Managerial accounting

881 Pages·2020·28.16 MB·english

by  Tayler

Managerial
Accounting
15e
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia, Athens
William B. Tayler
Brigham Young University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
12020_fm_ptg01_i-xxi.indd 1 8/25/18 11:30 AM
Managerial Accounting, 15e © 2020, 2018 Cengage Learning, Inc.
Carl S. Warren
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William B. Tayler
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12020_fm_ptg01_i-xxi.indd 2 28/08/18 7:54 AM
Preface
Roadmap for Success
Warren/Tayler Managerial Accounting, 15e, provides a sound pedagogy for giving s tudents a solid
foundation in managerial accounting. Warren/Tayler covers the fundamentals AND m otivates stu-
dents to learn by showing how accounting is important to businesses.
Warren/Tayler is successful because it reaches students with a combination of new and tried-and-
tested pedagogy.
This revision includes a range of new and existing features that help Warren/Tayler provide
students with the context to see how accounting is valuable to business. These include:
▪▪ New! Make a Decision section
▪▪ New! Pathways Challenge
▪▪ New! Certified Management Accountant (CMA®) Examination Questions
Warren/Tayler also includes a thorough grounding in the fundamentals that any business student
will need to be successful. These key features include:
▪▪ Presentation style designed around the way students learn
▪▪ Updated schema
▪▪ At the start of each chapter, a schema, or roadmap, shows students what they are going to
learn and how it is connected to the larger picture. The schema illustrates how the chapter
content lays the foundation with managerial concepts and principles. Then it moves students
through developing the information and ultimately into evaluating and analyzing information
in order to make decisions.
15
Chapter Soft aCtaesmhe Fnlto w s
Principles
Chapter 1 Introduction to Managerial Accounting
Developing Information
COST SYSTEMS COST ALLOCATIONS
Chapter 2 Job Order Costing Chapter 5 Support Departments
Chapter 3 Process Costing Chapter 5 Joint Costs
Chapter 4 Activity-Based Costing
Decision Making
PLANNING AND EVALUATING TOOLS STRATEGIC TOOLS
Chapter 6 C ost-Volume-Profit Analysis Chapter 12 Capital Investment Analysis
Chapter 7 Variable Costing Chapter 13 Lean Manufacturing
Chapter 8 Budgeting Systems Chapter 13 Activity Analysis
Chapter 9 S tandard Costing and Variances Chapter 14 The Balanced Scorecard
Chapter 10 D ecentralized Operations Chapter 14 Corporate Social Responsibility
Chapter 11 D ifferential Analysis
Chapter 15
Statement
Financial of Cash Flows Managerial
accounting accounting
Chapter 16
Financial Statement
Analysis
698
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iii
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iv Preface
312 Chapter 7 Variable Costing for Management Analysis
▪▪ Link to the “opening company” of each chapter calls out examples of how the concepts
The $80,000 increase in operating income under Proposal 2 is caused by the allocation of the
introduced in the chapter are connected to thfixeed omapnuefanctiunringg ccosots mof $p40a0n,00y0. o vTerh a igrse atserh nuomwbers o f hunoitsw ma naufcacctuoreud. nSptec-ifically,
an increase in production from 20,000 units to 25,000 units means that the fixed manufacturing
ing is used in the real world by real compcoastn peire usni.t decreases from $20 ($400,000 ÷ 20,000 units) to $16 ($400,000 ÷ 25,000 units). Thus,
the cost of goods sold when 25,000 units are manufactured is $4 per unit less, or $80,000 less in
total (20,000 units sold × $4). Since the cost of goods sold is less, operating income is $80,000
more when 25,000 units rather than 20,000 units are manufactured.
Managers should be careful in analyzing operating income under absorption costing when fin-
ished goods inventory changes. Increases in operating income may be created by simply increas-
ing finished goods inventory. Thus, managers could misinterpret such increases (or decreases) in
Adobe Systems Inc. operating income as due to changes in sales volume, prices, or costs.
A ssume that you have three different options for a summer job. Just as you should evaluate the relative income of various
How would you evaluate these options? Naturally there are choices, a business also evaluates the income earned from its
meaacnhy j othbi.ngs to consider, including how much you could earn from cgheooigcreasp. hImicaplo rretgainotn csh too ibcees s ienrcvleudd.e the products offered and the Link to In a recent absorption costing income statement, Adobe Systems reported (in millions) total revenue
Determining how much you could earn from each job may A company will often evaluate the profitability of products of $5,854, cost of revenue of $820, gross profit of $5,034, operating expenses of $3,541, and operating
not be as simple as comparing the wage rate per hour. For exam- and regions. For example, Adobe Systems Inc. (ADBE), Adobe Systems income of $1,493.
ple, a job as an office clerk at a local company pays $8 per hour. A one of the largest software companies in the world, determines
job delivering pizza pays $10 per hour (including estimated tips), the income earned from its various product lines, such as Acrobat®,
although you must use your own transportation. Another job work- Photoshop®, Premiere®, and Dreamweaver® software. Adobe uses
ipnegr ihno au rb. eAallc thh rreeseo jrotb osv oefrf e5r0 400 m hioleusr as wpaeyr wfroeemk yfooru trh heo wmheo plea ysus m$8- tshuips pinofrot,r manadti odne vteol oepstmabelnisth e pffroordt.u Lcitk leinweis per, iAcidnogb, aes e wvaellul aatse ssa tlehse, Under variable costing, operating income is $200,000, regardless of whether 20,000 units or
mer. If these options were ranked according to their pay per hour, income earned in the geographic regions it serves, such as the 25,000 units are manufactured. This is because no fixed manufacturing costs are a llocated to the
the pizza delivery job would be the most attractive. However, the United States, Europe, and Asia. Again, such information aids man- units manufactured. Instead, all fixed manufacturing costs are treated as a period expense.
cpoles,t st haes soofcfiicaete jdo bw imtha ye arcehq ujoirbe mthuastt yaolsuo p baey efvoar lduoatwendt. oFworn e pxaamrk-- agemIne ntth iins mchaanpatgeirn, gh orewv ebnuusein aensds eesx pmeenasseus rwe ipthrionf itthaeb rileitgyio unssi.ng To illustrate, Exhibit 8 shows the variable costing income statements for Frand for the
ing and purchase office clothes. The pizza delivery job will require absorption costing and variable costing is discussed. After illustrat- production of 20,000 units, 25,000 units, and 30,000 units. In each case, the operating income
you to pay for gas and maintenance for your car. The resort job will ing and comparing these concepts, how businesses use them for is $200,000.
require you to move to the resort city and incur additional living controlling costs, pricing products, planning production, analyzing
costs. Only by considering the costs for each job will you be able to market segments, and analyzing contribution margins is described
determine which job will provide you with the most income. and illustrated.
Exhibit 8 Frand Manufacturing Company
Variable Costing Variable Costing Income Statements
Income Statements 20,000 Units 25,000 Units 30,000 Units
for Three Production Manufactured Manufactured Manufactured
Levels
Sales (20,000 units × $75)................ $1,500,000 $1,500,000 $ 1,500,000
Variable cost of goods sold:
Variable cost of goods manufactured:
(20,000 units × $35)............... $ (700,000)
(25,000 units × $35)............... $ (875,000)
(30,000 units × $35)............... $(1,050,000)
Ending inventory:
52 Chapter 2 Job Order Costing Pete Jenkins/AlAmy stock Photo MVaarnieTaouxbptflaa(((ee051cl ns ,0tv0uuesa,00nelrrli00siiinatn 0sugb.g .u×n l me.ani .t$ ncias.t3do r.s×5g s.a× )t.i$ dn ..o3$m...f53... gi)5...n....o)i.....so.....td..r...a.....st .....si.....vo.....el.....d......................................... $$ (( 871 000 000 ,,, 000 000 0000 )) $$ (( 8171 07 00 0500 ,,,, 0000 0000 0000 )) $$ (( 837105000000,,,,000000000000 ))
Contribution margin..................... $ 700,000 $ 700,000 $ 700,000
no discrepancies, a journal entry is made to record Ftixhed eco stps:urchase. The journal entry to record the
Link to Adobe Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 305, 309, 312, 316, 319 Fixed manufacturing costs ........... $ (400,000) $ (400,000) $ (400,000)
supplier’s invoice related to Receiving Report No. 196 Fiixend seEllinxg ahndi abdmitin is4tra tiivse as follows:
expenses ......................... (100,000) (100,000) (100,000)
Total fixed costs...................... $ (500,000) $ (500,000) $ (500,000)
Operating income ....................... $ 200,000 $ 200,000 $ 200,000
303
A 5 L 1 E a. Materials 10,500
1 1 Accounts Payable 10,500
12020_ch07_ptg01_302-351.indd 303 Mate7r/1i2/a18 l 1s2:1 5p PMurchased during December.
The storeroom releases materials for use in manufacturing when a materials requisition is
12020_ch07_ptg01_302-351.indd 312 7/12/18 12:15 PM
received. Examples of materials requisitions are shown in Exhibit 4.
The materials requisitions for each job serve as the basis for recording materials used. For direct
materials, the quantities and amounts from the materials requisitions are posted to job cost sheets. Job
▪▪ To aid comprehension and to demonstrate the impact of transactions, journal entries include
cost sheets, which are also illustrated in Exhibit 4, make up the work in process subsidiary ledger.
the net effect of the transaction on the accounting equation.
Exhibit 4 shows the posting of $2,000 of direct materials to Job 71 and $11,000 of direct
materials to Job 72.2 Job 71 is an order for 20 units of Jazz Series guitars, while Job 72 is an order
for 60 units of American Series guitars.
A summary of the materials requisitions is used as a basis for the journal entry recording the
materials used for the month. For direct materials, this entry increases (debits) Work in Process and
decreases (credits) Materials as follows:
A 5 L 1 E b. Work in Process 13,000
1 2 Materials 13,000
Materials requisitioned to jobs
($2,000 + $11,000).
Many companies use computerized information processes to record the use of materials. In
such cases, storeroom employees electronically record the release of materials, which automati-
cally updates the materials ledger and job cost sheets.
Ethics: Do It!
PEhTHoICSny Invoice Scams this information to create a fictitious invoice. The invoice
A popular method for defrauding a company is to issue a will include names, figures, and other details to give it the
phony invoice. The scam begins by initially contacting the appearance of legitimacy. This type of scam can be avoided
12020_fmta_prtgg0e1_ti -xfxiir.inmdd t 4o discover details of key business contacts, if invoices are matched with receiving documents prior to 8/25/18 11:31 AM
business operations, and products. The swindler then uses issuing a check.
Factory Labor
When employees report for work, they may use electronic badges, clock cards, or in-and-out
cards to clock in. When employees work on an individual job, they use time tickets to record the
amount of time they have worked on a specific job. Exhibit 5 illustrates time tickets for Jobs 71 and
72 at Legend Guitars.
Exhibit 5 shows that on December 13, 20Y8, D. McInnis spent six hours working on Job 71
at an hourly rate of $10 for a cost of $60 (6 hrs. × $10). Exhibit 5 also indicates that a total of
350 hours was spent by employees on Job 71 during December for a total cost of $3,500. This total
direct labor cost of $3,500 is posted to the job cost sheet for Job 71, as shown in Exhibit 5.
Likewise, Exhibit 5 shows that on December 26, 20Y8, S. Andrews spent eight hours on Job 72 at an
hourly rate of $15 for a cost of $120 (8 hrs. × $15). A total of 500 hours was spent by employees on Job
72 during December for a total cost of $7,500. This total direct labor cost of $7,500 is posted to the job
cost sheet for Job 72, as shown in Exhibit 5.
2 To simplify, Exhibit 4 and this chapter use the first-in, first-out cost flow method.
12020_ch02_ptg01_046-093.indd 52 6/20/18 6:32 PM
Preface v
▪▪ Located in each chapter, Why It Matters shows students how accounting is important
to businesses with which they are familiar. A Concept Clip icon indicates which Why It
Matters features have an accompanying concept clip video in CNOWv2.
CONCEPT CLIP
476 Chapter 10 Evaluating Decentralized Operations
Why It Matters
CONCEPT CLIP
Coca-Cola Company: Go West Young Man
different story. More than 65% of Coca- Cola’s profitability comes
Am ajor decision early in the history of Coca-Cola (KO) was to ex-
from i nternational segments. Given the revenue segmentation,
314 Chapter 7 Variable Cosptinag nfodr M oanuatgsemidenet Aonfa ltyhsise United States to the rest of the world. As a result, this suggests that the international profit margins must be higher
Coca-Cola is known today the world over. What is revealing is how
Solution: than the North American profit margin. Indeed this is the case, as
a. (1) tAhbisso rdpteiocni sCioostnin hg aInsc oimmep Staactetmeedn ttshe revenues and profitability of Coca- Cola across can be seen in the following table:
its international aPnrdop Nosaol r1t: h AmProeproicsaal n2: segme(3n0,t0s0.0 Tunhitse p rfoodulcloedw × $i4n0g va rtiaabble le shows
the percent of rev3e0,n00u0e Usn iatsn d p40e,0r0c0e Unntit so f opermaatninufagct uinrincg ocomst peer furnoit)m + $ 6t0h0,0e0 0i nterna- Profit Margin
Manufactured Manufactured fixed cost
Sales (30,000 unitst ×io $n10a0)l and North A$m 3,0e00r,i0c0a0n geo$ 3g,0r0a0p,00h0ic segm(e40n,0t00s .u nits produced × $40 variable manufacturing International average 48.4%
C oCsto ostf ogfo goodos dsso lmd:anufactured $(1,800,000) $(2,200,000) cost per unit) + $600,000 fixed cost North America 24.2%
Ending inventory — 550,000 10,000 units (40,000 pOrodpuceedr –a 3t0i,0n00g so ld)
Total cost of goods sold $(1,800,000) $(1,650,000) R×e $5v5 epenr uunite ($s2 ,200,00I0n ÷c 40o,0m00 ueni ts)
Gross profit $ 1,200,000 $ 1,350,000 (30,000 units sold × $7 variable selling cost per The average profit margin for all the international segments is
SOeplleinragt ianngd i nacdommineIisntrtaetivren exapteinosensal segm $ e( 38n5500t,,00s0000) $ 1 (,030500,,000000) uni5t) 8+ $.414%0,000 65.6% two times as large as the North American segment. These results
(2) North American segment 41.6 34.4 reflect the heart of the Coca-Cola marketing strategy. In interna-
Variable Costs
VaTroiatbalel Costing Income Statements 100% 100% tional markets, Coca-Cola is able to charge relatively higher prices
Proposal 1: Proposal 2: due to high demand and less competition as compared to the North
The first colu30m,00n0 Usnhitos3 5w0s4 0t,0h0aC0h tUa ntpihttse er 7 i nVtareiabr3l0ne,0 Ca0o0ts uitnionitgsn fporaro Mdlu ascneeadg g×e m$m4e0n veta Arninaabtllsyes i psrovide
Manufactured Manufactured manufacturing cost per unit American market.
Sales (30,000 unitso × v$1e00r) 58% of the$ 3r,0e00v,0e00nues$, 3 ,w000h,0i0l0e North40 ,0A20.0 m un Cietsh rparisocsdeuance dC p ×or m$o4p0v avanirdyia,b eale s c raaclkmer oansdt cookie manufacturer, has the following unit costs for the
Variable cost of goods sold: manufactmurionng tcho sot pf eJru unneit:
VE anTrdioaintbaglle iv ncavoreisantb otloef r g4ycoo2ostd %os fm g aoonoudffsa scottulhdrede rev$$ ((e 11 ,, 22n 00 00 u ,, 00 e00—00s)). Ho$$ (( 11w ,,462000e000,,,000v000e000))r, the 1soo0l,d0p)0 ×0 e u$n4r0ita sv (a4tr0iia,0bn0le0g cpor sotid pnuecrec udno –it 3m0,00e0 tVVFiaaexrreiiaadlbbl mllseea mmnauaafnr akucefttauincrtignu gcriSo ncsogot sucto rscte : The C$532o...050c000a-Cola Company, Form 10-K for the Fiscal Year Ended December 31, 2017.
Manufacturing margin $ 1,800,000 $ 1,800,000 Fixed marketing cost 4.00
Variable selling and administrative expenses (210,000) (210,000) 30,000 units sold × $7 variable
Contribution margin $ 1,590,000 $ 1,590,000 selli ng co Ast pteort uanl itof 100,000 units were manufactured during June, of which 10,000 remain in ending
Fixed costs: Residua ilnv eInntoryc. Cohasmsen euses the first-in, first-out (FIFO) inventory method, and the 10,000 units
Fixed manufacturing costs $ (600,000) $ (600,000) Fixed Coastrse the only finished goods inventory at June 30. Under the absorption costing concept, the
▪▪ N F iexTeowdt asel fl!liixn egd Pa cnodsa tasdtmhiniwstrataivey exspe nsCesh$ a ((l7144l00e,,0000n00))ge $ e ((17n4400,,c00R00o00e))usirdaugael si nscvtoaulmau. de $eo5ef 0 ,niC0s0h0t a.ssus’es ne’si fnJuuntlee i3rn0e fisonitsvh eeidrn cgoo omadsc iincnveogn tuosrnoy wmtionueld g ob ef: atnhed deismadpvhaanstaizgeess of the return on investment.
tOhpereat ingc inrciotmiecal thinking $ a 8s50p,00e0ct o$ f 8 5a0,0Rc00ceosiudnutailn ign.c oAb.m $s7e0u, 0i0gs0. gthees teexdc eassn sowf oepre rtoat inthge i nPcoamthew oavyesr aC mhianlilmenugme a cceptable operating income,
b. The difference (in a.) is caused by including $150,000 fixed manufacturing costs (10,000 units × $15 fixedc m. a$n8u5fa,0c0tu0r.ing cost per unit) in the
isen dpingr inovenvtoiryd, wehicdh d eacretas est thhe ecos t oef gnoodds soold afn d tinhcreease s ctheha opase rpastihntgeo inrcwo.m ne b yi $n15 0E,0d0x.0 .h$1i4b5,0i0t0 .7.
3. Mill Corporation had the following unit costs for the recent calendar year:
Check Up Corner
Variable Fixed
Manufacturing $8.00 $3.00
ExhPibaitth 7ways Challenge Nonmanufacturing 2.00 5.50
Operating income $XXX
Inventory for Mill’s sole product totaled 6,000 units on January 1 and 5,200 units on
ResTidhuiasl iIsn cAocmceounting! Minimum a Dcecceempbtear b31le. W ohpeen rcaotminpagre idn tcoo vmariaeb laes c oas t ing income, Mill’s absorption costing income is:
Economic Activity percent ofa .i n$v2,e40s0t leowde ra.ssets (XXX)
b. $2,400 higher.
Anabls sotrapkteiohno lcdoesrtsi.n Tgh uiss ,r eaquutoir emda nbuy fgacetnuerrearlsl yl ikaec cFeRpotreedds iaMdccouotuaonlrt i inCngo cpmorcin.m pcia$pe6nle,8ys0 (0G( FlAo)wA aPenr). dfo Gr reenpoerrtainlg M too etxoterrs- $XXX
Company (GM) use absorption costing in preparing their financiadl s. ta$t6e,m80e0n htsig. Uhenrd.er absorption costing,
fixed manufacturing costs are included in inventory. Thus, the4 m. ore B ceatrhs athney a uCtoom copmapnayn iheas sm jaukset, tchoem lopwleert ed the first month of producing a new product but has
the fixed cost per car and the smaller the cost of goods sold. In the yneoarts yperet csehdiinpgp tehde Uan.Sy. f ionaf ntchiaisl cprirsios daundc t. The product incurred variable manufacturing costs of
economic downturn of 2008, Ford and General Motors produced m$o5re,0 c0a0rs, 0th0a0n, wfiexreed s omlda tnou cfuascttoumrienrsg.1 costs of $2,000,000, variable marketing costs of $1,000,000,
and fixed marketing costs of $3,000,000.
Critical Thinking/Judgment Under the variable costing concept, the inventory value of the new product would be:
If Ford and General Motors have high fixed costsT anhd elo wm vairinabilem cao.u sts$m,5 h,0o 0wa0, 0cw0oc0u.eldp prtoadubcilneg moopre ecarrsa ting income is computed by multiplying the company minimum
aIff faebcsto trhpetiiro onp ceorsattiinngg ainllcoowms ec oumndpearn aiebss olirkpert Fieoontrd uc oarsntdnin Gg ?eo nuennrda el riM vnoatrvoiarebsb l.t eso c$t co6mh,s0at0inne0gg,0en?0 t0ht.e ibr oype rtahtineg inicnomvee bsy ted assets. The minimum rate is set by top management, based
increasing or decreasing production, why does GAAP require absorpcti.o n$ c8o,0s0t0in,0g0?0.
on such factords. $a11s,0 0t0h,00e0. cost of financing.
Suggested answer at end of chapter.
To illustrate, assume that DataLink Inc. has established 10% as the minimum acceptable return
1 Marielle Segarra, “Why the Big Three Put Too Many Cars on the Lot,” CFO.com (ww2.cfo.com/management-accounting/2012/02/
why-the-big-three-put-too-many-cars-on-the-lot/), Febrouarny 2 , 2i0n12v. estPmaetnht wfoar ydsiv iCsihoanallle anssgeets. The residual incomes for the three divisions are shown in
Exhibit 8.
This is Accounting!
12020_ch07_ptg01_302-351.indd 314 Information/Consequences 7/12/18 12:15 PM
By producing more cars than were sold, Ford (F) and General Motors (GM) increased their operat-
Exhibit 8 ing income reported under absorption costing. This is becNauoser at phoertironn o Df thieviri fsixieod nmanufaCcteurningt rcaoslts D ivision Southern Division
were included in ending inventory rather than cost of goods sold.
Residual Income—
OperatiUnngde ri nvacrioabmle ceosting, producing more cars would not affect ope$rat7in0g ,in0c0om0e, because all fixed ma$nu8fa4c-,000 $75,000
DataLink, Inc. Minimutumrin ga ccocstes partea inbcllued eod pine corsat toifn gogo dins scooldm regea r dless of how many cars are produced.
as a perAc reeansotn o offt einn gvievesnt feord w ahys GsAeAtPs :requires absorption costing is that it focuses on operating income “over
the long term.” In other words, while operating income may vary from year to year, all manufacturing costs
$350a,r0e 0ev0e n×tu a1ll0y r%eported on the income statement as cost of goods so(l3d 5or, 0as0 a 0w)rite-down of inventory using
the lower-of-cost-or-market rule. Thus, over the life of a company, the total amount of operating income will
$700b,0e t0h0e s ×am 1e 0re%gardless of whether absorption or variable costing is used. (70,000)
$500,000 × 10% (50,000)
Suggested Answer
Residual income $35,000 $14,000 $25,000
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12020_fm_ptg01_i-xxi.indd 5 8/25/18 11:31 AM
vi Preface
▪▪ To aid learning and problem solving, throughout each chapter the Check Up Corner
exercises provide students with step-by-step guidance on how to solve problems. Problem-
solving tips help students avoid common errors.
Chapter 10 Evaluating Decentralized Operations 467
Check Up Corner 10-1 Cost Center Responsibility Measures
Delinco Tech Inc. manufactures corrosion-resistant water pumps and fluid meters. Its Commercial Products
Division is organized as a cost center. The division’s budget for the month ended July 31 is as follows
(in thousands):
Materials $140,000
Factory wages 77,000
Supervisor salaries 15,500
Utilities 8,700
Depreciation of plant equipment 9,000
Maintenance 3,200
Insurance 750
Property taxes 800
$254,950
During July, actual costs incurred in the Commercial Products Division were as follows:
Materials $152,000
Factory wages 77,800
Supervisor salaries 15,500
Utilities 8,560
Depreciation of plant equipment 9,000
Maintenance 3,025
Insurance 750
Property taxes 820
$267,455
Prepare a budget performance report for the director of the Commercial Products Division for July.
Solution:
The report shows the budgeted costs and
actual costs along with the differences.
Budget Performance Report The report allows cost center
Director, Commercial Products Division managers to focus on areas
For the Month Ended July 31 } of significant differences.
Over (Under)
Actual Budget Budget Budget
Materials ...................................... $152,000 $140,000 $12,000
Factory wages ............................... 77,800 77,000 800
Supervisor salaries ......................... 15,500 15,500
Utilities ......................................... 8,560 8,700 $(140) Each difference is classified as
Depreciation of plant equipment .... 9,000 9,000 over budget or under budget.
Maintenance ................................. 3,025 3,200 (175)
Insurance ..................................... 750 750
Property taxes ............................... 820 800 20
$267,455 $254,950 $12,820 $(315)
Check Up Corner
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12020_ch10_ptg01_460-509.indd 467 03/08/18 3:16 PM
Preface vii
▪▪ Analysis for Decision Making highlights how companies use accounting information to make
decisions and evaluate their business. This provides students with context of why accounting
is important to companies.
376 Chapter 8 Budgeting
Analysis for Decision Making
Nonmanufacturing Staffing Budgets
Objective 6
Describe and
illustrate the use of The budgeting illustrated in this chapter is similar to budgeting used for nonmanufacturing
staffing budgets for businesses. However, many nonmanufacturing businesses often do not have direct materials
nonmanufacturing purchases budgets, direct labor cost budgets, or factory overhead cost budgets. Thus, the bud-
businesses. geted income statement is simplified in many nonmanufacturing settings.
A primary budget in nonmanufacturing businesses is the labor, or staffing, budget. This bud-
get, which is highly flexible to service demands, is used to manage staffing levels. For example,
a theme park will have greater staffing in the summer vacation months than in the fall months.
Likewise, a retailer will have greater staffing during the holidays than on typical weekdays.
To illustrate, Concord Hotel operates a hotel in a business district. The hotel has 150 rooms
that average 120 guests per night during the weekdays and 50 guests per night during the week-
end. The housekeeping staff is able to clean 10 rooms per employee. The number of housekeep-
ers required for an average weekday and weekend is determined as follows:
Weekday Weekend
Number of guests per day 120 50
Rooms per housekeeper ÷ 10 ÷ 10
Number of housekeepers per day 12 5
If each housekeeper is paid $15 per hour for an eight-hour shift per day, the annual budget
for the staff is as follows:
Weekday Weekend Total
Number of housekeepers per day 12 5
Hours per shift × 8 × 8
Days per year × 260* × 104**
Number of hours per year 24,960 4,160
Rate per hour × $15 × $15
Housekeeping staff annual budget $374,400 $62,400 $436,800
* 52 weeks × 5 days
** 52 weeks × 2 days
The budget can be used to plan and manage the staffing of the hotel. For example,
if a wedding were booked for the weekend, the budgeted increase in staffing could be
compared with the increased revenue from the wedding to verify the profit plan.
Make a Decision Nonmanufacturing Staffing Budgets
▪▪ Make a Decision in the end-oAf-ncalhyzae pJothensro nm Staortees’r sitaaflfi ngg bivudegset fsotr uhodlideanyst (sM AaD 8c-1h) ance to analyze real-world
Analyze Mercy Hospital’s staffing budget (MAD 8-2)
business decisions. Chapter 6 Cost-Volume-Profit Analysis 297
Analyze Adventure Park’s staffing budget (MAD 8-3)
Analyze Ambassador Suites’ staffing budget (MAD 8-4)
Make a Decision
Make a Decision
Cost-Volume-Profit Analysis for Service Companies
MAD 6-1 Analyze Global Air’s cost-volume-profit relationships Obj. 6
Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per
seat for the flight is $760. The costs associated with the flight are as follows:
Fixed costs for the flight:
Crew salaries .................. $ 5,000
12020_ch08_ptg01_352-409.indd 376 Operating costs ............... 50,000 16/07/18 6:34 am
Aircraft depreciation .......... 25,000
Total ........................ $80,000
Variable costs per passenger:
Passenger check-in ........... $ 20
Operating costs ............... 100
Total ........................ $120
The airline estimates that the flight will sell 175 seats.
a. Determine the break-even number of passengers per flight.
b. Based on your answer in (a), should the airline add this flight to its schedule?
c. How much profit should each flight produce?
d. What additional issues might the airline consider in this decision?
MAD 6-2 Analyze Ocean Escape Cruise Lines’ cost-volume-profit relationships Obj. 6
Ocean Escape Cruise Lines has a boat with a capacity of 1,200 passengers. An eight-day ocean
cruise involves the following costs:
Crew $240,000
Fuel 60,000
Fixed operating costs 800,000
The variable costs per passenger for the eight-day cruise include the following:
Meals $900
Variable operating costs 400
The price of the cruise is $2,400 per passenger.
a. Determine the break-even number of passengers for the eight-day cruise.
b. Assume 900 passengers booked the cruise. What would be the profit or loss for the cruise?
c. Assume the cruise was booked to capacity. What would be the profit or loss for the cruise?
d. If the cruise cannot book enough passengers to break even, how might the cruise
line respond?
MAD 6-3 Analyze Star Stream’s cost-volume-profit relationships Obj. 6
Star Stream is a subscription-based video streaming service. Subscribers pay $120 per year for the
service. Star Stream licenses and develops content for its subscribers. In addition, Star Stream leases
servers to hold this content. These costs are not variable to the number of subscribers, but must
be incurred regardless of the subscriber base. In addition, Star Stream compensates telecommu-
nication companies for bandwidth so that Star Stream customers receive fast streaming services.
These costs are variable to the number of subscribers. These and other costs are as follows:
Server lease costs per year ....................... $ 100,000,000
Content costs per year ........................... 2,000,000,000
12020_fm_ptg01_i-xxi.indd 7 8/25/18 11:31 AM
Fixed operating costs per year .................... 900,000,000
Bandwidth costs per subscriber per year ........... 15
Variable operating costs per subscriber per year .... 25
(Continued)
12020_ch06_ptg01_248-301.indd 297 7/27/18 9:48 AM
viii Preface
▪▪ At the end of each chapter, Let’s Review is a new chapter summary and self-assessment feature
that is designed to help busy students prepare for an exam. It includes a summary of each
learning objective’s key points, key terms, multiple-choice questions, exercises, and a sample
problem that students may use to practice.
▪▪ Sample multiple-choice questions allow students to practice with the type of assessments they
are likely to see on an exam.
▪▪ Short exercises and a longer problem allow students to apply their knowledge.
▪▪ Answers provided at the end of the Let’s Review section let students check their knowledge
immediately.
▪▪ Take It Further in the end-of-chapter activities allows instructors to assign other special activi-
ties related to ethics, communication, and teamwork.
▪▪ NEW! Certified Management Accountant (CMA®) Examination Questions help students
prepare for the CMA exam so they can earn CMA certification.
CengageNOWv2
CengageNOWv2 is a powerful course management and online homework resource that provides
control and customization to optimize the student learning experience. Included are many proven
resources, such as algorithmic activities, a test bank, course management tools, reporting and
assessment options, and much more.
NEW! Excel Online
Cengage and Microsoft have partnered in CNOWv2 to provide students with a uniform, authentic
Excel experience. It provides instant feedback, built-in video tips, and easily accessible spreadsheet
work. These features allow you to spend more time teaching college accounting applications and
less time troubleshooting Excel.
These new algorithmic activities offer pre-populated data directly in Microsoft Excel Online. Each
student receives his or her own version of the problem to perform the necessary data calculations
in Excel Online. Their work is constantly saved in Cengage cloud storage as a part of homework
assignments in CNOWv2. It’s easily retrievable so students can review their answers without cumber-
some file management and numerous downloads/uploads.
Motivation: Set Expectations and Prepare Students
for the Course
CengageNOWv2 helps motivate students and get them ready to learn by reshaping their misconcep-
tions about the introductory accounting course and providing a powerful tool to engage students.
CengageNOWv2 Start-Up Center
Students are often surprised by the amount of time they need to spend outside of class working
through homework assignments in order to succeed. The CengageNOWv2 Start-Up Center will help
students identify what they need to do and where they need to focus in order to be successful
with a variety of new resources.
▪▪ What Is Accounting? Module ensures students understand course expectations and how to be
successful in the introductory accounting course. This module consists of two assignable vid-
eos: Introduction to Accounting and Success Strategies. The Student Advice Videos offer advice
from real students about what it takes to do well in the course.
▪▪ Math Review Module, designed to help students get up to speed with necessary math skills,
includes math review assignments and Show Me How math review videos to ensure that stu-
dents have an understanding of basic math skills.
▪▪ How to Use CengageNOWv2 Module focuses on learning accounting, not on a particular soft-
ware system. Quickly familiarize your students with CengageNOWv2 and direct them to all of
its built-in student resources.
12020_fm_ptg01_i-xxi.indd 8 8/25/18 11:31 AM
Preface ix
Motivation: Prepare T hem for Class
With all the outside obligations accounting students have, finding time to read the textbook before
class can be a struggle. Point students to the key concepts they need to know before they attend
class.
▪▪ Video: Tell Me More. Short Tell Me More lecture activities explain the core concepts of the
chapter through an engaging auditory and visual presentation. Available either on a stand-
alone basis or as an assignment, they are ideal for all class formats—flipped model, online,
hybrid, or face-to-face.
Provide Help Right When Students Need It
The best way to learn accounting is through practice, but students often get stuck when attempt-
ing homework assignments on their own.
▪▪ Video: Show Me How. Created for the most frequently assigned end-of-chapter items,
Show Me How problem demonstration videos provide a step-by-step model of a similar prob-
lem. Embedded tips help students avoid common mistakes and pitfalls.
SHOW ME HOW
12020_fm_ptg01_i-xxi.indd 9 8/25/18 11:31 AM