TABLE OF CONTENTS
1 Managerial Accounting 1-1
Just Add Water and Paddle: Current Designs 1-1
Managerial Accounting Basics 1-2
Comparing Managerial and Financial Accounting 1-3
Management Functions 1-4
Organizational Structure 1-5
Managerial Cost Concepts 1-7
Manufacturing Costs 1-7
Product Versus Period Costs 1-8
Illustration of Cost Concepts 1-9
Manufacturer Financial Statements 1-11
Income Statement 1-11
Cost of Goods Manufactured 1-12
Cost of Goods Manufactured Schedule 1-12
Statement of Financial Position 1-13
Managerial Accounting Trends 1-15
Service Industries 1-15
Focus on the Value Chain 1-16
Balanced Scorecard 1-17
Business Ethics 1-17
Company Social Responsibility 1-18
2 Job Order Costing 2-1
Profiting from the Silver Screen: Disney 2-1
Cost Accounting Systems 2-2
Process Cost System 2-3
Job Order Cost System 2-3
Job Order Cost Flow 2-4
Accumulating Manufacturing Costs 2-5
Job Cost Sheets and Manufacturing Costs 2-7
Raw Materials Costs 2-7
Factory Labor Costs 2-9
Predetermined Overhead Rates 2-12
Completed and Sold Manufacturing and
Service Jobs 2-14
Assigning Costs to Finished Goods 2-14
Assigning Costs to Cost of Goods Sold 2-15
Summary of Job Order Cost Flows 2-16
Job Order Costing for Service Companies 2-17
Advantages and Disadvantages of Job
Order Costing 2-18
Applied Manufacturing Overhead 2-19
Under- or Over applied Manufacturing Overhead 2-20
3 Process Costing 3-1
Famed Soft Drink in the Outback: Back o’ Bourke Cordials 3-1
Overview of Process Cost Systems 3-2
Uses of Process Cost Systems 3-2
Process Costing for Service Companies 3-3
Similarities and Differences Between Job Order Cost and Process Cost Systems 3-4
Recording Costs 3-5
Process Cost Flow 3-5
Assigning Manufacturing Costs—Journal Entries 3-6
Equivalent Units 3-9
Weighted-Average Method 3-9
Refinements on the Weighted-Average Method 3-10
The Production Cost Report 3-12
Compute the Physical Unit Flow (Step 1) 3-13
Compute the Equivalent Units of
Production (Step 2) 3-13
Compute Unit Production Costs (Step 3) 3-14
Prepare a Cost Reconciliation Schedule (Step 4) 3-14
Preparing the Production Cost Report 3-15
Costing Systems—Final Comments 3-15
Appendix 3A: FIFO Method for Computing Equivalent Units 3-19
Equivalent Units Under FIFO 3-19
Comprehensive Example 3-20
FIFO and Weighted-Average 3-25
4 Activity-Based Costing 4-1
Wellness for Customers and the Company: Technogym SpA 4-1
Traditional vs. Activity-Based Costing 4-3
Traditional Costing Systems 4-3
Illustration of a Traditional Costing System 4-3
The Need for a New Approach 4-4
Activity-Based Costing 4-4
ABC and Manufacturers 4-7
Identify and Classify Activities and Assign Overhead to Cost Pools (Step 1) 4-7
Identify Cost Drivers (Step 2) 4-8
Compute Activity-Based Overhead Rates (Step 3) 4-8
Allocate Overhead Costs to Products (Step 4) 4-8
Comparing Unit Costs 4-9
ABC Benefits and Limitations 4-12
The Advantage of Multiple Cost Pools 4-12
The Advantage of Enhanced Cost Control 4-14
The Advantage of Better Management Decisions 4-15
Some Limitations and Knowing When to Use ABC 4-16
ABC and Service Industries 4-17
Traditional Costing Example 4-17
Activity-Based Costing Example 4-18
Appendix 4A: Just-in-Time Processing 4-21
Objective of JIT Processing 4-22
Elements of JIT Processing 4-22
Benefits of JIT Processing 4-23
5 Cost-Volume-Profit 5-1
Don’t Worry—Just Get Big: Amazon.com 5-1
Cost Behavior Analysis 5-2
Variable Costs 5-3
Fixed Costs 5-4
Relevant Range 5-5
Mixed Costs 5-5
Mixed Costs Analysis 5-7
High-Low Method 5-7
Importance of Identifying Variable and Fixed Costs 5-9
CVP Analysis 5-10
Basic Components 5-10
CVP Income Statement 5-11
Break-Even Analysis 5-14
Mathematical Equation 5-14
Contribution Margin Technique 5-15
Graphic Presentation 5-16
Target Net Income and Margin of Safety 5-18
Target Net Income 5-18
Margin of Safety 5-19
6 Cost-Volume-Profit Analysis: Additional Issues 6-1
The Secret to Supermarket Profitability: Aldi 6-1
Basic CVP Concepts 6-2
Basic Concepts 6-2
Basic Computations 6-3
CVP and Changes in the Business Environment 6-5
Sales Mix and Break-Even Sales 6-7
Break-Even Sales in Units 6-8
Break-Even Sales for a Large Number of Products 6-9
Sales Mix with Limited Resources 6-11
Operating Leverage and Profitability 6-14
Effect on Contribution Margin Ratio 6-15
Effect on Break-Even Point 6-15
Effect on Margin of Safety Ratio 6-15
Operating Leverage 6-16
Appendix 6A: Absorption Costing Versus Variable Costing 6-18
Example Comparing Absorption Costing with Variable Costing 6-19
Net Income Effects 6-21
Decision-Making Concerns 6-24
Potential Advantages of Variable Costing 6-26
7 Incremental Analysis 7-1
The Internet of Clothing: Evrythng 7-1
Decision-Making and Incremental Analysis 7-3
Incremental Analysis Approach 7-3
How Incremental Analysis Works 7-4
Qualitative Factors 7-5
Relationship of Incremental Analysis and Activity-Based Costing 7-5
Types of Incremental Analysis 7-6
Special Orders 7-6
Make or Buy 7-8
Opportunity Cost 7-9
Sell or Process Further 7-10
Single-Product Case 7-11
Multiple-Product Case 7-11
Repair, Retain, or Replace Equipment 7-14
Eliminate Unprofitable Segment or Product 7-15
8 Pricing 8-1
They’ve Got Your Size—and Color: Zappos.com 8-1
Target Costing 8-2
Target Costing 8-4
Cost-Plus Pricing 8-5
Calculating Cost-Plus Pricing 8-5
Limitations of Cost-Plus Pricing 8-7
Variable-Cost Pricing 8-8
Time-and-Material Pricing 8-9
Transfer Pricing 8-12
Negotiated Transfer Prices 8-13
Cost-Based Transfer Prices 8-15
Market-Based Transfer Prices 8-17
Effect of Outsourcing on Transfer Pricing 8-17
Transfers Between Divisions in Different Countries 8-17
Appendix 8A: Absorption-Cost and Variable-Cost Pricing 8-19
Absorption-Cost Pricing 8-20
Variable-Cost Pricing 8-21
Appendix 8B: Transferring Goods Between Divisions in
Different Countries 8-23
9 Budgetary Planning 9-1
What’s in Your Cupcake?: BabyCakes NYC 9-1
Effective Budgeting and the Master Budget 9-2
Budgeting and Accounting 9-3
The Benefits of Budgeting 9-3
Essentials of Effective Budgeting 9-3
The Master Budget 9-6
Sales, Production, and Direct Materials Budgets 9-7
Sales Budget 9-7
Production Budget 9-8
Direct Materials Budget 9-9
Direct Labor, Manufacturing Overhead, and S&A
Expense Budgets 9-12
Direct Labor Budget 9-12
Manufacturing Overhead Budget 9-13
Selling and Administrative Expense Budget 9-14
Budgeted Income Statement 9-14
Cash Budget and Budgeted Statement of Financial Position 9-16
Cash Budget 9-16
Budgeted Statement of Financial Position 9-19
Budgeting in Non-Manufacturing Companies 9-21
Merchandisers 9-21
Service Companies 9-22
Not-for-Profit Organizations 9-23
10 Budgetary Control and Responsibility Accounting 10-1
Strategies to Help You Relax: Viceroy Hotel Group 10-1
Budgetary Control and Static Budget Reports 10-2
Budgetary Control 10-2
Static Budget Reports 10-3
Flexible Budget Reports 10-6
Why Flexible Budgets? 10-6
Developing the Flexible Budget 10-8
Flexible Budget—A Case Study 10-9
Flexible Budget Reports 10-10
Responsibility Accounting and Responsibility Centers 10-13
Controllable versus Non-Controllable Revenues and Costs 10-14
Principles of Performance Evaluation 10-15
Responsibility Reporting System 10-16
Types of Responsibility Centers 10-19
Investment Centers and ROI 10-22
Return on Investment (ROI) 10-22
Responsibility Report 10-23
Judgmental Factors in ROI 10-23
Improving ROI 10-24
Appendix 10A: ROI vs. Residual Income 10-28
Residual Income Compared to ROI 10-29
Residual Income Weakness 10-29
11 Standard Costs and Balanced Scorecard 11-1
A Balanced Approach: Anglo Pacific Group plc 11-1
Standard Costs 11-2
Distinguishing Between Standards and Budgets 11-3
Setting Standard Costs 11-4
Direct Materials Variances 11-7
Analyzing and Reporting Variances 11-7
Direct Materials Variances 11-9
Direct Labor and Manufacturing Overhead Variances 11-11
Direct Labor Variances 11-11
Manufacturing Overhead Variances 11-14
Variance Reports and Balanced Scorecards 11-16
Reporting Variances 11-16
Income Statement Presentation of Variances 11-16
Balanced Scorecard 11-17
Appendix 11A: Standard Cost Accounting System 11-21
Journal Entries 11-22
Ledger Accounts 11-23
Appendix 11B: Overhead Controllable and Volume Variances 11-24
Overhead Controllable Variance 11-24
Overhead Volume Variance 11-25
12 Planning for Capital Investments 12-1
Floating Hotels: Holland America Line 12-2
Capital Budgeting and Cash Payback 12-3
Cash Flow Information 12-3
Illustrative Data 12-4
Cash Payback 12-5
Net Present Value Method 12-6
Equal Annual Cash Flows 12-7
Unequal Annual Cash Flows 12-8
Choosing a Discount Rate 12-9
Simplifying Assumptions 12-10
Comprehensive Example 12-10
Capital Budgeting Challenges and Refinements 12-11
Intangible Benefits 12-12
Profitability Index for Mutually Exclusive Projects 12-13
Risk Analysis 12-15
Post-Audit of Investment Projects 12-15
Internal Rate of Return 12-16
Comparing Discounted Cash Flow Methods 12-18
Annual Rate of Return 12-19
13 Statement of Cash Flows 13-1
What Should We Do with This Cash?: Keyence 13-1
Statement of Cash Flows: Usefulness and Format 13-3
Usefulness of the Statement of Cash Flows 13-3
Classification of Cash Flows 13-3
Significant Non-Cash Activities 13-5
Format of the Statement of Cash Flows 13-5
Preparing the Statement of Cash Flows— Indirect Method 13-7
Indirect and Direct Methods 13-8
Indirect Method—Computer Services International 13-8
Step 1: Operating Activities 13-9
Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method 13-12
Step 2: Investing and Financing Activities 13-13
Step 3: Net Change in Cash 13-14
Using Cash Flows to Evaluate a Company 13-17
Free Cash Flow 13-17
Appendix 13A: Statement of Cash Flows—Direct Method 13-20
Step 1: Operating Activities 13-21
Step 2: Investing and Financing Activities 13-25
Step 3: Net Change in Cash 13-26
Appendix 13B: Statement of Cash Flows— T-Account Approach 13-27
14 Financial Analysis: The Big Picture 14-1
Making Money the Old-Fashioned Way: Li Ka-shing 14-1
Basics of Financial Statement Analysis 14-2
Need for Comparative Analysis 14-3
Tools of Analysis 14-3
Horizontal Analysis 14-3
Vertical Analysis 14-6
Ratio Analysis 14-9
Liquidity Ratios 14-9
Profitability Ratios 14-13
Solvency Ratios 14-16
Summary of Ratios 14-18
Sustainable Income 14-20
Discontinued Operations 14-21
Changes in Accounting Principle 14-22
Comprehensive Income 14-22
Appendix A Time Value of Money A-1
Interest and Future Values A-1
Nature of Interest A-1
Simple Interest A-2
Compound Interest A-2
Future Value of a Single Amount A-3
Future Value of an Annuity A-5
Present Value Concepts A-7
Present Value Variables A-7
Present Value of a Single Amount A-7
Present Value of an Annuity A-9
Time Periods and Discounting A-11
Present Value of a Long-Term Note or Bond A-11
Using Financial Calculators A-14
Present Value of a Single Sum A-14
Present Value of an Annuity A-15
Useful Applications of the Financial Calculator A-16
Company Index I-1
Subject Index I-3