Schaum's Outline of Theory and Problems of Managerial Accounting

369 Pages·1999·8.75 MB·English

by  J. Shim

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JAE K. SHIM is currently Professor of Business Administration at California State
University at Long Beach. He received his M.B.A. and Ph.D. from the University
of California at Berkeley. Professor Shim has published over 40 articles in
accounting, finance, economics, and operations research journals. He is a coeditor
of Readings in Cost and Managerial Accounting. He is also a coauthor of the
Schaum’s Outlines of Financial Accounting, Personal Finance, and Managerial
Finance, and of the AICPA’s Variance Analysis for Cost Control and Profit
Maximization and Accounting for and Evaluation of Process Cost Systems. Dr.
Shim was the recipient of the 1982 Credit Research Foundation award.
JOEL G. SIEGEL is Professor of Accounting and Finance at Queens College of
the City University of New York. He possesses a Ph.D. in accounting from the
Bernard M. Baruch College of the City University of New York and a CPA
certificate from New York. In 1972, Dr. Siegel was the recipient of the Outstanding
Educator of America Award. He was employed as a staff accountant with Coopers
& Lybrand, CPAs. Professor Siegel is a coauthor of the Schaum’s Outlines of
Financial Accounting and Managerial Finance. He has also written How to Analyze
Businesses, Financial Statements and The Quality of Earnings, published by
Prentice-Hall. Dr. Siegel is the author of five publications in continuing profes-
sional education published by the AICPA.
Material from Uniform CPA Examination Questions and UnofjTcial Answers,
Copyright 01981,1980, 1979,1978, 1977, 1974, 1972.1971, 1970, and 1950 by the
American Institute of Certified Public Accountants, Inc., is reprinted (or adapted)
with permission.
Material from the Certificate in Management Accounting Examinations, Copyright
01983,1982,1981,1980,1979,1978,1 977,1976,1975,1974,1973,a nd 1972 by the
National Association of Accountants, is reprinted (or adapted) with permission.
Schaum’s Outline of Theory and Problems of
MANAGERIAL ACCOUNTING
Copyright 01999, 1984 by The McGraw-Hill Companies, Inc. All rights reserved. Printed in
the United States of America. Except as permitted under the Copyright Act of 1976, no part
of this publication may be reproduced or distributed in any forms or by any means, or stored
in a data base or retrieval system, without the prior written permission of the publisher.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 PRS PRS 9 0 2 1 0 9 8
ISBN 0-07-058041-3
Sponsoring Editor: Barbara Gilson
Production Supervisor: Sherri Souffrance
Editing Supervisor: Maureen B. Walker
Library of Congress Cataloging-in-PublicationData
Shim, Jae K.
Schaum’s outline of theory and problems of managerial accounting/
Jae K. Shim, Joel G. Siegel. -2nd ed.
p. cm. -(Schaum’s outline series)
Includes index.
ISBN 0-07-058041-3
1. Managerial accounting. 2. Managerial accounting -Problems,
exercises, etc. I. Siegel, Joel G. 11. Title. 111. Series.
HF5635.S5529 1998
658.15’11-d~21 98-27629
CIP
E
McGraw-Hill
A Division of 7’heMcGraw-HiUCompanies
Managerial Accounting is designed for accounting and nonaccounting business students. It covers the
managerial use of accounting data for planning, control, and decision making. As in the preceding
volumes in the Schaum’s Outline Series in Accounting, the solved problems approach is used, with
emphasis on the practical application of managerial accounting concepts, tools, and methodology. The
student is provided with the following:
1. Definitions and explanations that are understandable
2. Examples illustrating the concepts and techniques discussed in each chapter
3. Review questions and answers by chapter
4. Detailed solutions to representative problems covering the subject matter
5. Comprehensive examinations with answers and solutions to test the student’s knowledge of each
chapter. The exams are representative of those used by two- and four-year colleges and MBA
programs.
Managerial Accounting covers a wide variety of managerial uses of accounting data. In line with
the ever-changing, dynamic nature of the subject, the Institute of Management Accountants (IMA) has
established the Certified Management Accountants (CMA)., which is being widely recognized by
academicians as well as practitioners. This book is written with the following objectives in mind:
1. It supplements formal training in management accounting courses at the undergraduate and
graduate levels. It may well be used as a study guide.
2. It provides excellent preparation and review in the cost/managerial accounting portion of such
professional examinations as the CPA, CMA, SMA, and CGA examinations.
3. Financial accounting is not a prerequisite. Without much knowledge of financial accounting,
students and practitioners engaged in fields other than accounting can gain knowledge about
managerial accounting.
Managerial Accounting was written to cover the common denominator of managerial accounting
topics after a thorough review was made of the numerous managerial accounting texts available in the
market. It is, therefore, comprehensive in coverage and presentation. Particularly, in an effort to give
readers a feel for what types of problems are asked on the CPA, CMA, SMA, and CGA examinations,
problems have been taken from those exams and incorporated within.
Our appreciation is extended to the American Institute of Certified Public Accountants, the
National Association of Accountants, the Society of Management Accountants of Canada, and the
Canadian Certified General Accountants’ Association, for their permission to incorporate their
examination questions in this book. Selected materials from the CMA Examinations, copyright 0 by
the National Association of Accountants, bear the notation “(CMA, adapted).” Problems from the
Uniform CPA Examinations bear the notation “(AICPA, adapted),” problems from the SMA
Examinations are designated “( SMA, adapted),” and problems from CGA Examinations bear the
notation “(CGA, adapted).”
Finally we would like to thank our assistants, Allison Shim and Paul Chun, for their enormous
contribution and assistance. We also would like to extend our gratitude to Maureen Walker and
Richard Cook for their outstanding editorial contribution to the manuscript.
JAEK. SHIM
JOEL G. SIEGEL
...
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CHAPTER 1 Management Accounting-A Perspective 1

1.1 The Role of Management Accounting 1

1.2 Financial Accounting vs. Management Accounting 1

1.3 Cost Accounting vs. Management Accounting 2

1.4 The Work of Management 2

1.5 The Organizational Aspect of Management Accounting 2

1.6 Controllership 3

1.7 The Certified Management Accountant (CMA) 4

CHAPTER 2 Cost Concepts, Terms, and Classifications 9

2.1 Different Costs for Different Purposes 9

2.2 Cost Classifications 9

2.3 Costs by Management Function 10

2.4 Direct Costs and Indirect Costs 11

2.5 Product Costs and Period Costs 12

2.6 Variable Costs, Fixed Costs, and Semivariable Costs 12

2.7 Costs for Planning, Control, and Decision Making 13

2.8 Income Statements and Balance Sheets -Manufacturer’s vs.
Merchandiser’s 14

CHAPTER 3 Determination of Cost Behavior Patterns 31

3.1 Analysis of Cost Behavior 31

3.2 A Further Look at Costs by Behavior 31

3.3 Types of Fixed Costs -Committed or Discretionary 33

3.4 Analysis of Semivariable Costs (or Mixed Costs) 33

3.5 The High-Low Method 33

3.6 The Scattergraph Method 35

3.7 The Method of Least Squares (Regression Analysis) 36

3.8 Regression Statistics 37

3.9 The Contribution Approach to the Income Statement 39

CHAPTER 4 Cost-Volume- Profit and Break- Even Analysis 55

4.1 Cost-Volume-Profit and Break-Even Analysis Defined 55

4.2 Questions Answered by CVE’ Analysis 55

4.3 Concepts of Contribution Margin 55

4.4 Break-Even Analysis 56

4.5 Target Income Volume and Margin of Safety 58

4.6 Some Applications of CVP Analysis 60

4.7 Sales Mix Analysis 61

V
Vi CONTENTS
4.8 Break-Even and CVP Analysis Assumptions 63

4.9 Absorption vs. Direct Costing 63

Examination I: Chapters 1-4 84

CHAPTER 5 Relevant Costs in Nonroutine Decisions 89

5.1 Types of Nonroutine Decisions 89

5.2 Relevant Costs Defined 89

5.3 Other Decision-Making Approaches -Total Project and
Opportunity Cost Approaches 90

5.4 Pricing Special Orders 91

5.5 The Make-or-Buy Decision 92

5.6 The Sell-or-Process-Further Decision 93

5.7 Adding or Dropping a Product Line 94

5.8 Utilization of Scarce Resources 95

CHAPTER 6 Budgeting for Profit Planning 114

6.1 Budgeting Defined 114

6.2 The Structure of the Master Budget 114

6.3 Illustration 115

6.4 Zero-Base Budgeting 122

CHAPTER 7 Standard Costs, Responsibility Accounting, and Cost
Allocation 142

7.1 Responsibility Accounting Defined 142

7.2 Responsibility Centers and Their Performance Evaluation 143

7.3 Standard Costs and Variance Analysis 143

7.4 Fixed Overhead Variances 148

7.5 Methods of Variance Analysis for Factory Overhead 149

7.6 Flexible Budgets and Performance Reports 150

7.7 Segmental Reporting and the Contribution Approach to
Cost Allocation 152

Examination 11: Chapters 5-7 177

CHAPTER 8 Performance Evaluation, Transfer Pricing, and
Decentralization 182

8.1 Decentralization 182

8.2 Evaluation of Divisional Performance 183

8.3 Rate of Return on Investment (ROI) 183

8.4 ROI and Profit Planning 184
CONTENTS vii
8.5 Residual Income (RI) 185

8.6 Investment Decisions under ROI and RI 185

8.7 Transfer Pricing 186

8.8 Alternative Transfer Pricing Schemes 187

CHAPTER 9 Capital Budgeting 212

9.1 Capital Budgeting Decisions Defined 212

9.2 Capital Budgeting Techniques 212

9.3 Mutually Exclusive Investments 219

9.4 Capital Rationing 220

9.5 Income Tax Factors 220

9.6 Capital Budgeting Decisions and the Modified Accelerated
Cost Recovery System (MACRS) 222

CHAPTER 10 Quantitative Approaches to Managerial Accounting 249

10.1 Introduction 249

10.2 Linear Programming and Shadow Prices 249

10.3 The Learning Curve 253

10.4 Inventory Planning and Control 253

CHAPTER 11 Financial Statement Analysis and Statement of Cash
Flows 274

11.1 Financial Statement Analysis 274

11.2 Ratio Analysis 274

11.3 Liquidity Ratios 276

11.4 Activity Ratios 276

11.5 Leverage Ratios 277

11.6 Profitability Ratios 278

11.7 Summary of Ratios 279

11.8 Statement of Cash Flows 280

11.9 FASB Requirements 281

11.10 Accrual Basis of Accounting 281

11.11 Cash and Cash Equivalents 281

11.12 Presentation of Noncash Investing and Financing
Transactions 282

11.13 Operating, Investing, and Financing Activities 282

11.14 Presentation of the Cash Flow Statement 284

CHAPTER 12 Product Costing Methods (Job-Order Costing, Process
Costing, Cost Allocation, and Joint-Product Costing) 309

12.1 Cost Accumulation Systems 309

12.2 Job-Order Costing and Process Costing Compared 310

l2.3 Job-Order Costing 310
...
Vlll CONTENTS
12.4 Job Cost Sheet 310

12.5 Factory Overhead Application 311

12.6 Process Costing 314

l2.7 Steps in Process Costing Calculations 314

12.8 Cost-of-Production Report 314

12.9 Weighted Average vs. First-In, First-Out (FIFO) 316

12.10 Allocation of Service Department Costs to Production
Departments 319

12.11 Procedure for Service Department Cost Allocation 319

12.12 Joint-Product and By-product Costs 321

CHAPTER 13 Activity-Based Costing (ABC), Just-in-Time (JK), Total
Quality Management (TOM), and Quality Costs 335

13.1 Activity-Based Costing 335

13.2 How Does ABC Work? 336

13.3 Benefits of an ABC System 338

13.4 Just-in-Time Manufacturing 338

13.5 JIT Compared with Traditional Manufacturing 338

13.6 Benefits of JIT 339

13.7 JIT Costing System 339

13.8 Total Quality Management 340

13.9 Quality Costs 340

13.10 Quality Cost and Performance Reports 341

13.11 Activity-Based Costing and Optimal Quality Costs 341

Examination 111: Chapters 8-13 352

Index 357
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