Horngren’s cost accounting a managerial emphasis 16th edition datar rajan

Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan Horngren’s cost accounting a managerial emphasis 16th edition datar rajan

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manner • LMS Integration—Link from any LMS platform to access assignments, rosters, and resources, and synchronize MyLab grades with your LMS gradebook For students, new direct, single sign-on provides access to all the personalized learning MyLab resources that make studying more efficient and effective ALWAYS LEARNING Horngren’s Cost Accounting A MAnAgeriAl eMphAsis Sixteenth Edition Srikant M Datar Harvard University Madhav V Rajan Stanford University New York, NY Vice President, Business Publishing: Donna Battista Director of Portfolio Management: Adrienne D’Ambrosio Senior Portfolio Manager: Ellen Geary Content Producer: Christine Donovan Vice President, Product Marketing: Roxanne McCarley Director of Strategic Marketing: Brad Parkins Strategic Marketing Manager: Deborah Strickland Product Marketer: Tricia Murphy Field Marketing Manager: Natalie Wagner Field Marketing Assistant: Kristen Compton Product Marketing Assistant: Jessica Quazza Vice President, Production and Digital 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emphasis/Charles T Horngren, Srikant M Datar, Madhav V Rajan Description: Sixteenth edition | Hoboken, NJ : Pearson, [2018] Identifiers: LCCN 2016034397| ISBN 9780134475585 | ISBN 0134475585 Subjects: LCSH: Cost accounting Classification: LCC HF5686.C8 H59 2018 | DDC 658.15/11—dc23 LC record available at https://lccn.loc.gov/2016034397 18 ISBN 10: 0-13-447558-5 ISBN 13: 978-0-13-447558-5 Brief Contents 10 11 12 13 14 The Manager and Management Accounting 15 16 17 18 19 20 21 22 Allocation of Support-Department Costs, Common Costs, and Revenues 23 Performance Measurement, Compensation, and Multinational Considerations 891 An Introduction to Cost Terms and Purposes Cost–Volume–Profit Analysis Job Costing 28 66 107 Activity-Based Costing and Activity-Based Management Master Budget and Responsibility Accounting 152 197 Flexible Budgets, Direct-Cost Variances, and Management Control 249 Flexible Budgets, Overhead Cost Variances, and Management Control Inventory Costing and Capacity Analysis Determining How Costs Behave 288 329 372 Decision Making and Relevant Information 426 Strategy, Balanced Scorecard, and Strategic Profitability Analysis Pricing Decisions and Cost Management 477 524 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis 559 Cost Allocation: Joint Products and Byproducts Process Costing 601 643 675 Spoilage, Rework, and Scrap 718 Balanced Scorecard: Quality and Time 748 Inventory Management, Just-in-Time, and Simplified Costing Methods Capital Budgeting and Cost Analysis 818 Management Control Systems, Transfer Pricing, and Multinational Considerations 856 778 Contents Relevant Range 35 Relationships Between Types of Costs 36 Total Costs and Unit Costs 36 Unit Costs 36 Use Unit Costs Cautiously 37 Business Sectors, Types of Inventory, Inventoriable Costs, and Period Costs 38 Manufacturing-, Merchandising-, and Service-Sector Companies 38 Types of Inventory 38 Commonly Used Classifications of Manufacturing Costs 39 Inventoriable Costs 39 Period Costs 39 Illustrating the Flow of Inventoriable Costs and Period Costs 40 Manufacturing-Sector Example 40 Recap of Inventoriable Costs and Period Costs 44 Prime Costs and Conversion Costs 45 Measuring Costs Requires Judgment 46 Measuring Labor Costs 46 Overtime Premium and Idle Time 46 Benefits of Defining Accounting Terms 47 Different Meanings of Product Costs 48 A Framework for Cost Accounting and Cost Management 49 Calculating the Cost of Products, Services, and Other Cost Objects 50 Obtaining Information for Planning and Control and Performance Evaluation 50 Analyzing the Relevant Information for Making Decisions 50 The Manager and Management Accounting For Coca-Cola, Smaller Sizes Mean Bigger Profits Financial Accounting, Management Accounting, and Cost Accounting Strategic Decisions and the Management Accountant Value-Chain and Supply-Chain Analysis and Key Success Factors Value-Chain Analysis Supply-Chain Analysis Key Success Factors Concepts in Action: Trader Joe’s Recipe for Cost Leadership Decision Making, Planning, and Control: The Five-Step Decision-Making Process Key Management Accounting Guidelines 12 Cost–Benefit Approach 12 Behavioral and Technical Considerations 13 Different Costs for Different Purposes 13 Organization Structure and the Management Accountant 13 Line and Staff Relationships 13 The Chief Financial Officer and the Controller 14 Management Accounting Beyond the Numbers 15 Professional Ethics 16 Institutional Support 16 Typical Ethical Challenges 17 Problem for Self-Study 19 | Decision Points 19 | Terms to Learn 20 | Assignment Material 20 | Questions 20 | Multiple-Choice Questions 21 | Exercises 21 | Problems 23 An Introduction to Cost Terms and Purposes 28 High Fixed Costs Bankrupt Quiksilver Costs and Cost Terminology 29 Direct Costs and Indirect Costs 29 Cost Allocation Challenges 30 Factors Affecting Direct/Indirect Cost Classifications 31 Cost-Behavior Patterns: Variable Costs and Fixed Costs 32 Concepts in Action: Zipcar Helps Twitter Reduce Fixed Costs Cost Drivers 34 iv Problem for Self-Study 51 | Decision Points 53 | Terms to Learn 54 | Assignment Material 54 | Questions 54 | Multiple-Choice Questions 55 | Exercises 56 | Problems 60 Cost–Volume–Profit Analysis 66 How Coachella Tunes Up the Sweet Sound of Profits Essentials of CVP Analysis 67 Contribution Margin 68 Expressing CVP Relationships 70 Cost–Volume–Profit Assumptions 73 Breakeven Point and Target Operating Income 73 Breakeven Point 73 Target Operating Income 74 Income Taxes and Target Net Income 76 Using CVP Analysis for Decision Making 78 Contents Decision to Advertise 78 Decision to Reduce the Selling Price 78 Determining Target Prices 79 Concepts in Action: Cost–Volume–Profit Analysis Makes Subway’s $5 Foot-Long Sandwiches a Success But Innovation Challenges Loom Sensitivity Analysis and Margin of Safety 80 Cost Planning and CVP 82 Alternative Fixed-Cost/Variable-Cost Structures 82 Operating Leverage 83 Effects of Sales Mix on Income 85 CVP Analysis in Service and Not-for-Profit Organizations 87 Contribution Margin Versus Gross Margin 88 Problem for Self-Study 89 | Decision Points 90 APPendIx: decision Models and Uncertainty 91 Terms to Learn 94 | Assignment Material 95 | Questions 95 | Multiple-Choice Questions 95 | Exercises 96 | Problems 100 Job Costing 107 Job Costing and the World’s Tallest Building Building-Block Concepts of Costing Systems 108 Job-Costing and Process-Costing Systems 109 Job Costing: Evaluation and Implementation 110 Time Period Used to Compute Indirect-Cost Rates 111 Normal Costing 113 General Approach to Job Costing Using Normal Costing 113 Concepts in Action: The Job-Costing “Game Plan” at AT&T Stadium The Role of Technology 118 Actual Costing 118 A Normal Job-Costing System in Manufacturing 120 General Ledger 121 Explanations of Transactions 121 Subsidiary Ledgers 124 Materials Records by Type of Material 124 Labor Records by Employee 125 Manufacturing Department Overhead Records by Month 126 Work-in-Process Inventory Records by Jobs 126 Finished Goods Inventory Records by Jobs 127 Other Subsidiary Records 127 Nonmanufacturing Costs and Job Costing 127 Budgeted Indirect Costs and End-of-Accounting-Year Adjustments 128 Underallocated and Overallocated Indirect Costs 128 Adjusted Allocation-Rate Approach 129 Proration Approach 129 Write-off to Cost of Goods Sold Approach 131 Choosing Among Approaches 132 Variations from Normal Costing: A Service-Sector Example 133 Problem for Self-Study 135 | Decision Points 137 | Terms to Learn 138 | Assignment Material 138 | Questions 138 | Multiple-Choice Questions 139 | Exercises 140 | Problems 146 Activity-Based Costing and Activity-Based Management 152 General Motors and Activity-Based Costing Broad Averaging and Its Consequences 153 Undercosting and Overcosting 153 Product-Cost Cross-Subsidization 154 Simple Costing System at Plastim Corporation 154 Design, Manufacturing, and Distribution Processes 154 Simple Costing System Using a Single Indirect-Cost Pool 155 Applying the Five-Step Decision-Making Process at Plastim 157 Refining A Costing System 158 Reasons for Refining a Costing System 159 Guidelines for Refining a Costing System 159 Activity-Based Costing Systems 160 Plastim’s ABC System 160 Cost Hierarchies 162 Implementing Activity-Based Costing 164 Implementing ABC at Plastim 164 Comparing Alternative Costing Systems 169 Considerations In Implementing Activity-Based Costing Systems 170 Benefits and Costs of Activity-Based Costing Systems 170 Behavioral Issues in Implementing Activity-Based Costing Systems 171 Activity-Based Management 172 Pricing and Product-Mix Decisions 172 Cost Reduction and Process Improvement Decisions 172 Design Decisions 173 Planning and Managing Activities 174 Activity-Based Costing and Department Costing Systems 174 ABC in Service and Merchandising Companies 175 Concepts in Action: Mayo Clinic Uses Time-driven Activity-Based Costing to Reduce Costs and Improve Care Problem for Self-Study 176 | Decision Points 179 | Terms to Learn 180 | Assignment Material 180 | Questions 180 | Multiple-Choice Questions 181 | Exercises 181 | Problems 188 v vi Contents Price Variances and Efficiency Variances for Direct-Cost Inputs 258 Price Variances 259 Efficiency Variance 259 Journal Entries Using Standard Costs 262 Implementing Standard Costing 264 Management’s Use of Variances 264 Multiple Causes of Variances 264 Concepts in Action: Can Chipotle Wrap Up Its Materials-Cost Variance Increases? When to Investigate Variances 265 Using Variances for Performance Measurement 266 Organization Learning 266 Continuous Improvement 267 Financial and Nonfinancial Performance Measures 267 Benchmarking and Variance Analysis 267 Master Budget and Responsibility Accounting 197 “Scrimping” at the Ritz: Master Budgets Budgets and The Budgeting Cycle 198 Strategic Plans and Operating Plans 198 Budgeting Cycle and Master Budget 199 Advantages and Challenges of Implementing Budgets 200 Promoting Coordination and Communication 200 Providing a Framework for Judging Performance and Facilitating Learning 200 Motivating Managers and Other Employees 201 Challenges in Administering Budgets 201 Developing an Operating Budget 202 Time Coverage of Budgets 202 Steps in Preparing an Operating Budget 202 Financial Planning Models and Sensitivity Analysis 215 Concepts in Action: 24 Hour Fitness and Internet-Based Budgeting Budgeting and Responsibility Accounting 217 Organization Structure and Responsibility 217 Feedback 218 Responsibility and Controllability 219 Human Aspects of Budgeting 220 Budgetary Slack 220 Stretch Targets 221 Kaizen Budgeting 222 Budgeting for Reducing Carbon Emissions 223 Budgeting in Multinational Companies 223 Problem for Self-Study 224 | Decision Points 225 APPendIx: The Cash Budget 226 Terms to Learn 232 | Assignment Material 232 | Questions 232 | Multiple-Choice Questions 233 | Exercises 233 | Problems 238 Flexible Budgets, Direct-Cost Variances, and Management Control 249 Dell Goes Green to Reduce Standard Costs for Packaging Static Budgets and Variances 250 The Use of Variances 250 Static Budgets and Static-Budget Variances 251 Flexible Budgets 253 Flexible-Budget Variances and Sales-Volume Variances 254 Sales-Volume Variances 254 Flexible-Budget Variances 255 Standard Costs for Variance Analysis 256 Obtaining Budgeted Input Prices and Budgeted Input Quantities 257 Problem for Self-Study 269 | Decision Points 270 APPendIx: Mix and Yield Variances for Substitutable Inputs 271 Terms to Learn 275 | Assignment Material 275 | Questions 275 | Multiple-Choice Questions 275 | Exercises 276 | Problems 280 Flexible Budgets, Overhead Cost Variances, and Management Control 288 Tesla Motors Gigafactory Planning of Variable and Fixed Overhead Costs 289 Planning Variable Overhead Costs 289 Planning Fixed Overhead Costs 289 Standard Costing at Webb Company 290 Developing Budgeted Variable Overhead Rates 290 Developing Budgeted Fixed Overhead Rates 291 Variable Overhead Cost Variances 292 Flexible-Budget Analysis 292 Variable Overhead Efficiency Variance 293 Variable Overhead Spending Variance 294 Journal Entries for Variable Overhead Costs and Variances 296 Fixed Overhead Cost Variances 297 Production-Volume Variance 298 Interpreting the Production-Volume Variance 299 Journal Entries for Fixed Overhead Costs and Variances 300 Concepts in Action: Variance Analysis and Standard Costing Help Sandoz Manage Its Overhead Costs Integrated Analysis of Overhead Cost Variances 303 4-Variance Analysis 303 Combined Variance Analysis 303 Production-Volume Variance and Sales-Volume Variance 305 Variance Analysis and Activity-Based Costing 307 Contents Flexible Budget and Variance Analysis for Direct Materials-Handling Labor Costs 308 Flexible Budget and Variance Analysis for Fixed Setup Overhead Costs 310 Overhead Variances in Nonmanufacturing Settings 312 Financial and Nonfinancial Performance Measures 313 Problem for Self-Study 314 | Decision Points 316 | Terms to Learn 317 | Assignment Material 317 | Questions 317 | Multiple-Choice Questions 317 | Exercises 319 | Problems 323 Nonmanufacturing Costs 353 Activity-Based Costing 354 Problem for Self-Study 354 | Decision Points 356 APPendIx: Breakeven Points in Variable Costing and Absorption Costing 357 Terms to Learn 359 | Assignment Material 359 | Questions 359 | Multiple-Choice Questions 359 | Exercises 361 | Problems 365 10 Determining How Costs Behave 372 UPS Uses “Big Data” to Understand Its Costs While Helping the Environment Inventory Costing and Capacity Analysis 329 Basic Assumptions and Examples of Cost Functions 373 Basic Assumptions 373 Linear Cost Functions 373 Review of Cost Classification 375 Identifying Cost Drivers 376 The Cause-and-Effect Criterion 376 Cost Drivers and the Decision-Making Process 377 Cost Estimation Methods 377 Industrial Engineering Method 378 Conference Method 378 Account Analysis Method 378 Quantitative Analysis Method 379 Estimating a Cost Function Using Quantitative Analysis 380 High-Low Method 382 Regression Analysis Method 384 Evaluating and Choosing Cost Drivers 385 Cost Drivers and Activity-Based Costing 388 Nonlinear Cost Functions 389 Learning Curves 390 Cumulative Average-Time Learning Model 391 Incremental Unit-Time Learning Model 392 Incorporating Learning-Curve Effects into Prices and Standards 393 Concepts in Action: does Joint Strike Fighter Production Have a Learning Curve? Data Collection and Adjustment Issues 395 Lean Manufacturing Helps Boeing Work Through Its Backlog Variable and Absorption Costing 330 Variable Costing 330 Absorption Costing 330 Comparing Variable and Absorption Costing 330 Variable vs Absorption Costing: Operating Income and Income Statements 332 Comparing Income Statements for One Year 332 Comparing Income Statements for Multiple Years 334 Variable Costing and the Effect of Sales and Production on Operating Income 337 Absorption Costing and Performance Measurement 338 Undesirable Buildup of Inventories 339 Proposals for Revising Performance Evaluation 340 Comparing Inventory Costing Methods 341 Throughput Costing 341 A Comparison of Alternative Inventory-Costing Methods 342 Denominator-Level Capacity Concepts and Fixed-Cost Capacity Analysis 343 Absorption Costing and Alternative Denominator-Level Capacity Concepts 344 Effect on Budgeted Fixed Manufacturing Cost Rate 345 Choosing a Capacity Level 346 Product Costing and Capacity Management 346 Pricing Decisions and the Downward Demand Spiral 347 Concepts in Action: Can eSPn Avoid the Cord-Cutting “death Spiral”? Performance Evaluation 349 Financial Reporting 349 Tax Requirements 352 Planning and Control of Capacity Costs 352 Difficulties in Forecasting Chosen Denominator-Level Concept 352 Difficulties in Forecasting Fixed Manufacturing Costs 353 vii Problem for Self-Study 397 | Decision Points 399 APPendIx: Regression Analysis 400 Terms to Learn 409 | Assignment Material 409 | Questions 409 | Multiple-Choice Questions 410 | Exercises 410 | Problems 416 11 Decision Making and Relevant Information 426 Relevant Costs and Broadway Shows Information and the Decision Process 427 The Concept of Relevance 427 Relevant Costs and Relevant Revenues 427 956 INDEX Cost pools, 108 aggregating all costs in, 577 categorizing activities, 162–63 homogeneous, 573, 578 Cost predictions, 376 Costs activities, 166 activity-based costing (ABC) systems, 170–71 activity pools, 165 allocating, 108–109 alternative ways to compute, 13 assigning, 30–31, 108 benefits received, 109 changes in, 73 classifying, 375 cost drivers, 34–35 cost incurrence, 533 cost object choice, 375 cost tracing, 30 decentralization, 860–61 designed-in costs, 533 direct costs, 29–30 direct manufacturing labor costs, 39 direct materials, 39 factory overhead costs, 39 fixed costs, 32–36 goods for sale, 779–80 incurred divergence from locked-in costs, 533 indirect costs, 30 indirect manufacturing costs, 39 inventoriable costs, 39 just-in-time (JIT) purchasing, 788 level of activity and, 376 locked-in costs, 533 long-run costing, 526–30 managers, 219 manufacturing overhead costs, 39 measuring and judgment, 46–48 mixed or semivariable costs, 34 nonvalue-added costs, 172, 533 period costs, 39–40 pricing decisions, 525–26 production control, 533 reductions decisions, 172–73 relevant range, 375 supervision, 533 supply chain, time horizon, 375 value-added costs, 533 value chain, variable costs, 32–36 Costs of delays, 764–65 Costs of quality (COQ), 750–52, 759, 779 Cost tracing, 30, 108 Cost–volume–profit (CVP) analysis, 71 advertising decision, 78 alternative fixed-cost/variable-cost structures, 82–83 assumptions, 73 contribution margin, 68–71 cost planning, 82–84 decision making, 78–80 equation method, 71 expressing relationships, 70–72 graph method, 72 not-for-profit organizations, 87–88 operating leverage, 83–84 reducing selling price decision, 78 sales mix effects on income, 85–86 sensitivity analysis, 80–81 service organizations, 87–88 target net income, 76–77 target price determination, 79–80 uncertainty, 91–94 CRM See customer relationship management (CRM) Cross-functional teams, 533–34 Cross-sectional data, 381 Cross-validation, 389 Cumulative average-time learning model, 391 Current cost, 901 Customer batch-level costs, 561–63 Customer-cost analysis, 561–62 Customer-cost hierarchy, 561–62 Customer-level costs, 562–64 Customer-level indirect costs, 563 Customer-level operating income, 563 Customer life-cycle costs, 542 Customer output unit-level costs, 561, 563 Customer perspective, 487, 492, 892 Customer preference map, 479 Customer profitability ability to learn from customers, 567 decision making, 568–69 fully allocated, 573–78 long-run, 567 overall demand from reference customers, 567 Customer-profitability analysis customer-cost analysis, 561–62 customer-level costs, 562–64 customer-revenue analysis, 560–61 Customer-profitability profiles, 565–69 Customer relationship management (CRM), 5–6, 206 Customer-relationship manager, 480 Customer-response times, 7, 760–63 Customer-revenue analysis, 560–61 Customers ability to learn from, 567 allocating all costs to, 570, 574–77 allocating corporate costs to, 577–78 bargaining power, 4, 478 customer-relationship manager, 480 delivering value to, discontinuing, 567 high-maintenance, 567 improving levels of performance to, 7–9 most valued, nonfinancial measures of satisfaction, 751 perceived value, 530 potential for sales growth, 567 pricing decisions, 525–26 relevant-cost analysis, 448–50 relevant-revenue analysis, 448–50 retaining, 567 special perks for, 565–66 INDEX sustainability, unprofitable becoming profitable, 567 Customer service, Customer-sustaining costs, 561–63 Customer value and capital budgeting, 839 CVP analysis See cost-volume-profit (CVP) analysis Cyclical demand patterns, 344 D Data cost functions, 395–96 from similar companies, 257 Databases, Data warehouse, Decentralization autonomy, 858–59 benefits, 859 comparing benefits and costs, 860–61 costs of, 859–60 decision making by subunits, 862–78 duplication of output, 860 multinational companies, 861 responsibility centers, 861 unhealthy competition, 860 Decision making, 427–28, 428 activity-based management (ABM), 172–74 advertising decision, 78 alternatives, 111 analyzing relevant information, 50 applying framework to strategy, 504 autonomy, 858–59 capacity constraints, 439 capital budgeting, 819 choosing among alternatives, 9–10, 68, 203, 820 cost drivers, 377 cost–volume–profit (CVP) analysis, 78–80 customer profitability, 568–69 customer-response times, 761–63 decentralization, 858–61 decision-making process, 157–58 differential cost, 436 differential revenue, 436 dysfunctional, 860 economic-order-quantity decision model, 780–82 environmental impact, 429 equipment-replacement, 451–55 evaluating performance, 10–11, 68, 203 fully allocated costs, 578 identifying problems and uncertainties, 9, 67, 203 implementing, 10–11, 68, 111, 203 incongruent decision making, 860 incremental cost, 436 incremental revenue, 436 information, 9, 67, 203, 427 irrelevance of past costs, 451–53 joint costs, 655–657 learning from, 10–11, 68, 203 long-term horizon, 377 one-time-only special orders, 430–31 opportunity-cost analysis, 439–40 performance evaluation, 453–55, 656 planning, 10–11 predictions, 9, 67–68, 203 pricing decisions, 656–57 process of, 9–12 product mix, 442–44 qualitative analysis, 427 qualitative factors, 429–30 quantitative analysis, 427 quantitative factors, 429–30 rejected alternatives, 440 relevant information, 429–30 reorganization, 427 selling price, 78 sell-or-process-further decisions, 655–56 strategies, 9–10 suboptimal, 859–60 subunits, 862–78 sustainability, target price determination, 79–80 target-pricing approach, 536 total-alternatives approach, 439–40 variance analysis, 251 Decision models, 91–94, 427 alternative actions, 92 assigning probability to events, 92 choice criterion, 91–92 conflicting with performance-evaluation model, 454 equipment-replacement decisions, 453–54 linear programming (LP), 458–61 role of, 91–94 Decision table, 92 Delivery time, 760 Demand inelasticity, 543 Deming Prize, 749 Denominator level, 291 Denominator-level concept forecasting, 352–53 Denominator-level variance, 298 Department costing systems, 174–75 Dependent variable collecting data on, 381 cost driver, 380 limited set of values, 389 time period for measuring, 395–96 Depreciation, 835 Design decisions, 173 quality, 749–50 Designed-in costs, 533 Diagnostic control systems, 911–13 Differential cost, 436 Differential revenue, 436 Direct costing, 330 Direct costs, 29–30, 50, 527–28 assigning, 108 budgeted rates, 134 choosing, 132–33 cost-allocation base, 108 cost objects, 30, 108 design of operations, 31 factors affecting, 31 information-gathering technologies, 31 jobs, 113–15, 118–20 materiality of cost, 31 957 958 INDEX Direct costs (continued) products, 164 quality, 751 specific cost, 31 total cost of products, 168 write-off approach, 131 Direct-costs inputs, 258–64 Direct-cost tracing, 159, 161 Direct engineered costs, 504 Direct labor costs, 47–48 Direct manufacturing costs, 41, 45 Direct manufacturing labor, 113–115, 118, 125 budget, 208–209 cash disbursements, 228 costs, 39, 43, 45 efficiency variance, 260, 262–63, 272 mix variance, 272–73 number of units manufactured, 251 price variance, 259, 262–63, 272 standard costs, 263 workers, 204 yield variance, 272, 273 Direct manufacturing labor-hours, 205, 210 Direct materials, 113, 204 cash disbursements for purchases, 228 efficiency variance, 260, 262–263 flexible-budget variances, 260 price variance, 259, 262–63 scrap used as, 735 standard costs, 263 Direct Materials Control account, 262, 705 Direct materials costs, 39, 41, 43–45 Direct materials-handling labor costs, 308–310 Direct materials inventory, 38, 41, 204 first-in, first-out (FIFO) method, 207 Direct materials purchases budget, 207–208 Direct materials usage budget, 207–208 Direct method, 613–14 Discounted cash flow analysis, 830–31 Discounted cash flow (DCF) method internal rate-of-return (IRR) method, 824–25 net present value (NPV) method, 823–24 required rate of return (RRR), 822–23 time value of money, 822 Discount rate, 823 Discretionary costs, 505 Discretionary overhead costs, 505 Distinctive objectives, 484–85 Distress prices, 866–67 Distribution, 5, 154–55 Distribution-channel cost pools, 574, 577 Distribution-channel costs, 562 Distribution channels costs, 570 Disturbance term, 403 Division administration cost pool, 574–75 Divisional organizations, 217 Division cost pools, 574 Division costs, 570, 573, 577–78 Division-sustaining costs, 562, 571 Dodd-Frank law (2010), 911 Downsizing, 504–506 Dropping customer, 448–49 Dual pricing, 871–72 Dual-rate method advantages and disadvantages, 606 allocation bases, 607–610 budgeted costs versus actual costs, 607–610 budgeted fixed-cost resources, 605 budgeted rates and actual usage, 608–609 budgeted rates and budgeted usage, 608 budgeted versus actual rates, 607–608 fixed-cost pool, 602–603 materials-handling services, 604 support department costs, 602–603 variable-cost pool, 602–603 Dumping, 545 Duplication of output, 860 DuPont method of profitability analysis, 894 Durbin-Watson statistic, 404–405 Dysfunctional decision making, 860 E Early warning, 218 Economic events, Economic-order-quantity decision model, 780–82 Economic order quantity (EOQ), 780, 786–87 Economic plausibility, 377, 380 Economic transactions, Economic value added (EVA), 897–98 Economy and ethics, 16 Efficiency, Efficiency variances, 256–64, 303 direct manufacturing labor, 272 Electronic Data Interchange (EDI) technology, 118 Employees bargaining power, 479 budgets motivating, 201 effectiveness, 266 efficiency, 266 moral hazard, 907–908 performance measurement, 266 Ending cash balance, 229 Ending inventories budget, 212–13 End-of-accounting-year adjustments, 128–33 Engineered costs, 504–505 Engineering and production control costs, 611–12 Enterprise resource planning (ERP) systems, budgeting, 215–16 just-in-time (JIT) production, 794–95 standard costs, 264 Environment, quality standards for, 749 Environmental, social, and governance (ESG) standards, 542 Environmental costs, 31, 542 Environmental performance, 489–93 Equipment book value, 451–52 Equipment-replacement decisions, 451–55 Equivalent products, 478 Equivalent units, 679–80 ERP See enterprise resource planning (ERP) systems Error term, 403 Ethics, 16–18 budgets, 222 challenges, 17–18 institutional support, 16 INDEX Events, 92 Executive performance measures and compensation, 910–11 Expected monetary value, 93 Expected value, 93–94 Experience curve, 390–93 F Facility-sustaining costs, 163 Factory overhead costs, 39 Favorable variance, 251–52 Federal False Claims Act, 645 Federal Trade Commission Act, 544 Feedback, 218, 904 Finance director, 14 Financial accounting controller, 14 defined, Generally Accepted Accounting Principles (GAAP), not recording opportunity costs, 440 Financial budget, 203 Financial measurements, 908 Financial performance, 267, 313, 493, 892–93 Financial perspective, 487, 492, 892 Financial planning models, 215–16 Financial reporting capacity levels, 349–52 Financial variables for performance measurement, 341 Financing, 229 Finished Goods Control account, 130–31, 296, 301–302, 306, 350, 802 Finished-goods inventory, 38–39, 41, 43, 204 Finished-Goods inventory account, 132 First-in, first-out (FIFO) method, 204 First-in, first-out (FIFO) process-costing method, 687–90 spoilage, 725 transferred-in costs, 695–96 versus weighted-average process-costing method, 691–92 First-stage allocation, 161 Five-step decision-making process, 157–58 Fixed batch-level direct costs, 307–308 Fixed-cost allocation, 608–609 Fixed-cost components partial productivity measures, 511–12 Fixed-cost pool, 602–603 Fixed costs, 32–36, 69, 291–92 alternative structures, 82–83 budgeted fixed cost, 604 changes in operating income, 83–84 combined budgeted rate for, 603–604 cost driver, 35 cost objects, 375 cost-plus pricing, 538–39 labor costs, 33 production-volume variance, 298–300 relevant range, 35 resources, 33 variable costs, 32, 73 Fixed indirect costs, 112 Fixed manufacturing costs, 88–89, 335–37, 343 absorption costing, 332 difficulties forecasting, 353 variable costing, 332 959 Fixed manufacturing overhead costs, 350–351 Fixed Overhead Allocated account, 300 Fixed Overhead Control account, 300 Fixed overhead costs, 289 budgets, 210 journal entries, 300–302 standard costing, 306 Fixed overhead cost variances, 297–303 fixed overhead flexible-budget variance, 297 fixed overhead spending variance, 297 production-volume variance, 298–300 Fixed overhead flexible-budget variance, 297 Fixed overhead production-volume variance, 300 Fixed overhead spending variance, 297, 300–301 Fixed Overhead Spending Variance account, 301 Fixed overhead variance calculations, 303–305 Fixed setup overhead costs, 310–11 Flexible budget, 253 direct materials-handling labor costs, 308–310 fixed setup overhead costs, 310–11 Flexible-budget analysis, 292 Flexible-budget variances, 254–56, 260, 305, 580–81 efficiency variance, 256–58 price variance, 256–58 Flexible manufacturing systems (FMS), 159 Focal point, 484 Follow-up service calls, 484 Formal management control system, 857–58 For-profit companies, 493 4-variance analysis, 303 Full-cost bases, 867–69 Full cost of product cost base, 538 Full cost of the product, 430–31 Fully allocated costs, 578 Fully allocated customer profitability, 573–78 Functional organizations, 217 Future amount of $1, 927–28, 931 G GAAP See Generally Accepted Accounting Principles (GAAP) General ledger Accounts Payable Control account, 121 actual manufacturing overhead rates, 131 Finished Goods Control account, 121 Manufacturing Overhead Allocated account, 123 Manufacturing Overhead Control account, 123, 125 Materials Control account, 121 normal-costing system, 121 subsidiary ledgers, 121–22 T-accounts, 127 Work-in-Process Control account, 121, 124 Work-in-Process Inventory Records for Jobs account, 124 Generally Accepted Accounting Principles (GAAP), absorption-costing basis, 430 backflush costing, 802 fixed (manufacturing) overhead costs, 298 lean accounting, 806 manufacturing costs, 155 preparing financial statements for external reporting, 49 Goal congruence, 858 Goodness of fit, 400–401 960 INDEX Gourmet, 860 Government contracts, 48 Graphic approach and linear programming (LP), 460 Gross-margin percentage, 89, 652 Gross margin versus contribution margin, 88–89 Growth component, 497–98 H Heteroscedasticity, 404 High-low method of quantitative analysis, 382–83, 385 High-maintenance customers, 567 High-margin products, 526 Homogeneous cost pools, 159, 164, 573–74, 578 Homoscedasticity, 404 Hospitals, 289 Human aspects of budgeting, 220–23 Hurdle rate, 823 Hybrid costing systems, 697–700 Hybrid transfer prices, 863–64 difference between maximum and minimum transfer prices, 870–71 dual pricing, 871–72 negotiated pricing, 871 Hypothetical budgets, 253 I Idle facilities, 434–36 Idle time, 47 Incentives, 907–908 Income statements, 44 absorption costing income statements, 333 budgeted income statement, 214, 229 contribution income statement, 69 cost-hierarchy-based operating income statement, 569–71 cost of goods sold, 41 inventoriable costs, 45 multiple-year absorption costing, 334–37 multiple-year variable costing, 334–37 period costs, 41, 45 variable costing income statements, 332 yearly absorption costing, 332–34 yearly variable costing, 332–34 Incongruent decision making, 860 Incremental cost-allocation method, 622 Incremental costs, 436, 757 Incremental revenue, 436 Incremental revenue-allocation method, 627–28 Incremental unit-time learning model, 392–93 Independent variable, 380–81, 401–403 Indirect-cost pools, 111–12, 129, 159, 161 cost-allocation base for, 571 fully allocated customer profitability, 573 Indirect costs, 30, 50, 526–28 adjusted allocation-rate approach, 129 assigning, 108 budgeted rate, 113 cost-allocation bases, 108, 112, 115, 165–66 cost drivers, 159 cost objects, 30–31, 108 costs of quality (COQ), 751 customer-cost hierarchy, 561–62 customers, 570–71 denominator reason (quantity of cost-allocation base), 112 design of operations, 31 factors affecting, 31 fixed, 112 information-gathering technologies, 31 jobs, 115–16 materiality of cost, 31 numerator reason (indirect-cost pool), 111–12 overallocated, 128–29 overapplied, 128 predetermined rate, 113 products, 164–65, 166–68 proration approach, 129–31 rate per unit allocating to job, 115–16 specific cost, 31 time period, 111–12 total cost of products, 168 underallocated, 128–29 underapplied, 128 variable, 112 Indirect engineered costs, 504–505 Indirect labor costs, 46–47 Indirect manufacturing costs, 39, 115 Indirect manufacturing labor, 125, 386–87 Industrial engineering method, 378, 386, 388 Industry-market-size factor, 502 Inflation capital budgeting, 843–45 net present value (NPV) method, 844–45 nominal rate of return, 843–44 real rate of return, 843–44 Infobarn, Informal management control system, 857–58 Information data from similar companies, 257 decision process and, 427 economic decisions, 573–78 obtaining, 9, 110, 203 past data, 257 standards, 257–58 Information-gathering technologies, 31 Information technology, 264 Infrastructure costs, 505n Innovation, 7, 11–12, 487 In-Process Inventory Control account, 797 Insourcing, 434 Insourcing-versus-outsourcing decisions carrying costs of inventory, 441–42 insourcing, 434 international outsourcing, 436–37 opportunity-cost approach, 438–40 outsourcing, 434–36 qualitative factors, 436 relevance, 436 strategic factors, 436 total alternatives approach, 437–38 Inspection point, 721 normal spoilage, 727–29 Institute of Management Accountants (IMA), 16, 17 “Resolution of Ethical Conflict,” 18 Interactive control systems, 913 INDEX Interest tables compound amount (future value) of annuity of $1, 929, 933 future amount of $1, 927–28, 931 present value of $1, 928, 932 present value of ordinary annuity of $1, 929–30, 934 Intermediate product, 862, 873–74 Internal-business perspective, 493 Internal-business perspective of quality cause-and-effect diagrams, 753–54 control charts, 752–53 pareto diagrams, 753 Six Sigma quality, 756 Internal-business-process perspective, 487, 892 Internal capabilities, 480–81 Internal failure costs, 751 Internal rate-of-return (IRR) method, 824–26 International Organization for Standardization (ISO), 749 International outsourcing, 436–37 International pricing, 543–44 Internet bottlenecks, 762 Inventoriable costs, 39 flow of, 40–44 income statement, 45 Inventory See warehouse inventory Inventory Control account, 800 Inventory costing, 341–43 Inventory management carrying costs, 779 costs associated with goods for sale, 779–80 costs of quality (COQ), 779–80 just-in-time (JIT) production, 792–95 materials requirements planning (MRP) system, 792 ordering costs, 779 purchasing costs, 779 retail organizations, 779–87 stockout costs, 779 Inventory-related relevant costs, 785 Investment center, 218, 861 Investments, 444–45, 893, 900 Investors relations, 14 sustainability, Irrelevant costs in relevant-cost analysis, 433 ISO 9001 certification, 749 ISO 9000 standards, 749 ISO 14000 standards, 749 J Job costing abnormal rework, 732 abnormal spoilage, 731 actual costing, 111 decision making, 111 evaluating performance, 111 evaluation and implementation, 110–13 general approach to, 113–18 learning from, 111 normal costing, 113 normal rework, 732 normal spoilage, 730–31 obtaining information, 110 predictions about future, 111 problems and uncertainties, 110 rework, 731–32 spoilage, 730–31 technology, 118 time period to compute indirect-cost rates, 111–12 Job-costing system, 109–10 versus process-costing system, 676–77 Job-cost record, 113, 126–27 Job-cost sheet, 113 Jobs, 109 actual costs, 111 chosen cost object, 113 direct costs, 113–115, 118–20 direct materials, 113 indirect costs, 115–16 job-cost records, 121 manufacturing costs, 119 total cost, 116–17 Joint-cost allocation approaches, 646–53 benefits-received criterion, 647, 654–55 choosing method of, 654–55 common allocation basis, 654 computing, 652 constant gross-margin percentage NVR method, 651–54 incremental costs, 656 market-based data, 646 net realizable value (NRV) method, 650–51, 654 overall gross-margin percentage, 652 physical-measure method, 648–50 physical measures, 647 processing decisions independence, 654 reasons to use, 645–46 sales value at splitoff method, 648, 654 separable costs, 656 simplicity, 654 total production costs for products, 652 Joint costs, 644 decision making, 655–57 joint products, 648 not allocating, 655 Joint production process, 644–45 Joint products, 645, 647–48 Journal entries fixed overhead costs, 300–302 operating-costing systems, 700 spoilage, 727 standard costs, 262–64 variable overhead costs, 296 zero beginning and some ending work-in-process inventory, 682–83 Just-in-time (JIT) production activity-based costing (ABC) systems, 802, 804 control, 795 costs and benefits, 793–94 defects, 793 enterprise resource planning (ERP) systems, 794–95 features, 792–93 lean accounting, 804–06 manufacturing cells, 792 961 962 INDEX Just-in-time (JIT) production (continued) multiskilled workers, 792 performance measures, 795 product costing, 795 service industries, 794 setup time, 793 suppliers, 793 Just-in-time (JIT) purchasing, 793 costs, 788 economic order quantity (EOQ), 787 planning and control, 791–92 quality, 788 relevant costs, 787–88 supply-chain analysis, 791–92 Just-in-time production, 337 K Kaizen, 534 budgeting, 222, 267 Knowledge of operations, 376 L Labor costs fixed costs or variable costs, 33 measuring, 46 Labor records by employee, 125 Labor standards, 208 Labor-time sheet, 113–115 Leadership strategy, Lean accounting Generally Accepted Accounting Principles (GAAP), 806 just-in-time (JIT) production, 804–806 value stream, 804–806 Lean production, 792 Learning, 11, 111, 200–201, 203 Learning-and-growth perspective, 487, 493, 757, 892 Learning curves, 390–94, 403 Lease cost, 50 Level of activity, 376 Level variances, 256 Levers of control, 911–13 Life-cycle budgeting, 540–42 Life-cycle costing, 540–42 Linear cost functions, 373–75 Linear programming (LP) constraints, 459 graphic approach, 460 objective function, 458, 459 optimal solution, 459 problem-solving steps, 458–59 sensitivity analysis, 461 trial-and-error approach, 459–60 Line management, 13–14 Linked scorecard, 488 Locked-in costs, 533 Logistic regression, 389 Long-run budgets, 198 Long-run costing, 526–530 Long-run pricing decisions activity-based costing (ABC) systems, 527–28 calculating product costs, 527–28 cost-based approach, 528, 530 market-based approach, 528, 530–32 Long-term assets, 901, 903 Longview, 217 Loss from Abnormal Spoilage account, 720, 723, 731 LP See linear programming (LP) M Machine learning system, 389 Machining departments, 611–12 Main product, 645, 647 Maintenance and variable overhead costs, 289 Make-or-buy decisions, 434–42 Malcolm Baldrige National Quality Award, 749 Management accountant, 15–16 organization structure and, 13–16 strategic decisions, 3–4 Management accounting, 2, 12–14 Management by exception, 250 Management control systems, 857–58 Managers accurate budget forecasts, 221 budgetary slack, 220–21 budgeting process, 201–02 core values and norms, 221 cost objects, 30–31 costs, 219 deferring maintenance, 340 distinguishing performance from performance of subunits, 907–11 economic order quantity (EOQ) decision model, 786–87 fixed manufacturing costs, 340 formulating strategy, increasing compensation, 338–39 management accounting, 2, order to increase production, 340 performance evaluation, 220 undesirable buildup of inventories, 339–40 variances, 264–67 Manufacturing broad averaging, 154–55 normal-costing system, 120–28 Manufacturing cells, 792 Manufacturing companies, 38, 44–45 flow of inventorial costs and period costs, 40–44 Manufacturing cost base, 538 Manufacturing costs, 39, 43, 205, 431 conversion costs, 45–46 jobs, 119 Manufacturing cycle efficiency (MCE), 760 Manufacturing cycle time, 760, 793 Manufacturing Department Overhead Records subsidiary ledger, 124–25 Manufacturing lead time, 760 Manufacturing overhead, 123 Manufacturing Overhead Allocated account, 128–29 Manufacturing Overhead Control account, 126, 128–29 Manufacturing overhead costs, 39, 41, 43, 45, 205 budget, 209–12 Margin of safety, 81 Market-based approach to long-run pricing decisions, 528, 530–32 Market-based data for joint-cost allocation, 646 Market-based transfer prices, 863–64 INDEX distress prices, 866–67 imperfect competition, 867 perfectly-competitive-market case, 866 Marketing, Markets competition, 159 potential entrants into, 478 Market-share variance, 583–84 Market-size variance, 583–84 Master budget, 199, 203, 251–252 Master-budget capacity utilization, 344–45, 349–51, 353 Materials-handling costs, 388 Materials-handling labor-hours, 308 Materials-handling services, 603–604 Materials Inventory Control account, 797 Materials management costs, 611–12 Materials records, 124–25 Materials Records subsidiary ledger, 124 Materials requirements planning (MRP) system, 792 Materials-requisition record, 113 Matrix method, 617 McGahee v Northern Propane Gas Co., 544n Mean defect rate (m), 754, 756 Merchandise inventory, 38 Merchandising-sector companies activity-based costing (ABC) systems, 175 inventoriable costs, 39 merchandise inventory, 38 Miscellaneous costs, 229 Mixed costs, 34, 374 Mix variance, 260, 271–74 Moderate ties, 483–84 Monopolies, 526 Moral hazard, 907–908 Motivation, 858 Multicollinearity, 408–409 Multinational companies budgets, 223 calculating foreign division’s ROI in foreign currency, 905 calculating foreign division’s ROI in U.S dollars, 906 decentralization, 861 performance measurement, 904–906 transfer pricing, 874–78 Multiple regression, 406–408 Multiple regression analysis, 384–85 Multiple support departments allocating costs, 610–20 allocating engineering, production control, and materials management costs to machining and assembly operating departments, 611 allocating plant administration costs to support and operating departments, 610–11 artificial costs, 617 complete reciprocated costs, 617 direct method, 613–14 interrelations between, 618 Job WPP 298 calculations, 619–20 matrix method, 617 reciprocal method, 615–18 step-down method, 614–15 support and operating departments, 610 N 963 Negotiated pricing, 871 Net income and taxes, 76–77 Net-initial-investment cash flows, 833–34 Net operating profit after taxes (NOPAT), 898n Net present value (NPV) method, 823–24, 838 comparing with internal rate-of-return (IRR) method, 826 inflation, 844–45 nominal approach, 844 real approach, 844 shareholder value maximization, 826 Net realizable value (NRV) method, 650–51, 654 New-product development time, Nonfinancial measures, 908 customer satisfaction, 751 internal-business-process quality, 756 quality, 759 Nonfinancial performance measurement, 267, 313, 892–93 Nonfinancial variables, 341 Nonlinear cost functions cumulative average-time learning model, 391 experience curve, 390–93 incremental unit-time learning model, 392–93 learning curves, 390–94 relevant range, 389 step cost function, 389–90 step fixed-cost function, 390 step variable-cost function, 390 Nonmanufacturing costs, 205, 353–54 budget, 213–14 Nonmanufacturing settings, 312–13 Nonuniform cash flows, 828–29 Non-value-added costs, 533 Normal-budget capacity utilization, 351 Normal capacity utilization, 344–45, 349–53 Normal costing, 113 budgeted indirect-cost rates, 118 earlier information, 119 manufacturing overhead allocated, 123, 129 manufacturing overhead applied, 123 pricing or product-mix decisions, 346 variation from, 133–34 Normal-costing system allocation of manufacturing overhead to jobs, 123 backflush costing, 796–802 cost of goods sold, 123 direct labor, 122 direct materials usage, 122 finished goods inventory records by jobs, 127 general ledger, 121 indirect labor, 122 indirect materials usage, 122 job costing, 127–28 jobs completed and transferred to finished goods, 123 labor records by employee, 125 manufacturing costs of job, 119 Manufacturing Department overhead records, 126 manufacturing overhead costs, 122, 123 manufacturing payroll, 122 marketing costs, 123 materials records by type of material, 124–25 nonmanufacturing costs, 127–28 964 INDEX Normal-costing system (continued) purchases of materials, 121 sales revenue from jobs sold and delivered, 123 sequential tracking, 796 subsidiary ledgers, 124 subsidiary records, 127 transactions explanations, 121–23 variances, 799–802 work-in-progress inventory records, 126–27 Normal rework, 732 Normal spoilage, 720 attributable to specific job, 730 common to all jobs, 730–31 cost allocation, 727–29 inspection point, 727–29 job costing, 730–31 Not-for-profit organizations cause-and-effect relationships, 493 cost-volume-profit (CVP) analysis, 87–88 Number of units manufactured, 251 Numerator reason (indirect-cost pool), 111–12 O Objective function, 458–59 One-time-only special orders, 430–31 On-time performance, 761 Operating budgets, 226 See also budgets budgeted income statement, 214 cost of goods sold budget, 213 direct manufacturing labor costs budget, 208–209 direct materials purchases budget, 207–208 direct materials usage budget, 207–208 ending inventories budget, 212–13 financial budget, 203 manufacturing overhead costs budget, 209–212 nonmanufacturing costs budget, 213–14 production budget, 206–207 revenues budget, 206 risks, 216 supporting schedules, 203 Operating-costing systems, 699–700 Operating costs, 445 Operating departments, 602, 610–611 Operating income, 44, 133 breakeven point (BEP), 74 calculating, 68–69, 71 cost leadership effect on, 502 growth component of change, 497–98 industry-market-size factor effect on, 502 price-recovery component, 498–99, 501–503 product differentiation effect, 502 productivity component, 499–503 relationship to contribution margin percentage, 70 sales-volume variance, 255 strategic analysis of, 495–503 target, 74–76 Operating-income volume variance, 306 Operating leverage, 83–84 Operating plans budgets, 198–99 Operational measures of time, 760–61 Operation-costing systems, 697–700 Operations, 8–9, 487, 697 Opportunity-cost analysis, 439–42 Opportunity cost of capital, 823 Opportunity costs, 440 Order-delivery process, 480–81 Ordering costs, 779 Organizational learning, 266–67 Organizational structure, 13–16, 217–18 Orphan objectives, 484 Outcomes, 92–94 Output, duplication of, 860 Output unit-level costs, 163 Outsourcing idle facilities, 434–36 international outsourcing, 436–37 risks, 436 Overallocated indirect costs, 128–29 Overallocated overhead, 129–31 Overall-total variance, 305 Overapplied indirect costs, 128 Overhead costs, 210, 574–77 Overhead cost variances combined variance analysis, 303–305 4-variance analysis, 303 integrated analysis, 303–305 Overhead variances, 312–313 Overtime premium, 46–47 P Pareto diagrams, 753 Partial productivity, 511–13 Past costs, 427–28, 451–53 Past data, 257 Past performance, 200–201 Payback method, 827–29 Payroll fringe costs, 47–48 Peak-load pricing, 543 Perfectly-competitive-market case, 866 Performance evaluation, 111, 203, 218 balanced scorecard, 488–89 capacity levels, 349 decision making, 453–55, 656 equipment-replacement decisions, 453–55 framework for judging, 200–201 information for, 50 learning curves, 394 project management, 838 Performance-evaluation model, 454 Performance measurement, 481–82 absorption costing, 338–41 accounting-based measures for business units, 893–99 aligning with financial goal, 892 alternative asset measurements, 900–903 alternative definitions of investment, 900 benchmarks, 909 changing period used to evaluate, 341 comparing, 899 details of, 892, 899–903 effectiveness, 266 efficiency, 266 executive performance measures and compensation, 910–11 INDEX feedback mechanism, 892 financial and nonfinancial, 267, 892–93 financial variables, 341 incentives, 908 incentives versus risk, 907–908 individual activity level, 909–910 just-in-time (JIT) production, 795 management’s freedom to build up excess inventory, 340 manager’s performance from subunit’s performance, 907–911 multinational companies, 904–906 nonfinancial variables, 341 performing multiple tasks, 909–10 proposals for revising, 340–41 relative performance evaluation, 909 target level of performance, 892, 903–904 team-based compensation arrangements, 910 timing of feedback, 904 variances, 266 Performance reports, 219 Performing multiple tasks, 909–910 Period costs, 39, 44 flow of, 40–44 income statement, 45 R & D expenses, 40 Physical-measure method, 648–50 Physical measures for joint-cost allocation, 647 Planned unused capacity, 349 Planning, 10–11 activities, 174 budget, 10 capacity costs, 352 fixed overhead costs, 289 just-in-time (JIT) purchasing, 791–92 obtaining information for, 50 postdecision information, 10 predecision information, 10 taxes, 14 variable overhead costs, 289 Plant administration costs, 610–11 Plant manager, 13 Post-investment audits, 837 Post-sales-service process, 487 Potential entrants into market, 478 Practical capacity, 344–49, 352 allocating costs, 605 fixed manufacturing overhead costs, 351 production-volume variance, 350 Predatory pricing, 544–45 Predetermined indirect-cost rate, 113 Prediction error cost, 785–86 Predictions about future, 111, 203 Present value of $1, 928, 932 Present value of ordinary annuity of $1, 929–30, 934 Prevention costs, 750 Previous-department costs, 692 Price discounts, 560–61 Price discrimination, 543–44 Price-recovery component, 497, 501–503 Prices, incorporating learning-curve effects into, 393–94 Price variance, 256–64, 272 Pricing cost, 48–49 965 Pricing decisions, 172, 347–48, 656–57 antitrust laws, 544–45 collusive pricing, 545 competitors, 525–26 cost incurrence, 533–36 cost-plus pricing, 537–39 costs, 525–26 customers, 525–26 dumping, 545 international pricing, 543–44 life-cycle budgeting, 540–42 life-cycle costing, 540–42 locked-in costs, 533–36 long-run pricing, 526–30 non-cost factors, 543–44 peak-load pricing, 543 predatory pricing, 544–45 price discrimination, 543–44 stable prices, 526 value engineering, 533–36 Prime costs, 45 Probability distribution, 92 Problems, 9, 110, 203 Process costing with no beginning or ending work-in-process inventory, 677–78 spoilage, 720–27 standard-costing method, 704–707 transferred-in costs, 692–97 zero beginning and some ending work-in-process inventory, 678–83 Process-costing system, 109–110 accounting for variances, 705–707 versus job-costing system, 676–77 Process costing with some beginning and some ending workin-process inventory first-in, first-out (FIFO) process-costing method, 687–90 weighted-average process-costing method, 684–87 Processes designing, 5, 154–55 improvement decisions, 172–73 Producing for inventory, 339 Product cost, 48–50 budgeted, 207 calculating, 527–28 pricing, 48 product-mix decisions, 48 zero beginning and some ending work-in-process inventory, 681–82 Product-cost cross-subsidization, 154 Product costing, 346–47 just-in-time (JIT) production, 795 simplifying, 263 Product differentiation, 479, 502 Product-differentiation, 489 Production, 5, 602 budget, 206–207 Production control, 533 Production method, 658–59 Production process, 721 Production-volume variance, 298–303, 305–307, 334–36, 339, 349–52 966 INDEX Productivity, 497, 499–503, 511–13 Product life-cycle, 540–42 Product-mix decisions, 172, 442–44 Product profitability analysis, 526 Products, 645 comparable physical measures, 650 cost, cost allocation, 526 cost objects, 164 designing, 5, 154–55 direct costs, 164 diversity, 159 equivalent, 478 gross-margin percentages for, 647–48 high-margin, 526 indirect costs, 164–68 innovative, inventoriable costs, 39 joint-cost allocation, 645 more useful to customers, 4–6 negative allocations, 653 product profitability analysis, 526 profitability of, 30–31 quality, 7, 749 regulating rates or prices of jointly produced, 645–46 reimbursed under cost-plus contracts, 645 reverse-engineering, 531 sold at splitoff point, 656 substitute, supplying and delivering, total cost adding direct and indirect costs, 168 total production costs, 652 Products and processes design, Product-sustaining costs, 163 Product undercosting, 153 Professional accounting organizations, 16 Professional ethics, 16–18 Profitable customers, 567 Profit center, 218, 861 Profit margin, 88–89 Profit plan, 199 Profit potential, 478 Profit-volume (PV) graph, 76 Pro forma statements, 199 Project management, 837–38 Projects alternatives, 820 cash flows attributable to, 820 initial investment, 833 life-span cash flows, 819 long-run planning decisions, 819–22 monetary gain or loss from, 823–24 payback period, 827–29 performance evaluation, 838 post-investment audits, 837 recouping initial investment in, 827–29 rejecting, 820 research and development (R&D) investment, 838–39 working-capital investment, 833 Proration approach, 129–31, 350 Public Company Accounting Oversight Board, 16 Purchase-order lead time, 780 Purchasing costs, 779 just-in-time (JIT) purchasing, 787–92 PV graph See profit-volume (PV) graph Q Qualitative analysis, 427 Qualitative factors, 429–30, 436 Quality analyzing problems, 752–56 cause-and-effect diagrams, 753–54 as competitive tool, 749–52 conformance quality, 749–50 contribution margin, 758 control charts, 752–53 costs and benefits of improving, 757–58 costs of quality (COQ), 750–52, 779–80 design quality, 749–50 evaluating performance, 759 financial perspective, 750–52 improvements, 480–81, 757 incremental costs, 757 international standards for, 749 just-in-time (JIT) purchasing, 788 learning-and-growth perspectives, 757 lower rework, customer support, and repairs, 757 nonfinancial measures to evaluate and improve, 751–57 pareto diagrams, 753 relevant costs, 789–791 Six Sigma quality, 756 supplier evaluation, 789–91 supply chain, value chain, Quantitative analysis, 379 cost drivers, 381–82, 388 decision process, 427 dependent variable, 380–81 estimating cost function, 380–85 high-low method, 382–83 independent variable, 380–81 plotting data, 381 regression analysis, 384–85 Quantitative factors, 429–30 R Rate variance, 258 R&D See research and development (R&D) Receipt time, 760 Reciprocal method, 615–19 Reciprocated budgeted costs, 617 Reengineering, 480–81 Refining costing systems, 158–60 Regression analysis, 384–85 Bonferroni correction, 389 coefficient of determination, 400–401 confidence interval, 402 cost drivers, 386–87, 405 cross-validation, 389 dependent variable, 386 disturbance term, 403 Durbin-Watson statistic, 404–405 error term, 403 estimation assumptions, 403–405 INDEX false positives, 389 goodness of fit, 384, 386, 400–401 heteroscedasticity, 404 homoscedasticity, 404 independent variable, 387, 401–403 multicollinearity, 408–409 multiple regression analysis, 384–85 multiple regression and cost hierarchies, 406–408 regression line, 400 residual term, 384, 403 simple regression analysis, 384–385 standard error, 401–403 Relative performance evaluation, 909 Relevance insourcing-versus-outsourcing decisions, 436 one-time-only special orders, 430–31 potential problems, 433 product-mix decisions, 442–44 qualitative factors, 429–30 quantitative factors, 429–30 relevant costs, 427–29 relevant revenues, 427–29 short-run pricing decisions, 433–34 Relevant after-tax flows, 831–32 Relevant cash flows cash-flow categories, 833–36 discounted cash flow analysis, 830–31 relevant after-tax flows, 831–32 Relevant-cost analysis adding customer, 450 branch offices or business divisions, 450 dropping customer, 448–49 general assumptions, 432 irrelevant costs, 432 potential problems, 432 qualitative factors, 429–30 quantitative factors, 429–30 unit fixed costs, 432–33 Relevant costs, 427–29, 447–51, 655 incremental, 785 just-in-time (JIT) purchasing, 787–88 quality, 789–91 short-run pricing decisions, 433 timely deliveries, 789–91 warehouse inventory, 780–82 Relevant opportunity cost of capital, 785 Relevant range, 35–36, 373, 389 Relevant-revenue analysis, 448–50 Relevant revenues, 427–29, 655, 764–65 Reorder point, 782–83 Reorganization, 427–28 Required rate of return (RRR), 822–23 Research and development (R&D), 5, 214 expenses, 40 investment in, 838–39 Residual income (RI), 895–96 Residual term, 384, 403 Responsibility accounting, 217–20 Responsibility centers, 218–19, 861 Retail organizations costs associated with goods for sale, 779–80 inventory management, 779–87 Return on investment (ROI), 894–95 calculating foreign divisions’ in foreign currency, 905 calculating foreign division’s in U.S dollars, 906 Return on sales (ROS), 898 Revenue allocation bundled products, 624–29 incremental revenue-allocation method, 627–28 stand-alone revenue-allocation method, 626–27 taxes and, 629 Revenue-based cost pools, 574 Revenue center, 218, 861 Revenue driver, 73 Revenue objects, 625 Revenues, 39, 73, 206, 625 Reverse-engineering products, 531 Rework, 719, 731–32 Rightsizing, 505–506 Risk management, 14 Risks environmental and social performance, 491 versus incentives, 907–908 operating budgets, 216 sensitivity analysis, 216 Rolling budgets, 202, 220–21 Rolling forecast, 202 S Safety stock, 783–85 Sales forecast, 206 Sales management systems, 206 Sales method, 659 Sales mix, 85–86 Sales-mix variance, 581 Sales-order costs, 562 Sales-quantity variance, 582 Sales value at splitoff method, 648, 654 Sales variances, 579–84 Sales-volume variance, 254–55, 305–307, 581 Sarbanes-Oxley Act (2002), 16 Scrap, 719, 733–35 Second-stage allocation, 161 Selling price, 73 Selling-price variance, 256 Sell-or-process-further decisions, 655–56 Semiconductor industry, 344 Semivariable costs, 34, 374 Sensitivity analysis, 80–81, 216, 826–27 cash budget, 231–32 linear programming (LP), 461 Separable costs, 644 Sequential allocation method, 614–15 Sequential tracking, 796 Sequential-tracking costing systems, 796 Serial correlation, 404 Service department, 602 Service organizations, 38 activity-based costing (ABC) systems, 175 cost-volume-profit (CVP) analysis, 87–88 just-in-time (JIT) production, 794 overhead variances, 312–13 standard costs, 264 time-and-materials method, 539 967 968 INDEX Services, cost-plus contracts, 645 joint-cost allocation, 645 jointly produced, 645–46 quality, 749 supplying and delivering, Service-sustaining costs, 163 Service undercosting, 153 Setup labor-hours, 205 Setup time, 793 Shapley value method, 622 Shared value, 491 Sherman Act, 544 Short-run budgets, 198 Short-run pricing decisions, 433–34 Shrinkage costs, 780 Simple costing system, 154–57 Simple regression analysis, 384–85 Simplex method, 459n Single indirect-cost pool, 155–57 Single-rate method actual fixed-cost resources, 605 advantages and disadvantages, 606 allocating support department costs, 602–603 base choice, 607–10 budgeted costs versus actual costs, 607–10 budgeted rates and actual usage, 608–609 budgeted usage versus actual usage, 608 budgeted versus actual rates, 607–608 materials-handling services, 603–604 Six Sigma quality, 756 Slope coefficient, 373–74 Smart Grid technology, 601–602 Social performance and balanced scorecard, 489–93 Source document, 113 Specification analysis, 403–405 Specific cost, 31 Spending variance, 305 Spinoff point, 648 joint products, 647 sales value at, 654 Splitoff point, 644 Spoilage, 719 abnormal spoilage, 720 disposal value, 727 first-in, first-out (FIFO) process-costing method, 726 job costing, 730–31 journal entries, 727 normal spoilage, 720 process costing, 720–27 standard-costing method, 737–39 types, 719–20 weighted-average process-costing method, 723–25 Staff management, 13–14 Stand-alone cost-allocation method, 621–22 Stand-alone revenue-allocation method, 626–27 Standard costing absorption costing, 336 benefits, 704 budgeted fixed overhead rates, 291–92 budgeted variable overhead rates, 290–91 computations under, 704–705 cost-allocation bases, 290 direct costs, 290 fixed overhead costs, 306 overhead costs, 290 pricing or product-mix decisions, 346 variances, 705–707 Standard-costing method process costing, 704–707 spoilage, 737–39 Standard-costing systems backflush costing, 796–802 sequential tracking, 796 variances, 799–802 Standard costs, 257, 262–64 variance analysis, 256–58 wide applicability of, 264 Standard deviation (s), 754, 756 Standard error of the estimated regression, 401–403 Standard input, 257 Standard manufacturing overhead cost, 263 Standard price, 257 Standards, 257–58 learning-curve effects, 393–94 Static budgets, 25–253 Static-budget variance, 251–52, 255, 305, 580 Statistical process control (SPC), 752 Statistical quality control (SQC), 752–53 Step-down method, 614–15, 619 Step fixed-cost function, 390 Step variable-cost function, 390 Stockholders’ equity, 900 Stockout costs, 779 Strategic analysis of operating income growth component, 497–98, 501–503 price-recovery component, 497, 498–99, 501–503 productivity component, 497, 499–503 Strategic business units (SBUs), 493 Strategic cost management, Strategic objectives, 483–85 Strategic planning, 14, 198–99 Strategies, 3–4, 478, 911–13 balanced scorecard, 481–494 bargaining power of customers, 478 bargaining power of input suppliers, 479 cash available to fund, communicating, 493 competitors, 478 cost leadership, 479, 495–97 customer preference map, 479 customer relationship management (CRM), 5–6 decision making, 9–10 decision-making framework, 505 equivalent products, 478 evaluating success of, 479, 494 formulating, 478–79 implementation, 481–94 internal capabilities, 480–81 operating-income increases, 495–96 performance measures, 481–82 potential entrants into market, 478 product differentiation, 479 INDEX Strategy maps, 482–85 Stretch targets, 221–22 Structural analysis strategy maps, 483–85 Suboptimal decision making, 859–60 Subsidiary ledgers, 121, 124 Substitutable inputs, 271–74 Substitute products, Subunits and manager’s performance, 907–11 Sunk costs, 428 Super-variable costing, 341 Supervision, 533 Supplier-managed inventory, 791 Suppliers bargaining power, 4, 479 evaluation, 789–91 just-in-time (JIT) production, 793 Supply chain, 6–9 Supply-chain analysis, just-in-time (JIT) purchasing, 791–92 Support department costs, 602–606 Support departments, 602 materials-handling services, 603–604 multiple, 610–20 plant administration costs, 610–11 supply of capacity, 604–605 Sustainability, 7–8, 490 life-cycle costing, 542 monitoring and managing, 11–12 Sustainability Accounting Standards Board (SASB), 542 T Target costing, 534–36 competitor analysis, 531 customers’ perceived value, 530 deriving, 532 product satisfying customer needs, 531 target pricing for, 530–32 value engineering, 532 Target cost per unit, 532, 534–36 Target level of performance, 903–904 Target net income and taxes, 76–77 Target operating income, 74–76 Target operating income per unit, 532 Target price, 530–32, 536, 539 Target rate of return on investment, 537–38 Taxes annual depreciation deduction, 835–36 capacity levels, 352 multinational corporations, 874–78 planning, 14 revenue allocation, 629 TDABC See time-driven activity-based costing (TDABC) systems, 162 Team-based compensation arrangements, 910 Technical considerations, 13 Technology role in job costing, 118 Terminal disposal of investment, 836 Theoretical capacity, 344–45, 346–47 fixed manufacturing overhead costs, 351 production-volume variance, 350 Theory of constraints (TOC), 444–47 Throughput costing, 341 Throughput margin, 341, 444–45 Throughput-margin analysis, 444–47 Ties, 483–84 Time average waiting time, 762–63 bottlenecks, 761–63 as competitive tool, 760–63 costs of delays, 764–65 customer-response time, 760 delivery time, 760 feedback, 904 fixed overhead costs, 289 manufacturing cycle efficiency (MCE), 760 on-time performance, 761 operational measures of, 760–61 purchase-order lead time, 780 receipt time, 760 supply chain, time-based measures, 766–77 time drivers, 761–63 value chain, Time-and-materials method, 539 Time-based measures, 766–77 Time-driven activity-based costing (TDABC) systems, 162, 175 Time drivers, 761–63 Timely deliveries, 789–91 Time-series data, 381 TOC See theory of constraints (TOC) Total-alternatives approach, 437–40 Total assets, 900 Total costs, 72–73 change in level of, 34–35 jobs, 116–17 unit costs, 36–38 variable costs, 32 Total factor productivity (TFP), 512–13 Total fixed costs, 73, 433 Total manufacturing costs, 41 Total quality management (TQM), 7, 264 Total revenues, 68, 72–73 Total variable costs, 68 TQM See total quality management (TQM) Transfer prices calculating, 863–65 cost-based transfer prices, 863–64, 867–69 criteria for evaluating, 862 general guidelines for, 872–74 hybrid transfer prices, 863–64, 870–72 illustration of, 863–65 market-based transfer prices, 863–66 multinational companies, 874–78 multiple objectives, 877–78 prorating between maximum and minimum transfer prices, 870–71 Transferred-in costs, 692 first-in, first-out (FIFO) process-costing method, 695–96 weighted-average process-costing method, 693–95 Treasury, 14 Trial-and-error approach, 459–60 969 970 INDEX Trigger points, 484 backflush costing, 797–99 sequential-tracking costing systems, 796 Triple bottom line, 490 U Uncertainties, 9, 81, 91, 110, 203 Underallocated indirect costs, 128–29 Underallocated overhead, 129–31 Underapplied indirect costs, 128 Unfavorable variance, 251–52 Unhealthy competition, 860 Uniform cash flows, 827–28 Unit costs, 36–38 Unit fixed costs, 432–33 Unprofitable customers, 567 Unused capacity, 504–506 U.S Clean Air Act, 542 U.S Department of Commerce, 545 U.S Government contracts, 623–624 U.S International Trade Commission, 545 U.S Robinson-Patman Act (1936), 544 U.S Superfund Amendment and Reauthorization Act, 542 U.S Supreme Court, 544–45 V Value-added activities, 760 Value-added costs, 533 Value chain, 4–7 business functions, 526 cost and efficiency, cost savings, 534 gathering information from, 820 identifying activities of, 160–62 levels of performance, 7–9 unit costs, 37 Value-chain analysis, 4–6, 533–34 Value engineering, 532, 534–36 Value stream, 804–806 Variable batch-level direct costs, 307–308 Variable-cost bases, 869 Variable-cost components, 511–12 Variable costing, 330, 336–38, 342–43 absorption costing, 330–32 breakeven points, 357–58 external reporting, 342 fixed manufacturing costs, 332–34, 343 operating income, 333, 337–38 throughput costing, 341 Variable costing income statements, 332–37 Variable cost per unit, 73 Variable-cost pool, 602–603 Variable costs, 32–36, 69 alternative structures, 82–83 budgeted, 603–604 cost driver, 35 cost objects, 375 cost per unit, 32 cost-plus pricing, 538–39 fixed costs, 32–33, 73 labor costs, 33 linear cost functions, 373 product cost base, 538 relevant range, 35–36 total cost, 32 Variable indirect costs, 112 Variable machine setup overhead costs, 211–212 Variable manufacturing cost base, 538 Variable manufacturing costs, 89 Variable manufacturing overhead, 251 Variable overhead, 303–305 Variable Overhead Allocated account, 296 Variable Overhead Control account, 296 Variable overhead costs, 289–90 budgets, 210 journal entries, 296 Variable overhead cost variances flexible-budget analysis, 292 signals, 295 variable overhead efficiency variance, 293–94 variable overhead spending variance, 294–95 Variable overhead efficiency variance, 293–94 Variable overhead flexible-budget variance, 292 Variable overhead spending variance, 294–95 Variance analysis, 266 activity-based costing (ABC) systems, 307–10 benchmarking and, 267–69 continuous improvement, 267 decision making, 251 direct materials-handling labor costs, 308–10 financial and nonfinancial performance measures, 267 fixed batch-level direct costs, 307–308 fixed setup overhead costs, 310–11 organizational learning, 266–67 standard costs, 256–58 variable batch-level direct costs, 307–308 Variances, 50, 218, 250–51 backflush costing, 799–802 denominator-level variance, 298 early warning, 218 efficiency variance, 256–64 evaluating strategy, 218 favorable variance, 251–52 fixed overhead cost variances, 297–303 fixed overhead flexible-budget variance, 297 fixed overhead spending variance, 297 flexible-budget variances, 254, 255–56 isolating, 263 level variances, 256 management use of, 264–67 mix variance, 260 multiple causes of, 264–65 operating-income volume variance, 306 overall-total variance, 305 performance evaluation, 218 performance measurement, 266 price variance, 256–264 production-volume variance, 298–300, 305–307 rate variance, 258 sales-volume variances, 254–55, 305–307 selling-price variance, 256 static-budget variance, 251–52 unfavorable variance, 251–52 variable overhead cost variances, 292–96 variable overhead efficiency variance, 293–94 ... resources that make studying more efficient and effective ALWAYS LEARNING Horngren’s Cost Accounting A MAnAgeriAl eMphAsis Sixteenth Edition Srikant M Datar Harvard University Madhav V Rajan Stanford... accounting and operations areas From 2002 to 2008, Rajan served as an editor of The Accounting Review Rajan has twice been a plenary speaker at the AAA Management Accounting Conference Rajan has received... The Manager and Management Accounting For Coca-Cola, Smaller Sizes Mean Bigger Profits Financial Accounting, Management Accounting, and Cost Accounting Strategic Decisions and the Management Accountant