Managerial Accounting

757 Pages·2008·15.107 MB·English

by  S. Crosson, et. al.

Managerial
Accounting
Eighth Edition
Susan V.Crosson,M.S.Accounting,C.P.A.
Santa Fe Community College,Florida
Belverd E.Needles,Jr.,Ph.D.,C.P.A.,C.M.A.
DePaul University
Houghton Mifflin Company Boston New York
To my family—Bruce, Brent, and Courtney Crosson—and
in loving memory of my parents, Helen and Bryce Van Valkenburgh
To Professor Reginald R. Rushing, Texas Tech University (Deceased)
To Professor Joseph Goodman, Chicago State University
Executive Publisher: George Hoffman
Senior Sponsoring Editor: Ann West
Senior Marketing Manager: Mike Schenk
Marketing Coordinator: Erin Lane
Senior Development Editor: Chere Bemelmans
Editorial Assistant: Diane Akerman
Project Editor: Margaret M. Kearney
Art and Design Manager: Gary Crespo
Cover Design Manager: Anne S. Katzeff
Senior Photo Editor: Jennifer Meyer Dare
Composition Buyer: Chuck Dutton
Cover photo © Oliver Benn/Stone/Getty Images
COMPANY LOGO CREDITS: p. 54, Courtesy of Southwest Airlines; p. 112, Reprinted with
permission of Cold Stone Creamery; p. 198, Photo courtesy of La-Z-Boy Inc.; p. 292,
Reprinted with permission of Johnson & Johnson; p. 348, Reprinted with permission of Vail
Resorts; p. 488, The Palm logo is a registered trademark owned by or licensed to Palm, Inc.
(Continued on p. xxviii)
PHOTO CREDITS: p. 3, Getty Images; p. 10, © Richard T. Nowitz/Corbis; p. 17, © Leif
Skoogfors/Corbis; p. 53, Getty Images; p. 54, © Southwest Airlines; p. 59, © Southwest
Airlines; p. 111, Lon C. Diehl/PhotoEdit; p. 115, © Ed Bock/Corbis; p. 126, © Royalty-Free/
Corbis; p. 155, Getty Images; p. 156, ©Louis Psihoyos/Corbis; p. 160, © Charles
O’Rear/Corbis; p. 197, AP Images; p.202, dpa/Landov; p. 213, © Chuck Savage/Corbis
(Continued on page xxviii)
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Library of Congress Control Number: 2006936637
Instructor’s examination copy
ISBN-10: 0-618-83351-X
ISBN-13: 978-0-618-83351-1
For orders, use student text ISBNs
ISBN-10: 0-618-77718-0
ISBN-13: 978-0-618-77718-1
1 2 3 4 5 6 7 8 9-VH-11 10 09 08 07
Brief Contents
1 The Changing Business Environment:A Manager’s Perspective 2
2 Cost Concepts and Cost Allocation 52
3 Costing Systems:Job Order Costing 110
4 Costing Systems:Process Costing 154
5 Activity-Based Systems:ABM and JIT 196
6 Cost Behavior Analysis 244
7 The Budgeting Process 290
8 Performance Management and Evaluation 346
9 Standard Costing and Variance Analysis 392
10 Short-Run Decision Analysis 442
11 Pricing Decisions,Including Target Costing and Transfer Pricing 486
12 Capital Investment Analysis 534
13 Quality Management and Measurement 574
14 Allocation of Internal Service Costs and Joint Product Costs 616
15 Financial Performance Measurement 656
APPENDIXA Future Value and Present Value Tables 706
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Contents
Preface xi
User’s Guide xvii
Check Figures xxv
About the Authors xxvii
CHAPTER1 The Changing Business Environment:A Manager’s Perspective 2
(cid:1)DECISION POINT:A MANAGER’S FOCUS WAL-MART Achieving Continuous Improvement 19
STORES,INC. 3 Performance Measures:A Key to Achieving
The Role of Management Accounting 4 Organizational Objectives 20
Management Accounting and Financial Accounting: A Using Performance Measures in the Management
Comparison 4 Process 20
Management Accounting and the Management The Balanced Scorecard 21
Process 5 Benchmarking 23
Value Chain Analysis 12 Analysis of Nonfinancial Data in a Retail
Primary Processes and Support Services 12 Organization 23
Advantages of Value Chain Analysis 14 Standards of Ethical Conduct 25
Managers and Value Chain Analysis 14
(cid:1)A LOOK BACK ATWAL-MART STORES,INC. 27
Continuous Improvement 16 CHAPTER REVIEW 29
Management Tools for Continuous Improvement 17 CHAPTER ASSIGNMENTS 33
CHAPTER2 Cost Concepts and Cost Allocation 52
(cid:1)DECISION POINT:A MANAGER’S FOCUS SOUTHWEST The Manufacturing Cost Flow 67
AIRLINES 53
Elements of Product Costs 70
Cost Information 54 Prime Costs and Conversion Costs 71
Managers’ Use of Cost Information 54 Computing Product Unit Cost 71
Cost Information and Organizations 56 Computing Service Unit Cost 74
Cost Classifications and Their Uses 56 Cost Allocation 75
Cost Traceability 57 Allocating the Costs of Overhead 76
Cost Behavior 58 The Importance of Good Estimates 78
Value-Adding Versus Nonvalue-Adding Costs 59
Allocating Overhead:The Traditional
Cost Classifications for Financial Reporting 59 Approach 79
Financial Statements and the Reporting of
Allocating Overhead:The ABC Approach 81
Costs 60
Planning Overhead Rates 82
Cost Reporting and Accounting for Inventories 60
Applying the Overhead Rates 84
Statement of Cost of Goods Manufactured 62
(cid:1)A LOOK BACK ATSOUTHWEST AIRLINES 85
Cost of Goods Sold and a Manufacturer’s Income
CHAPTER REVIEW 86
Statement 64
CHAPTER ASSIGNMENTS 90
Inventory Accounts in Manufacturing
Organizations 65
Document Flows and Cost Flows Through the Inventory
Accounts 65
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vi Contents
CHAPTER3 Costing Systems:Job Order Costing 110
(cid:1)DECISION POINT:A MANAGER’S FOCUS COLD STONE Labor 120
CREAMERY,INC. 111 Overhead 120
Product Cost Information and the Management Completed Units 121
Process 112 Sold Units 121
Planning 112 Reconciliation of Overhead Costs 122
Performing 112
A Manufacturer’s Job Order Cost Card and the
Evaluating 112 Computation of Product Unit Cost 124
Communicating 113
Job Order Costing in a Service Organization 126
Job Order Versus Process Costing 114
Job Order Costing Versus Project Costing 128
Job Order Costing in a Manufacturing
(cid:1)A LOOK BACK ATCOLD STONE CREAMERY,INC. 129
Company 117
CHAPTER REVIEW 130
Materials 117
CHAPTER ASSIGNMENTS 133
CHAPTER 4 Costing Systems:Process Costing 154
(cid:1)DECISION POINT:A MANAGER’S FOCUS INTEL Accounting for Costs 168
CORPORATION 155 Assigning Costs 169
The Process Costing System 156 Process Costing for Two or More Production
Departments 170
Patterns of Product Flows and Cost Flow
Methods 158 Preparing a Process Cost Report Using the
Average Costing Method 171
Cost Flows Through the Work in Process Inventory
Accounts 161 Accounting for Units 171
Accounting for Costs 173
Computing Equivalent Production 163
Assigning Costs 173
Equivalent Production for Direct Materials 163
Using Information About Product Cost to Evaluate
Equivalent Production for Conversion Costs 163
Performance 175
Summary of Equivalent Production 164
(cid:1)A LOOK BACK AT INTEL CORPORATION 176
Preparing a Process Cost Report Using the FIFO
CHAPTER REVIEW 177
Costing Method 165
CHAPTER ASSIGNMENTS 182
Accounting for Units 167
CHAPTER 5 Activity-Based Systems:ABM and JIT 196
(cid:1)DECISION POINT:A MANAGER’S FOCUS LA-Z-BOY, The New Operating Environment and JIT
INC. 197 Operations 212
Activity-Based Systems and Management 198 Minimum Inventory Levels 213
Activity-Based Systems 198 Pull-Through Production 214
Using Activity-Based Cost Information 199 Quick Setup and Flexible Work Cells 214
A Multiskilled Work Force 214
Activity-Based Management 201
Value Chains and Supply Chains 201 High Levels of Product Quality 215
ABM in a Service Organization 203 Effective Preventive Maintenance 215
Continuous Improvement of the Work Environment 215
Value-Adding and Nonvalue-Adding Activities
and Process Value Analysis 204 Accounting for Product Costs in the New
Value-Adding and Nonvalue-Adding Activities in a Operating Environment 216
Service Organization 205 Classifying Costs 216
Process Value Analysis 206 Assigning Costs 216
Activity-Based Costing 207 Backflush Costing 217
The Cost Hierarchy and the Bill of Activities 208 Comparison of ABM and JIT 221
Activity-Based Costing for Selling and Administrative (cid:1)A LOOK BACK AT LA-Z-BOY,INC. 222
Activities 211
CHAPTER REVIEW 223
CHAPTER ASSIGNMENTS 228
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Contents vii
CHAPTER 6 Cost Behavior Analysis 244
(cid:1)DECISION POINT:A MANAGER’S FOCUS KRAFT Breakeven Analysis 259
FOODS 245 Using Contribution Margin to Determine the Breakeven
Cost Behavior and Management 246 Point 261
Planning 246 The Breakeven Point for Multiple Products 262
Performing 247 Using C-V-P Analysis to Plan Future Sales,Costs,
Evaluating and Communicating 247 and Profits 264
Applying C-V-P to a Manufacturing Business 264
The Behavior of Costs 248
Applying C-V-P Analysis to a Service Business 268
Variable Costs 248
Fixed Costs 252 (cid:1)A LOOK BACK AT KRAFT FOODS 270
CHAPTER REVIEW 271
Mixed Costs 253
CHAPTER ASSIGNMENTS 274
Cost-Volume-Profit Analysis 257
CHAPTER7 The Budgeting Process 290
(cid:1)DECISION POINT:A MANAGER’S FOCUS JOHNSON & The Direct Labor Budget 305
JOHNSON 291 The Overhead Budget 306
The Budgeting Process 292 The Selling and Administrative Expense Budget 306
Budgeting and Goals 293 The Cost of Goods Manufactured Budget 307
The Importance of Participation 294 Financial Budgets 309
Budget Implementation 295 The Budgeted Income Statement 309
Managers and the Budgeting Process 295 The Capital Expenditures Budget 309
The Master Budget 297 The Cash Budget 310
Operating Budgets 301 The Budgeted Balance Sheet 314
The Sales Budget 301 (cid:1)A LOOK BACK AT JOHNSON & JOHNSON 316
The Production Budget 302 CHAPTER REVIEW 318
The Direct Materials Purchases Budget 303 CHAPTER ASSIGNMENTS 322
CHAPTER8 Performance Management and Evaluation 346
(cid:1)DECISION POINT:A MANAGER’S FOCUS VAIL Evaluating Profit Center Performance Using Variable
RESORTS 347 Costing 359
Organizational Goals and the Balanced Performance Evaluation of Investment
Scorecard 348 Centers 361
The Balanced Scorecard and Management 348 Return on Investment 361
Performance Measurement 352 Residual Income 363
What to Measure, How to Measure 352 Economic Value Added 364
Other Measurement Issues 352 The Importance of Multiple Performance Measures 366
Responsibility Accounting 353 Performance Incentives and Goals 367
Types of Responsibility Centers 353 Linking Goals, Performance Objectives, Measures, and
Performance Targets 367
Organizational Structure and Performance
Management 356 Performance-Based Pay 368
The Coordination of Goals 368
Performance Evaluation of Cost Centers and Profit
Centers 358 (cid:1)A LOOK BACK AT VAIL RESORTS 369
Evaluating Cost Center Performance Using Flexible CHAPTER REVIEW 371
Budgeting 358 CHAPTER ASSIGNMENTS 376
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viii Contents
CHAPTER9 Standard Costing and Variance Analysis 392
(cid:1)DECISION POINT:A MANAGER’S FOCUS COACH, Analyzing and Correcting Direct Materials
INC. 393 Variances 406
Standard Costing 394 Computing and Analyzing Direct Labor
Standard Costs and Managers 394 Variances 408
The Relevance of Standard Costing in Today’s Business Computing Direct Labor Variances 408
Environment 396 Analyzing and Correcting Direct Labor Variances 409
Computing Standard Costs 396 Computing and Analyzing Overhead
Standard Direct Materials Cost 397 Variances 411
Standard Direct Labor Cost 397 Using a Flexible Budget to Analyze Overhead
Variances 411
Standard Overhead Cost 398
Computing Overhead Variances 412
Total Standard Unit Cost 398
Analyzing and Correcting Overhead Variances 417
Variance Analysis 400
Using Cost Variances to Evaluate Managers’
The Role of Flexible Budgets in Variance Analysis 400
Performance 417
Using Variance Analysis to Control Costs 402
(cid:1)A LOOK BACK AT COACH,INC. 420
Computing and Analyzing Direct Materials
CHAPTER REVIEW 421
Variances 404
CHAPTER ASSIGNMENTS 427
Computing Direct Materials Variances 404
CHAPTER10 Short-Run Decision Analysis 442
(cid:1)DECISION POINT:A MANAGER’S FOCUS BANK OF Incremental Analysis for Outsourcing
AMERICA 443 Decisions 449
Short-Run Decision Analysis and the Management Incremental Analysis for Special Order
Process 444 Decisions 452
Planning 444 Incremental Analysis for Segment Profitability
Performing 445 Decisions 454
Evaluating 446 Incremental Analysis for Sales Mix Decisions 457
Communicating 446
Incremental Analysis for Sell or Process-Further
Incremental Analysis for Short-Run Decisions 447 Decisions 460
Irrelevant Costs and Revenues 447 (cid:1)A LOOK BACK AT BANK OF AMERICA 463
Opportunity Costs 448 CHAPTER REVIEW 464
CHAPTER ASSIGNMENTS 467
CHAPTER11 Pricing Decisions,Including Target Costing and Transfer Pricing 486
(cid:1)DECISION POINT:A MANAGER’S FOCUS PALM,INC. 487 Return on Assets Pricing 497
The Pricing Decision and the Manager 488 Summary of Cost-Based Pricing Methods 498
The Objectives of a Pricing Policy 488 Pricing Services 498
Pricing and the Management Process 489 Final Notes on Cost-Based Pricing Methods 500
External and Internal Pricing Factors 490 Pricing Based on Target Costing 501
Economic Pricing Concepts 492 Differences Between Cost-Based Pricing and Target
Costing 502
Total Revenue and Total Cost Curves 492
Target Costing Analysis in an Activity-Based
Marginal Revenue and Marginal Cost Curves 494
Management Environment 504
Auction-Based Pricing 494
Pricing for Internal Providers of Goods and
Cost-Based Pricing Methods 495 Services 506
Gross Margin Pricing 496 Transfer Pricing 507
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Contents ix
Developing a Transfer Price 508 (cid:1)A LOOK BACK AT PALM,INC. 512
Using Transfer Prices to Measure Performance 509 CHAPTER REVIEW 513
Transfer Pricing in Retail and Service Companies 511 CHAPTER ASSIGNMENTS 517
CHAPTER12 Capital Investment Analysis 534
(cid:1)DECISION POINT:A MANAGER’S FOCUS Air Products and Disposal or Residual Values 545
Chemicals Inc. 535 The Time Value of Money 546
The Capital Investment Process 536 Interest 546
Capital Investment Analysis 536 Present Value 547
Capital Investment Analysis in the Management Present Value of a Single Sum Due in the Future 548
Process 537
Present Value of an Ordinary Annuity 548
The Minimum Rate of Return on Investment 541
The Net Present Value Method 549
Cost of Capital 541
Advantages of the Net Present Value Method 550
Other Cutoff Measures 542
The Net Present Value Method Illustrated 550
Ranking Capital Investment Proposals 542
Other Methods of Capital Investment
Measures Used in Capital Investment
Analysis 553
Analysis 544
The Payback Period Method 553
Net Income and Net Cash Inflows 544
The Accounting Rate-of-Return Method 554
Equal Versus Unequal Cash Flows 544
(cid:1)A LOOK BACK AT Air Products and Chemicals Inc. 556
Carrying Value of Assets 544
CHAPTER REVIEW 557
Depreciation Expense and Income Taxes 545
CHAPTER ASSIGNMENTS 560
CHAPTER13 Quality Management and Measurement 574
(cid:1)DECISION POINT:A MANAGER’S FOCUS AMAZON.COM Measuring Service Quality 583
575
Measuring Quality:An Illustration 586
The Role of Management Information Systems in Evaluating the Costs of Quality 586
Quality Management 576
Evaluating Nonfinancial Measures of Quality 589
Enterprise Resource Planning Systems 576
The Evolving Concept of Quality 590
Managers’ Use of MIS 577
Recognition of Quality 593
Financial and Nonfinancial Measures of
Quality 578 (cid:1)A LOOK BACK AT AMAZON.COM 594
CHAPTER REVIEW 595
Financial Measures of Quality 579
CHAPTER ASSIGNMENTS 598
Nonfinancial Measures of Quality 580
CHAPTER14 Allocation of Internal Service Costs and Joint Product Costs 616
(cid:1)DECISION POINT:A MANAGER’S FOCUS PUBLIX SUPER The Direct Method of Service Cost Allocation 622
MARKETS,INC. 617 Step 1: Calculate Allocation Fractions 623
Internal Service Providers 618 Step 2: Determine the Dollar Amount to Assign to Each
Allocation of Common Service Costs 618 Revenue Center 624
Managers and Service Cost Allocation 619 Step 3: Total the Costs for Each Revenue Center 624
Responsibility Centers and the Allocation of The Step Method of Service Cost Allocation 626
Service Costs 621 Step 1: Calculate the Allocation Fraction 626
Revenue Centers 621 Step 2: Determine the Dollar Amount to Assign to Each
Service Centers 621 Service Center and Each Revenue Center 627
Step 3: Total the Costs for Each Revenue Center 627