Managerial Accounting: Creating Value in a Dynamic Business Environment

Cover
Managerial Accounting: Creating Value in a Dynamic Business Environment
Dedication
Preface
About the Authors
Acknowledgments
Focus Company and Contrast Company Used in Each Chapter
Brief Contents
Contents
1: The Crucial Role of Managerial Accounting in a Dynamic Business Environment
	Managerial Accounting: A Business Partnership with Management
	Managing Resources, Activities, and People
		Decision Making
		Planning
		Directing Operational Activities
		Controlling
	How Managerial Accounting Adds Value to the Organization
		Objectives of Managerial Accounting Activity
		M.A.P. Using Managerial Accounting To Monetize the Internet
		The Balanced Scorecard
	Managerial Accounting in Different Types of Organizations
	Managerial versus Financial Accounting
	Where Do We Find Managerial Accountants in an Organization?
		Cross-Functional Deployment
	The Operational Context of Managerial Accounting
		Managerial Accounting and the Value Chain
		Capacity and Capacity Costs
		M.A.P. Managing the Costs of Unused Capacity in the Auto Industry: A Global Challenge
		Big Data, Data Analytics, and Managerial Accounting
	Managerial Accounting as a Career
		Professional Organizations
		Professional Certification
	Managerial Accounting and the Ethical Climate of Business
	Focus on Ethics: IMA Statement of Ethical Professional Practice
	Chapter Summary
	Key Terms
	Review Questions
	Exercises
	Problems
	Case
2: Basic Cost Management Concepts
	What Do We Mean by a Cost?
		Product Costs, Period Costs, and Expenses
	Costs on Financial Statements
		Income Statement
		Balance Sheet
	Manufacturing Operations and Manufacturing Costs
		Assembly Manufacturing
		Manufacturing Costs
	Manufacturing Cost Flows
	NonManufacturing Production Costs
	Basic Cost Management Concepts: Different Costs for Different Purposes
		Cost Drivers
		Variable and Fixed Costs
		m.a.p. Managing Health Care Costs Through Cost Behavior
		Cost Management and Accountability
		Economic Cost Concepts
		Costs and Benefits of Information
		m.a.p. How Airlines Make Money Today
	Costs in the Service Industry
	Focus on Ethics: Ethics 101: Is “Just Following Orders” an Acceptable Excuse?
	Chapter Summary
	Review Problems on Cost Classifications
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
3: Product Costing and Cost Accumulation in a Batch Production Environment
	Product and Service Costing
		Product Costing in Nonmanufacturing Firms
	Flow of Costs in Manufacturing Firms
	Types of Product-Costing Systems
		Job-Order Costing Systems
		Process-Costing Systems
		Summary of Product-Costing System Alternatives
	Accumulating Costs in a Job-Order Costing System
		Job-Cost Record
		Direct-Material Costs
		M.A.P. Big Data “Use Cases” In Managing Costs and Profits
		Direct-Labor Costs
		Manufacturing-Overhead Costs
		Summary of Event Sequence in Job-Order Costing
	Illustration of Job-Order Costing
		Purchase of Material
		Use of Direct Material
		Use of Indirect Material
		Use of Direct Labor
		Use of Indirect Labor
		Manufacturing-Overhead Costs Incurred
		Application of Manufacturing Overhead
		Summary of Overhead Accounting
		Selling and Administrative Costs
		Completion of a Production Job
		Sale of Goods
		Underapplied and Overapplied Overhead
		Schedule of Cost of Goods Manufactured
		Schedule of Cost of Goods Sold
		Posting Journal Entries to the Ledger
	Further Aspects of Overhead Application
		Actual and Normal Costing
		Choosing the Cost Driver for Overhead Application
		Departmental Overhead Rates
	Two-Stage Cost Allocation
	Project Costing: Job-Order Costing in Nonmanufacturing Organizations
	Focus on Ethics: Learning from Past Mistakes: Boeing Finds it Doesn’t Pay to Hide Problems from Investors
	Chapter Summary
	Review Problem on Job-Order Costing
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
4: Process Costing and Hybrid Product-Costing Systems
	Comparison of Job-Order Costing and Process Costing
		Flow of Costs
		Differences Between Job-Order and Process Costing
	Equivalent Units: A Key Concept
		Equivalent Units
	Illustration of Process Costing
		Basic Data for Illustration
		M.A.P. New York Wine Industry
		Weighted-Average Method of Process Costing
	Other Issues in Process Costing
		Actual versus Normal Costing
		Other Cost Drivers for Overhead Application
		Subsequent Production Departments
	Hybrid Product-Costing Systems
		Operation Costing for Batch Manufacturing Processes
	Chapter Summary
	Review Problem on Process Costing
	Key Terms
	Review Questions
	Exercises
	Problems
	Case
5: Activity-Based Costing and Management
	Traditional, Volume-Based Product-Costing System
		Trouble in Denver
	Activity-Based Costing System
		ABC Stage One
		ABC Stage Two
		Interpreting the ABC Product Costs
		The Punch Line
		Why Traditional Volume-Based Systems Distort Product Costs
		M.A.P. Cost Distortion at Rockwell International
	Activity-Based Costing: Some Key Issues
		Cost Drivers
		m.a.p. Big Data and Activity-Based Costing in Services
		Collecting ABC Data
		Activity Dictionary and Bill of Activities
	Activity-Based Management
		Two-Dimensional ABC
		Using ABM to Identify Non–Value-Added Activities and Costs
	Customer-Profitability Analysis
		Illustration of Customer-Profitability Analysis
		M.A.P. Customer Profitability Analysis at Bank One Corp.
	Activity-Based Costing in the Service Industry
		Time-Driven Activity-Based Costing
		Activity-Based Costing at Immunity Medical Center
		Interpreting the Primary Care Unit’s TDABC Information
	Focus on Ethics: Conflict of Interest: Ethical Challenges In Making Product Changes
	Chapter Summary
	Review Problem on Cost Drivers and Product-Cost Distortion
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
6: Activity Analysis, Cost Behavior, and Cost  Estimation
	Cost Behavior Patterns
		Variable Costs
		Step-Variable Costs
		Fixed Costs
		Step-Fixed Costs
		Semivariable Cost
		Curvilinear Cost
		Using Cost Behavior Patterns to Predict Costs
		M.A.P. Is Direct Labor a Variable or a Fixed Cost?
		Engineered, Committed, and Discretionary Costs
		Cost Behavior in Other Industries
	Cost Estimation
		Account-Classification Method
		Visual-Fit Method
		High-Low Method
		Least-Squares Regression Method
		Multiple Regression
		Data Collection Issues
		Engineering Method of Cost Estimation
	Big Data and Data Analytics
		Characteristics and Potential Uses of Big Data
		Data Analytics and Data Visualization
	Effect of Learning on Cost Behavior
	Focus on Ethics: Cisco Systems, Walmart, Taco Bell, Starbucks, U-Haul, General Dynamics, and Farmers Insurance: Is Direct Labor a Variable Cost?
	Chapter Summary
	Review Problems on Cost Behavior and Estimation
	Key Terms
	Appendix to Chapter 6: Least-Squares Regression Using Microsoft® Excel
	Review Questions
	Exercises
	Problems
	Cases
7: Cost-Volume-Profit Analysis
	Illustration of Cost-Volume-Profit Analysis
		Projected Expenses and Revenue
	The Break-Even Point
		Contribution-Margin Approach
	Graphing Cost-Volume-Profit Relationships
		Interpreting the CVP Graph
		Alternative Format for the CVP Graph
		Profit-Volume Graph
	Target Profit
		Contribution-Margin Approach
		Equation Approach
		Graphical Approach
	Applying CVP Analysis
		Safety Margin
		Changes in Fixed Expenses
		Changes in the Unit Contribution Margin
		Predicting Profit Given Expected Volume
		Interdependent Changes in Key Variables
		CVP Information in Published Annual Reports
		M.A.P. Faced with Intensifying Competition, Airlines Keep an Eye on Break-Even Load Factors
	CVP Analysis with Multiple Products
	Assumptions Underlying CVP Analysis
		Role of Spreadsheets and Computerized Planning Models
	CVP Relationships and the Income Statement
		Traditional Income Statement
		Contribution Income Statement
		Comparison of Traditional and Contribution Income Statements
	Cost Structure and Operating Leverage
		Operating Leverage
		m.a.p. Operating Leverage Helps Some Web Companies to be Profitable
		Cost Structure and Operating Leverage: A Cost-Benefit Issue
	CVP Analysis, Activity-Based Costing, and Advanced Manufacturing Systems
		A Move Toward JIT and Flexible Manufacturing
	Chapter Summary
	Review Problem on Cost-Volume-Profit Analysis
	Key Terms
	Appendix to Chapter 7: Effect of Income Taxes
	Review Questions
	Exercises
	Problems
	Cases
8: Variable Costing and the Measurement of ESG and Quality Costs
	Section 1: Absorption and Variable Costing
		Fixed Manufacturing Overhead: The Key
		Illustration of Absorption and Variable Costing
		Absorption-Costing Income Statements
		Variable-Costing Income Statements
		Reconciling Income under Absorption and Variable Costing
		Cost-Volume-Profit Analysis
		Evaluation of Absorption and Variable Costing
		M.A.P. IRS: Unique Product Packaging is an Inventoriable Cost
	Section 2: Costs of Assuring Quality
		Measuring and Reporting Quality Costs
		Changing Views of Optimal Product Quality
		M.A.P. Six Sigma For Quality Management And Cost Reduction
		ISO 9000 Standards
	Section 3: Environmental, Social, and Governance (ESG) Initiatives
		Measuring ESG Outcomes and Performance
		Measuring ESG Costs
		Managing Private Environmental Costs
	Focus on Ethics: Incentive to Overproduce Inventory
	Chapter Summary
	Review Problem on Absorption and  Variable Costing
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
9: Financial Planning and Analysis: The Master Budget
	Financial Planning and Analysis (FP&A) Systems
		Purposes of Budgeting
		Types of Budgets
	The Master Budget: A Planning Tool
		Sales of Services or Goods
		Sales Forecasting
		Operational Budgets
		Financing Budgets
		M.A.P. The Budget: Valuable Planning Tool or Costly Waste of Time?
		Budgeted Financial Statements
	Activity-Based Budgeting
	Developing the Master Budget
		Sales Budget
		Purchases Budget
		Direct Labor Budget
		Production Overhead and SG&A Budgets
		Financing Budgets
		Budgeted Financial Statements
		Summary: Key Features of a Master Budget
	Extending the Master Budget for a Manufacturing Firm
		Production Budget
		Direct-Material Budget
		Budgeted Schedule of Cost of Goods Manufactured and Sold
		Budgeted Balance Sheet
	Assumptions and Predictions Underlying the Master Budget
		Financial Planning Models
	Budget Administration
		M.A.P. Budgeting, Done Right, is Very Big Data!
	International Aspects of Budgeting
	Behavioral Impact of Budgets
		Budgetary Slack: Padding the Budget
		Participative Budgeting
	Focus on Ethics: Padding the Budget: Unethical Action or Sensible Precaution?
	Chapter Summary
	Review Problem on Preparing Master Budget Schedules
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
10: Standard Costing and Analysis of Direct Costs
	Managing Costs
		Management by Exception
	Setting Standards
		Methods for Setting Standards
		Participation in Setting Standards
		Perfection versus Practical Standards: A Behavioral Issue
		Use of Standards by Service Organizations
	Cost Variance Analysis
		Direct-Material Standards
		Direct-Labor Standards
		Standard Costs Given Actual Output
		Analysis of Cost Variances
		Direct-Material Variances
		Direct-Labor Variances
		M.A.P. Challenges in FP&A and Variance Data Analytics
		Multiple Types of Direct Material or Direct Labor
		Allowing for Production Loss
	Significance of Cost Variances
		A Statistical Approach
	Behavioral Impact of Standard Costing
	Controllability of Variances
		Interaction among Variances
	Standard Costs and Product Costing
	Evaluation of Standard Costing Systems
		Advantages of Standard Costing
		Criticisms of Standard Costing in Today’s Manufacturing Environment
		M.A.P. Working With Suppliers to Manage Costs
	Focus on Ethics: Bogus Bonus: Sacrificing Quality To Cut Standard Costs
	Chapter Summary
	Review Problem on Standard Costing and Analysis of Direct Costs
	Key Terms
	Appendix to Chapter 10: Use of Standard Costs  for Product Costing
	Review Questions
	Exercises
	Problems
	Cases
11: Flexible Budgeting and Analysis of Overhead Costs
	Overhead Budgets
		Flexible Budgets
		Advantages of Flexible Budgets
		The Activity Measure
	Flexible Overhead Budget Illustrated
		Formula Flexible Budget
	Overhead Application in a Standard-Costing System
	Choice of Activity Measure
		Criteria for Choosing the Activity Measure
	Cost Management Using Overhead Cost Variances
		Variable Overhead
		Fixed Overhead
	Overhead Cost Performance Report
	Activity-Based Flexible Budget
		M.A.P. Cost Management Systems in Germany
	Flexible Budgeting in the Service Industry
	Focus on Ethics: Wool Meet Eyes: Is Self-Deception Unethical?
	Chapter Summary
	Review Problem on Flexible Budgeting and Analysis of Overhead Costs
	Key Terms
	Appendix A to Chapter 11: Standard Costs and Product Costing
	Appendix B to Chapter 11: Sales Variances
	Review Questions
	Exercises
	Problems
	Cases
12: Responsibility Accounting and the Balanced Scorecard
	Section 1: Responsibility Accounting
		Responsibility Centers
		Illustration of Responsibility Accounting
	Performance Reports
		Budgets, Variance Analysis, and Responsibility Accounting
		Cost Allocation
		Cost Allocation Bases
		Allocation Bases Based on Budgets
	Behavioral Effects of Responsibility Accounting
		Information versus Blame
		Controllability
		Motivating Desired Behavior
	Segmented Reporting
		Segments versus Segment Managers
		Key Features of Segmented Reporting
	Section 2: The Balanced Scorecard
		What Is a “Balanced Scorecard”?
		Flit FinTech: A Balanced Scorecard Example
		M.A.P. The Balanced Scorecard in an Established Company
		Lead and Lag Measures: The Key to the Balanced Scorecard
		Balanced Scorecard and the Chain of Cause and Effect
		M.A.P. Using Cause and Effect to Link the Balanced Scorecard to Strategy
	Focus on Ethics: Short Term Gain, Long Term Pain?
	Chapter Summary
	Review Problems on Responsibility Accounting and the Balanced Scorecard
	Key Terms
	Appendix to Chapter 12: Operational Performance Measures
	Review Questions
	Exercises
	Problems
	Cases
13: Investment Centers and Transfer Pricing
	Delegation of Decision Making
		Obtaining Goal Congruence: A Behavioral Challenge
		Adaptation of Management Control  Systems
		Measuring Performance in Investment Centers
		Return on Investment
		Residual Income
		Economic Value Added
		M.A.P. Pay for Performance Based on EVA
	Measuring Income and Invested Capital
		Invested Capital
		Measuring Investment-Center Income
		Inflation: Historical-Cost versus Current-Value Accounting
	Other Issues in Segment Performance Evaluation
		Alternatives to ROI, Residual Income,  and Economic Value Added (EVA)
		Importance of Nonfinancial Information
		Measuring Performance in Nonprofit Organizations
	Transfer Pricing
		Goal Congruence
		General Transfer-Pricing Rule
		Transfers Based on the External Market Price
		Negotiated Transfer Prices
		Cost-Based Transfer Prices
		Standard versus Actual Costs
		Undermining Divisional Autonomy
		An International Perspective
		M.A.P. Transfer Pricing and Tax Issues
		Transfer Pricing in the Service Industry
	Behavioral Issues: Risk Aversion and Incentives
	Goal Congruence and Internal Control Systems
	Focus on Ethics: What If Your Company Based Your Raise On Next Year’s Performance?
	Chapter Summary
	Review Problems on Investment Centers and Transfer Pricing
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
14: Decision Making: Relevant Costs and Benefits
	The Managerial Accountant’s Role in Decision Making
		Steps in the Decision-Making Process
		Quantitative versus Qualitative Analysis
		Obtaining Information: Relevance, Accuracy, and Timeliness
	Relevant Information
		Unique versus Repetitive Decisions
		Importance of Identifying Relevant Costs and Benefits
	Identifying Relevant Costs and Benefits
		Sunk Costs
		Irrelevant Future Costs and Benefits
		Opportunity Costs
		Summary
	Analysis of Special Decisions
		Accept or Reject a Special Offer
		Outsource a Product or Service
		M.A.P. Insourcing Makes a Come-Back
		Add or Drop a Service, Product, or Department
		M.A.P. Adding Services to Stay Competitive
	Special Decisions in Manufacturing Firms
		Joint Products: Sell or Process Further
		Decisions Involving Limited Resources
		Uncertainty
	Activity-Based Costing and Today’s Advanced Manufacturing Environment
		Conventional Outsourcing (Make-or-Buy) Analysis
		Activity-Based Costing Analysis of the Outsourcing Decision
	Other Issues in Decision Making
		Incentives for Decision Makers
		Short-Run versus Long-Run Decisions
		Pitfalls to Avoid
	Focus on Ethics: Effects of a Decision to Close a Department and Outsource
	Chapter Summary
	Review Problem on Relevant Costs
	Key Terms
	Appendix to Chapter 14: Linear Programming
	Review Questions
	Exercises
	Problems
	Cases
15: Target Costing and Cost Analysis for Pricing Decisions
	Major Influences on Pricing Decisions
		Customer Demand
		Actions of Competitors
		Costs
		Political, Legal, and Image-Related Issues
	Economic Profit-Maximizing Pricing
		Total Revenue, Demand, and Marginal Revenue Curves
		Total Cost and Marginal Cost Curves
		Profit-Maximizing Price and Quantity
		Price Elasticity
		Limitations of the Profit-Maximizing Model
		Costs and Benefits of Information
	Role of Accounting Product Costs in Pricing
		Cost-Plus Pricing
		Absorption-Cost Pricing Formulas
		Variable-Cost Pricing Formulas
		Determining the Markup
		M.A.P. E-Tailers and Retailers Embroiled  in Price Wars
		Cost-Plus Pricing: Summary and Evaluation
	Strategic Pricing of New Products
	Target Costing
		m.a.p. Dynamic Pricing on the Internet
		A Strategic Profit and Cost Management Process
		Activity-Based Costing and Target Costing
		Product-Cost Distortion and Pricing: The Role of Activity-Based Costing
		Value Engineering and Target Costing
	Time and Material Pricing
	Competitive Bidding
	Effect of Antitrust Laws on Pricing
	Focus on Ethics: Dynamic Pricing Based on Individual Profiling
	Chapter Summary
	Review Problem on Cost-Plus Pricing
	Key Terms
	Review Questions
	Exercises
	Problems
	Cases
16: Capital Expenditure Decisions
	Section 1: Discounted-Cash-Flow Analysis
		Net-Present-Value Method
		Internal-Rate-of-Return Method
		Comparing the NPV and IRR Methods
		Assumptions Underlying Discounted-Cash-Flow Analysis
		Choosing the Hurdle Rate
		Depreciable Assets
	Comparing Two Investment Projects
	Managerial Accountant’s Role
		Postaudit
		Real Option Analysis
	Section 2: Income Taxes and Capital Budgeting
		After-Tax Cash Flows
		Accelerated Depreciation
		After-Tax Cash Flows, Depreciation, and the Tax Law
		Modified Accelerated Cost Recovery System (MACRS)
		Gains and Losses on Disposal
		Investment in Working Capital
		Extended Illustration of Income-Tax Effects in Capital Budgeting
		M.A.P. Big Pharma Uses Capital Budgeting in Developing New Drugs
	Ranking Investment Projects
	Section 3: Alternative Methods for Making  Investment Decisions
		Payback Method
		Accounting-Rate-of-Return Method
	Focus on Ethics: Dysfunctional Focus on Early Cash Flows
	Chapter Summary
	Review Problems on Capital Expenditure Decisions
	Key Terms
	Appendix A to Chapter 16: Future Value and Present  Value Tables
	Appendix B to Chapter 16: Impact of Inflation
	Review Questions
	Exercises
	Problems
	Cases
17: Allocation of Support Activity Costs and Joint Costs
	Section 1: Service Department Cost Allocation
		Direct Method
		Step-Down Method
		Reciprocal-Services Method
		Fixed versus Variable Costs
		M.A.P. Exploding Costs and Cost Reimbursement In The Health Care Industry
		Dual Cost Allocation
		Allocate Budgeted Costs
	Today’s Advanced Manufacturing Environment
		The Rise of Activity-Based Costing
	Section 2: Joint Product Cost Allocation
		Allocating Joint Costs
		m.a.p. Joint Cost Allocation in the Oil and Gas Industry
	Chapter Summary
	Review Problem on Service Department Cost Allocation
	Key Terms
	Appendix to Chapter 17: Reciprocal-Services Method
	Review Questions
	Exercises
	Problems
	Cases
Appendix I: The Sarbanes–Oxley Act, Internal Controls, and Management Accounting
Appendix II: Compound Interest and the Concept of Present Value
Appendix III: Inventory Management
References for “In Their Own Words”
Glossary
Index of Companies and Organizations
Index of Subjects
Focus on Ethics Statement