Managerial Accounting Creating Value in a Dynamic Business Environment Twelfth Edition Ronald W Hilton Cornell University David E Platt University of Texas at Austin MANAGERIAL ACCOUNTING: CREATING VALUE IN A DYNAMIC BUSINESS ENVIRONMENT, 12TH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2020 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2017, 2014, and 2011 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper LWI 21 20 19 ISBN 978-1-259-96951-5 MHID 1-259-96951-7 Portfolio Manager: Elizabeth Eisenhart Product Developers: Erin Quinones and Allie Kukla Marketing Manager: Katherine Wheeler Content Project Managers: Pat Frederickson and Brian Nacik Buyer: Sandy Ludovissy Design: Matt Diamond Content Licensing Specialist: Ann Marie Jannette Cover Image: ©IM_Photo/Shutterstock Compositor: SPi Global We are grateful to the American Institute of Certified Public Accountants for allowing the use of adapted material from the Uniform CPA Examination (1978–1984, 1987, 1990–1991) as well as to the Institute of Management Accountants for allowing the use of adapted material from the Certificate in Management Accounting Examinations (1977–1984, 1987, 1990–2000) All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: Hilton, Ronald W., author | Platt, David E., author Title: Managerial accounting : creating value in a dynamic business environment / Ronald W Hilton, Cornell University, David E Platt, University of Texas at Austin Description: Twelfth Edition | Dubuque : McGraw-Hill Education, [2019] | Revised edition of the authors’ Managerial accounting, [2017] Identifiers: LCCN 2019022188 | ISBN 9781259969515 (alk paper) Subjects: LCSH: Managerial accounting Classification: LCC HF5657.4 H55 2019 | DDC 658.15/11—dc23 LC record available at https://lccn.loc.gov/2019022188 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered Ronald W Hilton: To Meg, Brad, Molly, Tim, Kerry, and Liliana David E Platt: To Nancy, for her love and patience Praise for MANAGERIAL ACCOUNTING Hilton is a comprehensive managerial accounting text that incorporates a wide variety of applications and examples You are certain to find the examples and problems to fit your style The emphasis of management of the firm and depth of coverage makes this text worthy of consideration.” —Todd Jensen, Sierra College The Hilton 11e text is a fantastic resource for an Introductory Managerial Accounting course It covers all of the necessary topics in a logical order and with an appropriate level of rigor.” —Laura Zellers, Wichita State University “Extremely comprehensive, easy to read managerial accounting textbook that provides well-designed integrated examples along with coverage of service-based companies.” —Angela Sandberg, Jacksonville State University “I am loving the book, and I see the students learning the concepts a lot quicker than my previous experience.” —Patti Brown, The University of Texas at Austin “I would describe it as the Cadillac of core management accounting textbooks.” —Bill Wempe, Texas Christian University “This is an excellent text—well balanced, well organized, and up to date with current topics, including service industries and state-of-the-art manufacturing environments I highly recommend it also for the excellent examples and illustrations through focus companies and contrasting companies.” —John C Anderson, San Diego State University “I’ve been using this text since its second edition, and it gets better each year with continuous improvement.” —Steve G Green, United States Air Force Academy “Well written with good explanations of the ‘why’ and ‘how’.” —Christa Morgan, Georgia Perimeter College “Major strength is how it relates managerial accounting to the general management function and reveals the managerial accountant as an important member of the management team.” —Linda C Bowen, University of North Carolina–Chapel Hill “The book goes beyond covering the basics and organizes and integrates contemporary topics nicely.” —Harrison McCraw, State University of West Georgia “Well written, well organized and excellent end of chapter problems.” —Kathleen Sevigny, Boston College “The technology supplements and instructor resources are top-notch and very appropriate for our students.” —Marilyn Okleshen, Minnesota State University–Mankato “The book is very thorough, well written, and still remains student-friendly The supplements are outstanding.” —Ben Baker, Davidson College “A solid, well-written, user-friendly book; can’t go wrong with it!” —Rochelle Greenberg, Florida State University iv Preface Hilton & Platt Managerial Accounting: After 12 editions, one of the most enduring and respected managerial accounting books on the market Keeping pace with the speed of modern business, the authors combine their experience and expertise to make sure Managerial Accounting is the most relevant, accurate, and up-to-date textbook in the field Managerial Accounting continues to focus and update content to bridge accounting and management practices v vi Preface About the Authors Ronald W Hilton is a Professor Emeritus of Accounting at Cornell University With bachelor’s and master’s degrees in accounting from The Pennsylvania State University, he received his PhD from The Ohio State University A Cornell faculty member since 1977, Professor Hilton also has taught accounting at Ohio State and the University of Florida, where he held the position of Walter J Matherly Professor of Accounting Prior to pursuing his doctoral studies, Hilton worked for Peat, Marwick, Mitchell and Company and served as an officer in the United States Air Force Professor Hilton is a member of the Institute of Management Accountants and has been active in the American Accounting Association He has served as associate editor of The Accounting Review and as a member of its editorial board Hilton also has served on the editorial board of the Journal of Management Accounting Research He has been a member of the resident ©Jon Reis Photography faculties of both the Doctoral Consortium and the New Faculty Consortium sponsored by the American Accounting Association With wide-ranging research interests, Hilton has published articles in many journals, including the Journal of Accounting Research, The Accounting Review, Management Science, Decision Sciences, the Journal of Economic Behavior and Organization, Contemporary Accounting Research, and the Journal of Mathematical Psychology He also has published a monograph in the AAA Studies in Accounting Research series, and he is a co-author of Cost Management: Strategies for Business Decisions, Budgeting: Profit Planning and Control, and Cost Accounting: Concepts and Managerial Applications Professor Hilton’s current research interests focus on contemporary cost management systems and international issues in managerial accounting In recent years, he has toured manufacturing facilities and consulted with practicing managerial accountants in North America, Europe, Asia, and Australia Courtesy of University of Texas David E Platt is a member of the Accounting faculty and the Associate Dean for Undergraduate Programs at the McCombs School of Business, University of Texas at Austin He earned a BS Econ from the Wharton School at the University of Pennsylvania, an MBA in Marketing from Syracuse University, and a PhD from Cornell University After earning his CPA while working for Pricewaterhouse Coopers, he spent several years doing financial and product management at a supply chain systems integrator Dr Platt currently teaches a variety of managerial accounting courses at UT, including the sophomore-level Fundamentals of Managerial Accounting, and has received teaching awards at both the undergraduate and graduate levels He directed UT–Austin’s Center for International Business Education and Research (CIBER) and has served as a chair of the Partnership in International Management, a consortium of leading graduate business schools worldwide He has been a visiting lecturer at the Sorbonne Graduate Business School in Paris, and has delivered training for companies in the United States, Europe, Latin America, and China What’s New in the 12th Edition? New and Enhanced Themes In the 12th edition of Hilton & Platt Managerial Accounting, the authors have significantly increased their coverage of data analytics and socalled big data in the context of managerial accounting The topic is first introduced in Chapter 1, where it is discussed in the context of the Whole Foods Market contrast company It then gets deeper coverage in Chapter 6, which includes an illustration of data visualization using both Excel and Tableau And discussions of big data and its impact in managerial decision making are sprinkled throughout the book, such as the new Management Accounting Practice (MAP) inset “Big Data ‘Use Cases’ in Managing Costs and of organizations Based on user feedback, the authors now focus less on managerial accountants per se and more on managerial accounting as a widely applicable toolset used by all managers Consistent with this change in focus, the authors have streamlined the presentation of where managerial accountants are found in organizations As mentioned above, they also add an introductory discussion of data analytics and big data, while updating thumbnail views of a few other key topics in management, such as the value chain, capacity, and the balanced scorecard In addition, the discussions involving the contrast company Whole Foods Market have been updated to reflect the revised context of the Profits” in Chapter 3, other new MAPs in Chapters 5, 9, and 10, and in general discussion Hilton & Platt Managerial Accounting has long been a leader in integrating discussion of business ethics into the managerial accounting context through the use of the Institute of Management Accountants’ Statement of Ethical Professional Practice and the Focus on Ethics feature that appears at the end of most chapters In the 12th edition, the authors take a major step forward in business ethics coverage by updating a number of the Focus on Ethics scenarios and linking all of them to the thoughtful and entertaining ethics concepts videos produced by the business educators at Ethics Unwrapped Indicated by the logo that appears at the front of this paragraph, the videos offer instructors the opportunity to expand the discussion of ethical concepts in business while providing students some conceptual underpinnings for the ethical dilemmas presented and their solutions company’s acquisition by Amazon Chapter sees the introduction of a new contrast company, Gold’s Gym Continuing their commitment to including plentiful service industry examples, the authors build their discussion of costs in the service industry around a fitness business, a context that will be familiar to many students, making the discussion more relevant to them and therefore more memorable After adding time-driven ABC (TDABC) in a health-care setting to Chapter in the last edition, the 12th edition further revises the presentation of traditional activity-based costing (ABC) in that chapter by introducing a new focus company, Dronze, Inc This company produces recreational drones and, while staying close to the pedagogical approach to teaching ABC used in previous editions, the update continues the authors’ commitment to keeping the example companies fresh and relevant for students Chapter 6, which covers cost behavior and cost estimation, continues the authors’ thematic development of data analytics and big data in the 12th edition with a separate section addressing these topics The challenges and opportunities of big data, though in large part beyond the scope of this text, are developed here to provide students New and Updated Content and Examples Chapter introduces managerial accounting to students and motivates them by demonstrating its relevance in managing different types vii with a greater perspective on the origins and analysis of the data that is used in decision making, and to alert them to the relevance of a topic they likely will encounter in subsequent courses Data analytics, the process of examining data sets in order to draw conclusions about the information they contain, is increasingly important in managing many organizations Data visualization, which is the presentation of data in a graphical or pictorial format to help managers discern patterns, trends, and complex scenarios embedded in the data, goes hand in hand with data analytics To cover these emerging topics, the authors extend their discussion of the Chapter focus company, Donut Desire (a chain of five donut shops in Toronto) The example analyzes a data set consisting of ten years of monthly data about the utility costs and activity levels in the company’s various shops To augment the discussion of data visualization in the Donut Desire example, traditional Excel visualizations are supplemented by outputs from Tableau, which is a rapidly growing data visualization software package now used in many businesses Chapter 7, which covers cost-volume-profit analysis, addresses the role of income taxes in the chapter’s appendix In this edition, the authors have updated this coverage to reflect the lower overall U.S corporate tax rate resulting from the Tax Cuts and Jobs Act (TCJA) that became effective in 2018 During 2018, when the authors were beginning work on the 12th edition, there was increased focus on corporate social responsibility and conversations about the role of companies in society, exemplified by the “Letter to CEOs” published in January by Blackrock CEO Larry Fink Believing that managerial accounting needs to be responsive to such concerns, the authors have rewritten and expanded the section of Chapter previously called “Costs of Environmental Sustainability” to broaden its coverage into corporate social responsibility generally, often characterized viii currently as “Environmental, Social, and Governance (ESG) Initiatives.” The chapter provides a discussion of ways in which managerial accounting measurement concepts apply to the ESG initiatives undertaken by companies and the ways in which ESG investors might use such data Chapter 12 has been formally split into two sections that can be covered independently: Responsibility Accounting and the Balanced Scorecard While the responsibility accounting section is largely unchanged from the prior edition, based on user input the authors have significantly expanded the text’s balanced scorecard coverage In addition to expanding the discussion of the balanced scorecard technique, they have created a new contrast company example that places the balanced scorecard discussion in the context of a high-tech startup that is attempting to target Millennials and Gen Z consumers This new example company will be more relevant and memorable for students, most of whom will fall into these generations, enhancing their understanding of this important performance management technique They have also included a number of startup performance metrics in the example that students will find interesting (e.g., cash burn rate and runway) and added an exercise that reinforces these metrics (Operational performance measures have been moved to a new appendix to Chapter 12.) Chapter 15, on target costing and pricing decisions, has an updated discussion of dynamic pricing on the Internet by e-tailers, as well as a new Focus on Ethics inset Chapter 16, which covers capital expenditure decisions, addresses the role of income taxes in discounted-cash-flow analysis in Section of the chapter For the 12th edition, the authors have updated this coverage to reflect the lower overall U.S corporate tax rate resulting from the Tax Cuts and Jobs Act (TCJA) that became effective in 2018 Also, while recognizing that this is not a tax textbook, they provide a brief discussion of the depreciation rules (including the Modified Accelerated Cost Recovery System, or MACRS) under the TCJA Moreover, the lower tax rates under the TCJA extend to Chapter 16’s end-ofchapter assignment material Updated Pedagogy In addition to the specific examples above, many chapters include streamlined and condensed explanations, and the addition of more current examples and references from the popular business press Service Industry Examples The service industry continues to play a dominant role in the U.S economy, despite continuing emphasis on the importance of manufacturing The authors have continued their track record of finding and integrating examples from service industry organizations, while making service industry examples featured in focus and contrast companies increasingly relevant for students Widely acknowledged as having the most service industry focus of any managerial accounting text, the 12th edition widens the margin even further In Their Own Words The authors continually work to update many of the quotations in this popular feature, keeping them fresh and relevant for today’s students Many of the quotations are new in this edition These quotes from practicing managers and managerial accountants portray the important role managerial accounting plays in today’s dynamic business environment Management Accounting Practice (MAPs) Many of these real-world examples have been revised and updated to make them more current, and several new examples have been added While some of the MAPs are completely new, to address the data analytics theme mentioned above, many of the existing MAPs have been updated as well to keep them relevant and accurate For example, in the Chapter MAP “Using Managerial Accounting to Monetize the Internet,” the authors have added a discussion of various efforts to return journalism to profitability And in Chapter 2, the MAP “Managing Health Care Costs Through Cost Behavior” has been updated for the current state of the debate over the Affordable Care Act Your feedback is crucial in improving each new edition of Managerial Accounting and has been the motivation for many changes in this 12th edition, including new themes, revised coverage of key topical areas, and new pedagogy for the most challenging topics ix 834 Subject Index Flexible budget overhead cost, 481 Flexible manufacturing systems (FMS), 638, 772 Flexible overhead budget, 477–478 and choosing activity measure, 482 and dollar measures, 483 illustrated, 479–481 prepare, using formula and columnar formats, 496 Flexible standard costing, 492 FMS See Flexible manufacturing systems (FMS) Foreign Corrupt Practices Act, 599 Formula flexible budget, 479–481, 496 FP&A See Financial planning and analysis (FP&A) system Frakt, Austin, 52n France, Mike, 111n Fraud, 60–61, 375, 599 See also Ethics Frazier, Mya, 8n Fringe benefits, 396, 483 Fukuda, J., 685n Full costing, 595 See also Absorption costing (full costing) Future financial performance, 534 Future value, 795–797 of cash-flow series, 798–799 of series, 799 of single cash flow, 799 GAAP See Generally accepted accounting principles (GAAP) Gain on disposal, 728–729 Gaiser, Bernd, 492n Gasoline industry, and cost-based pricing, 669 General accepted accounting principles, 339 General economic rule, 601 Generally accepted accounting principles (GAAP), 37n General operations level, 173 See also Facility-level activities General-operations-level costs, 191 General transfer-pricing rule, 590–593 Gen X consumers, 538, 538n See also Demographics Gen Z consumers, 521, 538, 541–543 See also Demographics Germany, cost management systems in, 492 Gillies, T., 769n Global security, 14 Global sourcing, 683 Goal congruence, 523, 550, 601 defined, 575 and general pricing rule, 591–592 and internal control systems, 599 obtaining, 575–576 role of managerial accounting in, 600 and transfer pricing, 589–592 Goldstein, M., 297n Goodness of fit, 249–250 Good output quantity, 444 Goodwill budget, 375 Google Sheet, 397 Gottlieb, S., 769n Grade, 342 Graphical approach, to economic order quantity (EOQ), 804–805 Great Recession, 24 Greenfield, R., 600n GRI 300 categories, 349–350 GRI 200—Economic, 349–350 GRI 300—Environmental, 349–350 GRI 4000—Social, 349–350 GRI standards, 349–350 Groom, D J., 144n Gross book value (acquisition cost), 584–585 Gross margin, 301, 539 See also Gross profit Gross profit, 40 Hagerty, J R., 629n Half-year convention, 726–727 Hamilton, D., 682n Hansen, Stephen C., 378n Hayes-Wheelwright production process, 41n Health care costs, managing, through cost behavior, 51–52 Health care industry, 769 Hegwer, Laura Ramos, 184n Heller, J., 242n, 259n Hempel, Jessi, 538n Herbst, M., 242n, 259n Herper, M., 732n Hidden private environmental costs, 352, 355 Hidden quality cost, 342 Hidden social environmental costs, 351 High-low method defined, 247, 260 evaluation of, 248 Hiotis, D., 682n Hippocratic Oath, 26 Historical cost, versus current-value accounting, 587 Historical data, 434 See also Cost estimation Hof, R D., 305n Holding cost, 806–807 Holmes, Stanley, 111n Household appliance, and cost-based pricing, 669 Hurdle rate (minimum desired rate of return), 712, 714, 734, 739 and after-tax cash flow, 724, 729–730 choosing, 716–718 and comparing NPV and IIR methods, 715–716 defined, 712 Hybrid product-costing system, 150–151, 154 Hyken, Shep, 22n Idle time, 44 IES See Institute for Environmental Studies (IES) Imperfect competition, 593 Import duties, 597–598 Improvement targets, 555 Incentive(s) compensation as, 601 for decision makers, 640–641 providing, 371, 401 risk aversion and, 598–599 Incentive compensation, 586 Income statement absorption costing, 336–337, 354 and after-tax cash flows, 104, 740 cash flows not on, 723–724 contribution, 301–302, 310 CVP relationships and, 301–303 and flow of costs through manufacturing accounts, 85 for manufacturing firm, 62 from three different industries, 38–41 traditional, 301 variable costing, 337 Income summary, 84–85, 450–451 Income tax and after-tax cash flow, 740 capital budgeting, 721–733, 740 complexities of, 728 effects, in capital budgeting, 730–733 effects on, CVP analysis, 310, 312–314 Income-tax rate, 596–597 Increasing marginal cost, 240 Incremental approach, 296–297 Incremental cost, 56 Incremental-cost approach, in net-presentvalue analysis, 719–720, 740 Independent variable, 249 Indirect cost, 53, 59, 62, 486 Indirect labor and actual manufacturing overhead, 99 defined, 43 and job-order costing system, 97 as manufacturing overhead, 92 Indirect material, 486 and actual manufacturing overhead, 99 defined, 43 on job-costing record, 96 as manufacturing overhead, 92 Indirect method, of preparing statement of cash flows, 388n Individual profiling, dynamic pricing based on, 691–692 Inflation, 251 and after-tax cash flow, 724 historical-cost versus current-value accounting, 587 Information costs and benefits of, 675–676 obtaining, 621–622 relevant, 621–622 See also Data; Data analytics Information overload, 58, 622 Initial public offering (IPO), Innovation and learning, 553, 555 In-process quality controls, 554 Input measure, 478–479 Inputs, as costs of product costing system, 87 Insourcing, 629, 629n Inspection time, 189 Institute for Environmental Studies (IES), 739 Institute of Management Accountants (IMA) “Statement of Ethical Professional Practice,” 25–27 Insurance, and actual manufacturing overhead, 99 Insurance organizations, use of standards in, 435 Intercept, 264 Interest earned, 795 Internal audit, 599 Internal auditor, 15, 27 Internal business process perspective as balanced scorecard measurement, 10 on balanced scorecard model, 537–538, 540, 542–543, 548 goals and measures, 542–543 Internal controls, over financial reporting, 788–791 See also Sarbanes–Oxley Act (SOX) Internal control systems, 599, 601 Internal failure cost, 342–343 Internal rate of return (IRR or timeadjusted rate of return), 711–715, 739 Internal reporting, 24 International Organization for Standardization (ISO), 346–347 International perspective, on transfer pricing, 596–598 Internet, dynamic pricing on, 682 Internet-based budgeting applications, 397 Internet monetization, using managerial accounting for, 8–9 Interviews, to collect ABC data, 185–186, 199 Inventoriable cost, 37, 58, 325, 341 See also Product cost Inventoried cost, 335 Inventory decrease in, 338–339 incentive to overproduce, 353–354 increase in, 338–339 no change in, 337–338 as operational performance measures, 553–554 valuation of, 762 Inventory management and direct-material budget, 393–394 economic order quantity, 802–805 just-in-time inventory management, 805–807 Invested capital, 601 allocating assets to investment centers, 585–586, 600 average balances, 583 behavior problem, 585 gross or net book value, 583–585 managers versus investment centers, 587 measuring income and, 583–586 use of total assets, 583–584 Investigation, costs and benefits of, 447 Investment comparing two projects, 717–720 versus financial decisions, 716 ranking projects, 733–734, 740 recovery of, and internal-rate-of-return method, 714, 739 use of average, 738 in working capital, 729–730 Investment center, 522n, 523–524, 524n, 527, 550 allocating assets to, 585–586 defined, 572, 574 income measuring, 586–587 managers versus, 587 measuring performance in, 576–578 viewed as collection of investments, 587–588 Investment opportunity rate, 716 Investment tax credit, 728 IPO See Initial public offering (IPO) Subject Index 835 IRR See Internal rate of return (IRR or time-adjusted rate of return) Irrelevant future costs and benefits, 625 IRS Publication 946: How to Depreciate Property, 725 ISO See International Organization for Standardization (ISO) ISO 14000—Environmental Management, 348 ISO 26000—Social Responsibility, 348 ISO standard, 347–353 ISO 9000 standards, 346–347, 347n, 348 Issue resolution time, 541 Iwabucki, Y., 685n Japanese industry, target-costing approach in, 686–687 Job, completion of production, 100 Job-cost record, 87 and job-order costing system, 95 purchase of material, 94 use of direct material, 94–96 Job order, 86, 140, 150–151 See also Batch production Job-order costing system, 86, 154 accumulating costs in, 87–94 comparison of, and process costing, 138–140 illustration of, 94, 96–105 in non-manufacturing firms, 108–111, 113 versus process costing, 87, 112, 140–141 purpose of, 153 summary of event sequence, 95 Job-order cost record, 88–89 Job shop, 42, 61, 86 Johnson, Julie, 112n Johnson, Thomas, 452n Joint cost(s), 634 Joint cost allocation, in oil and gas industry, 774 Joint product cost allocation allocation joint costs, 772–775 defined, 772 physical-units method, 773–774 relative-sales-volume method, 773–775 Joint production process, 633–635 Joint products and cost allocation, 772–775 defined, 633 sell or process further, 633–635 Jones, Keith, 346n Jordan, Jeff, 539n Joshi, Satish, 352n 836 Subject Index Journal entry, 104–105, 112, 153 to record production overhead under standard costing, 496 under standard costing, 498 Journalism, Joy, J., 597n Just-in-time (JIT) inventory, 341 See also Inventory management Just-in-time (JIT) inventory and production management system, 190, 391n, 638n, 805–807 Just-in-time (JIT) inventory management, 772, 805–807 Just-in-time (JIT) manufacturing system, 307–308 Just-in-time (JIT) production, 185, 499 Just-in-time (JIT) production management system, 307–308 Just-in-time (JIT) production method, 638 Just-in-time workforce, 259 Kahneman, Daniel, 55n Kaizen costing, 190 Kaplan, Robert S., 10n, 51n, 184n, 195n, 452n, 536n, 539n, 544n Kato, Y., 685n Katz, Benjamin D., 112n Kell, Georg, 348n Keller, Paul A., 343n Key cost drivers, 493n Khan, Zafar U., 342n Kiernan, Kaitlyn, 8n Kim, E., 633n Kirn, Steven P., 546n Klein, Norman, 539n Kliff, S., 732n Kranhold, Kathryn, 352n Krauss, C., 774n Krell, E., 597n Krishnan, Ranjani, 352n Kristof, K., 682n Krumwiede, Kip R., 492n Labor budget, 375 Labor-intensive production process, 305–306 Labor scheduling, 377 Labor time and hours, 233, 636 See also Time and material pricing Labor-time constraint, 645–646 Lag indicators, 546, 588 Landers, Peter, 630n Laney, Doug, 252 Last-in-first-out (LIFO) inventory accounting, 83 Lauzon, M., 629n Lave, Lester, 352n Lavelle, L., 582n Lead indicators, 545, 588 Lead time, 804–805 Leahy, T., 582n Learning and growth perspective, 538, 540, 548 as balanced scorecard measurement, 10 goals and measures, 543–544 Learning curve, 233, 258–260 Least-cost decision, 719 Least-squares regression line (regression line), 249–250, 260 Least-squares regression method, 248– 250, 260, 262–264 Ledger, posting journal entries to, 104–105 Leech, T J., 790n Liabilities, 583 Life-cycle costing, 683–684 LIFO See Last-in-first-out (LIFO) inventory accounting Limited resources, decisions involving, 635–637 Linear programming, 636, 643, 645–647 Line position, 13–14 Long-range budget, 372 Long-run average usage, 769–770 Long-run decision, 641 Loss on disposal, 728–729 Low distress market price, 594 Machine hour, 482, 636, 638, 645 Machine-related cost pool, 174–177, 175n, 199 Machine setup, 377 Machine-time constraint, 645–646 MACRS See Modified Accelerated Cost Recovery System (MACRS) Makarova, Evgeniya, 343n Make-or-buy decision, 628, 638 Management by exception, 433–434, 451 Management by objectives (MBO), 575 Management control systems, adaptation of, 575 Management decision, 243 Managerial accountant career as, 23 as chief financial officer (CFO), 13 as controller, 13 and cross-functional management deployment, 15–16, 27 defined, 5, 26 line and staff positions, 13–14 organizational structure, 14, 27 professional certification, 23 professional organization for, 23 role of, in business, 2–26 role of, in decision making, 618–621, 643 role of, in product-mix decision, 647 as strategic business partner, 16 Managerial accounting, assisting managers in directing and controlling operational activities, big data, data analytics, and, 21–23 as business partnership with management, 4–5 day-to-day activities management, 5–6, 26–27 defined, 4, 253 in different organization types, 11 ethical responsibilities and standards in, 24–25, 27 versus financial accounting, 11–12, 27 implications for, from ISO 9000 standards, 347 managing resources, activities, and people, 5–6 motivating managers and others toward organization’s goals, objectives of, 7–10, 26 operation context of, 16–26 product and service costs in, 83 role of, in goal congruence, 600 using, to monetize Internet, 8–9 value chain and, 17–18, 27 value of, to organization, 7–11 Managerial performance evaluation, 640 Managers versus investment centers, 587 measuring performance of, within organization, Managing constraints, 636 Manufacturing cost(s) categories of, 62 defined, 332 flow of, 45–47, 85 manufacturing operations and, 41–44 schedules for, 46–47 Manufacturing cycle efficiency (MCE), 555 Manufacturing cycle time, 554 Manufacturing firms activity measures in, 482 changing manufacturing technology, 482 cost behavior in, 244 criticisms of standard costing in, 452–453 eliminating non-value-added costs in, 188–190 extending master budget for, 389–395 flow of costs in, 84–85 operational budgets for, 374, 401–402 product costing in, 84–85 rise of activity-based costing, 772 service department cost allocation in advanced, 771–772 Manufacturing operations, and manufacturing costs, 41–44 Manufacturing overhead in actual-costing system, 149 application of, 98–99 and conversion, 140–141, 150–151 and conversion cost, 136 as cost of job-order costing system, 87–88, 144 defined, 43, 92 fixed, 354 on job-cost record, 88–89 and job-order costing system, 95, 112 in manufacturing cost flows, 85 as predetermined overhead rate, 199 total manufacturing costs, including, 44, 45n, 62 as underapplied overhead, 100 See also Conversion cost(s) Manufacturing-overhead cost, 92–94, 98–99, 144 Manufacturing systems, advanced, 305–306 Manufacturing technology, 482 Marginal cost, 56, 62 versus average cost, 57 decreasing, 240 increasing, 240 measuring, 675 in service business, 60 Marginal cost curve, 672–674, 692 Marginal-revenue, marginal-cost paradigm of pricing, 675–676 Marginal revenue curve, 670–672, 692 Market forces, balance of, and cost-based pricing, 669–670, 681 Market penetration, 541 Market price, 593–594, 601 Market pricing, 681 Market research, 683 Market share, 542 Markup, 669 cost plus, 676 general formula for, 679 return-on-investment pricing, 678–679, 692 Marr, Bernard, 90n Marwah, M., 680n Mass customization, 41n Master budget, 401 assumptions and predictions underlying, 395–396, 402 budgeting financial statements, 377 components of, 373 defined, 372 developing, 378–389 extending, for manufacturing firm, 389–395 financing budget, 375–377 key features of, 388–389 key schedule types, 389, 402 operational budget, 374–375 sale of services or goods, 372–373 sales forecasting, 373–374 Material charges, 687 Material handling, 377, 683 Material price, 449 Material quantity variance, 445 Material-requirements planning (MRP), 89–90 Material requisition, 95 Material requisition form, 89 Material tear-down, 686 MBO See Management by objectives (MBO) McCartney, Scott, 57n MCE See Manufacturing cycle efficiency (MCE) Merchandising firms cost behavior in, 244 operational budgets for, 374, 401 Merchant K., 494 Merit pay, 586 Meyersohn, N., 680n Microsoft Excel software application, 249, 262–264, 300, 397 Milani, K., 597 Millennial consumers, 521, 538, 538n, 541–543 See also Demographics Minimum desired rate of return, 712 See also Hurdle rate (minimum desired rate of return) Mintz, S L., 182n Mixed cost See Semivariable (or mixed) cost Moazed, Alex, 8n Modified Accelerated Cost Recovery System (MACRS), 726n defined, 726, 740 depreciation methods, 726 depreciation tables, 727 half-year convention, 726–727 income-tax complexities, 728 no salvage values, 727 Subject Index 837 optional straight-line depreciation, 727–728 and Tax Reform Acts of 1986, 1989, 1993, 725 Monitoring, 352 Moore, R., 195n Moral Awareness and Legal Rights and Ethical Responsibilities, 259 Mosca, L., 586n, 682n Move time, 189 MRP See Material-requirements planning (MRP) Mullaney, T J., 305n Multidisciplinary ABC project team, 186–187 Multiple constraints, 643, 645 Multiple regression, 250, 260 Narayanan, V G., 195n Naughton, Keith, 21n Negotiated transfer price, 594–595, 601 Net book value, 584–585 Net fixed expenses, 296–297 Net-present-value analysis, 718 after-tax cash flow, 724 illustration, 731–732 incremental-cost approach, 720 and payback method, 735 total cost approach, 719–720 Net present value (NPV), 711–714, 717, 729–736, 738–741 advantages of, 715 analysis of, after-tax cash flow, 724 assumptions underlying discountedcash-flow analysis, 715–716 and capital-budgeting approaches under inflation, 745–746 comparing, and internal rate of return, 715 defined, 712 depreciable assets, 718 and incremental-cost approach, 719–720 and total-cost approach, 719–720 Net realizable value, 774–775 Net-sizable-value method, 774 No excess capacity, 591, 627–628, 689–690 Noncash expense, and after-tax cash flow, 723 Nonfinancial information, importance of, 588 Nonfinancial performance measures, 534, 550 Non-manufacturing firms job-order costing in, 108–111 service department in, 763 838 Subject Index Non-manufacturing product costing, 84 Non-manufacturing production cost, 47 Non-operational cash flows, 373 Nonproductive assets, 584 Nonprofit organizations, 294 and depreciable assets, 717 measuring performance in, 588–589 operational budgets for, 375, 401 product costing in, 84, 113 production output of service in, 84 use of cost-volume-profit analysis (CVP analysis), 284–285 Non-unit-level overhead cost, 181–182, 199 Non-value-added activities, 637 defined, 188 identifying, 189, 199 use activity-based management (ABM) to identify, 188–190 Non-value-added costs, 52, 483, 683 activity accounting and, 53 defined, 188 reporting, 189–190 using activity-based management (ABM) to identify, 188–190 Non-volume-based cost drivers, 307 Norkiewicz, Angela, 194n Normal capacity utilization, 489 Normal costing, 106 actual costing versus, 149 versus standard costing, 481 Normal-costing system, 451, 481 Norton, David P., 10n, 536n, 544n NPV See Net present value (NPV) Objective function, 645–646 Observable-cost perspective, 343–344 Observable costs, 343 Observable quality costs, 342 Obsolete inventory decision, 624 O’Donnell, R., 242n Offshoring, 629n Off-site remediation, 353 Off-standard material, 449–450 Oil and gas industry, 774 Okano, H., 685n Oligopolistic market, 675 Oligopoly, 675 On account, 386 One-time cash flow, 730 On-Road Integrated Optimization (ORION), 91 Onshoring, 629n On-site remediation, 353 Operating cost, 58 Operating expense, 40, 47 Operating income, 40 Operating leverage break-even point and safety margin, 304–305, 310 cost-benefit issue, 306 cost structure and, 303–306 defined, 304 labor-intensive production processes versus advanced manufacturing systems, 305–306 measuring, 304 and web-based companies, 305 Operating leverage factor, 304 Operating profit See Operating income Operating revenue, in service firm, 47 Operational activities directing, 5–7, 26–27 See also Activities Operational budget, 373 manufacturing firms, 374, 401 master budget schedules for, 389, 401 for merchandising firms, 374, 401 for nonprofit organizations, 375, 401 for service industry firm, 375, 401 summary of, 375 Operational improvement measure, 555 Operational performance measure, 550 innovation and learning, 553, 555 inventory, 553–554 machinery, 553–554 product and services quality, 553–554 production and delivery, 553–554 productivity, 553, 555 raw material and scrap, 553–554 Operation costing, 87n, 150–154 Operation costing data, 152 Operation income statement, 631 Operations, controlling, 371, 401 Opportunity cost, 54–55, 54n, 590–593, 601, 632, 643 defined, 62, 625, 641 and no excess capacity, 689 and relevant costs and benefits, 625–626 in service business, 59–60 Optional straight-line depreciation, 727–728 Order processing, 377 Order-taking system, 430 Organizational chart, 27, 525, 576 Organizational structure, accounting and finance in, 27 ORION See On-Road Integrated Optimization (ORION) Ortiz, E., 259n Outlay cost, 590–593 Outlier, 246, 251 Out-of-pocket cost, 54–55, 59–60, 62 Output measure, 478 Outslay, E., 726n Outsourcing (subcontracting), 628–630, 629n, 630, 636, 643 activity-based costing (ABC) analysis of, decision, 638–640 convention (make or buy) analysis, 638 ethics, 642 Overapplied conversion cost, 153 Overapplied overhead, 100–102, 112, 149, 498 Overhead, underapplied and overapplied, 100–102 Overhead absorption (or overhead application), 92 Overhead accounting, 98–99 Overhead application (or overhead absorption), 92, 106–109 choosing cost driver for, 107 cost drivers for, 149 in standard-costing system, 481–482 Overhead budgets activity measure, 478–479 flexible, 479–481 flexible budgets, 477–478 Overhead cost(s) and activity-based costing (ABC), 175 applying, 94–95 assigned to activity cost pools, 173 assigned to cost objects, 377 assigned to products, 173 and computing product costs, 199 effect on performance reporting, 492 large payment for, 106 as non-manufacturing production cost, 47 non-unit-level, 181 on overhead cost performance report, 490 Overhead cost driver, measure, 95 Overhead cost item, 492 Overhead cost performance report, 490, 496 Overhead cost variances, cost management using, 484–489 Overhead rate, 95, 98, 199 departmental, 107 predetermined, 92–93, 112 Overpricing, 685, 692 Overtime, 637 Overtime premium, 43–44 Padding the budget, 399–402 Pandolph, S., 680n Parallel processing, 636 Parameter, 262 Pareto diagram, 344–345 Partial balance statement, 85 Partial income statement, 85 Partially controllable cost, 59 Partial (or component) productivity, 555 Participation, in setting standards, 434–435 Participative budgeting, 400, 402 Parts, 806 Pasztor, Andy, 111n Paul, Douglas, 195n Payback method, 735–736, 740 Payback period, 735–736, 740 Pay for performance, 586 Payments, for overhead costs, 106 PCAOB See Public Company Accounting Oversight Board (PCAOB) Pearson, David, 21n Penetration pricing, 681, 692 People, managing, 5–6 Percent growth in revenue, 539 Peregrine, M W., 791n Perez-Pena, Richard, 351n Perfect competition, 593 Perfection (or ideal) standard, 435 Performance(s), 550 comparison of, 432–433 current, on activities, 534 employee, 451, 600, 640 evaluating, 371, 401, 721 future financial, 534 measuring, in investment centers, 576–578, 601 measuring, in nonprofit organizations, 588–589 measuring, of activities, subunits, managers and others within organization, 9, 26–27 postaudit evaluation, 721 Performance dashboard, 535–536 Performance measures, 188, 600–601 nonfinancial, 534 used in balanced scoreboards, 546 Performance report, 550 allocation bases based on budgets, 530 budgets, variance analysis, and responsibility accounting, 528–529 cost allocation, 529 cost allocation bases, 529–530 defined, 527 example, 527–528 Period cost defined, 37–38 and fixed manufacturing overhead, 332 in manufacturing, 37–38, 61 in service industry, 58 Periodic depreciation charge, 717 Physical units, 149, 153 Physical-units method, of joint product cost allocation, 773–775 Planned activity, 478, 481, 489 Planning, 26, 432 budgets as tools for, 371–377, 401 as role of managerial accountant, 5–7, 26 Plantwide overhead rate, 107 Player, Steve, 376n Political, legal, and image-related issues, 668, 670, 692 Pool rate, 176, 197 Porter, Michael E., 51n, 195n Postaudit (reappraisal), 720 Practical capacity, 19, 93, 194–198 Practical (or attainable) standard, 435 Practical standards, perfection versus, 435 Predatory pricing, 691 Predetermined fixed overhead rate, 498 Predetermined fixed overhead rate per unit, 338 Predetermined overhead rate, 92–93, 95, 98, 112, 149–151, 481 Preliminary design, and target costing, 683 Present value of cash-flow series, 797–798 defined, 796 of series, 799 of single cash flow, 799 verification of, calculation for cashflow series, 798–799 Prevention cost, 342–343 Price, quantity, and revenue data, 671–672 Price discrimination, 691 Price elasticity, 675 Price-led costing, 683–684 Price taker, 670–676 Price war, 680 Pricing cost-plus, 676–677 economic model of, 676 effect of antitrust laws on, 691 Marginal-revenue, marginal-cost paradigm of, 675–676 of new products, 681 product-cost distortion and, 684–685 Subject Index 839 role of accounting product costs in, 676–681 Pricing decisions influences on, 668–670, 692 political, legal, and image-related issues, 670 Pricing method See Entries for specific pricing methods Prime cost, 44 Principal, 795–796 Prior-year-end balance sheet, 394 Private environmental costs, 351–353, 355 Probability distributions for sales, 374 Process, 189 Process-costing system assigned direct material and conversion costs, 136–138 calculation, 149 comparison of job-order costing and, 138–140 defined, 87, 112, 138 illustration of, 142–148 job-order costing system versus, 87, 140–141 purpose of, 153 weighted average method of, 142–143, 145–148, 154 in wine industry, 142, 144 Process design, 683 Process hours, 486 Process time, 189, 482 Process value analysis (PVA), 189 Process view, 187–188 Procurement, 683 Product(s) add or drop, 631–632, 643 outsource, 628–630 overhead costs assigned to, 173 strategic pricing of new, 681 Product cost(s) from activity-based costing (ABC) system, 179, 199 comparison of, and target prices from alternative product-costing systems, 179 compute, under activity-based costing (ABC) system, 199 compute, under volume-based costing system, 199 and fixed manufacturing overhead, 332 in manufacturing, 37–38, 40, 61 for non-manufacturing firms, 84 in service industry, 58 standard costs and, 450–451 840 Subject Index Product-cost distortion, and pricing, 684–685, 692 Product cost information, 83–84, 112 Product costing, 488, 498–499 versus cost management, 485 defined, 82, 112, 450 standard costs and, 450–451 Product-costing perspective, 641, 772–775 Product-costing system, 82–84, 301 alternatives, 87 inputs of, 87 traditional, 93, 199 types of, 86–87 and volume-based cost driver (or activity base), 93 Product cost per unit, 176 Product costs flow, 450–451, 450n Product design, 683–684, 686, 692 Product diversity, 181–182, 199 Production and delivery, 553–554 Production budget as component of master budget, 373 defined, 390 for manufacturing firm, 374, 390–391 for service industry firm, 375 Production controls, 111 Production cost, analysis of, under weighted-average method of process costing, 153–154 Production department, 108n Production engineering, 683 Production job, 100, 108n Production loss, allowing for, 444 Production order, 95 Production overhead, 198, 496, 498 See also Manufacturing overhead Production overhead budget, 373, 383–384 Production process and conversion activity, 142 as key principle of target costing, 683–684, 692 labor-intensive, versus advanced manufacturing systems, 305–306 types, 42 Production scheduling, 683, 692 Production unit, 145 Productivity, 553, 555 Product line diversity, 181–182 Product line production volume, 176 Product-mix problem, 643, 645–647 Product packaging, as inventoriable cost, 341 Product planning, and target costing, 683, 692 Product quality, 342–345, 355 See also Quality Product and service quality, 553–554 Product-sustaining-level activity, 173– 175, 194, 199 Professional certification, 23, 27 Professional organization, for managerial accountants, 23, 27 Profiling, 691–692 Profit big data use cases in managing, 90–91 controlling, 371 predicting, given expected volume, 295–296, 310 Profitability index (or excess value index), 734, 740 Profit and cost management process, strategic, 682–684 Profit and loss areas of cost-volume-profit (CVP) graph, 289–290 Profit center, 523, 524n, 525–527, 550, 574 Profit margin, 383 Profit-maximizing model, limitations of, 675 Profit measure, 587 Profit-orientated organizations, nonprofit versus, 717 Profit plan, 372 Profit-volume graph, 291, 299 Pro forma financial statement, 372 See also Budgeted financial statements Projected direct-labor cost, 442 Projected expenses and revenue, 285 Projected labor cost, 442 Projected material cost, 439 Projected variable overhead, 484–485 Project team, multidisciplinary ABC, 186–187 Property tax, and actual manufacturing overhead, 99 Proration, 101–102, 149 Public Company Accounting Oversight Board (PCAOB), 789–790 Public image, 668, 670, 692 Public utilities industry, 669 Purchases budget, 381 Purchasing, 377 PVA See Process value analysis (PVA) Pyzdek, Thomas, 343n Qualitative analysis, 619–620 Qualitative factor, 690 Quality of conformance, 342 costs of, 342 costs of assuring, 341–347 of design, 342 grade, 342 measuring and reporting costs for, 341–343 observable versus hidden costs, 342 sacrificing, to cut standard costs, 454 Quality audit program, 554 Quality control, 344–346, 377 Quality cost report, 343, 355 Quality costs, and optimal level of product quality, 344 Quality management, Six Sigma for, 346 Quality of conformance, 342 Quality of design, 342 Quantitative analysis, 619–620 Quinn, Richard T., 546n Ragani, Alessandro Faure, 343n Rate of return assets, 738 Raw material, 805 versus direct material, 43 and flexible overhead budgeting, 483 Raw material and scrap, 553–554 Raw-material inventory, 41, 89, 112 Real option analysis, 721 Reappraisal, 720 See also Postaudit (reappraisal) Reasonable assurance regarding reporting, 789 Reciprocal service, 763 Reciprocal-services method defined, 775 illustration, 777–778 for service department cost allocation, 766–767 Reconciling income, 354 and inventory changes, 337–339 length of time period, 339 shortcut to, 338–339 Recurring variance, 445–446 Regression analysis, 254–255, 374 Regression line, 249, 260 See also Leastsquares regression line (regression line) Relative magnitude, 445 Relative-sales-volume method, 634, 773–775 Relative size of variance, 445 Relative value units (RVUs), 769 Relevant, 620–621 Relevant costing, 639 Relevant-costing analysis, 638 Relevant costs, 626, 634 Relevant costs and benefits, and decision analysis, 622–626, 632, 638, 641, 643 Relevant information, in decision making, 621–622, 643 Relevant range, 240–241, 245–246, 260, 288 Remediation costs, 352–353 Repetitive decisions, 622 “Replace” alternative, 623 Reporting consistency in, 494–495 mismatched time periods, 251 product and service costing in, 84 Research and development (R&D) cost, 37 Residual income (RI), 576, 578–581, 584–588, 600–601 Resource(s) allocating, 371, 401 decisions involving limited, 635–637 managing, 5–6 scarce, 636 used, 20, 27 See also Labor Resource costs, 377 Resources supplied, 19–20, 27 Responsibility accounting, 522n behavioral effects of, 531–532 budgets, variance analysis and, 529 defined, 52, 520, 523 to foster goal congruence, 550 illustration of, 524–526 performance report, 527–530, 600 responsibility centers, 523–524 segmented reporting, 532–534 Responsibility centers, 522n, 550 common types of, 523–524 cost center, 523 defined, 523 organizational chart, 526 performance report, 527–530 Restraining, 637 Retailers and e-tailers, in price wars, 680 Return on investment (ROI), 576–578, 584–585, 587–588, 600–601 Return on investment (ROI) pricing, 678–679, 692 Revenue, cost, and profit data, 674–675 Revenue center, 523, 550 Revolving budget, 372 RI See Residual income (RI) Rich, Robert, 24n Richardson, T., 61n Rigby, Darrell, 544n Risk aversion and incentives, 598–599 Robertson, Campbell, 351n Robinson, J., 725n–726n Robinson-Patman Act, 691 Robotic technology, 482 ROI See Return on investment (ROI) Rolling budget, 372 Root causes, 188–189 Rouse, M., 253n Rowley, Ian, 20n Rucci, Anthony J., 546n Russolillo, Steven, 8n RVUs See Relative value units (RVUs) Safety margin, 293, 304–305 Safety stock, 804–805 Sale forecasting, 373–374 Sales, and target costing, 683 Sales budget, 373, 381 defined, 380 schedule for, 389, 402 Sales margin, 577, 600 Sales mix, 298–300 Sales of services or goods, 372–373 Sales price, 294–295, 310, 499 Sales price data, 179 Sales-price variance, 496, 500 Sales revenue and break-even points equation approach, 310 and flow of costs through manufacturing accounts, 85, 112 Sales variance, 499–500 Sales volume, 296, 310 Sales-volume variance, 496, 500 Salvage value, 727 Sandberg, Jared, 61n Sarbanes–Oxley Act (SOX), 24, 599 enactment of, 788, 788n internal controls over financial reporting, 789 Public Company Accounting Oversight Board (PCAOB), 789–790 sections 302 and 304, 790–791 Scandals corporate accounting, 24 See also Ethics Scarce resource, 636, 643 Scatter diagram, 245–246 Schedule of cost of goods manufactured, 45, 62, 103 Schedule of cost of goods sold, 45, 103–104 Schedule of goods sold, 62 Schwartz, John, 351n SEC See Securities and Exchange Commission (SEC) Second look VE, 686 Securities and Exchange Commission (SEC), 789 Subject Index 841 Seetharaman, Deepa, 9n Segmented income statement, 533–534, 550 Segmented reporting defined, 532 income statement, 533–534 key features of, 534 segments versus segment managers, 534 Segment manager, 534 Segment performance evaluation, 587–589 Segment profit, 588 Selling, general, and administrative expense (SG&A), 384 Selling and administrative expense report, 373–374, 402 Selling cost, 99–100 Semivariable (or mixed) cost, 239 and behavior pattern, 241, 260 within relevant range, 245–246 Sensitivity analysis, 300, 637, 647 Separable processing cost, 634 Sequential production operations, 150n, 153 Service add or drop, 631–633, 643 outsource, 628–630 Service department, 43 cost of running, 763, 796 defined, 762 in nonmanufacturing organization, 763 Service department cost allocation, 108– 109, 113, 762–765, 963 allocate budgeted costs, 771, 775 combining direct and step-down methods for dual cost allocation, 770, 775 direct method, 765, 767–768, 775 dual cost allocation, 769–771, 775 fixed versus variable costs, 767–769, 775 in manufacturing environment, 771–772 reciprocal-services method, 766–767, 775, 777–778 step-down method, 765, 775 Service industry firms activity-based costing (ABC) in, 194–199 big data and activity-based costing (ABC) in, 183–184 controllable and uncontrollable costs, 59 costs in, 58–60 differential, marginal, and average costs, 60 842 Subject Index Service industry firms—Cont direct and indirect costs, 59 eliminating non-value-added costs in, 188–190 flexible budgeting in, 493–494 operating expense in, 47 operating revenue in, 47 operational budgets for, 375, 401 opportunity, out-of-pocket, and sunk costs, 59–60 product and period costs, 58–59 product costing in, 84, 113 production output of, 84 transfer pricing in, 598 use of standards by, 435–436 variable and fixed costs, 58–59 SG&A See Selling, general, and administrative expense (SG&A) Shareholder value analysis, 581 Sherman Act, 691 Shimizu, N., 685n Short-range budget, 372 Short-run decision, 641 Short-run usage, 769–770 Simons, Robert L., 539n Simple rate of return, 738 Simple regression, 250 Simplex algorithm, 647 Six Sigma, 344, 346 Skimming pricing, 681, 692 Slope, 646 Slope coefficient, 262–264 Smith, Carl S., 482n Social environmental costs, 351, 355 Software glitch, 789, 789n Software tools, for accounting, 22–23, 45, 45n, 300 and automated internal controls over financial reporting, 789, 789n cloud-based budgeting, 397 for cost-accounting, 684 for data analytics, 398n to find internal rate of return, 715 See also entries for specific software Solomon, Deborah, 61n Solon, O., 682n Soueo, Anne, 111n Source document, 89 SOX See Sarbanes–Oxley Act (SOX) Special decisions accept or reject special offer, 626–628 add or drop service, product or department, 631–632 in manufacturing firms, 633–638 outsource product or service, 628–630 Special offer accept or reject, 626–628 accept or reject of, in competitive bidding, 691 Spending variance, 486–487 Split-off point, 634, 772, 774–775 Spreadsheets See Software tools, for accounting Staff position, 13–14 Standard allowed activity level, 488 Standard allowed hours, 489 Standard allowed input, 479 Standard allowed process hours, 498 Standard allowed quantity, 486 Standard cost(s), 498–499 versus actual costs, 596 defined, 432 for direct labor, 438–439 for direct material, 438–439 sacrificing quality to cut, 454 Standard costing behavioral impact of, 448 criticisms of, in manufacturing environment, 452–453 journal entries to record production overhead under, 496 journal entries under, 498 overhead applied to work-in-process inventory under, 496 Standard-costing system, 430, 647 advantages of, 451–452 evaluation of, 451–453 overhead application in, 481–482 Standard direct-material cost, 445 Standard direct-material price, 437, 440 Standard direct-material quantity, 437 Standard fixed overhead rate, 488 Standard hours allowed, 477, 481 Standard-labor cost, 442 Standard-labor quantity, 437 Standard-labor rate, 437 Standard performance, 432–433 Standard quantity allowed, 440, 4177 Standard rate, on overhead cost performance report, 490 Standards, methods for setting, 434–436 Standard variable costs, 499 Standard variable-overhead rate, 484–485 Stanley, Bruce, 544n State income tax, 312n Static budget, 477–478, 495 Static tear-down, 686 Statistical control chart, 448 Statistic method, 374 Step-down method combining, and direct method for service department cost allocation, 770, 775 and service department cost allocation, 765–766, 775 Step-fixed cost, 237–239, 260 Step-variable costs, 260 approximating, 236–237 defined, 236 direct-labor cost, 237 Storage time, 190 Storyboarding, 186, 199 Straight-line balance method, 585 Strategic cost management, 18 Strategy, and balanced scorecard, 536– 538, 540, 548 Subcontracting See Outsourcing (subcontracting) Subsidiary ledger, 95 Substitute product, 675 Subunits, measuring performance of organization’s, 9, 26 Sukutai, Michiharu, 452n Sunk cost, 55–56, 625–626, 640, 643 book value of equipment, 622–624 cost of inventory on hand, 624 defined, 62, 622 differential costs, 624 irrelevant in decision making, 641 in service business, 59–60 Superfund See Comprehensive Environmental Response, Compensation, and Liability Act (“Superfund”) Suppliers, working with, to manage costs, 453 Supply chain, 89 Supply chain management, 111 Support department, 43 Sustainability, 353 Sustainability Reporting Framework, 349–350 Sustainable competitive advantage, 18 Sustainable development, 348 Tableau Software, 249, 255–257, 277 Tabuchi, Hiroko, 24n Tabular approach, to economic order quantity (EOQ), 803 Tani, T., 685n Tap and zap employee, 159 Target cost, 682–684, 692 Target costing, 681 activity-based costing and, 684–685, 692 defined, 682, 692 for new product, 685, 692 principles of, 683–684, 692 product-cost distortion and pricing, 684–685, 692 strategic profit and cost management process, 682–684, 692 value engineering and, 685–686, 692 Target price(s), 179, 683, 692 Target pricing, 666 Target profit (or income), 291–293 contribution-margin approach, 292 defined, 292 equation approach, 292–293 Task analysis, 434 Tax accounting, absorption and variable cost, 339 Tax act of 1980, 726n Tax Cuts and Jobs Act of 2017 (TCJA), 51, 312n, 722, 725–726 Tax deduction, timing of, and after-tax cash flow, 724 Tax issues, transfer pricing, 597 Tax law, 725–726, 726n, 740 Tax law depreciation schedule, 740 Tax rate and after-tax cash flow, 740 on gains and losses, 729 Tax Reform Acts of 1986, 1989, and 1993, 725–726 TDABC See Time-driven activity-based costing (TDABC) Tear-down method, 686 Technology, for process design, 683 Theoretical capacity, 19 Theory of constraints (TOC), 636 Three Vs, 252 Throughput-based costing system See Volume-based costing system Throughput time (also known as cycle time), 107 Time-adjusted rate of return, 711 See also Internal rate of return (IRR or time-adjusted rate of return) Time charges, 687 Time-driven activity-based costing (TDABC), 194–198, 195n, 199 Time in app, 543 Timeliness, in decision making, 106 Timely, 621 Time and material pricing, 686–688 Time and motion studies, 251 Time record, 91–92, 92n, 251 Time value of money accelerated depreciation and, 724 accounting for, in methods for investment decisions, 734 accounting-rate-of-return method and, 736, 738 discounted-cash-flow analysis and, 711 and interest rates, 744 payback method and, 735–736, 740 Timing of orders, and economic order quantity (EOQ), 804–805 TOC See Theory of constraints (TOC) Tonner, Andrew, 8n Torok, Robert G., 378n Total activity cost, 176 Total assets, 584, 600–601 Total assets less current liabilities, 584 Total contribution margin, 286, 295–296, 499 Total cost, 146–147, 154 Total-cost analysis, 630 Total cost approach, in net-present-value analysis, 719–720, 740 Total cost curve, 672–674, 692 Total cost formula, 676–678, 692 Total-cost-plus pricing, 681 Total-costs pricing formula, 677–678 Total direct-material cost, 236 Total expense, 528, 608 Total manufacturing cost, 44 Total productive assets, 584 Total profit, 528 Total quality control (TQC), 307 Total quality management (TQM), 344 Total revenue curve, 670–672, 674 Total standard allowed input, 444 Total variable cost formula, 676–678, 692 Touch labor, 683 TQC See Total quality control (TQC) TQM See Total quality management (TQM) Trade-off among variances, 450 cost-benefit, 675–676 in setting bid price, 690 Traditional income statement, 301–303 Traditional product-costing systems, 199, 692–693 Transfer price, 574, 601 Transfer pricing, 573, 589–598 cost-based, 595–596 general transfer-pricing rule, 590–593 goal congruence, 589–592 international perspective, 596–598 negotiated, 594–595 scenario, 590 in service industry, 598 standard versus actual costs, 596 and tax issues, 597 Subject Index 843 transfers based on external market price, 593–594 undermining divisional autonomy, 596 Transferred-in cost, 139–140 Treasurer, 15 Trends, in variances, 446 Trigger activities, 188, 190 Two-dimensional ABC model, 187–189, 199 Two-stage cost allocation, 107–109, 108n, 113, 775 Two-stage cost assignment process, 172–173, 199 Unadjusted rate of return, 738 Unauthorized action, 599 Unavoidable expense, 631 Uncertainty, 637–638 Uncollectible accounts receivable, 375 Uncontrollable cost, 53–54, 59, 62 Uncontrollable expense, controllable versus, 534 Underapplied conversion cost, 153 Underapplied overhead, 100–102, 112, 149, 498 Uneven cash flow, 715, 736 Unfavorable direct-labor efficiency variance, 450, 486 Unfavorable direct-labor rate variance, 450 Unfavorable direct-material quantity variance, 449–450 Unfavorable fixed-overhead budget variance, 487 Unfavorable variance, 438, 489 Unique decisions, 622 Unit contribution margin changes in, 294–295 defined, 287, 499 weighted, 198 Unit cost, 146–147, 643 Unit-cost data, 630 Unit-level activity, 173–175, 194 and customer-profitability analysis, 191 defined, 199 Unit-level cost, 391n Unit overhead cost, 179 Unit product cost, 179 Units of output, 479 Unit variable expenses, 294 Unused capacity, 20–21, 27 U.S antitrust law, 691 U.S Congress, 788, 788n U.S federal corporate income tax, 312n, 723 844 Subject Index Use cases, in managing costs and profits, 90–91 Utility cost, 92, 99, 240 Utility cost pool, 529 Utilized fixed cost, 641 Value chain, 684 characteristics of, 18 defined, 17–18, 27 major steps in, 17 managerial accounting and, 17–18 Value-chain orientation, 683–684 Value engineering, 685–686, 692 Value-engineering process, 686 Variable(s), interdependent changes in key, 296–297 Variable cost, 48–52, 595 and cost behavior patterns, 235–237, 260 defined, 235 direct labor as, 242 and fixed costs, in total an on per-unit basis, 62 fixed versus, in service department cost allocation, 767–771 graph of total direct-material cost, 236 on overhead cost performance report, 490 in service industry, 58–59 Variable costing (direct costing) versus absorption costing (full costing), 335, 354 evaluation of, 339–341 illustration of, 336 reconciling income under, 337–339 Variable-costing income statement, 337 Variable-cost pricing formula, 678–679 Variable manufacturing cost formula, 676–678, 692 Variable overhead, 485–487 Variable-overhead cost, 479, 486–487, 647 Variable-overhead efficiency variance, 484–486 Variable-overhead items, 486 Variable-overhead spending variance, 484, 496 Variable-overhead variances, 485–486 Variable selling, 647 Variable selling and administration cost formula, 676–678 Variance(s) analysis of, 528–529 controllability of, 448–450 disposition of, 498 favorable, 447 interaction among, 449–450 recurring, 445–446 size of, 445 spending, 486–487 trade-offs among, 450 trends in, 446 See also entries for specific variances Variance costs, on overhead cost performance report, 490 Variance data analytics, 443–444 Variety, 252 Varmazis, Maria, 453n Velocity, 252, 554 Verschoor, C., 791n Visible private environmental costs, 351, 355 Visible social environmental costs, 351, 355 Visual-fit method, 245–247, 260 Volume, 252 Volume-based costing system compute product costs under, 199 defined, 172 traditional, 179–180, 199 Volume variance, 496 WAAC See Weighted-average cost of capital (WAAC) Wages, 483 See also Direct labor entries Waiting time, 190 Watson Analytics, 600 Weaver, C., 725n–726n Webb, Alex, 21n Weighted-average cost of capital (WAAC), 581, 600 Weighted-average method, of process costing, 142–143, 145–148, 153–154 Weighted-average unit contribution margin, 198 Welch, David, 20n Welch, Jack, 346, 375n Welch, Suze, 376n Whale chart, 193 “What if” questions, 396 White, Martha C., 57n Wine production, 142, 144 Winton, Neil, 21n WIP See Work-in-process inventory (WIP) Work center, 43 Working capital, investment in, 729–730 Work-in-process inventory (WIP) absorption and variable costing and, 334–335 cost of goods manufactured and, 45n defined, 41 direct-materials cost and, 89 direct-material, direct labor, and manufacturing overhead costs, 138–139, 142 and flow of costs through manufacturing accounts, 85, 138–139 flow of production cost out of department, 142 on job-cost record, 87, 94 and job-order costing system, 95, 138–139 and journal entries, 112 and manufacturing overhead, 98, 138–139 operation costing and, 152–153 overhead applied to, under standard costing, 496 and product costing, 450–451 proration of underapplied and overapplied overhead, 101–102 transfer, to finished-goods inventory, 100, 112 underapplied overhead and, 100 See also Inventory Worsham, R., 725n–726n Worthy, Ford S., 182n Woyke, Elizabeth, 91n Wrappe, S., 597n Young, Shawn, 61n Yuan, L., 61n Zero-defect perspective, 343–344 Zeroth look VE, 686 Focus on Ethics IMA STATEMENT OF ETHICAL PROFESSIONAL PRACTICE Refrain from engaging in any conduct that would prejudice carrying out duties ethically Members of IMA shall behave ethically A commitment to ethical professional practice includes overarching principles that express our values and standards that guide our conduct 3 Abstain from engaging in or supporting any activity that might discredit the profession Principles Communicate information fairly and objectively IMA’s overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them 2 Disclose all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations Standards Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law A member’s failure to comply with the following standards may result in disciplinary action I Competence Each member has a responsibility to: Maintain an appropriate level of professional expertise by continually developing knowledge and skills Perform professional duties in accordance with relevant laws, regulations, and technical standards Provide decision support information and recommendations that are accurate, clear, concise, and timely Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity II Confidentiality Each member has a responsibility to: Keep information confidential except when disclosure is authorized or legally required Inform all relevant parties regarding appropriate use of confidential information Monitor subordinates’ activities to ensure compliance Refrain from using confidential information for unethical or illegal advantage III Integrity Each member has a responsibility to: Mitigate actual conflicts of interest Regularly communicate with business associates to avoid apparent conflicts of interest Advise all parties of any potential conflicts IV Credibility Each member has a responsibility to: Resolution of Ethical Conflict In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or resolving an ethical conflict When faced with ethical issues, you should follow your organization’s established policies on the resolution of such conflict If these policies not resolve the ethical conflict, you should consider the following courses of action: Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved In that case, present the issue to the next level If you cannot achieve a satisfactory resolution, submit the issue to the next management level If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners Contact with levels above the immediate superior should be initiated only with your superior’s knowledge, assuming he or she is not involved Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you believe there is a clear violation of the law Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action Consult your own attorney as to legal obligations and rights concerning the ethical conflict Used by permission of Institute of Management Accountants, Inc .. .Managerial Accounting Creating Value in a Dynamic Business Environment Twelfth Edition Ronald W Hilton Cornell University David E Platt University of Texas at Austin MANAGERIAL ACCOUNTING: CREATING. .. differences between managerial and financial accounting 12 Exhibit 1–2 Managerial Accounting, Financial Accounting, and Cost Accounting Chapter 1 The Crucial Role of Managerial? ?Accounting in a... organization’s managerial accounting system Objectives of Managerial Accounting Activity Managerial accounting activity comprises a set of tools, systems, and perspectives that add value to an organization