Introduction to managerial accounting

753 Pages·2019·45.914 MB·English

by  Eric W. Noreen, Ray H. Garrison, Peter C. Brewer

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introduction
TO
M A N A G E R I A L A C C O U N T I N G
8TH EDITION
P C. B , Ph.D.
ETER REWER
Wake Forest University
R H. G , D.B.A., CPA
AY ARRISON
Professor Emeritus
Brigham Young University
E W. N , Ph.D., CMA
RIC OREEN
Professor Emeritus
University of Washington
Accounting Circle Professor of Accounting
Temple University
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INTRODUCTION TO MANAGERIAL ACCOUNTING, EIGHTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2019 by McGraw-Hill
Education. All rights reserved. Printed in the United States of America. Previous editions © 2016, 2013, and
2010. 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.
1 2 3 4 5 6 7 8 9 DOW 21 20 19 18
ISBN 978-1-259-91706-6
MHID 1-259-91706-1
Portfolio Manager: Pat Plumb
Product Developer: Erin Quinones and Danielle Andries
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Buyer: Laura Fuller
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Content Licensing Specialist: Beth Thole
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Compositor: SPi Global
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: Brewer, Peter C., author. | Garrison, Ray H., author. | Noreen, Eric
W., author.
Title: Introduction to managerial accounting / Peter C Brewer, Lecturer, Wake
Forest University, Ray H. Garrison, Professor Emeritus, Brigham Young
University, Eric Noreen, Professor Emeritus, University of Washington.
Description: 8th Edition. | Dubuque : McGraw-Hill Education, [2019] | Revised
edition of the authors’ Introduction to managerial accounting, [2016]
Identifiers: LCCN 2017040497 | ISBN 9781259917066 (alk. paper)
Subjects: LCSH: Managerial accounting.
Classification: LCC HF5657.4 .F65 2019 | DDC 658.15/11—dc23
LC record available at https://lccn.loc.gov/2017040497
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
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DEDICATION
To our families and to our many colleagues who use this book.
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About the Authors
Peter C. Brewer
is a lecturer in the Department of
Accountancy at Wake Forest University. Prior to joining the faculty at Wake
Forest, he was an accounting professor at Miami University for 19 years.
He holds a BS degree in accounting from Penn State University, an MS degree
in accounting from the University of Virginia, and a PhD from the Universi-
ty of Tennessee. He has published more than 40 articles in a variety of jour-
nals including: Management Accounting Research; the Journal of Information
Systems; Cost Management; Strategic Finance; the Journal of Accountancy;
Issues in Accounting Education; and the Journal of Business Logistics.
Professor Brewer has served on the editorial boards of the Journal of Accounting
Education and Issues in Accounting Education. His article “Putting Strategy into
the Balanced Scorecard” won the 2003 International Federation of Accountants’
Articles of Merit competition, and his articles “Using Six Sigma to Improve the
Finance Function” and “Lean Accounting: What’s It All About?” were awarded
the Institute of Management Accountants’ Lybrand Gold and Silver Medals in
2005 and 2006. He has received Miami University’s Richard T. Farmer School
of Business Teaching Excellence Award.
Prior to joining the faculty at Miami University, Professor Brewer was employed
as an auditor for Touche Ross in the firm’s Philadelphia office. He also worked as
an internal audit manager for the Board of Pensions of the Presbyterian Church
(U.S.A.).
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Eric W. Noreen
has taught at
INSEAD in France and the Hong Kong Institute
of Science and Technology and is emeritus profes-
sor of accounting at the University of Washington.
Currently, he is the Accounting Circle Professor
of Accounting, Fox School of Business, Temple
University.
Ray H. Garrison
is emeri-
tus professor of accounting at Brigham Young
He received his BA degree from the University
University, Provo, Utah. He received his BS
of Washington and MBA and PhD degrees from
and MS degrees from Brigham Young University
Stanford University. A Certified Management
and his DBA degree from Indiana University.
Accountant, he was awarded a Certificate of
Distinguished Performance by the Institute of
As a certified public accountant, Professor Certified Management Accountants.
Garrison has been involved in management con-
sulting work with both national and regional ac-
Professor Noreen has served as associate edi-
counting firms. He has published articles in tor of The Accounting Review and the Journal
The Accounting Review, Management Accounting, of Accounting and Economics. He has numerous
and other professional journals. Innovation in the
articles in academic journals including: the
classroom has earned Professor Garrison the Journal of Accounting Research; The Accounting
Karl G. Maeser Distinguished Teaching Award Review; the Journal of Accounting and Econom-
from Brigham Young University. ics; Accounting Horizons; Accounting, Organi-
zations and Society; Contemporary Accounting
Research; the Journal of Management Accounting
Research; and the Review of Accounting Studies.
Professor Noreen has won a number of awards
from students for his teaching.
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Pointing Students
in the Right Direction
“Why do I
Here’s how your colleagues have described
Brewer’s Introduction to Managerial Accounting:
need to learn
Managerial Great, readable text with streamlined coverage. the number of chapters
combined with the readability make this a lean, up-to-date product.
Accounting?”  Timothy Griffin, Hillsborough Community College
Brewer’s Introduction to Mana-
gerial Accounting has earned
A simplified managerial accounting book.
a reputation as the most acces-
Dan O’Brien, Madison College
sible and readable book on the
market. Its manageable chap-
ters and clear presentation point
students toward understanding A book with an appropriate level of coverage for students who may
just as the needle of a compass not all be majoring in accounting. This book has enough detail for
accounting majors, with coverage that still keeps the interest and
provides direction to travelers.
understanding of non-majors.
However, the book’s authors
Dawn McKinley, Harper Community College
also understand that everyone’s
destinations are different. Some
students will become accoun-
tants, while others are destined This is a thorough text that offers many well-structured exercises
for careers in management, throughout.
marketing, or finance. Not only Eric Weinstein, Suffolk Community College
does the Brewer text teach stu-
dents managerial accounting
concepts in a clear and concise
The textbook is very good, with the Foundational 15 being my favorite
way, but it also asks students
feature. The Review Problems are also very thorough and serves as
to consider how the concepts an outstanding study tool for students to use independently. The
they’re learning will apply to the writing flows very well. If a student takes the time to read each
chapter thoroughly, there is no excuse not to do well in the Managerial
real world situations they will
Accounting Course.
eventually confront in their ca-
Randall Williams, Catawba Valley Community College
reers. This combination of con-
ceptual understanding and the
ability to apply that knowledge
directs students toward suc- I really like the content and think it will be beneficial for all students.
cess, whatever their final desti- I especially like the highlighting of important concepts in the text, and
the Guided examples that explain how to solve problems.
nation happens to be.
Diane Tanner, University of Northern Florida
vi
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CONFIDENCE AT THE CORE
Your students want a text that is concise and that presents material in a clear
and readable manner. Introduction to Managerial Accounting keeps the mate-
rial accessible while avoiding advanced topics related to cost accounting.
Students’ biggest concern is whether they can solve the end-of-chapter prob-
lems after reading the chapter. Market research indicates that Brewer/Garrison/
Noreen helps students apply what they’ve learned better than any other manage-
rial accounting text on the market. Additionally, the key supplements are written
and continually revised to ensure that students and instructors will work with
clear, well-written supplements that employ consistent terminology. Author Pete
Brewer examined each and every end of chapter question in Connect to guaran-
tee accuracy and consistency.
RELEVANCE AND DECISION MAKING
All students who pass through your class need to know how accounting infor-
mation is used to make business decisions, especially if they plan to be future
managers. That’s why Brewer, Garrison, and Noreen make decision making a
pivotal component of Introduction to Managerial Accounting. In every chapter
you’ll find the following key features that are designed to teach your students
how to use accounting information: Each chapter opens with a Decision
Feature vignette that uses real-world examples to show how accounting informa-
tion is used to make everyday business decisions; Decision Point boxes within
the chapters help students to develop analytical, critical thinking, and problem-
solving skills; and end-of-chapter Building Your Skills cases challenge students’
decision-making skills.
A CONTEMPORARY APPROACH TO LEARNING
Today’s students rely on technology more than ever as a learning tool, and
Introduction to Managerial Accounting offers the finest technology package
of any text on the market. From study aids like narrated, animated Guided
Examples to online grading and course management, our technology assets have
one thing in common: they make your class time more productive, more stimu-
lating, and more rewarding for you and your students. McGraw-Hill Connect is
an online assignment and assessment solution that connects students with the
tools and resources they’ll need to be successful. These resources include an
online, media-rich, searchable version of the text in addition to access to
Connect, giving students a convenient way to access everything they need to
succeed in their course.
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BREWER / GARRISON / NOREEN’S
Introduction to Managerial Accounting is full of pedagogy
designed to make studying productive and hassle-free. On the following pages,
you’ll see the kind of engaging, helpful pedagogical features that have made
Brewer one of the best-selling Managerial Accounting texts on the market.
NEW* INTEGRATION EXERCISES Confirming Pages
We have added 12 new exercises located in the back of the text and in Connect that integrate learning objectives across
chapter28s6. These exercisCehaspte rw 7 ill increase the students’ level of interest in the course because they forge the connections
across chapters. Rather tAh siampnle mseethoed ifonr ugnd eerstaancdinhg hocwh Waebper tLeigrht Aairscr afat cnom piusteod iltsa vatreiabdle set of learning objectives, students begin to see how it
costing net operating income for each month is to focus on the contribution margin per
all fits together to provaiircdraeft s ogld,r wehiacht ise crom pmuteda ans foallogwes:rial insight and more effective planning, controlling, and decision making.
The integration exercises are also tailor-made for flipping the classroom because they offer challenging questions that
Contribution Margin per Aircraft Sold
require students to workSe lilinng p rticee paerm aircrsaf t  t.o... .d...e..r..i..v..e.. ..s..o..l..u...t.i..o..n. s that s$y10n0,0t0h0esize what they have learned throughout the semester.
Variable cost of goods sold per aircraft  ...................... $25,000
Variable selling and administrative expense per aircraft ........ 10,000 35,000
Contribution margin per aircraft ............................. $ 65,000
NEW* CONCEPTT heO variVable EcosRting Vnet oIpEeratWing inc oVme foIrD eachE perOiod cSan always be computed by
multiplying the number of units sold by the contribution margin per unit and then sub-
tracting total fixed expenses. For Weber Light Aircraft these computations would appear
as follows:
New for the 8th edition of Brewer, the Concept Overview Videos cover each learning objective through narrated,
animated presentations. Formerly called IntJaenuraaryctivFeeb ruParyresenMatrachtions, each Concept Overview Video has been enhanced
Number of aircraft sold  .............. 1 1 5
for improved accessibiliCtonytri,b utaionn mdarg ini pnerc airlcuraftd ..e..s... bo×t $h 65 ,t00h0e v× i$ s 65u,00a0l a×n $i 6m5,00a0tions and transcripts to accommodate all types of learn-
Total contribution margin  ............ $ 65,000 $ 65,000 $325,000
ers. The Concept OvervTotiale fixwed e xpVensieds  .e..o...s.. ..a..l.s..o. pa 9u0,s00e0 fre q90u,00e0ntly 9t0,o00 0check for comprehension with assignable, auto-graded
Net operating income (loss)  . . . . . . . . . . $(25,000) $(25,000) $235,000
Knowledge Check questions.
Confirming Pages
Notice, January and February have the same net operating loss. This occurs because one
aircraft was sold in each month and, as previously mentioned, the selling price per air-
craft, variable costs per aircraft, and total monthly fixed expenses remain constant.
HELPFUL HINT
HELPFUL HINT
294 Chapter 7
When students prepare variable costing income statements they often mistakenly assume
that variable selling and administrative expense is a product cost. The confusion arises because Helpful Hint boxes are found several times
variable selliUngn adnedr aadbmsionrisptrtaitoivne ceoxpsetinnseg ,i sf iinxceludd meda inn uthfea cctaulcruilnagtio on voef rchoenatrdib uctoiosnt sm aapr-pear to be variable
gin; howewvietrh, i tr iess npoet cat ptoro dthucet ncousmt. bVaerria oblfe usneliltinsg s aonldd ,a dbmuitn itshtreaytiv aer eex npeonts. eF ios ra lewxaaysm ap le, in January, the throughout each chapter and highlight a
period coasbt saonrdp tthieo nto tualn aimt opurnotd ouf ctht isc oexspt eants eW inecbluedre dL iing hthte A inicrocmraef stt aitse m$9en5t, 0is0 a0lw, abyus t the variable por-
duneirtisv esdo lbdty—io mnnou tlot tiphf leyt hinnuigsm t hcbeoe rvs aot rfii ausbn olietsn s lpeyrlol in$dgu2 ca5en,dd0. 0ad0m. iTnihstera ftiivxee edx poevneserh peear dun cit obsyt tsh eo nf u$m7b0e,r0 o0f 0 are commingled variety of common mistakes, key points,
with variable production costs, thereby obscuring the impact of fixed overhead costs
on profits. Because absorption unit product costs are stated on a per unit basis, manag- and “pulling it all together” insights for
ers may mistakenly believe that if another unit is produced, it will cost the company
$95,000. But of course it would not. The cost of producing another unit would be only students.
CCOHENCCKE PT✓ 2. Shthames  i$pvtnha2ro ro 5Cibba,obe0lmegl0eimp 0nsan.se ni,lnMyl ig inn pigsircn ioalvndunetuddnec tireoanpsdrg rimeea sniti.nind niI astgstspre aplvaltrasibvo rseiopao nrbereixlpae p ptteimerono asndpenu r uucpifctnea ircifn ottuu grnpr ii$rndto4 gei0ds c cui$posc4esittr.o Tcpnueohnsres i t tau.fs nni Txidateh sdeid s vm ec$aoca1rmin8isuap ifobaaannnlceyd-s ctaon d lreoapd ptoro mduacntys
turinthg aot vaerreh eiand  faancdt pfirxoefdi taseblllien.g and administrative expense total $80,000 and
$20,000, respectively. If Smith Company produces 8,000 units and sells 7,500 units
during the year, then its net operating income under variable costing would be
a. $65,000
b. $41,250 DECISION POINT
DECISION POINT c. $T40h,00e0 Pricing Decision
d. $35,000
Each year Webb Company produces and sells 20,000 units of its only product. The sell-
The Decision Point feature fos-
ing price for this product is $100 per unit and its direct materials, direct labor, and variable
manufacturing overhead costs per unit are $25, $15, and $10, respectively. Webb’s annual ters critical thinking and decision-
fixed manufacturing overhead expenses and fixed selling and administrative expenses are
$400,000 and $150,000, respectively. It does not have any variable selling and administrative making skills by providing real-
expenses.
bre17061_ch07_280-331.indd 286 The company’s marketing manager believes a 10% pr0i9c/2e2/1 7 i 0n3:c06r PeMase would lead to world business scenarios that require
a 20% decline in the number of units sold. He claims that if the level of production stays at
20,000 units his price hike will increase gross margins and net operating income by $40,000. the resolution of a business issue.
Would you support the price increase? Do you think it will increase profits?
The suggested solution is located at
the end of the chapter.
“VeryS gEGoMoEdN cTEoDn IvNeCrOsMaEti oSTnA TsEtMarEtNeTrSs A iNnD a T cHlEa CsOsNroToRImBU oTIrO dN iAsPcPuRsOsAioCnH board
setting.”
LEARNING OBJECTIVE 7–4 In the remainder of the chapter, we’ll learn how to use the contribution approach to con-
struct income statements for business segments. These segmented income statements are
Prepare a segmented income useful for analyzing the prRofaitanbdiliatyl lo fW seiglmliaenmts, sm, aCkinagt adewcisbioans C, aondm mmeasuurninigty th Ce ollege
statement that differentiates performance of segment managers.
traceable fixed costs from common
fixed costs and use it to make
decisions. Traceable and Common Fixed Costs
and the Segment Margin
viii
You need to understand three new terms to prepare segmented income statements
using the contribution approach—traceable fixed cost, common fixed cost, and segment
margin.
A traceable fixed cost of a segment is a fixed cost that is incurred because of the
existence of the segment—if the segment had never existed, the fixed cost would not
have been incurred; and if the segment were eliminated, the fixed cost would disappear.
Examples of traceable fixed costs include the following:
∙ The salary of the Fritos product manager at PepsiCo is a traceable fixed cost of the
Fritos business segment of PepsiCo.
∙ The maintenance cost for the building in which Boeing 747s are assembled is a trace-
able fixed cost of the 747 business segment of Boeing.
∙ The liability insurance at Disney World is a traceable fixed cost of the Disney World
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Activity-Based Costing 169
Expected Activity
Activity Cost Pools Estimated
and (Activity Measures) Overhead Cost Deluxe Tourist Total
Labor-related (direct labor-hours) ... $ 33,000 1,000 9,000 10,000
POWERFUL PEDAGOGY
Machine setups (setups) ........... 120,000 20 80 100
Production orders (orders) ......... 70,000 15 35 50
General factory (machine-hours) .... 150,000 10,000 10,000 20,000
$373,000
a. Are the traditional unit product costs for the two products the same or different? Explain.
b. Are the ABC unit product costs for the two products the same or different? Explain.
c. Which method, the traditional direct labor-based costing system or the ABC costing system,
apparently provides more accurate costs? Explain.
THE FOUNDATIONAL 15
THE FOUNDATIONAL 15
Each chapter contains one Foundational 15 GPrroedeuncwto Zo.d T Cheo mcopmanpya nmy aunsuesfa ac tpulraenst wtwidoe povroedrhuecatsd— ra1t4e ,b0a0s0e du noint sd iorfe cPt rloadbuocr-th You rasn. dI t 6is,0 c0o0n suidneitrsi nogf LO4–1, LO4–2,
exercise that includes 15 “building-block” implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead LO4–3, LO4–4
to four cost pools. The following additional information is available for the company as a whole and
questions related to one concise set of data. for Products Y and Z:
These exercises can be used for in-class Estimated
Activity Cost Pool Activity Measure Overhead Cost Expected Activity
discussion or as homework assignments.
Machining................... Machine-hours $200,000 10,000 MHs
They are found before the Exercises and Machine setups.............. Number of setups $100,000 200 setups
Production design............ Number of products $84,000 2 products
are available in Connect. General factory .............. Direct labor-hours $300,000 12,000 DLHs
Activity Measure Product Y Product Z
Machining .................... 8,000 2,000
Number of setups.............. 40 160
Number of products............ 1 1
Direct labor-hours.............. 9,000 3,000
1. What is the company’s plantwide overhead rate?
2. Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y?
How much is allocated to Product Z?
3. What is the activity rate for the Machining activity cost pool?
4. What is the activity rate for the Machine Setups activity cost pool?
5. What is the activity rate for the Product Design activity cost pool?
6. What is the activity rate for the General Factory activity cost pool?
7. Which of the four activities is a batch-level activity? Why?
8. Which of the four activities is a product-level activity? Why?
9. Using the ABC system, how much total manufacturing overhead cost would be assigned
to Product Y? Rev.Confirming Pages
10. Using the ABC system, how much total manufacturing overhead cost would be assigned to
Product Z?
CHAPTER OUTLINE 11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to
Product Y? What percentage is allocated to Product Z?
12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y? What
Each chapter opens with an outline that percentage is assigned to Product Z? Are these percentages similar to those obtained in question 11?
Why?
provides direction to the student about the
A LOOK BACK A LOOK AT THIS CHAPTER A LOOK AHEAD
road they can expect to traverse through- Cthhaat patreer u1s deedf itnoe cdla mssainfyy coofs tthse i nte arnm s Tcohsist icnhga spytsetre emxsp claainn sb heo uws ejodb t-oo radsesrig n Csyhsatepmtesr 3ca enx bpela iunsse hdo two djoebte-ormrdienre c tohset ing
organization. Its central theme was that manufacturing costs to individual value of ending inventories and cost of
out the chapter. The A Look Back/A Look organizations should classify their costs jobs. It illustrates how one plantwide goods sold for external reporting purposes.
differently depending on the needs of predetermined overhead rate or multiple
at This Chapter/A Look Ahead feature bre17061_ch04_14m6-a1n8a3g.inedmde n1t.69 pusreedde ttoe rampipnley do voevrehrehaeda dc orasttes st oc ajonb bse. 09/08/17 07:40 PM
reminds students what they have learned in
previous chapters, what they can expect to
learn in the current chapter, and how the
topics will build on each other in chapters Job-Order Costing:
to come. 2
Calculating Unit
Product Costs
CHAPTER OUTLINE
Job-Order Costing—An Overview Job-Order Costing—A Managerial Perspective
Job-Order Costing—An Example • Choosing an Allocation Base—A Key to Job Cost Accuracy
• Measuring Direct Materials Cost Job-Order Costing Using Multiple Predetermined Overhead
Rates
• Job Cost Sheet
• Multiple Predetermined Overhead Rates—A Departmental Approach
• Measuring Direct Labor Cost
• Multiple Predetermined Overhead Rates—An Activity-Based Approach
• Computing Predetermined Overhead Rates
• Applying Manufacturing Overhead Job-Order Costing—An External Reporting Perspective
• Manufacturing Overhead—A Closer Look • Overhead Application and the Income Statement
• The Need for a Predetermined Rate • Job Cost Sheets: A Subsidiary Ledger
• Computation of Total Job Costs and Unit Product Costs Job-Order Costing in Service Companies
bre17061_ch02_062-095.indd 62 10/28/17 08:10 PM
ix
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