Horngren cost accounting a managerial emphais 16th global edtion byr rapm

Horngren’s Cost Accounting A MANAGERIAL EMPHASIS Sixteenth Edition Global Edition Srikant M Datar Harvard University Madhav V Rajan Stanford University Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan Vice President, Business Publishing: Donna Battista Director of Portfolio Management: Adrienne D’Ambrosio Senior Portfolio Manager: Ellen Geary Senior Acquisitions Editor, Global Edition: Sandhya Ghoshal Associate Project Editor, Global Edition: Paromita Banerjee Assistant Project Editor, Global Edition: Arka Basu 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 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States edition, entitled Horngren’s Cost Accounting: A Managerial Emphasis, 16th Edition, ISBN 978-0-13-447558-5 by Srikant M Datar and Madhav V Rajan, published by Pearson Education © 2018 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-21154-7 ISBN 13: 978-1-292-21154-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 Typeset in Sabon MT Pro by Integra-PDY IN Printed and bound by L.E.G.O in Italy 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 911 21 An Introduction to Cost Terms and Purposes Cost–Volume–Profit Analysis Job Costing 48 86 127 Activity-Based Costing and Activity-Based Management Master Budget and Responsibility Accounting 172 217 Flexible Budgets, Direct-Cost Variances, and Management Control 269 Flexible Budgets, Overhead Cost Variances, and Management Control Inventory Costing and Capacity Analysis Determining How Costs Behave 308 349 392 Decision Making and Relevant Information 446 Strategy, Balanced Scorecard, and Strategic Profitability Analysis Pricing Decisions and Cost Management 497 544 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis 579 Cost Allocation: Joint Products and Byproducts Process Costing 621 663 695 Spoilage, Rework, and Scrap 738 Balanced Scorecard: Quality and Time 768 Inventory Management, Just-in-Time, and Simplified Costing Methods Capital Budgeting and Cost Analysis 838 Management Control Systems, Transfer Pricing, and Multinational Considerations 876 798 Contents Relevant Range 55 Relationships Between Types of Costs 56 Total Costs and Unit Costs 56 Unit Costs 56 Use Unit Costs Cautiously 57 Business Sectors, Types of Inventory, Inventoriable Costs, and Period Costs 58 Manufacturing-, Merchandising-, and Service-Sector Companies 58 Types of Inventory 58 Commonly Used Classifications of Manufacturing Costs 59 Inventoriable Costs 59 Period Costs 59 Illustrating the Flow of Inventoriable Costs and Period Costs 60 Manufacturing-Sector Example 60 Recap of Inventoriable Costs and Period Costs 64 Prime Costs and Conversion Costs 65 Measuring Costs Requires Judgment 66 Measuring Labor Costs 66 Overtime Premium and Idle Time 66 Benefits of Defining Accounting Terms 67 Different Meanings of Product Costs 68 A Framework for Cost Accounting and Cost Management 69 Calculating the Cost of Products, Services, and Other Cost Objects 70 Obtaining Information for Planning and Control and Performance Evaluation 70 Analyzing the Relevant Information for Making Decisions 70 The Manager and Management Accounting 21 For Coca-Cola, Smaller Sizes Mean Bigger Profits Financial Accounting, Management Accounting, and Cost Accounting 22 Strategic Decisions and the Management Accountant 23 Value-Chain and Supply-Chain Analysis and Key Success Factors 24 Value-Chain Analysis 24 Supply-Chain Analysis 26 Key Success Factors 27 Concepts in Action: Trader Joe’s Recipe for Cost Leadership Decision Making, Planning, and Control: The Five-Step Decision-Making Process 29 Key Management Accounting Guidelines 32 Cost–Benefit Approach 32 Behavioral and Technical Considerations 33 Different Costs for Different Purposes 33 Organization Structure and the Management Accountant 33 Line and Staff Relationships 33 The Chief Financial Officer and the Controller 34 Management Accounting Beyond the Numbers 35 Professional Ethics 36 Institutional Support 36 Typical Ethical Challenges 37 Problem for Self-Study 39 | Decision Points 39 | Terms to Learn 40 | Assignment Material 40 | Questions 40 | Multiple-Choice Questions 41 | Exercises 41 | Problems 43 An Introduction to Cost Terms and Purposes 48 High Fixed Costs Bankrupt Quiksilver Costs and Cost Terminology 49 Direct Costs and Indirect Costs 49 Cost Allocation Challenges 50 Factors Affecting Direct/Indirect Cost Classifications 51 Cost-Behavior Patterns: Variable Costs and Fixed Costs 52 Concepts in Action: Zipcar Helps Twitter Reduce Fixed Costs Cost Drivers 54 Problem for Self-Study 71 | Decision Points 73 | Terms to Learn 74 | Assignment Material 74 | Questions 74 | Multiple-Choice Questions 75 | Exercises 76 | Problems 80 Cost–Volume–Profit Analysis 86 How Coachella Tunes Up the Sweet Sound of Profits Essentials of CVP Analysis 87 Contribution Margin 88 Expressing CVP Relationships 90 Cost–Volume–Profit Assumptions 93 Breakeven Point and Target Operating Income 93 Breakeven Point 93 Target Operating Income 94 Income Taxes and Target Net Income 96 Using CVP Analysis for Decision Making 98 Contents Decision to Advertise 98 Decision to Reduce the Selling Price 98 Determining Target Prices 99 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 100 Cost Planning and CVP 102 Alternative Fixed-Cost/Variable-Cost Structures 102 Operating Leverage 103 Effects of Sales Mix on Income 105 CVP Analysis in Service and Not-for-Profit Organizations 107 Contribution Margin Versus Gross Margin 108 Problem for Self-Study 109 | Decision Points 110 APPendIx: decision Models and Uncertainty 111 Terms to Learn 114 | Assignment Material 115 | Questions 115 | Multiple-Choice Questions 115 | Exercises 116 | Problems 120 Job Costing 127 Job Costing and the World’s Tallest Building Building-Block Concepts of Costing Systems 128 Job-Costing and Process-Costing Systems 129 Job Costing: Evaluation and Implementation 130 Time Period Used to Compute Indirect-Cost Rates 131 Normal Costing 133 General Approach to Job Costing Using Normal Costing 133 Concepts in Action: The Job-Costing “Game Plan” at AT&T Stadium The Role of Technology 138 Actual Costing 138 A Normal Job-Costing System in Manufacturing 140 General Ledger 141 Explanations of Transactions 141 Subsidiary Ledgers 144 Materials Records by Type of Material 144 Labor Records by Employee 145 Manufacturing Department Overhead Records by Month 146 Work-in-Process Inventory Records by Jobs 146 Finished Goods Inventory Records by Jobs 147 Other Subsidiary Records 147 Nonmanufacturing Costs and Job Costing 147 Budgeted Indirect Costs and End-of-Accounting-Year Adjustments 148 Underallocated and Overallocated Indirect Costs 148 Adjusted Allocation-Rate Approach 149 Proration Approach 149 Write-off to Cost of Goods Sold Approach 151 Choosing Among Approaches 152 Variations from Normal Costing: A Service-Sector Example 153 Problem for Self-Study 155 | Decision Points 157 | Terms to Learn 158 | Assignment Material 158 | Questions 158 | Multiple-Choice Questions 159 | Exercises 160 | Problems 166 Activity-Based Costing and Activity-Based Management 172 General Motors and Activity-Based Costing Broad Averaging and Its Consequences 173 Undercosting and Overcosting 173 Product-Cost Cross-Subsidization 174 Simple Costing System at Plastim Corporation 174 Design, Manufacturing, and Distribution Processes 174 Simple Costing System Using a Single Indirect-Cost Pool 175 Applying the Five-Step Decision-Making Process at Plastim 177 Refining A Costing System 178 Reasons for Refining a Costing System 179 Guidelines for Refining a Costing System 179 Activity-Based Costing Systems 180 Plastim’s ABC System 180 Cost Hierarchies 182 Implementing Activity-Based Costing 184 Implementing ABC at Plastim 184 Comparing Alternative Costing Systems 189 Considerations in Implementing Activity-Based Costing Systems 190 Benefits and Costs of Activity-Based Costing Systems 190 Behavioral Issues in Implementing Activity-Based Costing Systems 191 Activity-Based Management 192 Pricing and Product-Mix Decisions 192 Cost Reduction and Process Improvement Decisions 192 Design Decisions 193 Planning and Managing Activities 194 Activity-Based Costing and Department Costing Systems 194 ABC in Service and Merchandising Companies 195 Concepts in Action: Mayo Clinic Uses Time-driven Activity-Based Costing to Reduce Costs and Improve Care Problem for Self-Study 196 | Decision Points 199 | Terms to Learn 200 | Assignment Material 200 | Questions 200 | Multiple-Choice Questions 201 | Exercises 201 | Problems 208 Contents Price Variances and Efficiency Variances for Direct-Cost Inputs 278 Price Variances 279 Efficiency Variance 279 Journal Entries Using Standard Costs 282 Implementing Standard Costing 284 Management’s Use of Variances 284 Multiple Causes of Variances 284 Concepts in Action: Can Chipotle Wrap Up Its Materials-Cost Variance Increases? When to Investigate Variances 285 Using Variances for Performance Measurement 286 Organization Learning 286 Continuous Improvement 287 Financial and Nonfinancial Performance Measures 287 Benchmarking and Variance Analysis 287 Master Budget and Responsibility Accounting 217 “Scrimping” at the Ritz: Master Budgets Budgets and the Budgeting Cycle 218 Strategic Plans and Operating Plans 218 Budgeting Cycle and Master Budget 219 Advantages and Challenges of Implementing Budgets 220 Promoting Coordination and Communication 220 Providing a Framework for Judging Performance and Facilitating Learning 220 Motivating Managers and Other Employees 221 Challenges in Administering Budgets 221 Developing an Operating Budget 222 Time Coverage of Budgets 222 Steps in Preparing an Operating Budget 222 Financial Planning Models and Sensitivity Analysis 235 Concepts in Action: 24 Hour Fitness and Internet-Based Budgeting Budgeting and Responsibility Accounting 237 Organization Structure and Responsibility 237 Feedback 238 Responsibility and Controllability 239 Human Aspects of Budgeting 240 Budgetary Slack 240 Stretch Targets 241 Kaizen Budgeting 242 Budgeting for Reducing Carbon Emissions 243 Budgeting in Multinational Companies 243 Problem for Self-Study 244 | Decision Points 245 APPendIx: The Cash Budget 246 Terms to Learn 252 | Assignment Material 252 | Questions 252 | Multiple-Choice Questions 253 | Exercises 253 | Problems 258 Flexible Budgets, Direct-Cost Variances, and Management Control 269 SingaDeli Bakery and Incentive Controls Static Budgets and Variances 270 The Use of Variances 270 Static Budgets and Static-Budget Variances 271 Flexible Budgets 273 Flexible-Budget Variances and Sales-Volume Variances 274 Sales-Volume Variances 274 Flexible-Budget Variances 275 Standard Costs for Variance Analysis 276 Obtaining Budgeted Input Prices and Budgeted Input Quantities 277 Problem for Self-Study 289 | Decision Points 290 APPendIx: Mix and Yield Variances for Substitutable Inputs 291 Terms to Learn 295 | Assignment Material 295 | Questions 295 | Multiple-Choice Questions 295 | Exercises 296 | Problems 300 Flexible Budgets, Overhead Cost Variances, and Management Control 308 Tesla Motors Gigafactory Planning of Variable and Fixed Overhead Costs 309 Planning Variable Overhead Costs 309 Planning Fixed Overhead Costs 309 Standard Costing at Webb Company 310 Developing Budgeted Variable Overhead Rates 310 Developing Budgeted Fixed Overhead Rates 311 Variable Overhead Cost Variances 312 Flexible-Budget Analysis 312 Variable Overhead Efficiency Variance 313 Variable Overhead Spending Variance 314 Journal Entries for Variable Overhead Costs and Variances 316 Fixed Overhead Cost Variances 317 Production-Volume Variance 318 Interpreting the Production-Volume Variance 319 Journal Entries for Fixed Overhead Costs and Variances 320 Concepts in Action: Variance Analysis and Standard Costing Help Sandoz Manage Its Overhead Costs Integrated Analysis of Overhead Cost Variances 323 4-Variance Analysis 323 Combined Variance Analysis 323 Production-Volume Variance and Sales-Volume Variance 325 Variance Analysis and Activity-Based Costing 327 Contents Flexible Budget and Variance Analysis for Direct Materials-Handling Labor Costs 328 Flexible Budget and Variance Analysis for Fixed Setup Overhead Costs 330 Overhead Variances in Nonmanufacturing Settings 332 Financial and Nonfinancial Performance Measures 333 Problem for Self-Study 334 | Decision Points 336 | Terms to Learn 337 | Assignment Material 337 | Questions 337 | Multiple-Choice Questions 337 | Exercises 339 | Problems 343 Nonmanufacturing Costs 373 Activity-Based Costing 374 Problem for Self-Study 374 | Decision Points 376 APPendIx: Breakeven Points in Variable Costing and Absorption Costing 377 Terms to Learn 379 | Assignment Material 379 | Questions 379 | Multiple-Choice Questions 379 | Exercises 381 | Problems 385 10 Determining How Costs Behave 392 UPS Uses “Big Data” to Understand Its Costs While Helping the Environment Inventory Costing and Capacity Analysis 349 Basic Assumptions and Examples of Cost Functions 393 Basic Assumptions 393 Linear Cost Functions 393 Review of Cost Classification 395 Identifying Cost Drivers 396 The Cause-and-Effect Criterion 396 Cost Drivers and the Decision-Making Process 397 Cost Estimation Methods 397 Industrial Engineering Method 398 Conference Method 398 Account Analysis Method 398 Quantitative Analysis Method 399 Estimating a Cost Function Using Quantitative Analysis 400 High-Low Method 402 Regression Analysis Method 404 Evaluating and Choosing Cost Drivers 405 Cost Drivers and Activity-Based Costing 408 Nonlinear Cost Functions 409 Learning Curves 410 Cumulative Average-Time Learning Model 411 Incremental Unit-Time Learning Model 412 Incorporating Learning-Curve Effects into Prices and Standards 413 Concepts in Action: does Joint Strike Fighter Production Have a Learning Curve? Data Collection and Adjustment Issues 415 Lean Manufacturing Helps Boeing Work Through Its Backlog Variable and Absorption Costing 350 Variable Costing 350 Absorption Costing 350 Comparing Variable and Absorption Costing 350 Variable vs Absorption Costing: Operating Income and Income Statements 352 Comparing Income Statements for One Year 352 Comparing Income Statements for Multiple Years 354 Variable Costing and the Effect of Sales and Production on Operating Income 357 Absorption Costing and Performance Measurement 358 Undesirable Buildup of Inventories 359 Proposals for Revising Performance Evaluation 360 Comparing Inventory Costing Methods 361 Throughput Costing 361 A Comparison of Alternative Inventory-Costing Methods 362 Denominator-Level Capacity Concepts and Fixed-Cost Capacity Analysis 363 Absorption Costing and Alternative Denominator-Level Capacity Concepts 364 Effect on Budgeted Fixed Manufacturing Cost Rate 365 Choosing a Capacity Level 366 Product Costing and Capacity Management 366 Pricing Decisions and the Downward Demand Spiral 367 Concepts in Action: Can eSPn Avoid the Cord-Cutting “death Spiral”? Performance Evaluation 369 Financial Reporting 369 Tax Requirements 372 Planning and Control of Capacity Costs 372 Difficulties in Forecasting Chosen Denominator-Level Concept 372 Difficulties in Forecasting Fixed Manufacturing Costs 373 Problem for Self-Study 417 | Decision Points 419 APPendIx: Regression Analysis 420 Terms to Learn 429 | Assignment Material 429 | Questions 429 | Multiple-Choice Questions 430 | Exercises 430 | Problems 436 11 Decision Making and Relevant Information 446 Relevant Costs and Broadway Shows Information and the Decision Process 447 The Concept of Relevance 447 Relevant Costs and Relevant Revenues 447 Contents Qualitative and Quantitative Relevant Information 449 One-Time-Only Special Orders 450 Potential Problems in Relevant-Cost Analysis 453 Short-Run Pricing Decisions 453 Insourcing-Versus-Outsourcing and Make-or-Buy Decisions 454 Outsourcing and Idle Facilities 454 Strategic and Qualitative Factors 456 International Outsourcing 456 The Total Alternatives Approach 457 Concepts in Action: Starbucks Brews Up domestic Production The Opportunity-Cost Approach 458 Carrying Costs of Inventory 461 Product-Mix Decisions with Capacity Constraints 462 Bottlenecks, Theory of Constraints, and Throughput-Margin Analysis 464 Customer Profitability and Relevant Costs 467 Relevant-Revenue and Relevant-Cost Analysis of Dropping a Customer 468 Relevant-Revenue and Relevant-Cost Analysis of Adding a Customer 470 Relevant-Revenue and Relevant-Cost Analysis of Closing or Adding Branch Offices or Business Divisions 470 Irrelevance of Past Costs and Equipment-Replacement Decisions 471 Decisions and Performance Evaluation 473 Problem for Self-Study 475 | Decision Points 477 APPendIx: Linear Programming 478 Terms to Learn 481 | Assignment Material 481 | Questions 481 | Multiple-Choice Questions 482 | Exercises 483 | Problems 488 12 Strategy, Balanced Scorecard, and Strategic Profitability Analysis 497 Barclays Turns to the Balanced Scorecard What Is Strategy? 498 Building Internal Capabilities: Quality Improvement and Reengineering at Chipset 500 Strategy Implementation and the Balanced Scorecard 501 The Balanced Scorecard 501 Strategy Maps and the Balanced Scorecard 502 Implementing a Balanced Scorecard 508 Different Strategies Lead to Different Scorecards 509 Environmental and Social Performance and the Balanced Scorecard 509 Features of a Good Balanced Scorecard 513 Pitfalls in Implementing a Balanced Scorecard 514 Evaluating the Success of Strategy and Implementation 514 Strategic Analysis of Operating Income 515 Growth Component of Change in Operating Income 517 Price-Recovery Component of Change in Operating Income 518 Productivity Component of Change in Operating Income 519 Further Analysis of Growth, Price-Recovery, and Productivity Components 521 Concepts in Action: Operating Income Analysis Reveals Strategic Challenges at Best Buy Applying the Five-Step Decision-Making Framework to Strategy 524 Downsizing and the Management of Processing Capacity 524 Engineered and Discretionary Costs 524 Identifying Unused Capacity for Engineered and Discretionary Overhead Costs 525 Managing Unused Capacity 525 Problem for Self-Study 526 | Decision Points 530 APPendIx: Productivity Measurement 531 Terms to Learn 534 | Assignment Material 534 | Questions 534 | Multiple-Choice Questions 534 | Exercises 535 | Problems 537 13 Pricing Decisions and Cost Management 544 Extreme Pricing and Cost Management at IKEA Major Factors that Affect Pricing Decisions 545 Customers 545 Competitors 545 Costs 545 Weighing Customers, Competitors, and Costs 545 Costing and Pricing for the Long Run 546 Calculating Product Costs for Long-Run Pricing Decisions 547 Alternative Long-Run Pricing Approaches 548 Market-Based Approach: Target Costing for Target Pricing 550 Understanding Customers’ Perceived Value 550 Competitor Analysis 551 Implementing Target Pricing and Target Costing 551 Concepts in Action: H&M Uses Target Pricing to Bring Fast Fashion to Stores Worldwide Value Engineering, Cost Incurrence, and Locked-in Costs 553 Value-Chain Analysis and Cross-Functional Teams 553 Achieving the Target Cost per Unit for Provalue 554 Cost-Plus Pricing 557 Cost-Plus Target Rate of Return on Investment 557 Alternative Cost-Plus Methods 558 Cost-Plus Pricing and Target Pricing 559 Contents Life-Cycle Product Budgeting and Costing 560 Life-Cycle Budgeting and Pricing Decisions 560 Managing Environmental and Sustainability Costs 562 Customer Life-Cycle Costing 562 Non-Cost Factors in Pricing Decisions 563 Price Discrimination 563 Peak-Load Pricing 563 International Pricing 563 Antitrust Laws and Pricing Decisions 564 The Supreme Court has not specified the “appropriate measure of costs.” 564 15 Cost Allocation and “Smart Grid” Energy Infrastructure Allocating Support Department Costs Using the Single-Rate and Dual-Rate Methods 622 Single-Rate and Dual-Rate Methods 622 Allocation Based on the Demand for (or Usage of) Materials-Handling Services 623 Allocation Based on the Supply of Capacity 624 Advantages and Disadvantages of Single-Rate Method 626 Advantages and Disadvantages of Dual-Rate Method 626 Budgeted Versus Actual Costs and the Choice of Allocation Base 627 Budgeted Versus Actual Rates 627 Budgeted Versus Actual Usage 628 Fixed-Cost Allocation Based on Budgeted Rates and Budgeted Usage 628 Fixed-Cost Allocation Based on Budgeted Rates and Actual Usage 628 Allocating Budgeted Fixed Costs Based on Actual Usage 629 Allocating Costs of Multiple Support Departments 630 Direct Method 633 Step-Down Method 634 Reciprocal Method 635 Overview of Methods 639 Calculating the Cost of Job WPP 298 639 Allocating Common Costs 641 Stand-Alone Cost-Allocation Method 641 Incremental Cost-Allocation Method 642 Cost Allocations and Contract Disputes 643 Bundled Products and Revenue Allocation Methods 644 Bundling and Revenue Allocation 644 Concepts in Action: Contract disputes over Reimbursable Costs with the U.S Government Stand-Alone Revenue-Allocation Method 646 Incremental Revenue-Allocation Method 647 Problem for Self-Study 565 | Decision Points 567 | Terms to Learn 568 | Assignment Material 569 | Questions 569 | Multiple-Choice Questions 569 | Exercises 569 | Problems 573 14 Cost Allocation, CustomerProfitability Analysis, and SalesVariance Analysis 579 Delta Flies from Frequent Flyers to Big Spenders Customer-Profitability Analysis 580 Customer-Revenue Analysis 580 Customer-Cost Analysis 581 Customer-Level Costs 582 Customer-Profitability Profiles 585 Presenting Profitability Analysis 586 Concepts in Action: Amazon Prime and Customer Profitability Using the Five-Step Decision-Making Process to Manage Customer Profitability 588 Cost-Hierarchy-Based Operating Income Statement 589 Criteria to Guide Cost Allocations 591 Fully Allocated Customer Profitability 593 Implementing Corporate and Division Cost Allocations 594 Issues in Allocating Corporate Costs to Divisions and Customers 597 Using Fully Allocated Costs for Decision Making 598 Sales Variances 599 Static-Budget Variance 600 Flexible-Budget Variance and Sales-Volume Variance 600 Sales-Mix Variance 601 Sales-Quantity Variance 602 Market-Share and Market-Size Variances 603 Market-Share Variance 603 Market-Size Variance 603 Problem for Self-Study 605 | Decision Points 607 | Terms to Learn 608 | Assignment Material 608 | Questions 608 | Multiple-Choice Questions 609 | Exercises 609 | Problems 614 Allocation of Support-Department Costs, Common Costs, and Revenues 621 Problem for Self-Study 649 | Decision Points 652 | Terms to Learn 653 | Assignment Material 653 | Questions 653 | Exercises 653 | Problems 657 16 Cost Allocation: Joint Products and Byproducts 663 Joint-Cost Allocation and the Wounded Warrior Project Joint-Cost Basics 664 Allocating Joint Costs 665 Approaches to Allocating Joint Costs 666 www.downloadslide.net 976 index Cost pools, 128 aggregating all costs in, 597 categorizing activities, 182–83 homogeneous, 593, 598 Cost predictions, 396 Costs activities, 186 activity-based costing (ABC) systems, 190–91 activity pools, 185 allocating, 128–129 alternative ways to compute, 33 assigning, 50–51, 128 benefits received, 129 changes in, 93 classifying, 395 cost drivers, 54–55 cost incurrence, 553 cost object choice, 395 cost tracing, 50 decentralization, 880–81 designed-in costs, 553 direct costs, 49–50 direct manufacturing labor costs, 59 direct materials, 59 factory overhead costs, 59 fixed costs, 52–56 goods for sale, 799–800 incurred divergence from locked-in costs, 553 indirect costs, 50 indirect manufacturing costs, 59 inventoriable costs, 59 just-in-time (JIT) purchasing, 808 level of activity and, 396 locked-in costs, 553 long-run costing, 546–50 managers, 239 manufacturing overhead costs, 59 measuring and judgment, 66–68 mixed or semivariable costs, 54 nonvalue-added costs, 192, 553 period costs, 59–60 pricing decisions, 545–46 production control, 553 reductions decisions, 192–93 relevant range, 395 supervision, 553 supply chain, 27 time horizon, 395 value-added costs, 553 value chain, 27 variable costs, 52–56 Costs of delays, 784–85 Costs of quality (COQ), 770–72, 779, 799 Cost tracing, 50, 128 Cost–volume–profit (CVP) analysis, 91 advertising decision, 98 alternative fixed-cost/variable-cost structures, 102–103 assumptions, 93 contribution margin, 88–91 cost planning, 102–104 decision making, 98–100 equation method, 91 expressing relationships, 90–92 graph method, 92 not-for-profit organizations, 107–108 operating leverage, 103–104 reducing selling price decision, 98 sales mix effects on income, 105–106 sensitivity analysis, 100–101 service organizations, 107–108 target net income, 96–97 target price determination, 99–100 uncertainty, 111–114 CRM See customer relationship management (CRM) Cross-functional teams, 553–54 Cross-sectional data, 401 Cross-validation, 409 Cumulative average-time learning model, 411 Current cost, 921 Customer batch-level costs, 581–83 Customer-cost analysis, 581–82 Customer-cost hierarchy, 581–82 Customer-level costs, 582–84 Customer-level indirect costs, 583 Customer-level operating income, 583 Customer life-cycle costs, 562 Customer output unit-level costs, 581, 583 Customer perspective, 507, 512, 912 Customer preference map, 499 Customer profitability ability to learn from customers, 587 decision making, 588–89 fully allocated, 593–98 long-run, 587 overall demand from reference customers, 587 Customer-profitability analysis customer-cost analysis, 581–82 customer-level costs, 582–84 customer-revenue analysis, 580–81 Customer-profitability profiles, 585–89 Customer relationship management (CRM), 25–26, 226 Customer-relationship manager, 500 Customer-response times, 27, 780–83 Customer-revenue analysis, 580–81 Customers ability to learn from, 587 allocating all costs to, 590, 594–97 allocating corporate costs to, 597–98 bargaining power, 24, 498 customer-relationship manager, 500 delivering value to, 24 discontinuing, 587 high-maintenance, 587 improving levels of performance to, 27–29 most valued, 24 nonfinancial measures of satisfaction, 771 perceived value, 550 potential for sales growth, 587 pricing decisions, 545–46 relevant-cost analysis, 468–70 relevant-revenue analysis, 468–70 retaining, 587 special perks for, 585–86 www.downloadslide.net index sustainability, 28 unprofitable becoming profitable, 587 Customer service, 25 Customer-sustaining costs, 581–83 Customer value and capital budgeting, 859 CVP analysis See cost-volume-profit (CVP) analysis Cyclical demand patterns, 364 D Data cost functions, 415–16 from similar companies, 277 Databases, 22 Data warehouse, 22 Decentralization autonomy, 878–79 benefits, 879 comparing benefits and costs, 880–81 costs of, 879–80 decision making by subunits, 882–98 duplication of output, 880 multinational companies, 881 responsibility centers, 881 unhealthy competition, 880 Decision making, 447–48, 448 activity-based management (ABM), 192–94 advertising decision, 98 alternatives, 131 analyzing relevant information, 70 applying framework to strategy, 524 autonomy, 878–79 capacity constraints, 459 capital budgeting, 839 choosing among alternatives, 29–30, 88, 223, 840 cost drivers, 397 cost–volume–profit (CVP) analysis, 98–100 customer profitability, 588–89 customer-response times, 781–83 decentralization, 878–81 decision-making process, 177–78 differential cost, 456 differential revenue, 456 dysfunctional, 880 economic-order-quantity decision model, 800–802 environmental impact, 449 equipment-replacement, 471–75 evaluating performance, 30–31, 88, 223 fully allocated costs, 598 identifying problems and uncertainties, 29, 87, 223 implementing, 30–31, 88, 131, 223 incongruent decision making, 880 incremental cost, 456 incremental revenue, 456 information, 29, 87, 223, 447 irrelevance of past costs, 471–73 joint costs, 675–677 learning from, 30–31, 88, 223 long-term horizon, 397 one-time-only special orders, 450–51 opportunity-cost analysis, 459–60 performance evaluation, 473–75, 676 planning, 30–31 predictions, 29, 87–88, 223 pricing decisions, 676–77 process of, 29–32 product mix, 462–64 qualitative analysis, 447 qualitative factors, 449–50 quantitative analysis, 447 quantitative factors, 449–50 rejected alternatives, 460 relevant information, 449–50 reorganization, 447 selling price, 98 sell-or-process-further decisions, 675–76 strategies, 29–30 suboptimal, 879–80 subunits, 882–98 sustainability, 28 target price determination, 99–100 target-pricing approach, 556 total-alternatives approach, 459–60 variance analysis, 271 Decision models, 111–114, 447 alternative actions, 112 assigning probability to events, 112 choice criterion, 111–112 conflicting with performance-evaluation model, 474 equipment-replacement decisions, 473–74 linear programming (LP), 478–81 role of, 111–114 Decision table, 112 Delivery time, 780 Demand inelasticity, 563 Deming Prize, 769 Denominator level, 311 Denominator-level concept forecasting, 372–73 Denominator-level variance, 318 Department costing systems, 194–95 Dependent variable collecting data on, 401 cost driver, 400 limited set of values, 409 time period for measuring, 415–16 Depreciation, 855 Design decisions, 193 quality, 769–70 Designed-in costs, 553 Diagnostic control systems, 931–33 Differential cost, 456 Differential revenue, 456 Direct costing, 350 Direct costs, 49–50, 70, 547–48 assigning, 128 budgeted rates, 154 choosing, 152–53 cost-allocation base, 128 cost objects, 50, 128 design of operations, 51 factors affecting, 51 information-gathering technologies, 51 jobs, 133–35, 138–40 materiality of cost, 51 977 www.downloadslide.net 978 index Direct costs (continued) products, 184 quality, 771 specific cost, 51 total cost of products, 188 write-off approach, 151 Direct-costs inputs, 278–84 Direct-cost tracing, 179, 181 Direct engineered costs, 524 Direct labor costs, 67–68 Direct manufacturing costs, 61, 65 Direct manufacturing labor, 133–135, 138, 145 budget, 228–229 cash disbursements, 248 costs, 59, 63, 65 efficiency variance, 280, 282–83, 292 mix variance, 292–93 number of units manufactured, 271 price variance, 279, 282–83, 292 standard costs, 283 workers, 224 yield variance, 292, 293 Direct manufacturing labor-hours, 225, 230 Direct materials, 133, 224 cash disbursements for purchases, 248 efficiency variance, 280, 282–283 flexible-budget variances, 280 price variance, 279, 282–83 scrap used as, 755 standard costs, 283 Direct Materials Control account, 282, 725 Direct materials costs, 59, 61, 63–65 Direct materials-handling labor costs, 328–330 Direct materials inventory, 58, 61, 224 first-in, first-out (FIFO) method, 227 Direct materials purchases budget, 227–228 Direct materials usage budget, 227–228 Direct method, 633–34 Discounted cash flow analysis, 850–51 Discounted cash flow (DCF) method internal rate-of-return (IRR) method, 844–45 net present value (NPV) method, 843–44 required rate of return (RRR), 842–43 time value of money, 842 Discount rate, 843 Discretionary costs, 525 Discretionary overhead costs, 525 Distinctive objectives, 504–505 Distress prices, 886–87 Distribution, 25, 174–75 Distribution-channel cost pools, 594, 597 Distribution-channel costs, 582 Distribution channels costs, 590 Disturbance term, 423 Division administration cost pool, 594–95 Divisional organizations, 237 Division cost pools, 594 Division costs, 590, 593, 597–98 Division-sustaining costs, 582, 591 Dodd-Frank law (2010), 931 Downsizing, 524–526 Dropping customer, 468–69 Dual pricing, 891–92 Dual-rate method advantages and disadvantages, 626 allocation bases, 627–630 budgeted costs versus actual costs, 627–630 budgeted fixed-cost resources, 625 budgeted rates and actual usage, 628–629 budgeted rates and budgeted usage, 628 budgeted versus actual rates, 627–628 fixed-cost pool, 622–623 materials-handling services, 624 support department costs, 622–623 variable-cost pool, 622–623 Dumping, 565 Duplication of output, 880 DuPont method of profitability analysis, 914 Durbin-Watson statistic, 424–425 Dysfunctional decision making, 880 E Early warning, 238 Economic events, 22 Economic-order-quantity decision model, 800–802 Economic order quantity (EOQ), 800, 806–807 Economic plausibility, 397, 400 Economic transactions, 22 Economic value added (EVA), 917–18 Economy and ethics, 36 Efficiency, 27 Efficiency variances, 276–84, 323 direct manufacturing labor, 292 Electronic Data Interchange (EDI) technology, 138 Employees bargaining power, 499 budgets motivating, 221 effectiveness, 286 efficiency, 286 moral hazard, 927–928 performance measurement, 286 Ending cash balance, 249 Ending inventories budget, 232–33 End-of-accounting-year adjustments, 148–53 Engineered costs, 524–525 Engineering and production control costs, 631–32 Enterprise resource planning (ERP) systems, 22 budgeting, 235–36 just-in-time (JIT) production, 814–15 standard costs, 284 Environment, quality standards for, 769 Environmental, social, and governance (ESG) standards, 562 Environmental costs, 51, 562 Environmental performance, 509–13 Equipment book value, 471–72 Equipment-replacement decisions, 471–75 Equivalent products, 498 Equivalent units, 699–700 ERP See enterprise resource planning (ERP) systems Error term, 423 Ethics, 36–38 budgets, 242 challenges, 37–38 institutional support, 36 www.downloadslide.net index Events, 112 Executive performance measures and compensation, 930–31 Expected monetary value, 113 Expected value, 113–114 Experience curve, 410–13 F Facility-sustaining costs, 183 Factory overhead costs, 59 Favorable variance, 271–72 Federal False Claims Act, 665 Federal Trade Commission Act, 564 Feedback, 238, 924 Finance director, 34 Financial accounting controller, 34 defined, 22 Generally Accepted Accounting Principles (GAAP), 22 not recording opportunity costs, 460 Financial budget, 223 Financial measurements, 928 Financial performance, 287, 333, 513, 912–13 Financial perspective, 507, 512, 912 Financial planning models, 235–36 Financial reporting capacity levels, 369–72 Financial variables for performance measurement, 361 Financing, 249 Finished Goods Control account, 150–51, 316, 321–322, 326, 370, 822 Finished-goods inventory, 58–59, 61, 63, 224 Finished-Goods inventory account, 152 First-in, first-out (FIFO) method, 224 First-in, first-out (FIFO) process-costing method, 707–10 spoilage, 745 transferred-in costs, 715–16 versus weighted-average process-costing method, 711–12 First-stage allocation, 181 Five-step decision-making process, 177–78 Fixed batch-level direct costs, 327–328 Fixed-cost allocation, 628–629 Fixed-cost components partial productivity measures, 531–32 Fixed-cost pool, 622–623 Fixed costs, 52–56, 89, 311–12 alternative structures, 102–103 budgeted fixed cost, 624 changes in operating income, 103–104 combined budgeted rate for, 623–624 cost driver, 55 cost objects, 395 cost-plus pricing, 558–59 labor costs, 53 production-volume variance, 318–320 relevant range, 55 resources, 53 variable costs, 52, 93 Fixed indirect costs, 132 Fixed manufacturing costs, 108–109, 355–57, 363 absorption costing, 352 difficulties forecasting, 373 variable costing, 352 979 Fixed manufacturing overhead costs, 370–371 Fixed Overhead Allocated account, 320 Fixed Overhead Control account, 320 Fixed overhead costs, 309 budgets, 230 journal entries, 320–322 standard costing, 326 Fixed overhead cost variances, 317–323 fixed overhead flexible-budget variance, 317 fixed overhead spending variance, 317 production-volume variance, 318–320 Fixed overhead flexible-budget variance, 317 Fixed overhead production-volume variance, 320 Fixed overhead spending variance, 317, 320–321 Fixed Overhead Spending Variance account, 321 Fixed overhead variance calculations, 323–325 Fixed setup overhead costs, 330–31 Flexible budget, 273 direct materials-handling labor costs, 328–330 fixed setup overhead costs, 330–31 Flexible-budget analysis, 312 Flexible-budget variances, 274–76, 280, 325, 600–601 efficiency variance, 276–78 price variance, 276–78 Flexible manufacturing systems (FMS), 179 Focal point, 504 Follow-up service calls, 504 Formal management control system, 877–78 For-profit companies, 513 4-variance analysis, 323 Full-cost bases, 887–89 Full cost of product cost base, 558 Full cost of the product, 450–51 Fully allocated costs, 598 Fully allocated customer profitability, 593–98 Functional organizations, 237 Future amount of $1, 947–48, 951 G GAAP See Generally Accepted Accounting Principles (GAAP) General ledger Accounts Payable Control account, 141 actual manufacturing overhead rates, 151 Finished Goods Control account, 141 Manufacturing Overhead Allocated account, 143 Manufacturing Overhead Control account, 143, 145 Materials Control account, 141 normal-costing system, 141 subsidiary ledgers, 141–42 T-accounts, 147 Work-in-Process Control account, 141, 144 Work-in-Process Inventory Records for Jobs account, 144 Generally Accepted Accounting Principles (GAAP), 22 absorption-costing basis, 450 backflush costing, 822 fixed (manufacturing) overhead costs, 318 lean accounting, 826 manufacturing costs, 175 preparing financial statements for external reporting, 69 Goal congruence, 878 Goodness of fit, 420–421 www.downloadslide.net 980 index Gourmet, 880 Government contracts, 68 Graphic approach and linear programming (LP), 480 Gross-margin percentage, 109, 672 Gross margin versus contribution margin, 108–109 Growth component, 517–18 H Heteroscedasticity, 424 High-low method of quantitative analysis, 402–403, 405 High-maintenance customers, 587 High-margin products, 546 Homogeneous cost pools, 179, 184, 593–94, 598 Homoscedasticity, 424 Hospitals, 309 Human aspects of budgeting, 240–43 Hurdle rate, 843 Hybrid costing systems, 717–720 Hybrid transfer prices, 883–84 difference between maximum and minimum transfer prices, 890–91 dual pricing, 891–92 negotiated pricing, 891 Hypothetical budgets, 273 I Idle facilities, 454–56 Idle time, 67 Incentives, 927–928 Income statements, 64 absorption costing income statements, 353 budgeted income statement, 234, 249 contribution income statement, 89 cost-hierarchy-based operating income statement, 589–91 cost of goods sold, 61 inventoriable costs, 65 multiple-year absorption costing, 354–57 multiple-year variable costing, 354–57 period costs, 61, 65 variable costing income statements, 352 yearly absorption costing, 352–54 yearly variable costing, 352–54 Incongruent decision making, 880 Incremental cost-allocation method, 642 Incremental costs, 456, 777 Incremental revenue, 456 Incremental revenue-allocation method, 647–48 Incremental unit-time learning model, 412–13 Independent variable, 400–401, 421–423 Indirect-cost pools, 131–32, 149, 179, 181 cost-allocation base for, 591 fully allocated customer profitability, 593 Indirect costs, 50, 70, 546–48 adjusted allocation-rate approach, 149 assigning, 128 budgeted rate, 133 cost-allocation bases, 128, 132, 135, 185–86 cost drivers, 179 cost objects, 50–51, 128 costs of quality (COQ), 771 customer-cost hierarchy, 581–82 customers, 590–91 denominator reason (quantity of cost-allocation base), 132 design of operations, 51 factors affecting, 51 fixed, 132 information-gathering technologies, 51 jobs, 135–36 materiality of cost, 51 numerator reason (indirect-cost pool), 131–32 overallocated, 148–49 overapplied, 148 predetermined rate, 133 products, 184–85, 186–88 proration approach, 149–51 rate per unit allocating to job, 135–36 specific cost, 51 time period, 131–32 total cost of products, 188 underallocated, 148–49 underapplied, 148 variable, 132 Indirect engineered costs, 524–525 Indirect labor costs, 66–67 Indirect manufacturing costs, 59, 135 Indirect manufacturing labor, 145, 406–407 Industrial engineering method, 398, 406, 408 Industry-market-size factor, 522 Inflation capital budgeting, 863–65 net present value (NPV) method, 864–65 nominal rate of return, 863–64 real rate of return, 863–64 Infobarn, 22 Informal management control system, 877–78 Information data from similar companies, 277 decision process and, 447 economic decisions, 593–98 obtaining, 29, 130, 223 past data, 277 standards, 277–78 Information-gathering technologies, 51 Information technology, 284 Infrastructure costs, 525n Innovation, 27, 31–32, 507 In-Process Inventory Control account, 817 Insourcing, 454 Insourcing-versus-outsourcing decisions carrying costs of inventory, 461–62 insourcing, 454 international outsourcing, 456–57 opportunity-cost approach, 458–60 outsourcing, 454–56 qualitative factors, 456 relevance, 456 strategic factors, 456 total alternatives approach, 457–58 Inspection point, 741 normal spoilage, 747–49 Institute of Management Accountants (IMA), 36, 37 “Resolution of Ethical Conflict,” 38 Interactive control systems, 933 www.downloadslide.net index Interest tables compound amount (future value) of annuity of $1, 949, 953 future amount of $1, 947–48, 951 present value of $1, 948, 952 present value of ordinary annuity of $1, 949–50, 954 Intermediate product, 882, 893–94 Internal-business perspective, 513 Internal-business perspective of quality cause-and-effect diagrams, 773–74 control charts, 772–73 Pareto diagrams, 773 Six Sigma quality, 776 Internal-business-process perspective, 507, 912 Internal capabilities, 500–501 Internal failure costs, 771 Internal rate-of-return (IRR) method, 844–46 International Organization for Standardization (ISO), 769 International outsourcing, 456–57 International pricing, 563–64 Internet bottlenecks, 782 Inventoriable costs, 59 flow of, 60–64 income statement, 65 Inventory See warehouse inventory Inventory Control account, 820 Inventory costing, 361–63 Inventory management carrying costs, 799 costs associated with goods for sale, 799–800 costs of quality (COQ), 799–800 just-in-time (JIT) production, 812–15 materials requirements planning (MRP) system, 812 ordering costs, 799 purchasing costs, 799 retail organizations, 799–807 stockout costs, 799 Inventory-related relevant costs, 805 Investment center, 238, 881 Investments, 464–65, 913, 920 Investors relations, 34 sustainability, 28 Irrelevant costs in relevant-cost analysis, 453 ISO 9001 certification, 769 ISO 9000 standards, 769 ISO 14000 standards, 769 J Job costing abnormal rework, 752 abnormal spoilage, 751 actual costing, 131 decision making, 131 evaluating performance, 131 evaluation and implementation, 130–33 general approach to, 133–38 learning from, 131 normal costing, 133 normal rework, 752 normal spoilage, 750–51 obtaining information, 130 predictions about future, 131 problems and uncertainties, 130 rework, 751–52 spoilage, 750–51 technology, 138 time period to compute indirect-cost rates, 131–32 Job-costing system, 129–30 versus process-costing system, 696–97 Job-cost record, 133, 146–47 Job-cost sheet, 133 Jobs, 129 actual costs, 131 chosen cost object, 133 direct costs, 133–135, 138–40 direct materials, 133 indirect costs, 135–36 job-cost records, 141 manufacturing costs, 139 total cost, 136–37 Joint-cost allocation approaches, 666–73 benefits-received criterion, 667, 674–75 choosing method of, 674–75 common allocation basis, 674 computing, 672 constant gross-margin percentage NVR method, 671–74 incremental costs, 676 market-based data, 666 net realizable value (NRV) method, 670–71, 674 overall gross-margin percentage, 672 physical-measure method, 668–70 physical measures, 667 processing decisions independence, 674 reasons to use, 665–66 sales value at splitoff method, 668, 674 separable costs, 676 simplicity, 674 total production costs for products, 672 Joint costs, 664 decision making, 675–77 joint products, 668 not allocating, 675 Joint production process, 664–65 Joint products, 665, 667–68 Journal entries fixed overhead costs, 320–322 operating-costing systems, 720 spoilage, 747 standard costs, 282–84 variable overhead costs, 316 zero beginning and some ending work-in-process inventory, 702–703 Just-in-time (JIT) production activity-based costing (ABC) systems, 822, 824 control, 815 costs and benefits, 813–14 defects, 813 enterprise resource planning (ERP) systems, 814–15 features, 812–13 lean accounting, 824–26 manufacturing cells, 812 981 www.downloadslide.net 982 index Just-in-time (JIT) production (continued) multiskilled workers, 812 performance measures, 815 product costing, 815 service industries, 814 setup time, 813 suppliers, 813 Just-in-time (JIT) purchasing, 813 costs, 808 economic order quantity (EOQ), 807 planning and control, 811–12 quality, 808 relevant costs, 807–808 supply-chain analysis, 811–12 Just-in-time production, 357 K Kaizen, 554 budgeting, 242, 287 Knowledge of operations, 396 L Labor costs fixed costs or variable costs, 53 measuring, 66 Labor records by employee, 145 Labor standards, 228 Labor-time sheet, 133–135 Leadership strategy, 24 Lean accounting Generally Accepted Accounting Principles (GAAP), 826 just-in-time (JIT) production, 824–826 value stream, 824–826 Lean production, 812 Learning, 31, 131, 220–221, 223 Learning-and-growth perspective, 507, 513, 777, 912 Learning curves, 410–14, 423 Lease cost, 70 Level of activity, 396 Level variances, 276 Levers of control, 931–33 Life-cycle budgeting, 560–62 Life-cycle costing, 560–62 Linear cost functions, 393–95 Linear programming (LP) constraints, 479 graphic approach, 480 objective function, 478, 479 optimal solution, 479 problem-solving steps, 478–79 sensitivity analysis, 481 trial-and-error approach, 479–80 Line management, 33–34 Linked scorecard, 508 Locked-in costs, 553 Logistic regression, 409 Long-run budgets, 218 Long-run costing, 546–550 Long-run pricing decisions activity-based costing (ABC) systems, 547–48 calculating product costs, 547–48 cost-based approach, 548, 550 market-based approach, 548, 550–52 Long-term assets, 921, 923 Longview, 237 Loss from Abnormal Spoilage account, 740, 743, 751 LP See linear programming (LP) M Machine learning system, 409 Machining departments, 631–32 Main product, 665, 667 Maintenance and variable overhead costs, 309 Make-or-buy decisions, 454–62 Malcolm Baldrige National Quality Award, 769 Management accountant, 35–36 organization structure and, 33–36 strategic decisions, 23–24 Management accounting, 22, 32–34 Management by exception, 270 Management control systems, 877–78 Managers accurate budget forecasts, 241 budgetary slack, 240–41 budgeting process, 221–22 core values and norms, 241 cost objects, 50–51 costs, 239 deferring maintenance, 360 distinguishing performance from performance of subunits, 927–31 economic order quantity (EOQ) decision model, 806–807 fixed manufacturing costs, 360 formulating strategy, 24 increasing compensation, 358–59 management accounting, 22, 27 order to increase production, 360 performance evaluation, 240 undesirable buildup of inventories, 359–60 variances, 284–87 Manufacturing broad averaging, 174–75 normal-costing system, 140–48 Manufacturing cells, 812 Manufacturing companies, 58, 64–65 flow of inventorial costs and period costs, 60–64 Manufacturing cost base, 558 Manufacturing costs, 59, 63, 225, 451 conversion costs, 65–66 jobs, 139 Manufacturing cycle efficiency (MCE), 780 Manufacturing cycle time, 780, 813 Manufacturing Department Overhead Records subsidiary ledger, 144–45 Manufacturing lead time, 780 Manufacturing overhead, 143 Manufacturing Overhead Allocated account, 148–49 Manufacturing Overhead Control account, 146, 148–49 Manufacturing overhead costs, 59, 61, 63, 65, 225 budget, 229–32 Margin of safety, 101 Market-based approach to long-run pricing decisions, 548, 550–52 Market-based data for joint-cost allocation, 666 Market-based transfer prices, 883–84 www.downloadslide.net index distress prices, 886–87 imperfect competition, 887 perfectly-competitive-market case, 886 Marketing, 25 Markets competition, 179 potential entrants into, 498 Market-share variance, 603–604 Market-size variance, 603–604 Master budget, 219, 223, 271–272 Master-budget capacity utilization, 364–65, 369–71, 373 Materials-handling costs, 408 Materials-handling labor-hours, 328 Materials-handling services, 623–624 Materials Inventory Control account, 817 Materials management costs, 631–32 Materials records, 144–45 Materials Records subsidiary ledger, 144 Materials requirements planning (MRP) system, 812 Materials-requisition record, 133 Matrix method, 637 McGahee v Northern Propane Gas Co., 564n Mean defect rate (m), 774, 776 Merchandise inventory, 58 Merchandising-sector companies activity-based costing (ABC) systems, 195 inventoriable costs, 59 merchandise inventory, 58 Miscellaneous costs, 249 Mixed costs, 54, 394 Mix variance, 280, 291–94 Moderate ties, 503–504 Monopolies, 546 Moral hazard, 927–928 Motivation, 878 Multicollinearity, 428–429 Multinational companies budgets, 243 calculating foreign division’s ROI in foreign currency, 925 calculating foreign division’s ROI in U.S dollars, 926 decentralization, 881 performance measurement, 924–926 transfer pricing, 894–98 Multiple regression, 426–428 Multiple regression analysis, 404–405 Multiple support departments allocating costs, 630–40 allocating engineering, production control, and materials management costs to machining and assembly operating departments, 631 allocating plant administration costs to support and operating departments, 630–31 artificial costs, 637 complete reciprocated costs, 637 direct method, 633–34 interrelations between, 638 Job WPP 298 calculations, 639–40 matrix method, 637 reciprocal method, 635–38 step-down method, 634–35 support and operating departments, 630 983 N Negotiated pricing, 891 Net income and taxes, 96–97 Net-initial-investment cash flows, 853–54 Net operating profit after taxes (NOPAT), 918n Net present value (NPV) method, 843–44, 858 comparing with internal rate-of-return (IRR) method, 846 inflation, 864–65 nominal approach, 864 real approach, 864 shareholder value maximization, 846 Net realizable value (NRV) method, 670–71, 674 New-product development time, 27 Nonfinancial measures, 928 customer satisfaction, 771 internal-business-process quality, 776 quality, 779 Nonfinancial performance measurement, 287, 333, 912–13 Nonfinancial variables, 361 Nonlinear cost functions cumulative average-time learning model, 411 experience curve, 410–13 incremental unit-time learning model, 412–13 learning curves, 410–14 relevant range, 409 step cost function, 409–10 step fixed-cost function, 410 step variable-cost function, 410 Nonmanufacturing costs, 225, 373–74 budget, 233–34 Nonmanufacturing settings, 332–33 Nonuniform cash flows, 848–49 Non-value-added costs, 553 Normal-budget capacity utilization, 371 Normal capacity utilization, 364–65, 369–73 Normal costing, 133 budgeted indirect-cost rates, 138 earlier information, 139 manufacturing overhead allocated, 143, 149 manufacturing overhead applied, 143 pricing or product-mix decisions, 366 variation from, 153–54 Normal-costing system allocation of manufacturing overhead to jobs, 143 backflush costing, 816–822 cost of goods sold, 143 direct labor, 142 direct materials usage, 142 finished goods inventory records by jobs, 147 general ledger, 141 indirect labor, 142 indirect materials usage, 142 job costing, 147–48 jobs completed and transferred to finished goods, 143 labor records by employee, 145 manufacturing costs of job, 139 Manufacturing Department overhead records, 146 manufacturing overhead costs, 142, 143 manufacturing payroll, 142 marketing costs, 143 materials records by type of material, 144–45 nonmanufacturing costs, 147–48 www.downloadslide.net 984 index Normal-costing system (continued) purchases of materials, 141 sales revenue from jobs sold and delivered, 143 sequential tracking, 816 subsidiary ledgers, 144 subsidiary records, 147 transactions explanations, 141–43 variances, 819–822 work-in-progress inventory records, 146–47 Normal rework, 752 Normal spoilage, 740 attributable to specific job, 750 common to all jobs, 750–51 cost allocation, 747–49 inspection point, 747–49 job costing, 750–51 Not-for-profit organizations cause-and-effect relationships, 513 cost-volume-profit (CVP) analysis, 107–108 Number of units manufactured, 271 Numerator reason (indirect-cost pool), 131–32 O Objective function, 478–79 One-time-only special orders, 450–51 On-time performance, 781 Operating budgets, 246 See also budgets budgeted income statement, 234 cost of goods sold budget, 233 direct manufacturing labor costs budget, 228–229 direct materials purchases budget, 227–228 direct materials usage budget, 227–228 ending inventories budget, 232–33 financial budget, 223 manufacturing overhead costs budget, 229–232 nonmanufacturing costs budget, 233–34 production budget, 226–227 revenues budget, 226 risks, 236 supporting schedules, 223 Operating-costing systems, 719–720 Operating costs, 465 Operating departments, 622, 630–631 Operating income, 64, 153 breakeven point (BEP), 94 calculating, 88–89, 91 cost leadership effect on, 522 growth component of change, 517–18 industry-market-size factor effect on, 522 price-recovery component, 518–19, 521–523 product differentiation effect, 522 productivity component, 519–523 relationship to contribution margin percentage, 90 sales-volume variance, 275 strategic analysis of, 515–523 target, 94–96 Operating-income volume variance, 326 Operating leverage, 103–104 Operating plans budgets, 218–19 Operational measures of time, 780–81 Operation-costing systems, 717–720 Operations, 28–29, 507, 717 Opportunity-cost analysis, 459–62 Opportunity cost of capital, 843 Opportunity costs, 460 Order-delivery process, 500–501 Ordering costs, 799 Organizational learning, 286–87 Organizational structure, 33–36, 237–38 Orphan objectives, 504 Outcomes, 112–114 Output, duplication of, 880 Output unit-level costs, 183 Outsourcing idle facilities, 454–56 international outsourcing, 456–57 risks, 456 Overallocated indirect costs, 148–49 Overallocated overhead, 149–51 Overall-total variance, 325 Overapplied indirect costs, 148 Overhead costs, 230, 594–97 Overhead cost variances combined variance analysis, 323–325 4-variance analysis, 323 integrated analysis, 323–325 Overhead variances, 332–333 Overtime premium, 66–67 P Pareto diagrams, 773 Partial productivity, 531–33 Past costs, 447–48, 471–73 Past data, 277 Past performance, 220–221 Payback method, 847–49 Payroll fringe costs, 67–68 Peak-load pricing, 563 Perfectly-competitive-market case, 886 Performance evaluation, 131, 223, 238 balanced scorecard, 508–509 capacity levels, 369 decision making, 473–75, 676 equipment-replacement decisions, 473–75 framework for judging, 220–221 information for, 70 learning curves, 414 project management, 858 Performance-evaluation model, 474 Performance measurement, 501–502 absorption costing, 358–61 accounting-based measures for business units, 913–19 aligning with financial goal, 912 alternative asset measurements, 920–923 alternative definitions of investment, 920 benchmarks, 929 changing period used to evaluate, 361 comparing, 919 details of, 912, 919–923 effectiveness, 286 efficiency, 286 executive performance measures and compensation, 930–31 www.downloadslide.net index feedback mechanism, 912 financial and nonfinancial, 287, 912–13 financial variables, 361 incentives, 928 incentives versus risk, 927–928 individual activity level, 929–930 just-in-time (JIT) production, 815 management’s freedom to build up excess inventory, 360 manager’s performance from subunit’s performance, 927–931 multinational companies, 924–926 nonfinancial variables, 361 performing multiple tasks, 929–30 proposals for revising, 360–61 relative performance evaluation, 929 target level of performance, 912, 923–924 team-based compensation arrangements, 930 timing of feedback, 924 variances, 286 Performance reports, 239 Performing multiple tasks, 929–930 Period costs, 59, 64 flow of, 60–64 income statement, 65 R & D expenses, 60 Physical-measure method, 668–70 Physical measures for joint-cost allocation, 667 Planned unused capacity, 369 Planning, 30–31 activities, 194 budget, 30 capacity costs, 372 fixed overhead costs, 309 just-in-time (JIT) purchasing, 811–12 obtaining information for, 70 postdecision information, 30 predecision information, 30 taxes, 34 variable overhead costs, 309 Plant administration costs, 630–31 Plant manager, 33 Post-investment audits, 857 Post-sales-service process, 507 Potential entrants into market, 498 Practical capacity, 364–69, 372 allocating costs, 625 fixed manufacturing overhead costs, 371 production-volume variance, 370 Predatory pricing, 564–65 Predetermined indirect-cost rate, 133 Prediction error cost, 805–806 Predictions about future, 131, 223 Present value of $1, 948, 952 Present value of ordinary annuity of $1, 949–50, 954 Prevention costs, 770 Previous-department costs, 712 Price discounts, 580–81 Price discrimination, 563–64 Price-recovery component, 517, 521–523 Prices, incorporating learning-curve effects into, 413–14 Price variance, 276–84, 292 Pricing cost, 68–69 985 Pricing decisions, 192, 367–68, 676–77 antitrust laws, 564–65 collusive pricing, 565 competitors, 545–46 cost incurrence, 553–56 cost-plus pricing, 557–59 costs, 545–46 customers, 545–46 dumping, 565 international pricing, 563–64 life-cycle budgeting, 560–62 life-cycle costing, 560–62 locked-in costs, 553–56 long-run pricing, 546–50 non-cost factors, 563–64 peak-load pricing, 563 predatory pricing, 564–65 price discrimination, 563–64 stable prices, 546 value engineering, 553–56 Prime costs, 65 Probability distribution, 112 Problems, 29, 130, 223 Process costing with no beginning or ending work-in-process inventory, 697–98 spoilage, 740–47 standard-costing method, 724–727 transferred-in costs, 712–17 zero beginning and some ending work-in-process inventory, 698–703 Process-costing system, 129–130 accounting for variances, 725–727 versus job-costing system, 696–97 Process costing with some beginning and some ending workin-process inventory first-in, first-out (FIFO) process-costing method, 707–10 weighted-average process-costing method, 704–707 Processes designing, 25, 174–75 improvement decisions, 192–93 Producing for inventory, 359 Product cost, 68–70 budgeted, 227 calculating, 547–48 pricing, 68 product-mix decisions, 68 zero beginning and some ending work-in-process inventory, 701–702 Product-cost cross-subsidization, 174 Product costing, 366–67 just-in-time (JIT) production, 815 simplifying, 283 Product differentiation, 499, 522 Product-differentiation, 509 Production, 25, 622 budget, 226–227 Production control, 553 Production method, 678–79 Production process, 741 Production-volume variance, 318–323, 325–327, 354–56, 359, 369–72 www.downloadslide.net 986 index Productivity, 517, 519–523, 531–33 Product life-cycle, 560–62 Product-mix decisions, 192, 462–64 Product profitability analysis, 546 Products, 665 comparable physical measures, 670 cost, 27 cost allocation, 546 cost objects, 184 designing, 25, 174–75 direct costs, 184 diversity, 179 equivalent, 498 gross-margin percentages for, 667–68 high-margin, 546 indirect costs, 184–88 innovative, 27 inventoriable costs, 59 joint-cost allocation, 665 more useful to customers, 24–26 negative allocations, 673 product profitability analysis, 546 profitability of, 50–51 quality, 27, 769 regulating rates or prices of jointly produced, 665–66 reimbursed under cost-plus contracts, 665 reverse-engineering, 551 sold at splitoff point, 676 substitute, 24 supplying and delivering, 26 total cost adding direct and indirect costs, 188 total production costs, 672 Products and processes design, 25 Product-sustaining costs, 183 Product undercosting, 173 Professional accounting organizations, 36 Professional ethics, 36–38 Profitable customers, 587 Profit center, 238, 881 Profit margin, 108–109 Profit plan, 219 Profit potential, 498 Profit-volume (PV) graph, 96 Pro forma statements, 219 Project management, 857–58 Projects alternatives, 840 cash flows attributable to, 840 initial investment, 853 life-span cash flows, 839 long-run planning decisions, 839–42 monetary gain or loss from, 843–44 payback period, 847–49 performance evaluation, 858 post-investment audits, 857 recouping initial investment in, 847–49 rejecting, 840 research and development (R&D) investment, 858–59 working-capital investment, 853 Proration approach, 149–51, 370 Public Company Accounting Oversight Board, 36 Purchase-order lead time, 800 Purchasing costs, 799 just-in-time (JIT) purchasing, 807–12 PV graph See profit-volume (PV) graph Q Qualitative analysis, 447 Qualitative factors, 449–50, 456 Quality analyzing problems, 772–76 cause-and-effect diagrams, 773–74 as competitive tool, 769–72 conformance quality, 769–70 contribution margin, 778 control charts, 772–73 costs and benefits of improving, 777–78 costs of quality (COQ), 770–72, 799–800 design quality, 769–70 evaluating performance, 779 financial perspective, 770–72 improvements, 500–501, 777 incremental costs, 777 international standards for, 769 just-in-time (JIT) purchasing, 808 learning-and-growth perspectives, 777 lower rework, customer support, and repairs, 777 nonfinancial measures to evaluate and improve, 771–77 Pareto diagrams, 773 relevant costs, 809–811 Six Sigma quality, 776 supplier evaluation, 809–11 supply chain, 27 value chain, 27 Quantitative analysis, 399 cost drivers, 401–402, 408 decision process, 447 dependent variable, 400–401 estimating cost function, 400–405 high-low method, 402–403 independent variable, 400–401 plotting data, 401 regression analysis, 404–405 Quantitative factors, 449–450 R Rate variance, 278 R&D See research and development (R&D) Receipt time, 780 Reciprocal method, 635–39 Reciprocated budgeted costs, 637 Reengineering, 500–501 Refining costing systems, 178–80 Regression analysis, 404–405 Bonferroni correction, 409 coefficient of determination, 420–421 confidence interval, 422 cost drivers, 406–407, 425 cross-validation, 409 dependent variable, 406 disturbance term, 423 Durbin-Watson statistic, 424–425 error term, 423 estimation assumptions, 423–425 www.downloadslide.net index false positives, 409 goodness of fit, 404, 406, 420–421 heteroscedasticity, 424 homoscedasticity, 424 independent variable, 407, 421–423 multicollinearity, 428–429 multiple regression analysis, 404–405 multiple regression and cost hierarchies, 426–428 regression line, 420 residual term, 404, 423 simple regression analysis, 404–405 standard error, 421–423 Relative performance evaluation, 929 Relevance insourcing-versus-outsourcing decisions, 456 one-time-only special orders, 450–51 potential problems, 453 product-mix decisions, 462–64 qualitative factors, 449–50 quantitative factors, 449–50 relevant costs, 447–49 relevant revenues, 447–49 short-run pricing decisions, 453–54 Relevant after-tax flows, 851–52 Relevant cash flows cash-flow categories, 853–56 discounted cash flow analysis, 850–51 relevant after-tax flows, 851–52 Relevant-cost analysis adding customer, 470 branch offices or business divisions, 470 dropping customer, 468–69 general assumptions, 452 irrelevant costs, 452 potential problems, 452 qualitative factors, 449–50 quantitative factors, 449–50 unit fixed costs, 452–53 Relevant costs, 447–49, 467–71, 675 incremental, 805 just-in-time (JIT) purchasing, 807–808 quality, 809–11 short-run pricing decisions, 453 timely deliveries, 809–11 warehouse inventory, 800–802 Relevant opportunity cost of capital, 805 Relevant range, 55–56, 393, 409 Relevant-revenue analysis, 468–70 Relevant revenues, 447–49, 675, 784–85 Reorder point, 802–803 Reorganization, 447–48 Required rate of return (RRR), 842–43 Research and development (R&D), 25, 234 expenses, 60 investment in, 858–59 Residual income (RI), 915–16 Residual term, 404, 423 Responsibility accounting, 237–40 Responsibility centers, 238–39, 881 Retail organizations costs associated with goods for sale, 799–800 inventory management, 799–807 Return on investment (ROI), 914–15 calculating foreign divisions’ in foreign currency, 925 calculating foreign division’s in U.S dollars, 926 Return on sales (ROS), 918 Revenue allocation bundled products, 644–49 incremental revenue-allocation method, 647–48 stand-alone revenue-allocation method, 646–47 taxes and, 649 Revenue-based cost pools, 594 Revenue center, 238, 881 Revenue driver, 93 Revenue objects, 645 Revenues, 59, 93, 226, 645 Reverse-engineering products, 551 Rework, 739, 751–52 Rightsizing, 525–526 Risk management, 34 Risks environmental and social performance, 511 versus incentives, 927–928 operating budgets, 236 sensitivity analysis, 236 Rolling budgets, 222, 240–41 Rolling forecast, 222 S Safety stock, 803–805 Sales forecast, 226 Sales management systems, 226 Sales method, 679 Sales mix, 105–106 Sales-mix variance, 601 Sales-order costs, 582 Sales-quantity variance, 602 Sales value at splitoff method, 668, 674 Sales variances, 599–604 Sales-volume variance, 274–75, 325–327, 601 Sarbanes-Oxley Act (2002), 36 Scrap, 739, 753–55 Second-stage allocation, 181 Selling price, 93 Selling-price variance, 276 Sell-or-process-further decisions, 675–76 Semiconductor industry, 364 Semivariable costs, 54, 394 Sensitivity analysis, 100–101, 236, 846–47 cash budget, 251–52 linear programming (LP), 481 Separable costs, 664 Sequential allocation method, 634–35 Sequential tracking, 816 Sequential-tracking costing systems, 816 Serial correlation, 424 Service department, 622 Service organizations, 58 activity-based costing (ABC) systems, 195 cost-volume-profit (CVP) analysis, 107–108 just-in-time (JIT) production, 814 overhead variances, 332–33 standard costs, 284 time-and-materials method, 559 987 www.downloadslide.net 988 index Services, 27 cost-plus contracts, 665 joint-cost allocation, 665 jointly produced, 665–66 quality, 769 supplying and delivering, 26 Service-sustaining costs, 183 Service undercosting, 173 Setup labor-hours, 225 Setup time, 813 Shapley value method, 642 Shared value, 511 Sherman Act, 564 Short-run budgets, 218 Short-run pricing decisions, 453–54 Shrinkage costs, 800 Simple costing system, 174–77 Simple regression analysis, 404–405 Simplex method, 479n Single indirect-cost pool, 175–77 Single-rate method actual fixed-cost resources, 625 advantages and disadvantages, 626 allocating support department costs, 622–623 base choice, 627–30 budgeted costs versus actual costs, 627–30 budgeted rates and actual usage, 628–629 budgeted usage versus actual usage, 628 budgeted versus actual rates, 627–628 materials-handling services, 623–624 Six Sigma quality, 776 Slope coefficient, 393–94 Smart Grid technology, 621–622 Social performance and balanced scorecard, 509–13 Source document, 133 Specification analysis, 423–425 Specific cost, 51 Spending variance, 325 Spinoff point, 668 joint products, 667 sales value at, 674 Splitoff point, 664 Spoilage, 739 abnormal spoilage, 740 disposal value, 747 first-in, first-out (FIFO) process-costing method, 746 job costing, 750–51 journal entries, 747 normal spoilage, 740 process costing, 740–47 standard-costing method, 757–59 types, 739–40 weighted-average process-costing method, 743–45 Staff management, 33–34 Stand-alone cost-allocation method, 641–42 Stand-alone revenue-allocation method, 646–47 Standard costing absorption costing, 356 benefits, 724 budgeted fixed overhead rates, 311–12 budgeted variable overhead rates, 310–11 computations under, 724–725 cost-allocation bases, 310 direct costs, 310 fixed overhead costs, 326 overhead costs, 310 pricing or product-mix decisions, 366 variances, 725–727 Standard-costing method process costing, 724–727 spoilage, 757–59 Standard-costing systems backflush costing, 816–822 sequential tracking, 816 variances, 819–822 Standard costs, 277, 282–84 variance analysis, 276–78 wide applicability of, 284 Standard deviation (s), 774, 776 Standard error of the estimated regression, 421–423 Standard input, 277 Standard manufacturing overhead cost, 283 Standard price, 277 Standards, 277–78 learning-curve effects, 413–14 Static budgets, 270–273 Static-budget variance, 271–72, 275, 325, 600 Statistical process control (SPC), 772 Statistical quality control (SQC), 772–73 Step-down method, 634–35, 639 Step fixed-cost function, 410 Step variable-cost function, 410 Stockholders’ equity, 920 Stockout costs, 799 Strategic analysis of operating income growth component, 517–18, 521–523 price-recovery component, 517, 518–19, 521–523 productivity component, 517, 519–523 Strategic business units (SBUs), 513 Strategic cost management, 24 Strategic objectives, 503–505 Strategic planning, 34, 218–19 Strategies, 23–24, 498, 931–33 balanced scorecard, 501–514 bargaining power of customers, 498 bargaining power of input suppliers, 499 cash available to fund, 24 communicating, 513 competitors, 498 cost leadership, 499, 515–17 customer preference map, 499 customer relationship management (CRM), 25–26 decision making, 29–30 decision-making framework, 525 equivalent products, 498 evaluating success of, 499, 514 formulating, 498–99 implementation, 501–14 internal capabilities, 500–501 operating-income increases, 515–16 performance measures, 501–502 potential entrants into market, 498 product differentiation, 499 www.downloadslide.net index Strategy maps, 502–505 Stretch targets, 241–42 Structural analysis strategy maps, 503–505 Suboptimal decision making, 879–80 Subsidiary ledgers, 141, 144 Substitutable inputs, 291–94 Substitute products, 24 Subunits and manager’s performance, 927–31 Sunk costs, 448 Super-variable costing, 361 Supervision, 553 Supplier-managed inventory, 811 Suppliers bargaining power, 24, 499 evaluation, 809–11 just-in-time (JIT) production, 813 Supply chain, 26–29 Supply-chain analysis, 26 just-in-time (JIT) purchasing, 811–12 Support department costs, 622–626 Support departments, 622 materials-handling services, 623–624 multiple, 630–40 plant administration costs, 630–31 supply of capacity, 624–625 Sustainability, 27–28, 510 life-cycle costing, 562 monitoring and managing, 31–32 Sustainability Accounting Standards Board (SASB), 562 T Target costing, 554–56 competitor analysis, 551 customers’ perceived value, 550 deriving, 552 product satisfying customer needs, 551 target pricing for, 550–52 value engineering, 552 Target cost per unit, 552, 554–56 Target level of performance, 923–924 Target net income and taxes, 96–97 Target operating income, 94–96 Target operating income per unit, 552 Target price, 550–52, 556, 559 Target rate of return on investment, 557–58 Taxes annual depreciation deduction, 855–56 capacity levels, 372 multinational corporations, 894–98 planning, 34 revenue allocation, 649 TDABC See time-driven activity-based costing (TDABC) systems, 182 Team-based compensation arrangements, 930 Technical considerations, 33 Technology role in job costing, 138 Terminal disposal of investment, 856 Theoretical capacity, 364–65, 366–67 fixed manufacturing overhead costs, 371 production-volume variance, 370 Theory of constraints (TOC), 464–67 Throughput costing, 361 Throughput margin, 361, 464–65 Throughput-margin analysis, 464–67 Ties, 503–504 Time average waiting time, 782–83 bottlenecks, 781–83 as competitive tool, 780–83 costs of delays, 784–85 customer-response time, 780 delivery time, 780 feedback, 924 fixed overhead costs, 309 manufacturing cycle efficiency (MCE), 780 on-time performance, 781 operational measures of, 780–81 purchase-order lead time, 800 receipt time, 780 supply chain, 27 time-based measures, 786–97 time drivers, 781–83 value chain, 27 Time-and-materials method, 559 Time-based measures, 786–97 Time-driven activity-based costing (TDABC) systems, 182, 195 Time drivers, 781–83 Timely deliveries, 809–11 Time-series data, 401 TOC See theory of constraints (TOC) Total-alternatives approach, 457–60 Total assets, 920 Total costs, 92–93 change in level of, 54–55 jobs, 136–37 unit costs, 56–58 variable costs, 52 Total factor productivity (TFP), 532–33 Total fixed costs, 93, 453 Total manufacturing costs, 61 Total quality management (TQM), 27, 284 Total revenues, 88, 92–93 Total variable costs, 88 TQM See total quality management (TQM) Transfer prices calculating, 883–85 cost-based transfer prices, 883–84, 887–89 criteria for evaluating, 882 general guidelines for, 892–94 hybrid transfer prices, 883–84, 890–92 illustration of, 883–85 market-based transfer prices, 883–86 multinational companies, 894–98 multiple objectives, 897–98 prorating between maximum and minimum transfer prices, 890–91 Transferred-in costs, 712 first-in, first-out (FIFO) process-costing method, 715–16 weighted-average process-costing method, 713–15 Treasury, 34 Trial-and-error approach, 479–80 989 www.downloadslide.net 990 index Trigger points, 504 backflush costing, 817–19 sequential-tracking costing systems, 816 Triple bottom line, 510 U Uncertainties, 29, 101, 111, 130, 223 Underallocated indirect costs, 148–49 Underallocated overhead, 149–51 Underapplied indirect costs, 148 Unfavorable variance, 271–72 Unhealthy competition, 880 Uniform cash flows, 847–48 Unit costs, 56–58 Unit fixed costs, 452–53 Unprofitable customers, 587 Unused capacity, 524–526 U.S Clean Air Act, 562 U.S Department of Commerce, 565 U.S Government contracts, 643–644 U.S International Trade Commission, 565 U.S Robinson-Patman Act (1936), 564 U.S Superfund Amendment and Reauthorization Act, 562 U.S Supreme Court, 564–65 V Value-added activities, 780 Value-added costs, 553 Value chain, 24–27 business functions, 546 cost and efficiency, 27 cost savings, 554 gathering information from, 840 identifying activities of, 180–82 levels of performance, 27–29 unit costs, 57 Value-chain analysis, 24–26, 553–54 Value engineering, 552, 554–56 Value stream, 824–826 Variable batch-level direct costs, 327–328 Variable-cost bases, 889 Variable-cost components, 531–32 Variable costing, 350, 356–58, 362–63 absorption costing, 350–52 breakeven points, 377–78 external reporting, 362 fixed manufacturing costs, 352–54, 363 operating income, 353, 357–58 throughput costing, 361 Variable costing income statements, 352–57 Variable cost per unit, 93 Variable-cost pool, 622–623 Variable costs, 52–56, 89 alternative structures, 102–103 budgeted, 623–624 cost driver, 55 cost objects, 395 cost per unit, 52 cost-plus pricing, 558–59 fixed costs, 52–53, 93 labor costs, 53 linear cost functions, 393 product cost base, 558 relevant range, 55–56 total cost, 52 Variable indirect costs, 132 Variable machine setup overhead costs, 231–232 Variable manufacturing cost base, 558 Variable manufacturing costs, 109 Variable manufacturing overhead, 271 Variable overhead, 323–325 Variable Overhead Allocated account, 316 Variable Overhead Control account, 316 Variable overhead costs, 309–10 budgets, 230 journal entries, 316 Variable overhead cost variances flexible-budget analysis, 312 signals, 315 variable overhead efficiency variance, 313–14 variable overhead spending variance, 314–15 Variable overhead efficiency variance, 313–14 Variable overhead flexible-budget variance, 312 Variable overhead spending variance, 314–15 Variance analysis, 286 activity-based costing (ABC) systems, 327–30 benchmarking and, 287–89 continuous improvement, 287 decision making, 271 direct materials-handling labor costs, 328–30 financial and nonfinancial performance measures, 287 fixed batch-level direct costs, 327–328 fixed setup overhead costs, 330–31 organizational learning, 286–87 standard costs, 276–78 variable batch-level direct costs, 327–328 Variances, 70, 238, 270–71 backflush costing, 819–822 denominator-level variance, 318 early warning, 238 efficiency variance, 276–84 evaluating strategy, 238 favorable variance, 271–72 fixed overhead cost variances, 317–323 fixed overhead flexible-budget variance, 317 fixed overhead spending variance, 317 flexible-budget variances, 274, 275–76 isolating, 283 level variances, 276 management use of, 284–87 mix variance, 280 multiple causes of, 284–85 operating-income volume variance, 326 overall-total variance, 325 performance evaluation, 238 performance measurement, 286 price variance, 276–284 production-volume variance, 318–320, 325–327 rate variance, 278 sales-volume variances, 274–75, 325–327 selling-price variance, 276 static-budget variance, 271–72 unfavorable variance, 271–72 variable overhead cost variances, 312–16 variable overhead efficiency variance, 313–14 ... Families Swati, Radhika, Gayatri, Sidharth (SD) Gayathri, Sanjana, Anupama (MVR) The Manager and Management Accounting All businesses are concerned about revenues and costs Managers at companies... Management Accounting Literature award He is a coauthor of Managerial Accounting: Making Decisions and Motivating Performance Rajan has served as the Departmental Editor for Accounting at Management... academic audiences in North America, South America, Asia, Africa, Australia, and Europe He is a coauthor of two other books: Managerial Accounting: Making Decisions and Motivating Performance and