Managerial Akuntansi Hansen Mowen [PDF]

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Managerial Accounting 8TH EDITION



DON R. HANSEN Oklahoma State University •••



MARYANNE M. MOWEN Oklahoma State University



Managerial Accounting, Eighth Edition Don R. Hansen, Maryanne M. Mowen



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COPYRIGHT © 2007, 2005 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Printed in the United States of America 1 2 3 4 5 09 08 07 06 Student Edition ISBN 13: 978-0-324-37600-5 Student Edition ISBN 10: 0-324-37600-6 Instructor’s Edition ISBN 13: 978-0-324-37605-0 Instructor’s Edition ISBN 10: 0-324-37605-7



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Preface



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The eighth edition of Hansen & Mowen’s Managerial Accounting introduces students to the fundamentals of management accounting. Though it is assumed that students have been introduced to the basics of financial accounting, extensive knowledge of financial accounting is not needed. The emphasis is on the use of accounting information in today’s business environment, so this text provides coverage of the most cutting edge topics and developments in the field. Thus, the text should be of value to students with a variety of backgrounds. Although written to serve undergraduates, the text has been used successfully at the graduate level. There is sufficient variety in the assignment material to accommodate both undergraduate and graduate students. Many business school students who are required to take a course in management accounting are not accounting majors. For these students, it is often difficult to appreciate the value of the concepts being taught. Managerial Accounting, 8e, overcomes this attitude by using introductory chapter scenarios based on real-world settings, photos illustrating practical applications of management accounting concepts, and realistic examples illustrating the concepts within the chapters. Seeing that effective management requires a sound understanding of how to use accounting information should pique the interests of both accounting and nonaccounting majors. One major area of improvement for this edition has been to enhance the quality and quantity of end-of-chapter material. As a result of extensive focused reviewing and analysis, the end-of-chapter material now offers several activities by level of difficulty for each learning objective to ensure that students will have plenty of opportunity to practice the concepts they learn in the chapter. The end-of-chapter activities are unmatched by any text on the market. We are confident that this innovative managerial accounting text will prepare your students to perform at their best. The new edition will ensure stronger student performance and ongoing satisfaction with your managerial accounting course.



NEW Features of the Eighth Edition The eighth edition now offers even more to ensure you and your students experience a higher level of performance in managerial accounting, including:



The Most Current Coverage of Contemporary Topics. A new entire chapter on Activity-Based Management (Chapter 5), a new chapter covering Lean Accounting (Chapter 16), and a new appendix on Joint Product Costing (after Chapter 7) in this edition dedicate significant attention to the most current issues in managerial accounting today. New materials on simplifying ABC are also introduced in Chapter 4.



Streamlined, Reorganized Table of Contents. We have streamlined, reorganized, and carefully tailored this edition’s contents to reflect the way your students best learn contemporary and traditional managerial accounting topics. Special topics are now grouped together in the last part of the text to enhance understanding. Variety and Strength in End-of-Chapter Problems and Exercises. Based on detailed reviewer feedback, exercises and problems now offer more variety and are clearly classified both by level of difficulty and by corresponding learning objectives for your ease in selecting appropriate assignments for each class. All endof-chapter materials directly correspond to AACSB and CMA standards to ensure student comprehension and positive outcomes. Furthermore, there are a significant number of new and revised exercises and problems in each chapter.



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Connection throughout Chapter-Opening Scenarios. New chapter-opener cases now introduce a fictional company that is referenced throughout each chapter to connect and illustrate major chapter concepts. These cases provide a focused look at how each chapter’s managerial accounting concepts apply to today’s business world. New! Ethical Insights Boxes. Important ethical concepts capture student interest, assist in retaining critical managerial accounting topics, and show students how to learn from ethical dilemmas as they prepare for CPA and CMA exams. These are identified by a marginal icon. New! Managers Decide Decision-Making Boxes. This edition’s new emphasis on decision-making throughout each chapter challenges students to apply what they learn in a decision context and shows the relevance of managerial accounting concepts to the real business world. NEW! ThomsonNOW™ for Managerial Accounting. This outcomes-driven, integrated online learning and course management system provides the ultimate in flexibility and ease of use with the results you want NOW to support your course goals and ensure positive student performance. You’ll save time as you efficiently teach and reinforce content with an integrated eBook, interactive learning tools, and personalized study plans; test with an algorithmic test bank; and grade results based on AACSB and CMA accreditation standards.



Hallmark Features We have also retained those features that have made this text successful through seven editions:



Integrated Strategic Cost Management Concepts. An emphasis on budgeting, ABM, and decentralization keeps materials relevant and prepares today’s students for situations they will encounter.



Unique Environmental Cost Management Chapter. Introduce your students to the emerging field of environmental cost management with new, actual examples that demonstrate the value of environmental cost management as they show how managers can reduce costs by implementing environmentally conscious processes. New E-Commerce Coverage in First Chapter. A new section presented early in this edition (within Chapter 1) overviews the impact of e-commerce on today’s management accounting issues. Integrated Strategic Cost Management Concepts. An emphasis throughout this edition on budgeting, ABM, and decentralization keeps the materials relevant to situations encountered in the business world.



Integrated Coverage of Contemporary and Traditional Topics. This edition introduces the latest costing techniques alongside more traditional topics to help students see the advantages and disadvantages of a traditional cost management system versus cost management systems that include practices such as ABC, ABM, target costing, and the Balanced Scorecard. Coverage of both traditional and contemporary topics helps ensure that students are well prepared to work in a variety of business environments.



Integrated Use of Spreadsheets. To accurately reflect industry practice, this edition illustrates key managerial techniques, such as regression, using spreadsheets rather than cumbersome manual calculations.



International Coverage. A full chapter (Chapter 18) highlighting international iv



issues, as well as numerous international examples integrated throughout the text, emphasizes the critical importance of this topic.



Simplified Budgeting Coverage. A simpler example more clearly illustrates important budgeting concepts in this edition. Least Squares Regression Manual Computation. Coverage of manual computation of regression coefficients helps students understand the technical and theoretical concepts underlying ordinary least squares analysis.



Ethics Coverage. As with previous editions, the eigthth edition emphasizes the study of ethical conduct for management accountants. The role of ethics is discussed in Chapter 1, and the Statement of Ethical Professional Conduct developed by the Institute of Management Accountants is introduced. The impact of the SarbanesOxley Act and its ethics requirements for publicly traded companies is discussed. Chapter 1 has several substantive problems on ethics, and subsequent chapters have at least one problem or case involving an ethical dilemma. These problems allow the instructor to introduce value judgments into management accounting decision making. Chapter 14, dealing with international issues in management accounting, also has a section that discusses ethics in the international environment. Real-World Emphasis. The eighth edition incorporates real-world applications of management accounting concepts, making the study of these concepts more familiar and interesting to the student. Real-company examples are incorporated throughout. Names of real companies are highlighted throughout the text for easy identification and are listed in a company index at the back of the text. Photos are included to help students relate to the real-world nature of management accounting.



Increased Coverage of Service Industry. Service businesses are experiencing unprecedented growth in today’s economy. Managers of service businesses often use the same management accounting models as manufacturers, but they must adapt them to their own unique situations of providing intangibles to consumers. To address this need, many service industry applications are included in the eighth edition. In addition, many real-company examples of service businesses are given.



Chapter Organization and Structure Each chapter is carefully structured to help students focus on important concepts and retain them. Components found in each chapter include:



Learning Objectives. Each chapter begins with a set of learning objectives to guide students in their study of the chapter. These objectives outline the organizational flow of the chapter and serve as points of comprehension and evaluation. Learning objectives are tied to specific sections of topic coverage within the chapter. They are repeated in the margin at the beginning of the corresponding chapter coverage and are summarized at the end of the chapter. Summary of Learning Objectives. Each chapter concludes with a comprehensive summary of the learning objectives. Students can review and test their knowledge of key concepts and evaluate their ability to complete chapter objectives. Scenario. An interesting, real-world scenario opens each chapter. The scenario ties directly to concepts covered in the chapter and helps students relate chapter topics to actual business happenings. “Questions to Think About,” critical-thinking questions that appear at the end of each scenario, are designed to pique student interest in the chapter and stimulate class discussion.



Key Terms. Throughout each chapter, key terms appear in bold font for quick identification. A list of key terms, with page references, is presented at the end of each chapter to provide additional reinforcement. All key terms are defined in a comprehensive glossary at the end of the text.



Review Problems. Each chapter contains at least one review problem with the accompanying solution provided. These review problems demonstrate the application of major concepts and procedures covered in the chapter.



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Questions for Writing and Discussion. Approximately 15 to 25 short-answer questions appear at the end of each chapter to test students’ knowledge of chapter concepts. Many of the questions call for students to use critical thinking and written and oral communication skills. Several questions can be used to stimulate class participation and discussion. Exercises and Problems. Exercises and problems are correlated by learning objectives, listed in the margin below the exercise and problem titles. A document showing correlations of each end of chapter activity by level of difficulty, learning objective, and AACSB and CMA learning outcomes standards is available on the free website. Exercises and problems adapted from past CMA exams are designated with a margin icon. Exercises. Exercises usually emphasize one or two chapter concepts and can be completed fairly quickly (30 minutes maximum). Exercises require basic application and computation and often ask students to interpret and explain their results.



Problems. Each chapter contains many end-of-chapter problems, with varying degrees of length and difficulty. Problems usually have more than one issue and present challenging situations, complex computations, and interpretations.



Managerial Decision Cases. Most chapters contain at least two cases. Cases have greater depth and complexity than problems. They are designed to help students integrate multiple concepts and further develop their analytical skills. Several cases deal with ethical behavior.



Research Assignments. Research assignments appear in all chapters (except Chapter 1), allowing students to expand their research and communication skills beyond the classroom. One research assignment in each chapter, labeled “Cybercase,” requires the student to research information on the Internet.



Check Figures. Key figures for solutions to selected problems and cases are provided at the end of the text as an aid to students as they prepare their answers.



Chapter by Chapter Changes Chapter 1 Added material on Sarbanes-Oxley (SOX) and ethics requirements for publicly-traded companies. Added section on corporate codes of conduct mandated by SOX.



Chapter 4 New materials on simplifying ABC have been added. Chapter 5 This is a newly named and formed chapter with some new material and some elements previously found in other chapters; consolidating materials pertaining to activity-based management (ABM).



Chapter 6 Major revision due to the combining of two previous chapters on joborder costing and process costing.



Chapter 7 Added appendix on joint product costing. Chapter 10 Combines two previous chapters into one. Includes absorption and variable costing, segmented reporting, investment center performance evaluation, and transfer pricing. Chapter 16 Half of this chapter is brand-new material focusing on lean manufacturing and lean accounting. Value streams, pull manufacturing, lead times, forms and sources of waste, value stream costing, value stream reporting, value stream reporting, and value-stream performance measurement are examples of topics discussed.



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Ancillaries Instructor’s Manual, 0-324-37717-7 (Prepared by Scott Colvin, Naugatuck Valley Community Technical College). The instructor’s manual contains a complete set of lecture notes for each chapter and a transition guide for the seventh edition of Management Accounting, as well as other widely used management accounting texts. Solutions Manual, 0-324-64499-X (Prepared by Don Hansen and Maryanne Mowen, Oklahoma State University). The solutions manual contains the solutions for all end-of-chapter questions, exercises, problems, and cases. Solutions have been verified multiple times to ensure their accuracy and reliability. Test Bank, 0-324-37622-7 (Prepared by Jane Stoneback, Central Connecticut State University). Revised for the eighth edition, the test bank offers multiple-choice problems, short problems, and essay problems. Designed to make exam preparation as convenient as possible for the instructor, each test bank chapter contains enough questions and problems to permit the preparation of several exams without repetition of material. All questions are identified by level of difficulty, learning objective, and AACSB and CMA learning outcomes standards. ExamView ® Testing Software. This supplement, included on the Instructor’s Resource CD-ROM, contains all of the questions in the printed test bank. This program is an easy-to-use test creation software compatible with Microsoft Windows. Instructors can add or edit questions, instructions, answers, and select questions (randomly or numerically) by previewing them on the screen. Instructors can also create and administer quizzes online, whether over the Internet, a local area network (LAN), or a wide area network (WAN).



Spreadsheet Templates. Spreadsheet templates using Microsoft Excel are available for downloading from the product support website. These templates provide outlined formats of solutions for selected end-of-chapter exercises and problems. These exercises and problems are identified with a margin symbol. The templates allow students to develop spreadsheet and “what-if” analysis skills. PowerPoint Slides (Prepared by Gail Wright, Bryant University). Selected transparencies of key concepts and exhibits from the text are available in PowerPoint presentation software. Available on the Instructor’s Resource CD-ROM or the product support website. Instructor’s Resource CD-ROM, 0-324-23493-7. Key instructor ancillaries (solutions manual, instructor’s manual, test bank, ExamView®, and PowerPoint® slides) are provided on CD-ROM, giving instructors the ultimate tool for customizing lectures and presentations. Product Website (http://thomsonedu.com/accounting/hansen). A website designed specifically for Managerial Accounting, 8e includes online and downloadable instructor and student resources. The website features an interactive study center organized by chapter, with learning objectives, Web links, glossaries, and online quizzes with automatic feedback. ThomsonNOW TM Make the most of your course with ThomsonNOW™ for Hansen & Mowen Managerial Accounting, 8e. This integrated, online learning and course management system provides the ultimate in flexibility and ease of use with the results you want NOW. ThomsonNOW supports your course goals and ensures positive student performance. You’ll save time as you efficiently teach and reinforce content with an integrated eBook, Experience Managerial Accounting videos, interactive learning tools, and personalized study plans; test with an algorithmic test bank; and grade results based on AACSB and CMA accreditation standards. For more information visit http://www.thomsonedu.com



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JoinIn TM on TurningPoint ® JoinInTM on TurningPoint® is a unique Microsoft® PowerPoint®-based, interactive student response system and lecture tool that merges the instructor’s PowerPoint presentation with interactive questions that assess students’ understanding of material on the spot. As students are quizzed using clicker technology, instructors can use the instant feedback to lecture more efficiently. JoinIn on TurningPoint is the right solution to help you: •Boost students’ interaction and engagement. •Assist students who lack confidence to participate by interacting anonymously. •Illustrate the relevance of lecture topics with polls, data slicing, and ranking the popularity of answers. •Check attendance. •Improve retention. •Assess students’ understanding of a concept instantaneously and identify the “Teachable Moment.” •Manage your lecture, make assessments, collect student responses, and post results to your gradebook, all in one tool.



WebTutor™ Toolbox on WebCT ® and on Blackboard ® WebTutor Toolbox complements Managerial Accounting, 8e by providing interactive reinforcement. WebTutor’s online teaching and learning environment brings together content management, assessment, communication, and collaboration capabilities for enhancing inclass instruction or as a study resource for students. Access certificates for WebTutor can be bundled with the textbook or sold separately. For more information, including a demo, visit http://e.thomsonlearning.com



Business & Company Resource Center. The power to answer all types of business queries is at your fingertips with Business & Company Resource Center (BCRC). Unlike other available online business resources, this comprehensive database offers a dynamic research opportunity, providing accurate, up-to-date company and industry intelligence for thousands of firms. BCRC provides access to a wide variety of global business information including competitive intelligence, career and investment opportunities, business rankings, company histories and much more. To learn more visit http://www.gale.com/BusinessRC/



Experience Managerial Accounting Video Series. A series of 14 videos illustrating key management accounting concepts including job order, cost volume profit, activity based costing, Pricing, cost behavior, budgeting, process costing and more. These videos feature companies such as Washburn Guitar, BP, Hard Rock Café, Cold Stone Creamery, and more. Access to these videos can be included at no additional cost with a new book or can be purchased separately at the bookstore or purchased directly online. See your Thomson South-Western sales representative for more details or visit http://thomsonedu.com/accounting/hansen



Acknowledgments We would like to express our appreciation for all who have provided helpful comments and suggestions. The reviewers of the prior editions helped make it a successful product. Many valuable comments from instructors and students have helped us make significant improvements in the text. We would particularly like to thank the following reviewers, who provided in-depth reviews:



Reviewers



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Alex Ampadu University at Buffalo



Kashi R. Balachandran New York University



James Aselta Sacred Heart University Professor Rowland Atiase University of Texas at Austin



H. Francis Bush Virginia Military Institute Michael Flores Wichita State University



Professor Ananda R. Ganguly Purdue University Liming Guan University of Hawaii at Manoa Pamela Z. Jackson Augusta State University Gordon Klein UCLA Cathy X. Larson Middlesex Community College J. Mike Metzcar, CPA Indiana Wesleyan University Theodora L. Moten LeTourneau University Cynthia Nye Bellevue University Kathy F. Otero University of Texas at El Paso Frederick W. Rankin Colorado State University Juan M. Rivera University of Notre Dame Richard Schmidt LeTourneau University Online E. Daniel Shim Sacred Heart University Dr. John J. Surdick Xavier University Lynda Thoman Purdue University Wendy Tietz Kent State University Bill Wempe Texas Christian University Scott White Lindenwood University James E. Williamson San Diego State University George R. Wilson University of Georgia



Priscilla S. Wisner Montana State University Zoomerang Survey Participants Wagdy M. Abdallah Seton Hall University Joseph Adamo Cazenovia College Sue Aman Kaskaskia College Douglas M. Asbury University of Findlay Sandra Bailey Oregon Tech Kashi Balachandran New York University Carroll Barnes Minneapolis Community & Technical College Nancy E. Coulmas Bloomsburg University Kevin Devine Xavier University Maggie Houston Wright State University Celina Jozsi University of South Florida Patti Lopez Valencia Community College Lowell Mooney Georgia Southern University Abbie Gail Parham Georgia Southern University Angela Sandberg Jacksonville State University Akili J. Sanyika Georgia Perimeter College Ramgopal Venkataraman University of Minnesota - Twin Cities Priscilla Wisner Montana State University



We also would like to thank our verifiers for the text and solutions manual— Scott Butterfield, Clayton State University; and Ann Martel, Marquette University. Their careful editing helped us produce a text and ancillary package of high quality and accuracy. We also want to express our gratitude to the Institute of Management Accountants for its permission to use adapted problems from past CMA examinations. The IMA has also given us permission to reprint the ethical standards of conduct for management accountants. Finally, we should offer special thanks to the staffs of Thomson Publishing and Lachina Publishing Services. They have been helpful and have carried out their tasks with impressive expertise and professionalism. Don R. Hansen Maryanne M. Mowen



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About the Authors Don R. Hansen Dr. Don R. Hansen is Professor of Accounting at Oklahoma State University. He received his Ph.D. from the University of Arizona in 1977. He has an undergraduate degree in mathematics from Brigham Young University. His research interests include activity-based costing and mathematical modeling. He has published articles in both accounting and engineering journals including The Accounting Review, The Journal of Management Accounting Research, Accounting Horizons, and IIE Transactions. He has served on the editorial board of The Accounting Review. His outside interests include family, church activities, reading, movies, watching sports, and studying Spanish.



Maryanne M. Mowen Dr. Maryanne M. Mowen is Associate Professor of Accounting at Oklahoma State University. She received her Ph.D. from Arizona State University in 1979. Dr. Mowen brings an interdisciplinary perspective to teaching and writing in cost and management accounting, with degrees in history and economics. In addition, she does scholarly research in behavioral decision theory. She has published articles in journals such as Decision Science, The Journal of Economics and Psychology, and The Journal of Management Accounting Research. Dr. Mowen’s interests outside the classroom include reading, playing golf, traveling, and working crossword puzzles.



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B r i e f C o n t e n txi s Preface iii



Part I



Part II



Part III



Part IV



Part V



Part VI



Basic Management Accounting Concepts



1



Chapter 1



Introduction: The Role, History, and Direction of Management Accounting 2



Chapter 2



Basic Management Accounting Concepts 32



Activity-Based Accounting



69



Chapter 3



Activity Cost Behavior 70



Chapter 4



Activity-Based Product Costing 116



Chapter 5



Activity-Based Management 164



Product and Service Costing



211



Chapter 6



Job-Order and Process Costing 212



Chapter 7



Support-Department Cost Allocation 270



Planning and Control



313



Chapter 8



Budgeting for Planning and Control 314



Chapter 9



Standard Costing: A Managerial Control Tool 366



Chapter 10



Segmented Reporting, Investment Center Evaluation, and Transfer Pricing 416



Managerial Decision Making



469



Chapter 11



Cost-Volume-Profit Analysis: A Managerial Planning Tool 470



Chapter 12



Tactical Decision Making 514



Chapter 13



Capital Investment Decisions 562



Chapter 14



Inventory Management 620



Special Topics



665



Chapter 15



Quality Costs and Productivity: Measurement, Reporting, and Control 666



Chapter 16



Lean Accounting, Target Costing, and the Balanced Scorecard 722



Chapter 17



Environmental Cost Management 776



Chapter 18



International Issues in Management Accounting 816 xi



Contents Preface iii



PART 1



BASIC MANAGEMENT ACCOUNTING CONCEPTS



Chapter 1 • Introduction: The Role, History, and Direction of Management Accounting 2



Problems 28



Management Accounting Information System 4



Chapter 2 • Basic Management Accounting Concepts 32



Information Needs of Managers and Other Users 4 The Management Process 5 Organization Type 7



Cost Assignment: Direct Tracing, Driver Tracing, and Allocation 34



Management Accounting and Financial Accounting 7 A Brief Historical Perspective of Management Accounting 9



The Role of the Management Accountant 15 Sarbanes-



Management Accounting and Ethical Conduct 17 Ethical Behavior 17 Company Codes of Conduct and SOX 18 Standards of Ethical Conduct for Management Accountants 19



Certification 21 The CPA 21



The CIA 22



Summary of Learning Objectives 22 Key Terms 23 Questions for Writing and Discussion 23 Exercises 24 xii



Accuracy of



Product and Service Costs 39



External Financial Statements 44



Activity-Based Management 10 Customer Orientation 11 Cross-Functional Perspective 13 Total Quality Management 13 Time as a Competitive Element 14 Efficiency 14 E-business 15



The CMA 21



Cost 35 Cost Objects 35 Assignments 36



Different Costs for Different Purposes 41 Product Costs and External Financial Reporting 42



Current Focus of Management Accounting 10



Structure of the Company 15 Oxley Act of 2002 16



Research Assignment 31



Income Statement: Manufacturing Firm 44 Income Statement: Service Organization 46



Types of Management Accounting Systems: A Brief Overview 46 FBM versus ABM Accounting Systems 47 Choice of a Management Accounting System 50



Summary of Learning Objectives 51 Key Terms 51 Review Problems 52 Questions for Writing and Discussion 54 Exercises 55 Problems 61 Managerial Decision Cases 66 Research Assignments 68



Contents Preface iii



PART 1



BASIC MANAGEMENT ACCOUNTING CONCEPTS



Chapter 1 • Introduction: The Role, History, and Direction of Management Accounting 2



Problems 28



Management Accounting Information System 4



Chapter 2 • Basic Management Accounting Concepts 32



Information Needs of Managers and Other Users 4 The Management Process 5 Organization Type 7



Cost Assignment: Direct Tracing, Driver Tracing, and Allocation 34



Management Accounting and Financial Accounting 7 A Brief Historical Perspective of Management Accounting 9



The Role of the Management Accountant 15 Sarbanes-



Management Accounting and Ethical Conduct 17 Ethical Behavior 17 Company Codes of Conduct and SOX 18 Standards of Ethical Conduct for Management Accountants 19



Certification 21 The CPA 21



The CIA 22



Summary of Learning Objectives 22 Key Terms 23 Questions for Writing and Discussion 23 Exercises 24 xii



Accuracy of



Product and Service Costs 39



External Financial Statements 44



Activity-Based Management 10 Customer Orientation 11 Cross-Functional Perspective 13 Total Quality Management 13 Time as a Competitive Element 14 Efficiency 14 E-business 15



The CMA 21



Cost 35 Cost Objects 35 Assignments 36



Different Costs for Different Purposes 41 Product Costs and External Financial Reporting 42



Current Focus of Management Accounting 10



Structure of the Company 15 Oxley Act of 2002 16



Research Assignment 31



Income Statement: Manufacturing Firm 44 Income Statement: Service Organization 46



Types of Management Accounting Systems: A Brief Overview 46 FBM versus ABM Accounting Systems 47 Choice of a Management Accounting System 50



Summary of Learning Objectives 51 Key Terms 51 Review Problems 52 Questions for Writing and Discussion 54 Exercises 55 Problems 61 Managerial Decision Cases 66 Research Assignments 68



PART 2



ACTIVITY-BASED ACCOUNTING



Chapter 3 • Activity Cost Behavior 70



Limitations of Functional-Based Cost Accounting Systems 124



The Basics of Cost Behavior 72



Non-Unit-Related Overhead Costs 125 Product Diversity 126 An Example Illustrating the Failure of Unit-Based Overhead Rates 126



Fixed Costs 72 Variable Costs 73 Mixed Costs 74 Classifying Costs According to Behavior 75



Activities, Resource Usage, and Cost Behavior 78



Activity-Based Product Costing: Detailed Description 129



Flexible Resources 78 Committed Resources 78 Step-Cost Behavior 79 Implications for Control and Decision Making 81



Identifying Activities and Their Attributes 129 Assigning Costs to Activities 132 Assigning Activity Costs to Other Activities 133 Assigning Costs to Products 133 Detailed Classification of Activities 134



Methods for Separating Mixed Costs into Fixed and Variable Components 82



Reducing the Size and Complexity of the Activity-Based Costing System 137



Linearity Assumption 83 The High-Low Method 86 The Scatterplot Method 87 The Method of Least Squares 90 Using the Regression Programs 91



Reducing Rates Using Consumption Ratios 137 Reducing Rates by Approximating ABC 137 Comparison with FunctionalBased Costing 139



Reliability of Cost Formulas 93



Summary of Learning Objectives 139



R2—The Coefficient of Determination 93 Coefficient of Correlation 93



Key Terms 140 Review Problems 140



Multiple Regression 94 Managerial Judgment 96 Summary of Learning Objectives 98



Exercises 144 Problems 150



Key Terms 98



Managerial Decision Cases 158



Review Problems 99 Questions for Writing and Discussion 100 Exercises 101



Research Assignment 162



Chapter 5 • Activity-Based Management 164



Problems 109 Managerial Decision Case 114 Research Assignment 115



Chapter 4 • Activity-Based Product Costing 116 Unit Costs 118 Importance of Unit Product Costs 119 Production of Unit Cost Information 119



Functional-Based Product Costing 119 Plantwide Rates 120 Rates 122



Questions for Writing and Discussion 143



Departmental



Activity-Based Management: A Conceptual Overview 166 Implementing ABM 167 ABM and Responsibility Accounting 170 FinancialBased Responsibility Compared with Activity-Based Responsibility 171



Process Value Analysis 175 Driver Analysis: The Search for Root Causes 175 Activity Analysis: Identifying and Assessing Value Content 176 Activity Performance Measurement 178



Measures of Activity Performance 179 xiii



Value- and Non-Value-Added Cost Reporting 179 Trend Reporting 181 The Role of Kaizen Standards 182 Benchmarking 183 Drivers and Behavioral Effects 184 Activity Capacity Management 184



Activity-Based Customer and Supplier Costing 186 Activity-Based Customer Costing 186 Activity-Based Supplier Costing 188



PART 3



Summary of Learning Objectives 190 Key Terms 190 Review Problems 190 Questions for Writing and Discussion 192 Exercises 193 Problems 202 Managerial Decision Case 209 Research Assignment 210



PRODUCT AND SERVICE COSTING



Chapter 6 • Job-Order and Process Costing 212



Appendix A: Production Report—FIFO Costing 239



Characteristics of the Job-Order and Process Environment 214



Differences between the FIFO and Weighted Average Methods 239 Example of the FIFO Method 239



Job-Order Production and Costing 214 Process Production and Costing 214



Cost Flows Associated with Job-Order Costing 215 Calculating Unit Cost with Job-Order Costing 215 Job-Order Cost Sheet 216 The Flow of Costs through the Accounts 218



The Process Environment and Cost Flows 225 Types of Process Manufacturing 226 How Costs Flow Through the Accounts in Process Costing 226 Accumulating Costs in the Production Report 227



Appendix B: Journal Entries Associated with Job-Order and Process Costing 243 Journal Entries Associated with Job-Order Costing 243 Journal Entries Associated with Process Costing 245



Summary of Learning Objectives 246 Key Terms 247 Review Problems 248 Questions for Writing and Discussion 251 Exercises 252 Problems 261 Managerial Decision Case 267



The Impact of Work-in-Process Inventories on Process Costing 228



Research Assignment 268



Equivalent Units of Production 228 Two Methods of Treating Beginning Work-inProcess Inventory 230



Chapter 7 • Support-Department Cost Allocation 270



Weighted Average Costing 230



An Overview of Cost Allocation 272



Five Steps in Preparing a Production Report 230 Example of the Weighted Average Method 231 Evaluation of the Weighted Average Method 233



Types of Departments 272 Allocating Costs from Departments to Products 273 Types of Allocation Bases 274 Objectives of Allocation 275



Multiple Inputs and Multiple Departments 234



Allocating One Department’s Costs to Another Department 277



Nonuniform Application of Manufacturing Inputs 234 Multiple Departments 238



A Single Charging Rate 277 Multiple Charging Rates 278 Budgeted versus Actual Usage 279



xiv



Choosing a Support-Department Cost Allocation Method 280



Summary of Learning Objectives 291



Direct Method of Allocation 281 Sequential Method of Allocation 282 Reciprocal Method of Allocation 285 Comparison of the Three Methods 286



Review Problems 292



Departmental Overhead Rates and Product Costing 288



Problems 304



Appendix: Joint Cost Allocation 289 Accounting for Joint Product Costs 289



PART 4



Key Terms 292 Questions for Writing and Discussion 296 Exercises 296 Managerial Decision Cases 308 Research Assignments 311



PLANNING AND CONTROL



Chapter 8 • Budgeting for Planning and Control 314



Chapter 9 • Standard Costing: A Managerial Control Tool 366



Description of Budgeting 316



Unit Standards 368



Budgeting and Planning and Control 316 Advantages of Budgeting 317



How Standards Are Developed 368 Types of Standards 369 Why Standard Cost Systems Are Adopted 369



Preparing the Master Budget 318 Directing and Coordinating 319 Major Components of the Master Budget 319 Preparing the Operating Budget 319 Preparing the Financial Budget 325



Using Budgets for Performance Evaluation 331 Static Budgets versus Flexible Budgets 331 The Behavioral Dimension of Budgeting 334



Activity-Based Budgeting 337 Static Activity Budgets 337 Flexible Budgeting 338



Activity



Summary of Learning Objectives 340 Key Terms 341 Review Problems 341 Questions for Writing and Discussion 344 Exercises 344 Problems 352 Managerial Decision Cases 363 Research Assignment 365



Standard Product Costs 371 Variance Analysis: General Description 373 Price and Efficiency Variances 373 Decision to Investigate 373



The



Variance Analysis: Materials and Labor 376 Direct Materials Variances 376 Labor Variances 380



Direct



Variance Analysis: Overhead Costs 382 Variable Overhead Variances 382 Overhead Variances 386



Fixed



Appendix: Accounting for Variances 389 Entries for Direct Materials Variances 389 Entries for Direct Labor Variances 389 Disposition of Materials and Labor Variances 390 Overhead Variances 390



Summary of Learning Objectives 391 Key Terms 392 Review Problem 392 Questions for Writing and Discussion 394 Exercises 395 Problems 402 Managerial Decision Cases 410 Research Assignments 413 xv



Chapter 10 • Segmented Reporting, Investment Center Evaluation, and Transfer Pricing 416



Measuring the Performance of Investment Centers Using Residual Income and Economic Value Added 436



Decentralization and Responsibility Centers 418



Residual Income 436 Added (EVA) 438



Reasons for Decentralization 418 Divisions in the Decentralized Firm 419



Measuring the Performance of Profit Centers Using Variable and Absorption Income Statements 422 Inventory Valuation 423 Income Statements Using Variable and Absorption Costing 423 Production, Sales, and Income Relationships 424 The Treatment of Fixed Overhead in Absorption Costing 427 Evaluating Profit-Center Managers 428 Segmented Income Statements Using Variable Costing 429



Measuring the Performance of Investment Centers Using ROI 431 Return on Investment 431 Margin and Turnover 432 Advantages of ROI 433 Disadvantages of the ROI Measure 435



PART 5



Economic Value



Transfer Pricing 439 Impact of Transfer Pricing on Divisions and the Firm as a Whole 440 Transfer Pricing Policies 441 Market Price 442 Cost-Based Transfer Prices 442 Negotiated Transfer Prices 443



Summary of Learning Objectives 443 Key Terms 444 Review Problems 445 Questions for Writing and Discussion 449 Exercises 450 Problems 455 Managerial Decision Cases 463 Research Assignment 467



MANAGERIAL DECISION MAKING



Chapter 11 • Cost-Volume-Profit Analysis: A Managerial Planning Tool 470



Changes in the CVP Variables 487



Break-Even Point in Units 472



CVP Analysis and Activity-Based Costing 492



Using Operating Income in CVP Analysis 472 Shortcut to Calculating Break-Even Units 474 Unit Sales Needed to Achieve Targeted Profit 475



Example Comparing Conventional and ABC Analysis 493 Strategic Implications: Conventional CVP Analysis versus ABC Analysis 494 CVP Analysis and JIT 495



Break-Even Point in Sales Dollars 477



Summary of Learning Objectives 496



Profit Targets and Sales Revenue 478 Comparison of the Two Approaches 479



Key Terms 496



Multiple-Product Analysis 479



Questions for Writing and Discussion 499



Break-Even Point in Units 480 Sales Dollars Approach 482



Exercises 499



Graphical Representation of CVP Relationships 483 The Profit-Volume Graph 483 The CostVolume-Profit Graph 484 Assumptions of Cost-Volume-Profit Analysis 485 xvi



Introducing Risk and Uncertainty 489 Sensitivity Analysis and CVP 491



Review Problems 497



Problems 505 Managerial Decision Cases 511 Research Assignment 513



Chapter 12 • Tactical Decision Making 514 Tactical Decision Making 516 Model for Making Tactical Decisions 517 Relevant Costs Defined 520 Ethics in Tactical Decision Making 521



Relevance, Cost Behavior, and the Activity Resource Usage Model 522 Flexible Resources 522 Resources 523



Committed



Illustrative Examples of Relevant Cost Applications 524 Make-or-Buy Decisions 524 Keep-or-Drop Decisions 526 Special-Order Decisions 530 Decisions to Sell or Process Further 531



Product Mix Decisions 533 One Constrained Resource 533 Constrained Resources 534



Multiple



Pricing 534 Cost-Based Pricing 534 Target Costing and Pricing 536 Legal Aspects of Pricing 537 Fairness and Pricing 539



Appendix: Linear Programming 539 Summary of Learning Objectives 542 Key Terms 543 Review Problem 543 Questions for Writing and Discussion 544 Exercises 544



Example: Multiple-Period Setting with Uniform Cash Flows 571 Multiple-Period Setting: Uneven Cash Flows 572



Postaudit of Capital Projects 573 Honley Medical Company: An Illustrative Application 573 One Year Later 574 Benefits of a Postaudit 574



Mutually Exclusive Projects 575 NPV Compared with IRR 575 Example: Mutually Exclusive Projects 576



Computation and Adjustment of Cash Flows 578 Adjusting Forecasts for Inflation 578 Conversion of Gross Cash Flows to After-Tax Cash Flows 580



Capital Investment: The Advanced Manufacturing Environment 585 How Investment Differs 586 How Estimates of Operating Cash Flows Differ 586 Salvage Value 588 Discount Rates 589



Appendix A: Present Value Concepts 589 Future Value 589 Present Value 590 Present Value of an Uneven Series of Cash Flows 591 Present Value of a Uniform Series of Cash Flows 591



Summary of Learning Objectives 594 Key Terms 595 Review Problems 595



Problems 551 Managerial Decision Cases 558 Research Assignments 561



Chapter 13 • Capital Investment Decisions 562 Types of Capital Investment Decisions 564 Nondiscounting Models 566 Payback Period 566 Return 568



Internal Rate of Return 570



Accounting Rate of



Discounting Models: The Net Present Value Method 569 NPV Defined 569 An Example Illustrating Net Present Value 570



Questions for Writing and Discussion 597 Exercises 598 Problems 607 Managerial Decision Cases 615 Research Assignments 619



Chapter 14 • Inventory Management 620 Traditional Inventory Management 622 Inventory Costs 622 Traditional Reasons for Holding Inventory 622 Economic Order Quantity: The Traditional Inventory Model 624 Computing EOQ 625 Reorder xvii



Point 625 EOQ and Inventory Management 627



Basic Concepts 639



Summary of Learning Objectives 645



JIT Inventory Management 628



Key Terms 646



Basic Features of JIT 629 Setup and Carrying Costs: The JIT Approach 632 Due-Date Performance: The JIT Solution 634 Avoidance of Shutdown and Process Reliability: The JIT Approach 634 Discounts and Price Increases: JIT Purchasing versus Holding Inventories 637 JIT’s Limitations 638



Review Problems 646 Questions for Writing and Discussion 648 Exercises 649 Problems 655 Managerial Decision Case 661 Research Assignment 662



Theory of Constraints 639



PART 6



TOC Steps 640



SPECIAL TOPICS



Chapter 15 • Quality Costs and Productivity: Measurement, Reporting, and Control 666



Chapter 16 • Lean Accounting, Target Costing, and the Balanced Scorecard 722



Measuring the Costs of Quality 668



Lean Manufacturing 724



Quality Defined 668 Costs of Quality Defined 670 Measuring Quality Costs 671



Value by Product 725 Value Stream 725 Value Flow 726 Pull Value 729 Pursue Perfection 731



Reporting Quality Cost Information 673 Quality Cost Reports 673 Quality Cost Function: Acceptable Quality View 675 Quality Cost Function: Zero-Defects View 675 Activity-Based Management and Optimal Quality Costs 678 Trend Analysis 679



Lean Accounting 732



Using Quality Cost Information 680



Life-Cycle Cost Management and the Role of Target Costing 738



Scenario A: Strategic Pricing 681 B: New Product Analysis 683



Scenario



Productivity: Measurement and Control 684



Focused Value Streams and Traceability of Overhead Costs 733 Value Stream Costing with Multiple Products 735 Value Stream Reporting 736 Decision Making 736 Performance Measurement 737



The Balanced Scorecard: Basic Concepts 744



Partial Productivity Measurement 686 Total Productivity Measurement 688 PriceRecovery Component 691 Quality and Productivity 691 Gainsharing 692



Strategy Translation 744 The Role of Performance Measures 745 The Financial Perspective 748 Customer Perspective 748 Process Perspective 750 Learning and Growth Perspective 754



Summary of Learning Objectives 693



Summary of Learning Objectives 755



Key Terms 694



Key Terms 755



Review Problems 694



Review Problems 756



Questions for Writing and Discussion 697



Questions for Writing and Discussion 758



Exercises 697



Exercises 758



Problems 707



Problems 765



Managerial Decision Cases 717



Managerial Decision Case 774



Research Assignments 719



Research Assignment 775



xviii



Chapter 17 • Environmental Cost Management 776 Measuring Environmental Costs 778 The Benefits of Ecoefficiency 778 Environmental Quality Cost Model 780 Environmental Cost Report 782 Reducing Environmental Costs 783 An Environmental Financial Report 785



Assigning Environmental Costs 786 Environmental Product Costs 786 Functional-Based Environmental Cost Assignments 786 Activity-Based Environmental Cost Assignments 787



Foreign Currency Exchange 823 Managing Transaction Risk 824 Managing Economic Risk 827 Managing Translation Risk 828



Decentralization 829 Advantages of Decentralization in the MNC 829 Creation of Divisions 830



Measuring Performance in the Multinational Firm 830 Political and Legal Factors Affecting Performance Evaluation 832 Multiple Measures of Performance 833



Life-Cycle Cost Assessment 788



Transfer Pricing and the Multinational Firm 833



Product Life Cycle 788 Stages 789



Performance Evaluation 833 Income Taxes and Transfer Pricing 834



Assessment



Strategic-Based Environmental Responsibility Accounting 792



Ethics in the International Environment 836



Environmental Perspective 793 of Activity Management 794



Key Terms 838



The Role



Summary of Learning Objectives 838



Summary of Learning Objectives 797



Review Problem 839



Key Terms 797



Questions for Writing and Discussion 840



Review Problem 798



Exercises 840



Questions for Writing and Discussion 800



Problems 846



Exercises 801



Managerial Decision Cases 848



Problems 808



Research Assignment 851



Research Assignment 814



Glossary 852



Chapter 18 • International Issues in Management Accounting 816



Subject Index 864



Management Accounting in the International Environment 818



Company Index 873



Levels of Involvement in International Trade 818 Importing and Exporting 819 Wholly Owned Subsidiaries 821 Ventures 822



Joint



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