www.ebookslides.com Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com SEVENTH EDITION Managerial Accounting THE C O RNERSTO N E O F B U SIN E SS DECI SI O N MA KI NG Maryanne M Mowen Oklahoma State University Don R Hansen Oklahoma State University Dan L Heitger Miami University Australia • Brazil • Mexico • Singapore • United Kingdom • United States Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Managerial Accounting: The Cornerstone of Business Decision Making, Seventh Edition Maryanne M Mowen, Don R Hansen, Dan L Heitger Sr Vice President, General Manager, Social Science and Qualitative Business: Erin Joyner © 2018, 2014 Cengage Learning® ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S copyright law, without the prior written permission of the copyright owner Executive Product Director: Mike Schenk Product Director: Jason Fremder Product Manager: Matt Filimonov Content Development Manager: Daniel Celenza Product Assistant: Audrey Jacobs Executive Marketing Manager: Robin LeFevre Sr Content Project Manager: Martha Conway Manufacturing Planner: Doug Wilke For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Production Service: Cenveo Sr Art Director: Michelle Kunkler Unless otherwise noted, all items are © Cengage Learning Cover and Internal Designer: Harasymczuk Design Cover Image: © Digital Storm/Shutterstock.com Kicker Icon: Courtesy of Kicker Kicker Speaker Image: © dencg/Shutterstock.com Intellectual Property Analyst: Brittani Morgan Intellectual Property Project Manager: Reba Frederics Microsoft Excelđ is a registered trademark of Microsoft Corporation â 2017 Microsoft Library of Congress Control Number: 2016958236 ISBN: 978-1-337-11577-3 Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world Find your local representative at www.cengage.com Cengage Learning products are represented in Canada by Nelson Education, Ltd To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in Canada Print Number: 01 Print Year: 2016 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com This book is dedicated to our students—past, present, and future— who are at the heart of our passion for teaching Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Brief Contents CHAPTER Introduction to Managerial Accounting CHAPTER Basic Managerial Accounting Concepts 30 CHAPTER Cost Behavior and Forecasting CHAPTER Job-Order Costing and Overhead Application CHAPTER Activity-Based Costing and Management CHAPTER Process Costing CHAPTER Cost-Volume-Profit Analysis 332 MAKING THE 78 148 214 276 CONNECTION 390 CHAPTER Tactical Decision Making and Relevant Analysis CHAPTER Profit Planning and Flexible Budgets CHAPTER 10 Standard Costing and Variance Analysis MAKING THE CONNECTION 454 520 588 CHAPTER 11 Performance Evaluation and Decentralization CHAPTER 12 Capital Investment Decisions MAKING THE CONNECTION 697 Emerging Topics in Managerial Accounting CHAPTER 14 Statement of Cash Flows CHAPTER 15 Financial Statement Analysis 700 790 836 891 Check Figures Index 590 644 CHAPTER 13 Glossary 392 899 903 iv Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Dear Colleague, We have been teaching managerial accounting for decades We love it and believe strongly that managerial accounting is one of the most important courses in the business curriculum! Since it is one of the first business courses students take, we work to share our love and enthusiasm for the material and to show each student that managerial accounting is both FUN and RELATABLE to their current life, as well as to their future We wrote this book because there was no other book available that helped us reach the wide variety of students we see each term Reaching students is a challenge because: • There is so much material to teach that instructors don’t have time for the “fun stuff;” • Students don’t connect the detail with the big picture; • Many students juggle jobs, family, and so on, so they have little time—their time in the class must be optimized for understanding; • Managerial accounting is not as straightforward as financial, and students must develop judgment skills in addition to absorbing material; • There is a tremendous diversity of students (incoming skills, language, etc.); and • There is no standard road map to teach the course (a.k.a., the balance sheet) Our approach is to make the entire managerial accounting experience for instructors and students timely, meaningful, fun, and relatable This edition contains numerous new features that achieve these goals in a way that positively sets our book apart from all other managerial accounting books For instance, our new chapter, “Emerging Topics in Managerial Accounting,” addresses timeliness by covering cutting-edge topics Our unique “Here’s How It’s Used” pedagogy enables students to enjoy the process of developing a deeper understanding of managerial accounting and its implications for themselves, as well as businesses Our watchwords are “Here’s How:” Here’s How It’s Used Concept Clip Animations for many major topics portray the most difficult concepts in a brief and fun animated cartoon They present the information in a logical, entertaining, and relatable way that pertains not only to businesses, but also to students’ everyday lives Here’s How It’s Used Examples (formerly Cornerstones) throughout the text walk students through the most important managerial accounting models and help them solve computations Students say these examples really get them started on their homework and help them understand the material before class As a result, the Examples allow the instructor to focus valuable class time on the “why,” and allow students to understand the big picture— helping students see the relevance and importance of what they are learning Here’s Why It’s Important highlights for students the reason that key topics within each chapter are important This new feature significantly helps students better understand the big picture of why managerial accounting is important Experience Managerial Accounting Videos focus on real companies, such as Coldstone Creamery, Second City Comedy Club, and Boyne USA ski resorts, and the integrated real-world examples of Kicker Speakers provide students with inside access into how management accounting is used to make real-world business decisions v Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Using our text, you don’t need to spend as much valuable class time teaching “how,” you can focus on “why.” • Examples are built around how students work, summarizing key procedures to help students complete homework independently • Because students are able to complete homework independently, they not bombard the instructor with “How I this?” type questions Students who want to go farther can use: • Blueprint Problems We wrote these expressly to accompany this book and help students expand their understanding • Blueprint Problems Using Excel We wrote these to help develop students’ spreadsheet skills Students are required to develop their own Excel formulas to solve the problems • Analyzing Relationships We developed these to help students use a graphical approach to see exactly how changing one or more underlying variables affects a model These allow students to engage in sensitivity analysis and to consider the related analytical questions These help to foster analytical skills and to develop judgment and understanding Our goal is to improve student understanding and preparedness while allowing you to focus on meaningful applications of managerial accounting to important real-world topics We believe it will work in your classroom and look forward to teaming up with you to improve your students’ success and make managerial accounting meaningful, fun, and relatable Sincerely, Maryanne Mowen, Don Hansen, Dan Heitger vi Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Close the Gap Between Homework and Exam Performance with CengageNOWv2 We’ve talked with hundreds of accounting instructors across the country and we are learning that online homework systems have created a new challenge in the accounting course learning the content, but rather memorizing their CengageNOWv2 better prepares students for the exam by providing an online homework experience that is similar to what students will experience on the exam and in the real world way through the system Read on to see how CengageNOWv2 helps close this gap We are hearing that students perform well on the homework but poorly on the exam, which leads instructors to believe that students are not truly Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Closing the gap, one step at a time Multi-Panel View One of the biggest complaints students have about online homework is the scrolling, which prevents students from seeing the big picture and understanding the accounting system This new Multi-Panel View in CengageNOWv2 enables students to see all the elements of a problem on one screen • Students make connections and see the tasks as connected components in the accounting process • Dramatically reduced scrolling eliminates student frustration Blank Sheet of Paper Experience Many students perform well on homework but struggle when it comes to exams Now, with the new Blank Sheet of Paper Experience, students must problem-solve on their own, just as they would if taking a test on a blank sheet of paper This discourages overreliance on the system Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com From Motivation to Mastery MOTIVATION: Engage students and better prepare them for class Concept Clips Written by the authors, these clips provide students with a deeper explanation into the why and the how of managerial accounting concepts Video: Tell Me More Tell Me More lecture activities explain the core concepts of the chapter through an engaging auditory and visual presentation that is ideal for all class formats—flipped mode, online, hybrid, face-to-face Adaptive Study Plan The Adaptive Study Plan is an assignable/gradable study center that adapts to each student’s unique needs and provides a remediation pathway to keep students progressing APPLICATION: Help students apply accounting concepts Video: Show Me How Linked to end-of-chapter problems in CengageNOWv2, Show Me How problem demonstration videos provide a step-by-step model of a similar problem MASTERY: Teach students to go beyond memorization to true understanding Mastery Problems for Managerial Accounting, 7e These problems allow students to see the interrelationships among core concepts Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Index Ethical conduct company codes of, 17–18 for managerial accountants, standards of, 18–20 managerial accounting and, 15–20 Ethical decisions budgetary slack, 481 CVP analysis, 364 decision making, 398–399 diversity and product-costing accuracy, 225 equivalent units of production, 284–286 fraud and, 747 in global context, 744 job costs, 161 managerial judgment, 103 operating cash flows, 793 payback periods, 649 profitability ratios, 861–862 return on investment, 602 service firms, 154 standard costing methods, 524–525 support department and, 177 tracking costs and, 36 using budgets for performance evaluation, 478 Evidence-based best practices (EBBP), 525 Exchange gain, defined, 742 Exchange loss, defined, 742 Exchange rates, defined, 740 Expenses avoidable fixed, 409 common fixed, 351, 409 defined, 33 direct fixed, 351, 409 traceable fixed, 409 Exporting, international issues, 739 External accounting, External failure costs, defined, 720 ExxonMobil, EY, 399 EY Parthenon, 16 F Facebook, 43 Facility-sustaining costs, 217 Factory burden, 39 Failure costs defined, 720 external, 720 internal, 720 Failure of unit-based overhead rates, illustrating, 218–223 Favorable (F) variances, defined, 529 Features and characteristics costing, 734 FedEx, 9, 11 FedEx Office, 104 Feedback on performance, frequent, 480 FEMA, 12 FIFA, 17 FIFO costing method and weighted average methods, differences between, 298 defined, 286 example of, 298–302 production report, 298–302 Fifth Third Bank, 33 Financial accounting, 7–8 comparison of managerial and, 7–8, exh., defined, Financial Accounting Standards Board (FASB), 7, 106 Financial budgets defined, 458 preparing, 469–475 Financial perspective, 615 defined, 611 summary of objectives and measures, exh., 616 Financial statements, impact of product vs period costs on, exh., 42 Financing activities, defined, 794 Financing cash flow, compute, 799–800 Finished goods, accounting for, 167–168 Firm divisions in decentralized, 593 milking the, 482 Fixed cost, 80 Fixed cost(s), 81–84 and contribution margin at breakeven, exh., 337 defined, 36, 81 exh., 83 impact of changing, 350 using high-low method to estimate, 390–391 Fixed expenses avoidable, 409 common, 409 direct, 409 traceable, 409 Fixed overhead analysis, 547–548 Fixed overhead spending variance analysis of, 550–551 defined, 549 responsibility for, 550 Fixed overhead variances, 549–550 calculating, 549–550 Fixed overhead volume variance defined, 549 responsibility for, 551 Flexible budget variance, defined, 478 Flexible budget(s), 475–478 defined, 475 preparing a before-the-fact, 476 using for planning and performance reporting, 475–479 Flexible manufacturing system (FMS), 665 Flow of costs through the accounts, 164–173 of job-order costing firm, exh., 164 Focused value streams and traceability of overhead costs, 731–732 Ford Motor Company, 364, 408, 740 Foreign currency exchange, 740–743 Foreign trade zones, defined, 738 Forensic accounting activities, nature of, 748–749 applying different types of accounting knowledge to, 748 defined, 745 in management accounting, 747–749 role of cost and managerial accounting in, 745–749 907 Forward contract, defined, 742 Forward rate, defined, 742 FOX, 80 Fraud and management accounting, 745–747 defined, 745 role of cost and managerial accounting in, 745–749 Fraud triangle, defined, 746 Frito-Lay Inc., 593 Functional-based cost accounting systems, limitations of, 216–225 Functional-based product costs, comparison of activity-based and, 223 Future cost illustrated, irrelevant, 401 Future value, defined, 667 G GAAP See Generally accepted accounting principles Gain on sale of equipment, 798 GE Capital, 592 Geely, 364 General Electric, 4, 605, 613, 702 General Mills, 593 General Motors, 217, 406, 611, 702 Generally accepted accounting principles (GAAP), 4, 106 Geographic lines, 594 Georgia Pacific, 39 Goal congruence, defined, 479 Goodness of fit, 112–113 Goods, types of, 593–594 Google, 18, 791, 792 responding to risk, 705 Grant Thornton, 853 Graph, cost-volume-profit, 347–348 Graphs of cost-volume-profit relationships, 346–348 Greenwashing, defined, 719 Gross margin, defined, 48 Gucci, 39 Guinness, 87 H Hard Rock International, 645, 646, 647, 654 HealthSouth, 17 Herman Miller Inc., 591, 602, 606 Hewlett-Packard Co., 13, 39, 404 High point, 93 High Sierra, Inc., 457 High Sierra Sports, 482 High-low method, 93–97 defined, 93 scattergraph method, and method of least squares, comparison of, 101–102 using to calculate fixed cost and variable rate and to construct a cost formula, 94 using to calculate predicted total variable cost and total cost for budgeted output, 95 using to calculate predicted total variable cost and total cost for a time period that differs from the data period, 96 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 908 Index using to estimate variable and fixed costs, 390–391 Hilton Hotels Corporation, 613 Home Depot Inc., 456 Honda, 102, 397, 541 Horizontal analysis, 839–840 defined, 839 Hurdle rate, 652 defined, 600 I IBM, 605, 702 Ideal standards, 523 Importing and exporting, international issues, 738–739 Incentives, monetary and nonmonetary, 480 Income operating, 467–468, 596 residual, 603–604 sales, and production relationships, 109–110, exh., 109 Income statement budgeted, 467–468 calculating percentage of sales revenue on, 49 exh., 172, 844 manufacturing firm, 47–50 service firm, 50–51 using variable and absorption costing, 108–109 preparing, 44–51 preparing using net sales as base, 840–841 Income taxes and transfer pricing, 743 Incremental cash flows, 665 Independent projects, defined, 646 Independent variable, defined, 92 Indifference point, defined, 363 Indirect costs, 32, 35–36 assigning, 35–36 defined, 35 Indirect manufacturing costs, 39 Indirect method, 795–801 defined, 793 Industrial averages, 843–844 Information for decision making, 457 gathering and using local, 592–593 needs of managers and other users, Infrastructure perspective, 611 Inherent risk assessing, 703 defined, 703 Innovation process defined, 618 objectives and measures, 618 Inputs, multiple, 293–297 Institute of Management Accountants (IMA), 12, 18, 225 Integrated reporting, defined, 719 Intercept, defined, 92 Interest, compounding of, 667 Interim quality performance report, 724–725 defined, 724 Interim quality standards, defined, 724 Interim standard reports, 724–725 Internal accounting, Internal auditing, certificate in, 20 Internal business process perspective, defined, 611 Internal failure costs, defined, 720 Internal perspective, 618 summary of objectives and measures, exh., 621 Internal rate of return (IRR), 652, 656–659 calculating with uniform cash flows, 657 defined, 656 illustrated, multiple-period setting with uneven cash flows, 657–658 illustrated, multiple-period setting with uniform cash flows, 656–657 net present value compared with, 661–662, exh., 662 Internal Revenue Service (IRS), 106, 238 International Accounting Standards Board (IASB), International economy, types of involvement in, 738–740 International Federation of Accountants, 18 International issues importing and exporting, 738–739 in management accounting, 738–745 International Organization for Standardization (ISO), 610 Inventory BWIP, 283 calculating average, 851 EWIP, 283 increase in, 797–798 relationship between flow of costs, cost of goods sold, and, 47 two methods of treating BWIP, 286 valuation of, 106–108, 290, 300–301 valuing with nonuniform inputs, 294–295 Inventory cost computing under absorption costing, 106–107 computing under variable costing, 107 Inventory turnover in days, calculating, 851 Inventory turnover ratio, 850–851 calculating, 851 defined, 850 Investing activities, defined, 793 Investing cash flow, compute, 798–799 Investment advantages of return on, 599–600 how it differs, 664 return on, 596–597 Investment centers defined, 594 measuring performance of by using residual income and economic value added, 602–606 measuring performance of by using return on investment, 596–602 Investment data, exh., 665 Investment measure, disadvantages of return on, 600–602 Investment relationships, focus on return on, 599–600 Investors, defined, 838 Irrelevant future cost illustrated, 401 Irrelevant past cost illustrated, 400–401 J J Crew, 47, 37 Jaguar, 41 Jeep Wrangler, 322 JetBlue Airways Corp, 217, 605 JIT purchasing, defined, 731 Job costs ethical decisions, 161 keeping track of with source documents, 161–164 Job, defined, 150 Job-order cost sheet, 161–162 defined, 161 exh., 161 preparing, 170–171 Job-order costing and process costing, comparison of, exh., 151 journal entries associated with, 173–176 production costs in, 152 Job-order costing firm, flow of costs through accounts of, exh., 164 Job-order costing system defined, 150 unit costs in, 159–160 Job-order environment, characteristics of, 150–152 Job-order production and costing, 150 Johnson & Johnson, 103 Joint products defined, 414 further processing of, 414–417, exh., 416 Joint venture, defined, 740 Journal entries associated with job-order costing, 173–176 posting of to accounts, exh., 175 Just-in-time (JIT), manufacturing firms using, 282 Just-in-time manufacturing environment, impact of, 852 K Kaizen costing, 541 Karabekian Kay Jewelers, 151 Keep-or-drop decisions, 394, 408–414 defined, 409 Keep-or-drop product line problem structuring, 412–413 with complementary effects, structuring, 414 Keep-or-drop with complementary effects, 413–414 Kellogg, 57 Key questions, set of, 226–227 KFC, 593 Kicker Inc., 13, 14, 15, 38, 74, 82, 142, 150, 206, 240, 259, 294, 322, 323, 335, 387, 398, 449–451, 460, 502, 503, 527, 568, 610, 642, 664, 690, 802, 821, 842 organizational chart, exh., 14 Koch Industries Inc., 593 Komatsu, 742 KPMG, 154, 715, 719, 757 Kraft, 11 Kroger, 48 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Index L Labor efficiency measure, 737 Labor efficiency variance (LEV) analysis of, 541 defined, 538 responsibility for, 541 Labor rate variance (LRV) analysis of, 541 defined, 538 responsibility for, 539–540 Labor variances calculating, 539 direct, 538–539 disposition of, 544 using information of, 539–541 Lay’s, 408 Lean accounting, 727, 731–736 defined, 12 Lean manufacturing, 727–731 defined, 727 Learning and growth (infrastructure) perspective, 620–622 defined, 611 employee capabilities, 621 information systems capabilities, 621 motivation, empowerment, and alignment, 621 strategic information availability, 621 summary of objectives and measures, exh., 622 Leverage ratios, 853–855 defined, 844 Levi Strauss & Co., 87, 397, 739 Lexus, 739 Line deviations, exh., 100 Line positions, defined, 13 Linear cost and revenue functions, 348 Linear programming, 420 LinkedIn, 43 Liquidity ratios, 846–852 defined, 844 Little Guys Home Electronics, 31, 33, 35, 48 Loctite, 740 Long-wave of value creation, 618 Low point, 93 LSI Logic, 232 M Macy’s, 847 Maersk, 356 Make-or-buy decisions, 394, 403–406 defined, 403 exh., 403 Make-or-buy problem, structuring, 405 Management accounting certificate in, 20 forensic accounting in, 747–749 fraud and, 745–747 international issues in, 738–745 role of in the business sustainability cycle, exh., 710 Management, focusing of central, 593 Managerial accountant role of, 13–15 standards of ethical conduct for, 18–20 Managerial accounting, 7–8 and cost accounting, role of in fraud and forensic accounting, 745–749 and ethical conduct, 15–20 comparison of financial and, 7–8, exh., current focus of, 9–13 defined, information, meaning of, 4–7 Managerial decisions with Apple, 837–838 Boyne USA Resorts, 333 BP, 277 BuyCostumes.com, Cold Stone Creamery, 215 Google, 791 Hard Rock International, 645 Herman Miller Inc., 591 Little Guys Home Electronics, 31 Navistar, Inc., 393, 521 The Second City, 455 UPS, 701–702 Washburn Guitars, 149 Zingerman’s, 79 Managerial judgment, 102–104 ethical decisions, 103 Managers defined, 838 incentive, APR and, 651 information needs of, training and motivating of, 593 Mandate, 238 Manual and automated system, differences between, exh., 363 Manufacturing cell defined, 729 proposed, exh., 730 Manufacturing costs, 38, 541 flow of through accounts of process-costing firm, exh., 280 Manufacturing cycle efficiency See MCE Manufacturing firm, 282–283, 291 importance of unit costs to, 153 income statement, 47–50 Manufacturing inputs, nonuniform application of, 293–295 Manufacturing organizations, defined, 37 Manufacturing overhead, 39–41 defined, 39 Many Glacier Hotel, 390–391 Maquiladora, defined, 740 Margin, 597–599 calculating, 597–598 defined, 597 Margin of safety, 359–360 calculating, 360 defined, 359 exh., 359 Market price, 608 Markup, defined, 421 Master budget, 457–458 and its interrelationships, exh., 458 defined, 457 directing and coordinating, 458 909 major components of, 458 Matching concept, 748 Materiality matrix, 714 Materials accounting for, 165 and labor, variance analysis, 532–542 calculating total variance for, 532–533 total variance for, 532–533 Materials cost flows, summary of, exh., 165 Materials price variance (MPV), 533, 553 analysis of, 535–536 and materials usage variance, relationship between, 540 defined, 534 responsibility for, 535 Materials requisition form defined, 162, exh., 162 Materials requisitions, 162 Materials usage variance (MUV), 533, 553 analysis of, 536 and materials price variance, relationship between, 540 defined, 535 responsibility for, 536 Materials variances accounting and disposition of, 536 calculating, 534 disposition of, 544 information, using, 535–536 Mattel, 397 McDonald’s, 4, 9, 420, 593, 705 MCE (manufacturing cycle efficiency), 619–620 calculating, 620 defined, 619 McKesson, 17 McKinsey, 16 Measures, core objectives and, 616 Mercedes, 422 Mercedes-Benz, Merck & Co., 48, 605 Method of least squares (regression), 99–101 defined, 99 high-low method, and scattergraph method, comparison of, 101–102 Metropolitan Life Insurance Company, 36 MGM Resorts International, 408 Microsoft, 613 Milking the firm, 482 Miller Coors, 614 Mixed cost behavior, exh., 89 Mixed costs, 88–91 defined, 88 methods for separating into fixed and variable components, 91–104, exh., 102 Mobil Corporation, 397 Models discounting, 647 nondiscounting, 647–652 Monetary incentives, defined, 480 More Business Forms, 664 Multibras S.A Electrodomesticos, 217 Multinational corporation (MNC), defined, 738 Multinational firm, transfer pricing and, 743–744 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 910 Index Multiple constrained resources, 420 Multiple departments, 293–297 Multiple inputs, 293–297 Multiple-period quality trend report defined, 725 preparing, 726 Multiple-period trend graph individual quality cost categories, exh., 727 total quality costs, exh., 726 Multiple-period trend reports, 725–727 Multiple-product analysis, 351–356 Mutually exclusive projects, 661–666 calculating NPV and IRR for, 663 defined, 646 illustrated, NPV analysis for, 662–664 Myopic behavior, defined, 482 N National Football League (NFL), 84 Navistar Inc., 393, 403, 521, 522, 547 NEC, 742 Negotiated transfer prices, 609 Net benefit of risk response, 705 Net income dependency, APR and, 651 Net present value (NPV) calculating, 653–654 compared with internal rate of return, 661–662, exh., 662 defined, 652–653 discount rates, and cash flows, illustrating relationships, 654–655 exh., 655 illustrated, 653–654 Net present value analysis, 697–698 for mutually exclusive projects illustrated, 662–664 Netflix, 421 New York Giants, 415 New York Jets, 415 New York Mets, 415 New York Yankees, 415 Nike, 42, 80, 408, 739, 744 Nintendo, 459 Nissan Motor, 422, 740 Noncash exchanges, 794 Noncash investing and financing activities, defined, 794 Nondiscounting models, 647–652 defined, 647 Nonmanufacturing costs, accounting for, 172–172 Nonmonetary incentives, defined, 480 Nonproductive capacity, 737 Nonuniform application of manufacturing inputs, 293–295 Nonunit-level activities, 217 Nonunit-level activity drivers, 217–218 defined, 218 Nonunit-related overhead costs, 216–218 Nonvalue-added activities, 238–239 defined, 238 examples of, 239 Nonvalue-added costs assessing, 240–241 defined, 239 Normal cost of goods sold, defined, 169 Normal cost system, defined, 153 Normal costing, 153, 154–157 actual costing vs., 152–153 and overhead application, 152–160 system, 525 North American Free Trade Agreement (NAFTA), 739 Norwegian Cruise Line, 455 Nova Nordisk, O Object costing, exh., 35 Olympus, 422, 541 Operating activities, defined, 792 Operating asset efficiency, focus on, 600 Operating assets calculating, 597–598 defined, 596 Operating budgets preparing, 459–468 defined, 458 Operating cash flows calculating using direct method, 802–803 calculating using indirect method, 796–797 compute, 796–798 ethical decisions, 795 how estimates differ, 664–666 methods for calculating, 793 Operating income, 467–468 defined, 596 using degree of operating leverage for calculating impact of increased sales on, 362 using in cost-volume-profit analysis, 334–337 Operating leverage, 360–363 defined, 360 degree of, 360 Operating profit, after-tax, 605 Operations process defined, 618 objectives and measures, 618 Opportunity cost, 399–400 defined, 37, 399 Optimization, encouragement of short-run, 601–602 Order fulfillment value stream, 728, exh., 728 Order-filling costs, 42 Order-getting costs, 42 Organizational chart, exh., 14 Organizations manufacturing, 37 service, 37 Output FIFO calculation of, 298–299 measures of, 81 no BWIP measuring of, 285 portion of summary, exh., 100 weighted average method of measuring, 287–288 Output measure, 83 Outsourcing, defined, 739 Overapplied overhead, defined, 156 Overhead ABC assigning cost of, exh., 226 accounting for, 166 actual, 156–157, exh., 156 applied, 156–157, exh., 156 applying to production, 155 estimating, 154–157 overapplied, 156 underapplied, 156 variable, 464 Overhead analysis, 543–552 Overhead application, normal costing and, 152–160 Overhead budget, 464–465 defined, 464 Overhead cost flows, summary of, exh., 167 Overhead costs accounting for actual, 167 defining, 152 focused value streams and traceability of, 731–732 nonunit-related, 216–218 uneven, 152 Overhead rate converting departmental data to plantwide data to calculate, 159 illustrating the failure of unit-based, 218–223 Overhead variance, defined, 156 P Padding the budget, 481 Parallel process, example of, 279 Parallel processing defined, 279 exh., 279 Parmalat, 17 Participative budgeting, 480–481 defined, 480 Payback, calculating, 648 Payback period, 648–650 defined, 648 ethical decisions, 649 using to assess risk, 649 using to choose among alternatives, 649–650 Peer-to-peer economy, 153 Pep Boys, 472 PepsiCo, 593 Percentages and size effects, 841–842 Perfection, pursue, 731 Performance comparison of divisional, exh., 598 frequent feedback on, 480 multiple measures of, 482 of investment centers, 596–602, 602–606 reporting, using flexible budgets for, 475–479 types of responsibility centers and accounting information used to measure, exh., 595 Performance drivers, 615 Performance evaluation, 743 standards for, 457 Performance measurement, 713–715 Performance measures four perspectives and, 615–622 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Index linking to strategy, 613–615 role of, 613 Performance report comparing actual costs to the static budget costs, exh., 477 for variable overhead spending and efficiency variances, 546–547 defined, 477 preparing using a flexible budget, 478 Period costs, 41–43, 105 defined, 41 direct and indirect, 42–43 vs product costs, impact of in financial statements, exh., 42 Perspective customer, 611 financial, 611 internal business process, 611 learning and growth (infrastructure), 611 Physical flow analysis, 288–289, 299–300 Physical flow schedule calculating with transferred-in goods, 296–297 defined, 288 exh., 300 preparing, 289 Pixar, 605, 705 Pizza Hut, 593, 596 Planning, 456, 457 and control, 524 defined, exh., 456 using flexible budgets for, 475–479 Plantwide overhead rate, defined, 157 Political pressure, 397 Porsche, 39 Portfolio ERM perspective, defined, 705 Portfolio risk management perspective, key elements of, exh., 703 Postaudit benefits, 660 defined, 659 illustrated, 659–660 limitations, 661 of capital projects, 659–661 Posting of journal entries to accounts, exh., 175 Post-purchase costs, defined, 617 Post-sales service process defined, 618 objectives and measures, 620 Predetermined departmental overhead rates calculating, 158 determining product costs by using, exh., 177 Predetermined overhead rate calculating, 154–155 defined, 154 Present value, 667–668 concepts, 667–669 defined, 667 of an uneven series of cash flows, 668, exh., 668 of single amount, table, exh., 670 of uniform series of cash flows, 669 tables, 669–671 Present value of an annuity exh., 669 table, exh., 671 Prevention costs, defined, 720 Price (rate) variance and usage variances, 528–529 defined, 528 of materials and labor, comparison of variable overhead spending variance with, 545–546 Price standards, defined, 522 Price-earnings ratio, 859–860 computing, 860 defined, 859 Price(s) and costs known with certainty, 348 calculating by applying markup percentage to cost, 421 cost-based transfer, 608–609 defined, 33 market, 608 negotiated transfer, 609 standard, 535 transfer, 607 PricewaterhouseCooper, 711 Pricing cost-based, 420–422 decisions, use of costs in, 420–423 target costing and, 422–423 Prime cost calculate in total and per unit, 41 defined, 40 Problem, recognize and define, 395 Process acceptance, 720 Process costing and job-order costing, comparison of, exh., 151 how costs flow through the accounts in, 280–281 impact of work-in-process inventories on, 283–286 Process manufacturing, characteristics of, 278–283 Process production and costing, 151 Process value chain, defined, 618 Process-costing firm, flow of manufacturing costs through accounts of, exh., 280 Process-costing system, defined, 151 Processes, types of, 278–279 Process-value analysis, 9, 236–242 defined, 236 model, exh., 237 Procter & Gamble, 80 Producing departments, defined, 176 Product acceptance, 720 Product cost, 37–43, 105 calculate in total and per unit, 40 comparison of functional-based and activitybased, 223 defined, 38 determining, 38–43 exh., 39 under absorption and variable costing, exh., 108 using predetermined departmental overhead rates for determining, exh., 177 vs period cost, impact of in financial statements, exh., 42 911 Product costing, 525–526 accuracy, illustrating relationships, 223–225 customer costing vs., 233–234 multiple-product value stream, 733–734 single-product (focused) value stream, 732–733 Product diversity accuracy, illustrating relationships, 223–225 defined, 218 Product mix decisions, 417–420 determining optimal with one constrained resource and sales constraint, 419–420 determining optimal with one constrained resource, 418 Product safety, 397 Product-costing accuracy diversity and, exh., 225 ethical decisions for diversity and, 225 Product-costing data, exh., 219 Production applying overhead to, 155, 158, 159 equal to sales, 348 sales, and income relationships, 109–110, exh., 109 uneven, 152–153 Production budget, 461–462 defined, 461 Production costs in job-order costing, 152 Production report, 291–292 accumulating costs in, 281–282 defined, 281 FIFO costing, 298–302 five steps in preparing, 288–291 preparing using the weighted average method, 292, exh., 296 Productive capacity, 737 Product(s) assigning costs to, 229–231 defined, 37 new methods of costing, value by, 728 Product-sustaining costs, 217 Profit, 33 Profit center, defined, 594 Profit planning technique, 542 Profitability, managing customer, 234 Profitability ratios, 856–862 defined, 844 ethical decisions, 861–862 importance of to external users of the financial statements, 861–862 Projects independent, 646 mutually exclusive, 646, 661–666 postaudit of capital, 659–661 Protiviti, 16 Pseudoparticipation, defined, 481 Public accounting, certificate in, 20 Pull value, 731 Q Qualitative factors, assess, 397–398 Quality, 242, 397 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 912 Index costs of, 720–721 Quality cost categories, relative contribution by category, exh., 723 Quality cost management, 719–727 Quality cost report, preparing, 721–722 Quality costs by category, examples of, exh., 721 controlling, 724–727 reporting of, 721–723 Quality measure, 737 Quality of conformance, defined, 719 Quality product or service, defined, 719 Quantity standards, defined, 522 Quick or acid-test ratio, 848–850 calculating, 848 defined, 848 R Rate variance, 528 Ratio analysis, 842–846 exh., 843 Ratio(s) accounts receivable turnover, 848–850 classification of, 844–845 consumption, 220 contribution margin, 339–341 current, 846–847 debt, 854–855 inventory turnover, 850–851 leverage, 844, 853–855 liquidity, 844, 846–852 profitability, 844, 856–862 quick or acid-test, 848–850 times interest earned, 853–854 variable cost, 339 Raw materials, 39 Realistic standards, 481–482 Reasonableness of straight-line cost relationships, 86 Reciprocal method, 177 defined, 179 of allocation, 179–181 Reduced setup/changeover times, 729 Regression method, 101 Regression output, exh., 112 Regression program, using, 110–113 Relevant costing, 697–698 Relevant costs, 399–401 and benefits for each feasible alternative, estimating, 397 cost behavior and, 401–402 defined, 399 illustrated, 399–400 some common applications, 402–417 Relevant range, 87 defined, 81 measure of output and, 81 Reliability of supply, 397 Required rate return, defined, 652 Residual income, 603–604 advantage of, 603–604 calculating, 603 defined, 603 disadvantages of, 604 measuring performance of investment centers by using, 602–606 Residual risk, defined, 705 Resource costs, assigning to activities by using direct tracing and resource drivers, 229 Resource drivers, defined, 228 Resources, multiple constrained, 420 Responsibility center, 594–596 decentralization and, 592–596 defined, 594 Responsiveness, 618 Retained earnings, statement of, exh., 844 Return on assets, calculating, 857 Return on common stockholders’ equity, 857–858 Return on investment (ROI), 596–597 advantages of, 599–600 calculating, 597–598 defined, 596 ethical decisions, 602 measure, disadvantages of, 600–602 measuring performance of investment centers by using, 596–602 relationships, focus on, 599–600 Return on sales calculating, 856 defined, 856 Return on stockholders’ equity calculating, 857–858 defined, 857 Return on total assets, 856–857 defined, 856 Revenue center, defined, 594 Revenue functions, linear cost and, 348 Revenue growth, 615 Risk residual, 705 identifying top, 703 responding to using a portfolio perspective, 705–708 Risk and uncertainty cost-volume-profit analysis and, 356–364 introducing, 358–363 Risk appetite defined, 703 determining, 703 Risk management, 713 Risk Management Association, 843 Risk response net benefit of, 705 use net benefit to evaluate alternatives, 707–708 Risk response benefit, defined, 705 Risk response cost, defined, 706 Risk response net benefit, defined, 706 Royal Caribbean Cruises Ltd., 104 S Sacred Heart Hospital (SHH), 588–589 Safety, margin of, 359–360 Sales needed to earn a target operating income, calculating, 345–346 production, and income relationships, 109–110, exh., 109 production equal to, 348 revenue to achieve a target income, 345–346 Sales budget, 459–460 defined, 459 preparing, 460 Sales dollars and units needed to achieve a target income, 343–346 break-even point in, 338–343, 354–356 Sales mix and cost-volume-profit analysis, 353–354 constant, 348 defined, 352 determining, 352–353 Sales price, impact of changing, 350 Sam’s Club, 614 Samsonite Corp., 482 Sandoz Pharmaceuticals, 154 Sarbanes-Oxley Act (SOX), 15, 18 defined, 17 Scattergraph method, 97–99 defined, 97 high-low method, and method of least squares, comparison of, 101–102 Scattergraphs materials handling cost, exh., 97 with nonlinear cost, exh., 99 Sears, 469 Securities and Exchange Commission (SEC), 7, 238, 792 Segment, defined, 409 Segment margin, defined, 411 Segmented income statements comparison of with and without allocated common fixed expense, exh., 411 preparing, 410–411 using variable costing, 409 Selling and administrative expenses budget, 466–467 defined, 466 preparing, 467 Selling costs, defined, 42 Sell-or-process-further decision defined, 414 structuring, 416–417 Semi-fixed costs, 89 Semi-variable costs, 86–88 defined, 86 exh., 86, 87 Sensitivity analysis and cost-volume-profit, 363–364 defined, 363 Sequential (or step) method, 177 assigning support department costs by using, 181 defined, 179 exh., 180 of allocation, 179 Sequential process, example of, 279 Sequential processing defined, 278 exh., 278 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Index Service costs, 37–43 Service firms, 282 ethical decisions, 154 importance of unit costs to, 153–154 income statement, 50–51 Service organization defined, 37 preparing an income statement for, 50–51 Services defined, 37 new methods of costing, types of, 593–594 Short-run decision making, 394–402 Short-run optimization, encouragement of, 601–602 Short-wave of value creation, 618 Sierra Club, 710 Single-loop feedback, 615 Sirius Satellite Radio, 413 SiriusXM Radio, 334 Six Sigma, 12 Sky Limo Corporation, 150 Slope, defined, 92 Small-scale actions, 394 Sony, 397, 400, 607, 740 Source documents creating for a photography business, 163 keeping track of job costs with, 161–164 Southwest Airlines, 42, 50, 81 Special order, accept or reject, exh., 406 Special sales decisions, 394 offer relevant analysis, 697–698 Special-order decisions, 406–408 defined, 406 illustrated, 406–408 Special-order problem, structuring, 407–408 Spending variance analysis, 551 Spirit Airlines, 34 Split-off point, defined, 414 Spot rate, defined, 740 Spreadsheet data, exh., 111 Staff positions, defined, 13 Stakeholder engagement, 710–713 activities at Eli Lilly, exh., 713 defined, 712 Stakeholders concerns and business success, relationship between, at UPS, exh., 714 defined, 710 relationship between strategy and, exh., 712 Standard & Poor’s, 843 Standard cost per unit, defined, 525 Standard cost sheet defined, 525 exh., 526 Standard cost systems, why they are adopted, 524–527 Standard costing basic concepts of, 522–528 methods, ethical decisions, 524–525 system, 525 Standard hours allowed (SH), defined, 526 Standard price, 535 Standard quantities allowed (SQ and SH), computing, 527 Standard quantity of materials allowed (SQ), defined, 526 Standard setting, 480–481 art of, 481 Standard variable overhead rate (SVOR), 544 Standards currently attainable, 523 for comparison, ratios, 842–844 for performance evaluation, 457 how they are developed, 523 ideal, 523 of ethical conduct for managerial accountants, 18–20 price, 522 quantity, 522 realistic, 481–482 types of, 523, exh., 523 unit, 522–528 Standards of Ethical Conduct for Managerial Accountants, 18 Starbucks, 4, 394, 408, 593, 595, 705 Starwood Hotels, 482 Statement of cash flows defined, 792 indirect method of preparing, 795–801 overview of, 792–795 preparing, 800–801 worksheet approach to, 803–808 worksheet-derived, exh., 808 Statement of cost of goods sold, exh., 169 Statement of Ethical Professional Practice, 18 exh., 19 Statement of retrained earnings, exh., 844 Static budget costs, performance report comparing actual costs to, exh., 477 Static budget, defined, 477 Step cost behavior, 89–90 Step costs, 88–91 defined, 89 exh., 90 Stillwater Designs, 14, 240, 259, 294, 322, 460, 502, 503, 527, 568, 664, 690, 802, 821 Stockholders’ equity, return on common, 857–858 Straight-line cost relationships, reasonableness of, 86 Strategic plan, defined, 456 Strategic positioning, 10 Strategy translation, 612–615 Strategy, 710 defined, 612 implementation problems, 615 invalid, 615 linking performance measures to, 613–615 relationship between stakeholders and, exh., 712 Sunk costs, 400–401 defined, 400 Supplier costing, 235–236 Supplier sustainability scorecards at Walmart, 614 Support costs, 39 Support department cost allocation, 176–181 methods of, 177–181 technology and, 180 913 Support department costs assigning by using direct method, 178–179 assigning by using sequential method, 181 Support departments defined, 176 ethical decisions and, 177 Sustainability, 4, 342, 658 Baxter International Inc., 231 Guinness, 87 Hewlett-Packard Co., 404 Levi Strauss & Co., 87 UPS, 50, 714 Sustainability assurance, 717–718 defined, 717 Sustainability reporting, 715–717 T Taco Bell, 593, 596 Takata, 397 Target, 4, 57, 394, 397, 472 Target cost calculating, 423 defined, 422, 542 Target costing, 541–542 and pricing, 422–423 defined, 422 Target income sales revenue to achieve, 345–346 units and sales dollars needed to achieve, 343–346 units to be sold to achieve, 343–345 Target operating income calculating number of units to be sold to earn, 344 calculating sales needed to earn, 345–346 Tariff, defined, 738 Technology and support department cost allocation, 180 Tecnol Medical Products Inc., 103 Testable strategy defined, 613 exh., 614 The North Face, 33 The Second City, 455, 479 3M, 103 Time, 241–242 Time as a competitive element, 12–13 Time ticket, 162–164 defined, 162 exh., 163 Time value of money, APR and, 651 Times interest earned ratio, 853–854 calculating, 853 defined, 853 Toshiba, 12, 17, 50, 400 Total budget variance, defined, 528 Total fixed overhead variance, 548–549 calculating, 548–549 Total product cost, 39–40 Total quality management, 11–12 defined, 12 Total variable overhead variance, 543–544 calculating, 543–544 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 914 Index Total variance, 528 for labor, calculating, 537–538 for materials, calculating, 532–533 Total variance analysis, direct labor, 536–538 Toyota, 334, 397, 422, 541 Toys “R” Us, 481 Traceable fixed expenses, 409 Traditional batch production process, exh., 729 Traditional manufacturing calculating production time for cellular and, 730 firms, 282 Transaction risk defined, 740 managing, 740–742 Transfer price calculating, 609–610 cost-based, 608–609 defined, 607 impact of on divisions and the firm as a whole, 607 impact of on transferring divisions and the company as a whole, exh., 607 negotiated, 609 Transfer pricing, 607–611 and the multinational firm, 743–744 income taxes and, 743 policies, 608–610 use of to affect taxes paid, 743 Transferred-in costs, defined, 281 Translation (or accounting) risk, defined, 740 Trans-Pacific Partnership (TPP), 739 Treasurer, defined, 15 Trend analysis, 839 Tropicana, 593 Turnover, 597–599 calculating, 597–598 defined, 597 Twitter, 43 U U.S Post Office, 747 U.S Postal Service, 11 UAL Inc., 594 Uber, 153 Uncertainty, 658 cost-volume-profit analysis and risk and, 356–364 introducing risk and, 358–363 Underapplied overhead, defined, 156 Unfavorable (U) variances, defined, 529 Unit cost, computation of, 290, 300 Unit costs calculating activity-based, 222 calculating with nonuniform inputs, 294–295 calculating with transferred-in goods, 296–297 importance of to manufacturing firms, 153 importance of to service firms, 153–154 in the job-order system, 159–160 Unit standards, 522–528 Unit variable costs, impact of changing, 350 Unit-based overhead rates, illustrating failure of, 218–223 United Airlines, 594 United Parcel Service Inc (UPS), Unit-level activities, defined, 216 Unit-level activity drivers, defined, 218 Unit-level costs, 217 Units and sales dollars needed to achieve a target income, 343–346 break-even point in, 337–338, 352–354 Units to be sold calculating number of to earn a target operating income, 344 to achieve a target income, 343–345 UPS, 10, 12, 50, 701 sustainability and, 714 Upstream, 231 Usage (efficiency) variance and price variances, 528–529 defined, 529 V Value by product, 728 of an exchange in another currency, calculating, 741 Value chain, 10–11 business sustainability issues throughout, exh., 711 defined, 10 exh., 10 Value creation long wave of, 618 short wave of, 618 Value flow, 729 Value stream, defined, 728 Value-added activities, 238 defined, 238 Value-added costs, defined, 238 Value-added standard, 239 Value-stream box scorecard, exh., 736 cost assignments, exh., 732 costing, 732–736 costs and production hours, exh., 735 limitations, 732 operational control, 736 product costs, calculating, 735–736 Variable budget, 475 Variable cost, 80 defined, 36 exh., 86 Variable cost ratio, 339 calculating, 340 defined, 339 Variable costing computing inventory cost under, 107 defined, 105 income statements using, 108–109 methods, comparison of absorption and, 105–106 segmented income statement using, 409 Variable costs, 84–86 defined, 84 using high-low method to estimate, 390–391 Variable income statements, 105–110 Variable overhead, 464 Variable overhead efficiency variance, 544–545 and spending variance, performance report for, 546–547 calculating, 544–545 defined, 544 responsibility for, 546 Variable overhead spending variance and efficiency variance, performance report for, 546–547 calculating, 544–545 comparison of with price variances of materials and labor, 545–546 defined, 544 responsibility for, 546 Variable overhead variances, 544–545 Variable-costing income statement, preparing, 109 Variance analysis and budgeting, 589 Variance analysis exh., 529 general description, 528–531 materials and labor, 532–542 Sacred Heart Hospital (SHH), 588 Variance(s), 524 accounting and disposition of materials, 536 accounting for, 552–554 direct labor, 538–539, 553–554 direct materials, 533–535, 553 disposition of materials and labor, 544 efficiency, 529 favorable (F), 529 fixed overhead spending, 549, 550–551 fixed overhead volume, 549, 551 flexible budget, 478 labor efficiency, 538, 541 labor rate, 538, 539–540, 541 materials price, 533, 534, 535–536, 540, 553 materials usage, 533, 535, 536, 540, 553 price, 528–529 rate, 528 total, 528 total budget, 528 total variable overhead, 543–544 unfavorable (U), 529 usage, 528–529 variable overhead efficiency, 544–545, 546 variable overhead spending, 544, 546 Velocity, 618–619 calculating, 242 computing, 618–619 defined, 242, 618 Verizon, 605, 613 Vertical analysis, 840–841 defined, 840 Victoria’s Secret, 41, 217 Volkswagen, 17 Volume variance analysis of, 552 graphical analysis of, exh., 552 Volume variance analysis, 551 Volvo, 364 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Index W Walmart, 12, 605, 613, 614, 712 Walt Disney Company, The, 9, 409, 605, 705 Warner Bros., 401 Washburn Guitars, 149, 150, 151, 155, 172 Weighted average costing, 286–293 method, defined, 286 Weighted average method and FIFO method, differences between, 298 evaluation of, 292–293 overview of, 287–288 preparing production report using, 292 Westin Hotels, 406 Whale curve, 232 of cumulative customer profitability, exh., 232 Whirlpool, 217 Wholly Owned Subsidiaries, 739 Wilson Sporting Goods, 84 Wipro, 739 Wolters Kluwer, 843 Work distribution matrix defined, 228 exh., 228 Work in process (WIP), defined, 45 Work-in-process inventories, impact of on process costing, 283–286 Worksheet approach to statement of cash flows, 803–808 Worksheet-derived statement of cash flows, exh., 808 WorldCom, 17 915 X XFL, 401 XM Satellite Radio, 413 Y YUM! Brands, 593, 596 Z Zales, 151 Zero defects, defined, 719 Zingerman’s Bakehouse, 79, 80, 84, 89, 409, 410 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 916 Summary of Important Equations Chapter Unit Contribution Margin = Price – Unit Variable Cost Chapter Total Contribution Margin = Sales – Total Variable Cost Total Product Cost = Direct Materials + Direct Labor + Manufacturing Overhead Per-Unit Product Cost = Total Product Cost/Number of Units Produced Operating Income = (Price × Number of Units Sold) – (Variable Cost per Unit × Number of Units Sold) – Total Fixed Cost Prime Cost = Direct Materials + Direct Labor Break-Even Units = Total Fixed Cost/Unit Contribution Margin Conversion Cost = Direct Labor + Manufacturing Overhead Sales Revenue = Price × Units Sold Beginning Inventory of Materials + Purchases − Direct Materials Used in Production = Ending Inventory of Materials Variable Cost Ratio = Total Variable Cost/Sales Gross Margin = Sales Revenue − Cost of Goods Sold Contribution Margin Ratio = Total Contribution Margin/Sales Operating Income = Gross Margin − Selling and Administrative Expense Variable Cost Ratio = Unit Variable Cost/Price Contribution Margin Ratio = Unit Contribution Margin/Price Break-Even Sales = Total Fixed Expenses/Contribution Margin Ratio Chapter 10 Margin of Safety = Sales – Break-Even Sales Total Variable Costs = Variable Rate × Units of Output Total Cost = Total Fixed Cost + Total Variable Cost Total Cost = Total Fixed Cost + (Variable Rate × Units of Output) Variable Rate = (High Point Cost – Low Point Cost)/(High Point Output – Low Point Output) Fixed Cost = Total Cost at High Point − (Variable Rate × Output at High Point) Fixed Cost = Total Cost at Low Point − (Variable Rate × Output at Low Point) Absorption Costing Product Cost = Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead Variable Costing Product Cost = Direct Materials + Direct Labor + Variable Overhead 11 Degree of Operating Leverage = Total Contribution Margin/ Operating Income 12 Percentage Change in Profits = Degree of Operating Leverage × Percent Change in Sales Chapter Contribution Margin per Unit of Scarce Resource = (Selling Price per Unit – Variable Cost per Unit)/Required Amount of Scarce Resource per Unit Price Using Markup = Cost per Unit + (Cost per Unit × Markup Percentage) Target Cost = Target Price – Desired Profit Chapter Estimated Annual Overhead Estimated Annual Activity Level Applied Overhead = Predetermined Overhead Rate × Actual Activity Level Predetermined Overhead Rate = Total Normal Product Costs = Actual Direct Materials + Actual Direct Labor + Applied Overhead Chapter Units to Be Produced = Expected Unit Sales + Units in Desired Ending Inventory (EI) – Units in Beginning Inventory (BI) Overhead Variance = Actual Overhead - Applied Overhead Purchases = Direct Materials Needed for Production + Direct Materials in Desired Ending Inventory – Direct Materials in Beginning Inventory Adjusted COGS = Unadjusted COGS ± Overhead Variance Cash Available = Beginning Cash Balance + Expected Cash Receipts (Note: Applied Overhead > Actual Overhead means Overapplied Overhead, subtract from Unadjusted COGS; Applied Overhead < Actual Overhead means Underapplied Overhead, add to Unadjusted COGS) Departmental Overhead Rate = Estimated Department Overhead Estimated Departmental Activity Level Chapter 10 Abbreviations: Chapter Amount of Activity Driver per Product Consumption Ratio = Total Driver Quantity Overhead Rate = Ending Cash Balance = Cash Available – Expected Cash Disbursements Total Overhead Costs Total Direct Labor Hours Cycle Time = Time/Units Produced Velocity = Units Produced/Time Chapter Unit Cost = Total Cost/Equivalent Units Units Started and Completed = Total Units Completed - Units in BWIP FOH = Fixed Overhead VOH = Variable Overhead BFOH = Budgeted FOH AH = Actual Direct Labor Hours SH = Direct Labor Hours That Should Have Been Worked for Actual Units Produced SQ = Quantity of Materials That Should Have Been Used for Actual Units Produced AP = Actual Price per Unit SP = Standard Price per Unit SFOR = Standard Fixed Overhead Rate SVOR = Standard Variable Overhead Rate Units Started = Units Started and Completed + Units in EWIP Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 917 Cost per Unit = Total Cost/Total Units Standard Cost per Unit = Quantity Standard × Price Standard SQ = Unit Quantity Standard × Actual Output SH = Unit Labor Standard × Actual Output Total Variance = Actual Cost – Planned Cost = (AP × AQ) – (SP × SQ) Total Materials Variance = Actual Cost – Planned Cost = (AP × AQ) – (SP × SQ) I = ∑ ⎡⎣CFt /(1 + i)t ⎤⎦ I = CF(df ) df = I/CF Investment = Annual Cash Flow F = P(1 + i)n P = F/(1 + i)n MPV = (AP – SP) × AQ MUV = (AQ – SQ) × SP MPV = (AP × AQ) – (SP × AQ) Chapter 13 10 MUV = (SP × AQ) – (SP × SQ) Risk Response Benefit = Inherent Risk – Residual Risk 11 Total Labor Variance = (AR × AH) – (SR × SH) Risk Response Net Benefit = Response Benefit – Response Cost 12 Total Labor Variance = Labor Rate Variance + Labor Efficiency Variance Value-Stream Product Cost = Total Actual Value-Stream Costs/Units Shipped 13 LRV = (AR × AH) – (SR × AH) Value-Stream Product Cost = Unit Materials Cost + Average Conversion Cost 14 LRV = (AR – SR) × AH Unit Materials Cost (for each product) = Actual Materials Cost/Units Shipped 15 LEV = (SR × AH) – (SR × SH) Average Conversion Cost = Total Actual Conversion Costs/Units Shipped 16 LEV = (AH – SH) × SR Conversion Cost Rate = Total Actual Conversion Costs/Total Net Production Hours 17 Target Cost per Unit = Expected Sales Price per Unit – Desired Profit per Unit 18 VOH Spending Variance = Actual VOH – (AH × SVOR) Conversion Cost per Unit = Conversion Cost Rate × Cycle Time 19 VOH Efficiency Variance = (AH – SH) × SVOR 20 Practical Capacity at Standard = SHp Chapter 15 21 SFOR = BFOH/SHp Liquidity ratios: 22 Applied FOH = SH × SFOR Current Ratio = Current Assets/Current Liabilities 23 Total FOH Variance = Actual FOH – Applied FOH 24 FOH Spending Variance = AFOH – BFOH Quick Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities 25 Volume Variance = BFOH – Applied FOH Accounts Receivable Turnover Ratio = Net Sales/Average Accounts Receivable = BFOH – (SH × SFOR) Average Accounts Receivable = (Beginning Receivables + Ending Receivables)/2 Accounts Receivable Turnover in Days = 365/Accounts Receivable Turnover Ratio Chapter 11 Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory ROI = Operating Income/Average Operating Assets Average Inventory = (Beginning Inventory + Ending Inventory)/2 Average Operating Assets = (Beginning Assets + Ending Assets)/2 Inventory Turnover in Days = 365/Inventory Turnover Ratio Times-Interest-Earned Ratio = (Income Before Taxes + Interest Expense)/ Interest Expense Margin Turnover ROI = Operating Income/Sales × Sales/Average Operating Assets Residual Income = Operating Income – (Minimum Rate of Return × Average Operating Assets) EVA = After-Tax Operating Income – (Actual Percentage Cost of Capital × Total Capital Employed) MCE = Processing Time/(Processing Time + Move Time + Inspection Time + Waiting Time) 11 Debt-to-Equity Ratio = Total Liabilities/Total Stockholder’ Equity Profitability ratios: 12 Return on Sales = Net Income/Sales 13 Return on Total Assets = {Net Income + [Interest Expense(1 – Tax Rate)]}/ Average Total Assets Chapter 12 14 Average Total Assets = (Beginning Total Assets + Ending Total Assets)/2 Original Investment Payback Period = Annual Cash Flow Accounting Rate of Return = 10 Debt Ratio = Total Liabilities/Total Assets Average Income Initial Investment 15 Return on Stockholders’ Equity = (Net Income – Preferred Dividends)/Average Common Stockholders’ Equity 16 Earnings per Share = (Net Income – Preferred Dividends)/Average Common Shares ∑CFt /(1 + i)t ⎤⎦ − I = ⎡⎣ ∑CFt df t ⎤⎦ − I 17 Price-Earnings Ratio = Market Price per Share/Earnings per Share =P−I 19 Dividend Payout Ratio = Common Dividends/ (Net Income – Preferred Dividends) NPV = ⎡ ⎣ 18 Dividend Yield = Dividends per Common Share/Market Price per Common Share Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 918 Examples 5.5 How to calculate activity-based customer costs, page 233 Examples for Chapter 5.7 How to assess nonvalue-added costs, page 241 5.6 How to calculate activity-based supplier costs, page 235 5.8 How to calculate cycle time and velocity, page 242 N/A Examples for Chapter 2.1 How to calculate product cost in total and per unit, page 40 Examples for Chapter 6.1 How to account for cost flows without work-in-process inventories, page 280 2.2 How to calculate prime cost and conversion cost in total and per unit, page 41 6.2 How to calculate equivalent units of production with no beginning work in process, page 284 2.3 How to calculate the direct materials used in production, page 45 6.3 How to measure output and assign costs: no beginning work in process, page 285 2.4 How to calculate cost of goods manufactured, page 45 6.4 How to measure output and assign costs: weighted average method, page 287 2.5 How to calculate cost of goods sold, page 46 6.5 How to prepare a physical flow schedule, page 289 2.6 How to prepare an income statement for a manufacturing firm, page 48 6.6 How to prepare a production report: weighted average method, page 292 2.7 How to calculate the percentage of sales revenue for each line on the income statement, page 49 6.7 How to calculate equivalent units, unit costs, and valuing inventories with nonuniform inputs, page 294 2.8 How to prepare an income statement for a service organization, page 50 6.8 How to calculate the physical flow schedule, equivalent units, and unit costs with transferred-in goods, page 296 Examples for Chapter 3.1 How to create and use a cost formula, page 92 3.2 How to use the high-low method to calculate fixed cost and the variable rate and to construct a cost formula, page 94 6.9 (Appendix 6A) How to calculate output and cost assignments: first-in, first-out method, page 298 6.10 (Appendix 6A) How to prepare a production report: first-in, first-out method, page 301 3.3 How to use the high-low method to calculate predicted total variable cost and total cost for budgeted output, page 95 Examples for Chapter 3.4 How to use the high-low method to calculate predicted total variable cost and total cost for a time period that differs from the data period, page 96 7.1 How to prepare a contribution margin income statement, page 336 3.5 How to use the regression method to calculate fixed cost and the variable rate and to construct a cost formula and to determine budgeted cost, page 101 7.3 How to calculate the variable cost ratio and the contribution margin ratio, page 340 3.6 How to compute inventory cost under absorption costing, page 106 7.4 How to calculate the break-even point in sales dollars, page 341 3.7 How to compute inventory cost under variable costing, page 107 3.8 How to prepare an absorption-costing income statement, page 108 7.5 How to calculate the number of units to be sold to earn a target operating income, page 344 3.9 How to prepare a variable-costing income statement, page 109 7.6 How to calculate sales needed to earn a target operating income, page 345 7.2 How to calculate the break-even point in units, page 338 7.7 How to calculate the break-even units for a multiple-product firm, page 353 Examples for Chapter 4.1 How to calculate the predetermined overhead rate and apply overhead to production, page 155 4.2 How to reconcile actual overhead with applied overhead, page 157 7.8 How to calculate the break-even sales dollars for a multiple-product firm, page 354 7.9 How to calculate the margin of safety, page 360 7.10 How to calculate the degree of operating leverage, page 361 7.11 How to calculate the impact of increased sales on operating income using the degree of operating leverage, page 362 4.3 How to calculate predetermined departmental overhead rates and apply overhead to production, page 158 4.4 How to convert departmental data to plantwide data to calculate the overhead rate and apply overhead to production, page 159 4.5 How to prepare brief job-order cost sheets, page 170 4.6 (Appendix 4B) How to assign support department costs by using the direct method, page 178 4.7 (Appendix 4B) How to assign support department costs by using the sequential method, page 181 Examples for Chapter 8.1 How to structure a make-or-buy problem, page 405 8.2 How to structure a special-order problem, page 407 8.3 How to prepare a segmented income statement, page 410 8.4 How to structure a keep-or-drop product-line problem, page 412 8.5 How to structure a keep-or-drop product-line problem with complementary effects, page 414 8.6 How to structure the sell-or-process-further decision, page 416 Examples for Chapter 5.1 How to calculate consumption ratios, page 220 5.2 How to calculate activity rates, page 221 5.3 How to calculate activity-based unit costs, page 222 5.4 How to assign resource costs to activities by using direct tracing and resource drivers, page 229 8.7 How to determine the optimal product mix with one constrained resource, page 418 8.8 How to determine the optimal product mix with one constrained resource and a sales constraint, page 419 8.9 How to calculate price by applying a markup percentage to cost, page 421 8.10 How to calculate a target cost, page 423 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com 919 Examples for Chapter 9.1 How to prepare a sales budget, page 460 9.2 How to prepare a production budget, page 461 12.3 How to assess cash flows and calculate net present value, page 653 12.4 How to calculate internal rate of return with uniform cash flows, page 657 12.5 How to calculate net present value and internal rate of return for mutually exclusive projects, page 663 9.3 How to prepare a direct materials purchases budget, page 463 9.4 How to prepare a direct labor budget, page 464 9.5 How to prepare an overhead budget, page 464 Examples for Chapter 13 9.6 How to prepare an ending finished goods inventory budget, page 465 13.1 How to use net benefit to evaluate risk response alternatives, page 707 9.7 How to prepare a cost of goods sold budget, page 466 13.2 How to prepare a quality cost report, page 721 9.8 How to prepare a selling and administrative expenses budget, page 467 13.3 How to prepare an interim quality performance report, page 724 9.9 How to prepare a budgeted income statement, page 467 13.4 How to prepare multiple-period quality trend reports, page 726 9.10 How to prepare a schedule for cash collections on accounts receivable, page 470 9.11 How to determine cash payments on accounts payable, page 471 13.5 How to calculate production time for traditional and cellular manufacturing, page 730 9.12 How to prepare a cash budget, page 472 13.6 How to calculate value-stream product costs, page 735 9.13 How to prepare a before-the-fact flexible budget, page 476 13.7 How to calculate the value of an exchange in another currency, page 741 9.14 How to prepare a performance report using a flexible budget, page 478 Examples for Chapter 14 Examples for Chapter 10 14.1 How to classify activities and identify them as sources or uses of cash, page 793 10.1 How to compute standard quantities allowed (SQ and SH ), page 527 14.2 How to compute the change in cash, page 796 10.2 14.3 How to calculate operating cash flows using the indirect method, page 796 How to use control limits to trigger a variance investigation, page 531 10.3 How to calculate the total variance for materials, page 532 14.4 How to compute investing cash flows, page 798 10.4 How to calculate materials variances: formula and columnar approaches, page 534 14.5 How to compute financing cash flows, page 799 10.5 How to calculate the total variance for labor, page 537 14.7 How to calculate operating cash flows using the direct method, page 802 10.6 How to calculate labor variances: formula and columnar approaches, page 539 14.8 How to prepare a statement of cash flows using a worksheet approach, page 804 14.6 How to prepare the statement of cash flows, page 800 10.7 How to calculate the total variable overhead variance, page 543 10.8 How to calculate variable overhead spending and efficiency variances: columnar and formula approaches, page 544 Examples for Chapter 15 10.9 How to prepare a performance report for the variable overhead variances, page 547 15.1 How to prepare common-size income statements using base period horizontal analysis, page 839 10.10 How to calculate the total fixed overhead variance, page 548 10.11 How to calculate fixed overhead variances: columnar and formula approaches, page 549 15.2 How to prepare income statements using net sales as the base: vertical analysis, page 840 15.3 How to calculate the current ratio and the quick (or acid-test) ratio, page 848 15.4 Examples for Chapter 11 11.1 How to calculate average operating assets, margin, turnover, and return on investment, page 597 How to calculate the average accounts receivable, the accounts receivable turnover ratio, and the accounts receivable turnover in days, page 849 15.5 How to calculate the average inventory, the inventory turnover ratio, and the inventory turnover in days, page 851 15.6 How to calculate the times-interest-earned ratio, page 853 11.2 How to calculate residual income, page 603 15.7 How to calculate the debt ratio and the debt-to-equity ratio, page 855 11.3 How to calculate economic value added, page 605 15.8 How to calculate the return on sales, page 856 11.4 How to calculate transfer price, page 609 15.9 How to calculate the average total assets and the return on assets, page 857 11.5 (Appendix 11A) How to compute cycle time and velocity, page 618 15.10 How to calculate the average common stockholders’ equity and the return on stockholders’ equity, page 858 11.6 (Appendix 11A) How to calculate manufacturing cycle efficiency, page 620 15.11 How to compute earnings per share, page 859 Examples for Chapter 12 15.12 How to compute the price-earnings ratio, page 860 15.13 How to compute the dividend yield and the dividend payout ratio, page 861 12.1 How to calculate payback, page 648 12.2 How to calculate the accounting rate of return, page 651 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 www.ebookslides.com This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest Important Notice: Media content referenced within the product description or the product text may not be available in the eBook version Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 ... and Thanks Thank you to the following instructors who contributed to the development of the 7th edition of Managerial Accounting: The Cornerstone of Business Decision Making By reviewing, verifying,... Introduction to Managerial Accounting The Meaning of Managerial Accounting Information Needs of Managers and Other Users Planning Controlling Decision Making Financial Accounting and Managerial Accounting. .. underscore the earlier observation that managerial accounting has more of an interdisciplinary flavor than other areas of accounting One of the main purposes of the CMA was to establish managerial accounting