Horngren’s Cost Accounting: A Managerial Emphasis

Cover......Page 1
Title Page......Page 2
Copyright Page......Page 3
Brief Contents......Page 4
Contents......Page 5
 For Coca-Cola, Smaller Sizes Mean Bigger Profits......Page 22
 Financial Accounting, Management Accounting, and Cost Accounting......Page 23
 Strategic Decisions and the Management Accountant......Page 24
  Value-Chain Analysis......Page 25
  Supply-Chain Analysis......Page 27
  Key Success Factors......Page 28
  Concepts in Action: Trader Joe’s Recipe for Cost Leadership......Page 29
 Decision Making, Planning, and Control: The Five-Step Decision-Making Process......Page 30
  Cost–Benefit Approach......Page 33
  Line and Staff Relationships......Page 34
  The Chief Financial Officer and the Controller......Page 35
  Management Accounting Beyond the Numbers......Page 36
  Institutional Support......Page 37
  Typical Ethical Challenges......Page 38
 Decision Points......Page 40
 Questions......Page 41
 Exercises......Page 42
 Problems......Page 44
 High Fixed Costs Bankrupt Quiksilver......Page 49
 Direct Costs and Indirect Costs......Page 50
  Cost Allocation Challenges......Page 51
  Factors Affecting Direct/Indirect Cost Classifications......Page 52
 Cost-Behavior Patterns: Variable Costs and Fixed Costs......Page 53
  Cost Drivers......Page 55
  Relevant Range......Page 56
  Unit Costs......Page 57
  Use Unit Costs Cautiously......Page 58
  Types of Inventory......Page 59
  Period Costs......Page 60
  Manufacturing-Sector Example......Page 61
  Recap of Inventoriable Costs and Period Costs......Page 65
  Prime Costs and Conversion Costs......Page 66
  Overtime Premium and Idle Time......Page 67
  Benefits of Defining Accounting Terms......Page 68
  Different Meanings of Product Costs......Page 69
 A Framework for Cost Accounting and Cost Management......Page 70
  Analyzing the Relevant Information for Making Decisions......Page 71
 Problem for Self-Study......Page 72
 Decision Points......Page 74
 Questions......Page 75
 Multiple-Choice Questions......Page 76
 Exercises......Page 77
 Problems......Page 81
 How Coachella Tunes Up the Sweet Sound of Profits......Page 87
 Essentials of CVP Analysis......Page 88
  Contribution Margin......Page 89
  Expressing CVP Relationships......Page 91
  Breakeven Point......Page 94
  Target Operating Income......Page 95
 Income Taxes and Target Net Income......Page 97
  Decision to Reduce the Selling Price......Page 99
  Concepts in Action: Cost–Volume–Profit Analysis Makes Subway’s $5 Foot-Long Sandwiches a Success But Innovation Challenges Loom......Page 100
 Sensitivity Analysis and Margin of Safety......Page 101
  Alternative Fixed-Cost/Variable-Cost Structures......Page 103
  Operating Leverage......Page 104
 Effects of Sales Mix on Income......Page 106
 CVP Analysis in Service and Not-for-Profit Organizations......Page 108
 Contribution Margin Versus Gross Margin......Page 109
 Problem for Self-Study......Page 110
 Decision Points......Page 111
 Appendix: Decision Models and Uncertainty......Page 112
 Terms to learn......Page 115
 Multiple-Choice Questions......Page 116
 Exercises......Page 117
 Problems......Page 121
 Job Costing and the World’s Tallest Building......Page 128
 Building-Block Concepts of Costing Systems......Page 129
 Job-Costing and Process-Costing Systems......Page 130
 Job Costing: Evaluation and Implementation......Page 131
  Time Period Used to Compute Indirect-Cost Rates......Page 132
 General Approach to Job Costing Using Normal Costing......Page 134
  Concepts in Action: The Job-Costing “Game Plan” at AT&T Stadium......Page 137
 Actual Costing......Page 139
 A Normal Job-Costing System in Manufacturing......Page 141
  Explanations of Transactions......Page 142
  Materials Records by Type of Material......Page 145
  Labor Records by Employee......Page 146
  Work-in-Process Inventory Records by Jobs......Page 147
  Nonmanufacturing Costs and Job Costing......Page 148
  Underallocated and Overallocated Indirect Costs......Page 149
  Proration Approach......Page 150
  Write-off to Cost of Goods Sold Approach......Page 152
  Choosing Among Approaches......Page 153
 Variations from Normal Costing: A Service-Sector Example......Page 154
 Problem for Self-Study......Page 156
 Decision Points......Page 158
 Questions......Page 159
 Multiple-Choice Questions......Page 160
 Exercises......Page 161
 Problems......Page 167
 General Motors and Activity-Based Costing......Page 173
  Undercosting and Overcosting......Page 174
  Design, Manufacturing, and Distribution Processes......Page 175
  Simple Costing System Using a Single Indirect-cost Pool......Page 176
  Applying the Five-Step Decision-Making Process at Plastim......Page 178
 Refining A Costing System......Page 179
  Guidelines for Refining a Costing System......Page 180
  Plastim’s ABC System......Page 181
 Cost Hierarchies......Page 183
  Implementing ABC at Plastim......Page 185
  Comparing Alternative Costing Systems......Page 190
  Benefits and Costs of Activity-Based Costing Systems......Page 191
  Behavioral Issues in Implementing Activity-Based Costing Systems......Page 192
  Cost Reduction and Process Improvement Decisions......Page 193
  Design Decisions......Page 194
 Activity-Based Costing and Department Costing Systems......Page 195
  ABC in Service and Merchandising Companies......Page 196
 Problem for Self-Study......Page 197
 Decision Points......Page 200
 Questions......Page 201
 Exercises......Page 202
 Problems......Page 209
 “Scrimping” at the Ritz: Master Budgets......Page 218
  Strategic Plans and Operating Plans......Page 219
  Budgeting Cycle and Master Budget......Page 220
  Providing a Framework for Judging Performance and Facilitating Learning......Page 221
  Challenges in Administering Budgets......Page 222
  Steps in Preparing an Operating Budget......Page 223
 Financial Planning Models and Sensitivity Analysis......Page 236
  Organization Structure and Responsibility......Page 238
  Feedback......Page 239
  Responsibility and Controllability......Page 240
  Budgetary Slack......Page 241
  Stretch Targets......Page 242
  Kaizen Budgeting......Page 243
 Budgeting in Multinational Companies......Page 244
 Problem for Self-Study......Page 245
 Decision Points......Page 246
 Appendix: The Cash Budget......Page 247
 Questions......Page 253
 Exercises......Page 254
 Problems......Page 259
 SingaDeli Bakery and Incentive Controls......Page 270
  The Use of Variances......Page 271
  Static Budgets and Static-Budget Variances......Page 272
 Flexible Budgets......Page 274
  Sales-Volume Variances......Page 275
  Flexible-Budget Variances......Page 276
 Standard Costs for Variance Analysis......Page 277
  Obtaining Budgeted Input Prices and Budgeted Input Quantities......Page 278
 Price Variances and Efficiency Variances for Direct-Cost Inputs......Page 279
  Efficiency Variance......Page 280
  Journal Entries Using Standard Costs......Page 283
  Multiple Causes of Variances......Page 285
  When to Investigate Variances......Page 286
  Organization Learning......Page 287
 Benchmarking and Variance Analysis......Page 288
 Problem for Self-Study......Page 290
 Decision Points......Page 291
 AppendIx: Mix and Yield Variances for Substitutable Inputs......Page 292
 Multiple-Choice Questions......Page 296
 Exercises......Page 297
 Problems......Page 301
 Tesla Motors Gigafactory......Page 309
  Planning Fixed Overhead Costs......Page 310
  Developing Budgeted Variable Overhead Rates......Page 311
  Developing Budgeted Fixed Overhead Rates......Page 312
  Flexible-Budget Analysis......Page 313
  Variable Overhead Efficiency Variance......Page 314
  Variable Overhead Spending Variance......Page 315
  Journal Entries for Variable Overhead Costs and Variances......Page 317
 Fixed Overhead Cost Variances......Page 318
  Production-Volume Variance......Page 319
  Interpreting the Production-Volume Variance......Page 320
  Journal Entries for Fixed Overhead Costs and Variances......Page 321
  Concepts in Action: Variance Analysis and Standard Costing Help Sandoz Manage Its Overhead Costs......Page 322
  Combined Variance Analysis......Page 324
 Production-Volume Variance and Sales-Volume Variance......Page 326
 Variance Analysis and Activity-Based Costing......Page 328
  Flexible Budget and Variance Analysis for Direct Materials-Handling Labor Costs......Page 329
  Flexible Budget and Variance Analysis for Fixed Setup Overhead Costs......Page 331
 Overhead Variances in Nonmanufacturing Settings......Page 333
  Financial and Nonfinancial Performance Measures......Page 334
 Problem for Self-Study......Page 335
 Decision Points......Page 337
 Multiple-Choice Questions......Page 338
 Exercises......Page 340
 Problems......Page 344
 Lean Manufacturing Helps Boeing Work Through Its Backlog......Page 350
  Comparing Variable and Absorption Costing......Page 351
  Comparing Income Statements for One Year......Page 353
  Comparing Income Statements for Multiple Years......Page 355
  Variable Costing and the Effect of Sales and Production on Operating Income......Page 358
 Absorption Costing and Performance Measurement......Page 359
  Undesirable Buildup of Inventories......Page 360
  Proposals for Revising Performance Evaluation......Page 361
  Throughput Costing......Page 362
  A Comparison of Alternative Inventory-Costing Methods......Page 363
 Denominator-Level Capacity Concepts and Fixed-Cost Capacity Analysis......Page 364
  Absorption Costing and Alternative Denominator-Level Capacity Concepts......Page 365
  Effect on Budgeted Fixed Manufacturing Cost Rate......Page 366
  Product Costing and Capacity Management......Page 367
  Pricing Decisions and the Downward Demand Spiral......Page 368
  Concepts in Action: Can ESPN Avoid the Cord-Cutting “Death Spiral”?......Page 369
  Financial Reporting......Page 370
  Difficulties in Forecasting Chosen Denominator-Level Concept......Page 373
  Nonmanufacturing Costs......Page 374
 Problem for Self-Study......Page 375
 Decision Points......Page 377
 Appendix: Breakeven Points in Variable Costing and Absorption Costing......Page 378
 Multiple-Choice Questions......Page 380
 Exercises......Page 382
 Problems......Page 386
 UPS Uses “Big Data” to Understand Its Costs While Helping the Environment......Page 393
  Linear Cost Functions......Page 394
  Review of Cost Classification......Page 396
  The Cause-and-Effect Criterion......Page 397
 Cost Estimation Methods......Page 398
  Account Analysis Method......Page 399
  Quantitative Analysis Method......Page 400
 Estimating a Cost Function Using Quantitative Analysis......Page 401
  High-Low Method......Page 403
  Regression Analysis Method......Page 405
 Evaluating and Choosing Cost Drivers......Page 406
  Cost Drivers and Activity-Based Costing......Page 409
 Nonlinear Cost Functions......Page 410
  Learning Curves......Page 411
  Cumulative Average-Time Learning Model......Page 412
  Incremental Unit-Time Learning Model......Page 413
  Incorporating Learning-Curve Effects into Prices and Standards......Page 414
 Data Collection and Adjustment Issues......Page 416
 Problem for Self-Study......Page 418
 Decision Points......Page 420
 Appendix: Regression Analysis......Page 421
 Questions......Page 430
 Exercises......Page 431
 Problems......Page 437
 Relevant Costs and Broadway Shows......Page 447
  Relevant Costs and Relevant Revenues......Page 448
  Qualitative and Quantitative Relevant Information......Page 450
  One-Time-Only Special Orders......Page 451
  Short-Run Pricing Decisions......Page 454
  Outsourcing and Idle Facilities......Page 455
  International Outsourcing......Page 457
  Concepts in Action: Starbucks Brews Up Domestic Production......Page 458
  The Opportunity-Cost Approach......Page 459
  Carrying Costs of Inventory......Page 462
 Product-Mix Decisions with Capacity Constraints......Page 463
 Bottlenecks, Theory of Constraints, and Throughput-Margin Analysis......Page 465
 Customer Profitability and Relevant Costs......Page 468
  Relevant-Revenue and Relevant-Cost Analysis of Dropping a Customer......Page 469
  Relevant-Revenue and Relevant-Cost Analysis of Closing or Adding Branch Offices or Business Divisions......Page 471
 Irrelevance of Past Costs and Equipment-Replacement Decisions......Page 472
 Decisions and Performance Evaluation......Page 474
 Problem for Self-Study......Page 476
 Decision Points......Page 478
 Appendix: Linear Programming......Page 479
 Questions......Page 482
 Multiple-Choice Questions......Page 483
 Exercises......Page 484
 Problems......Page 489
 Barclays Turns to the Balanced Scorecard......Page 498
 What Is Strategy?......Page 499
 Building Internal Capabilities: Quality Improvement and Reengineering at Chipset......Page 501
  The Balanced Scorecard......Page 502
  Strategy Maps and the Balanced Scorecard......Page 503
  Implementing a Balanced Scorecard......Page 509
  Environmental and Social Performance and the Balanced Scorecard......Page 510
  Features of a Good Balanced Scorecard......Page 514
  Evaluating the Success of Strategy and Implementation......Page 515
 Strategic Analysis of Operating Income......Page 516
  Growth Component of Change in Operating Income......Page 518
  Price-Recovery Component of Change in Operating Income......Page 519
  Productivity Component of Change in Operating Income......Page 520
  Further Analysis of Growth, Price-Recovery, and Productivity Components......Page 522
  Concepts in Action: Operating Income Analysis Reveals Strategic Challenges at Best Buy......Page 524
  Engineered and Discretionary Costs......Page 525
  Managing Unused Capacity......Page 526
 Problem for Self-Study......Page 527
 Decision Points......Page 531
 Appendix: Productivity Measurement......Page 532
 Multiple-Choice Questions......Page 535
 Exercises......Page 536
 Problems......Page 538
 Extreme Pricing and Cost Management at IKEA......Page 545
  Weighing Customers, Competitors, and Costs......Page 546
 Costing and Pricing for the Long Run......Page 547
  Calculating Product Costs for Long-Run Pricing Decisions......Page 548
  Alternative Long-Run Pricing Approaches......Page 549
  Understanding Customers’ Perceived Value......Page 551
  Concepts in Action: H&M Uses Target Pricing to Bring Fast Fashion to Stores Worldwide......Page 552
  Value-Chain Analysis and Cross-Functional Teams......Page 554
  Achieving the Target Cost per Unit for Provalue......Page 555
  Cost-Plus Target Rate of Return on Investment......Page 558
  Alternative Cost-Plus Methods......Page 559
  Cost-Plus Pricing and Target Pricing......Page 560
  Life-Cycle Budgeting and Pricing Decisions......Page 561
  Customer Life-Cycle Costing......Page 563
  International Pricing......Page 564
  The Supreme Court has not Specified the “appropriate measure of Costs.”......Page 565
 Problem for Self-Study......Page 566
 Decision Points......Page 568
 Terms to Learn......Page 569
 Exercises......Page 570
 Problems......Page 574
 Delta Flies from Frequent Flyers to Big Spenders......Page 580
  Customer-Revenue Analysis......Page 581
  Customer-Cost Analysis......Page 582
  Customer-Level Costs......Page 583
 Customer-Profitability Profiles......Page 586
  Presenting Profitability Analysis......Page 587
  Using the Five-Step Decision-Making Process to Manage Customer Profitability......Page 589
 Cost-Hierarchy-Based Operating Income Statement......Page 590
 Criteria to Guide Cost Allocations......Page 592
 Fully Allocated Customer Profitability......Page 594
  Implementing Corporate and Division Cost Allocations......Page 595
  Issues in Allocating Corporate Costs to Divisions and Customers......Page 598
  Using Fully Allocated Costs for Decision Making......Page 599
 Sales Variances......Page 600
  Flexible-Budget Variance and Sales-Volume Variance......Page 601
  Sales-Mix Variance......Page 602
  Sales-Quantity Variance......Page 603
  Market-Size Variance......Page 604
 Problem for Self-Study......Page 606
 Decision Points......Page 608
 Questions......Page 609
 Exercises......Page 610
 Problems......Page 615
 Cost Allocation and “Smart Grid” Energy Infrastructure......Page 622
  Single-Rate and Dual-Rate Methods......Page 623
  Allocation Based on the Demand for (or Usage of) Materials-Handling Services......Page 624
  Allocation Based on the Supply of Capacity......Page 625
  Advantages and Disadvantages of Dual-Rate Method......Page 627
  Budgeted Versus Actual Rates......Page 628
  Fixed-Cost Allocation Based on Budgeted Rates and Actual Usage......Page 629
  Allocating Budgeted Fixed Costs Based on Actual Usage......Page 630
 Allocating Costs of Multiple Support Departments......Page 631
  Direct Method......Page 634
  Step-Down Method......Page 635
  Reciprocal Method......Page 636
  Calculating the Cost of Job WPP 298......Page 640
  Stand-Alone Cost-Allocation Method......Page 642
  Incremental Cost-Allocation Method......Page 643
 Cost Allocations and Contract Disputes......Page 644
  Bundling and Revenue Allocation......Page 645
  Concepts in Action: Contract Disputes over Reimbursable Costs with the U.S. Government......Page 646
  Stand-Alone Revenue-Allocation Method......Page 647
  Incremental Revenue-Allocation Method......Page 648
 Problem for Self-Study......Page 650
 Decision Points......Page 653
 Exercises......Page 654
 Problems......Page 658
 Joint-Cost Allocation and the Wounded Warrior Project......Page 664
 Joint-Cost Basics......Page 665
 Allocating Joint Costs......Page 666
  Concepts in Action: U.S.-South Africa Trade Dispute Over Joint-Cost Allocation......Page 667
  Physical-Measure Method......Page 669
  Net Realizable Value Method......Page 671
  Constant Gross-Margin Percentage NRV Method......Page 672
 Choosing an Allocation Method......Page 675
  Sell-or-Process-Further Decisions......Page 676
  Pricing Decisions......Page 677
 Accounting for Byproducts......Page 678
  Production Method: Byproducts Recognized at Time Production Is Completed......Page 679
  Sales Method: Byproducts Recognized at Time of Sale......Page 680
 Problem for Self-Study......Page 681
 Questions......Page 684
 Multiple-Choice Questions......Page 685
 Exercises......Page 686
 Problems......Page 691
 Haynes Suffers as Nickel Prices Drop......Page 696
 Illustrating Process Costing......Page 697
 Case 1: Process Costing with No Beginning or Ending Work-in-Process Inventory......Page 698
 Case 2: Process Costing with Zero Beginning and Some Ending Work-in-Process Inventory......Page 699
  Summarizing the Physical Units and Equivalent Units (Steps 1 and 2)......Page 700
  Calculating Product Costs (Steps 3, 4, and 5)......Page 702
  Journal Entries......Page 703
  Weighted-Average Method......Page 705
  First-In, First-Out Method......Page 708
  Comparing the Weighted-Average and FIFO Methods......Page 712
 Transferred-In Costs in Process Costing......Page 713
  Transferred-In Costs and the Weighted-Average Method......Page 714
  Transferred-In Costs and the FIFO Method......Page 716
  Overview of Operation-Costing Systems......Page 718
  Concepts in Action: Hybrid Costing for Under Armour 3D Printed Shoes......Page 719
  Illustrating an Operation-Costing System......Page 720
  Journal Entries......Page 721
 Problem for Self-Study......Page 722
 Decision Points......Page 724
 Appendix: Standard-Costing Method of Process Costing......Page 725
 Multiple-Choice Questions......Page 729
 Exercises......Page 731
 Problems......Page 734
 Airbag Rework Sinks Honda’s Record Year......Page 739
 Two Types of Spoilage......Page 740
 Spoilage in Process Costing Using Weighted-Average and FIFO......Page 741
  Count All Spoilage......Page 742
  Five-Step Procedure for Process Costing with Spoilage......Page 743
  Weighted-Average Method and Spoilage......Page 744
  FIFO Method and Spoilage......Page 747
 Inspection Points and Allocating Costs of Normal Spoilage......Page 748
 Job Costing and Spoilage......Page 751
 Job Costing and Rework......Page 752
  Recognizing Scrap at the Time of Its Sale......Page 754
  Recognizing Scrap at the Time of Its Production......Page 755
  Concepts in Action: Nestlé’s Journey to Zero Waste for Disposal......Page 756
 Decision Points......Page 757
 Appendix: Standard-Costing Method and Spoilage......Page 758
 Questions......Page 760
 Multiple-Choice Questions......Page 761
 Exercises......Page 762
 Problems......Page 765
 Toyota Plans Changes After Millions of Defective Cars Are Recalled......Page 769
 Quality as a Competitive Tool......Page 770
  The Financial Perspective: The Costs of Quality......Page 771
  The Customer Perspective: Nonfinancial Measures of Customer Satisfaction......Page 774
  The Internal-Business-Process Perspective: Analyzing Quality Problems and Improving Quality......Page 775
 Weighing the Costs and Benefits of Improving Quality......Page 778
 Evaluating a Company’s Quality Performance......Page 780
  Customer-Response Time and On-Time Performance......Page 781
  Bottlenecks and Time Drivers......Page 782
  Concepts in Action: Netflix Works to Overcome Internet Bottlenecks......Page 783
 Relevant Revenues and Costs of Delays......Page 785
 Balanced Scorecard and Time-Based Measures......Page 787
 Problem for Self-Study......Page 788
 Decision Points......Page 789
 Multiple-Choice Questions......Page 790
 Exercises......Page 791
 Problems......Page 794
 Walmart Uses Big Data to Better Manage Its Inventory......Page 799
  Costs Associated with Goods for Sale......Page 800
  The Economic-Order-Quantity Decision Model......Page 801
  When to Order, Assuming Certainty......Page 803
  Safety Stock......Page 804
  Cost of a Prediction Error......Page 806
  Conflicts Between the EOQ Decision Model and Managers’ Performance Evaluation......Page 807
  Relevant Costs of JIT Purchasing......Page 808
  Supplier Evaluation and Relevant Costs of Quality and Timely Deliveries......Page 810
  JIT Purchasing, Planning and Control, and Supply-Chain Analysis......Page 812
  Features of JIT Production Systems......Page 813
  Concepts in Action: Just-in-Time Live-Concert Recordings......Page 814
  Enterprise Resource Planning (ERP) Systems......Page 815
  Effect of JIT Systems on Product Costing......Page 816
  Simplified Normal or Standard-Costing Systems......Page 817
  Special Considerations in Backflush Costing......Page 823
  Lean Accounting......Page 825
 Problems for Self-Study......Page 828
 Decision Points......Page 829
 Questions......Page 830
 Exercises......Page 831
 Problems......Page 834
 Changing NPV Calculations Shake Up Solar Financing......Page 839
 Stages of Capital Budgeting......Page 840
  Concepts in Action: Capital Budgeting for Sustainability at Johnson & Johnson......Page 842
 Discounted Cash Flow......Page 843
  Net Present Value Method......Page 844
  Internal Rate-of-Return Method......Page 845
  Sensitivity Analysis......Page 847
  Uniform Cash Flows......Page 848
  Nonuniform Cash Flows......Page 849
 Accrual Accounting Rate-of-Return Method......Page 851
 Relevant Cash Flows in Discounted Cash Flow Analysis......Page 852
  Relevant After-Tax Flows......Page 853
  Categories of Cash Flows......Page 854
  Post-Investment Audits......Page 858
  Investment in Research and Development......Page 859
 Problem for Self-Study......Page 860
 Decision Points......Page 863
 Appendix: Capital Budgeting and Inflation......Page 864
 Terms to Learn......Page 866
 Multiple-Choice Questions......Page 867
 Exercises......Page 868
 Problems......Page 872
 Answers to Exercises in Compound Interest (Exercise 21-21)......Page 876
 Google’s U.K. Tax Settlement......Page 877
  Formal and Informal Systems......Page 878
 Decentralization......Page 879
  Costs of Decentralization......Page 880
  Comparing Benefits and Costs......Page 881
  Choices About Responsibility Centers......Page 882
  Criteria for Evaluating Transfer Prices......Page 883
  An Illustration of Transfer Pricing......Page 884
  Distress Prices......Page 887
  Full-Cost Bases......Page 888
  Variable-Cost Bases......Page 890
  Prorating the Difference Between Maximum and Minimum Transfer Prices......Page 891
  Dual Pricing......Page 892
 A General Guideline for Transfer-Pricing Situations......Page 893
 How Multinationals Use Transfer Pricing to Minimize Their Taxes......Page 895
  Concepts in Action: E.U. Accuses Starbucks and Netherlands of Unfair Tax deal......Page 897
  Transfer Prices Designed for Multiple Objectives......Page 898
 Problem for Self-Study......Page 899
 Decision Points......Page 901
 Exercises......Page 902
 Problems......Page 906
 Executive Compensation at Viacom......Page 912
 Financial and Nonfinancial Performance Measures......Page 913
 Accounting-Based Measures for Business Units......Page 914
  Return on Investment......Page 915
  Residual Income......Page 916
  Economic Value Added......Page 918
  Return on Sales......Page 919
  Alternative Time Horizons......Page 920
  Alternative Asset Measurements......Page 921
  Choosing Target Levels of Performance......Page 924
 Performance Measurement in Multinational Companies......Page 925
  Calculating a Foreign Division’s ROI in the Foreign Currency......Page 926
  Calculating the Foreign Division’s ROI in U.S. Dollars......Page 927
  The Basic Tradeoff: Creating Incentives Versus Imposing Risk......Page 928
  Intensity of Incentives and Financial and Nonfinancial Measurements......Page 929
  Performance Measures at the Individual Activity Level......Page 930
  Executive Performance Measures and Compensation......Page 931
 Strategy and Levers of Control......Page 932
  Boundary Systems......Page 933
 Problem for Self-Study......Page 934
 Decision Points......Page 936
 Multiple-Choice Questions......Page 937
 Exercises......Page 938
 Problems......Page 942
Appendix A: Notes on Compound Interest and Interest Tables......Page 948
Glossary......Page 956
Index......Page 967