Management Accounting: Information for Decision-Making and Strategy Execution

Cover......Page 1
Title Page......Page 2
Copyright Page......Page 3
Contents......Page 8
Preface......Page 18
Acknowledgments......Page 22
About the Authors......Page 24
CHAPTER 1 How Management Accounting Information Supports Decision Making......Page 26
Management Accounting and Financial Accounting......Page 27
A Brief History of Management Accounting......Page 28
IN PRACTICE: Definition of Management Accounting (2008), Issued by the Institute of Management Accountants......Page 29
Strategy......Page 30
The Plan-Do-Check-Act (PDCA) Cycle......Page 31
IN PRACTICE: Company Mission Statements......Page 32
Behavioral Implications of Management Accounting Information......Page 34
Assignment Materials......Page 35
CHAPTER 2 The Balanced Scorecard and Strategy Map......Page 40
The Balanced Scorecard......Page 44
Strategy......Page 48
Balanced Scorecard Objectives, Measures, and Targets......Page 49
Creating a Strategy Map......Page 50
Financial Perspective......Page 51
Customer Perspective......Page 52
Process Perspective......Page 56
Learning and Growth Perspective......Page 60
Financial Perspective......Page 61
Customer Perspective......Page 62
Process Perspective......Page 64
Learning and Growth Perspective......Page 65
Applying the Balanced Scorecard to Nonprofit and Government Organizations......Page 68
IN PRACTICE: A Balanced Scorecard for a Nonprofit Organization......Page 69
Managing with the Balanced Scorecard......Page 70
Barriers to Effective Use of the Balanced Scorecard......Page 71
Epilogue to Pioneer Petroleum......Page 73
Key Terms......Page 74
Assignment Materials......Page 75
CHAPTER 3 Using Costs in Decision Making......Page 87
Product Planning......Page 88
Variable Costs......Page 89
Cost-Volume-Profit Analysis......Page 91
Developing and Using the CVP Equation......Page 92
Variations on the Theme......Page 93
IN PRACTICE: Cost-Volume-Profit Analysis......Page 94
IN PRACTICE: Estimating the Effect of Unit Sales on Share Price......Page 95
Mixed Costs......Page 97
Incremental Costs......Page 98
IN PRACTICE: Sunk Costs......Page 99
IN PRACTICE: Human Behavior and Sunk Costs......Page 100
Opportunity Cost......Page 101
Avoidable Cost......Page 102
Make-or-Buy—The Outsourcing Decision......Page 103
Manufacturing Costs......Page 104
The Decision to Drop a Product......Page 107
IN PRACTICE: Be Wary When Labeling Departments Losers......Page 108
Costing Orders......Page 110
Costing Orders and Opportunity Cost Considerations......Page 111
Relevant Cost and Short-Term Product Mix Decisions......Page 112
Multiple Resource Constraints......Page 114
Building the Linear Program......Page 115
The Graphical Approach to Solving Linear Programs......Page 116
Epilogue to Nolan Industries......Page 118
Summary......Page 121
Assignment Materials......Page 122
CHAPTER 4 Accumulating and Assigning Costs to Products......Page 146
IN PRACTICE: On the Importance of Understanding Costs in the Restaurant Business......Page 147
Manufacturing Organizations......Page 148
Service Organizations......Page 149
IN PRACTICE: Cost Objects......Page 150
IN PRACTICE: Indirect Costs......Page 151
Going Forward......Page 152
Handling Indirect Costs in a Manufacturing Environment......Page 153
Multiple Indirect Cost Pools......Page 155
Cost Pool Homogeneity......Page 157
Using Planned Capacity Cost......Page 159
Reconciling Actual and Applied Capacity Costs......Page 160
Job Order Costing......Page 163
Process Costing......Page 164
Some Process Costing Wrinkles......Page 166
Final Comments on Process Costing......Page 167
Epilogue to Strict’s Custom Framing......Page 169
Summary......Page 170
Appendix 4-1: Allocating Service Department Costs......Page 171
Assignment Materials......Page 175
CHAPTER 5 Activity-Based Cost Systems......Page 190
Traditional Manufacturing Costing Systems......Page 192
Vanilla Factory and Multiflavor Factory......Page 195
Activity-Based Costing......Page 197
Calculating Resource Capacity Cost Rates......Page 198
Calculating Resource Time Usage per Product......Page 199
Calculating Product Cost and Profitability......Page 200
Possible Actions as a Result of the More Accurate Costing......Page 202
IN PRACTICE: Using Activity-Based Costing to Increase Bank Profitability......Page 203
Fixed Costs and Variable Costs in Activity-Based Cost Systems......Page 204
Using the ABC Model to Forecast Resource Capacity......Page 206
Updating the ABC Model......Page 209
IN PRACTICE: W.S. Industries Uses ABC Information for Continuous Improvement......Page 210
Service Companies......Page 212
Capacity Cost Rate......Page 213
Implementation Issues......Page 214
Delegating the Project to Consultants......Page 215
Individual and Organizational Resistance to Change......Page 216
Epilogue to Madison Dairy......Page 217
Summary......Page 218
Appendix 5-1: Historical Origins of Activity-Based Costing......Page 219
Assignment Materials......Page 221
CHAPTER 6 Measuring and Managing Customer Relationships......Page 243
Measuring Customer Profitability: Extending the Madison Dairy Case......Page 245
Reporting and Displaying Customer Profitability......Page 247
Customer Costs in Service Companies......Page 249
Managing Relationships......Page 251
The Pricing Waterfall......Page 252
Salesperson Incentives......Page 257
Life-Cycle Profitability......Page 258
Customer Satisfaction......Page 260
Customer Loyalty......Page 261
The Net Promoter Score......Page 263
Epilogue to Madison Dairy......Page 264
Key Terms......Page 265
Assignment Materials......Page 266
CHAPTER 7 Measuring and Managing Process Performance......Page 277
Facility Layout Systems......Page 280
Process Layouts......Page 281
Product Layouts......Page 282
IN PRACTICE: Manufacturing a CD......Page 283
Inventory and Processing Time......Page 284
Costs and Benefits of Changing to a New Layout: An Example Using Group Technology......Page 285
Summary of Costs and Benefits......Page 291
IN PRACTICE: History of Lean Manufacturing......Page 292
Quality Standards......Page 293
Costs of Quality Control......Page 294
Implications of JIT Manufacturing......Page 295
JIT Manufacturing and Management Accounting......Page 296
IN PRACTICE: Using Lean Manufacturing in a Hospital Setting......Page 297
Comparing Traditional Cost Reduction to Kaizen Costing......Page 298
Concerns about Kaizen Costing......Page 299
Benchmarking......Page 300
Stage 1: Internal Study and Preliminary Competitive Analyses......Page 301
Stage 3: Identifying Benchmarking Partners......Page 302
Stage 4: Information Gathering and Sharing Methods......Page 303
IN PRACTICE: Benchmarking Mobile Web Experiences......Page 304
Production Flows......Page 305
Effect on Production Costs......Page 306
Cost of Rework......Page 307
Benefits from Increased Sales......Page 308
Summary of Costs and Benefits......Page 309
Assignment Materials......Page 310
CHAPTER 8 Measuring and Managing Life-Cycle Costs......Page 326
Managing Products over Their Life Cycle......Page 327
Manufacturing Stage......Page 328
Postsale Service and Disposal Stage......Page 329
Target Costing......Page 330
A Target Costing Example......Page 333
Concerns about Target Costing......Page 339
IN PRACTICE: Target Costing and the Mercedes-Benz M-Class......Page 340
Breakeven Time: A Comprehensive Metric for New Product Development......Page 341
Market Research and Generation of New Product Ideas......Page 345
IN PRACTICE: Life-Cycle Revenues: The Case of Motion Pictures......Page 346
Controlling Environmental Costs......Page 349
IN PRACTICE: Scientific Progress and the Reduction of Environmental Costs: The Case of Chromium in Groundwater......Page 353
Assignment Materials......Page 354
CHAPTER 9 Behavioral and Organizational Issues in Management Accounting and Control Systems......Page 365
Technical Considerations......Page 367
Behavioral Considerations......Page 368
The Human Resource Management Model of Motivation......Page 369
Avoiding Ethical Dilemmas......Page 370
Dealing with Ethical Conflicts......Page 371
IN PRACTICE: Does Cheating at Golf Lead to Cheating in Business?......Page 372
Motivation and Congruence......Page 374
IN PRACTICE: Monitoring in the Workplace......Page 376
Dysfunctional Behavior......Page 378
Using the Balanced Scorecard to Align Employees to Corporate Goals and Business Unit Objectives......Page 379
Participation in Decision Making......Page 380
Education to Understand Information......Page 381
Designing the Budget Process......Page 382
Influencing the Budget Process......Page 384
Developing Appropriate Incentive Systems to Reward Performance......Page 385
Choosing between Intrinsic and Extrinsic Rewards......Page 386
Effective Performance Measurement and Reward Systems......Page 387
Rewarding Outcomes......Page 389
Managing Incentive Compensation Plans......Page 390
Types of Incentive Compensation Plans......Page 391
IN PRACTICE: UNIBANCO—Tying the Balanced Scorecard to Compensation......Page 392
Epilogue to Advanced Cellular International and Chapter Summary......Page 396
Key Terms......Page 397
Assignment Materials......Page 398
CHAPTER 10 Using Budgets for Planning and Coordination......Page 418
Determining the Levels of Capacity-Related and Flexible Resources......Page 419
The Role of Budgets and Budgeting......Page 420
The Elements of Budgeting......Page 422
Budget Components......Page 423
Oxford Tole Art, Buoy Division......Page 425
The Production Plan......Page 428
Developing the Spending Plans......Page 430
Choosing the Capacity Levels......Page 431
Interpreting the Production Plan......Page 433
Understanding the Cash Flow Statement......Page 434
Using the Financial Plans......Page 438
Using the Projected Results......Page 439
Sensitivity Analysis......Page 440
Variance Analysis......Page 442
Canning Cellular Services......Page 443
Decomposing the Variances......Page 445
Planning and Flexible Budget Variances......Page 446
Quantity and Price Variances for Material and Labor......Page 447
Sales Variances......Page 453
Periodic and Continuous Budgeting......Page 456
Incremental Budgeting......Page 457
Zero-Based Budgeting......Page 458
Criticisms of the Traditional Budgeting Model and the “Beyond Budgeting” Approach......Page 459
Epilogue to the California Budget Crisis......Page 460
Summary......Page 461
Assignment Materials......Page 462
CHAPTER 11 Financial Control......Page 487
The Environment of Financial Control......Page 488
The Motivation for Decentralization......Page 489
IN PRACTICE: Standard Operating Precedures at Mercedes-Benz USA......Page 490
IN PRACTICE: Evaluating Performance at McDonald’s Corporation Restaurants......Page 491
Coordinating Responsibility Centers......Page 492
IN PRACTICE: The High Cost of Coordination......Page 493
IN PRACTICE: Nonfinancial Performance Measures at Federal Express: The Service Quality Indicator......Page 494
Responsibility Center Types......Page 495
IN PRACTICE: Investment Centers at General Electric in 2010......Page 498
Evaluating Responsibility Centers......Page 499
IN PRACTICE: Financial Statement Business Segment Reporting......Page 502
Approaches to Transfer Pricing......Page 506
IN PRACTICE: International Transfer Pricing......Page 507
Transfer Prices Based on Equity Considerations......Page 510
Assigning and Valuing Assets in Investment Centers......Page 511
The Efficiency and Productivity Elements of Return on Investment......Page 512
IN PRACTICE: Labor Productivity in a Consultancy......Page 514
Using Residual Income......Page 515
IN PRACTICE: Organization Adopt Economic Value Added for Different Reasons......Page 517
The Efficacy of Financial Control......Page 518
Epilogue to Adrian’s Home Services......Page 519
Summary......Page 521
Assignment Materials......Page 522
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