Managerial accounting 4e global edition braun

www.freebookslides.com Managerial Accounting For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version Global edition Global edition Global edition Managerial Accounting fourth edition Karen Wilken Braun • Wendy M Tietz fourth edition Braun • Tietz This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author Pearson Global Edition BRAUN_1292059427_mech.indd 07/03/14 3:34 PM www.freebookslides.com Managerial Accounting Global Edition Fourth Edition Karen Wilken Braun, PhD, CPA, CGMA Case Western Reserve University Wendy M Tietz, PhD, CPA, CGMA, CMA Kent State University Boston  Columbus  Indianapolis  New York  San Francisco  Upper Saddle River Amsterdam  Cape Town  Dubai  London  Madrid  Milan  Munich  Paris  Montréal  Toronto Delhi  Mexico City  São Paulo  Sydney  Hong Kong  Seoul  Singapore  Taipei  Tokyo A01_BRAU9426_04_SE_FM.indd 01/04/14 1:59 PM www.freebookslides.com Editor in Chief: Donna Battista Acquisitions Editor: Ellen Geary Editorial Assistant: Christine Donovan Head of Learning Asset Acquisition, Global Edition: Laura Dent Associate Editor, Global Edition: Toril Cooper Project Editor, Global Edition: Laura Thompson Marketing Manager: Alison Haskins Marketing Assistant: Chris D’Amato Managing Editor: Jeff Holcomb Production Project Manager: Karen Carter Operations Specialist: Carol Melville Senior Manufacturing Controller, Global Edition: Trudy Kimber GE Cover Designer: TBC Cover Art: VladisChern/Shutterstock Media Producer: James Bateman Full-Service Project Management: S4Carlisle Cover Printer: Lehigh-Phoenix Color/Hagerstown Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearson.com/uk © Pearson Education Limited 2015 The rights of Karen Wilken Braun and Wendy M Tietz to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorised adaptation from the United States edition, entitled Managerial Accounting, 4th edition, ISBN 978-0-13-342837-7 by Karen Wilken Braun and Wendy M Tietz, published by Pearson Education, publishing as Prentice Hall © 2015 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-05942-7 ISBN 13: 978-1-292-05942-6 ISBN 13: 978-1-292-06585-4 (Print) (PDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 15 14 13 12 11 Typeset in 10/12 Sabon by S4Carlisle Printed and bound by Courier/Kendallville in the United States of America A01_BRAU9426_04_SE_FM.indd 01/04/14 1:59 PM www.freebookslides.com BRIEF CONTENTS 1 Introduction to Managerial Accounting 2 Building Blocks of Managerial Accounting 3 Job Costing 4 Activity-Based Costing, Lean Operations, and the Costs of Quality 5 Process Costing 6 Cost Behavior 7 Cost-Volume-Profit Analysis 8 Relevant Costs for Short-Term Decisions 9 The Master Budget 10 Performance Evaluation 11 Standard Costs and Variances 12 Capital Investment Decisions and the Time Value of Money 13 Statement of Cash Flows 14 Financial Statement Analysis 15 Sustainability  19  64  120  194  265  327  400  461  520  590  660  716  783  841  894 Company Names Index  I-1 Glossary/Index I-5 A01_BRAU9426_04_SE_FM.indd    3 01/04/14 1:59 PM www.freebookslides.com CONTENTS 1  Introduction to Managerial Accounting 19 What is Managerial Accounting? 20  uilding Blocks of Managerial B Accounting 64 Managers’ Three Primary Responsibilities  20 What are the Most Common Business Sectors and Their Activities? 65 A Road Map: How Managerial Accounting Fits In  21 Service, Merchandising, and Manufacturing Companies 65 Differences Between Managerial Accounting and Financial Accounting  22 Which Business Activities Make up the Value Chain? 67 What Role Management Accountants Play? 24 Coordinating Activities Across the Value Chain  68 Organizational Structure  24 Cost Objects, Direct Costs, and Indirect Costs  70 The Changing Roles of Management Accountants 25 Costs for Internal Decision Making and External Reporting 72 The Skills Required of Management Accountants 26 Merchandising Companies’ Inventoriable Product Costs  74 Professional Associations  27 Average Salaries of Management Accountants  28 Manufacturing Companies’ Inventoriable Product Costs  75 Ethics 29 Prime and Conversion Costs  77 Examples of Ethical Dilemmas  30 Additional Labor Compensation Costs  77 What Regulatory Issues Affect Management Accounting? 35 Sarbanes-Oxley Act of 2002  35 International Financial Reporting Standards (IFRS) 36 Extensible Business Reporting Language (XBRL) 36 How Companies Define Cost? 70 Recap: Inventoriable Product Costs Versus Period Costs 78 How are Inventoriable Product Costs and Period Costs Shown in the Financial Statements? 81 Service Companies  81 Merchandising Companies  81 What Business Trends Affect Management Accounting? 37 Manufacturing Companies  83 Sustainability, Social Responsibility, and the Triple Bottom Line  37 Sustainability and Corporate Reporting  86 Comparing Balance Sheets  86 Integrated Reporting  38 What Other Cost Terms are Used by Managers? 87 Shifting Economy  39 Controllable Versus Uncontrollable Costs  87 Global Marketplace  39 Relevant and Irrelevant Costs  87 Advanced Information Systems  40 Fixed and Variable Costs  88 Lean Operations  41 How Manufacturing Costs Behave  89 Total Quality Management  41 Calculating Total and Average Costs  90 End of Chapter 45 End of Chapter 94 A01_BRAU9426_04_SE_FM.indd 01/04/14 1:59 PM www.freebookslides.com Contents    5 Job Costing 120 What Methods are Used to Determine the Cost of Manufacturing a Product? 121 Process Costing  121 Job Costing  122 How Manufacturers Determine a Job’s Cost? 123 Overview: Flow of Inventory Through a Manufacturing System  123 Scheduling Production  124 Purchasing Raw Materials  125 Using a Job Cost Record to Accumulate Job Costs 126 Tracing Direct Materials Cost to a Job  128 Tracing Direct Labor Cost to a Job  130 Allocating Manufacturing Overhead to a Job  132 Completing the Job Cost Record and Using it to Make Business Decisions  135  ctivity-Based Costing, Lean A Operations, and the Costs of Quality 194 Why and How Companies Refine Their Cost Allocation Systems? 195 Simple Cost Allocation Systems Can Lead to Cost Distortion 195 Review: Using a Plantwide Overhead Rate to Allocate Indirect Costs  196 Using Departmental Overhead Rates to Allocate Indirect Costs  198 Using Activity-Based Costing to Allocate Indirect Costs 203 How Managers Use the Refined Cost Information to Improve Operations? 210 Activity-Based Management (ABM)  210 Passing the Cost-Benefit Test  212 What is Lean Thinking? 218 How Can Job Costing Information be Enhanced for Decision Making? 137 The Eight Wastes of Traditional Operations  218 Non-Manufacturing Costs  139 Lean Operations in Service and Merchandising Companies 225 Direct or Variable Costing  139 Characteristics of Lean Operations  220 How Managers Improve Quality? 225 How Managers Deal with Underallocated or Overallocated Manufacturing Overhead? 143 Relationship Among Costs  227 What Journal Entries are Needed in a Manufacturer’s Job Costing System? 145 Using Costs of Quality Reports to Aid Decisions 228 Appendix 3A  159 End of Chapter 233 How Service Firms Use Job Costing to Determine the Amount to Bill Clients?  159 What Costs are Considered Direct Costs of Serving the Client?  159 Costs of Quality (COQ)  226 Process Costing 265 Process Costing: An Overview 266 What Costs are Considered Indirect Costs of Serving the Client?  160 Two Basic Costing Systems: Job Costing and Process Costing  266 Finding the Total Cost of the Job and Adding a Profit Markup  161 How Does the Flow of Costs Differ Between Job and Process Costing?  267 Invoicing the Client Using a Professional Billing Rate  161 What are the Building Blocks of Process Costing? 270 What Journal Entries are Needed in a Service Firm’s Job Costing System?  162 Conversion Costs  270 End of Chapter  163 A01_BRAU9426_04_SE_FM.indd Equivalent Units  270 Inventory Flow Assumptions  271 01/04/14 1:59 PM www.freebookslides.com 6    Contents How Does Process Costing Work in the First Processing Department? 272 How Managers Determine Cost Behavior? 342 Step 1: Summarize the Flow of Physical Units  274 Account Analysis  342 Step 2: Compute Output in Terms of Equivalent Units 274 Scatter Plots  342 Step 3: Summarize Total Costs to Account For 276 Regression Analysis  346 Step 4: Compute the Cost per Equivalent Unit 276 Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process Inventory 277 Average Unit Costs  277 What Journal Entries are Needed in a Process Costing System? 279 How Does Process Costing Work in a Second or Later Processing Department? 285 Process Costing in SeaView’s Insertion Department 285 Steps and 2: Summarize the Flow of Physical Units and Compute Output in Terms of Equivalent Units  287 Steps and 4: Summarize Total Costs to Account for and Compute the Cost per Equivalent Unit 288 Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process Inventory 289 Unit Costs and Gross Profit  289 Production Cost Reports  290 High-Low Method  344 Data Concerns  350 What are the Roles of Variable Costing and the Contribution Margin Income Statement? 351 Comparing Absorption Costing and Variable Costing 351 The Contribution Margin Income Statement  353 Comparing Operating Income: Variable Versus Absorption Costing  356 Reconciling Operating Income Between the Two Costing Systems  358 End of Chapter 365 Cost-Volume-Profit Analysis 400 How Does Cost-Volume-Profit Analysis Help Managers? 401 Data and Assumptions Required for CVP Analysis 401 The Unit Contribution Margin  402 The Contribution Margin Ratio  403 Journal Entries in a Second Processing Department 291 How Managers Find the Breakeven Point? 405 End of Chapter 298 The Income Statement Approach  406 The Shortcut Approach Using the Unit Contribution Margin  407 Cost Behavior 327 The Shortcut Approach Using the Contribution Margin Ratio  408 Cost Behavior: How Changes in Volume Affect Costs? 328 How Managers Find the Volume Needed to Earn a Target Profit? 409 Variable Costs  328 How Much Must we Sell to Earn a Target Profit? 409 Fixed Costs  331 Mixed Costs  334 Relevant Range  336 Other Cost Behaviors  337 A01_BRAU9426_04_SE_FM.indd Graphing CVP Relationships  411 How Managers Use CVP to Plan for Changing Business Conditions? 416 Changing the Sales Price  416 01/04/14 1:59 PM www.freebookslides.com Contents    7 Changing More Than One Factor  418 How are the Operating Budgets Prepared? 525 Changing Fixed Costs  419 Sales Budget  525 Changing the Mix of Products Offered for Sale 421 Production Budget  526 Changing Variable Costs  417 Direct Materials Budget  528 What are Some Common Indicators of Risk? 425 Direct Labor Budget  529 Margin of Safety  425 Operating Expenses Budget  531 Operating Leverage  426 Budgeted Income Statement  532 Choosing a Cost Structure  429 How are the Financial Budgets Prepared? 537 End of Chapter 435 Manufacturing Overhead Budget  530 Capital Expenditures Budget  537  elevant Costs for Short-Term R Decisions 461 How Managers Make Decisions? 462 Relevant Information  462 Relevant Nonfinancial Information  463 Keys to Making Short-Term Special Decisions  464 Cash Collections Budget  537 Cash Payments Budget  538 Combined Cash Budget  540 Budgeted Balance Sheet  541 Sensitivity Analysis and Flexible Budgeting 543 How the Budgets for Service and Merchandising Companies Differ? 545 How Managers Make Special Order and Regular Pricing Decisions? 466 Service Companies  545 Special Order Decisions  466 Impact of Credit and Debit Card Sales on Budgeting 547 Regular Pricing Decisions  470 How Managers Make Other Special Business Decisions? 478 Decisions to Discontinue Products, Departments, or Stores  478 Product Mix Decisions when Resources are Constrained 482 Outsourcing Decisions (Make or Buy)  484 Decisions to Sell As Is or Process Further  488 End of Chapter 494 Merchandising Companies  545 End of Chapter 552 10 Performance Evaluation 590 How Does Decentralization Affect Performance Evaluation? 591 Advantages and Disadvantages of Decentralization 591 Performance Evaluation Systems  592 The Master Budget 520 What is Responsibility Accounting? 592 Types of Responsibility Centers  593 How and Why Managers Use Budgets? 521 Evaluation of Investment Centers  597 How are Budgets Used?  521 What is Transfer Pricing? 604 How are Budgets Developed?  521 What are the Benefits of Budgeting?  523 Responsibility Center Performance Reports  595 Strategies and Mechanisms for Determining a Transfer Price  605 What is the Master Budget?  524 A01_BRAU9426_04_SE_FM.indd 01/04/14 1:59 PM www.freebookslides.com 8    Contents How Managers Use Flexible Budgets to Evaluate Performance? 611 Creating a Flexible Budget Performance Report 612 Underlying Causes of the Variances  614 How Companies Incorporate Nonfinancial Performance Measurement? 616 The Balanced Scorecard  616 End of Chapter 625 11 Standard Costs and Variances 660 What are Standard Costs? 661 Types of Standards  661 Information Used to Develop and Update Standards 662 Computing Standard Costs  662 How Managers Use Standard Costs to Compute DM and DL Variances? 665 12  Capital Investment Decisions and the Time Value of Money 716 What is Capital Budgeting? 717 Four Popular Methods of Capital Budgeting Analysis 717 Focus on Cash Flows  718 Capital Budgeting Process  718 How Managers Calculate the Payback Period and Accounting Rate of Return? 720 Payback Period  720 Accounting Rate of Return (ARR)  723 How Managers Compute the Time Value of Money? 729 Factors Affecting the Time Value of Money  729 Future Values and Present Values: Points Along the Time Continuum  730 Future Value and Present Value Factors  731 Calculating Future Values of Single Sums and Annuities Using FV Factors  732 Using Standard Costs to Develop the Flexible Budget 665 Calculating Present Values of Single Sums and Annuities Using PV Factors  733 Direct Materials Variances  665 How Managers Calculate the Net Present Value and Internal Rate of Return? 736 Direct Labor Variances  671 Summary of Direct Materials and Direct Labor Variances 673 Advantages and Disadvantages of Using Standard Costs and Variances  673 How Managers Use Standard Costs to Compute MOH Variances? 678 Variable Manufacturing Overhead Variances  678 Fixed Manufacturing Overhead Variances  680 Standard Costing Systems  682 Appendix 11A  686 Standard Costing  686 Net Present Value (NPV)  737 Internal Rate of Return (IRR)  742 How the Capital Budgeting Methods Compare? 745 Appendix 12A 749 Present Value Tables and Future Value Tables  749 Table A Present Value of $1  749 Table B Present Value of Annuity of $1  750 Table C Future Value of $1  751 Standard Costing Income Statement  689 Table D Future Value of Annuity of $1  752 End of Chapter 690 Appendix 12B 753 Solutions to Chapter Examples Using Microsoft Excel  753 A01_BRAU9426_04_SE_FM.indd 01/04/14 1:59 PM www.freebookslides.com Contents    9 Appendix 12C 757 Vertical Analysis 846 Using a TI-83, TI-83 Plus, TI-84, or TI-84 Plus Calculator to Perform Time Value of Money Calculations  757 How we Compare One Company with Another? 848 End of Chapter 763 What are Some of the Most Common Financial Ratios? 853 Measuring Ability to Pay Current Liabilities  853 13  tatement of Cash S Flows 783 Measuring Ability to Sell Inventory and Collect Receivables 854 Measuring Ability to Pay Long-Term Debt  856 Measuring Profitability  857 What is the Statement of Cash Flows? 784 Analyzing Stock Investments  859 Three Types of Activities That Generate and Use Cash 785 Red Flags in Financial Statement Analysis 861 Two Methods of Presenting Operating Activities 787 End of Chapter 868 How is the Statement of Cash Flows Prepared Using the Indirect Method? 792 Information Needed to Prepare the Statement of Cash Flows  792 Preparing the Cash Flows from Operating Activities 792 Preparing the Cash Flows from Investing Activities 798 Preparing the Cash Flows from Financing Activities 800 Interpreting the Statement of Cash Flows  802 Recap: Steps to Preparing the Statement of Cash Flows Using the Indirect Method  802 How is the Statement of Cash Flows Prepared Using the Direct Method? 803 Overview 803 Determining Cash Payments and Receipts  804 End of Chapter 812 14 Financial Statement Analysis 841 What are the Most Common Methods of Analysis? 842 15 Sustainability 894 What is Sustainability and How Does it Create Business Value? 895 Historical Overview  896 The Business Case for Sustainability  897 What is Sustainability Reporting? 901 Current State of Sustainability Reporting  901 Reasons for Sustainability Reporting  902 Framework for Sustainability Reporting  902 What is Environmental Management Accounting (EMA)? 906 EMA Systems  906 Uses of Environmental Management Accounting Information 908 Challenges to Implementing EMA Systems  909 Future of Environmental Management Accounting 911 End of Chapter 913 Company Names Index  I-1 Glossary/Index I-5 Horizontal Analysis 842 Horizontal Analysis of the Income Statement  844 Horizontal Analysis of the Balance Sheet  844 Trend Percentages  844 A01_BRAU9426_04_SE_FM.indd 01/04/14 1:59 PM www.freebookslides.com I-2    Company Names Index Engineered Plastics Systems, LLC, 926 Enoji, 173 eNow!, 81 Enron, 227 Entreé Computer, 31 Ernst & Young, 87, 903 Equatorial Hotel, 886 EZ-Rider Motorcycles, 44 F Fabulous Flamingos, 385 Fairmont Hotels & Resorts, 632 Falcon Design, 183 Family Tyme Movies, 501–502 Fantastic Aluminium, 54 FANUC Japan, 560 Farm Fresh, 504 Fashion Fabrics, 156 Fibre(B)lock, 107 Fielding Industries, 634 Firefly, 821 First National Bank, 578–579, 585 FirstEnergy, 639, 941–943 Fitness Plus, 561 Fitness Mania, 891 Fitness-for-Life, 341, 361, 362–364 Flannery Water Optics, 379 Flash Company, 96 Flash Manufacturing, 445 Flash Medical Supply, 563 FlashCo, 647–648 Fleet Foot, 414–415, 433–434 Flex Displays, 111 Flor, 107 Florida Tile, 283–284, 295–297 Flower Power, 374–375 Ford Motor Company lean operations, 225 responsibility centers, 627 sustainability, 103, 107, 279, 926, 936, 938 Fortune 862, 902 Fortune Garment, 57 Frame Place, 99 Franklin Restaurant Group, 778 Fremont Hospital, 390–392 Fresh Snacks Corp., 246 Frito-Lay, 279 FTSE4Good Index, 901 Fuji Manufacturing, 389 Fuji Xerox, 558 Fujifilm, 646, 768 Fulton Holdings, 628 G Gable Ceramics, 634–635 Gable Industries, 566 Games Corporation, 563 Garrett Entertainment, 929 Gary’s Restaurant Supply, 585 GE (General Electric), 39, 66, 604, 606, 903 Geary Preschool, 566 General Manufacturing, 451 General Mills, 66, 279, 471, 919 GenPak, LLC, 927 GeoHay, 103 Geolander Tire, 184 George Services, Inc., 556 Gibbs Engine, 185 Gibson Motors, 635 Gibson Pharmaceuticals, 259 GlennCo, 652–653 Global Fitness, 228–229 Z01_BRAU9426_04_SE_CIDX.indd Global LAMP 60 Index, 901 Global Music, 393 Global Systems, 509 Global Travel, 440 Gloucester Motors, 642 Go for Travel, 454–455 Golden Pools, 630 GoldenTech Access, 182 Goldman Sachs, 39, 903 Goldstein Semiconductors, 310 Goodyear Tire & Rubber Company, 632 Google, 781 Goggle Water Optics, 387 Grain Day Cereals, 508 Grand Lips, 320 GrandScapes, 695–696, 699–700 Great Bay Consultants, Inc., 938 Great Beans, 299 Greatland Preschool, 568 Greaton Surge Protectors, 307–308 Gree Electrical Appliances Inc., 643 Green Giraffe Restaurant Group, 837 Greenpeace, 896 GreenShipping, 102 Griffin Industries, 768–769, 831–832 Griffith Corporation, 304 Grommet Company, 656–657 Grover’s Steel Parts, 441 H H & R Block, 639 Haas Plastics, 927 Haier, 312 Hallmark, 471 Hallmark Rings, 701 Halo Systems, 256 Hamilton’s, 871–872 Hampton Containers, 510 Hansen Manufacturing, 100 Harmony Corporation, 876 Harris Industries, 693 Hatcher Carriage Company, 378 Healthy Start Bakery, 311 Heese Restaurant Group, 693, 694, 696–697 Heinz, 664 Henderson Plastics, 924 Henry Timepieces, 448 Herring Manufacturing, 386 Hershey Company, 639 High Seas Nautical Company, 823–824 Highland Restaurant Group, Inc., 819 Hinckley Preschool, 558 Hisense, 513 Hitachi, 249–250 Hitachi’s DVD Player Department, 568 Hodge confections, 692 Hoffman Containers, 504 Hoffman Manufacturing, 567 Holiday Inn, 368–369, 628 Home Depot, 74, 408–409 Home Guard, 452–453 Honda, 627 Hoover Industries, 826–827 Hosbach Manufacturing, 237 Howley Fabricators, 180 HP (Hewlett Packard), 97, 139, 927 HuaWei, 104, 188, 509 Hull Guard, 697 Huntington Manufacturing, 378 Hupley Manufacturing, 449 Hyundai Steel, 825 I IAP, 231 IHS, 191 IKEA, 225 IMDb, 588 Indianapolis Auto Parts, 216 Intel, 226, 719, 901, 904–905 IOI, 248 iSuppli, 191, 660 J J.M Smucker Company, 55, 627, 632, 894, 895 J&B Appliance, 166 Jackson Fabricators, 174 James, Inc., 251 Jamestown Heating & Cooling, 177 Jannus Supply Corporation, 881 Japan Tobacco, 393 Jazzy Cola, 113 JCPenney current ratio, 854 debt ratio, 856 inventory turnover, 854–855 profitability, 857–859 responsibility centers, 632 stock investment analysis, 860–861 times-interest-earned ratio, 857 Jelly Belly, 265–270 Jenkins Garage Doors, 921 Jensen Auto Components, 498 Jessica’s Bakery, 695 Jiangsu Redbud Dyeing Technology, 915 Jimmy’s Cricket Farm, 322–323 Johannesburg Stock Exchange, 902 Johnson & Johnson, 719, 915, 934 Johnson, Inc., 634 Johnstone & Associates, 165 Jones Oil and Lube, 367–368 Jubilee Corporation, 644 Jubilee Frozen Foods, 499 Juda Company, 450 Just Do It!, 492–493 K Kahlo Industries, 442 Kao, 309 Kay Martin Posters breakeven point, 405–409 changing business conditions, 416–425 cost structure choice, 429–431 CVP analysis, overview, 401–405 margin of safety, 425–426 operating leverage, 426–429 target profit, 409–412 KCC Production Corporation, 258 Keller Garage Doors, 441 Keller Industries, 941 Kellogg Company, 918 Kelvin Industries, 108 Kenmore Garage Doors, 447 Kerwin Corporation, 634–635 Kerwin Industries, 770 Kettle Snacks, 236 KeyBank, 900–901, 904 KG Products, Inc., 396 Kirby Garage Doors, 930 Kiwi Electronics, 102 KK Mart, 870 Knox Industries, 814 Kohl’s asset measures, 603 current ratio, 854 debt ratio, 856 direct and indirect costs, 97 inventory turnover, 854–855 performance evaluation, 627, 632, 639 profitability, 857–859 stock investment analysis, 860–861 times-interest-earned ratio, 857 Korean Air, 772 KPMG, 87, 903 Kraft, 488–489 Kroger, 478, 481, 627 Krystal Fabrics, 705 Kyler Company, 634 L Lakeview Restaurant Supply, 178 Lamett Company, 818 Lands’ End, 458–459 Large Construction Toys Corporation, 259 Layne Containers, 702–703 Lee Trading, 586 Leftwich Paper Supply, 179 Lenovo, 781 Leret Reeds, 563 LG, 167 LG Electronics, 769, 770 Life Fitness activity-based costing, 206–208 activity-based management, 210–212 departmental overhead, cost allocation, 198–203 job cost record, business decisions and, 135–137 job costing, 122, 123–124, 140, 145–154, 268 manufacturing overhead, job costing and, 132–135 non-manufacturing costs, 139 overview of, 120 plantwide overhead, cost allocation, 196–197 raw materials purchasing, 126 refined costing systems, need for, 194 under- and overallocated overhead costs, 143–145 Lindy Electronics, 109 Linger Industries, 476–477 Lipton Tea, 278 Littleton Plastics, 919 Lively Bubbles, Inc., 645 Locktight Systems, 514 Lopez Cosmetics, 316 Los Angeles Fiber Company, 107 Lotte Department, 834 Louis Vuitton, 713 Lucy Paint Company, 306–307 Ludlow Plastics, 172 LX Electronics, 889 M MacIntyre Company, 300 Mancato Corporation, 637 Marathon Oil Company, 627 Margot Coffee, 455 Marine Corporation, 571 Mariner Designs, 873 Market Time Investors, 453 Marriott, 716 4/1/14 2:14 PM www.freebookslides.com Company Names Index    I-3 Marty’s Entrees, 394 Marvel Studios, 589 Mastar, 500–501 MasterCard, 547 Maxis, 829 Maxwell Flooring, 301 Mayflower Corporation, 628 Maytag, 226 McConnell Department Stores, 886 McDermott Foods, 639 McKnight Industries, 389 Media, 503–504 Memoirs, 676–677, 684–685 Mendelson Company, 588 Merelix, 62 Merriweather Corporation, 814 Metal Accessories, 321–322 Method, 899, 915 Metro Bank, 856 MetroFit Center, 383–384 Microsoft, 39, 86 Mike’s Beach Hut, 508–509 Miki Ltd, 184–185 Mila Fashion, 496–497 Millan & Co., 239 Miracle Music, 57 Mission Health Center, 570 Mitsubishi, 774 Monette Health Center, 562 Monteiro Industries, 924 Mosaic Travel Services, Inc., 819–820 Motorola, 781 Mount Snow, 496 Moutai, 315 MTECH, 510 My First Violin, 389–390 My Home, 446 Nahla Electronics, 885 Nano, 242–243 NASDAQ, 901, 902 Nate’s Beach Hut, 503 Nature Place, 511 Naza Kia, 641 NEC, 651 Nelson Manufacturing, 653–654 New Wood Plastics, 178–179 Newell Rubbermaid, 478 Nexus, 471 Nicholson Meats, 505 Nike, Inc., 102, 471, 475, 925 Nikon, 110 Nilson Marketing, 822 Nippon, 301 Nissan, 226 Nokia, 106, 380–381 North Face, 458–459 Nyloboard, 102 Painting Department, 299 Pampered Pets, 104 Panasonic Corporation, 305, 657–658 Parker Feeders, 169 Parker’s Wood Amenities, 165 Patagonia, 919 Patel Foundry, 180 Patterson Awning, 706 Payless ShoeSource, 475 Pella, 712 Peninsula Hot Springs Spa Center, 635–636 Penny’s Posies, 111 Pensonic, 506 Pentec, 637 Peony Restaurants, 628 Pepperpike Corporation, 824 Peppy Scooters, 448 PepsiCo balanced scorecard, 621–622 decentralization, 591 financial statement analysis, 877, 881–882, 891–892 investment center performance, 598–604 organization chart, 594 performance evaluation, 590 responsibility accounting, 592–594 summary problem, 609–610 sustainability, 69, 279, 621–622 Percival Products, 257 Perfect Fit Frames, 875 Perkins + Will, 915 Perkins Company, 240 Petra’s Music, 707 Philips Corporation, 628 Pika food manufacturers, 235–236 Pillows Unlimited, 535–536, 550–551 Pizarro Manufacturing, 629–630 Plant House, 513–514 Plastic Lumber Company, Inc., 628, 822, 825–826, 933 Polly Products, 325–326 Popley Manufacturing, 443 Posies Unlimited, 381 Precious Bubbles, 650–651 Presidio Manufacturing, 579–583 Preston Builders, 501 Preston Company, Inc., 834–835 Pretty Pets, 108 PriceWaterhouseCoopers, 87, 903 Pro Tire, 187 Probe Corporation, 555 Proctor & Gamble, 66, 69, 899, 909, 918 Progressive Group of Insurance Companies, 627, 632 Proquest, 83 Prudential, 39, 86 PUMA, 367 O Q O’Neill’s Products, 369 OceanSide Marine, 56 Oleo Mas manufactures, 249 Olympia Fabrics, 708 Olympus, 877 Orange Grove Spas, 825 Oscar Company, 516 Outback Restaurants, 627 Oxford State Bank, 880 QuickBooks, 40 N P Pace Foods, 121 Padini, 104, 186, 629 Z01_BRAU9426_04_SE_CIDX.indd R Racer Chemical Corporation, 629 Rachel’s Bakery, 700 Radio Shack, 101, 106 Rally Furniture, 179 Rapid Electronics, 105 Rapid Scooters, 442 Raven Design, 187 Raycor, 740 Red Box Consulting, 372 Red Cross, 917 Red Rock Industries, 774 Red Wing Shoe Company, 103 Reilly Adventures, 571–572 Reynolds, Inc., 244 Ricoh, 69, 70 River Park Lodge, 775 Robert Half International, Inc., 19–24, 29 Roberts Manufacturing, 191 Robotic Construction Toys Corp., 256 Rockwell Fashion Bags, 456 Rogers Restaurant Group, 701–702 Rondell Pharmacy, 456 Rootstown Cola, 110 Rosa Recycling, 173 Rose Corporation, 889 Rossignol, 488 Rouse Chemical, 512–513 Royal Selangor, 166 Royz, 557–558 Russell Furniture, 258 S S&P 518, 902 Safeway, 627 Sage Peachtree, 40 Sailor Products, Inc., 513 Sam’s Lawn Mowing, 616 Sampson Industries, 308–309 Samson Company, 710 Samson Corporation, 870 Samson Entertainment, 921 Samsung, 448 Samsung Electronics, 768 Santos Industries, 928 Santos Products, 772 Sanyo, 772 Sargo Industries, 928 Sarmento Tax Services, 701 Sawyer Pharmaceuticals, 255 Scofield Industries, 919 Scoll, 446 Scott Landscaping, 692 Scotts Corporation, 818 Scrubs and More, 457 Seasons Sports Company, 649 SeaSpray Marine, 58 SeaView Decision Guidelines, process costing, 282, 294 process costing, initial process, 272–278 process costing, journal entries, 278–281, 291–293 process costing, subsequent process, 285–291 short exercise problems, 299, 300 Seiko, 505–506 Serdnic Reeds, 570–571 Shannon Paint Company, 312–313 Sharp, 172 Sharp Corporation, 927 Shaw Industries, 107 Shell Oil, 266, 471 Sherman Company, 815–816 Sherwin Williams, 639, 646–647, 651–652 Shogun, 554 ShredCo, 351–354, 358–360 Shubert Organization, 62 Sidney Industries, 242 Sierra Club, 896 Sime Darby Manufacturers, 172 Simmons Industries, 693 SK Energy, 824 Skullcandy, 485–486 Smashing Hits, 56 Smith Company, 562 Smith Snacks Corp., 253 Smythe Resorts and Hotels, Inc., 628 Snow Films Company, 557 Snyder Feeders, 176 Soft Glow Company, 443 Solar Entertainment, 381 Sonoma, 727–728, 748 Sony, 353, 870 Sorrento Industries, 314 Sparkle Unlimited, 262 Speedy Medical Supply, 571 Splash World, 777 SportsTime, Inc cash flow, direct method, 803–806 cash flow, indirect method, 792–802 Stabilo, 178, 367 Staples, 138, 720, 898 Star Valley, 775 Starbucks, 118–119, 471, 518, 720, 846, 856 Start Smart Preschool, 560 Stately Corporation, 556 StoreAway, 497 Strzelecki Ranges, 927 Style Travel, 887 Sugawara, 109 Sun Inn Hotel, 368, 377, 882 Superior Garment, 59 Supermart balance sheet, 843, 847 common financial ratios, 853–861 common-size statement, 848–849 Comparative Balance Sheet, 845 horizontal analysis, 842–846 Income Statement, 842, 847 vertical analysis, 846–849 Sustainable Travel International, 909 SW Electronics, 885 Sweet Earth Organic Chocolates, 630 Swift Media Services Company, 820 Swisher Manufacturing, 648–649 Sylvan Industries, 920 T Tabloid News Group, 877 Tanfield, Inc., 888 Target common-size statement comparisons, 848–849 financial statement analysis, 841, 850–852, 865–867 sustainability, 919 Tarr Corporation, 694 Tasty Treats Bakery, 305 Tasty Treats Factory, 439 Teahen Products, 254 Team Spirit Calendars, 452 TECH manufactures, 248–249 TechnoGeek, 55 TechWorks Company, 556 Tempest Readers, 572 Terracycle, 899 Terry Medical Supplies, 449 Thai King, 380 Thermos, 241 Thestar, 300 Thompson Products, 325 Thornton Sports Company, 643 Tierra Firma, 720–722, 707 4/1/14 2:14 PM www.freebookslides.com I-4    Company Names Index Timberland, 465–466, 909 Todd Department Stores, Inc., 882 Tokyo Electron, 873 Tom’s Repair Shop, 449 Top Glove, 113, 300 Top Notch Frames, 879 Top-Flight, 31 Toshiba, 566 Toy Story Trading, 579 Toyota business activities, 64–66 cost decisions, 87–91 cost objects, 70–72 costs, decision making and reporting, 72–74 lean operations, 225 lean thinking, 218 managerial accounting, 92 manufacturing costs, 75–76 sustainability, 899 value chain, 67–68 TreadLight, 502 Trek Bicycle Corporation, 639 Trudell Corp., 252 Tucson Tortilla financial budgets, 537–543 flexible budgets, 611–614, 665–673 journal entries, 686–689 MOH variances, 678–682 operating budgets, 525–533 standard costs, 661–664 Two Lizards, 377–378 Tylenol, 471 Z01_BRAU9426_04_SE_CIDX.indd U U-Haul, 919 U.S Marine Corps, 195 U.S National Park Service, 103 U.S Postal Service, 212, 339 Ullie Medical Supply, 443 UMW, 442 Unilever, 278, 898 Union Bay, 482–484 Union Hospital, 387–388 United Airlines, 70, 909 UPS, 70, 720, 898, 917 Urban Togs, 808–811 V Valero, 70 Value World, 321 Variline, 875 Verdantix, 87 Verizon Communications, Inc., 639 Victor’s Repair Shop, 443 Visa, 547 Vochelle, 368 W Walker & Janosko, 186 Wall Street Journal, 859 Walmart activity-based management, 212 breakeven point calculations, 423 business activities, 65, 66 constraints, 482 current ratio, 854 debt ratio, 856 inventory turnover, 854–855 profitability, 857–859 stock investment analysis, 860–861 sustainability, 69–70, 138, 898, 899, 915 times-interest-earned ratio, 857 Walt Disney Company, 627, 909 Warwick State Bank, 876 Water World, 778 Waterfall Fudge, 309–310 Watson Corporation, 832–833 Wentworth Industries, 386 Westlake Coffee, 453 Wheeler Food, 498 White Star Consulting, 304 Whole Foods Market, Inc., 627 Wholesome Foods, 81–82 Whooley Fabricators, 175 Wild Birds, Inc., 169, 176 WildRide Sports, 515 Wilke Containers, 697, 923 Wilkman Semiconductors, 316 William Investors, 455 William’s Steel Parts, 447 Wilmington Pharmacy, 243 Wilson Corporation, 827–828 Wilson Industries, 379 Winter Garden Theatre, 62 Wong Kuok Restaurant, 628 Woody Company, 96 Worchester Containers, 932 WorldCom, 227 X Xiong Manufacturing, 565 Y Yankee Traveler, 883 Z Zachs, 634 Zander Consulting, 175 Zebra, 373 Zebra Steel, 241 Zippy Company, 96 Zoom Sports Company, 654 Zucca Associates, 167 Zula, 640 4/1/14 2:14 PM www.freebookslides.com Glossary/Index A Combined Glossary/Subject Index Note: Page references including the letter “n” indicates content appears in a footnote on that page 10-K filings, 845, 861 5S A workplace organization system comprised of the following steps: sort, set in order, shine, standardize, and sustain, 222 A Absorption costing The costing method where products “absorb” both fixed and variable manufacturing costs, 351–353, 356–358, 468–469 Account analysis A method for determining cost behavior that is based on a manager’s judgment in classifying each general ledger account as a variable, fixed, or mixed cost, 342 Accounting rate of return (ARR) A measure of profitability computed by dividing the average annual operating income from an asset by the initial investment in the asset, 717, 718, 723–725, 745 Accounts payable See also Liabilities budgeted balance sheet, 543 manufacturing overhead, 149 operating expenses, 153 raw materials purchases, 146 standard costing, 688 statement of cash flows, 785, 797, 804–805 subsidiary ledgers, 147n5 Accounts receivable See also Sales acid-test ratio, 854 budgeted balance sheet, 542 cash flow, indirect method, 793 collection of, 599, 855–856 financial statement analysis, 844, 855–856 standard costing, 690 statement of cash flow, 785, 788, 793, 795, 797, 804 subsidiary ledgers, 147n5 Accounts receivable turnover Measures a company’s ability to collect cash from credit customers To compute accounts receivable turnover, divide net credit sales by average net accounts receivable, 854–856, 863 Accrual basis of accounting Revenues are recorded when they are earned (when the sale takes place), rather than when cash is received on the sale Likewise, expenses are recorded when they are incurred, rather than when they are paid, 788 Accumulated depreciation, 798–800 Acid-test ratio Ratio of the sum of cash plus shortterm investments plus net current receivables to total current liabilities It tells whether the entity can pay all of its current liabilities if they come due immediately; also called the quick ratio, 854, 863 Activity cost allocation rate, 205 Activity cost pools, 204, 205 Activity-based costing (ABC) Focuses on activities as the fundamental cost objects The costs of those activities become building blocks for compiling the indirect costs of products, services, and customers, 203 activity-based management, 210–211 cost allocation method, 203–208 cost-benefit test of, 212–214 costing method comparisons, 207–210 Decision Guidelines, method selection, 215 target costing, 471–473 Activity-based management (ABM) Using activitybased cost information to make decisions that increase profits while satisfying customers’ needs, 210–214 Actual cost direct labor variances, 671–673 direct materials variances, 665–670 manufacturing overhead variances, 678–679 Actual price, 665–670 Actual Quantity (AQ), 666–670 Actual Quantity Purchased (AQP), 667–670 Actual Quantity Used (AQU), 667–670 Administrative expenses, 482 Advertising, 68, 153 Air pollution, 906–907, 909 See also Sustainability Allocate To assign an indirect cost to a cost object, 72 American Institute of Certified Public Accountants (AICPA) The world’s largest association representing the accounting profession; together with the Chartered Institute of Management Accountants (CIMA) offers the Chartered Global Management Account (CGMA) designation, 28 Amortization expense See Depreciation Annuity A stream of equal installments made at equal time intervals, 729 future value calculations, 732 internal rate of return, 742–745 net present value, 738–739 present value calculations, 733–736 Appraisal costs Costs incurred to detect poor-quality goods or services, 226–229 Assets cash payments and receipts, 804–806 debt ratio, 856–857 inventoriable product costs, 73–74 investing activities, indirect method, 798–800 job costing, journal entries, 145–154 operating activities, indirect method, 792–798 performance evaluation measures, 603 profitability, measuring, 857–858 return on investment, 599–601 statement of cash flows, 785–786 working capital, 853 Assign To attach a cost to a cost object, 71–72 Assurance An independent party’s external validation of management’s assertions, 905 Attainable standards Standards based on currently attainable conditions that include allowances for normal amounts of waste and inefficiency Also known as practical standards, 662 Audit committee A subcommittee of the board of directors that is responsible for overseeing both the internal audit function and the annual financial statement audit by independent CPAs, 25, 35–36 Auditing, costs of quality, 227 Audits, waste, 278–279 Average cost The total cost divided by the number of units, 90–91 Average unit cost, 277–278 Avoidable fixed costs Fixed costs that can be eliminated as a result of taking a particular course of action, 479–480 B Backflush costing A simplified accounting system in which production costs are not assigned to the units until they are finished, or even sold, thereby saving the bookkeeping steps of moving the product through the various inventory accounts, 224 Bad debt expense, 540 Balance sheet budgeted balance sheet, 541, 542 comparative balance sheet, 792, 793 horizontal analysis, 844 inventory, 73–74, 86 manufacturing costs, 83–86 performance evaluation measures, 603 raw materials inventory, 126 vertical analysis, 847–849 work-in-process inventory, 128 Balanced scorecard A performance evaluation system designed by Kaplan and Norton that integrates financial and operational performance measures along four perspectives: financial, customer, internal business, and learning and growth, 616–621, 623 Batch size, lean operations, 223–224 Batch-level activities Activities and costs incurred for every batch, regardless of the number of units in the batch, 209 Benchmarking The practice of comparing a company with other companies or industry averages, 848 budgets, benefits of, 523–524 common-size statements, 848–849 standard costs and, 673 Benefits, employee See also Labor attracting talent, 900–901 job cost record, 131–132 labor compensation costs, 77–78 manufacturing costs, 76 Big Four The largest four accounting firms in the world: Deloitte, Ernst & Young, KPMG, and Price Waterhouse Coopers, 903, 905 Bill of materials A list of all of the raw materials needed to manufacture a job, 125–126 Billing rate The labor rate charged to the customer, which includes both cost and profit components, 161–162 Biofuels, 70 Biomimicry A means of product design in which a company tries to mimic, or copy, the natural biological process in which dead organisms (plants and animals) become the input for another organism or process, 69 Board of Directors The body elected by shareholders to oversee the company, 24 Book value per share of common stock Common stockholders’ equity divided by the number of shares of common stock outstanding It is the recorded amount for each share of common stock outstanding, 860–861, 864 BP Deepwater Horizon oil spill, 900 Breakeven point The sales level at which operating income is zero: Total revenues = Total expenses, 405 calculation methods, 405–409 cost-volume-profit graphs, 411–412 fixed cost change, 419–420 multiple factor changes, 418–419 risk indicators, 425–431 sales price changes, 416–417 variable cost changes, 417–418 weighted-average contribution margin, 421–425 Budget committee A committee comprised of upper management as well as cross-functional managers that reviews, revises, and approves the final budget, 522, 718–719 Budget Quantitative expression of a plan that helps managers coordinate and implement the plan, 20 I-5 Z02_BRAU9426_04_SE_GIDX.indd 4/1/14 2:18 PM www.freebookslides.com I-6    Glossary/Index Budgeted income statement, 532–533 Budgets See also Capital Budgeting balance sheet budget, 541, 542 benefits of, 523–524 budgeted income statement, 532–533 capital expenditures budget, 537 cash collections budget, 537–538 cash payments budget, 538–540 combined cash budget, 540–541 credit and debit card sales, impact of, 547–548 Decision Guidelines, 534, 549 development process, 521–523 direct labor budget, 529 direct materials budget, 528–529 financial budgets, 525, 537–543 flexible budgets, 611–616 manufacturing overhead budget, 530–531 master budget, 524–525 merchandising companies, 545–546 operating budgets, 525–534 operating expense budget, 531 performance reports and, 595–597 production budget, 526–527 sales budget, 525–526 sensitivity analysis and flexible budgeting, 543 service companies, 545 standard costs, advantages and disadvantages, 673–674 sustainability and, 544 uses for, 521 Business activities types of, 65–67 value chain and, 67–70 Business analysts, 25–26 Business management support, 25–26 Business sectors, types of, 65–67 Business trends, 37–42 C Cap and trade See Carbon offsets Capital budgeting The process of making capital investment decisions Companies make capital investments when they acquire capital assets-assets used for a long period of time, 717 accounting rate of return (ARR), 723–725 Decision Guidelines, 726, 747 net present value, 736–742 overview of, 717–719 payback period, 720–723 present and future value tables, 749–752 summary of methods, 745–746 sustainability and, 719–720 time value of money, 729–736 Capital expenditures budget, 537 Capital rationing Choosing among alternative capital investments due to limited funds, 718–719, 739–741 Capital turnover Sales revenue divided by total assets The capital turnover shows how much sales revenue is generated with every $1.00 of assets, 600–601, 618–619 Capital, attracting, 901 Carbon disclosure project A nonprofit organization that collects and disseminates carbon footprint information, 909 Carbon emissions, 900 Carbon footprint A measure of the total emissions of carbon dioxide and other greenhouse gases (GHGs), often expressed for simplicity as tons of equivalent carbon dioxide, 909 Carbon offsets, 70, 278–279, 909 Cash collections budget, 537–538 Cash equivalents Very safe, highly liquid assets that are readily convertible into cash, such as money market funds, certificates of deposit that mature in less than three months, and U.S treasury bills, 785 Z02_BRAU9426_04_SE_GIDX.indd Cash flow See also Statement of Cash Flows accounting rate of return, 723–725 capital budgeting and, 718–719 cash payments and receipts, 804–806 direct method, 787–789, 803 financing activities, 800–801 indirect presentation of, 787–789, 792–801 internal rate of return, 736, 742–745 investing activities, 798–800 net present value, 736–742 operating activities, 785, 792–798 payback period, 721–723 red flags, 861 Cash payments budget, 538–540 Cash position, combined cash budget, 540–541 Cash, acid-test ratio, 854 Certificates of deposit, 785 Certified Management Accountant (CMA) A professional certification issued by the IMA to designate expertise in the areas of managerial accounting, economics, and business finance, 27–28 Certified Public Accountant (CPA), 22, 23, 35–36 Chartered Global Management Accountant (CGMA) A designation available to qualifying American Institute of Certified Public Accountants (AICPA) and Chartered Institute of Management Accountants (CIMA) members that is meant to recognize the unique business and accounting skill set possessed by those certified public accountants (CPAs) who fill, or have filled, accounting roles within an organization, as opposed to strictly public accounting roles, 28 Chartered Institute of Management Accountants (CIMA), 28 Chief Executive Officer (CEO) The position hired by the board of directors to oversee the company on a daily basis, 24 Chief Financial Officer (CFO) The position responsible for all of the company’s financial concerns, 24 Chief Operating Officer (COO) The position responsible for overseeing the company’s operations, 24 Chlorofluorocarbons (CFCs), 900 Clawback rules, 36 Clean Water Act, 900 Climate Change Act (2008), 900 COD Collect on Delivery, or Cash on Delivery A sales term indicating that the inventory must be paid for at the time of delivery, 526 Combined cash budget, 540–541 Committed fixed costs Fixed costs that are locked in because of previous management decisions; management has little or no control over these costs in the short run, 331–333 Common equity, 860–861 Common fixed expenses Fixed expenses that cannot be traced to the segment Rather, these are fixed expenses incurred by a higher level segment that have been allocated to the underlying segments, 481–482, 597 Common stock, cash flow, 800–801 See also Stock Common-size statement A financial statement that reports only percentages (no dollar amounts), 848 Communication, budgets, 523 Compact fluorescent lamp (CFL) lighting, 898 Comparative balance sheets A comparison of the balance sheets from the end of two fiscal periods, usually highlighting the changes in each account, 792, 793 See also Balance sheet Compensation, clawback rules, 36 See also Salaries Compliance issues, 900, 908 Compound interest Interest computed on the principal and all interest earned to date, 729 Comprehensive report A GRI-referenced report in which all indicators related to each identified material aspect are disclosed, 905 Conformance costs, 227 Constraint A factor that restricts the production or sale of a product, 482–484 Continuous budget, 522–523 Contract manufacturers Manufacturers that make products for other companies, not for themselves, 485–488 Contribution margin breakeven point calculations, 407–409 decision making and, 464–465 discontinuation decisions, 479–480 operating leverage factor, 427–429 outsourcing decisions, 485–488 unit contribution margin, 402–403 Contribution margin income statement Income statement that organizes costs by behavior (variable costs or fixed costs) rather than by function, 328, 402 breakeven point calculations, 406, 423–425 contribution margin ratio, 404–405 decision making and, 464–465 key points, 360 overview of, 353–356 Contribution margin per unit The excess of the unit sales price over the variable cost per unit; also called unit contribution margin fixed cost changes, 419–420 multiple variable changes, 418–419 overview of, 402–403 sales price changes, 416–417 variable cost changes, 417–418 weighted-average contribution margin, 421–425 Contribution margin ratio Ratio of contribution margin to sales revenue, 403–405, 408–409, 426–429 Contribution margin Sales revenue minus variable expenses, 354, 403 Controllable costs Costs that can be influenced or changed by management, 87 Controller The position responsible for general financial accounting, managerial accounting, and tax reporting, 24 Controlling One of management’s primary responsibilities; evaluating the results of business operations against the plan and making adjustments to keep the company pressing toward its goals, 20 Conversion costs The combination of direct labor and manufacturing overhead costs, 77 process costing, initial process, 272–278 process costing, overview of, 270 process costing, second process, 285–293 Coordination, budgets and, 523–524 Core report A GRI-referenced report in which at least one indicator related to each identified material aspect is disclosed, 905 Corporate culture, balanced scorecard, 620 Corporate social responsibility (CSR), 37–38, 86, 862 See also Sustainability Corporate social responsibility (CSR) reports, 86, 901–906 Cost allocation activity-based costing (ABC), 203–208 activity-based management (ABM), 210–212 cost allocation rate, calculation of, 205–206 Cost of Quality reports, 226–229 cost-benefit test, 212–214 Decision Guidelines, method selection, 215 departmental overhead rate, cost allocation, 198–203 method comparisons, 207–210 plantwide overhead rate, 196–197, 202 refinements of, need for, 195–196 service firms, 160–161 sustainability and, 208 Cost behavior absorption costing and variable costing, 351–353 account analysis, 342 contribution margin income statement, 353–356, 360 curvilinear costs, 338–339 data concerns, 350 Decision Guidelines, 340, 361 4/1/14 2:18 PM www.freebookslides.com  Glossary/Index    I-7 defined, 328 fixed costs, 331–333 high-low method, 344–346 mixed costs, 334–335 operating income, reconciling, 358–360 regression analysis, 346–350 relevant range, 336–337 scatter plots, 342–344 step costs, 337–338 sustainability and, 339 variable costs, 328–331, 360 variable vs absorption costing, 356–358 Cost behavior Describes how costs change as volume changes, 329 Cost center A responsibility center in which managers are responsible for controlling costs, 593 Cost distortion Overcosting some products while undercosting other products, 196 Cost driver The primary factor that causes a cost, 133, 205 Cost equation A mathematical equation for a straight line that expresses how a cost behaves, 329–331, 338 Cost hierarchy, 209 Cost object Anything for which managers want a separate measurement of costs, 70–72 Cost of goods manufactured The cost of manufacturing the goods that were finished during the period, 83–86 Cost of goods sold budgeted income statement, 532–533 contribution margin income statement, 353–356 financial statement reporting, 81–87 income statement reporting, 83–86 inventorial product costs, 74, 83–86 job costing, journal entries, 152–154 job costing, overview of, 123–124 under- and overallocated overhead costs, 144–145 variable vs absorption costing, 356–358 Cost of goods sold, inventory, and purchases budget A merchandiser’s budget that computes the cost of goods sold, the amount of desired ending inventory, and amount of merchandise to be purchased, 545–546 Cost of quality reports, 226–229, 230 Cost per equivalent unit, calculating, 276–278, 288–293 Cost-benefit analysis Weighing costs against benefits to help make decisions, 40 See also Financial statements, analysis of activity-based costing and management, 212–214 cost of quality reports, use of, 228–229 discontinuation decisions, 480 special order decisions, 466–469 Cost-plus pricing A pricing approach in which the company adds a desired level of profit to the product’s cost, 136–137, 473–474 Cost-volume-profit (CVP) analysis Expresses the relationships among costs, volume, and profit or loss, 401 breakeven point calculations, 405–409 contribution margin ratio, 403–405 cost structure decisions, 429–431 data and assumptions, 401–402 Decision Guidelines, 413, 432 fixed cost changes, 419–420 graphing of, 411–412 multiple factor changes, 418–419 overview of, 401 product mix, changes in, 421–425 risk indicators, 425–431 sales price changes, 416–417 sales volume target decisions, 409–412 sustainability and, 420–421 unit contribution margin, 402–403 variable cost changes, 417–418 Costs See also Absorption costing; Activity-based costing (ABC); Expenses; Job costing; Process costing; Standard costing actual cost, 665–673, 678–679 balanced scorecard, 616–619 Z02_BRAU9426_04_SE_GIDX.indd controllable vs uncontrollable, 87 cost reports, uses of, 20 cost structure, decisions about, 429–431 decision making and, 72–73, 464–465 discontinuation decisions, 478–482 environmental management accounting, 906–907 fixed and variable costs, 88–89 inventoriable product costs, 73–74 inventory related costs, 65 labor compensation, 77–78 manufacturing companies, 75–76, 89 outsourcing decisions, 485–488 performance reports, 595–597 period costs, 73–74, 78, 81–87, 162 prime and conversion costs, 77 relevant and irrelevant, 87–88 responsibility accounting, 593–594 service firms, job costing, 159–162 special order decisions, 466–469 sustainability and, 898–899 total and average cost calculations, 90–91 transfer price decisions, 605 Costs of quality report A report that lists the costs incurred by the company related to quality The costs are categorized as prevention costs, appraisal costs, internal failure costs, and external failure costs, 226 Credit card sales, impact on budget, 547–548 Credit cards, growth, 784 Credit sales cash collections budget, 537–538 impact on budgets, 547–548 Credit, line of, 541 Credits, journal entries, 145 Cross-functional teams Corporate teams whose members represent various functions of the organization, such as R&D, design, production, marketing, distribution, and customer service, 25 Crowd-source funding, 719–720 Current ratio Current assets divided by current liabilities It measures the ability to pay current liabilities with current assets, 853–854, 863 Curvilinear costs A cost behavior that is not linear (not a straight line), 338–339, 351 Custom orders, pricing decisions, 136–137 Customer perspective, balanced scorecard, 619 Customer response time The time that elapses between receipt of a customer order and delivery of the product or service, 218 Customer satisfaction, balanced scorecard, 619 Customer service expenses, journal entries, 153 Customer service Support provided for customers after the sale, 68, 70, 619–620 CVP See Cost-volume-profit (CVP) analysis D Data, cost-volume-profit analysis, 401–402 Days’ sales in receivables Ratio of average net accounts receivable to one day’s sale It indicates how many days’ sales remain in Accounts Receivable awaiting collection, 855–856, 863 Debit card sales, impact on budget, 547–548 Debits, journal entries, 145 Debt ability to pay long-term debt, 856–857 cash flows, indirect method, 800–801 red flags, 861 statement of cash flows, 785–786 Debt ratio Ratio of total liabilities to total assets It shows the proportion of a company’s assets that is financed with debt, 856–857, 863 Decentralize Companies that split their operations into different operating segments, 591–592 Decision Guidelines balanced scorecard, 623 building blocks of managerial accounting, 79 capital budgeting, 726, 747 cash flow, direct or indirect method, 807 cost allocation method selection, 215 cost behavior, 340, 361 cost calculating and reporting, 92 cost-volume-profit analysis, 413, 432 financial statement analysis, 863–864 horizontal and vertical analysis, 849 job costing, 140 lean operations and cost of quality, 230 managerial accounting system design, 33 master budget, 549 over- or underallocating overhead, 155 performance evaluation, 608, 623 process costing, initial process, 282 process costing, second process, 294 regulatory and business environment, 43 relevant information for decisions, 475 short-term business decisions, 491 standard costs and variances, 675, 683 statement of cash flows, 790 sustainability, 912 Decision making Identifying possible courses of action and choosing among them, 20 See also Budgets; Financial statements, analysis of activity-based costing and management, 212–214 cost of quality reports, 228–229 Decision Guidelines, 491 discontinuation decisions, 478–482 job cost record, 135–137 outsourcing decisions, 484–488 process for, 462–465 product mix decisions, 482–484 regular pricing decisions, 470–474 sell as is or process further, 488–490 special order decisions, 466–469 total costs, 72–73 Deepwater Horizon oil spill, 900 Defects, 218 Delivery time, balanced scorecard, 619 Demand forecasts, production schedules, 124 Departmental overhead rates Separate manufacturing overhead rates established for each ­department, 198–203, 207–211 Depreciation accounting rate of return, 724–725 book value decisions, 603 cash payments budget, 539 departmental overhead rate, 199–200 discontinuation decisions, 481–482 fixed costs, 331–333 indirect manufacturing costs, 76 investing activities, indirect method, 798–800 job costing, 132–135, 149–150 journal entries, 149–150 operating activities, indirect method, 793 statement of cash flows, 786, 787 value chain and, 68 Design Detailed engineering of products and services and the processes for producing them, 68, 69–70, 226–229 Differential cost The difference in cost between two alternative courses of action, 87–88 Direct cost A cost that can be traced to a cost object, 70–72, 71, 139 Direct costing, 351–353 Direct fixed expenses Fixed expenses that can be traced to the segment, 597 Direct labor efficiency variance This variance tells managers how much of the total labor variance is due to using a greater or lesser amount of time than anticipated It is calculated as follows: SR × (AH − SHA), 671–673 Direct labor rate variance This variance tells managers how much of the total labor variance is due to paying a higher or lower hourly wage rate than anticipated It is calculated as follows: AH × (AR − SR), 671–673 Direct labor The cost of compensating employees who physically convert raw materials into the company’s products; labor costs that are directly traceable to the finished product, 75–76, 132–135, 529, 539 4/1/14 2:18 PM www.freebookslides.com I-8    Glossary/Index Direct materials price variance This variance tells managers how much of the total direct materials variance is due to paying a higher or lower price than expected for the direct materials it purchased It is calculated as follows: AQP × (AP − SP), 666, 673 Direct materials quantity variance This variance tells managers how much of the total direct materials variance is due to using a larger or smaller quantity of direct materials than expected It is calculated as follows: SP × (AQU − SQA), 666–670, 673 Direct materials Primary raw materials that become a physical part of a finished product and whose costs are traceable to the finished product, 75–76 budgeted income statement, 532–533 direct materials budget, 528–529, 538–539 job costing, journal entries, 146–147 process costing, initial process, 272–278 process costing, second process, 285–293 standard cost of, 662 standard costing, journal entries, 686–687 variances, standard costs and, 665–670 Direct method A method of presenting cash flows from operating activities that separately lists the receipt and payment of cash for specific operating activities, 787–789, 803–804, 807 Direct proportion, defined, 329 Directing One of management’s primary responsibilities; running the company on a day-to-day basis, 20 Discontinuation decisions, 478–482 Discount rate Management’s minimum desired rate of return on an investment; also called the hurdle rate and required rate of return, 737 Discounted cash flow models, 736–742 Discounting cash flows, 733–736 Discounts, decisions about, 136, 464–465 Discretionary fixed costs Fixed costs that are a result of annual management decisions; fixed costs that are controllable in the short run, 331–333 Distribution Delivery of products or services to customers, 68 Dividend yield Ratio of dividends per share of stock to the stock’s market price per share It tells the percentage of a stock’s market value that the company returns to stockholders annually as dividends, 860, 864 Dividends cash flow, indirect method, 800–801 cash payments budget, 540 dividend yield, 860 return on equity, 858 statement of cash flows, 786 DOWNTIME An acronym for the eight wastes: defects, overproduction, waiting, not utilizing people to their full potential, transportation, inventory, movement, excess processing, 218–220 E E-waste, 138–139 Earnings per share (EPS) Amount of a company’s net income for each share of its outstanding common stock, 618–619, 859, 861 Earnings per share of common stock, 864 Eco-efficiency Achieving economic savings by producing goods and services with fewer ecological resources, 898–899 Economic growth, inventory decisions, 356–358 Economic performance, reporting of, 86 Economic recession, inventory decisions, 356–358 Economic sustainability, 37–38, 895 Economic value added (EVA), 603 Efficiency variance, direct labor, 671–673 Efficiency variance, manufacturing overhead, 679 Eight wastes Defects, overproduction, waiting, not utilizing people to their full potential, transportation, inventory, movement, excess processing, 218 Z02_BRAU9426_04_SE_GIDX.indd Electronic devices, e-waste, 138–139 Electronic payments, cost behavior, 339 Ells, Steve, 19 Employees See also Benefits, employee; Wages attracting talent, 900–901 efficient movement of, 219–220 employee capabilities, balanced scorecard, 620–621 empowerment of, lean operations, 221–222 full potential of, 219 job cost record, 130–132 labor compensation costs, 77–78 manufacturing costs, 75–78 Ending work in process, process costing, 289–293 Energy costs, 70, 278–279, 719–720, 898 Enterprise resource planning (ERP) Software systems that can integrate all of a company’s worldwide functions, departments, and data into a single system, 40 Environmental Management Accounting (EMA) A system used for the identification, collection, analysis, and use of two types of information for internal decision making—monetary and physical information, 906–911, 912 Environmental Protection Agency (EPA), 900 Environmental sustainability See Sustainability Environmentalleader.com, 899 Equipment See Property, plant, and equipment (PPE) Equity shares cash flow, indirect method, 800–801 common equity, 860–861 return on equity, 858 statement of cash flows, 786 Equivalent units Express the amount of work done during a period in terms of fully completed units of output overview, 270–271 process costing, initial process, 274–278 process costing, second process, 287–293 Ethics example dilemmas, 30–32 greenwashing, 70 industry standards, 29–30 Event sponsorships, 68 Excel, 26 internal rate of return calculations, 745 net present value calculations, 741 present value calculations, 736 regression analysis, 346–350 scatter plots, 343, 344 time value of money calculations, 731, 733 time value of money problem solutions, 753–756 Expenses See also Costs; Financial statements, analysis of breakeven point calculations, 405–409 cash payments budget, 538–540 common fixed expenses, 481–482 cost-volume-profit graphs, 411–412 flexible budgets, 611–616 inventoriable product costs, 73–74 job costing, journal entries, 145–154 noncash expenses, 793 operating activities, indirect method, 792–798 performance reports, 595–597 period costs, 73–74, 78, 81–87, 162 statement of cash flows, 786–787 Extended producer responsibility (EPR) laws Laws that require product manufacturers to “take back” a large percentage of the products they manufacture at the end of the product’s life in order to reduce the amount of waste ending up in landfills and the environment, 138–139, 908 Extensible Business Reporting Language (XBRL) A data tagging system that enables companies to release financial and business information in a format that can be quickly, efficiently, and costeffectively accessed, sorted, and analyzed over the Internet, 36–37 External costs Costs borne by society as a result of a company’s operations and the products and services it sells, 896 External failure costs Costs incurred when the company does not detect poor-quality goods or services until after delivery is made to customers, 226–229 F Facility-level activities Activities and costs incurred no matter how many units, batches, or products are produced in the plant, 209 Factory overhead See Manufacturing overhead (MOH) Favorable variance A variance that causes operating income to be higher than budgeted, 595, 615–616 Feedback, performance evaluation systems, 592 FICA (Federal Insurance Contributions Act), 77–78 Financial accounting vs managerial accounting, 22–24 Financial Accounting Standards Board (FASB) cash flow reporting, 788 Financial advisers, 25–26 Financial budgets The budgets that project the collection and payment of cash, as well as forecast the company’s budgeted balance sheet, 525, 537–543 Financial perspective, balanced scorecard, 616–619 Financial ratios ability to pay current liabilities, 853–854 ability to pay long-term debt, 856–857 ability to sell inventory and collect receivables, 854–856 Decision Guidelines, 863–864 profitability, 857–859 stock investments, 859–861 Financial statements See also specific statement names inventorial product costs, 81–87 job cost information and, 137 managerial vs financial accounting, 22–24 period costs, 81–87 Sarbanes-Oxley Act of 2002, 35–36 Financial statements, analysis of benchmarking, 848–849 common financial ratios, 853–861 Decision Guidelines, 863–864 horizontal analysis, 842–846 ratio analysis, 842 red flags, 861 sustainability and, 861–862 vertical analysis, 842, 846–849 Financing activities Activities that either generate capital for the company or pay it back, such as issuing stock or long-term debt, paying dividends, and repaying principal amounts on loans; this includes all activities that affect long-term liabilities and owners’ equity, 786, 789 Finished goods inventory Completed goods that have not yet been sold, 66 cost of good sold calculations, 85 cost of goods manufactured, 83–86 defined, 66 job cost record, 128 job costing, 123–124 job costing, journal entries, 152–154 just-in-time operations, 220–224 process costing, journal entries, 291–293 process costing, overview of, 267–270 process costing, second process, 285–293 production budget, 526–527 standard costs, journal entries, 688 under- and overallocated overhead costs, 145 Fixed costs Costs that stay constant in total despite wide changes in volume 331 See also Costvolume-profit (CVP) analysis breakeven point calculations, 405–409 changes in, sensitivity analysis, 419–420 common fixed expenses, 481–482 4/1/14 2:18 PM www.freebookslides.com  Glossary/Index    I-9 decision making and, 464–465 decisions about, 70–71 discontinuation decisions, 479–480 equations for, 331–333 high-low method, 344–346 operating leverage, 426–429 outsourcing decisions, 485–488 performance reports, 597 regression analysis, 346–350 relevant range, 336–337 scatter plots, 342–344 step costs, 337–338 Fixed overhead budget variance This variance measures the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs This variance is sometimes referred to as the fixed overhead spending variance, because it specifically looks at whether the company spent more or less than anticipated on fixed overhead costs, 680–682, 689 Fixed overhead spending variance, 680–682 Fixed overhead volume variance This variance is the difference between the budgeted fixed overhead and the standard fixed overhead cost allocated to production In essence, the fixed overhead volume variance measures the utilization of the fixed capacity costs If volume is higher than originally anticipated, the variance will be favorable If volume is lower than originally anticipated, the variance will be unfavorable, 681–682, 689 Flexible budget variance The difference between the flexible budget and actual results The flexible budget variances are due to something other than volume, 614–616 Flexible budgets Budgets prepared for different volumes of activity, 543, 611, 665–670 Forecasts, 124, 404–405 Fossil fuels, sustainable practices, 138 Fossil-fuel alternatives, 70 Frank-Dodd Act of 2010, 36 Fraud, Sarbanes-Oxley Act of 2002 (SOX), 35–36 Free cash flow The amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business It is calculated as cash flows from operating activities minus capital expenditures, 802 Freight-in costs, 68, 74, 75–76, 84 Future value (FV) factors, 730–736 Future value tables, 749–752 G G4 Guidelines, 903–906 Generally Accepted Accounting Principles (GAAP) absorption costing, 351–353 financial statements, 22 International Financial Reporting Standards (IFRS), 36 inventoriable product costs, 73–74 manufacturing overhead and job costing, 132 non-manufacturing costs, 139 Global marketplace, current trends, 39–40 Global Reporting Initiative (GRI) A nonprofit organization whose mission is to make sustainability reporting standard practice by providing guidance and support to organizations The developer of the G4 Guidelines, 86, 902–903 Goal congruence When the goals of the segment managers align with the goals of top management, 592, 602–603 Goals, balanced scorecard, 616–621 See also Performance evaluation; Strategic planning Green bonds, 719–720 Green technologies, investments in, 719–720 Greenwashing The unfortunate practice of overstating a company’s commitment to sustainability, 70 Gross book value Historical cost of assets, 603 Z02_BRAU9426_04_SE_GIDX.indd Gross margin percentage, balanced scorecard, 618–619 Gross profit, process costing, 289–293 See also Profit Growth, economic, 356–358 H Health insurance benefits, labor costs, 77–78 High-low method A method for determining cost behavior that is based on two historical data points: the highest and lowest volume of activity, 344–346, 350 High-volume sales, pricing decisions, 136 Horizontal analysis Study of percentage changes in comparative financial statements, 842–846, 849 Human rights, 903–904 Hurdle rate Management’s minimum desired rate of return on an investment; also called the discount rate and required rate of return, 737 I Ideal standards Standards based on perfect or ideal conditions that not allow for any waste in the production process, machine breakdown, or other inefficiencies Also known as perfection standards, 661–662 See also Standard cost Import duties, 74, 75–76, 84 Incentive compensation, clawback rules, 36 Income See also Financial statements, analysis of accrual basis of accounting, 788 breakeven point calculations, 405–409 noncash revenue, 793–794 operating activities, indirect method, 792–798 residual income, 601–602 times-interest-earned ratio, 856–857 Income statement See also Financial statements, analysis of budgeted income statement, 532–533 contribution margin income statement, 328, 353– 356, 360, 402, 404–406, 423–425, 464–465 horizontal analysis, 844 inventorial product costs, 81–87 period costs, 73–74, 81–87 product line income statement, 478–479 standard costing, 689 under- and overallocated overhead costs, 144–145 vertical analysis, 846–849 Income statement approach, breakeven point, 406, 410 Income taxes, 540, 786, 805 Incremental analysis, short-term decisions, 464–465 Indifference point The volume of sales at which a company would be indifferent between alternative cost structures because they would result in the same total cost, 429–431 Indirect cost A cost that relates to the cost object but cannot be traced to it, 71 job costing, journal entries, 148–154 merchandising firms, job costing, 212 overview of, 70–72 service firms, job costing, 160–161, 212 Indirect labor Labor costs that are difficult to trace to specific products, 76, 148–154 Indirect manufacturing cost See Manufacturing overhead (MOH) Indirect materials Materials whose costs are difficult to trace to specific products, 76, 147–148 Indirect method A method of presenting the cash flows from operating activities that begins with the company’s net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments Decision Guidelines, 807 financing activities, 800–801 investing activities, 798–800 operating expenses, 792–798 overview, 787–789, 792 Industrial Revolution, 896 Inflation, cost equations and, 350 Information systems, 40, 620–621 Innovation, 619–620 Institute of Management Accountants (IMA) The professional organization that promotes the advancement of the management accounting profession, 27–30, 218 Insurance expense cash payments budget, 539 cash payments, direct method, 805 departmental overhead rate, 199–200 fixed costs, 331–333 prepaid insurance, 793 Intangibles costs, 907 Integrated reporting A system of describing and measuring all material elements of value creation, not just those relating to financial capital, including manufactured, intellectual, human, social, and natural (environmental) capital, 38–39 Interest expense cash flow, direct method, 805 cash flow, overview, 786 rate of return on total assets, 858 times-interest-earned ratio, 856–857 Interest income, 786 Interest rate present and future value tables, 749–752 present value calculations, 734–736 time value of money, 729–736 Interest-coverage ratio Ratio of income from operations to interest expense It measures the number of times that operating income can cover interest expense; also called the times-interest-earned ratio, 856–857, 863 Internal audit function The corporate function charged with assessing the effectiveness of the company’s internal controls and risk management policies, 24–25 Internal business perspective, balanced scorecard, 619–620 Internal costs Costs that are incurred and paid for by the organization and recorded in GAAP-based accounting records, 896 Internal failure costs Costs incurred when the company detects and corrects poor-quality goods or services before making delivery to customers, 226–229 Internal rate of return (IRR) The rate of return (based on discounted cash flows) that a company can expect to earn by investing in a capital asset The interest rate that makes the NPV of the investment equal to zero, 717, 736, 742–745, 746 Internal Revenue Service (IRS), 351–353, 358 Internal sales, transfer price, 604–607 International Accounting Standards Board (IASB), 36, 788 International Financial Reporting Standards (IFRS) The SEC has recently moved to adopt IFRS for all publicly traded companies within the next few years In many instances, IFRS vary from GAAP, 36 International Integrated Reporting Committee (IIRC), 38–39, 86 International Organization for Standardization (ISO), 41, 907–908 Inventoriable product costs All costs of a product that GAAP requires companies to treat as an asset (inventory) for external financial reporting These costs are not expensed until the product is sold, 73–74, 81–87 Inventory See also Finished goods inventory; Raw materials inventory; Work-in-process (WIP) inventorycash flow and, 785 cash flow, indirect method, 793–794 cash payments for, 804–805 cost of good sold calculations, 84–86 4/1/14 2:18 PM www.freebookslides.com I-10    Glossary/Index Inventory (Cont.) inventoriable product costs, 73–74 inventory turnover, 854–856 just-in-time (JIT), 41 lean thinking and, 219 merchandising companies, 65, 545–546 production budget, 526–527 reconciling costing systems, 358–360 red flags, 861 standard costs, journal entries, 688 variable vs absorption costing, 356–358 wholesalers, 65 Inventory flow process costing, initial process, 271–278 process costing, second process, 285–293 Inventory turnover Ratio of cost of goods sold to average inventory It indicates how rapidly inventory is sold, 854, 863 Inversely proportional, defined, 333 Investing activities Activities that involve buying or selling long-term assets, such as buying or selling property, plant, or equipment; buying or selling stock in other companies (if the stock is meant to be held for the long term); or loaning money to other companies with the goal of earning interest income from the loan, 785 cash flow, indirect method, 798–800 statement of cash flows, 785–786 sustainability and, 788–789 Investment appraisal, environmental management accounting, 909 Investment center A responsibility center in which managers are responsible for generating revenues, controlling costs, and efficiently managing the division’s assets, 593–594, 596–604 Investments See Capital budgeting Invoice Bill from a supplier, 126, 161–162 Irrelevant costs, 87–88 ISO 14000, 907–908 ISO 9001:2008 A quality-related certification issued by the International Organization for Standardization (ISO) Firms may become ISO 9001:2008 certified by complying with the quality management standards set forth by the ISO and undergoing extensive audits of their quality management processes, 41 J Job cost record A written or electronic document that lists the direct materials, direct labor, and manufacturing overhead costs assigned to each individual job, 126–128 business decisions from, 135–137 labor costs, tracing of, 130–132 manufacturing overhead, 132–135 materials costs, tracing, 128–130 Job costing A system for assigning costs to products or services that differ in the amount of materials, labor, and overhead required Typically used by manufacturers that produce unique, or custom-ordered products in small batches; also used by professional service firms, 122 direct or variable costing, 139 job cost record, 126–128 journal entries, 145–154, 162 manufacturing overhead, 132–135, 143–145 non-manufacturing costs, 139 over- or underallocating overhead, decisions about, 155 overview of, 121, 122, 123–124 vs process costing, 266–270 production schedules, 124 raw materials purchasing, 125–126 service firms, 159–162 special order decisions, 468–469 sustainability and, 137–139 tracing direct materials cost, 128–130 tracing labor costs, 130–132 under- and overallocated overhead costs, 143–145 Z02_BRAU9426_04_SE_GIDX.indd 10 Journal entries job costing, 145–154 job costing, service firms, 162 process costing, initial process, 279–281 process costing, second process, 291–293 review of, 145 standard costing, 686–689 Just in time (JIT) An inventory management philosophy that focuses on purchasing raw materials just in time for production and completing finished goods just in time for delivery to customers, 41, 220 characteristics of, 220–224 contribution margin income statement, 353–356 Decision Guidelines, 230 direct material variances, 669 inventory decisions, 358 service and merchandising firms, 225 standard costs, use of, 674 sustainability, 225 target costing, 471–473 total quality management (TQM), 225–229 K Kaizen A Japanese word meaning “change for the better,” 218 Kaplan, Robert, 616 Key performance indicators (KPIs) Summary performance metrics that allow managers to assess how well the company’s objectives are being met, 617–622, 903–904 L Labor absorption costing, 351–353 activity-based costing, cost allocation, 203–208 attracting talent, 900–901 budgeted income statement, 532–533 cash flow, direct method, 805 cash flow, indirect method, 796–797 compensation costs, 77–78 curvilinear costs, 338–339 departmental overhead, cost allocation, 198–203 direct labor, 75–76, 132–135, 529, 539 direct labor variances, 671–673 fair-labor practices, 138 fixed costs, 331–333 fixed manufacturing overhead variances, 680–682 job cost record, 126–128, 130–132 job costing, journal entries, 147–154 job costing, service firms, 159–162 lean operations, 221–222 manufacturing costs, 75–76 minimum wage, 901 outsourcing decisions, 484–488 plantwide overhead, cost allocation, 196–197, 202 prime and conversion costs, 77 process costing, initial process, 272–278 process costing, journal entries, 279–281, 291–293 process costing, overview of, 267–270 process costing, second process, 285–293 production schedules, 124 social responsibility and, 899–900 standard cost of, 662–663, 674 standard costing, journal entries, 687 step costs, 337–338 sustainability reports, 903–904 under- and overallocated overhead costs, 143–145 value chain, 68 variable manufacturing overhead variances, 678– 679 Labor time record A written or electronic document that identifies the employee, the amount of time spent on a particular job, and the labor cost charged to a job, 130–132 Lag indicators Performance indicators that reveal the results of past actions and decisions, 616 Landfills e-waste, 138–139 extended producer responsibility laws, 908 zero-waste operations, 278–279, 898 Lead indicators Performance measures that predict future performance, 616 Lean operations characteristics of, 220–224 contribution margin income statement, 353–356 Decision Guidelines, 230 direct material variances, 669 inventory decisions, 358 service and merchandising firms, 225 standard costs, use of, 674 sustainability and, 225 target costing, 471–473 total quality management (TQM), 225–229 Lean thinking A management philosophy and strategy focused on creating value for the customer by eliminating waste, 41, 218 Learning and growth, balanced scorecard, 620–621 Leases, 736n5 LEED certification LEED, which stands for “Leadership in Energy and Environmental Design,” is a certification system developed by the U.S Green Building Council as a way of promoting and evaluating environmentally friendly construction projects, 720, 898 Legal concerns, 900, 908 Legal services See Service company Leverage, operating, 426–429 Leverage Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business; also called trading on equity, 858 Liabilities ability to pay current liabilities, 853–854 ability to pay long-term debt, 856–857 acid-test ratio, 854 cash flow, indirect method, 800–801 cash payments and receipts, 804–806 investing activities, indirect method, 798–800 job costing, journal entries, 145–154 operating activities, indirect method, 792–798 statement of cash flows, 785–786, 787 working capital, 853 Life-cycle assessment (LCA) Studying the environmental and social impacts of a product or service over its entire life, from “cradle to grave,” 69, 896–897 Lifestyles of the healthy and sustainable (LOHAS), 70 Line of best fit, 346–350 Line of credit A lending arrangement from a bank in which a company is allowed to borrow money as needed, up to a specified maximum amount, yet only pay interest on the portion that is actually borrowed until it is repaid, 541 Litigation risks, 900 M Make-or-buy decisions, 484–488 Management accountants business trends, 37–42 ethics, 29–32 professional organizations, 27–28 roles and skills required, 24–27 salaries of, 28–29 Management by exception A management technique in which managers only investigate budget variances that are relatively large, 596, 614–616 Managerial accounting vs financial accounting, 22–24 overview of, 20–24 Manufacturing company A company that uses labor, plant, and equipment to convert raw materials into new finished products, 65 See also Job costing; Process costing 4/1/14 2:18 PM www.freebookslides.com  Glossary/Index    I-11 activities of, 65–66 budgeted income statement, 532–533 constraints, 482–484 cost behavior, 89 current trends, 39 direct labor budget, 529 direct materials budget, 528–529 income statement, cost of goods manufactured, 83–86 income statement, cost of goods sold, 83–86 inventorial product costs, 73–76 job costing vs process costing, 266–270 labor compensation costs, 77–78 lean operations, characteristics of, 220–224 manufacturing overhead budget, 530–531 outsourcing decisions, 484–488 prime and conversion costs, 77 production budget, 526–527 total and average cost calculations, 90–91 Manufacturing cycle time The time that elapses between the start of production and the product’s completion, 223 Manufacturing overhead (MOH) All manufacturing costs other than direct materials and direct labor; also called factory overhead and indirect manufacturing cost, 76 absorption costing, 351–353 activity-based costing, cost allocation, 203–208 activity-based management, 210–211 budget for, 530–531, 539 budgeted income statement, 532–533 closing account, 153–154 costs included, 76 departmental overhead, cost allocation, 198–203 discontinuation decisions, 481–482 fixed overhead variances, 680–682 job cost record, 126–128, 132–135 job costing, journal entries, 147–154 plantwide overhead rate, 196–197, 202 process costing, initial process, 272–278 process costing, journal entries, 279–281, 291–293 process costing, overview of, 267–270 process costing, second process, 285–293 reconciling costing systems, 358–360 special order decisions, 467–469 standard cost of, 663, 678–679 standard cost of, journal entries, 687–689 under- and overallocated overhead, 143–145 value chain, 68 variable overhead variances, 678–679 variable vs absorption costing, 356–358 Margin of safety Excess of expected sales over breakeven sales; the drop in sales a company can absorb without incurring an operating loss, 425–426 Marginal cost The cost of producing one more unit, 91 Market price, transfer price decisions, 605 Market share, 619, 899 Marketing Promotion and advertising of products or services cost decisions, 72–73 marketing expenses, 153, 482 value chain and, 68 Master budget variance The difference between actual results and the master budget, 611–616 Master budget The comprehensive planning document for the entire organization The master budget includes the operating budgets and the financial budgets See also Budgets credit and debit card sales, impact of, 547–548 Decision Guidelines, 534, 549 development process, 521–523 financial budgets, 537–543 operating budgets, 525–533 overview of, 524–525 sensitivity analysis and flexible budgeting, 543 standard costs, advantages and disadvantages, 673–674 sustainability and budgeting, 544 uses for, 521 Materiality An important concept in CSR reporting defined as those aspects of a business that reflect the Z02_BRAU9426_04_SE_GIDX.indd 11 organization’s significant economic, environmental, and social impacts, or substantively influence the assessments and decisions of stakeholders, 903 Materials cost See also Just in time (JIT) absorption costing, 351–353 cost of goods sold calculations, 84 direct materials budget, 538–539 direct materials price variance, 666, 673 direct materials quantity variance, 666–670, 673 job cost record, 126–130 job costing, journal entries, 146–147 just-in-time operations, 220–224 lean thinking and, 219 manufacturing costs, 75–76 operating budgets, 526–533 prime and conversion costs, 77 process costing, initial process, 272–278 process costing, second process, 285–293 production schedules, 124 purchasing of, 125–126 standard cost of, 662 standard costing, journal entries, 686–687 sustainability, 69–70, 137 under- and overallocated overhead costs, 143–145 value chain, 68 variances, standard costs and, 665–670 Materials flow accounting (MFA) An accounting system in which all physical inputs to an organization’s operations are reconciled with output generated The goal is to track where all physical inputs are going, 907 Materials requisition A written or electronic document requesting that specific materials be transferred from the raw materials inventory storeroom to the production floor, 129 Medicare payroll taxes, 77–78 Merchandise Inventory, 65, 73–74 Merchandising company A company that resells tangible products previously bought from suppliers activities of, 65 activity-based management, 212 budgeting, 545–548 contribution margin income statement, 354–356 costs of quality, 227 discontinuation decisions, 480–481 income statement, cost of goods sold, 81–82 inventorial product costs, 74 lean operations, 225 Microsoft Excel See Excel Minimum wage, 901 Mixed cost Costs that change, but not in direct proportion to changes in volume Mixed costs have both variable cost and fixed cost components, 334–335 curvilinear costs, 338–339 high-low method, 344–346 regression analysis, 346–350 scatter plots, 342–344 MOH pool, defined, 147 MOH pool, job costing, 150–151 See also Manufacturing overhead (MOH) Monetary Information The type of information traditionally used in accounting systems, 906–907 Money market funds, 785 N Negotiated price, transfer price decisions, 605 Net book value The original cost of plant or equipment less its accumulated depreciation, 603, 793–794 Net cash inflow accounting rate of return, 724–725 capital budgeting and, 718 internal rate of return, 742–745 net present value, 737–742 payback period, 721–723 Net income See also Financial statements, analysis of operating activities, 785 profitability measures, 857–859 Net present value (NPV) The difference between the present value of the investment’s net cash inflows and the investment’s cost, 717, 736–742, 746 Non-conformance costs, 227 Non-governmental organizations (NGOs) Not-forprofit organizations that serve the public interest, such as Greenpeace and Sierra Club, 896 Non-value-added activities Activities that neither enhance the customer’s image of the product or service nor provide a competitive advantage; also known as waste activities, 211 Noncash expenses, 793 Noncash revenues, 793–794 Nonfinancial factors, decision making, 463–464 Norton, David, 616 O Office environment, 900–901 Offshoring Having work performed overseas Offshored work can either be performed by the company itself or by outsourcing the work to another company, 484–488 Oil spills, 900 Operating activities The day-to-day profit-making activities of the company, such as making or buying inventory, selling inventory, selling services, paying employees, advertising, and so forth; this also includes any other activity that affects net income (not just operating income), current assets, or current liabilities, 785 direct method, 787–789, 803–806 indirect method, 787–789, 792–798 Statement of Cash Flows, 785 sustainability and, 788–789 Operating budgets The budgets needed to run the daily operations of the company The operation budgets culminate in a budgeted income statement, 525, 531 Operating expenses See also Costs breakeven point calculations, 405–409 budget for, 531 cash flow, direct method, 805 cash payments budget, 539–540 contribution margin income statement, 354–356 financial statement reporting, 81–87 flexible budget performance reports, 611–616 job costing, journal entries, 153 period costs, 73–74 service firms, job costing, 159–162 Operating income Earnings generated from the company’s primary ongoing operations; the company’s earnings before interest and taxes, 81 accounting rate of return, 724–725 cost of goods sold, reporting of, 81–82 performance reports, 595–597 reconciling costing systems, 358–360 residual income and, 601–602 return on investment, 599–601 times-interest-earned ratio, 856–857 variable vs absorption costing, 356–358 Operating leverage factor At a given level of sales, the contribution margin divided by operating income; the operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in sales volume, 427–429 Operating leverage The relative amount of fixed and variable costs that make up a firm’s total costs, 426 Operations, balanced scorecard, 619–620 Opportunity cost The benefit forgone by choosing a particular alternative course of action, 487–488 Organizational structures, 24–25, 591–594, 905 Other indirect manufacturing costs All manufacturing overhead costs aside from indirect materials and indirect labor, 76 4/1/14 2:18 PM www.freebookslides.com I-12    Glossary/Index Outliers Abnormal data points; data points that not fall in the same general pattern as the other data points, 343–344, 350 Outsourcing A make-or-buy decision: Managers decide whether to buy a product or service or produce it in-house, 461, 464–465, 484–488 Overallocated manufacturing overhead The amount of manufacturing overhead allocated to jobs is more than the amount of manufacturing overhead costs actually incurred; results in jobs being overcosted, 143–145 Overhead See also Manufacturing overhead (MOH) activity-based management, 210–211 environmental-related costs, 208 plantwide overhead rate, cost allocation, 196–197 standard cost of, 663 value chain, 68 Overproduction, 218–219 Owners’ Equity, 145–154, 800–801 P Packaging, 69–70, 137, 544, 664, 898 Participative budgeting Budgeting that involves the participation of many levels of management, 522–523 Payback The length of time it takes to recover, in net cash inflows, the cost of a capital outlay, 717, 720–723, 745 Payroll taxes, 77–78 Percentage change, horizontal analysis, 842–846 Percentage of market share, balanced scorecard, 619 Perfection standards Standards based on perfect or ideal conditions that not allow for any waste in the production process, machine breakdown, or other inefficiencies Also known as ideal standards, 661–662 See also Standard cost Performance evaluation See also Financial statements, analysis of balanced scorecard, 616–621 decentralization and, 591–592 Decision Guidelines, 608, 623 environmental management accounting, 909 flexible budgets and, 611–616 goal congruence, 602–603 investment center evaluation, 597–604 limitations of, 604 measurement issues, 603 residual income, 601–602 responsibility accounting, overview, 592–594 responsibility center performance reports, 595–597 return on investment (ROI), 599–601 sales margin and capital turnover, 600–601 sustainability and, 621–622 systems for, 592 transfer pricing, 604–607 Performance reports Reports that compare actual results against budgeted figures, 20, 524, 595 Performance scorecard or dashboard A report displaying the measurement of KPIs, as well as their short-term and long-term targets The report allows managers to visually monitor and focus on managing the company’s key activities and strategies as well as business risks, 617–621 Period costs Costs that are expensed in the period in which they are incurred; often called operating expenses or selling, general, and administrative expenses, 73–74 employee benefits, 78 financial statement reporting, 81–87 service firms, job costing, 162 Periodic inventory An inventory system in which Cost of Goods Sold is calculated at the end of the period, rather than every time a sale is made, 82 Perpetual inventory An inventory system in which both Cost of Goods Sold and Inventory are updated every time a sale is made, 82 Physical information A vital part of environmental management accounting systems Examples Z02_BRAU9426_04_SE_GIDX.indd 12 include: quantity of air emissions, tons of solid waste generated, gallons of wastewater generated, pounds of packaging recycled, and total amount of water consumed, 907 Pick Storeroom workers remove items from raw materials inventory that are needed by production, 129–130 Planning activity-based management, 212 balanced scorecard, 616–621 budget process, 521–523 budget, benefits of, 523–524 defined, 20 environmental management accounting, 908 G4 Guidelines, 905 Plant See Property, plant, and equipment (PPE) Plantwide overhead rate When overhead is allocated to every product using the same manufacturing overhead rate, 197 activity-based management, 210–211 cost allocation, 196–197 costing method comparisons, 207–210 distortions of, 202 Point-of-use storage (POUS) A storage system used to reduce the waste of transportation and movement in which tools, materials, and equipment are stored in proximity to where they will be used most frequently, 222 Pollution carbon footprint, 909 environmental management accounting, 906–907 Post-audits Comparing a capital investment’s actual net cash inflows to its projected net cash inflows, 719 Post-sales support, balanced scorecard, 619–620 Practical standards Standards based on currently attainable conditions that include allowances for normal amounts of waste and inefficiency Also known as attainable standards, 662 Predetermined indirect cost allocation rate, 160–161 Predetermined manufacturing overhead rate The rate used to allocate manufacturing overhead to individual jobs; calculated before the year begins as follows: total estimated manufacturing overhead costs divided by total estimated amount of allocation base, 133 Preferred stockholders, 860 Prepaid insurance, 793 Present value, 730–736, 742–745 Present value index An index that computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars It is computed as present value of net cash inflows divided by investment; also called profitability index, 739–741 Present value tables, 749–752 Prevention costs Costs incurred to avoid poorquality goods or services, 226–229 Price variance, direct materials variances, 665–670 Price-setters, 470–471 Price-takers, 470–471 Price/Earnings (P/E) Ratio Ratio of the market price of a share of common stock to the company’s earnings per share It measures the value that the stock market places on $1 of a company’s earnings, 859–860, 864 Pricing See also Cost-volume-profit (CVP) analysis; Job costing; Process costing activity-based management, 210–211 balanced scorecard, 619 breakeven point calculations, 405–409 decisions about, 464–465 fixed cost changes, 419–420 job costing, business decisions and, 135–136 outsourcing price decisions, 487 regular pricing decisions, 470–474 sales-price changes, sensitivity analysis, 416–417 special order decisions, 466–469 transfer price, 604–607 variable cost changes, 417–418 weighted-average contribution margin, 421–425 Prime costs The combination of direct material and direct labor costs, 77 Principal, time value of money, 729–736 Principles for responsible investment (PRI) Six principles of investing, including a commitment to incorporate environmental, social and governance issues into investment analysis and decision making, 861, 901 Process costing A system for assigning costs to a large number of identical units that typically pass through a series of uniform production steps Costs are averaged over the units produced such that each unit bears the same unit cost conversion costs, 270 Decision Guidelines, 282, 294 equivalent units, 270–271 illustration of, 272–278 vs job costing, 266–270 journal entries, 279–281, 291–293 lean thinking and, 220 overview, 121, 122, 265–266 second process, 285–293 sustainability and, 278–279 Product cost reports, uses of, 20 Product costs, financial statement reporting, 81–87 Product development, balanced scorecard, 619–620 Product line income statement An income statement that shows the operating income of each product line, as well as the company as a whole, 478–479 Product mix, decisions about, 464–465, 482–484 Product responsibility, sustainability reports, 903–904 Product sales reports, uses of, 20 Product-level activities Activities and costs incurred for a particular product, regardless of the number of units or batches of the product produced, 209 Production budget, 526–527 Production cost report Summarizes a processing department’s operations for a period, 290–291 Production or purchases Resources used to produce a product or service, or to purchase finished merchandise intended for resale, 68 Production schedule A written or electronic document indicating the quantity and types of inventory that will be manufactured during a specified time frame, 124 Production Resources used to produce a product or service, or to purchase finished merchandise intended for resale, 68 Productivity, balanced scorecard, 616–619 Professional billing rate, service firms, 161–162 Professional organizations, 27–28 Profit See also Cost-volume-profit (CVP) analysis; ­Financial statements, analysis of accounting rate of return, 723–725 breakeven point calculations, 405–409 common-size statements, 848–849 contribution margin ratio, 403–405 cost decisions, 72–73 cost-volume-profit graphs, 411–412 decision making and, 464–465 discontinuation decisions, 478–482 fixed cost changes, 419–420 job costing record, business decisions and, 135–136 measuring profitability, 857–859 multiple factor changes, 418–419 payback period calculations, 722–723 process costing, second process, 289–290 product mix, changes in, 421–425 product mix, decisions about, 482–484 regular pricing decisions, 470–474 residual income, 601–602 risk indicators, 425–431 sales volume target decisions, 409–412 service firm, job costing, 161 sustainability and, 465–466 unit contribution margin, 402–403 4/1/14 2:18 PM www.freebookslides.com  Glossary/Index    I-13 Profit center A responsibility center in which managers are responsible for both revenues and costs, and therefore profits, 593, 596–597 Profit-sharing plans, 222 Profitability index An index that computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars Computed as present value of net cash inflows divided by investment; also called present value index, 739–741 Property taxes cash payments budget, 539 departmental overhead rate, 199–200 fixed costs, 331–333 Property, plant, and equipment (PPE) See also Depreciation absorption costing, 351–353 capital expenditures budget, 537 departmental overhead, cost allocation, 198–203 discontinuation decisions, 481–482 indirect manufacturing costs, 76 investing activities, indirect method, 798–800 job costing, journal entries, 147–154 job costing, manufacturing overhead, 132–135 manufacturing overhead budget, 530–531 plantwide overhead, cost allocation, 196–197 process costing, journal entries, 279–281 statement of cash flows, 785–786 under- and overallocated overhead costs, 143–145 Pull system, 223 Purchase order A written or electronic document authorizing the purchase of specific raw materials from a specific supplier, 126 Purchases Resources used to produce a product or service, or to purchase finished merchandise intended for resale sustainability, 69–70 value chain and, 68 Q Quality balanced scorecard, 619 lean operations, 224 total quality management (TQM), 41, 225–229 Quality at the source Refers to shifting the responsibility for quality adherence to the operators at each step in the value stream, rather than relying on supervisors or a quality assurance department to catch errors, 224 Quantity variance, 665–670 Quick ratio Ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities It tells whether the entity can pay all its current liabilities if they come due immediately; also called the acid-test ratio, 854 R R-square, 346–350 Rate of return on common stockholders’ equity Net income minus preferred dividends divided by average common stockholders’ equity It is a measure of profitability; also called return on equity, 858, 864 Rate of return on net sales Ratio of net income to net sales It is a measure of profitability; also called return on sales, 857–859, 864 Rate of return on total assets Net income plus interest expense divided by average total assets This ratio measures a company’s success in using its assets to earn income for the people who finance the business; also called return on assets, 858, 864 Rate of return, accounting (ARR), 717, 718, 723–725, 745 Ratio analysis Evaluating the relationships between two or more key components of the financial statements, 842 Raw materials inventory All raw materials (direct materials and indirect materials) not yet used in Z02_BRAU9426_04_SE_GIDX.indd 13 manufacturing See also Direct materials; Just in time (JIT) cost of goods sold calculations, 84 cost variances, 665–670, 673 defined, 66 direct materials budget, 528–529, 538–539 job cost record, 126–130 job costing, 123–124 job costing, journal entries, 146–154 just-in-time operations, 220–224 lean thinking and, 219 manufacturing costs, 75–76 operating budgets, 526–533 prime and conversion costs, 77 process costing, 267–270, 272–278, 285–293 process costing, journal entries, 279–281, 291–293 production schedules, 124 purchasing decisions, 125–126 standard cost of, 662, 686–687 standard costing journal entries, 686–687 sustainability, 69–70, 137 under- and overallocated overhead costs, 143–145 value chain, 68 Raw materials record A written or electronic document listing the number and cost of all units used and received, and the balance currently in stock; a separate record is maintained for each type of raw material kept in stock, 125–126 Receivables See Accounts receivable Receiving report A written or electronic document listing the quantity and type of raw materials received in an incoming shipment; the report is typically a duplicate of the purchase order without the quantity pre-listed on the form, 126 Recession, inventory decisions, 356–358 Recycling Coca-Cola bottles, 420–421 revenue from, 899 sustainable practices, 137–139 waste audits and, 278–279 Regression analysis A statistical procedure for determining the line that best fits the data by using all of the historical data points, not just the high and low data points, 346–350 Regulatory issues Sarbanes-Oxley Act of 2002, 35–36 sustainability and, 900 Relevant costs, 87–88 Relevant information Expected future data that differs among alternatives, 462–465, 475 Relevant range The band of volume where total fixed costs remain constant at a certain level and where the variable cost per unit remains constant at a certain level, 336–337, 404–405 Rent, journal entries, 153 Reports balanced scorecard, 616–621 common-size statements, 848–849 Corporate Responsibility (CSR) Reports, 901– 906 Cost of Quality, 226–229 Extensible Business Reporting Language (XBRL), 36–37 integrated reporting, 38–39 inventoriable product costs, 73–74 management uses of, 20 production cost reports, 290–291 Report of Independent Accountant, 905 responsibility center performance reports, 595–597 Sarbanes-Oxley Act of 2002, 35–36 sustainability reports, 86–87, 901–906 Repurposing, 899 Required rate of return Management’s minimum desired rate of return on an investment; also called the discount rate and hurdle rate, 737 Research and development (R&D) Researching and developing new or improved products or services or the processes for producing them, 68 balanced scorecard, 619–620 costs of quality, 226–229 environmental management accounting, 907 job costing, journal entries, 153 sustainability, 69–70 value chain and, 68 Residual income Operating income minus the minimum acceptable operating income given the size of the division’s assets Residual income shows whether the division is earning income above or below management’s expectations, 601–602, 603, 618–619 Residual value, 741 Responsibility accounting A system for evaluating the performance of each responsibility center and its manager, 592–594 Responsibility center A part of an organization whose manager is accountable for planning and controlling certain activities, 592–597 Retail credit cards, 547–548 Retailer Merchandising company that sells to consumers, 65 See also Merchandising Company Retained earnings, 800–801 Retirement benefits, 77–78 Return on assets Net income plus interest expense, divided by average total assets This ratio measures a company’s success in using its assets to earn income for the people who finance the business; also called rate of return on total assets, 858, 864 Return on equity Net income minus preferred dividends, divided by average common stockholders’ equity It is a measure of profitability; also called rate of return on common stockholders’ equity, 858, 864 Return on investment (ROI) Operating income divided by total assets The ROI measures the profitability of a division relative to the size of its assets, 599–600, 603, 618–619, 909 Return on sales Ratio of net income to net sales It is a measure of profitability; also called rate of return on net sales, 857–859, 864 Revenue See also Financial statements, analysis of balanced scorecard, 616–619 decision making and, 464–465 discontinuation decisions, 478–482 flexible budgets, 611–616 job costing, journal entries, 145–154 noncash revenue, 793–794 operating activities, indirect method, 792–798 performance reports, 595–597 responsibility centers, 593–594 sales budget, 525–526 sustainability and, 899 Revenue center A responsibility center in which managers are responsible for generating revenue, 593 Risk, indicators of, 425–431 Robert Half International, Inc salary survey, 29 Rolling budget A budget that is continuously updated so that the next 12 months of operations are always budgeted; also known as a continuous budget, 522–523 S Safety stock Extra inventory kept on hand in case demand is higher than expected or problems in the factory slow production, 526–527 Safety, employee work conditions, 219–220 Salaries absorption costing, 351–353 activity-based costing, cost allocation, 203–208 budgeted income statement, 532–533 cash flow, direct method, 805 cash flow, indirect method, 796–797 curvilinear costs, 338–339 departmental overhead, cost allocation, 198–203 direct labor budget, 75–76, 132–135, 539 direct labor variances, 671–673 fair-labor practices, 138 4/1/14 2:18 PM www.freebookslides.com I-14    Glossary/Index Salaries (Cont.) fixed costs, 331–333 fixed manufacturing overhead variances, 680–682 job cost record, 126–128, 130–132 job costing, journal entries, 147–154 job costing, service firms, 159–162 labor compensation costs, 77–78 lean operations, 221–222 manufacturing overhead, 75–76, 132–135 minimum wage, 901 outsourcing decisions, 484–488 plantwide overhead, cost allocation, 196–197, 202 prime and conversion costs, 77 process costing, initial process, 272–278 process costing, journal entries, 279–281, 291–293 process costing, overview of, 267–270 process costing, second process, 285–293 standard cost of direct labor, 662–663 standard cost of direct labor, journal entries, 687 step costs, 337–338 sustainability reports, 903–904 under- and overallocated overhead costs, 143–145 variable manufacturing overhead variances, 678–679 Sales See also Cost-volume-profit (CVP) analysis; Financial statements, analysis of accounts receivable turnover, 855–856 bad debt, 540 balanced scorecard, 618–619 breakeven point calculations, 405–409, 423–425 cash collections budgets, 537–538 contribution margin ratio, 403–405 cost structure, decisions about, 429–431 cost-volume-profit graphs, 411–412 credit and debit card sales, impact of, 547–548 days’ sales in receivables, 855–856 discontinuation decisions, 478–482 flexible budget performance reports, 611–616 job costing, journal entries, 152–154 product mix, changes in, 421–425 profitability measures, 857–859 risk indicators, 425–431 sales budget, 525–526 sales data, use of, 20, 136 sales price changes, sensitivity analysis, 136, 416–417 sales volume target decisions, 409–412 special order decisions, 466–469 unit contribution margin, 402–403 Sales margin Operating income divided by sales revenue The sales margin shows how much income is generated for every $1.00 of sales, 600–601, 618–619 Sales mix The combination of products that make up total sales, 402, 421–425 Sales service, balanced scorecard, 619 Sarbanes-Oxley Act of 2002 (SOX), 35–36 Scatter plot A graph that plots historical cost and volume data, 342–344, 348–350 Securities and Exchange Commission (SEC) 10-K filings, 845, 861 environmental practices, reporting of, 902 Extensible Business Reporting Language (XBRL), 37 financial statement requirements, 22, 23 Segment margin income statement A product line income statement that contains no allocation of common fixed costs Only direct fixed costs that can be traced to specific product lines are subtracted from the product line’s contribution margin All common fixed costs remain unallocated, and are shown only under the company total, 482 Segment margin The income resulting from subtracting only the direct fixed costs of a product line from its contribution margin The segment margin contains no allocation of common fixed costs, 482, 596–597 Sensitivity analysis A what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes, 416–417, 543, 742 Service company A company that sells intangible services rather than tangible products activities of, 65 Z02_BRAU9426_04_SE_GIDX.indd 14 activity-based management, 212 budgeting, 545, 547–548 contribution margin income statements, 354–356 costs of quality, 227 income statement, period costs, 81 job costing, 122, 159–162 lean operations, 225 Service economy, current trends, 39 Setup times, lean operations, 223 Shareholder dividends, 540, 786, 800–801, 858, 860 Shareholders balanced scorecard, 616–619 return on equity, 858 Shipping costs, value chain, 68 Short-term decision making Decision Guidelines, 491 discontinuation decisions, 478–482 outsourcing decisions, 484–488 process for, 462–465 product mix decisions, 482–484 regular pricing decisions, 470–474 sell as is or process further, 488–490 special order decisions, 466–469 sustainability, 465–466 Simple interest Interest computed only on the principal amount, 729 Slack Intentionally overstating budgeted expenses or understating budgeted revenues in order to cope with uncertainty, make performance appear better, or make room for potential budget cuts, 522 Social performance metrics, 86 Social responsibility, 37–38, 621–622, 895, 903–904 See also Sustainability Social return on investment (SROI) An analytical tool that is used to explain social and environmental value in monetary terms, 909 Social Security payroll taxes, 77–78 Social sustainability, 37–38, 137–139 Solar energy use, 719–720 Special orders, decisions about, 464–469 Sponsorships, events, 68 Standard cost accounting Another common name for standard costing, 686 Standard cost The budget for a single unit of product Also simply referred to as standards, 661, 663–664 Standard costing income statement, 689 Standard costing Also known as standard cost accounting A method of accounting in which product costs are entered into the general ledger inventory accounts at standard cost, rather than actual cost The variances are captured in their own general ledger accounts and displayed on a standard costing income statement prior to being closed out at the end of the period, 686 advantages and disadvantages, 673–674 computing of, 662–664 Decision Guidelines, 675, 683 of direct labor, 662–663 direct labor variances, 671–673 of direct materials, 662 direct materials variances, 665–670 fixed manufacturing overhead variances, 680–682 flexible budgets and, 665 Income Statement, 689 journal entries, 686–689 of manufacturing overhead, 663 of one unit, 663–664 sustainability and, 664 types of, 661–662 variable manufacturing overhead variances, 678–679 Standard hours of time allowed (SHA), 672 Standard Price (SP), 666–670 Standard quantity of materials allowed (SQA), 666–670 Standards Another common name for standard costs, 661 See also Standard cost Statement of Accounting Standards (No 95), 784n1 Statement of Cash Flows One of the four basic financial statements; the statement shows the overall increase or decrease in cash during the period as well as how the company generated and used cash during the period, 784 See also Cash flow Decision Guidelines, 790, 807 direct method, 787–789, 803–806 financing activities, 786 function of, 784–785 indirect method, 787–789, 792–802 investing activities, 785–786 operating activities, 785, 787–789 sustainability and, 788–789 Statement of Financial Accounting Standards Number 131 (SFAS 131), 598 Step costs A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume, 337–338 Stock cash flows, indirect method, 800–801 price/earnings (P/E) ratio, 859–860 statement of cash flows, 785–786 Stock exchanges, 901, 902 Stock inventory Products normally kept on hand in order to quickly fill customer orders, 124 Stockholders balanced scorecard, 616–619 dividend payments, 540, 786, 800–801, 858, 860 profit expectations, 470 Stockholders’ equity, return on equity, 858 Storage just-in-time operations, 220–224 lean thinking and, 219 point-of-use storage (POUS), 222 Strategic Finance, 27 Strategic planning Setting long-term goals that may extend to 10 years into the future, 521 balanced scorecard, 616–621 budget process, 521–523 budget, benefits of, 523–524 environmental management accounting, 908 G4 Guidelines, 905 Subsidiary ledger Supporting detail for a general ledger account, 147n5 Sunk cost A cost that has already been incurred, 88, 463 Supply chain management, 224 Supply chain, sustainability and, 137–139 Supply-chain assessment Making purchase decisions based partially on how well suppliers manage the social and environmental impact of their operations, 899 Sustainability consortium, 138 Sustainability report The primary document used for communicating a company’s performance on all three pillars of the triple bottom line: economic, environmental, and social Also known as a Corporate Social Responsibility (CSR) report, 901–906 Sustainability reporting A process that helps companies set goals, measure performance, and manage change as they move toward an economic model that produces long-term economic profit as well as environmental care and social responsibility, 901–906 Sustainability The ability of a system to endure without giving way or to use resources so that they are not depleted or permanently damaged In business, sustainability is also defined as the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs, 895 budgeting and, 544 business case for, 897–901 capital investments and, 719–720 Corporate Social Responsibility (CSR) reports, 86–87 cost behavior and, 339 cost decisions, 64–65 cost-volume-profit (CVP) analysis, 420–421 Decision Guidelines, 912 environmental management accounting (EMA), 906–911 4/1/14 2:18 PM www.freebookslides.com  Glossary/Index    I-15 financial statement analysis and, 861–862 history of, 896–897 importance of, 37–38, 895 job costing and, 137–139 lean thinking and, 225 performance evaluation and, 621–622 process costing, initial process, 278–279 refined costing systems, 208 reporting metrics, 86 short-term decisions and, 465–466 standard costs and, 664 Statement of Cash Flows, 788–789 sustainability reports, 901–906 value chain and, 69–70 zero-waste to landfills, 278–279, 664, 898 T T-account mechanics, review of, 145 Tagging, Extensible Business Reporting Language (XBRL), 36–37 Take-back laws, 138–139 Takt time The rate of production needed to meet customer demand yet avoid overproduction, 222–223 Target costing An approach to pricing used by pricetakers; target costing begins with the revenue at market price and subtracts the company’s desired profit to arrive at the target total cost, 471–473 Target rate of return, 601–602 Tariffs, 74 Tax accounting, Sarbanes-Oxley Act of 2002, 35–36 Taxes cash flow, direct method, 805 cash payments budget, 539, 540 departmental overhead rate, 199–200 discontinuation decisions, 481–482 green investment tax breaks, 720 income taxes, 540, 786, 805 job costing, journal entries, 149–150 payroll taxes, 77–78 property taxes, 199–200, 331–333, 539 statement of cash flows, 786 sustainability and, 898 Technology advanced information systems, 40 management accountant role and, 25–26 Technology Makes it Simple Excel, 344 future value computation, 733 internal rate of return calculations, 745 net present value calculations, 741 regression analysis, 349 regression analysis and scatter plots, 349 time value money calculation solutions, 757–762 Throughput time, lean operations, 41 Time management, 219–220 Time value of money The fact that money can be invested to earn income over time, 729 calculation of, 729–736 net present value, 736–742 present and future value tables, 749–752 sample problem solutions, 753–762 Times-interest-earned ratio Ratio of income from operations to interest expense It measures the number of times operating income can cover interest expense; also called the interest-coverage ratio, 856–857, 863 Total cost to account for process costing, initial process, 277–278 process costing, second process, 288–293 Total cost The cost of all resources used throughout the value chain, 72 calculation of, 90–91 decision making and, 72–73 Total fixed costs, relevant range, 336–337 Total Quality Management (TQM) A management philosophy of delighting customers with superior products and services by continually setting higher goals and improving the performance of every business function, 41, 225–229 Z02_BRAU9426_04_SE_GIDX.indd 15 U.S Treasury Bills, 785 Unavoidable fixed costs Fixed costs that will continue to be incurred even if a particular course of action is taken, 479–480 Uncontrollable costs Costs that cannot be changed or influenced in the short run by management, 87 Underallocated manufacturing overhead The amount of manufacturing overhead allocated to jobs is less than the amount of manufacturing overhead costs actually incurred; this results in jobs being undercosted, 143–145 Unfavorable variance A variance that causes operating income to be lower than budgeted, 595, 615–616 Unit contribution margin The excess of the unit sales price over the variable cost per unit: also called contribution margin per unit fixed cost changes, 419–420 multiple variable changes, 418–419 overview of, 402–403 sales price changes, 416–417 variable cost changes, 417–418 weighted-average contribution margin, 421–425 Unit costs process costing, second process, 289–293 special order decisions, 468–469 standard cost of one unit, 663–664 Unit-level activities Activities and costs incurred for every unit produced, 209 United Nations, 861, 895 Utilities discontinuation decisions, 481–482 job costing, 132–135 job costing, journal entries, 149–150 manufacturing overhead budget, 530–531 mixed costs, 334–335 value chain and, 68 production or purchases, marketing, distribution, and customer service, 67 business activities in, 67–68 coordinating activities, 68–69 costs of quality, 226–229 sustainability and, 69–70 total cost calculations, 139 Value engineering Eliminating waste in the system by making the company’s processes as effective and efficient as possible, 211, 471–473 Value stream maps, 221 Value-added activities Activities for which the customer is willing to pay because these activities add value to the final product or service, 211 Value-engineering, 211 Variable cost of goods sold, 354–356 Variable cost per unit, 336–337 Variable costing The costing method that assigns only variable manufacturing costs to products All fixed manufacturing costs (Fixed MOH) are expensed as period costs, 328 absorption costing and, 351–353, 356–358 decision making and, 464–465 key points, 360 Variable costs Costs that change in total in direct proportion to changes in volume, 89, 139, 351 See also Cost-volume-profit (CVP) analysis breakeven point calculations, 405–409 changes in, sensitivity analysis, 417–418 decision making and, 464–465 decisions about, 88–89 high-low method, 344–346 operating leverage, 426–429 outsourcing decisions, 485–488 predicting, 328–331 regression analysis, 346–350 relevant range, 336–337 scatter plots, 342–344 Variable Overhead Efficiency Variance This variance tells managers how much of the total variable MOH variance is due to using more or fewer hours of the allocation base (usually machine hours or DL hours) than anticipated for the actual volume of output It is calculated as follows: SR × (AH − SHA), 679 journal entries, 688–689 Variable overhead rate variance Also called the variable overhead spending variance This variance tells managers whether more or less was spent on variable overhead than they expected would be spent for the hours worked It is calculated as follows: AH × (AR − SR), 678–679, 688–689 Variable overhead spending variance ­Another common name for variable overhead rate variance, 678–679, 688–689 Variance The difference between actual and budgeted figures (revenues and expenses), 524, 595, 683 See also Standard Costing Vertical analysis Analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure, 842, 846–849 Vertical integration, 605 Volume variance The difference between the master budget and the flexible budget The volume variance arises only because the volume of cases actually sold differs from the volume originally anticipated in the master budget, 613–616 V W Vacation benefits, 77–78 Valuation book value per share of common stock, 860–861, 864 measurement issues, 603 net book value, 793–794 Value chain The activities that add value to a firm’s products and services; includes R&D, design, Wages absorption costing, 351–353 activity-based costing, cost allocation, 203–208 budgeted income statement, 532–533 cash flow, direct method, 805 cash flow, indirect method, 796–797 curvilinear costs, 338–339 departmental overhead, cost allocation, 198–203 Toxic materials, 137 Trace To assign a direct cost to a cost object, 71–72 Trade workers See Service company Trading on equity Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business; also called leverage, 858 Transaction costs, credit and debit cards, 547–548 Transfer price, 604–607 Transferred-in costs Costs incurred in a previous process that are carried forward as part of the product’s cost when it moves to the next process, 285–293 Transportation costs, value chain, 68 Transportation, efficiency of, 219 Trash audits, 278–279, 898 Treasurer, role of, 24 Treasury Bills, U.S., 785 Treasury stock, 786 Trend percentages A form of horizontal analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount, 844–846 Triple bottom line Evaluating a company’s performance not only by its ability to generate economic profits, but also by its impact on people and the planet, 37–38, 65, 895 U 4/1/14 2:18 PM www.freebookslides.com I-16    Glossary/Index Wages (Cont.) direct labor budget, 75–76, 132–135, 539 direct labor variances, 671–673 fair-labor practices, 138 fixed costs, 331–333 fixed manufacturing overhead variances, 680–682 job cost record, 126–128, 130–132 job costing, journal entries, 147–154 job costing, service firms, 159–162 labor compensation costs, 77–78 lean operations, 221–222 manufacturing overhead, 75–76, 132–135 minimum wage, 901 outsourcing decisions, 484–488 plantwide overhead, cost allocation, 196–197, 202 prime and conversion costs, 77 process costing, initial process, 272–278 process costing, journal entries, 279–281, 291–293 process costing, overview of, 267–270 process costing, second process, 285–293 standard cost of direct labor, 662–663 standard cost of direct labor, journal entries, 687 step costs, 337–338 sustainability reports, 903–904 under- and overallocated overhead costs, 143–145 variable manufacturing overhead variances, 678–679 Waiting, lean thinking and, 219 Warranties balanced scorecard, 619–620 costs of quality, 227 sustainability, 70 value chain, 68 Z02_BRAU9426_04_SE_GIDX.indd 16 Waste DOWNTIME acronym, 218–220 environmental management accounting, 906–907 job costing and, 137–139 lean operations, characteristics of, 220–224 lean thinking, defined, 218 standard costs, 664 sustainability and lean thinking, 225 Waste activities Activities that neither enhance the customer’s image of the product or service nor provide a competitive advantage; also known as non-value-added activities, 211 Waste audits Studying the steam of waste coming from company operations (solid waste, water discharge, chemicals, etc.) to determine waste that can be avoided and alternative uses for the remaining waste, 278–279, 898 Waste sorts, 278–279, 898 Water footprint The total volume of water use associated with the processes and products of a business, 904–905, 909 Water, environmental management accounting, 906–907 Weighted-average contribution margin, 421–425 Weighted-average method of process costing A process costing method that combines any beginning inventory units (and costs) with the current period’s units (and costs) to get a weightedaverage cost, 253, 289n6 Wholesaler Merchandising companies that buy in bulk from manufacturers, mark up the prices, and then sell those products to retailers, 65 Work-in-process (WIP) inventory Goods that are partway through the manufacturing process but not yet complete cost of goods sold calculations, 85 defined, 66 job cost record, 128 job costing, 123–124 job costing, journal entries, 146–154 process costing, initial process, 272–278 process costing, journal entries, 279–281, 291–293 process costing, overview of, 267–270 process costing, second process, 285–293 standard costs, journal entries, 688 under- and overallocated overhead costs, 145 Working capital Current assets minus current liabilities; measures a business’s ability to meet its short-term obligations with its current assets, 853 Z Zero-based budgeting A budgeting approach in which managers begin with a budget of zero and must justify every dollar put into the budget, 523 Zero-waste to landfills, 278–279, 664, 898 4/1/14 2:18 PM ... Differences Between Managerial Accounting and Financial Accounting Distinguish financial accounting from managerial accounting Managerial accounting information differs from financial accounting information... a Financial accounting b Managerial accounting c Managerial accounting d Financial accounting e Financial accounting # 111509  Cust: Pearson Education/PEANJBE  Au: Braun? ?? Pg No 34 4e? ??    Server:... www.freebookslides.com Introduction to Managerial Accounting? ??    23 EXHIBIT 1-2  Managerial Accounting Versus Financial Accounting MANAGERIAL ACCOUNTING ISSUE FINANCIAL ACCOUNTING Internal users such