Managerial Accounting Managerial Accounting gar79611 fm i xxi indd Page i 12/24/08 9 42 20 PM user s180gar79611 fm i xxi indd Page i 12/24/08 9 42 20 PM user s180 /Users/user s180/Desktop/Dhiru 24 12[.]
gar79611_fm_i-xxi.indd Page i 12/24/08 9:42:20 PM user-s180 Managerial Accounting /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM gar79611_fm_i-xxi.indd Page ii 12/24/08 9:42:21 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM gar79611_fm_i-xxi.indd Page iii 12/24/08 9:42:23 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM Managerial Accounting Thirteenth Edition Ray H Garrison, D.B.A., CPA Professor Emeritus Brigham Young University Eric W Noreen, Ph.D., CMA Professor Emeritus University of Washington Peter C Brewer, Ph.D., CPA Miami University—Oxford, Ohio Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St Louis Bangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto gar79611_fm_i-xxi.indd Page iv 1/8/09 3:21:34 PM user /Users/user/Desktop Dedication To our families and to our many colleagues who use this book MANAGERIAL ACCOUNTING Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020 Copyright © 2010, 2008, 2006, 2003, 2000, 1997, 1994, 1991, 1988, 1985, 1982, 1979, 1976 by The McGraw-Hill Companies, Inc All rights reserved No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOW/DOW ISBN MHID 978-0-07-337961-6 0-07-337961-1 Vice president and editor-in-chief: Brent Gordon Editorial director: Stewart Mattson Publisher: Tim Vertovec Developmental editor: Emily A Hatteberg Marketing manager: Kathleen Klehr Lead project manager: Pat Frederickson Senior production supervisor: Debra R Sylvester Lead designer: Matthew Baldwin Senior photo research coordinator: Lori Kramer Photo researcher: Keri Johnson Senior media project manager : Susan Lombardi Cover design: Kay Lieberherr Cover Photo: © Mark Bertieri, Creative Photo Designs Typeface: 10.5/12 Times Roman Compositor: Aptara, Inc Printer: R R Donnelley Library of Congress Cataloging-in-Publication Data Garrison, Ray H Managerial accounting / Ray H Garrison, Eric W Noreen, Peter C Brewer.—13th ed p cm Includes index ISBN-13: 978-0-07-337961-6 (alk paper) ISBN-10: 0-07-337961-1 (alk paper) Managerial accounting I Noreen, Eric W II Brewer, Peter C III Title HF5657.4.G37 2010 658.15’11—dc22 2008054773 www.mhhe.com gar79611_fm_i-xxi.indd Page v 12/24/08 9:42:28 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM About the Authors Ray H Garrison is emeritus professor of accounting at Brigham Young University, Provo, Utah He received his BS and MS degrees from Brigham Young University and his DBA degree from Indiana University As a certified public accountant, Professor Garrison has been involved in management consulting work with both national and regional accounting firms He has published articles in The Accounting Review, Management Accounting, and other professional journals Innovation in the classroom has earned Professor Garrison the Karl G Maeser Distinguished Teaching Award from Brigham Young University Eric W Noreen has held appointments at institutions in the United States, Europe, and Asia He is emeritus professor of accounting at the University of Washington He received his BA degree from the University of Washington and MBA and PhD degrees from Stanford University A Certified Management Accountant, he was awarded a Certificate of Distinguished Performance by the Institute of Certified Management Accountants Professor Noreen has served as associate editor of The Accounting Review and the Journal of Accounting and Economics He has numerous articles in academic journals including: the Journal of Accounting Research; the Accounting Review; the Journal of Accounting and Economics; Accounting Horizons; Accounting, Organizations and Society; Contemporary Accounting Research; the Journal of Management Accounting Research; and the Review of Accounting Studies Professor Noreen has won a number of awards from students for his teaching Managerial Accounting Thirteenth Edition v gar79611_fm_i-xxi.indd Page vi 12/24/08 9:42:30 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM About the Authors Peter C Brewer is a professor in the Department of Accountancy at Miami University, Oxford, Ohio He holds a BS degree in accounting from Penn State University, an MS degree in accounting from the University of Virginia, and a PhD from the University of Tennessee He has published more than 30 articles in a variety of journals including: Management Accounting Research, the Journal of Information Systems, Cost Management, Strategic Finance, the Journal of Accountancy, Issues in Accounting Education, and the Journal of Business Logistics Professor Brewer is a member of the editorial boards of Issues in Accounting Education and the Journal of Accounting Education His article “Putting Strategy into the Balanced Scorecard” won the 2003 International Federation of Accountants’ Articles of Merit competition and his articles “Using Six Sigma to Improve the Finance Function” and “Lean Accounting: What’s It All About?” were awarded the Institute of Management Accountants’ Lybrand Gold and Silver Medals in 2005 and 2006 He has received Miami University’s Richard T Farmer School of Business Teaching Excellence Award and has been recognized on two occasions by the Miami University Associated Student Government for “making a remarkable commitment to students and their educational development.” He is a leading thinker in undergraduate management accounting curriculum innovation and is a frequent presenter at various professional and academic conferences Prior to joining the faculty at Miami University, Professor Brewer was employed as an auditor for Touche Ross in the firm’s Philadelphia office He also worked as an internal audit manager for the Board of Pensions of the Presbyterian Church (U.S.A.) He frequently collaborates with companies such as Harris Corporation, Ghent Manufacturing, Cintas, Ethicon Endo-Surgery, Schneider Electric, Lenscrafters, and Fidelity Investments in a consulting or case writing capacity vi Garrison Noreen Brewer gar79611_fm_i-xxi.indd Page vii 12/24/08 9:42:30 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM GARRISON NOREEN BREWER Let Garrison be Your Guide For centuries, the lighthouse has provided guidance and safe passage for sailors Similarly, Garrison/Noreen/Brewer has successfully guided millions of students through managerial accounting, helping them sail smoothly through the course Decades ago, lighthouses were still being operated manually In these days of digital transformation, lighthouses are run using automatic lamp changers and other modern devices In much the same way, Garrison/ Noreen/Brewer has evolved over the years Today, the Garrison book not only guides students—accounting majors and non-majors alike— safely through the course, but is enhanced by new forms of media and technology to augment student learning and increase student motivation McGraw-Hill Connect Accounting allows instructors to build assignments and tests from static and algorithmic versions of the end-of-chapter material and testbank problems Integrated iPod content allows students to download lecture presentations, videos, and self-quizzes to their MP3 player—giving them a portable learning tool Just as the lighthouse continues to provide reliable guidance to seafarers, the Garrison/Noreen/Brewer book continues its tradition of helping students sail successfully through managerial accounting by always focusing on three important qualities: relevance, accuracy, and clarity Managerial Accounting Thirteenth Edition vii gar79611_fm_i-xxi.indd Page viii 12/24/08 9:42:34 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM RELEVANCE Every effort is made to help students “Garrison is THE classic managerial accounting text.” Angela Sandberg, Jacksonville State University “A well-written, well-explained text with terrific in chapter examples and excellent end of chapter materials.” Charles “Tony” Wain, Babson College “I love the text.” Pam Meyer, University of Louisiana at Lafayette “The seminal text on managerial accounting.” Dr Reed W Easton, Seton Hall University viii relate the concepts in this book to the decisions made by working managers With insightful chapter openers, the popular Managerial Accounting in Action segments within the chapters, and stimulating end-of-chapter exercises, a student reading Garrison should never have to ask “Why am I learning this?” ACCURACY The Garrison book continues to set the standard for accurate and reliable material in its thirteenth edition With each revision, the authors evaluate the book and its supplements in their entirety, working diligently to ensure that the end-of-chapter material, solutions manual, and test bank, are consistent, current, and accurate CLARITY Generations of students have praised Garrison for the friendliness and readability of its writing, but that’s just the beginning Technical discussions have been simplified, material has been reordered, and the entire book carefully retuned to make teaching—and learning—from Garrison as easy as it can be In addition, the key supplements were written by Garrison, Noreen, and Brewer, ensuring that students and professors will work with clear, well-written supplements that employ consistent terminology The authors’ steady focus on these three core elements has led to tremendous results Managerial Accounting has consistently led the market, being used by over two million students and earning a reputation for reliability that other texts aspire to match Garrison Noreen Brewer gar79611_fm_i-xxi.indd Page ix 12/24/08 9:42:34 PM user-s180 /Users/user-s180/Desktop/Dhiru 24-12-08/New/MHBR094-FM Garrison’s Managerial Accounting is full of pedagogy designed to make studying productive and hassle free On the following pages, you’ll see the kind of engaging, helpful pedagogical features that have made Garrison a beacon for over two million students gar79611_ch10_417-449.indd Page 417 12/22/08 5:01:32 PM user-s180 /broker/MH-BURR/MHBR094/MHBR094-10/upload Opening Vignette Flexible Budgets and Performance Analysis The Inevitability of Forecasting Errors BUSINESS FOCUS “This textbook is one of the best written, best illustrated textbooks that we have used for the managerial course.” 10 Chapter Each chapter opens with a Business Focus feature that provides a real-world example for students, allowing them to see how the chapter’s information and insights apply to the world outside the classroom Learning Objectives alert students to what they should expect as they progress through the chapter While companies derive numerous benefits from planning for the future, they must be able to respond when actual results deviate from the plan For example, just two months after telling Wall Street analysts that it would breakeven for the first quarter of 2005, General Motors (GM) acknowledged that its actual sales were far less than its original forecast and the company would lose $850 million in the quarter For the year, GM acknowledged that projected earnings would be 80% lower than previously indicated The company’s stock price dropped by $4.71 When a company’s plans deviate from its actual results, managers need to understand the reasons for the deviations How much is caused by the fact that actual sales differ from budgeted sales? How much is caused by the actions of managers? In the case of GM, the actual level of sales is far less than the budget, so some actual costs are likely to be less than originally budgeted These lower costs not signal managerial effectiveness This chapter explains how to analyze the sources of discrepancies between budgeted and actual results ■ Source: Alex Taylor III, “GM Hits the Skids,” Fortune, April 4, 2005, pp 71–74 LEARNING OBJECTIVES After studying Chapter 10, you should be able to: LO1 Prepare a flexible budget LO2 Prepare a report showing activity variances LO3 Prepare a report showing revenue and spending variances LO4 Prepare a performance report that combines activity variances and revenue and spending variances LO5 Prepare a flexible budget with more than one cost driver LO6 Understand common errors made in preparing performance reports based on budgets and actual results Bonnie McQuitter Banks, Alabama A&M University 417 Managerial Accounting Thirteenth Edition ix gar79611_ind_793-808.indd Page 795 1/7/09 8:26:40 AM user-s180 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Concept of present value, 671–674 Conco Food Service, `308 Conformance, quality of, 76–77 Conley, Chip, 233 Constrained resource contribution margin per unit of, 595 utilization of, 594–598 Constraints, 594, 779 managing, 596–598 problem of multiple, 598 Consumer Reports, 641 Contingent employees, 198 Continuous budget, 370, 396 Contribution approach advantages of, 289–290 format and income statement, 210–211 joint products costs and, 598–601 Contribution margin, 211, 235–237, 595 Contribution margin ratio (CM ratio), 240–242 Control, 32, 369, 396 Controller, 6, 32 Controlling, 31, 33 Conversion cost, 39–40 cutting, 156 defined, 155 Cooper, Robin, 311 (n.) Corporate governance, 17 (n.) and balanced scorecard, 536 defined, 17 Sarbanes-Oxley Act of 2002, 18–19 Corporate social responsibility (CSR) examples of, 21 (exhibit) skill-based volunteerism, popularity of, 22 Corvette, 533 Cost analysis, illustration of, 204, 586–588 Cost-based prices, 768 Cost behavior analysis and use, 188–232 contribution format income statement, 210–211 cost classification for predicting, 46–51 defined, 46 diagnosing, with scattergraph plot, 203 mixed costs, analysis of, 200–210 patterns, 193 fixed costs, 194–199 mixed costs, 199–210 variable costs, 189–192 Cost center, 427, 509, 511 Cost classifications, 45 for assigning costs to cost objects, 51–52 for decision making, 52–54 for predicting cost behavior cost behavior, defined, 46–47 fixed cost, 49–51 variable cost, 48–49 summary of, 47 Costco, 9–10 Cost driver; see also Activity base and activity base, 190 at Club Med, 310 defined, 96–97 flexible budgets with multiple, 427–429 Cost flows and classifications, 45–46 example of, 46 in process costing flow of materials, labor, and overhead costs, 151–152 materials, labor, and overhead cost entries, 152–153 processing departments, 150–151 T-account model, 151 (exhibit) in standard cost system, 502–503 summary of, 105–108 Costing method(s) choosing cost-volume-profit analysis and absorption costing, 288 decision making, 288–289 external reporting and income taxes, 289 lean production, impact of, 291 manager, impact on, 287–288 variable costing and contribution approach, advantages of, 289–290 variable costing and Theory of Constraints (TOC), 290 comparison of, 177 Cost object assignment of overhead costs to, 351–355 assign overhead costs to, 321–323 cost classifications for assigning costs to, 51–52 defined, 51 Cost of capital, 633, 636–637 Cost of goods manufactured, 44, 104–105 Cost of goods sold, 44, 49, 105–106, 111–113 Cost of new equipment, 682 Cost of quality Cost overruns, and breaking point, 249 Cost-plus pricing, 762, 766–769 Cost pools, 308–310 Cost quality report defined, 80–81 in graphic form, 82 uses of quality cost information, 82–83 Cost reconciliation report, 159, 176–177 Cost(s); see also General cost classification; specific cost types applying, 158, 176 charging, by behavior, 571–573 compute and apply, 157–159 cost classifications for assigning, to cost objects, 51–52 general classifications, 36–38 in health care, 332 omission of, 520–521 operations drive, 201 summary of cost classifications Cost structure, 189 cost-volume-profit consideration in choosing, 251–255 795 losing, 253 and profit stability, 251–253 Cost-volume-profit (CVP) analysis, 259–278 and absorption costing, 288 applications of cost-volume-profit (CVP) concepts, 242–246 assumptions of, 258 basics of, 234–246 break-even analysis, 248–249 considerations in choosing cost structure, 251–255 contribution margin, 235–237 contribution margin ratio (CM ratio), 240–242 cost structure and profit stability, 251–253 defined, 234 margin of safety, 250–251 operating leverage, 253–255 relationship in equation form, 237–238 relationship in graphic form, 238–240 sales mix, 256–258 structuring sales commissions, 255 target profit analysis, 246–248 Cost-volume-profit (CVP) graph, 238–240 Cox, Jeff, 465 (n.) Credit Suisse First Boston, 527 Creswell, Julie, 533 (n.) CSR; see Corporate social responsibility (CSR) Current ratio, 735–736, 740 Curves, 30 Curvilinear cost, 194 Customer intimacy, Customer-level activities, 311 Customer loyalty, 785 Customer processes, 530–531, 534; see also Performance measures Customer service, 583 Customer value propositions, (n.) Cutlip, Scott, 19 (n.) CVP; see Cost-volume-profit (CVP) analysis Dadas, Nick, 88 DaimlerChrysler, 287, 628 d’Arcier, Constance Faivre, 94 (n.) Darthmouth College, 78 Data, 719; see also Financial statement analysis Debt-to-equity ratio, 738–740 Decentralization, advantages and disadvantages of, 508–509 in organizations, 508–509 and segment reporting, 511–522 Decentralized organization, 508–509 Decision making, 508 (n.); see also Decentralization activity-based costing and relevant costs, 602 adding and dropping product lines and other segments, 586–589 cost classifications for, 52–54 cost concepts for, 579–585 gar79611_ind_793-808.indd Page 796 1/7/09 8:26:40 AM user-s180 796 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Decision making—Cont and costing methods, 288–289 differential costs for different purposes, 580 identifying relevant costs and benefits, 579–583 isolating relevant costs, 585 make or buy decisions, 589–592 reconciling total and differential approaches, 583–584 relevance costs for, 578 sell or process further decisions, 600–601 Declining ratio, 735 Define, Measure, Analyze, Improve, and Control (DMAIC), 11–12 Degree of operating leverage, 253–255 Delattre, Allen J., 592 Delivery cycle time, 471, 476 Dell, Inc., 73, 452, 583, 592 Del Monte, 63 Deloitte, 21 Delta Airlines, 245, 764 Delta Dental of Kansas, 535 Delta Petroleum Corporation, 695 DeMeyer, J Miller, 38 (n.) Deming, W Edward, 83 DeMolina, Alvaro, 19 Demos, Telis, 19 (n.) Denominator activity, 490, 495 Dependent variable, 203 Depletion, 704 Depreciation, 704 Depreciation deduction, 680 (n.), 681 (exhibit) Depreciation expense, 106 Depreciation tax shield, 680–681 Deromedi, Roger K., 779 Devaraj, Sarv, 465 Differential approaches, reconciling total and, 583–584 Differential cost defined, 580 for different purposes, 579–580 and revenue, 52–53 in summary of cost classifications, 47 Differential revenue, 52–53 Dilion, Karen, 233 Dimmick, Christine, 390 Direct cost, 47, 51–52 Direct costing, 280; see also Variable costing Directing and motivating, 31–33 Direct labor, 37, 40, 47, 290–291 Direct labor budget, 382–383, 396 Direct labor cost, 37, 93 Direct labor standards, setting, 456–457 Direct labor variances, 463–465, 502 Direct materials, 36–37, 40, 47, 100 Direct materials budget, 380–383, 396 Direct materials cost, 91–92 Direct materials standards, 455–456 Direct materials variances, 458–463, 502 Direct method of allocation, 181–182 of determining net cash provided by operating activities, 718–720 special rules, 720 Discounted cash flows internal rate of return method, 635–637 net present value method, 629–635 Discounting, 673 Discounting cash flows, 628–629 Discount rate, 630, 633, 637, 673 Discretionary fixed costs, 196 Disney Corporation, 36, 516 Distribution of quality cost, 79–80 Dividend payout ratio, 731, 740 Dividend yield ratio, 731–732, 740 Divisional autonomy, 563–564 DMAIC; see Define, Measure, Analyze, Improve, and Control (DMAIC) Document flows, summary of, 98–99 Dogfish Head Craft Brewery, 250 Doquilo, Jesse James, 154 (n.) Drucker, Peter F., 427, 427 (n.) Dugan, William B., 473 (n.) Dun & Bradstreet, 527 DuPont, 36, 524 Duration driver, 310 Durfee, Don, 16 (n.) Dutta, Soumitra, 451 (n.) Earnings per share (of common stock), 740 Ease of adjustment code, 357 Eastern Europe, East of adjustment code, 351 eBay, 254, 730 E-commerce, 254 Economic depreciation, 582 Economic value added (EVA), 526–527 EDGAR database, 739, 741 EDGAR Online Inc., 741 EDI; see Electronic data interchange (EDI) Edmondson, Gail, 94 (n.) Edwards, Andrew, 731 (n.) Edwards, Cliff, 51 (n.) Efficiency variance, 470 Egger, Stefan, 50 (n.) Einhorn, Bruce, 592 (n.) Elasticity of demand, 762–763 Electronic data interchange (EDI), 114 Elgin, Ben, 645 (n.) Eli Lilly, 21, 527, 592 Emerson Electric Co., 768 Emore, James R., 522 (n.) Encyclopedia Britannica, 63 Ending finished goods inventory budget, 44, 384, 396 Engardio, Pete, 592 (n.) Engineering approach, 201–202 Enron, 12–13 Enterprise risk management defined, 19 examples of risk, 20 identifying and controlling business risks, 19–21 weather risk, managing, 20 Environmental cost, 49, 585, 648 Equation method, 246 Equipment, cost of new, 682 Equivalent units cost per, 157, 174–175 defined, 155 FIFO method versus, 173–174 Equivalent units of production (weightedaverage method), 153–157, 174 Ethan Allen, 37 Ethics, importance of, 12 code of conduct for management accountants, 14 codes of conduct on international level, 17 company codes of conduct, 14–15 Enron, 13 Johnson & Johnson, 16 eToys, 248–249 EVA; see Economic value added (EVA) Executive perks, relevant costs of, 580 Expedia, 254 Expense account, 719 Extensible Business Reporting Language (XBRL), 739 Extensible Markup Language (XML), 114 External failure costs, 47, 77, 79–81 External report(s), 289 activity-based costing and, 332–333 segmented financial information in, 520 using modified form of activity-based costing to determine product costs for, 360–362 Facilities & Operations (F&O) Business Office of the Battelle, 393 Factory burden, 38 Factory overhead, 38 Fairchild Semiconductor, 308 FASB; see Financial Accounting Standards Board (FASB) Federal employment tax, 75 Federal Express (FedEx), 2, 4, 452, 645 Federated Mogul, 527 FedEx Corporation, 557 Feedback, 32 Fei Pan, 312 (n.) Fernsell, John, 694 FIFO method applying costs, 176 comparison of costing methods, 177 vs costing methods, 177 cost per equivalent unit, 174–175 cost reconciliation report, 176–177 defined, 155 gar79611_ind_793-808.indd Page 797 1/7/09 8:26:40 AM user-s180 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index equivalent units, 173–174 vs process costing, 172–173 Financial accounting, managerial accounting vs., 33–36 Financial Accounting Standards Board (FASB), 520, 691, 693, 697, 700, 720 Financial leverage, 733 Financial processes, 530–531, 534; see also Performance measures Financial statement analysis comparison of financial data, 724 defined, 724 dollar and percentage changes on statements, 725 horizontal analysis, 724–727 limitations of, 724 looking beyond ratios, 724 ratio analysis common stockholder, 730–734 long-term creditor, 738–739 short-term creditor, 735–737 summary of ratios, 739–740 vertical analysis, 727 Financial statements, cost classifications on balance sheet, 41 income statement, 42–44 schedule of cost of goods manufactured, 44–45 Financing activities, 694–695, 701–703 Finished goods, 106 and cost of goods manufactured, 104–105 defined, 8, 41 in general model of product cost flows, 112–113 Finished goods inventory, 44, 47 Fink, Ronald, 373 (n.) Firestone, 453 First Commonwealth Financial Corporation of Pennsylvania, 536 First-stage allocation, 316 Fisher Scientific International, 308 Fixed cost behavior, 48 Fixed cost (constant in total), 47 Fixed cost per unit, power of shrinking, 51 Fixed cost(s) allocating, 573–574, 588–589 change in, 242–245 charging by cost behavior, 571–572 and cost behavior patterns, 194–195 defined, 49–50 and labor, 197–198 and relevant range, 198–199 in summary of variable and fixed cost behavior, 51 traceable and common, 516–517 trend toward, 197 types of, 196–198 Fixed expense, 284 Fixed overhead analysis, cautions in, 493–494 Fixed overhead variances, graphic analysis of, 493–494 Flexible budget activity variance, 422–423 based on actual activity (exhibit), 421 characteristics of, 418 common errors, 429–430 defined, 418, 432 importance of, 418 with multiple cost drivers, 427–429 performance reports combining activity and revenue and spending variances, 424–426 in cost centers, 427 in nonprofit organizations, 426–427 revenue and spending variances, 423–424 static planning budget, deficiencies of, 418–421 variances, 421–426 workings of, 421 Flow of materials, 151–152 Flynn, David, 377 Fonfeder, Robert, 727 (n.) Food costs, at luxury hotel, 50 Ford Motor Company, 36, 84, 287, 598 Forecasting errors, inevitability of, 417 Forecasts, biasing, 373 Forelle, Charles, 114 (n.) Formula method, 246–247 Franklin, Geralyn McClure, 598 (n.) Frasier, Jill Andresky, 723 (n.) Free cash flow, 704–705 FreeEdgar, 741 French, Rick, 503 (n.) Fringe benefits, labor, 73–75 Fujio Mitarai, 386 Full-fledged statement of cash flows example of, 697–705 organization of, 694–696 Fully absorb manufacturing costs, 89 Future cost, 579–580 Future value, present value and, 672 GAAP; see Generally accepted accounting principles (GAAP) Gap, The, 36 Gary Siegel Organization, (n.) Genentech, 21 General cost classification, 36–38 General Electric, 11, 63 Generally accepted accounting principles (GAAP), 35, 289, 333, 520 General management, 38 General Motors (GM), 48, 287, 417, 511, 516, 598 Georgia-Pacific, 527 Gerdau Acominas, 535 Giannukos, Vicki, 514 Gillette Co., 375, 416 Global Crossing, 12 Globalization, managerial accounting and, 2–4 GM; see General Motors (GM) Goff, John, 393 (n.) 797 Gogoi, Pallavi, 526 (n.) Gold, Harry, 188 (n.) Gold, Russell, 695 (n.) Goldraff, Eliyahu M., 465 (n.) Good Home Co., 390 Google, 520 Goransno, Craig A., 393 (n.) Gout, Bill, 154 (n.) Govindarajan, V., 765 Graphics, quality cost reports, 82 Gross amounts, adjustments to reflect, 700–701 Gross cost, 523 Gross margin percentage, 729, 740 Guidant Corporation, 527 Gunther, Marc, 507 (n.) Haddad, Charles, 49 (n.) Haddad, Joe, 88 Han Dan Iron and Steel Company, 510 Hannon, Neal, 739 (n.) Harlem Children’s Zoo, 40 Harvard Medical School Hospital, 200 Hatzopoulus, Panos D., 652 (n.) Health care, costs in, 79, 332 HealthSouth, 12 Heavin, Gary, 30, 30 (n.) Hendrick Motorsports, 393 Hershey Foods, 527 Hewlett-Packard, 63, 590 High-low method, 206–208 Hilton Hotels, 535 Hodges, David, 195 (n.) Hof, Robert D., 254 (n.) Holmes, Neil, 27 (n.) Holmes, Stanley, 770 (n.) Holtzman, Mark P., 727 (n.) Home Depot, 115, 134 Honda, 287–288 Hooper, Trevor, 334 (n.) Hoover’s Online, 741 Horizontal analysis, 724–727 Hospitals, 428 Hotel, food costs at, 50 HTML; see Hypertext Markup Language (HTML) Huguet, Jim, 705 Human factors, in budgeting, 372–373 Hunstman Corporation, 370 Hunt, Tom, 387 Hurdle rate, 637 Husky Injection Molding, 527 Hypertext Markup Language (HTML), 114 Ibex Outdoor Clothing, 694 IBM, 63, 279, 732 Ideal standards, 454–455, 476 IDEX Great Companies, 705 Idle capacity, 560–562 Idle time, 73–75 iExplore.com, 190 IFRS-reporting entities, 35 (n.) gar79611_ind_793-808.indd Page 798 1/7/09 8:26:40 AM user-s180 798 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index IMA; see Institute of Management Accountants (IMA) Improving ratio, 735 “In()”, 763 (n.) Income statement, 42–44, 420 (exhibit) absorption costing, 282–283 contribution format, 210–211 segmented, 512–514 variable costing format, 283 Income statement format, 210–211 Income tax in capital budgeting decisions after-tax cost, 679–680 depreciation tax shield, 680–681 example of income taxes and capital budgeting, 681–683 example of, and capital budgeting, 681–683, 682 (exhibit) external reporting and, 289 Incremental analysis, 243 Incremental approach, 638 Incremental cost, 52, 579–580, 638 (n.) Incremental-cost approach, 638–639 Indalex Aluminum Solutions Group, 596 Independent variable, 203 India, 2, 37 Indirect cost, 47, 51–52, 94 Indirect labor, 37, 93 Indirect manufacturing cost, 38 Indirect materials, 36–37, 100 Indirect method, 696–697, 720 Industry Norms & Key Business Ratios, 741 Inelastic, 762 Information technology, 114–115 Inspection time, 471–472 Insteel Industries, 307 Institute of Management Accountants (IMA), 14–15, 22–23 Interdepartmental services, 181 Interest, mathematics of, 671–672 Intermediate product, 598 Internal business processes, 530–531, 534; see also Performance measures Internal control report, 19 Internal failure costs, 47, 77–79, 81–82 Internal rate of return method comparison of net present value and, 637 cost of capital as screening tool, 636–637 defined, 629 illustration of, 635–636 and preference decisions, 643–644 salvage value and other cash flows, 636 using, 436 Internal Revenue Service (IRS), 580 International codes of conduct, 17 International Organization for Standardization (ISO), 83–84 International trade, growth in, 2–3 Internet advertising on, 190 and catalogs, 519 costs on, 248–249 and globalization, Inventoriable cost, 39–40, 46 Inventory turnover, 740 Inventory turnover ratio, 737 Investing activities, 694–695, 701–703 Investment center, 509–511 Investment center performance, 522–526 Investment projects, ranking of, 643–645 Investments, 682 planning, 628–629 recovery of, 632–633 Ipswitch, Inc., 651 IRS; see Internal Revenue Service (IRS) Irwin, Richard D., 38 (n.) Iselin, Errol, 688 (n.) ISO; see International Organization for Standardization (ISO) Isolation of variances, 461 ISO 9000 standards, 83–84 ITT, 598 Ittner, Christopher, 535 J Crew, 525 J K Gill, 191 Jackson Hole Llamas, 195 Jaguar, 533–534 Janakiraman, Surya N., 193 (n.) Japan, 469–470 J&B Wholesale, 308 J.C Penney, 527 Jedediah Smith Wilderness, 195 Jeep Eagle, 628 Jensen, Michael C., 373 (n.) JetBlue, 253 JetBlue Airways Corporation, 348 Jeter, Debra, 36 (n.) JIT; see Just-in-time (JIT) JobBoard, 198 Job cost sheet, 92–93, 99, 101 Job-order costing defined, 149 direct labor cost, 93 direct materials cost, 91–92 document flows, summary of, 98–99 flow of costs cost flows, summary of, 105–109 cost of goods manufactured, 104–105 cost of goods sold, 105 labor cost, 100–101 manufacturing overhead costs, 101–102 manufacturing overhead costs, applying, 102–104 materials, purchase and issue of, 98–100 nonmanufacturing costs, 104 information technology, use of, 114–115 job cost sheet, 92–93 manufacturing overhead, 94–95 overhead application, problems of, 109–113 overhead cost, choice of allocation base for, 96–97 overview, 90–91 predetermined overhead rate and capacity, 141–143 predetermined rate, need for, 95–96 process and, 89–90 process costing, compared, 89–90, 149–150 resource consumption accounting, 143 in service companies, 113–114 unit costs, 98 Johnson & Johnson, 14, 16, 21 Joie de Vivre Hospitality, 233 Joint cost, 598 Joint product, 598 Joint product costs, and contribution approach, 598–601 Jones, Daniel T., (n.) Jorgensen, Bjorn, 374 (n.) Just-in-time (JIT), 9, 78 Kahn, Jeremy, 16 (n.) Kalammer, Thomas, 141 (n.) Kansas City Power & Light, 527 Kaplan, Robert, 317 (n.), 535, 536 (n.) Kaplan, Tamara, 19 (n.) Karafil, Brad, 201, 201 (n.), 429 (n.), 593 (n.) Karafil, Carole, 201 (n.), 592 (n.)–593 (n.) Karpoff, Jonathan, 13 Karsh, Brad, 198 Kelly Blue Book, 582 Kemps LLC, 317 Kentucky Fried Chicken, 36 Keough, Don, 16 Kestrel Management Services, LLC, 648 KeyCorp, 535 Kilts, Jim, 375 King, Alfred, 351 (n.) Knight, Joe, 451 Korea East-West Power, 535 KPMG, 21 Kraft Foods Inc., 779 Kroger Company, The, 516, 681 Kroll, Karen N., 651 (n.) Kurt Salmon Associates, 115 L L Bean, 628 Labor, 151–152 managing, 450 rates vs costs for, 153 variable or fixed cost, 197–198 Labor cost, 73–75, 100–101 Labor efficiency variance, 464–465, 476 Labor fringe benefits, 75 Labor quantity standard, 470 Labor rate variance, 457, 464, 476 Lampe, Scott, 392–393 Lana Y.J lie, 312 (n.) Langretti, Robert, 79 (n.) Larcker, David F., 535 LaSorda Thomas, 97 Latin America, Lean production, gar79611_ind_793-808.indd Page 799 1/7/09 8:26:40 AM user-s180 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Lean thinking model, 8–10 Learning and growth processes, 530–531, 534; see also Performance measures Least-cost decisions, 640–641 Least-squares regression method, 206, 208–210, 226–228 Lee, Louise, 519 (n.) Leibs, Scott, 536 (n.) Levinson, Meredith, 115 (n.) LIFO method, 285 (n.), 527, 724 Lilo & Stitch, 368 Linear, and relevant range, 194 Linear cost behavior, 203 Linear programming, 598 Line position, Lion King, The, 368 Lippie, Jim, 255 Logan, 94 Long-term creditor, 738–739 Lovins, Amory, 647 Lowe’s, 308 LSG SkyChefs, 90 Lucent Technologies, 84 Lunsford, J Lynn, 590 (n.) Lustgarten, Abraham, 20 (n.) Luxfer Gas Cylinders, 535 Lyons, Daniel, 694 (n.) Lyons, John, 156 (n.) Macy’s Department Stores, 696 Macy’s Inc., 415 Magic Mountain, 61 Majestic Ocean Kayaking, 193 Major, Maria, 334 (n.) Make or buy decision defined, 589–590 example of, 590–592 strategic aspects of, 590 Management accountants, code of conduct for, 14 Management by exception, 452, 468–469, 476 Management reports, prepare, 323–326 Managerial accounting financial vs., 33–36 need for information for, 31–33 Managerial implications, of profitability analysis, 782–783 Mangalindan, Mylene, 730 (n.) Manufacturing cell, Manufacturing company, 380 Manufacturing costs, 36–38, 40, 308–309 Manufacturing cycle efficiency (MCE), 472–473, 476 Manufacturing overhead applying, 94–95, 102–104 defined, 37–38 in general model of cost flows, 112–113 and issues of direct and indirect materials, 100–101 in summary of cost classifications, 47 (exhibit) in summary of cost terms, 40 (exhibit) in summary of journal entries, 106 Manufacturing overhead budget, 383–384, 396 Manufacturing overhead costs, 101–102 Manufacturing Overhead T-account, 110 Manufacturing overhead variance, 466467 Manzoni, Jean-Franỗois, 451 (n.) Marconi, 334 Maremont, Mark, 580 (n.) Margin, 523–524 Marginal cost, 52 Marginal costing, 280; see also Variable costing Marginal revenue, 52 Margin of safety, 250–251 Market-based price, 768 Market price, 762 Market price, transfers at, 563 Marks & Spencer, 115 Markup, 762 Markup percentage, 767 Marriott Vacation Club International, 535 Marston, Gregg, 90 (n.) Mason, Richard, 704 (n.) Master budget budgeted balance sheet, 391–392 budgeted income statement, 389 cash budget, 387–390 defined, 369, 374–377 direct labor budget, 382–383 direct materials budget, 380–382 ending finished goods inventory budget, 384 inventory purchase, merchandising company, 380 manufacturing overhead budget, 383–384 preparing, 376–392 production budget, 378–380 sales budget, 377–378 selling and administrative expense budget, 385–386 Matching principle, 38 Material costs, 152–153 Materials flow of, 151–152 managing, 450 purchase and issue of, 98–100 Materials price variance, 458, 460–462, 476 Materials quantity variance, 462–463, 476 Materials requisition form, 91, 99 Mathematics of interest, 671–672 Matlack, Carol, 511, 526 (n.) Matthews, Robert Guy, 455 (n.) Mayer, Marrisa, 520 Mayo Clinic, 49, 51 McCartney, Scott, 764 (n.) McCuddy, Michael K., 17 (n.) McDonald’s Corporation, 7, 52, 61, 453, 470, 526, 726–730, 734 MCE; see Manufacturing cycle efficiency (MCE) 799 McKendrick, Joseph, 325 (n.) McKittrick, Christopher, 308 (n.) McNair, C J., 141 (n.) Medicare, 75 Merchandise inventory, 41 Merchandise purchases budget, 380, 396 Merchandising company, inventory purchase, 380 Merck & Co., 628 Mergent Industrial Manual and Mergent Bank and Finance Manual, 741 Meridien Research, 325 Metro AG, 115 Metro de Ingeroll Rand, 535 Michaels, Daniel, 249 (n.) Microsoft, 21, 507, 734 Microsoft Excel, 209, 393 Mills, John, 704 (n.) Mission Controls, 196 Mixed cost analysis of, 200 account analysis, 201–202 diagnosing cost behavior with scattergraph plot, 203–206 engineering approach, 201–202 high-low method, 206–208 least-square regression method, 206, 208–210 multiple regression analysis, 210 operations drive costs, 201 defined, 199 Mixed cost behavior, 189 Mobistar, 535 Moersch, Brian J., 598 (n.) Monster Cable, 598 Morben-Eeftink, Tracy, 193, 193 (n.) Motivation, and residual income, 528–529 Motorola, 11, 592 Move time, 471–472 Mullaney, Timothy J., 254 (n.) Muller, Joann, 97 (n.) Multiple cost drivers, flexible budgets with, 427–429 Multiple predetermined overhead rates, 113 Multiple regression, 210 Murphy, Victoria, (n.), 578 Nabisco, 779 Nachtmann, Heather, 330 (n.) NAFTA see North American Free Trade Agreement (NAFTA) Nagar, Venky, 81, 81 (n.) Nagel, Michael, 536 (n.) Nakane, J., 38 (n.) Narayanan, V G., 307 (n.) Nasaw, Daniel, 198 (n.) National City Bank, 21 National Geographic, 190 National Health Service (NHS), 10–11 National Semiconductor, 598 Natural function, 763 (n.) gar79611_ind_793-808.indd Page 800 1/7/09 8:26:41 AM user-s180 800 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index NEC; see Nippon Electronics Company (NEC) Negotiated transfer prices, 559 buying division’s highest acceptable transfer price, 560 divisional autonomy and suboptimization, 563–564 evaluation of negotiated transfer price, 562 no outside supplier, 562 selling divisions lowest acceptable transfer price, 560 selling division with idle capacity, 560–561 selling division with no idle capacity, 561 selling division with some idle capacity, 561–562 transfer at market price, 563 transfers at cost to selling division, 562–563 Ness, Joseph A., 522 (n.) Nestle, 509 Net amount, adjustments to reflect gross, rather than, 700–701 Net cash flow, provided by operating activities, 718–720 Net cash flow by analysis of noncash balance sheet accounts, 689 (exhibit) Net cash provided by operating activities, 696–697 Netflix, Inc., 718 Net income, 719 Net operating income, 522–523 Net present value, 629–630 Net present value method choosing discount rate, 633 cost of capital as screening tool, 637 emphasis on cash flows, 631 expanding incremental-cost approach, 638–639 least-cost decision, 640–641 total-cost approach, 638 extended example of, 634–635 illustrated, 629–630 and internal rate of return method, 637 and preference decisions, 644–645 recovery of original investment, 632–633 simplifying assumptions, 633 New York City, 370 NGO; see Nongovernmental organization (NGO) NHS; see National Health Service (NHS) Nike, Nippon Electronics Company (NEC), 469 Nokia, 507 Noncash balance sheet accounts, constructing statement of cash flows using, 689–691 Nongovernmental organization (NGO), 22 Nonmanufacturing cost, 38, 40, 47, 104, 308–309 Nonprofit organizations, performance reports in, 426–427 Non-value-added activities, 12 Nordstrom, Inc., 4, 36, 390, 558, 691–693, 698–704 Noreen, Eric, 769 (n.) Normal cost system, 95, 490 (n.) North American Free Trade Agreement (NAFTA), Northrop Grumman, 84 Norton, David, 535 Novamex, 377 Nucor Corporation, 418 Office Depot, 114 O’Hanlon, John, 527 (n.) Olin, 527 O’Meara, Mary, 289 OMG Center for Collaborative Learning, 430 Omission of costs, 520–521 Operating activities, 38 classifying entries as, 701–703 direct method of determining net cash provided by, 718–720 direct or indirect method, 696–697 and organization of full-fledged statement of cash flows, 694–695 Operating assets, 523 Operating department, 170, 570–571 Operating leverage, 251, 253–255 Operational excellence, 4–5 Operation costing, defined, 159 Operations drive costs, 201 Opportunity cost, 47, 53–54, 579–580, 592–593 Order-filling cost, 38 Order-getting cost, 38 Organizational chart, 5–6 Organizational structure decentralization, functional view of organizations, 5–7 Organizations, decentralization in, 508–509 Organization-sustaining activities, 311 Organization-sustaining costs, 309 Orwali, Bruce, 368 (n.) Oscar Meyer, 89 Outback Outfitters, 267 Out-of-pocket cost, 634 Outside market, 563 Outside supplier, 562 Outsourcing, 592 Overapplied overhead, 109–113, 494–495 Overhead, 37–38, 309; see also Nonmanufacturing cost Overhead application, 95 problems of closed out to cost of goods sold, 111–112 overapplied overhead, 109–113 predetermined overhead rates, multiple, 113 product cost flows, general model for, 112–113 underapplied overhead, 109–113 underapplied overhead balances, disposition of, 110–112 in standard cost system, 490 Overhead cost, 151–153 assign, to cost objects, 316–319, 321–323 assignment of, to cost objects, 351–355 choice of allocation for, 96–97 manufacturing, 101–102 Overhead variance, 493–494 Overtime, 73–75 Pacific Northwest National Laboratory, 393 Pacific Rim National Park, 193 Paetec Communications, 84 Paine, Lynn Sharpe, 28 Paladino, Robert E., 530 (n.) Panasonic, 36, 61 Paramount, 36 Parmalat, 18 Parsons Brinkerhoff (PB), 522 Participative budget, 371, 396; see also Self-imposed budget Payback method defined, 645 evaluation of, 646–647 extended example of, 647–649 Payback period defined, 645 and environmental costs, 648 and uneven cash flows, 649 PB; see Parsons Brinkerhoff (PB) Peace Corps, 31 Pearlman, Russell, 705 (n.) Peasnell, Ken, 527 (n.) PepsiCo, 516 Peregrine Outfitters, 308 Performance measures, 451, 530–534 advantages of timely and graphic feedback, 545 controls based on standard costs, evaluation of, 470–471 international uses of standard costs, 469–470 operating delivery cycle time, 471 manufacturing cycle efficiency (MCE), 472–473 throughput (manufacturing cycle) time, 471–472 standard costs direct labor variances, 463–465 direct materials variances, 458–463 management by exception, 452–453 setting, 453–457 variable manufacturing overhead variances, 465–468 variance analysis general model for, 457–458 management by exception, 468–469 Performance report, 32 combining activity and revenue and spending variances, 424–426 in cost centers, 427 in nonprofit organizations, 426–427 gar79611_ind_793-808.indd Page 801 1/7/09 8:26:41 AM user-s180 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Period costs, 38–40, 47 Perks, relevant cost of executive, 580 Perpetual budget, 370, 396 Perrin, Towers, 373 (n.) Personal digital assistant (PDA), 592 P&G; see Procter & Gamble (P&G) Pizza Hut, 36 Planalytics, 20 Planning, 31–34, 369, 396 Planning and control cycle, 33 Planning budget, 418–421, 432 Plantwide overhead rate, 113 Postaudit, 651 Postaudit of investment projects, 651–652 Posters.com, 546 Postponement, 642–643 PPMC; see Providence Portland Medical Center (PPMC) Practical standards, 454–455, 476 Pratt, Jonathan, 646 Pratt and Whitney Canada, 598 Predatory prices, 762 (n.) Predetermined lump-sum amounts, 571 Predetermined overhead rate, 94, 99, 489–495 and capacity, 141–143 multiple, 113 need for, 95–96 Preference decision, 628, 643–645 Present value computation of, 672–673 concept of mathematics of interest, 671–672 present value of series of cash flows, 673–674 defined, 671 and future value, 672 of series of cash receipts, 673 (exhibit) President, 5–6 Pretoria Academic Hospital, 598 Prevention cost, 47, 77–78, 80–81 Price-earnings ratio, 731, 740 Price elasticity of demand, 762–763 Price standards, 452 Price variance, 457–458, 460–462, 476 Pricing, economists’ approach to, 762–766 Prime cost, 39–40 Process costing, 89, 148 cost flows in, 150–153 defined, 149 FIFO method versus, 172–173 job-order costing, compared, 149–150 Procter and Gamble, 149 Processing department, 150–151 Process management, lean production, lean thinking model, 8–10 Six Sigma, 11–12 Theory of Constraints (TOC), 10–11 Process time, 471–472 Procter & Gamble (P&G), 9–10, 21, 115, 148, 415–416, 517, 592, 598 Product cost, 47 versus period costs, 38–40 using modified form of activity-based costing to determine, for external reports, 360–362 Product cost flows, 45–46, 112–113 Product data, 4783 Product innovation, 520 Production budget, 378–380, 396 Production order, 91, 99 Productivity, direct labor variance reporting increase in, 465 Product leadership, Product-level activities, 311 Product-line analysis, 588 Product-line(s), adding and dropping, 586–589 Product margin, 324–327, 333 Product profitability, 308 Professional ethics; see Ethics Profitability analysis defined, 778 managerial implications, 782–784 relative profitability, 779–781 volume trade-off decisions, 781–782 Profitability index, 779–782, 784 Profit center, 509–511 Profit-maximizing price, 763–766 Profit planning, 368–415 Profit stability, cost structure and, 251–253 Pro forma earnings, 727 Project profitability index, 644–645 Providence Portland Medical Center (PPMC), 332 Public Company Accounting Oversight Board, 18, 18 (n.); see also Sarbanes-Oxley Act of 2002 Push process, pVelocity, Inc., 596 Quaker Oats, 5247 Quality cost of, 76, 79–80 international aspects of, 83–84 Quality circle, 78 Quality cost information, 82–83 Quality cost report, 80–83 Quality of conformance, 76–77, 80 Quantity standards, 452 Quantity variance, 457–458, 476 Queue time, 471–472 Quigo Technologies, 190 Qwest Communications International, 696 R2, 228 Radio Frequency Identification Systems (RFID), 115 Rajan, Madhav, 81, 81 (n.) Range of acceptable transfer price, 559 Ratio analysis common stockholder, 730–734 book value per share, 733–734 defined, 724 801 dividend payout, 731 earnings per share, 730–734 financial leverage, 733 price-earnings ratio, 731 return on common stockholders’ equity, 733 return on total assets, 732 yield ratios, 731–732 long-term creditor, 738–739 short-term creditor accounts receivable turnover, 736–737 acid-test (quick) ratio, 736 current ratio, 735–736 inventory turnover, 737 working capital, 735 Raw materials defined, 8, 41 vs finished products, 36 in general model of cost flows, 112–113 and issues of direct and indirect materials, 100 in summary of cost classification, 47 in summary of journal entries, 106 RCA See Resource Consumption Accounting (RCA) R&D See Research and development (R&D) RDC See Regional distribution center (RDC) Reason, Tim, 370 (n.) Reciprocal method, 183 Reconciliation method, 697 Red Cross, 31 Regional distribution center (RDC), 10–11 Reichardt, Karl F., 17 (n.), 23 Reichhold, Inc., 308 Relative profitability, 779–781 Relaxing (elevating) the constraint, 597 Relevant cost, 49, 194 activity-based costing and, 602 defined, 579 example of identifying, 581–583 of executive perks, 580 identifying, 579–580 isolating, 585 Relevant range fixed costs and, 198–199 linearity assumption and, 194 more than one, 205 Renault, 94 Rent, 49; see also Fixed cost Research and development (R&D), 77, 592 Residual income, 522, 527 defined, 526 divisional comparison and, 529 motivation and, 528–529 Resource Consumption Accounting (RCA), 143 Responsibility accounting, 369–370, 396 Chinese perspective, 510 cost, profit, and investment centers, 509–511 defined, 509 organizational view of, 511 gar79611_ind_793-808.indd Page 802 1/7/09 8:26:41 AM user-s180 802 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Restoration Hardware, 390 Retail theft, financial implications of, 43 Return on common stockholders’ equity, 733, 740 Return on investment (ROI), 522; see also Residual income criticisms of, 526 defined, 523–526 elements of, 524 (exhibit) J Crew, 525 Return on investment (ROI) formula, 522–524 Return on total assets, 732, 740 Revell, Janice, 258 (n.) Revenue center, 509 Revenue variance, 423–426, 432 RFID; see Radio Frequency Identification Systems (RFID) Ricoh Corporation, 535 Risk, examples of, 20; see also Enterprise risk management Risk management, sales, 377 Rite Aid, 12 Ritter, Robert, 37 (n.) Ritz-Carlton, Robinson, Bill, 84 Rocky Mountain Institute, 647 Rogers, Bill, 188 (n.) ROI; see Return on investment (ROI) Royal Canadian Mounted Police Crown Castle International, 535 Royal Dutch/Shell, 643 Russia, Ryan, Glenn P., 652 (n.) Ryan, Patricia A., 652 (n.) Safeway, 516 Salaries and wages payable, 101, 106, 112–113 Salaries expense, 106 Salary, for certified management accountant (CMA), 23 Sales, at Amazon.com, 244 Sales and contribution margin, 516 Sales budget, 374–375, 377–378, 396 Sales commission, 49 Sales commissions, structuring, 255 Sales mix, 258 and break-even analysis, 256–257 defined, 256 Wal-Mart attempts to shift, 256 Sales order, 99 Sales price, change in, 244 Sales risk management, 377 Sales volume, change in, 242–245 Salvage value, 636 Sarbanes-Oxley Act of 2002, 18–19, 18 (n.), 727 Sarkar, R., 307 (n.) Scattergraph plot, 203–206 Schedule of cost of goods manufactured, 44–45, 108 Schedule of cost of goods sold, 108 Schneider Electric, 450 Schoenberger, Chana R., 190 (n.) Schroeder, David, 17 (n.), 23 (n.) Schroeder, Roger, 465 Schumacher, Thomas S., 368 Screening decision, 628 Screening device, 633, 636–637 SeaCode, 197 Sears, 453, 696 Seattle Opera Company, 427 SEC; see Securities and Exchange Commission (SEC) Second-stage allocation, 321–323 Securities and Exchange Commission (SEC), 35, 702, 727, 739, 741 Segment, 35, 511, 521 Segmented, 511–522 Segmented financial information, in external reports, 520 Segmented income statement, 512–514 Segmented reporting hindrances to proper cost assignment, 520 inappropriate methods for assigning traceable costs among segments, 521 levels of statements, 514–515 omission of costs, 520–521 sales and contribution margin, 516 segmented financial information in external reports, 520 segment margin, 518–520 traceable and common fixed costs, 516–518 Segmented reports, 521–522 Segment margin, 518–520 Segment reporting building segmenting income statement, 512–514 decentralization and, 511–522 Segments, arbitrarily dividing common costs among, 521–522 Selden, Larry, 785 (n.) Self-imposed budget, 371–372, 396 Selling, general, and administrative (SG&A) costs, 38, 396 Selling and administrative expense, 3–40, 106, 280–281, 284 Selling and administrative expense budget, 385–386 Selling costs, 38, 40, 47 Selling price, change in, 246 Sell or process further decision, 599–601 Sequential processing department, 150 (exhibit) Serono, 535 Service companies, job-order costing in, 113–114 Service department, 570–571 Service department allocations, 170, 180, 573–574 direct method of allocation, 181–182 interdepartmental services, 181 reciprocal method, 183 step-down method, 182–183 Service department charges, 570–571 guideline for, 572 Setpoint, 451 7-Eleven, 36 SG&A; see Selling, general, and administrative (SG&A) costs Shank, John K., 78 Sharma, Divesh, 688 (n.) Sharp, 507 Shell, 558 Shenyang Aircraft Corporation, 590 Shen Zhen Stock Exchange, 312 Shields, Todd, 332 (n.) Shim, Eunsup, 765 Shin’ichi Inoue, 469 (n.) Short-term creditor, 735–737 Silicon Valley Bank, 527 Silverman, Rachel Emma, 40 (n.) Simple rate of return criticisms of, 651 example, 649–650 Simplified statement of cash flows constructing, 691–693 example of, 691–694 need for more detailed statement, 693–694 Sinha, Kingshuk, 465 Six Flags, 510 Six Sigma, 11–12, 471 Smith, Carl S., 286 (n.) Smith, Peter T., 393 (n.) Smith & Hawken, 519 Social Security, 75 Sony, 452, 507 Sony TV, 37 Southwest Airlines, 4, 21, 200, 452, 529–530 Special order, 593–594 Spending variance, 423–426, 433 Split-off point, 598 Sports4Kids, 40 Sprint, 527 Staff position, Standard cost advantages of, 470 defined, 452 direct labor variances, 463–465 direct materials variances, 458–463 evaluation of controls based on, 470–471 international uses of, 469–470 management by exception, 452 potential problems with use of, 470–471 setting direct labor standards, setting, 456–457 direct materials standards, 455–456 ideal versus practical standards, 454–455 variable manufacturing overhead standards, 457 variable manufacturing overhead variances, 465–468 who uses, 453 Standard cost card, 453, 476 Standard cost per unit, 457, 476 gar79611_ind_793-808.indd Page 803 1/7/09 8:26:41 AM user-s180 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Standard cost system cost flows in, 502–503 overhead application in, 490 Standard cost variance, 470 Standard hours, 458 Standard hours allowed, 458, 476 Standard hours per unit, 456, 476 Standard Pacific, 738 Standard & Poor’s Industry Survey, 741 Standard price per unit, 455, 476 Standard quantity, 458 allowed, 458, 476 per unit, 455, 476 Standard rate per hour, 456, 476 Starbuck’s Coffee Company, 4, 21, 741–743 Statement of cash flow, 688 basic approach to, 689–691 completed, 702–703 constructing, using changes in noncash balance sheet accounts, 689–691 interpretation of, 703–704 organization of full-fledged, 694–696 preparing, issues in, 696–697 setting up worksheet, 698–700 steps to preparing, 697–698 Statement of Ethical Professional Practice, 14 State unemployment insurance, 75 Static planning budget, 418–421 Statistical control chart, 469 (exhibit) Statistical process control, 78 Step-down method, 182–183 Step-variable cost, 192–194 Stern, Steward & Co., 526 (n.) Sternfeis, Robert, 37 (n.) Stipp, David, 647 Strategy, 4–5 Suboptimization, 559, 563–564 Sudit, Ephraim F., 765 Summary of ratios, 739–740 Sunk cost, 47, 54, 579–580 Sun Microsystems, 590 Supply chain management, Surowieki, James, 13 (n.) Susan G Komen Breast Cancer Foundation, 22 Sysco Foods, 308 Systems design, job-order costing applying manufacturing overhead, 94–95 choice of allocation base for overhead cost, 96–97 computation of unit costs, 98 flow of costs, 98–109 and information technology, 114–115 job cost sheet, 92–93 measuring direct labor cost, 93 measuring direct materials cost, 91–92 need for predetermined rate, 95–96 overview, 90–97 problems of overhead application, 109–113 process costing, 89 in service companies, 113–114 summary of document flows, 98–99 T-account model, 110, 151 (exhibit) Taco Bell, 36 Tanzi, Calisto, 18 Target Corporation, 759 Target costing defined, 769 example of, 770 reasons for using, 769 Target profit analysis, 246–248 Target selling price, 766 Tarzan, 368 Taxable cash receipt, 680 Tax adjustments, required in capital budgeting analysis, 681 (exhibit) Tax code, 680 (n.) Tax payments, impact of depreciation deductions on, 681 Tax Reform Act (1986), 289 Taylor, Doug, 450 (n.) Taylor III, Alex, 153 (n.), 287 (n.), 417 (n.) Taylor III, Lloyd J., 598 (n.) Technology, IBM investment in, 279 Telecommunications and Utilities Practice for the Balanced Scorecard Collaborative, 530 Tennessee Valley Authority, 535 Tesco, 10 Texas Instruments, 36, 598 Theft, retail, 43 Theory of Constraints (TOC), 10–11, 290–291, 331, 598 Theory of Constraints (TOC) software, 596 Thomson, Jeff, (n.) 3M, 21 Thrive Networks, 255 Throughput (manufacturing cycle) time, 471–472, 476 Tierney, Christine, 49 (n.) Times interest earned, 740 Times interest earned ratio, 738 Time ticket, 93, 99 Time value of money, 628–629 TOC; see Theory of Constraints (TOC) Toll Brothers, Inc., 140 Total-cost approach, 638–641 Total demand on constrained resources, 783 Touch labor, 37 Tousa, 738 Tower Records, 36 Towers Perrin, 373 Toyota, 8, 89, 287–288, 452, 533 Toys R Us, 527 Traceable fixed cost(s), 516–517, 521 Tracinda Corporation, 695 Traditional costing system differences between activity-based costing (ABC) and, 328–331 product margins computed using, 326–327 Traditional costing system, vs activity-based costing, 326–331 Transaction driver, 310 803 Transfer prices, 571 buying division’s highest acceptable, 560 defined, 558–559 evaluation of negotiated, 562 selling divisions lowest acceptable, 560 Transfer pricing, 558–564 Transportation costs, 455 Treacy, Michael, (n.) Tredano, Dominique, 310 (n.) Trend analysis, 725 Trend percentage, 726 Tri-Con Global Restaurants, Inc., 628 Trippetti, Debora, 90 True variable, versus variable cost, 192–194 Tucker, Reed, 197 (n.) Tupperware, 527 Turnover, 523–524 Tyco International, Ltd., 12, 696 Umani Cafés, 646 Uncertain cash flows, 641–643 Underapplied overhead, 109–113, 494–495 Uneven cash flows, 649 Unit costs, computation of, 98 United Airlines, 10, 253, 517–518, 598 United Artists, 36 United Electrical Controls, 598 United Kingdom, uses of standard costs in, 469–470 United Parcel Service (UPS), 49 United States Air Force Logistics Command, 598 U.S Army, 377 U.S Department of Transportation, 764 U.S Marine Corps, 331 United States Navy Transportation Corps, 598 United States Postal Service, 527, 535 Unit-level activities, 311 University of Illinois, 31 University Tees, 88 Unprofitable customers, 785 UPS; see United Parcel Service (UPS) Value-added time (process time), 472 Value chain, 7, 589 Value stream, (n.) Vanguard Group, The, Vardi, Nathan, 522 (n.) Variable cost, 47–49, 189, 763–766 activity base, 190–191 change in, 243, 245 charging by cost behavior, 571 extent of, 191–192 labor, 197–198 linearity assumption and relevant range, 194 true variable versus step-variable costs, 192–194 Variable costing versus absorption costing, 281–282 advantages of, 289–290 costing method, choosing, 287–291 gar79611_ind_793-808.indd Page 804 1/7/09 8:26:41 AM user-s180 804 /broker/MH-BURR/MHBR094/MHBR094-IND/upload Index Variable costing—Cont defined, 280 at Ford, 287 and IBM, 279 reconciliation of, with absorption costing income, 284–287 and Theory of Constraints (TOC), 290–291 Variable costing contribution format income statement, 283–284 Variable expense, 284 Variable expense ratio, 242 Variable manufacturing overhead standards, 457 Variable overhead efficiency variance, 466–467, 476 Variable overhead rate variance, 458, 466–467, 476 Variance analysis general model for, 457–458 and management by exception, 468–469 Variance analysis cycle, 453, 453 (exhibit) Variance report, 470 Variances; see also specific variance types flexible budget, 422–423 isolation of, 461 journal entries to record, 501–503 responsibility for, 461 VBT Bicycling Vacations, 90 Vertical analysis, 724, 728–730 Vertically integrated, 589 Victoria Pappas Collection, 514 Virginia Mason Hospital, 61 Volume trade-off decisions, 781–783 Volume variance, 490–493, 495 Volunteerism, popularity of skill-based, 22 Volvo, 533 Wal-Mart Stores, 4, 36, 115, 191, 256, 759 Walt Disney Company, 368 Waste Management, 533 Water curtain, 585 WCI Communities, Inc., 738 Weather risk, 20 Webber, Sally A., 143 (n.) Weighted-average method, 155, 157–158; see also Equivalent units of production (weighted-average method) Welch, David, 74 (n.) Wellner, Alison Stein, 30 (n.) Wendy’s International, Inc., 63, 729–730 Western Europe, Western River Expeditions, 311–312 Weyerhaeuser, 89 Whistleblower, 19 White Grizzly Adventures, 201, 592 (n.), 593, 629 Whole Foods Market, 29 Wiersema, Fred, (n.) Wing, Kennard T., 430, 430 (n.) Wise Metal Group, 20 W.L Gore, Wm Wrigley Jr Co., 779 Womack, James P., (n.) Women’s World of Fitness, 30–31 Wong, Betty, 308 (n.) Workers’ compensation, 75 Working capital, 631, 682, 735, 740 Work in process and applying manufacturing overhead, 102–103 and cost of goods manufactured, 105 defined, in general model of cost flows, 112–113 in issues of direct and indirect materials, 100–101 in schedules of cost of goods manufactured and cost of goods sold, 108 in summary of cost classifications, 41, 47 Work in process inventory, 47 WorldCom, 12, 696 XBRL; see Extensible Business Reporting Language (XBRL) XML; see Extensible Markup Language (XML) Xu Ji Electric Company, 312 Yahoo, 190 Yavonditte, Michael, 190 Yellowstone National Park, 195 Yun, J K., 727 (n.) Z Jun Lin, 510 (n.) Zengbiao Yu, 510 (n.) 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