Cornerstones of managerial accounting (5th edition)

www.ebook3000.com FIFTH EDITION CORNERSTONES OF MANAGERIAL ACCOUNTING Maryanne M Mowen Oklahoma State University Don R Hansen Oklahoma State University Dan L Heitger Miami University Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Cornerstones of Managerial Accounting, Fifth Edition Maryanne M Mowen, Don R Hansen, Dan L Heitger Senior Vice President Learning Acquisitions & Solutions Planning: Jack W Calhoun Editorial Director, Business & Economics: Erin Joyner ª 2014, 2012 South-Western, Cengage Learning ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher Editor-in-Chief: Rob Dewey For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 Executive Editor: Sharon Oblinger Associate Developmental Editor: Julie Warwick For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Editorial Assistant: A.J Smiley Brand Management Director: Jason Sakos Sr Brand Manager: Kristen Hurd Market Development Manager: Lisa Lysne Sr Market Development Manager: Natalie Livingston Marketing Coordinator: Eileen Corcoran Sr Content Project Manager: Tim Bailey Media Editor: Bryan England Manufacturing Planner: Doug Wilke ExamViewÔ is a registered trademark of eInstruction Corp Windows is a registered trademark of the Microsoft Corporation used herein under license Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc used herein under license Except where otherwise noted, all content in this title is ª Cengage Learning Production Service: Cenveo Publishing Services Sr Art Director: Stacy Jenkins Shirley Cover and Internal Designer: Mike Stratton Cover Image: ª Pixelfabrik/Alamy Library of Congress Control Number: 2012948984 ISBN 13: 978-1-133-94398-3 ISBN 10: 1-133-94398-5 Rights Acquisitions Director: Audrey Pettengill South-Western Cengage Learning 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in Canada 16 15 14 13 12 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com This book is dedicated to our students—past, present, and future—who are at the heart of our passion for teaching Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com BRIEF CONTENTS CHAPTER Introduction to Managerial Accounting CHAPTER Basic Managerial Accounting Concepts 26 CHAPTER Cost Behavior 66 CHAPTER Cost-Volume-Profit Analysis: A Managerial Planning Tool 116 ‘‘MAKING THE CONNECTION’’ 170 CHAPTER Job-Order Costing 172 CHAPTER Process Costing 230 CHAPTER Activity-Based Costing and Management 280 CHAPTER Absorption and Variable Costing, and Inventory Management 342 CHAPTER Profit Planning 380 CHAPTER 10 Standard Costing: A Managerial Control Tool 430 ‘‘MAKING THE CONNECTION’’ 474 CHAPTER 11 Flexible Budgets and Overhead Analysis 476 CHAPTER 12 Performance Evaluation and Decentralization 522 CHAPTER 13 Short-Run Decision Making: Relevant Costing 572 CHAPTER 14 Capital Investment Decisions 622 670 CHAPTER 15 Statement of Cash Flows 674 CHAPTER 16 Financial Statement Analysis 714 Glossary 760 Check Figures 768 Index 772 iv Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com ª Pixelfabrik/Alamy ‘‘MAKING THE CONNECTION’’ NEW TO THIS EDITION • Addition of ‘‘Why’’ to Cornerstone Examples: Each Cornerstone now includes a ‘‘Why’’ portion, reinforcing for students the reasons behind the calculations • Increased Readability and Refined Design: The new edition features improved design for various features to improve readability including the Q&A inserts, Cornerstones, capitalization of account titles, and better placement of exhibits • Additional Conceptual Material in End-of-Chapter: Additional Conceptual Connection questions are identified in the end-of-chapter content These questions ask students to go beyond the calculations to articulate the conceptual context behind the work they’ve just completed and how that information may impact a company’s decision-making • Additional Excel Spreadsheet Templates: To give students additional practice using Excel to complete their homework, each chapter will have an average of two additional templates NEW TO • Author-Revised Feedback: CengageNOW helps students progress farther outside the classroom and keeps them from getting stuck in their studies by providing them with meaningful, written feedback as they work In this edition, that feedback has been fully revised by the author team to guide students and to be consistent with material presented in the text • Post-Submission Feedback: Also available in CengageNOW is the ability to show the full solution in addition to newly added source calculations to enhance the learning process Now students can see where they may have gone wrong so that they can correct it through further practice ê Pixelfabrik/Alamy ã ã Blueprint Connections: Blueprint Connections in CengageNOW are shorter extensions of the Blueprint Problems that build upon concepts covered and introduced within the Blueprint Problems These scenariobased exercises help reinforce students’ knowledge of the concept, strengthen analytical skills, and are useful as inclass activities or as homework/review after the lecture and before the exam • Conceptual Conversion Questions: End-of-chapter questions or requirements within larger questions that were previously short answer format have been converted to be assignable and gradable within CengageNOW Animated Activities: Animated Activities in CengageNOW are the perfect prelecture assignment to expose students to concepts before class! These illustrations visually guide students through selected core topics using a realistic company example to illustrate how the concepts relate to the everyday activities of a business Animated Activities are assignable or available for self-study and review v Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com CHAPTER-BY-CHAPTER ENHANCEMENTS Chapter 1: Introduction to Managerial Accounting Chapter 9: Profit Planning • • • • • • • • Revised Exhibit 1.2: The Value Chain Revised 10% of the end-of-chapter material Updated chapter opener image Chapter 2: Basic Managerial Accounting Concepts • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material Revised ‘Important Equations.’ Added new important equation: Conversion Cost ẳ Direct Labor ỵ Manufacturing Overhead Added new important equation: Prime Cost ẳ Direct Materials ỵ Direct Labor Updated chapter opener image Chapter 3: Cost Behavior • • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Revised Exhibit 3.3: Semi-Variable Cost Revised ‘Important Equations.’ Updated chapter opener image Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Revised ‘Important Equations.’ Added additional spreadsheet templates • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Updated chapter opener image Revised ‘Important Equations.’ Chapter 12: Performance Evaluation and Decentralization • • • • • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Updated chapter opener image Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Updated chapter opener image Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Revised ‘Important Equations.’ Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Revised ‘Important Equations.’ Added additional spreadsheet templates Chapter 15: Statement of Cash Flows • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Revised ‘Important Equations.’ Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Updated chapter opener image Chapter 16: Financial Statement Analysis Chapter 8: Absorption and Variable Costing, and Inventory Management • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Updated chapter opener image Chapter 14: Capital Investment Decisions Chapter 7: Activity-Based Costing and Management • • • • • • • • • • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Revised ‘Important Equations.’ Chapter 6: Process Costing • • • • • • • • • • Chapter 13: Short-Run Decision Making: Relevant Costing Chapter 5: Job-Order Costing • • • • Chapter 10: Standard Costing: A Managerial Control Tool Chapter 11: Flexible Budgets and Overhead Analysis Chapter 4: Cost-Volume-Profit Analysis: A Managerial Planning Tool • • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Added new important equation: Variable Costing Product Cost ẳ Direct Materials ỵ Direct Labor þ Variable Overhead Added new important equation: Absorption Costing Product Cost ẳ Direct Materials ỵ Direct Labor ỵ Variable Overhead þ Fixed Overhead • • • • • • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Updated chapter opener image Updated chapter opener with current data for Apple, Inc Updated dates in Exhibit 16.2: Ratio Analysis vi Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com ê Pixelfabrik/Alamy ã ã • • Added the ‘Why’ to each Cornerstone Revised 25% of the end-of-chapter material New design improves readability of the Q&A feature Added additional spreadsheet templates Added new important equation: Ending Cash Balance ¼ Cash Available À Expected Cash Disbursements Added new important equation: Cash Available ¼ Beginning Cash Balance ỵ Expected Cash Receipts SUPERIOR SUPPLEMENTS CengageNOW for Cornerstones of Managerial Accounting, 5e CengageNOW offers: • • • • • • • • • Auto-graded Homework (static and algorithmic), Test Bank, Personalized Study Plan, Gradebook, and eBook are all in one resource Smart Entry helps eliminate common data entry errors and prevents students from guessing their way through homework Learning Outcomes Reporting provides the ability to analyze student work from the gradebook Each problem is tagged by topic, learning objective, level of difficulty, time estimates, Bloom’s Taxonomy, AICPA, ACBSP, IMA, and other business program standards to allow greater guidance in developing assessments and evaluating student progress Assignments Options are the most robust and flexible in the industry Enhanced Feedback provides additional pre- and postsubmission guidance Cornerstones Videos further reinforce concepts and examples for visual learners Blueprint Problems and Connections are scenario-based exercises to help reinforce knowledge of the concept, strengthen analytical skills, and are best used as homework or review Animated Activities are visual illustrations that guide students through selected core topics using a realistic company example to illustrate how concepts relate to everyday business activities Conceptual Conversion to select problems and/or requirements that are short answer in the text are now converted to be assignable and gradeable in CNOW Solutions Manual Author-written and carefully verified multiple times to ensure accuracy and consistency with the text, the Solutions Manual contains answers to all Discussion Questions, Multiple-Choice Questions, Cornerstone Exercises, Exercises, Problems, and Cases that appear in the text These solutions help you easily plan, assign, and efficiently grade assignments All solutions are given in simplified Excel spreadsheets and also are available in PDF format The Solutions Manual is available electronically for instructors only on the IRCD and on the password protected portion of the text’s website at http://login.cengage.com ª Pixelfabrik/Alamy Test Bank The Test Bank has been revised and verified to ensure accuracy and is available in both WordÔ and ExamViewÔ formats It includes questions clearly identified by topic, learning objectives, level of difficulty, Time Estimate, Bloom’s Taxonomy, AICPA, ACBSP, IMA, and other business program standards to allow greater guidance in developing assessments and evaluating student progress The Test Bank is available electronically for instructors only on the IRCD and on the password protected portion of the text’s website at http://login.cengage.com ExamViewÔ testing software is available only on the IRCD PowerPointÔ Lecture Slides The PowerPointÔ slides have been revised and ‘toned down’ to allow for greater ease in preparing and presenting lectures to encourage lively classroom discussions All Cornerstones within each chapter appear in the slides The slides are available for instructors only on the IRCD and on the password protected portion of the text’s website at http://login.cengage.com Spreadsheet Templates and Solutions All spreadsheet problems and solutions, identified by a spreadsheet icon in the text, are available for instructors only on the IRCD and on the password protected portion of the text’s website at http://login.cengage.com All spreadsheet template files are available for students at www.cengagebrain.com Instructor’s Resource CD-ROM (ISBN-10: 1285055098 | ISBN-13: 9781285055091) Place all of the key teaching resources you need at your fingertips with this all-in-one resource The IRCD includes everything you need to plan, teach, grade, and assess student understanding and progress This CD contains: • • • • • Solutions Manual Test Bank in MicrosoftÔ Word and ExamViewÔ MicrosoftÔ PowerPoint slides Instructors Manual Spreadsheet Templates and Solutions All resources on the IRCD are also available to instructors only on the password protected portion of the text’s website at http://login.cengage.com CengageBrain.com Free Study Tools for Students This robust product website provides immediate access to a rich array of interactive learning resources for students that include flashcards, chapter-by-chapter online quizzes, sample final exam, crossword puzzles, PowerPointÔ student slides, and the Cornerstones Videos Students should go to www.cengagebrain.com At the CengageBrain.com homepage, search by the author, title, or ISBN of the text at the top of the page CengageBrain.com will lead students to the product page to access the free study resources vii Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com ACKNOWLEDGMENTS AND THANKS Janice Akao, Butler Community College Natalie Allen, Texas A&M University Margaret Andersen, North Dakota State University Dr Vidya Awasthi, Seattle University Timothy B Biggart, Berry College Phillip A Blanchard, University of Arizona John F Bongorno, Cuyahoga Community College Ann K Brooks, University of New Mexico Dr James F Brown, Jr., University of Nebraska, Lincoln Robert S Burdette, Salt Lake Community College Charles Caliendo, University of Minnesota Donald P Campbell, Brigham Young University Dr Tongyu Cao, University College Cork, Ireland Yu Chen, Texas A&M International University Bea Chiang, College of New Jersey Jay Cohen, Oakton Community College Rafik Elias, California State University, Los Angeles Diane Eure, Texas State University Susan Fennema, Kalamazoo Valley Community College Carlos Ferran, Governors State University Kim W Gatzke, Delgado Community College Connie S Hardgrove, College of Central Florida Melvin Houston, Wayne State University Sharon J Huxley, Post University Dr Iris Jenkel, St Norbert College Todd A Jensen, Sierra College Brian A Joy, Henderson Community College Mehmet Kocakulah, University of Southern Indiana Gopal Krishnan, Lehigh University Linda Kuechler, Daemen College Meg Costello Lambert, Oakland Community College Thomas F Largay, Thomas College Dr Wallace R Leese, California State University, Chico Roger Lirely, University of Texas at Tyler John Logsdon, Webber International University Dennis M Lo´pez, University of Texas at San Antonio Catherine E Lumbattis, Southern Illinois University, Carbondale Nace Magner, Western Kentucky University Dr Suneel Maheshwari, Marshall University Steve Markoff, Montclair State University Linda Marquis, Northern Kentucky University Stephen McCarthy, Kean University Dr L Kevin McNelis, New Mexico State University Birendra Mishra, University of California, Riverside Mark E Motluck, Anderson University Gerald M Myers, Pacific Lutheran University Courtney Greer Naismith, Collin College Mary Beth Nelson, North Shore Community College Richard Newmark, University of Northern Colorado Abbie Gail Parham, Georgia Southern University Nichole Pendleton, Friends University Jeffrey Phillips, Colby-Sawyer College Dr Jo Ann Pinto, Montclair State University John Plouffe, California State University Sharon Polansky, Texas A&M University, Corpus Christi Barbara Reider, University of Montana Kirsten M Rosacker, University of Wisconsin, LaCrosse Charles J Russo, Towson University Dr Aamir A Salaria, Harris-Stowe State University Dr Gerd Schulte, University of Applied Science Ann E Selk, University of Wisconsin, Green Bay Margaret Shackell, Cornell University Mehdi Sheikholeslami, Bemidji State University Aida Shekib, Governors State University Khim L Sim, Western Washington University Ercan Sinmaz, Houston Community College System James Smith, University of San Diego Jill Smith, Missouri Southern State University Diane Stark, Phoenix College Leo M Stenson, Rosemont College Geoff Stephenson, Olds College Dr Ronald J Strauss, Montclair State University James C Sundberg, Eastern Michigan University Karen Grossman Tabak, Maryville University Rita N Taylor, University of Cincinnati viii Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com ª Pixelfabrik/Alamy We would like to thank the following reviewers whose valuable comments and feedback helped shape and refine this edition: 774 Index Certified Public Accountant (CPA), defined, 18 Chase, 10 ChevronTexaco, 15 Chief operating officer (COO), 13 Chiquita, Chrysler, Cleveland Clinic, 4, 527 Coca-Cola, 580 Coefficient of determination (R2), defined, 92 Cold Stone Creamery, 281, 282 Committed fixed costs, 71–72 defined, 72 Common costs, defined, 198 Common fixed expenses, defined, 135, 350 Common stockholders’ equity, calculating average, 734 Common-size analysis, 716–719 defined, 716 exh., 716 Common-size income statements, preparing using base period horizontal analysis, 717 Company codes of ethical conduct, 15 Comparative balance sheets, exh., 722 Competition, enhanced, 525 Completion, estimating degree of, 240 Compounding of interest, defined, 644 Concorde, 580 Constrained resources, multiple, 596 Constraints, defined, 594 Consumption ratio calculating, 286 defined, 285 Continental Airlines, 69 Continuous budget, defined, 383 Continuous improvement, defined, 10 Contribution margin and fixed cost at breakeven, exh., 122 defined, 119 Contribution margin income statement defined, 119 preparing, 119–120 using to consider varying scenarios, 149 Contribution margin ratio, 123–125 calculating, 124 defined, 123 Control, 382 defined, 383 exh., 382 planning and, 434 Control activities defined, 309 environmental cost management, 310 quality cost management, 309 Control costs, defined, 309 Control limits defined, 440 using to trigger a variance investigation, 440–441 Controllable costs, defined, 405 Controller, defined, 13 Controlling, defined, Converse, 68 Conversion cost calculating in total and unit, 36 defined, 36 Core objectives and measures, 547 Cost(s) accumulating, 28–29, 235 administrative, 38 appraisal, 309 assigning, 28–29, 30–32, 238–239, 241– 242, 293–295, 295–297, exh., 297 business activities estimate of, 29–30 carrying, 353 classification of under absorption and variable costing, exh., 344 common, 198 control, 309 controllability of, 405 controllable, 405 defined, 28 design, 450 differential, 576 direct, 30 environmental, 301, 310, 311 failure, 309, 311 fixed, 32, 68, 70–72 how they flow through the accounts in process costing, 233–235 indirect, 30–32, 34–35 inventory-related, 353 manufacturing, 33, 450 meaning and uses of, 28–32 mixed, 74–76 nonvalue-added, 304 opportunity, 32, 579 order-filling, 38 order-getting, 38 ordering, 353 other categories of, 32 period, 37, 344, exh., 37 prevention, 309 prime and conversion, 36 product, 32–38, 344, 436–437, exh., 37 relationship between inventories, cost of goods sold and flow of, 42 relevant, 578–580 selling, 38 service, 32–38 setup, 353 societal, 311 step, 74–76 stockout, 353 sunk, 579–580 target, 451 transferred-in, 235 use of in pricing decisions, 596–599 value-added, 304 variable, 32, 68, 72–73 Cost accounting systems, limitations of functional-based, 282–291 Cost allocation, support department, 198–204 Cost assignment approaches, exh., 435 Cost assignments, FIFO calculation of, 251–253 Cost-based pricing, 596–598, 670–672 Cost-based transfer prices, 539–540 Cost behavior, 670–672 and cost-volume-profit analysis for Many Glacier Hotel, 170 and relevant costs, 580–581 basics of, 68–74 defined, 68 Cost center, defined, 526 Cost distortion, solving the problem of, 286–288 Cost driver, defined, 68 Cost efficiency, focus on, 531 Cost estimation method, choosing, 89–90 Cost flows calculation without work in process, 234–235 from work in process to finished goods, summary of, exh., 191 Cost formula, creating and using, 77 Cost information, providing, 33 Cost management practices, additional, 450–451 Cost object assigning costs to, 30–32 defined, 29 Cost of capital, defined, 630 Cost of goods manufactured, 38–40 calculating, 40 defined, 38 schedule of, exh., 192 Cost of goods sold (COGS), 34, 40–42, 176 accounting for, 192–195 calculating, 41 defined, 41 statement, exh., 193 Cost of goods sold budget, 393 defined, 393 preparing, 393 Cost of overhead, ABC, 292 Cost reconciliation, 244, 254 defined, 244 Cost reduction, 306, 546 Cost relationships, reasonableness of straight-line, 73–74 Cost separation, need for, 76 Cost structure, defined, 146 Cost system choices, Sacred Heart Hospital (SHH), 474–475 Costco, Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index Costing absorption, 344 actual, 176 job-order production and, 174 normal, 176 process production and, 175 product, 435 target, 598 variable, 344 Costing accuracy, problems with, 285–286 Costing of products and services, new methods of, Costing system actual, 435 job-order, 174 normal, 435 standard, 435 Costs and benefits associated with each feasible alternative, identify, 575–576 Costs and prices known with certainty, 133 Costs of quality, defined, 309 Cost-volume-profit, sensitivity analysis and, 148–149 Cost-volume-profit (CVP) analysis and risk and uncertainty, 141–149 assumptions of, 133 defined, 118 ethical decisions, 149 sales mix and, 137–138 using operating income in, 118–120 Cost-volume-profit graph, 131–132 defined, 131 exh., 132 Cost-volume-profit relationships exh., 134 graphs of, 130–133 Cost-volume-profit variables, illustrating relationships among, 133–135 Creditors, defined, 716 Cross-functional perspective, 10 Current ratio, 723 calculating, 724 defined, 723 Currently attainable standards, 433 Customer costing vs product costing, 298–300 Customer orientation, 8–10 Customer perspective, 546–547 defined, 542 summary of objectives and measures, exh., 548 Customer profitability managing, 302 whale curve of cumulative, exh., 298 Customer value, 547–548 defined, 547 Cycle time, 549–560 calculating, 308 computing, 549–560 defined, 308, 549 D DaimlerChrysler, 5, 11 Debt ratio, 730–731 calculating, 731 defined, 730 Debt-to-equity ratio, calculating, 731 Decentralization and responsibility centers, 524–527 defined, 524 exh., 524 reasons for, 524–525 Decentralized division, exh., 526 Decentralized firm, divisions in, 525 Decision making defined, ethical decision, 578 for inventory management, 352–361 information for, 383 short-run, 574–581 Decision-making model, 574–575 Decision model, defined, 574 Decision to investigate, 439–441 Decisions capital investment, 624 keep-or-drop, 587–591 make-or-buy, 581–585 making, 578 sell-or-process-further, 592 special-order, 585–587 use of costs in pricing, 596–599 Degree of completion, estimating, 240 Degree of operating leverage (DOL) calculating impact of increased sales on operating income using, 147 computing, 145–146 defined, 145 Dell Computers, 34 Delta Air Lines, 30, 68 Demand, uncertainty in, 359 Departmental overhead rates, 181–183 defined, 181 Departments multiple, 246–251 types of, 198–199 Dependent variable, defined, 76 Depreciation expense, 682 Design costs, 450 Design for Six Sigma (DFSS), 11 Differential cost, defined, 576 Direct costs, 28 defined, 30 Direct fixed expenses, defined, 135, 350 Direct labor defined, 34 variance analysis, 447–451 Direct labor budget, 390 defined, 390 preparing, 390–391 Direct labor cost accounting for, 189 flows, summary of, exh., 189 Direct labor variances, 447–449 entries for, 452 Direct materials, 39 defined, 34 used in production, calculating, 39 Direct materials purchases budget, 388–390 defined, 388 preparing, 389–390 Direct materials variances, 442–445 entries for, 451–452 Direct method, 199, 200–201 an alternative approach, 685–687 assigning support department costs by using, 200–201 defined, 200, 678 exh., 200 Discount factor, defined, 645 Discount rate, 630 defined, 645 exh., 633 NPV, and cash flows, illustrating relationships, 632–633 Discounted cash flows, defined, 629 Discounting, defined, 645 Discounting models defined, 625 net present value method, 629–633 Discretionary, 304 Discretionary fixed costs, 71–72 defined, 71 DISH Network, LL, 675 Disney Company, 537 Disposition of materials variances, 446 and labor variances, 452–453 Dividend payout ratio, 736–737 calculating, 737 defined, 737 Dividend yield, 736–737 calculating, 737 defined, 736 Divisional profitability, narrow focus on, 532 Divisions, 525 in decentralized firm, 525 Double-loop feedback, defined, 546 Dow Jones-Irwin, 720 Downstream, 297 Driver analysis defined, 303 search for root causes, 303 Drivers, 70 activity, 284 nonunit-level activity, 284 resource, 294 unit-level activity, 284 Duffy Tool and Stamping, Duke University Children’s Hospital, 544 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 775 776 Index Dun and Bradstreet, 720 Dysfunctional behavior, defined, 403 E Earnings per share, 735–736 computing, 735 defined, 735 Economic order quantity (EOQ), 355–356 and inventory management, 359 calculating, 356 defined, 355 traditional inventory model, 353–355 Economic value added (EVA), 535–537 behavioral aspects of, 537 calculating, 536 defined, 535 measuring performance of investment centers by, 533–537 Efficiency, 11, 307 variance, 439 Elgin Sweeper Company, 88 Ending finished goods inventory budget defined, 392 preparing, 392 Ending work-in-process (EWIP) inventory, defined, 236 Engineering work order, 283 Enron, 15, 738 Enterprise risk management (ERM), 11 Environmental cost management, 310–311 Environmental costs, defined, 310 Environmental detection costs, defined, 310 Environmental external failure costs, defined, 311 Environmental internal failure costs, defined, 310 Environmental prevention costs, defined, 310 Epilog, 283 Equivalent units calculating with nonuniform inputs, 247–248 calculating with transferred-in goods, 250 calculation of, 243–244, 253–254 Equivalent units of output, defined, 237 Equivalent units of production, 237–239 ethical decisions, 238 no BWIP calculation of, 237–238 Ernst & Young, 579 Estee Lauder, 34 Ethan Allen, 34 Ethical behavior, 14–15 defined, 14 Ethical conduct company codes of, 15 for managerial accountants, standards of, 15–16 managerial accounting and, 14–16 Ethical decisions assigning costs, 32 budgetary slack, 404 CVP analysis, 149 decision making, 578 equivalent units of production, 238 inventory management, 358 job costs, 184 managerial judgment, 89 operating cash flows, 678 payback periods, 627 performance evaluation, 480 product diversity and product costing accuracy, 291 profitability ratios, 738 return on investment, 533 service firms, 177 standard cost systems, 434–435 support department costs, 199 Evidence Bases Best Practices (EBBP), 435 Expenses avoidable fixed, 350 common fixed, 135, 350 defined, 28 direct fixed, 135, 350 traceable fixed, 350 External accounting, External failure costs defined, 309 environmental, 311 realized, 311 unrealized, 311 F Facility-sustaining costs, 283 Factory burden, 34 Failure activities defined, 309 environmental cost management, 310–311 quality cost management, 309 Failure costs defined, 309 environmental external, 311 environmental internal, 310 external, 309 internal, 309 realized external, 311 unrealized external, 311 Failure of unit-based overhead rates, illustrating, 284–289 Favorable (F) variances, defined, 439 FedEx, 8, Feedback on performance, frequent, 403 FEMA, 11 FIFO costing method and weighted average methods, differences between, 251 defined, 239 example of, 251–255 production report, 251–255 Fifth Third Bank, 29 Financial accounting, 6–8 comparison of managerial and, 7–8, exh., defined, Financial Accounting Standards Board (FASB), 6, 344 Financial budgets defined, 384 preparing, 395–402 Financial perspective, 546 defined, 542 summary of objectives and measures, exh., 547 Financing activities, defined, 677 Financing cash flow, compute, 683–684 Finished goods, accounting for, 190–192 Firm divisions in decentralized, 525 impact of transfer pricing on, 538, exh 538 milking the, 405 Fixed cost(s), 68, 70–72 and contribution margin at breakeven, exh., 122 defined, 32, 70 exh., 71 impact of changing, 135 using high-low method to estimate, 170–171 Fixed expenses avoidable, 350 common, 350 direct, 350 traceable, 350 Fixed overhead analysis, 489–493 Fixed overhead spending variance, 491 analysis of, 493 responsibility for, 492 Fixed overhead variances, calculating, 491–492 Fixed overhead volume variance, 491 responsibility for, 493 Flexible budget, 480–483 defined, 480 preparing before-the-fact, 480–481 vs static budgets, 478–483 Flexible budget variance and static budget variance, relationship between for actual quantity produced, exh., 478 defined, 483 Flexible budgeting for entertainment, 483–484 Flexible manufacturing system (FMS), 642 Flow of costs through the accounts, 187–196 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index Ford Motor Company, 149, 587 Frito-Lay Inc., 525 Functional-based cost accounting systems, limitations of, 282–291 Functional-based product costs, comparison of activity-based and, 289 Future cost illustrated, irrelevant, 580 Future value, defined, 644 G GAAP See Generally accepted accounting principles Gain on sale of equipment, 682 GE Capital, 524 Geely, 149 General Electric, 4, 537, 544 General Mills, 525 General Motors, 283, 309, 542, 585 Generally accepted accounting principles (GAAP), 4, 344 Geographic lines, 526 Georgia Pacific, 34 Goal congruence, defined, 403 Goodness of fit, 92 Goods, types of, 525 Google, 675, 676 Graph cost-volume-profit, 131–132 of cost-volume-profit relationships, 130–133 profit-volume, 130–131 Gross margin, defined, 43 Guess, H Hard Rock International, 623, 624, 625, 632 HealthSouth, 14, 15 Herman Miller Inc., 523, 533, 537 Hewlett-Packard Co., 11, 584 High point, 78 High Sierra Sport Company, 381 High Sierra, Inc., 383 High-low method, 78–83 defined, 78 scattergraph method, and method of least squares, comparison of, 87–88, exh., 88 using to calculate fixed cost and variable rate and to construct a cost formula, 79–80 using to calculate predicted total variable cost and total cost for budgeted output, 80–81 using to calculate predicted total variable cost and total cost for a time period that differs from the data period, 81–82 using to estimate variable and fixed costs, 170–171 Hilton Hotels Corporation, 544 Home Depot Inc., 382 Honda, 450, 577 Horizontal analysis, 717–718 defined, 717 Hurdle rate, 630 defined, 531 I IBM, 537 Ideal standards, 433 Incentives defined, 403 monetary and nonmonetary, 403 Income operating, 528 residual, 533–535 sales, and production relationships, 348–349, exh., 349 Income statement budgeted, 394–395 calculating percentage of sales revenue, 44 exh., 196, 721 manufacturing firm, 42–45 preparing, 38–46 preparing using net sales as base, 718–719 service firm, 45–46 using variable and absorption costing, 347–348 Incremental cash flows, 642 Independent projects, defined, 624 Independent variable, defined, 76 Indifference point, defined, 148 Indirect costs, 28, 30–32 assigning, 31–32 defined, 30 Indirect manufacturing costs, 34–35 Indirect method, 678–685 defined, 678 Industrial averages, 720–721 Information for decision making, 383 gathering and using local, 524–525 needs of managers and other users, 4–5 Infrastructure perspective, 542 Innovation process defined, 548 objectives and measures, 549 Inputs, multiple, 246–251 Institute of Management Accountants (IMA), 11, 15, 291 Intercept, defined, 76 Interest, compounding of, 644 Internal accounting, Internal auditing, certificate in, 16 Internal business process perspective, defined, 542 Internal failure costs defined, 309 environmental, 310 Internal perspective, 548–552 summary of objectives and measures, exh., 552 Internal rate of return (IRR), 630, 633–635 and uncertainty in estimates of cash savings and project life, 635–636 calculating with uniform cash flows, 634 defined, 633 illustrated, multiple-period setting with uneven cash flows, 635 illustrated, multiple-period setting with uniform cash flows, 633–635 net present value compared with, 638–639, exh., 639 Internal Revenue Service (IRS), 304, 344 International Accounting Standards Board (IASB), International Federation of Accountants, 16 Inventory BWIP, 237, 239–240 calculating average, 728 EWIP, 236 illustration of average, exh., 355 increase in, 681–682 lower cost of, 359–360 traditional reasons for carrying, exh., 353 valuation of, 244, 254 valuing with nonuniform inputs, 247–248 Inventory cost computing under absorption costing, 345–346 computing under variable costing, 346 Inventory management decision making for, 352–361 economic order quantity and, 359 ethical decisions, 358 just-in-time approach to, 359–361 Inventory-related costs, 353 Inventory turnover in days, calculating, 728 Inventory turnover ratio, 727–729 calculating, 728 defined, 727 Inventory valuation, 345–347 Investing activities, defined, 677 Investing cash flow, compute, 682–683 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 777 778 Index Investment data, exh., 643 how it differs, 642 return on, 528, 531–532 Investment center defined, 526 measuring performance of by using residual income and economic value added, 533–537 measuring performance of by using return on investment, 528–533 Investment measure, disadvantages of return on, 532–533 Investment relationships, focus on return on, 531 Investors, defined, 716 Irrelevant future cost illustrated, 580 Irrelevant past cost illustrated, 579–580 K M Kaizen costing, 450 Keep-or-drop decisions, 587–591 defined, 587 illustrated, 587–589 Keep-or-drop product line problem structuring, 588–589 with complementary effects, structuring, 590 Keep-or-drop with complementary effects, 589–591 Key questions, set of, 291–293 KFC, 525 Kicker, 12, 13, 29, 69, 118, 174, 249, 305, 360, 482, 541–542, 574, 716 Koch Industries Inc., 525 KPMG, 177 Kroger, 44 Macy’s, 726 Maersk, 141 Make-or-buy decisions, 581–585 defined, 581 illustrated, 582–585 Make-or-by problem, structuring, 583–584 Management, focusing of central, 525 Management accounting, certificate in, 16 Managerial accountant role of, 12–13 standards of ethical conduct for, 15–16 Managerial accounting, 6–8 and ethical conduct, 14–16 comparison of financial and, 7–8, exh., current focus of, 8–11 defined, information, meaning of, 4–5 Managerial judgment, 88–89 ethical decisions, 89 Managers, 716 evaluating profit-center, 349 information needs of, 4–5 training and motivating of, 525 Mandate, 304 Manufacturing costs, 33, 450 flow of through accounts of processcosting firm, exh., 234 Manufacturing cycle efficiency See MCE Manufacturing firms, 236 importance of unit costs to, 176–177 income statement, 42–45 Manufacturing inputs, nonuniform application of, 246–249 Manufacturing organizations, defined, 33 Manufacturing overhead, 34–38 defined, 34 Many Glacier Hotel, 170 Margin, 528–530 calculating, 529 defined, 528 Margin of safety, 143–145 computing, 144 defined, 143 Market price, 539 Markup, defined, 597 Master budget, 383–384 and its interrelationships, exh., 384 defined, 383 directing and coordinating, 383 major components of, 384 Materials accounting for, 187–189 calculating total variance for, 442 variance analysis, 441–446 Materials cost flows, summary of, exh., 188 J J Crew, 33, 43 JetBlue Airways Corp., 283, 537 Job, defined, 174 Job costs ethical decisions, 184 keeping track of with source documents, 184–187 Job-order cost sheet, 184–185 defined, 184 exh., 185 preparing, 194–195 Job-order costing firm, flow of costs through accounts of, exh., 188 Job-order costing system and process costing, comparison of, exh., 175 defined, 174 journal entries associated with, 196–198 production costs in, 175 Job-order environment, characteristics of, 174–175 Job-order production and costing, 174 Job-order system, unit costs in, 184 Johnson & Johnson, 89, 358 Joint products defined, 591 further processing of, 591–593, exh., 592 Journal entries associated with job-order costing, 196–198 Just-in-time (JIT) and traditional inventory approaches, comparing, 359–360 defined, 359 manufacturing firms using, 236 Just-in-time approach limitations of, 360–361 to inventory management, 359–361 Just-in-time manufacturing environment, impact of, 738 L Labor efficiency variance (LEV) analysis of, 450 defined, 448 responsibility for, 450 Labor rate variance (LRV) analysis of, 450 defined, 448 responsibility for, 449–450 Labor variances calculating, 448–449 direct, 447–449 disposition of, 452–453 information, using, 449–450 Lead time, defined, 357 Lean accounting, defined, 11 Learning and growth (infrastructure) perspective, 552–553 defined, 542 employee capabilities, 552 information systems capabilities, 553 motivation, empowerment, and alignment, 553 strategic information availability, 553 summary of objectives and measures, exh., 553 Leverage ratios, 729–731 defined, 721 Levi, 577 Line deviations, exh., 85 Line positions, defined, 12 Linear cost and revenue functions, 133 Linear programming, 596 Liquidity ratios, 722–729 defined, 721 Little Guys Home Electronics, 27, 31 Long-wave of value creation, 548 Low point, 78 LSI Logic, 297, 298 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index Materials price variance (MPV), 443, 451–452 analysis of, 445 and materials usage variance, relationship between, 446 defined, 444 responsibility for, 445 Materials requisition form defined, 185 exh., 186 Materials requisitions, 185–186 Materials usage variance (MUV), 443, 452 analysis of, 445–446 and materials price variance, relationship between, 446 defined, 444 responsibility for, 445 Materials variances accounting and disposition of, 446 calculating, 443–444 disposition of, 452–453 information, using, 445–446 Mattel, 577 McDonald’s, 4, 8, 359, 525, 596 MCE (manufacturing cycle efficiency), 550–553 calculating, 551 defined, 550 McKesson, 14 Measures, core objectives and, 547 Mercedes-Benz, 5, 598 Merck & Co., 44, 537 Method of least squares (regression), 85–87 defined, 85 high-low method, and scattergraph method, comparison of, 87–88, exh., 88 Metropolitan Life Insurance Company, 32 MGM Resorts International, 587 Microsoft, 544 Milking the firm, 405 Mixed cost behavior, exh., 75 Mixed costs, 74–76 defined, 74 methods for separating into fixed and variable components, 76–89 separating into fixed and variable components, overview of methods, exh., 88 Mobil Corporation, 577 Models discounting, 625 nondiscounting, 625–629 Monetary incentives, defined, 403 Motorola, 15 Multibras S.A Electrodomesticos, 283 Multiple constrained resources, 596 Multiple departments, 246–251 Multiple inputs, 246–251 Multiple-product analysis, 135–140 Mutually exclusive projects, 638–644 calculating NPV and IRR for, 640–641 defined, 624 illustrated, NPV analysis for, 640–641 Myopic behavior, defined, 405 N National Football League (NFL), 71 Navistar Inc., 431, 432, 573, 581 Negotiated transfer prices, 540 Net present value (NPV) calculating, 631–632 compared with internal rate of return, 638–639, exh., 639 defined, 630 discount rates, and cash flows, illustrating relationships, 632–633 exh., 633 illustrated, 630–632 Net present value analysis, 670–672 for mutually exclusive projects illustrated, 640–641 New York Giants, 591 New York Jets, 591 New York Mets, 591 New York Yankees, 591 Nike, 37, 587 Nissan, 598 Noncash exchanges, 678 Noncash investing and financing activities, defined, 678 Nondiscounting models, 625–629 defined, 625 Nonmanufacturing costs, accounting for, 195–196 Nonmonetary incentives, defined, 403 Nonuniform application of manufacturing inputs, 246–249 Nonunit-level activities, 282 Nonunit-level activity drivers, 283–284 defined, 284 Nonunit-related overhead costs, 282–284 Nonvalue-added activities, 304–305 defined, 304 examples of, 305 Nonvalue-added costs assessing, 306–307 defined, 304 Normal cost of goods sold, defined, 193 Normal cost system, defined, 176 Normal costing, 176, 435 actual costing vs., 176 and estimating overhead, 177–181 and overhead application, 175–184 North Face, The, 28 Northwest Airlines, 309 Nova Nordisk, O Object costing, exh., 31 Old Navy, 43 Olympus, 450, 598 Omnicare, 358 Operating activities, defined, 677 Operating asset efficiency, focus on, 531–532 Operating assets calculating, 529 defined, 528 Operating budgets defined, 384 preparing, 384–395 Operating cash flows calculating using direct method, 686–687 calculating using indirect method, 680– 681 compute, 680–682 ethical decisions, 678 how estimates differ, 642–644 methods for calculating, 678 Operating income defined, 528 using in cost-volume-profit analysis, 118–120 Operating leverage, 143, 145–148 defined, 145 degree of, 145 Operating profit, after-tax, 536 Operations process defined, 549 objectives and measures, 549 Opportunity cost, defined, 32, 579 Optimization, encouragement of short-run, 533 Order-filling costs, 381 Order-getting costs, 38 Ordering costs, 359 calculating, 354 defined, 353 Organizational chart, exh., 13 Organizational structure, 527 Organizations manufacturing, 33 service, 33 Output FIFO calculation of, 251–253 measures of, 68–69 no BWIP measuring of, 238–239 portion of summary, exh., 86 weighted average method of measuring, 241–242 Output measure, 70 Overapplied overhead, defined, 179 Overhead ABC assigning cost of, 292 accounting for, 189–190 actual and applied, exh., 180 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 779 780 Index applying to production, 178 normal costing and estimating, 177–181 overapplied, 179 reconciling actual with applied, 179–180, 180–181 underapplied, 179 Overhead application, normal costing and, 175–184 Overhead budget, 390–391 defined, 390 preparing, 391 Overhead cost flows, summary of, exh., 191 Overhead costs accounting for actual, 190 defining, 176 nonunit-related, 282–284 uneven, 176 Overhead rate converting departmental data to plantwide data to calculate, 183 illustrating the failure of unit-based, 284–289 Overhead variance, defined, 179 P Padding the budget, 404 Parallel processing defined, 233 exh., 233 Parmalat, 14 Participative budgeting, 403–405 defined, 403 Payback, calculating, 626 Payback period, 626–628 defined, 626 ethical decisions, 627 using to assess risk, 627 using to choose among alternatives, 627–628 Pep Boys, 399 PepsiCo, 4, 525 Percentages and size effects, 719 Performance comparison of divisional, exh., 530 frequent feedback on, 403 multiple measures of, 405 types of responsibility centers and accounting information used to measure, exh., 527 Performance drivers, 545 Performance evaluation ethical decisions, 480 standards for, 383 using budgets for, 478–483 Performance measures four perspectives and, 546–553 linking to strategy, 544–545 role of, 544 Performance of investment centers measuring by using residual income and economic value added, 533–537 measuring by using return on investment, 528–533 Performance of profit centers, measuring by using variable and absorption income statements, 344–349 Performance report defined, 478 for variable overhead spending and efficiency variances, 488–489 preparing an activity-based, 497–498 preparing based on static budget, 479 preparing for variable overhead variances, 488–489 preparing using a flexible budget, 482–483 static budgets and, 478–480 Period costs, 344 defined, 37 direct and indirect, 38 vs product costs, impact of in financial statements, exh., 37 Perspective customer, 542 financial, 542 internal business process, 542 learning and growth (infrastructure), 542 Physical flow analysis, 242–243, 253 Physical flow schedule calculating with transferred-in goods, 250 defined, 242 exh., 253 preparing, 243 Pixar, 537 Pizza Hut, 525, 526 Planning, 4–5, 382, 383 and control, 434 defined, exh., 382 Plantwide overhead rate, defined, 181 Political pressure, 577 Porsche, 34 Postaudit benefits, 638 defined, 636 illustrated, 636–637 limitations, 638 of capital projects, 636–638 Postpurchase costs, defined, 547 Postsales service process defined, 549 objectives and measures, 552 Predetermined departmental overhead rates calculating, 181–182 determining product costs by using, exh., 199 Predetermined overhead rate calculating, 177–178, 178–179 defined, 177 Prentice-Hall, 720 Present value concepts, 644–646 defined, 645 of an annuity, exh., 646, 648 of an uneven series of cash flows, 645–646, exh., 646 of single amount, exh., 647 of uniform series of cash flows, 646 tables, 646–648 Prevention costs, defined, 309 Price calculating by applying markup percentage to cost, 597 cost-based transfer, 539–540 defined, 28 market, 539 negotiated transfer, 540 standard, 445 transfer, 538 Price and usage variances, 439 Price-earnings ratio, 736 computing, 736 defined, 736 Price standards, defined, 432 Price (rate) variance, defined, 439 Price variances of materials and labor, comparison of variable overhead spending variance with, 487 Prices and costs known with certainty, 133 Pricing cost-based, 596–598 target costing and, 598–599 Pricing decisions, use of costs in, 596–599 Prime cost calculating in total and per unit, 36 defined, 36 Problem, recognize and define, 575 Process costing and job-order costing, comparison of, exh., 175 how costs flow through the accounts in, 233–235 impact of work-in-process inventories on, 236–240 Process-costing system, defined, 175 Process manufacturing, characteristics of, 232–236 Process production and costing, 175 Process-value analysis, 8, 302–311 defined, 302 model, exh., 302 Process value chain, defined, 548 Processes, types of, 232–233 Procter & Gamble, 359 Producing departments, defined, 198 Product (manufacturing) costs, 32–38, 344 calculating in total and per unit, 35 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index comparison of functional-based and activity-based, 289 defined, 33 determining, 33–38 exh., 34 standard, 436–437 under absorption and variable costing, exh., 347 using predetermined departmental overhead rates for determining, exh., 199 vs period costs, impact of in financial statements, exh., 37 Product costing, 435 customer costing vs., 298–300 Product costing accuracy ethical decisions, 291 exh., 291 illustrating, 289–291 Product-costing data, exh., 285 Product diversity accuracy, illustrating, 289–291 defined, 284 ethical decisions, 291 Product mix, determining optimal with one constrained resource, 594–595 and sales constraint, 595–596 Product mix decisions, 593–596 illustrated, 594–596 Product safety, 577 Product-sustaining costs, 283 Production applying overhead to, 178–179, 181–182, 183 sales, and income relationships, 348–349, exh., 349 uneven, 176 Production budget, 387–388 defined, 387 preparing, 387–388 Production costs in job-order costing, 175 Production equal to sales, 133 Production report, 244–245 accumulating costs in, 235 defined, 235 FIFO costing, 251–255 FIFO method of preparing, 255 five steps in preparing, 242–245 Products assigning costs to, 295–297 defined, 32 new methods of costing, Profit, 28 Profit center defined, 526 measuring performance of by using variable and absorption income statements, 344–349 Profit-center managers, evaluating, 349 Profit-volume graph, 130–131 defined, 131 exh., 131 Profitability, managing customer, 302 Profitability ratios, 731–738 defined, 721 ethical decisions, 738 importance of to external users of the financial statements, 738 Projects independent, 624 mutually exclusive, 624, 638–644 postaudit of capital, 636–638 Pseudoparticipation, defined, 405 Public accounting, certificate in, 16 Q Qualitative factors, assess, 576–578 Quality, 308, 577 costs of, 309 Quality cost management, 308–309 Quality-related activities, 309 Quantity standards, defined, 432 Quick or acid-test ratio, 723–724 calculating, 724 defined, 723 R Rate variance, 439 Ratio(s) accounts receivable turnover, 725–726 classification of, 721–722 consumption, 285 contribution margin, 123–125 current, 723 debt, 730–731 inventory turnover, 727–729 leverage, 721, 729–731 liquidity, 721, 722–729 profitability, 721, 731–738 quick or acid-test, 723–724 times interest earned, 729–730 variable cost, 122–123 Ratio analysis, 719–722 exh., 720 using to improve cash management decisions, 726–727 Raw materials, 34 Realistic standards, 405 Realized external failure costs, defined, 311 Reasonableness of straight-line cost relationships, 73–74 Reciprocal method, 199 defined, 204 of allocation, 204 Regression method, using to calculate fixed cost and variable rate and to construct a cost formula and to determine budgeted cost, 86–87 Regression output, exh.,91 Regression program, using, 90–92 Relationship between MPV an MUV, 446 between static and flexible budget variances for actual quantity produced, exh., 478 illustrating NPV, discount rates, and cash flows, 632–633 production, sales, and income, 348–349, exh., 349 Relevant costing, 670–672 Relevant costs, 578–580 and benefits for each feasible alternative, estimating, 576 cost behavior and, 580–581 defined, 578 illustrated, 578–579 some common applications, 581–593 Relevant decision making, 591 Relevant range, 74 defined, 69 measure of output and, 68–69 Reliability of supply, 577 Reorder point, 357–358 calculating when usage is knows with certainty, 357 calculating with safety stock, 358 defined, 357 Required rate return, defined, 630 Residual income, 533–535 advantage of, 534–535 calculating, 534 defined, 533 disadvantages of, 535 measuring performance of investment centers by using, 533–537 Resource costs, assigning to activities by using direct tracing and resource drivers, 294–295 Resource drivers, defined, 294 Resources, multiple constrained, 596 Responsibility center, 526–527 decentralization and, 524–527 defined, 526 Retained earnings, statement of, exh., 721 Return on assets, calculating, 733 Return on common stockholders’ equity, 733–734 Return on investment (ROI), 528 advantages of, 531–532 calculating, 529 defined, 528 disadvantages of, 532–533 ethical decisions, 533 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 781 782 Index measuring performance of investment centers by using, 528–533 relationships, focus on, 531 Return on sales calculating, 732 defined, 732 Return on stockholders’ equity calculating, 734 defined, 733 Return on total assets, 732–733 defined, 732 Revenue center, defined, 526 Revenue growth, 546 Risk and uncertainty cost-volume-profit analysis and, 141–149 introducing, 143–148 Robert Morris Associates, 720 Royal Caribbean Cruises Ltd., 89 S Sacred Heart Hospital (SHH), 474–475 Safety, margin of, 143–145 Safety stock calculating, 358 defined, 357 Sales needed to earn a target operating income, calculating, 129–130 production, and income relationships, 348–349, exh., 349 production equal to, 133 Sales budget, 385–386 defined, 385 preparing, 386 Sales dollars and units needed to achieve a target income, 126–130 break-even point in, 122–126, 139–140 Sales mix and cost-volume-profit analysis, 137–138 constant, 133 defined, 136 determining, 136–137 Sales price, impact of changing, 134–135 Sales revenue to achieve a target income, 129–130 Sandoz Pharmaceuticals, 177 Sarbanes-Oxley Act (SOX) of 2002, 13, 16 defined, 15 Scattergraph method, 83–85 defined, 83 high-low method, and method of least squares, comparison of, 87–88, exh., 88 Scattergraphs, exh 83, 84 Sears, 396 Second City, The, 477, 483, 489 Securities and Exchange Commission (SEC), 6, 304, 676 Segment, defined, 350 Segment margin, defined, 351 Segmented income statements comparison of with and without allocated common fixed expense, exh., 352 preparing, 350–352 using to make decisions, 352 using variable costing, 350–352 Sell-or-process-further decision defined, 592 illustrated, 592–593 structuring, 593 Selling and administrative expenses budget, 393–394 defined, 393 preparing, 394 Selling costs, defined, 38 Semi-fixed costs, 75 Semi-variable, defined, 73, exh., 73 Sensitivity analysis and cost-volume-profit, 148–149 defined, 148 Sequential (or step) method, 199 assigning support department costs by using, 203 defined, 201 exh., 202 of allocation, 201–203 Sequential processing defined, 232 exh., 232 Service costs, 32–38 Service firms, 236 ethical decisions, 177 importance of unit costs to, 177 income statement, 45–46 Service industry, budgeting in, 386–387 Service organizations defined, 33 preparing an income statement for, 45–46 Services defined, 33 new methods of costing, types of, 525 Setup costs, 353 Short-run decision making, 574–581 Short-run optimization, encouragement of, 533 Single-loop feedback, defined, 546 SiriusXM Satellite Radio, 118, 589 Six Sigma, 11 Sky Limo Corporation, 174 Slope, defined, 77 Small-scale actions, 574 Societal costs, defined, 311 Sony, 537, 577, 579 Source documents creating for other activities, 187 keeping track of job costs with, 184–187 Southwest Airlines, 38, 45, 70 Special order, accept or reject, exh., 585 Special-order decisions, 585–587 defined, 585 illustrated, 585–586 Special-order problem, structuring, 586–587 Spirit Airlines, 30 Split-off point, defined, 591 Spreadsheet data, exh., 90 Staff positions, defined, 12 Standard & Poor’s, 720 Standard cost per unit, defined, 436 Standard cost sheet defined, 436 exh., 436 Standard cost systems, ethical decisions, 434–435 Standard costing system, 435 Standard hours allowed (SH), defined, 437 Standard price, 445 Standard product costs, 436–437 Standard quantities allowed (SQ and SH), computing, 437 Standard quantity of materials allowed (SQ), defined, 437 Standard setting, budgeting, 404, exh., 404 Standard variable overhead rate (SVOR), 485 Standards currently attainable, 433 for comparison, ratios, 720–721 for performance evaluation, 383 how they are developed, 433 ideal, 433 of ethical conduct for managerial accountants, 15–16 price, 432 quantity, 432 realistic, 405 types of, 433–434, exh., 433 unit, 432–435 Starbucks, Starwood Hotels, 405 Statement of cash flows, defined, 676 indirect method of preparing, 678–685 overview of, 676–678 preparing, 684–685 worksheet approach to, 687–692 worksheet-derived, exh., 692 Statement of Ethical Professional Practice, 16 exh., 17 Statement of retrained earnings, exh., 721 Static activity budgets, 494–495 Static budget Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index and flexible budget variances, relationship between for actual quantity produced, exh., 478 and performance reports, 478–480 defined, 478 preparing for an activity, 494–495 vs flexible budgets, 478–483 Step cost behavior, 75–76 Step cost displays, defined, 75 Step costs, 74–76 exh., 75 Stillwater Designs, 12, 249, 305, 385, 438, 482, 642, 686 Stockholders’ equity, return on common, 733–734 Stockout costs, defined, 353 Straight-line cost relationships, reasonableness of, 73–74 Strategic plan, defined, 382 Strategic positioning, Strategy defined, 543 implementation problems, 545 invalid, 545–546 linking performance measures to, 544–545 Strategy translation, 543–546 Sunk costs, 579–580 defined, 579 Supplier costing methodology, 300–302 Support department cost allocation, 198–204 methods of, 199–204 technology and, 204 Support department costs assigning by using direct method, 200–201 assigning by using sequential method, 203 ethical decisions, 199 Support departments, defined, 199 T Taco Bell, 525, 526 Target, 399 Target cost calculating, 599 defined, 451 Target costing, 450–451 and pricing, 598–599 defined, 598 illustrated, 598–599 Target income sales revenue to achieve, 129–130 units and sales dollars needed to achieve, 126–130 units to be sold to achieve, 127–128 Target operating income calculating number of units to be sold to earn, 127–128 calculating sales needed to earn, 129–130 Technology and support department cost allocation, 204 Tecnol Medical Products Inc., 89 Testable strategy defined, 544 exh., 545 3M, 89 Time, 308 as a competitive element, 11 Time ticket, 186–187 defined, 186 exh., 186 Times interest earned ratio, 729–730 calculating, 729–730 defined, 729 Toshiba, 10, 45, 579 Total budget variance, defined, 438 Total fixed overhead variances, 490–492 calculating, 490–491 Total inventory-related cost, calculating, 354 Total product cost, 35 Total quality management, 10–11 defined, 10 Total variable overhead variance, 484–487 calculating, 485 Total variance, 438 for labor, calculating, 447 for materials, calculating, 442 Toyota, 309, 450, 577, 598 Toys ‘‘R’’ Us, 405 Traceable fixed expenses, 350 Traditional inventory model, economic order quantity, 353–355 Traditional manufacturing firms, 236 Transfer price calculating, 540–541 cost-based, 539–540 defined, 538 negotiated, 540 Transfer pricing, 537–541 impact of on divisions and the firm as a whole, 538, exh., 538 policies, 539–541 Transferred-in costs, defined, 235 Treasurer, defined, 131 Trend analysis, 717 Tropicana, 525 Turnover, 528–530 calculating, 529 defined, 528 U U.S Postal Service, UAL Inc., 526 Uncertainty 783 cost-volume-profit analysis and risk and, 141–149 in demand, 359 introducing risk and, 143–148 Underapplied overhead, defined, 179 Unfavorable (U) variances, defined, 439 Unit-based overhead rates, illustrating failure of, 284–289 Unit cost calculating with nonuniform inputs, 247–248 calculating with transferred-in goods, 250 computation of, 244, 254 importance of to manufacturing firms, 176–177 importance of to service firms, 177 in the job-order system, 184 Unit-level activities, defined, 282 Unit-level activity drivers, defined, 284 Unit-level costs, 283 Unit standards, 432–435 Unit variable costs, impact of changing, 136 United Airlines, 526 United Parcel Service Inc (UPS), 8, 10 Units and sales dollars needed to achieve a target income, 126–130 break-even point in, 120–122, 136–138 Units to be sold calculating number of to earn a target operating income, 127–128 to achieve a target income, 127–128 Unrealized external failure costs, defined, 311 UPS See United Parcel Service Inc Upstream, 297 US Airways, 69 Usage (efficiency) variance, defined, 439 Usage and price variances, 439 V Value-added activities, 303–304 defined, 303 Value-added costs, defined, 304 Value-added standard, 304 Variable budgets, defined, 481 Value chain, 9–10 defined, exh., Variable cost(s), 68, 72–73 defined, 32, 72 exh., 73 using high-low method to estimate, 170–171 Variable cost ratio, 122–123 calculating, 124 defined, 123 Variable costing comparison of absorption and, 344–345 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 784 Index computing inventory cost under, 346 defined, 344 income statements using, 347–348 segmented income statements using, 350–352 Variable-costing income statement, preparing, 348 Variable income statements, measuring performance of profit centers by using, 344–349 Variable overhead analysis, 484–489 Variable overhead efficiency variance, 485–487 and spending variances, performance report for, 488–489 calculating, 486–487 defined, 485 responsibility for, 488 Variable overhead spending variance and efficiency variances, performance report for, 488–489 calculating, 486–487 comparison of with price variances of materials and labor, 487 defined, 485 responsibility for, 487–488 Variance analysis direct labor, 447–451 exh 439 general description, 438–441 materials, 441–446 Sacred Heart Hospital (SHH), 475 Variances accounting for, 446, 451–453 direct labor, 447–449 direct materials, 442–445, 451–452 disposition of, 446, 452–453 efficiency, 439 favorable (F), 439 fixed overhead spending, 491, 492, 493 fixed overhead volume, 491, 493 flexible budget, 483 labor efficiency, 448, 450 labor rate, 448, 449–450, 452 materials price, 443, 444, 445, 451–452 materials usage, 443, 444, 445–446, 452 price, 439 rate, 439 total, 438 total budget, 438 total variable overhead, 484–487 unfavorable (U), 439 usage, 439 variable overhead efficiency, 485–487, 488 variable overhead spending, 485, 487–488 Velocity, 549–560 calculating, 308 computing, 549–560 defined, 308, 549 Verizon, 537, 544 Vertical analysis, 718–719 defined, 718 Victoria’s Secret, 37, 283 Volume variance analysis of, 493 graphical analysis of, exh., 493 Weighted average costing method, 240–246 and FIFO methods, differences between, 251 defined, 239 evaluation of, 246 exh., 249 overview of, 241–242 preparing production report using, 245 Whale curve of cumulative customer profitability, exh., 298 Wilson Sporting Goods, 71 Work distribution matrix defined, 293 exh., 294 Work in process (WIP), defined, 40 Work-in-process inventories, impact of on process costing, 236–240 Worksheet approach to statement of cash flows, 687–692 Worksheet-derived statement of cash flows, exh., 692 WorldCom, 14, 15 X XFL, 580 XM Satellite Radio, 118, 589 Y W Wal-Mart, 11, 359, 537, 544 Walt Disney Company, 8, 350 Warner Bros., 580 Washburn Guitars, 173, 178 YUM! Brands, 525, 526 Z Zingerman’s, 67, 75, 343, 350 Zingerman’s Bakehouse, 350 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Summary of Important Equations Chapter 2 Applied Overhead < Actual Overhead means Underapplied Overhead; add to COGS) Total Product Cost ẳ Direct Materials ỵ Direct Labor þ Manufacturing Overhead Total Product Cost Per-Unit Product Cost ¼ Number of Units Produced Prime Cost ẳ Direct Materials ỵ Direct Labor Conversion Cost ẳ Direct Labor ỵ Manufacturing Overhead Beginning Direct Materials Ending Inventory ỵ Purchases Used in ¼ Inventory of Materials Production of Materials Gross Margin ¼ Sales Revenue – Cost of Goods Sold Operating Income ¼ Gross Margin À Selling and Administrative Expense Chapter Chapter Total Variable Costs ¼ Variable Rate  Units of Output Total Cost ¼ Total Fixed Cost ỵ Total Variable Cost Total Cost ẳ Total Fixed Cost ỵ (Variable Rate Units of Output) Variable Rate ¼ Chapter 7 10 11 Absorption Costing Product Cost ẳ Direct Materials ỵ Direct Labor þ Variable Overhead þ Fixed Overhead Fixed Cost ¼ Total Cost at High Point À (Variable Rate  Output at High Point) Variable Costing Product Cost ¼ Direct Materials þ Direct Labor þ Variable Overhead Fixed Cost ¼ Total Cost at Low Point – (Variable Rate  Output at Low Point) Total Inventory-Related Cost ẳ Ordering Cost ỵ Carrying Cost High Point Cost À Low Point Cost High Point Output À Low Point Output Ordering Cost ¼ Number of Orders per Year Cost of Placing an Order Units in Order Average Number of Units in Inventory ¼ Carrying Cost ¼ Average Number of Units in Inventory Operating Income ¼ (Price  Number of Units Sold) À (Variable Cost per Unit  Number of Units Sold) À Total Fixed Cost Break-Even Units ¼ Total Fixed Cost Price À Variable Cost per Unit Sales Revenue ¼ Price  Units Sold Total Variable Cost Variable Cost Ratio ¼ Sales Unit Variable Cost Variable Cost Ratio ¼ Price Total Contribution Margin Contribution Margin Ratio ¼ Sales Total Contribution Margin Contribution Margin Ratio ¼ Price Total Fixed Expenses Break-Even Sales ¼ Contribution Margin Ratio Margin of Safety ¼ Sales À Breakeven Sales Total Contribution Margin Operating Income Percentage Change in Profits ¼ Degree of Operating Leverage  Percent Change in Sales Degree of Operating Leverage ¼ Chapter Amount of Activity Driver per Product Total Driver Quantity Total Overhead Costs Overhead Rate ¼ Total Direct Labor Hours Consumption Ratio ¼ Chapter Chapter Total Cost Equivalent Units Units Started and Completed ¼ Total Units Completed À Units in BWIP Unit Cost ¼ Units Started ¼ Units Started and Completed ỵ Units in EWIP Departmental Overhead Rate Estimated Department Overhead ¼ Estimated Departmental Activity Level Estimated Annual Overhead Predetermined Overhead Rate ¼ Estimated Annual Activity Level Applied Overhead ¼ Predetermined Overhead Rate  Actual Activity Level Total Normal Product Costs ẳ Actual Direct Materials ỵ Actual Direct Labor ỵ Applied Overhead Overhead Variance ẳ Actual Overhead À Applied Overhead Adjusted COGS ¼ Unadjusted COGS ± Overhead Variance (Note: Applied Overhead > Actual Overhead means Overapplied Overhead; subtract from COGS Cost of Carrying One Unit in Inventory pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi CO D=CC EOQ ¼ Reorder Point ¼ Rate of Usage Lead Time Safety Stock ¼ ðMaximum Daily Usage Average Daily UsageÞ Lead Time Chapter Units to Be Produced ẳ Expected Unit Sales ỵ Units in Desired Ending Inventory (EI) À Units in Beginning Inventory (BI) Purchases ẳ Direct Materials Needed for Production ỵ Direct Materials in Desired Ending Inventory À Direct Materials in Beginning Inventory Cash Available ẳ Beginning Cash Balance ỵ Expected Cash Receipts Ending Cash Balance ¼ Cash Available À Expected Cash Disbursements Chapter 10 Cost per Unit ¼ Total Cost=Total Units Standard Cost per Unit ¼ Quantity Standard Price Standard SQ ¼ Unit Quantity Standard Actual Output SH ¼ Unit Labor Standard Actual Output Total Variance ¼ Actual Cost À Planned Cost ¼ (AP AQ ) À (SP SQ ) Total Materials Variance ¼ Actual Cost À Planned Cost MPV ¼ (AP À SP ) AQ MUV ¼ (AQ À SQ)  SP MPV ðAP AQ Þ À ðSP AQ Þ ¼ (AP AQ ) À (SP SQ ) Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Average Income Accounting Rate of Return ¼ Initial Investment hX i NPV ẳ CFt =1 ỵ iịt I hX i ¼ CFt dft À I ¼ P I X I ẳ ẵCFt =(1 ỵ i)t 16 LEV ¼ (AH À SH)  SR I ¼ CF (df ) 17 Target Cost per Unit ¼ Expected Sales Price per Unit À Desired Profit per Unit df ¼ I =CF ¼ F ¼ P (1 ỵ i )n P ẳ F =(1 ỵ i )n 10 MUV ẳ SP AQ ị SP SQ ị 11 Total Labor Variance ẳ (AR AH ) À (SR SH ) 12 Total Labor Variance ¼ Labor Rate Variance Labor Efficiency Variance 13 LRV ¼ (AR  AH) À (SR  AH) 14 LRV ¼ (AR À SR)  AH 15 LEV ¼ (SR  AH) À (SR  SH) Chapter 11 Abbrevations: Investment Annual Cash Flow Chapter 16 FOH ¼ Fixed Overhead Liquidity ratios: VOH ¼ Variable Overhead AH ¼ Actual Direct Labor Hours Current Assets Current Liabilities Current Ratio ¼ for Actual Units Produced AVOR ¼ Actual Variable Overhead Rate Quick Ratio ¼ SVOR ¼ Standard Variable Overhead Rate Accounts Receivable Turnover Ratio ¼ Average Accounts Receivable Beginning Receivables ỵ Ending Receivablesị ẳ SH ¼ Standard Direct Labor Hours that Should Have Been Worked Actual Variable Overhead AVOR ¼ Actual Hours Variable Overhead Spending Variance ¼ (AH AVOR) À (AH SVOR) ¼ (AVOR À SVOR) AH Variable Overhead Efficiency Variance ¼ (AH  SH )  SVOR Practical Capacity at Standard ¼ SHp Budgeted Fixed Overhead Costs SFOR ¼ Practical Capacity 6 Applied Fixed Overhead ¼ SH  SFOR 7 Total Fixed Overhead Variance ¼ Actual Fixed Overhead À Applied Fixed Overhead 8 Fixed Overhead Spending Variance ¼ AFOH À BFOH Volume Variance ¼ Budgeted Fixed Overhead À Applied Fixed Overhead ẳ BFOH SH SFORị Chapter 12 ROI ¼ Average Operating Assets ¼ Margin Turnover in Days ¼ 365 Inventory Turnover Ratio Leverage ratios: Times-Interest-Earned Ratio Income Before Taxes ỵ Interest ExpenseÞ Interest Expense Total Liabilities Total Assets 11 Debt-to-Equity Ratio ¼ Turnover Sales Sales Average Operating Assets Residual Income ¼ Operating Income – (Minimum Rate of Return  Average Operating Assets) ROI ¼ 365 Receivables Turnover Ratio Cost of Goods Sold Inventory Turnover Ratio ¼ Average Inventory ðBeginning Inventory ỵ Ending Inventoryị Average Inventory ẳ 10 Debt Ratio ẳ Beginning Assets ỵ Ending Assetsị Operating Income EVA ¼ After-Tax Pperating Income À (Actual Percentage Cost of Capital  Total Capital Employed) Processing Time MCE ¼ Processing Time þ Move Time þ Inspection Time þ Waiting Time Net Sales Average Accounts Receivable Turnover in Days ¼ ¼ Operating Income Average Operating Assets Cash ỵ Marketable Securities ỵ Accounts ReceivableÞ Current Liabilities Total Liabilities Total Stockholders’ Equity Profitability ratios: 12 Return on Sales ¼ Net Income Sales Net Income ỵ ẵInterest Expense1 Tax Rateị Average Total Assets Beginning Total Assets ỵ Ending Total Assetsị 14 Average Total Assets ¼ 13 Return on Total Assets ¼ Chapter 13 15 Return on Stockholders’ Equity ðNet Income À Preferred DividendsÞ ¼ Average Common Stockholders’ Equity 16 Earnings per Share ¼ Contribution Margin per Unit of Scarce Resource Selling Price per Unit À Variable Cost per Unit ¼ Required Amount of Scarce Resource per Unit Price Using Markup ẳ Cost per Unit ỵ (Cost per Unit Markup Percentage) Target Cost ¼ Target Price À Desired Profit Chapter 14 Payback Period ẳ Net Income Preferred Dividendsị Average Common Shares 17 Price-Earnings Ratio ¼ 18 Dividend Yield ¼ Market Price per Share Earnings per Share Dividends per Common Share Market Price per Common Share 19 Dividend Payout Ratio ¼ Original Investment Annual Cash Flow Common Dividends ðNet Income À Preferred DividendsÞ Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Cornerstones Cornerstones for Chapter N/A Cornerstones for Chapter 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Calculating Product Cost in Total and Per Unit, page 35 Calculating Prime Cost and Conversion Cost in Total and Per Unit, page 36 Calculating the Direct Materials Used in Production, page 39 Calculating Cost of Goods Manufactured, page 40 Calculating Cost of Goods Sold, page 41 Preparing an Income Statement for a Manufacturing Firm, page 42 Calculating the Percentage of Sales Revenue for Each Line on the Income Statement, page 44 Preparing an Income Statement for a Service Organization, page 45 Cornerstones for Chapter 3.1 3.2 3.3 3.4 3.5 Creating and Using a Cost Formula, page 77 Using the High-Low Method to Calculate Fixed Cost and the Variable Rate and to Construct a Cost Formula, page 79 Using the High-Low Method to Calculate Predicted Total Variable Cost and Total Cost for Budgeted Output, page 80 Using the High-Low Method to Calculate Predicted Total Variable Cost and Total Cost for a Time Period that Differs from the Data Period, page 81 Using the Regression Method to Calculate Fixed Cost and the Variable Rate and to Construct a Cost Formula and to Determine Budgeted Cost, page 86 Cornerstones for Chapter 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Preparing a Contribution Margin Income Statement, page 119 Calculating the Break-Even Point in Units, page 121 Calculating the Variable Cost Ratio and the Contribution Margin Ratio, page 124 Calculating the Break-Even Point in Sales Dollars, page 125 Calculating the Number of Units to Be Sold to Earn a Target Operating Income, page 127 Calculating Sales Needed to Earn a Target Operating Income, page 129 Calculating the Break-Even Units for a Multiple-Product Firm, page 137 Calculating the Break-Even Sales Dollars for a MultipleProduct Firm, page 139 Computing the Margin of Safety, page 144 Computing the Degree of Operating Leverage, page 145 Calculating the Impact of Increased Sales on Operating Income Using the Degree of Operating Leverage, page 147 Cornerstones for Chapter 5.1 5.2 5.3 Calculating the Predetermined Overhead Rate and Applying Overhead to Production, page 178 Reconciling Actual Overhead with Applied Overhead, page 180 Calculating Predetermined Departmental Overhead Rates and Applying Overhead to Production, page 181 5.4 5.5 5.6 5.7 Converting Departmental Data to Plantwide Data to Calculate the Overhead Rate and Apply Overhead to Production, page 183 Preparing Brief Job-Order Cost Sheets, page 194 (Appendix 5B) Assigning Support Department Costs by Using the Direct Method, page 200 (Appendix 5B) Assigning Support Department Costs by Using the Sequential Method, page 203 Cornerstones for Chapter 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 Calculating Cost Flows without Work in Process Inventories, page 234 Calculating Equivalent Units of Production: No Beginning Work in Process, page 237 Measuring Output and Assigning Costs: No Beginning Work in Process, page 238 Measuring Output and Assigning Costs: Weighted Average Method, page 241 Preparing a Physical Flow Schedule, page 243 Preparing a Production Report: Weighted Average Method, page 245 Calculating Equivalent Units, Unit Costs, and Valuing Inventories with Nonuniform Inputs, page 247 Calculating the Physical Flow Schedule, Equivalent Units, and Unit Costs with Transferred-In Goods, page 250 (Appendix 6A) Calculating Output and Cost Assignments: First-In, First-Out Method, page 251 (Appendix 6A) Preparing a Production Report: First-In, First-Out Method, page 255 Cornerstones for Chapter 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 Calculating Consumption Ratios, page 286 Calculating Activity Rates, page 286 Calculating Activity-Based Unit Costs, page 287 Assigning Resource Costs to Activities by Using Direct Tracing and Resource Drivers, page 294 Calculating Activity-Based Customer Costs, page 299 Calculating Activity-Based Supplier Costs, page 300 Assessing Nonvalue-Added Costs, page 307 Calculating Cycle Time and Velocity, page 308 Cornerstones for Chapter 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 Computing Inventory Cost under Absorption Costing, page 345 Computing Inventory Cost under Variable Costing, page 346 Preparing an Absorption-Costing Income Statement, page 347 Preparing a Variable-Costing Income Statement, page 348 Preparing a Segmented Income Statement, page 350 Calculating Ordering Cost, Carrying Cost, and Total Inventory-Related Cost, page 354 Calculating the Economic Order Quantity (EOQ), page 356 Calculating the Reorder Point When Usage Is Known with Certainty, page 357 Calculating Safety Stock and the Reorder Point with Safety Stock, page 358 Cornerstones for Chapter 9.1 9.2 9.3 Preparing a Sales Budget, page 386 Preparing a Production Budget, page 388 Preparing a Direct Materials Purchases Budget, page 389 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 Preparing a Direct Labor Budget, page 390 Preparing an Overhead Budget, page 391 Preparing an Ending Finished Goods Inventory Budget, page 392 Preparing a Cost of Goods Sold Budget, page 393 Preparing a Selling and Administrative Expenses Budget, page 394 Preparing a Budgeted Income Statement, page 395 Preparing a Schedule for Cash Collections on Accounts Receivable, page 397 Determining Cash Payments on Accounts Payable, page 398 Preparing a Cash Budget, page 399 Cornerstones for Chapter 10 10.1 10.2 10.3 10.4 10.5 10.6 Computing Standard Quantities Allowed (SQ and SH), page 437 Using Control Limits to Trigger a Variance Investigation, page 440 Calculating the Total Variance for Materials, page 442 Calculating Materials Variances: Formula and Columnar Approaches, page 443 Calculating the Total Variance for Labor, page 447 Calculating Labor Variances: Formula and Columnar Approaches, page 448 Cornerstones for Chapter 11 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 Preparing a Performance Report Based on a Static Budget (Using Budgeted Production), page 479 Preparing a Before-the-Fact Flexible Production Budget, page 480 Preparing a Performance Report Using a Flexible Budget, page 482 Calculating the Total Variable Overhead Variance, page 485 Calculating Variable Overhead Spending and Efficiency Variances: Columnar and Formula Approaches, page 486 Preparing a Performance Report for the Variable Overhead Variances, page 488 Calculating the Total Fixed Overhead Variance, page 490 Calculating Fixed Overhead Variances: Columnar and Formula Approaches, page 491 Preparing a Static Budget for an Activity, page 494 Preparing an Activity Flexible Budget, page 496 Preparing an Activity-Based Performance Report, page 497 Cornerstones for Chapter 12 12.1 12.2 12.3 12.4 12.5 12.6 Calculating Average Operating Assets, Margin, Turnover, and Return on Investment, page 529 Calculating Residual Income, page 534 Calculating Economic Value Added, page 536 Calculating Transfer Price, page 540 (Appendix 12A) Computing Cycle Time and Velocity, page 549 (Appendix 12A) Calculating Manufacturing Cycle Efficiency, page 551 Cornerstones for Chapter 13 13.1 13.2 13.3 Structuring a Make-or-Buy Problem, page 583 Structuring a Special-Order Problem, page 586 Structuring a Keep-or-Drop Product Line Problem, page 588 13.4 13.5 13.6 13.7 13.8 13.9 Structuring a Keep-or-Drop Product Line Problem with Complementary Effects, page 590 Structuring the Sell-or-Process-Further Decision, page 593 Determining the Optimal Product Mix with One Constrained Resource, page 594 Determining the Optimal Product Mix with One Constrained Resource and a Sales Constraint, page 595 Calculating Price by Applying a Markup Percentage to Cost, page 597 Calculating a Target Cost, page 599 Cornerstones for Chapter 14 14.1 14.2 14.3 14.4 14.5 Calculating Payback, page 626 Calculating the Accounting Rate of Return, page 628 Assessing Cash Flows and Calculating Net Present Value, page 631 Calculating Internal Rate of Return with Uniform Cash Flows, page 634 Calculating Net Present Value and Internal Rate of Return for Mutually Exclusive Projects, page 640 Cornerstones for Chapter 15 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Classifying Activities and Identifying Them as Sources or Uses of Cash, page 677 Computing the Change in Cash, page 679 Calculating Operating Cash Flows Using the Indirect Method, page 680 Computing Investing Cash Flows, page 680 Computing Financing Cash Flows, page 683 Preparing the Statement of Cash Flows, page 684 Calculating Operating Cash Flows Using the Direct Method, page 686 Preparing a Statement of Cash Flows Using a Worksheet Approach, page 688 Cornerstones for Chapter 16 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 16.10 16.11 16.12 16.13 Preparing Common-Size Income Statements Using Base Period Horizontal Analysis, page 717 Preparing Income Statements Using Net Sales as the Base: Vertical Analysis, page 718 Calculating the Current Ratio and the Quick (or Acid-Test) Ratio, page 724 Calculating the Average Accounts Receivable, the Accounts Receivable Turnover Ratio, and the Accounts Receivable Turnover in Days, page 726 Calculating the Average Inventory, the Inventory Turnover Ratio, and the Inventory Turnover in Days, page 728 Calculating the Times-Interest-Earned Ratio, page 729 Calculating the Debt Ratio and the Debt-to-Equity Ratio, page 731 Calculating the Return on Sales, page 732 Calculating the Average Total Assets and the Return on Assets, page 733 Calculating the Average Common Stockholders’ Equity and the Return on Stockholders’ Equity, page 734 Computing Earnings per Share, page 735 Computing the Price-Earnings Ratio, page 736 Computing the Dividend Yield and the Dividend Payout Ratio, page 737 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it