Horngren’s cost accounting - A managerial emphasis: Part 2

Part 2 book “Horngren’s cost accounting - A managerial emphasis” has contents: strategy, balanced scorecard and strategic profitability analysis, pricing decisions and cost management, process costing, capital budgeting and cost analysis, management control systems, transfer pricing, and multinational considerations,… and other contents.

www.downloadslide.net Strategy, Balanced Scorecard, and Strategic Profitability Analysis 12 Olive Garden wants to know Learning Objectives So Barnes and Noble and PepsiCo Even your local car dealer and transit authority are curious They all want to know if they are meeting their goals Many companies, like Barclays PLC in the United Kingdom, have successfully used the balanced scorecard approach to measure their progress BarClayS turnS to the BalanCed SCoreCard The reputation of Barclays, the British multinational bank, took a beating in 2012 when company traders rigged a key interest rate called LIBOR, a benchmark rate that helps Recognize which of two generic strategies a company is using Understand what comprises reengineering Understand the four perspectives of the balanced scorecard Analyze changes in operating income to evaluate strategy Identify unused capacity and how to manage it set global borrowing costs When new CEO Antony Jenkins was tasked with turning the company around, he turned to the balanced scorecard to change the company’s performance goals and incentive structure Introduced in 2014, Barclays’ balanced scorecard set out specific goals and metrics across the each of the company’s “5Cs”: customer and client, colleague, citizenship, conduct, and company With a five-year goal of becoming the world’s “go-to” bank, the balanced scorecard became the instrument to ensuring Barclays was “helping people achieve their ambitions—in the right way.” Rather than focusing solely on short-term financial results, Barclays’ balanced scorecard aligned the company’s 5Cs with the broader perspectives of the balanced scorecard Most notably, the learning and growth perspective incorporated Barclays’ conduct and citizenship goals, which included new purpose and value statements for the company Jenkins even took the extraordinary step of tying the performance bonuses of managers to Barclays’ corporate ethics and citizenship goals, rather than just quarterly profits and stock price gains Matthew Horwood/Alamy Stock Photo Sources: Barclays PLC, “Barclays’ Balanced Scorecard” (https://www.home.barclays/about-barclays/balanced-scorecard html), accessed March 2016; Barclays PLC, 2015 Annual Report (London, Barclays PLC, 2016) (https://www home.barclays/content/dam/barclayspublic/docs/InvestorRelations/ResultAnnouncements/2015FYResults/ 20160301_Barclays_Bank_PLC_2015_Annual_Report.pdf); Jed Horowitz, “New Barclays Chief Ties Executive Compensation to Societal Goals,” Reuters, September 24, 2012 (http://www.reuters.com/article/us-barclaysjenkins-idUSBRE88N0YY20120924); Alex Brownsell, “Barclays Reveals ‘5Cs’ Values Scorecard in Drive for Brand Transformation,” Marketing, November 2, 2014 (http://www.marketingmagazine.co.uk/article/1230626/ barclays-reveals-5cs-values-scorecard-drive-brand-transformation) 497 www.downloadslide.net By the end of 2015, Barclays was already seeing progress towards its balanced scorecard goals Company profitability increased, as did long-term capital strengthening, employee engagement, corporate citizenship goals, and the percentage of women in senior leadership at the bank The company’s recent balanced scorecard report noted, “The balanced scorecard is the final crucial piece of our plan—alongside our purpose, values, and behaviors—to embed the right culture in our business and become the bank of choice.” This chapter focuses on how management accounting information helps companies such as Barclays, Infosys, Merck, and Verizon implement and evaluate their strategies Strategy drives the operations of a company and guides managers’ short-run and long-run decisions We describe the balanced scorecard approach to implementing strategy and methods to analyze operating income to evaluate the success of a strategy What Is Strategy? Learning Objective Recognize which of two generic strategies a company is using product differentiation or cost leadership Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives In other words, strategy describes how an organization can create value for its customers while differentiating itself from its competitors For example, Walmart, the retail giant, creates value for its customers by locating stores in suburban and rural areas and by offering low prices, a wide range of product categories, and few choices within each product category Consistent with this strategy, Walmart has developed the capability to keep costs down by aggressively negotiating low prices with its suppliers in exchange for high volumes and by maintaining a no-frills, cost-conscious environment with minimal sales staff In formulating its strategy, an organization must first thoroughly understand its industry Industry analysis focuses on five forces: (1) competitors, (2) potential entrants into the market, (3) equivalent products, (4) bargaining power of customers, and (5) bargaining power of input suppliers.1 The collective effect of these forces shapes an organization’s profit potential In general, profit potential decreases with greater competition, stronger potential entrants, products that are similar, and more demanding customers and suppliers Below we illustrate these five forces for Chipset, Inc., a maker of linear integrated circuit devices (LICDs) used in amplifiers, modems, and communication networks Chipset produces a single specialized product, CX1, a standard, high-performance microchip that can be used in multiple applications Chipset designed CX1 after extensive market research and input from its customer base Competitors The CX1 model faces severe competition based on price, timely delivery, and quality Companies in the industry have high fixed costs and persistent pressures to reduce selling prices and utilize capacity fully Price reductions spur growth because it makes LICDs a cost-effective option in applications such as digital subscriber lines (DSLs) Potential entrants into the market The small profit margins and high capital costs discourage new entrants Moreover, incumbent companies such as Chipset have experience lowering costs and building close relationships with customers and suppliers Equivalent products Chipset tailors CX1 to customer needs and lowers prices by continuously improving CX1’s design and processes to reduce production costs This reduces the risk of equivalent products or new technologies replacing CX1 Bargaining power of customers Customers, such as EarthLink and Verizon, negotiate aggressively with Chipset and its competitors to keep prices down because they buy large quantities of product Michael Porter, Competitive Strategy (New York: Free Press, 1998); Michael Porter, Competitive Advantage (New York: Free Press, 1998); and Michael Porter, “What Is Strategy?” Harvard Business Review (November–December 1996): 61–78 www.downloadslide.net what is strategy? 499 Bargaining power of input suppliers To produce CX1, Chipset requires high-quality materials (such as silicon wafers, pins for connectivity, and plastic or ceramic packaging) and skilled engineers, technicians, and manufacturing labor The high level of skills required of suppliers and employees gives them bargaining power to demand higher prices and wages In summary, strong competition and the bargaining powers of customers and suppliers put significant pressure on Chipset’s selling prices To respond to these challenges, Chipset must choose between two basic strategies: differentiating its product or achieving cost leadership Product differentiation is an organization’s ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors Apple Inc has successfully differentiated its products in the consumer electronics industry, as have Johnson & Johnson in the pharmaceutical industry and Coca-Cola in the soft drink industry These companies have achieved differentiation through innovative product R&D, careful development and promotion of their brands, and the rapid push of products to market Managers use differentiation to increase brand loyalty and charge higher prices Cost leadership is an organization’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control Cost leaders in their respective industries include Walmart (consumer retailing), Home Depot and Lowe’s (building products), Texas Instruments (consumer electronics), and Emerson Electric (electric motors) These companies provide products and services that are similar to—not differentiated from—their competitors, but at a lower cost to the customer Lower selling prices, rather than unique products or services, provide a competitive advantage for these cost leaders To evaluate the success of its strategy, a company must be able to trace the sources of its profitability to its strategy of product differentiation or cost leadership For example, Porsche’s source of profitability is closely tied to successfully differentiating its cars from those of its competitors Product differentiation enables Porsche to increase its profit margins and grow sales Changes in Home Depot’s profitability are due to successful implementation of its cost-leadership strategy through productivity and quality improvements What strategy should Chipset follow? In order to make this decision, Chipset managers develop the customer preference map shown in Exhibit 12-1 The y-axis describes various attributes of the product desired by customers The x-axis describes how well Chipset and its competitor, Visilog, which follows a product-differentiation strategy, score along various attributes desired by customers from (poor) to (very good) The map highlights the tradeoffs in any strategy It shows that CX1 enjoys advantages in terms of price, scalability,2 and customer service while Visilog’s chips are faster and more powerful and customized to different types of modems and communication networks CX1 is already somewhat differentiated from competing products Differentiating CX1 further would be costly, but Chipset may be able to charge a higher price Conversely, reducing the cost of manufacturing CX1 would allow Chipset to lower prices, spur growth, and increase market share The scalability of CX1 makes it an effective solution for meeting varying customer needs Chipset has, over the years, recruited an engineering staff that is more skilled at making product and process improvements than at creatively designing new products and technologies The market benefit from lowering prices by improving manufacturing efficiency through process improvements coupled with its own internal capabilities leads Chipset to choose a cost-leadership strategy To achieve its cost-leadership strategy, Chipset must further improve its own internal capabilities It must enhance quality and also reengineer processes to downsize and eliminate excess capacity At the same time, Chipset’s management team does not want to make cuts in personnel that would hurt company morale and hinder future growth We explore these actions in the next section The ability to achieve different performance levels by altering the number of CX1 units in a product DecisiOn Point What are two generic strategies a company can use? www.downloadslide.net 500 ChaPter 12 strategy, BalanCed sCoreCard, and strategiC ProfitaBility analysis exhiBit 12-1 Price Product Attributes Desired by Customers Customer Preference Map for LICDs Visilog Chipset Scalability Customer service Quality Power and speed Customized chip design Poor Very Good Attribute Rating Building Internal Capabilities: Quality Improvement and Reengineering at Chipset Learning Objective Understand what comprises reengineering redesigning business processes to improve performance by reducing cost and improving quality To improve product quality—that is, to reduce defect rates and improve manufacturing yields—Chipset must maintain process parameters within tight ranges based on real-time data about manufacturing-process parameters, such as temperature and pressure Chipset must also train workers in quality-management techniques to identify the root causes of defects and to take actions to improve quality The second component of Chipset’s strategy is to reengineer its order-delivery process Some of Chipset’s customers have complained about the lengthening time span between ordering products and receiving them Reengineering is the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance, such as cost, quality, service, speed, and customer satisfaction.3 To illustrate reengineering, consider the order-delivery system at Chipset in 2016 When Chipset received an order from a customer, a copy was sent to manufacturing, where a production scheduler began planning the manufacturing of the ordered products Frequently, a considerable amount of time elapsed before equipment became available for production to begin After manufacturing was complete, CX1 chips moved to the shipping department, which matched the quantities of CX1 to be shipped against customer orders Often, completed CX1 chips stayed in inventory until a truck became available for shipment If the quantity to be shipped was less than the number of chips the customer requested, the shipping department made a special shipment for the balance of the chips Shipping documents moved to the billing department for issuing invoices Special staff in the accounting department followed up with customers for payments The many transfers of CX1 chips and information across departments (sales, manufacturing, shipping, billing, and accounting) to satisfy a customer’s order created delays Moreover, no single individual was responsible for fulfilling a customer order To respond to these challenges, Chipset formed a cross-functional team in late 2016 and implemented a reengineered order-delivery process for 2017 Under the new system, each customer has a customer-relationship manager who negotiates long-term contracts with the customer, specifying quantities and prices The customerrelationship manager works closely with the customer and with manufacturing to specify delivery schedules for CX1 one month in advance of shipment and sends the schedule of customer orders and delivery dates electronically to manufacturing Completed chips are shipped directly from the manufacturing plant to customers Each shipment automatically triggers an electronic invoice, and customers electronically transfer funds to Chipset’s bank See Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution (New York: Harper, 1993); Kirsten D Sandberg, “Reengineering Tries a Comeback—This Time for Growth, Not Just for Cost Savings,” Harvard Management Update (November 2001); and Tristan Boutros and Jennifer Cardella, The Basics of Process Improvement (New York: Productivity Press, 2016) www.downloadslide.net strategy iMPleMentation and the BalanCed sCoreCard Companies such as AT&T, Banca di America e di Italia, Cigna Insurance, and Cisco have benefited significantly by reengineering their processes across design, production, and marketing (just as in the Chipset example) Reengineering has limited benefits when reengineering efforts focus on only a single activity such as shipping or invoicing rather than the entire order-delivery process To be successful, reengineering efforts must focus on an entire process, change roles and responsibilities, eliminate unnecessary activities and tasks, use information technology, and develop employee skills Take another look at Exhibit 12-1 and note the interrelatedness and consistency in Chipset’s strategy To help meet customer preferences for price, quality, and customer service, Chipset decides on a cost-leadership strategy And to achieve cost leadership, Chipset builds internal capabilities by improving quality and by reengineering its processes Chipset’s next challenge is to effectively implement its strategy 501 DecisiOn Point What is reengineering? Strategy Implementation and the Balanced Scorecard Many organizations, such as Allstate Insurance, Bank of Montreal, British Petroleum, and Dow Chemical, have introduced a balanced scorecard approach to track progress and manage the implementation of their strategies The Balanced Scorecard The balanced scorecard translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy.4 Not only does the balanced scorecard focus on achieving financial objectives, it also highlights the nonfinancial objectives that an organization must achieve to meet and sustain its financial objectives The scorecard measures an organization’s performance from four perspectives: Financial: the profits and value created for shareholders Customer: the success of the company in its target market Internal business processes: the internal operations that create value for customers Learning and growth: the people and system capabilities that support operations The measures that a company uses to track performance depend on its strategy This set of measures is called a “balanced scorecard” because it balances the use of financial and nonfinancial performance measures to evaluate short-run and long-run performance in a single report The balanced scorecard reduces managers’ emphasis on short-run financial performance, such as quarterly earnings, because the key strategic nonfinancial and operational indicators, such as product quality and customer satisfaction, measure changes that a company is making for the long run The financial benefits of these long-run changes may not show up immediately in short-run earnings; however, strong improvement in nonfinancial measures usually indicates the creation of future economic value For example, an increase in customer satisfaction, as measured by customer surveys and repeat purchases, signals a strong likelihood of higher sales and income in the future By balancing the mix of financial and nonfinancial measures, the balanced scorecard broadens management’s attention to short-run and long-run performance In many for-profit companies, the primary goal of the balanced scorecard is to sustain long-run financial performance Nonfinancial measures simply serve as leading indicators for the hard-to-measure long-run financial performance Some companies explicitly set long-term financial, social, and environmental goals Several of these companies believe that meeting social and environmental goals is a means to achieving financial goals because good performance on social and environmental factors attracts See Robert S Kaplan and David P Norton, The Balanced Scorecard (Boston: Harvard Business School Press, 1996); Robert S Kaplan and David P Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Press, 2004); Robert S Kaplan and David P Norton, Alignment: Using the Balanced Scorecard to Create Corporate Synergies (Boston: Harvard Business School Press, 2006); and Sanjiv Anand, Execution Excellence, (New Jersey: Wiley, 2016) Learning Objective Understand the four perspectives of the balanced scorecard financial, customer, internal business process, and learning and growth www.downloadslide.net 502 ChaPter 12 strategy, BalanCed sCoreCard, and strategiC ProfitaBility analysis customers, employees, and investors to the company Other companies focus on social and environmental goals because they take the view that a company has obligations to multiple stakeholders, not just financial investors As we discuss in a later section, companies use the balanced scorecard to implement multiple goals Strategy Maps and the Balanced Scorecard In this section, we use the Chipset example to develop strategy maps and the four perspectives of the balanced scorecard The objectives and measures Chipset’s managers choose for each perspective relate to the action plans for furthering Chipset’s cost-leadership strategy: improving quality and reengineering processes Strategy Maps A useful first step in designing a balanced scorecard is a strategy map A strategy map is a diagram that describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationships with each other in the financial, customer, internalbusiness-process, and learning-and-growth perspectives Exhibit 12-2 presents Chipset’s strategy map Follow the arrows to see how a strategic objective affects other strategic objectives For example, empowering the workforce helps align employee and organization goals and improves processes, which improves manufacturing quality and productivity, reduces customer delivery time, meets specified delivery dates, and improves post-sales service, all of which exhiBit 12-2 Strategy Map for Chipset, Inc., for 2017 FINANCIAL PERSPECTIVE Increase shareholder value Grow operating income Focal Point CUSTOMER PERSPECTIVE Increase market share Increase customer satisfaction Focal Point INTERNALBUSINESSPROCESS PERSPECTIVE Improve manufacturing quality and productivity D Reduce delivery time to customers Improve post-sales service Meet specified delivery dates D Trigger Point Focal Point Improve manufacturing & business processes Improve manufacturing controls Focal Point LEARNING AND GROWTH PERSPECTIVE Align employee and organization goals Develop employee process skill Focal Point Empower workforce Enhance information system capabilities Follow up service call www.downloadslide.net strategy iMPleMentation and the BalanCed sCoreCard increase customer satisfaction Improving manufacturing quality and productivity grows operating income directly and also increases customer satisfaction that, in turn, increases market share, operating income, and shareholder value To compete successfully, Chipset invests in its employees, implements new technology and process controls, improves quality, and reengineers processes The strategy map helps Chipset evaluate whether these activities are generating financial returns Chipset could include many other cause-and-effect relationships in the strategy map in Exhibit 12-2 But Chipset, like other companies implementing the balanced scorecard, focuses on only those relationships that it believes to be the most significant so that the scorecard does not become unwieldy and difficult to understand Structural Analysis of Strategy Maps Chipset’s managers step back to assess and refine the strategy map before developing the balanced scorecard They use structural analysis to think carefully about the causal links in the strategy map It helps Chipset’s managers to “read” and gain insights into the strategy map There are five types of conditions to consider in a structural analysis: strength of ties (causal links), orphan objectives, focal points, trigger points, and distinctive objectives.5 We define these conditions below and refer to the strategy map we developed in Exhibit 12-2 to illustrate them In the discussion, we refer to the learning and growth perspective as the bottom of the map and the financial perspective as the top Strength of Ties Ties are the causal links between strategic objectives and can be qualified as strong, moderate, or weak Strong ties are those causal links where the impact of one strategic objective on realization of another is very high, relative to other ties in the map Weak ties are those causal links where the impact of one strategic objective on realization of another is very low, relative to other ties in the map Moderate ties are those causal links where the impact of one strategic objective on realization of another is average, relative to other ties in the map Managers and management accountants, who have a deep understanding of the business, determine if a tie is strong, moderate, or weak, based on historical data, logic, and judgment In Exhibit 12-2 strong ties are indicated with dark, thick arrows, moderate ties are indicated with thin arrows, and weak ties are indicated with dotted arrows In Exhibit 12-2, Chipset’s managers identify five strong ties listed below The strategic objectives located toward the bottom of the map are listed first ■ ■ ■ ■ ■ Develop employee process skill (Learning and growth perspective) S Improve manufacturing and business processes (Internal-business-process perspective) Enhance information system capabilities (Learning and growth perspective) S Improve manufacturing and business processes (Internal-business-process perspective) Improve manufacturing and business processes (Internal-business-process perspective) S Improve manufacturing quality and productivity (Internal-business-process perspective) Improve manufacturing controls (Internal-business-process perspective) S Improve manufacturing quality and productivity (Internal-business-process perspective) Improve manufacturing quality and productivity (Internal-business-process perspective) S Increase customer satisfaction (Customer perspective) A strong tie indicates that if managers successfully implement a causal strategic objective, it will have a strong impact on the realization of the strategic objective that is the effect Consider again the strong ties in Exhibit 12-2 Chipset’s managers believe that to improve manufacturing quality and productivity, they must improve manufacturing and business processes and manufacturing controls Aligning employee and organization goals is also important for improving manufacturing quality and productivity but this effect is moderate and not as strong or important as the effect that improving manufacturing controls and manufacturing and business processes has on manufacturing quality and productivity For a more detailed discussion, see J Godenberg, A Levav, D Mazursky, and S Solomon, Cracking the Ad Code (New York: Cambridge University Press, 2009) 503 www.downloadslide.net 504 ChaPter 12 strategy, BalanCed sCoreCard, and strategiC ProfitaBility analysis Where a tie is moderate or weak, managers anticipate that implementing the causal strategic objective will not have a strong impact on accomplishing the strategic objectives linked to it A tie may be moderate because factors outside the manager’s control affect the outcome For example, an increase in market share might have only a moderate effect on operating income because other factors, such as bargaining by customers or price pressure from competitors, affect operating income Tie strength affects how managers allocate resources across strategic objectives Because managers believe that a strategic objective with a strong tie will result in the objective linked to it, they may be willing to invest more resources in these objectives As we will see later, tie strength may also influence how managers craft initiatives and metrics in the balanced scorecard and the weights that managers put on different elements of the scorecard There are many moderate ties on the map and one weak tie Chipset’s managers closely examine weak ties Consider the strategic objective of a follow-up service call Chipset’s managers believe that even if they were to achieve this objective, it will have a weak effect on improving post-sales service That’s because in the technology-heavy context of linear integrated circuit devices (LICDs), customers are not interested in post-sales follow-up What customers really want is for Chipset to respond quickly and to solve aggressively any problems they might have when these problems arise It is Chipset’s responsiveness rather than routine follow-ups that customers value Orphan objectives Consider again Exhibit 12-2 We refer to the strategic objective of follow-up service call as an orphan An orphan objective is a strategic objective with only weak ties leading out of it to other strategic objectives Orphan status indicates an opportunity to evaluate the value the strategic objective brings to the overall strategy Orphan objectives not contribute to the larger strategy in a way that warrants allocation of resources Chipset’s managers decide to remove follow-up service call from its strategy map because this strategic objective has at best a weak effect on improving post-sales service Focal points Some strategic objectives have a hub-and-spoke quality and have multiple ties flowing into or out of them A focal point is a strategic objective that has many other links funneling into it (see Exhibit 12-2) A focal point indicates strategic complexity; many strategic objectives need to be coordinated to achieve the focal objective For example, improve manufacturing quality and productivity (in the internal business process perspective) is a focal point because three other strategic objectives—improve manufacturing and business processes, improve manufacturing controls, and align employee and organization goals, must be met before Chipset will see improvement in manufacturing quality and productivity Even though it is complex to deliver on focal point strategic objectives, it is important for Chipset to achieve it That’s because, without it, Chipset may not be able to meet its strategic objective to grow operating income If, however, the focal point has only weak ties emanating from it, the strategy map analysis would suggest that the company not invest resources on the focal point objective That’s because it is complex to deliver and has questionable benefits even if it is successfully achieved Trigger points A trigger point is a strategic objective where many ties spur out from it, resulting in the achievement of many strategic objectives Trigger points are exciting because if an organization can achieve the trigger point strategic objectives, they enable multiple strategic objectives to be achieved In Exhibit 12-2, improve manufacturing and business processes (Internal-business-process perspective) is a trigger point because it supports and helps achieve four other strategic objectives (improve manufacturing quality and productivity, reduce delivery time to customers, meet specified delivery dates, and improve post-sales service) Because of their centrality to many other strategic objectives across the strategy map, trigger points require special attention from managers Trigger points are interesting even if one of links emanating from it is weak because there are other strong and moderate ties Distinctive objectives Strategic objectives that distinguish an organization from its competitors, based on the organization’s strategy are distinctive objectives They are frequently located within the learning and growth and internal-business-process perspectives, because they define important activities undertaken by a company to satisfy customers and achieve financial performance In the map these strategic objectives are labeled with a “D.” www.downloadslide.net strategy iMPleMentation and the BalanCed sCoreCard Recall that based on its competitive analysis, Chipset’s management chooses to pursue a cost-leadership strategy—lowering costs and reducing prices instead of developing more advanced chips and charging a higher price The key steps to achieving cost leadership require Chipset to enhance quality and reengineer its processes to eliminate excess capacity and reduce delivery time to customers As a result, Chipset’s managers and management accountants identify improving manufacturing quality and productivity and reducing delivery time to customers as distinctive objectives that allow Chipset to differentiate itself from its competitors Chipset’s managers debate whether they should choose “lower” strategic objectives such as “improve manufacturing controls” or “improve manufacturing and business processes” as distinctive objectives rather than the ones they chose They not because Chipset’s managers, like managers at many companies, prefer to choose as distinctive objectives those objectives that customers experience It is higher quality and lower delivery times that give Chipset a distinctive competitive advantage while improving manufacturing controls and manufacturing and business processes are important steps in achieving those objectives Thinking about distinctiveness within the internal-business-process perspective has two other benefits First, they describe the development of core capabilities As a result, these strategic objectives produce long-term benefits in addition to short-term ones, creating sustainable competitive advantage Second, they force senior managers to develop nonfinancial metrics to measure important, but difficult-to-quantify activities, within which competitive advantage resides If no strategic objective is truly distinctive, managers would need to revisit the strategy objectives and think about how to modify or replace them to achieve a strategy that distinguishes the company from its competitors while creating value for its customers In this way, a structural analysis of “reading” a strategy map helps companies both implement and refine their strategies Insights into strategy maps We summarize the insights that Chipset’s managers gain from using the five tools of structural analysis—strength of ties, orphan objectives, focal points, trigger points, and distinctive objectives To achieve its financial goals, Chipset needs to delight its customers by “improving manufacturing quality and productivity” and “reducing delivery time to customers.” These objectives distinguish Chipset from its competitors The large number of focal points leading up to these objectives suggests that it will be difficult for a competitor to successfully compete with Chipset A number of strong ties lead into “improving manufacturing quality and productivity.” Chipset’s managers believe that developing employee process skills, enhancing information system capabilities, improving manufacturing controls, and improving manufacturing and business processes will have a strong impact on manufacturing quality and productivity The links into reducing delivery time to customers are not as strong Chipset’s managers will have to continue to monitor how well its reengineered order-delivery process is working On the positive side, it appears that customers care more about quality and cost (strong tie) than they about delivery time (moderate tie) Chipset’s managers will use the insights from structural analysis to wisely allocate resources across different strategic objectives (for example, allocating more resources to improving manufacturing quality and productivity than to reducing delivery time) They starve orphan objectives of resources, dropping follow-up service calls from the strategy map and the balanced scorecard Chipset uses the strategy map from Exhibit 12-2 to build the balanced scorecard presented in Exhibit 12-3 The scorecard highlights the four perspectives of performance: financial, customer, internal business process, and learning and growth The first column presents the strategic objectives from the strategy map in Exhibit 12-2 At the beginning of 2017, the company’s managers specify the strategic objectives, measures, initiatives (the actions necessary to achieve the objectives), and target performance (the first four columns of Exhibit 12-3) Chipset wants to use the balanced scorecard targets to drive the organization to higher levels of performance Managers therefore set targets at a level of performance that is achievable yet distinctly better than competitors Chipset’s managers complete the fifth column, reporting actual performance at the end of 2017 This column compares Chipset’s performance relative to target 505 www.downloadslide.net 506 ChaPter 12 strategy, BalanCed sCoreCard, and strategiC ProfitaBility analysis exhiBit 12-3 Strategic Objectives The Balanced Scorecard for Chipset, Inc., for 2017 Measures Initiatives Target Performance Actual Performance Financial Perspective Grow operating income Increase shareholder value Customer Perspective Increase market share Increase customer satisfaction Operating income from productivity gain Operating income from growth Revenue growth Manage costs and unused capacity Build strong customer relationships Market share in communicationnetworks segment Number of new customers Customer-satisfaction ratings Identify future needs of customers Internal-Business-Process Perspective Improve postsales Service response time service Improve manufacturing Yield quality and productivity Reduce delivery time to Order-delivery time customers Meet specified delivery On-time delivery dates Improve manufacturing Number of major & business processes improvements in manufacturing and business processes Improve manufacturing Percentage of processes controls with advanced controls Learning-and-Growth Perspective Align employee and Employee-satisfaction organization goals ratings Empower workforce Develop employee process skill Enhance informationsystem capabilities a (Revenues b Number Percentage of line workers empowered to manage processes Percentage of employees trained in process and quality management Percentage of manufacturing processes with real-time feedback $1,850,000 $1,912,500 $2,500,000 $2,820,000 9% 10%a 6% 7% 1b 90% of customers give top two ratings 87% of customers give top two ratings Improve customer-service process Identify root causes of problems and improve quality Reengineer order-delivery process Reengineer order-delivery process Organize teams from manufacturing and sales to modify processes to specified target levels Organize R&D/manufacturing teams to implement advanced controls Within hours Within hours 91% 92.3% 30 days 30 days 97% 95% 5 90% 90% Employee participation and suggestions program to build teamwork Have supervisors act as coaches rather than decision makers Employee training programs 80% of employees give top two ratings 92% 88% of employees give top two ratings 94% 94% 96% 93% 93% Identify new target-customer segments Increase customer focus of sales organization Improve online and offline data gathering in 2017 ] Revenues in 2016) Revenues in 2016 ($25,300,000 ] $23,000,000) $23,000,000 10% of customers increased from seven to eight in 2017 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 www.downloadslide.net index variable overhead flexible-budget variance, 312 variable overhead spending variance, 314–15 when to investigate, 285–86 write-off variances, 370–71 yield variance, 280 Vendor-managed inventory, 811 Volume, 54–56 W Wages Payable Control account, 283 Warehouse inventory carrying charge for, 360 carrying costs, 461–62, 800–802 direct materials inventory, 58 economic-order-quantity decision model, 800–802 economic order quantity (EOQ), 800–802 finished-goods inventory, 58–59 inventory-related relevant costs and effects, 805 merchandise inventory, 58 prediction error cost, 805–806 reducing levels of, 357 relevant costs, 800–802, 805 reorder point, 802–803 safety stock, 803–805 shrinkage costs, 800 undesirable incentives to build up, 359–60 valuation, 195 when to order units, 802–803 work-in-process inventory, 58–59 991 Weak ties, 503–504 Weighted-average cost of capital (WACC), 917 Weighted-average process-costing method, 704–707 versus first-in, first-out (FIFO) process-costing method, 711–12 spoilage, 743–45 transferred-in costs, 713–15 Weighted Shapley value method, 648n Whale curve, 587 Wholesale channel, 594 Wholesale-channel revenue-based cost pool, 597 Wishbone diagrams, 773–774 Work-in-Process Control account, 150–52, 282, 316, 321–322, 325, 370 Work-in-process inventory, 58–59, 61, 63, 140, 223 no beginning or ending, 697–98 some beginning and some ending work-in process inventory, 704–12 zero beginning and some ending, 698–703 Work-measurement method, 398, 408 Write-off approach, 151 Y Yearly budgets, 222 Yield variance, 280, 291–94 Z Zero beginning and some ending work-in-process inventory equivalent units, 699–700 journal entries, 702–703 product costs calculations, 701–702 www.downloadslide.net This page intentionally left blank ... capacity (p 524 ) aSSignment material Pearson MyLab Accounting Questions 1 2- 1 1 2- 2 1 2- 3 1 2- 4 1 2- 5 1 2- 6 1 2- 7 1 2- 8 1 2- 9 1 2- 1 0 1 2- 1 1 1 2- 1 2 1 2- 1 3 1 2- 1 4 1 2- 1 5 Pearson MyLab Accounting Define strategy Describe... strategy? Explain 537 Required 1 2- 2 8 Identifying and managing unused capacity (continuation of 1 2- 2 5) Refer to Exercise 1 2- 2 5 Calculate the amount and cost of (a) unused manufacturing capacity and... reduce capacity Suppose that in 20 17 Gable makes 2, 203 ,20 0 wallets, uses 1,440,000 yards of fabric, and reduces capacity to 2, 295,000 wallets at a cost of $7,803,000 Calculate the partial-productivity