Position at Whirlpool
• How to Fix Unprofitable Customers
• Sprint Drops Customers for Excessive Use of Customer Service
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 9 CAPITAL BUDGETING AND OTHER LONG-RUN DECISIONS
• CAPITAL BUDGETING DECISIONS
• EVALUATING INVESTMENT OPPORTUNITIES: TIME VALUE OF MONEY APPROACHES
• Basic Time Value of Money Calculations
• The Net Present Value Method
• Steps in the NPV Method
• An Example of the NPV Approach
• Comparing Alternatives with NPV
• The Internal Rate of Return Method
• The Internal Rate of Return with Unequal Cash Flows
• Summary of Net Present Value and Internal Rate of Return Methods
• CONSIDERING “SOFT” BENEFITS IN INVESTMENT DECISIONS
• Calculating the Value of Soft Benefits Required to Make an Investment Acceptable
• ESTIMATING THE REQUIRED RATE OF RETURN
• ADDITIONAL CASH FLOW CONSIDERATIONS
• Cash Flows, Taxes, and the Depreciation Tax Shield
• Adjusting Cash Flows for Inflation
• OTHER LONG-RUN DECISIONS
• SIMPLIFIED APPROACHES TO CAPITAL BUDGETING
• Payback Period Method
• Accounting Rate of Return
• The Accounting Rate of Return Is Not a Reliable Estimate of the Internal Rate of Return
• CONFLICT BETWEEN PERFORMANCE EVAL UATION AND CAPITAL BUDGETING
• WILSON AIR EXAMPLE REVISITED
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX A USING EXCEL® TO CALCULATE NPV AND IRR
• LINK TO PRACTICE:
• Royal Caribbean International Invests $1.4 Billion in Cruise Ship
• NPV of Livengood Gold Mine Depends on Estimates
• College Education Yields 15% Return
• Use of NPV and IRR by CFOs
• Soft Benefits Related to Investing in ERP System
• Cost of Capital for Various Business Sectors
• Depreciation Tax Shield at Delta Air Lines
• Payback on Home Solar Power,
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 10 BUDGETARY PLANNING AND CONTROL
• USE OF BUDGETS IN PLANNING AND CONTROL
• Planning
• Control
• DEVELOPING THE BUDGET
• Budget Time Period
• Zero-Based Budgeting
• THE MASTER BUDGET
• Sales Budget
• Production Budget
• Direct Material Purchases Budget
• Direct Labor Budget
• Manufacturing Overhead Budget
• Selling and Administrative Expense Budget
• Budgeted Income Statement
• Capital Acquisitions Budget
• Cash Budget
• Budgeted Balance Sheet
• USE OF COMPUTERS IN THE BUDGET PLANNING PROCESS
• BUDGETARY CONTROL
• Budgets as a Standard for Evaluation
• Static and Flexible Budgets
• INVESTIGATING BUDGET VARIANCES
• CONFLICT IN PLANNING AND CONTROL USES OF BUDGETS
• Why Budget-Based Compensation Can Lead to Budget Padding and Income Shifting
• EVALUATION, MEASUREMENT, AND MANAGEMENT BEHAVIOR
• THE PRESTON JOYSTICK CASE REVISITED
• SUMMARY OF LEARNING OBJECTIVES
• LINK TO PRACTICE:
• Problems with Five-Year Budgets
• People Problems in Budgeting
• Budget Process in Great Britain
• Address Cash Flow Uncertainty with a Revolving Loan
• Spreadsheets for Budgeting
• Using Rolling Budgets to Deal with Changes in Economic Conditions
• Ratcheting and the Ability to Achieve Budget Targets
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 11 STANDARD COSTS AND VARIANCE ANALYSIS
• STANDARD COSTS
• Standard Costs and Budgets
• Development of Standard Costs
• Ideal versus Attainable Standards
• A GENERAL APPROACH TO VARIANCE ANALYSIS
• MATERIAL VARIANCES
• Material Price Variance
• Material Quantity Variance
• DIRECT LABOR VARIANCES
• Labor Rate Variance
• Labor Efficiency Variance
• OVERHEAD VARIANCES
• Controllable Overhead Variance
• Detailed Analysis of the Controllable Overhead Variance
• Overhead Volume Variance
• Computing the Overhead Volume Variance
• Interpreting the Overhead Volume Variance
• Calculating the Financial Impact of Operating at More or Less than Planned Capacity
• TEST YOUR KNOWLEDGE: COMPREHENSIVE EXAMPLE
• Material Variances
• Labor Variances
• Overhead Variances
• INVESTIGATION OF STANDARD COST VARIANCES
• Management by Exception
• Favorable Variances May Be Unfavorable
• Can Process Improvements Lead to Unfavorable Variances?
• Beware: Evaluation in Terms of Variances Can Lead to Excess Production
• RESPONSIBILITY ACCOUNTING AND VARIANCES
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX RECORDING STANDARD COSTS IN ACCOUNTS
• Recording Material Costs
• Recording Labor Cost
• Recording Manufacturing Overhead
• Recording Finished Goods
• Recording Cost of Goods Sold
• Closing Variance Accounts
• LINK TO PRACTICE:
• Starbucks Uses Standard Costs
• How Often Do Companies Update Standards?
• Standard Costing—In the Beginning
• You Get What You Measure!
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• 12 DECENTRALIZATION AND PERFORMANCE EVALUATION
• WHY FIRMS DECENTRALIZE
• Advantages of Decentralization
• Disadvantages of Decentralization
• WHY COMPANIES EVALUATE THE PERFORMANCE OF SUBUNITS AND SUBUNIT MANAGERS
• Evaluating Subunits
• Evaluating Subunit Managers
• Responsibility Accounting and Performance Evaluation
• COST CENTERS, PROFIT CENTERS, AND INVESTMENT CENTERS
• Cost Centers
• Profit Centers
• Investment Centers
• EVALUATING INVESTMENT CENTERS WITH ROI
• Measuring Income and Invested Capital When Calculating ROI
• Problems with Using ROI
• Problems of Overinvestment and Underinvestment: You Get What You Measure!
• Evaluation in Terms of Profit Can Lead to Overinvestment
• Evaluation in Terms of ROI Can Lead to Underinvestment
• EVALUATION USING ECONOMIC VALUE ADDED (EVA )
• Residual Income (RI)
• Revisiting the Situation at Action Industries
• Solving the Overinvestment and Underinvestment Problems
• Economic Value Added (EVA )
• EVA Example
• USING A BALANCED SCORECARD TO EVALUATE PERFORMANCE
• Tying the Balanced Scorecard Measures to the Strategy for Success
• Scenario 1. Learning and Growth Dimension
• Scenario 2. Internal Process Dimension
• Scenario 3. Customer Dimension
• Scenario 4. Financial Dimension
• How Balance Is Achieved in a Balanced Scorecard
• DEVELOPING A STRATEGY MAP FOR A BALANCED SCORECARD
• KEYS TO A SUCCESSFUL BALANCED SCORECARD: TARGETS, INITIATIVES, RESPONSIBILITY, FUNDING, TOP MANAGEME
• Targets
• Initiatives
• Responsibility
• Funding
• Top Management Support
• SUMMARY OF LEARNING OBJECTIVES
• APPENDIX TRANSFER PRICING
• MARKET PRICE AS THE TRANSFER PRICE
• MARKET PRICE AND OPPORTUNITY COST
• VARIABLE COST AS THE TRANSFER PRICE
• FULL COST PLUS PROFIT AS THE TRANSFER PRICE
• NEGOTIATED TRANSFER PRICES
• TRANSFER PRICING AND INCOME TAXES IN AN INTERNATIONAL CONTEXT
• LINK TO PRACTICE:
• Subunits at Nordstrom
• The Focus on ROI and Shareholder Value Is Not the Same in France, Germany, and Japan as It Is in the
• Did Boeing’s Focus on ROI Lead to Excessive Outsourcing?
• Companies That Have Used EVA
• Deere & Company Uses SVA Rather Than EVA
• Focus on EVA Affects Key Decisions across an Organization
• Use of EVA at Whole Foods
• Brigham and Women’s Hospital Receives Award for Its Balanced Scorecard
• Transfer Pricing at Starbucks
• Review Problems
• Key Terms
• Self-Assessment
• Questions
• Exercises
• Problems
• Cases
• EULA