THE WORK OF MANAGEMENT AND THE NEED FOR MANAGERIAL ACCOUNTING INFORMATION

Planning
Directing and Motivating
Controlling
The End Results of Managers' Activities
The Planning and Control Cycle

COMPARISON OF FINANCIAL AND MANAGERIAL ACCOUNTING

Emphasis on the Future
Relevance of Data
Less Emphasis on Precision
Segments of an Organization
Generally Accepted Accounting Principles (GAAP)
Managerial Accounting--Not Mandatory

EXPANDING ROLE OF MANAGERIAL ACCOUNTING
ORGANIZATIONAL STRUCTURE

Decentralization
Line and Staff Relationships
The Chief Financial Officer

THE CHANGING BUSINESS ENVIRONMENT

Just-in-Time (JIT)

The JIT Concept
JIT Consequences
Benefits of a JIT System

Total Quality Management (TQM)
Process Reengineering
The Theory of Constraints (TOC)

INTERNATIONAL COMPETITION

E-Commerce

PROFESSIONAL ETHICS

Code of Conduct for Management Accountants
Company Codes of Conduct
Codes of Conduct on the International Level

THE CERTIFIED MANAGEMENT ACCOUNTANT (CMA)
Summary
Glossary
Questions
Exercises
Problems
Group and Internet Exercises

GENERAL COST CLASSIFICATIONS

Manufacturing Costs

Direct Materials
Direct Labor
Manufacturing Overhead

Nonmanufacturing Costs

PRODUCT COSTS VERSUS PERIOD COSTS

Product Costs
Period Costs

COST CLASSIFICATIONS ON FINANCIAL STATEMENTS

The Balance Sheet
The Income Statement
Schedule of Cost of Goods Manufactured

PRODUCT COSTS--A CLOSER LOOK

Inventoriable Costs
An Example of Cost Flows

COST CLASSIFICATIONS FOR PREDICTING COST BEHAVIOR

Variable Cost
Fixed Cost

COST CLASSIFICATIONS FOR ASSIGNING COSTS TO COST OBJECTS

Direct Cost
Indirect Cost

COST CLASSIFICATIONS FOR DECISION MAKING

Differential Cost and Revenue
Opportunity Cost
Sunk Cost

Summary
Review Problem 1: Cost Terms
Review Problem 2: Schedule of Cost of Goods Manufactured and Income Statement
Glossary
APPENDIX 2A: FURTHER CLASSIFICATION OF LABOR COSTS
APPENDIX 2B: COST OF QUALITY
Questions
Exercises
Problems
Cases
Group and Internet Exercises

PROCESS AND JOB-ORDER COSTING

Process Costing
Job-Order Costing

JOB-ORDER COSTING--AN OVERVIEW

Measuring Direct Materials Cost
Job Cost Sheet
Measuring Direct Labor Cost
Application of Manufacturing Overhead

Using the Predetermined Overhead Rate
The Need for a Predetermined Rate

Choice of an Allocation Base for Overhead Cost
Computation of Unit Costs
Summary of Document Flows

JOB-ORDER COSTING--THE FLOW OF COSTS

The Purchase and Issue of Materials

Issue of Direct and Indirect Materials
Issue of Direct Materials Only

Labor Cost
Manufacturing Overhead Costs
The Application of Manufacturing Overhead

The Concept of a Clearing Account

Nonmanufacturing Costs
Cost of Goods Manufactured
Cost of Goods Sold
Summary of Cost Flows

PROBLEMS OF OVERHEAD APPLICATION

Underapplied and Overapplied Overhead
Disposition of Under- and Overapplied Overhead Balances
Closed Out to Cost of Goods Sold
Allocated between Accounts
A General Model of Product Cost Flows
Multiple Predetermined Overhead Rates

JOB-ORDER COSTING IN SERVICE COMPANIES
USE OF INFORMATION TECHNOLOGY

Summary
Review Problem: Job-Order Costing
Glossary

APPENDIX 3A: THE PREDETERMINED OVERHEAD RATE AND CAPACITY

Questions
Exercises
Problems
Cases
Group and Internet Exercises

COMPARISON OF JOB-ORDER AND PROCESS COSTING

Similarities between Job-Order and Process Costing
Differences between Job-Order and Process Costing

A PERSPECTIVE OF PROCESS COST FLOWS

Processing Departments
The Flow of Materials, Labor, and Overhead Costs
Materials, Labor, and Overhead Cost Entries

Materials Costs
Labor Costs
Overhead Costs
Completing the Cost Flows

EQUIVALENT UNITS OF PRODUCTION

Weighted-Average Method

PRODUCTION REPORT--WEIGHTED-AVERAGE METHOD

Step 1: Prepare a Quantity Schedule and Compute the Equivalent Units
Step 2: Compute Costs per Equivalent Unit
Step 3: Prepare a Cost Reconciliation

Example of a Cost Reconciliation

OPERATION COSTING

Summary
Review Problem: Process Cost Flows and Reports
Glossary

APPENDIX 4A: FIFO METHOD

Questions
Exercises
Problems
Cases
Group and Internet Exercises

TYPES OF COST BEHAVIOR PATTERNS

Variable Costs

The Activity Base
Extent of Variable Costs

True Variable versus Step-Variable Costs

True Variable Costs
Step Variable Costs

The Linearity Assumption and the Relevant Range
Fixed Costs
Types of Fixed Costs

Committed Fixed Costs
Discretionary Fixed Costs
The Trend toward Fixed Costs
Is Labor a Variable or a Fixed Cost?

Fixed Costs and the Relevant Range
Mixed Costs

THE ANALYSIS OF MIXED COSTS

Diagnosing Cost Behavior with a Scattergraph Plot
The High-Low Method
The Least-Squares Regression Method
Multiple Regression Analysis

THE CONTRIBUTION FORMAT

Why a New Income Statement Format?
The Contribution Approach

Summary
Review Problem 1: Cost Behavior
Review Problem 2: High-Low Method
Glossary
APPENDIX 5A: LEAST-SQUARES REGRESSION USING EXCEL
Questions
Problems
Cases
Group and Internet Exercises

THE BASICS OF COST-VOLUME-PROFIT (CVP) ANALYSIS

Contribution Margin
CVP Relationships in Graphic Form

Preparing the CVP Graph

Contribution Margin Ratio (CM Ratio)
Some Applications of CVP Concepts

Change in Fixed Cost and Sales Volume
Change in Variable Costs and Sales Volume
Change in Fixed Cost, Sales Price, and Sales Volume
Change in Variable Cost, Fixed Cost, and Sales Volume
Change in Regular Sales Price

Importance of the Contribution Margin

BREAK-EVEN ANALYSIS

Break-Even Computations

The Equation Method
The Contribution Margin Method

Target Profit Analysis

The CVP Equation
The Contribution Margin Approach

The Margin of Safety

CVP CONSIDERATIONS IN CHOOSING A COST STRUCTURE

Cost Structure and Profit Stability
Operating Leverage

STRUCTURING SALES COMMISSIONS
THE CONCEPT OF SALES MIX

The Definition of Sales Mix
Sales Mix and Break-Even Analysis

ASSUMPTIONS OF CVP ANALYSIS
Summary
Review Problem: CVP Relationships
Glossary
Questions
Problems
Cases
Group and Internet Exercises

OVERVIEW OF ABSORPTION ANDVARIABLE COSTING

Absorption Costing
Variable Costing
Unit Cost Computations

INCOME COMPARISON OF ABSORPTION AND VARIABLE COSTING
EXTENDED COMPARISON OF INCOME DATA
EFFECT OF CHANGES IN PRODUCTION OF NET OPERATING INCOME

Variable Costing
Absorption Costing
The Impact on the Manager

CHOOSING A COSTING METHOD

CVP Analysis and Absorption Costing
Decision Making
External Reporting and Income Taxes
Advantages of Variable Costing and the Contribution Approach
Variable Costing and the Theory of Constraints
Impact of JIT Inventory Methods

Summary
Review Problem
Glossary
Questions
Problems
Cases
Group and Internet Exercises

HOW COSTS ARE TREATED UNDER ACTIVITY-BASED COSTING

Nonmanufacturing Costs and Activity-Based Costing
Manufacturing Costs and Activity-Based Costing

Plantwide Overhead Rate

The Costs of Idle Capacity in Activity-Based Costing

DESIGNING AN ACTIVITY-BASED COSTING (ABC) SYSTEM

Step 1: Identify and Define Activities and Activity Cost Pools

THE MECHANICS OF ACTIVITY-BASED COSTING

Step 2: Whenever Possible, Directly Trace Overhead Costs to Activities and Cost Objects
Step 3: Assign Costs to Activity Cost Pools
Step 4: Calculate Activity Rates
Step 5: Assign Costs to Cost Objects
Step 6: Prepare Management Reports

COMPARISON OF TRADITIONAL AND ABC PRODUCT COSTS

Product Margins Computed Using the Traditional Cost System
The Differences between ABC and Traditional Product Costs

TARGETING PROCESS IMPROVEMENTS
ACTIVITY-BASED COSTING AND EXTERNAL REPORTS
THE LIMITATIONS OF ACTIVITY-BASED COSTING
Summary
Review Problem: Activity-Based Costing
Glossary
APPENDIX 8A: ABC ACTION ANALYSIS
Questions
Problems
Cases
Group and Internet Exercises

THE BASIC FRAMEWORK OF BUDGETING

Personal Budgets
Difference between Planning and Control
Advantages of Budgeting
Responsibility Accounting
Choosing a Budget Period
The Self-Imposed Budget
Human Factors in Budgeting
The Budget Committee
The Master Budget: An Overview

The Sales Budget
The Cash Budget

Sales Forecasting--A Critical Step

PREPARING THE MASTER BUDGET

The Sales Budget
The Production Budget
Inventory Purchases--Merchandising Firm
The Direct Materials Budget
The Direct Labor Budget
The Manufacturing Overhead Budget
The Ending Finished Goods Inventory Budget
The Selling and Administrative Expense Budget
The Cash Budget
The Budgeted Income Statement
The Budgeted Balance Sheet
Zero-Based Budgeting

INTERNATIONAL ASPECTS OF BUDGETING
Summary
Review Problem: Budget Schedules
Glossary
Questions
Problems
Cases
Group and Internet Exercises

STANDARD COSTS--MANAGEMENT BY EXCEPTION

Who Uses Standard Costs?

SETTING STANDARD COSTS

Ideal versus Practical Standards
Setting Direct Materials Standards
Setting Direct Labor Standards
Setting Variable Manufacturing Overhead Standards
Are Standards the Same as Budgets?

A GENERAL MODEL FOR VARIANCE ANALYSIS

Price and Quantity Variances

USING STANDARD COSTS--DIRECT MATERIALS VARIANCES

Materials Price Variance--A Closer Look

Isolation of Variances
Responsibility for the Variance

Materials Quantity Variance--A Closer Look

USING STANDARD COSTS--DIRECT LABOR VARIANCES

Labor Rate Variance--A Closer Look
Labor Efficiency Variance--A Closer Look

USING STANDARD COSTS--VARIABLE MANUFACTURING OVERHEAD VARIANCES

Manufacturing Overhead Variances--A Closer Look

STRUCTURE OF PERFORMANCE REPORTS
VARIANCE ANALYSIS AND MANAGEMENT BY EXCEPTION
INTERNATIONAL USES OF STANDARD COSTS
EVALUATION OF CONTROLS BASED ON STANDARD COSTS

Advantages of Standard Costs
Potential Problems with the Use of Standard Costs

BALANCED SCORECARD

Common Characteristics of Balanced Scorecards
A Company's Strategy and the Balanced Scorecard
Advantages of Timely and Graphic Feedback
Some Measures of Internal Business Process Performance

Delivery Cycle Time
Throughput (Manufacturing Cycle) Time
Manufacturing Cycle Efficiency (MCE)
Some Final Observations Concerning the Balanced Scorecard

Summary
Review Problem: Standard Costs
Glossary

APPENDIX 10A: GENERAL LEDGER ENTRIES TO RECORD VARIANCES
Questions
Problems
Cases
Group and Internet Exercises

FLEXIBLE BUDGETS

Characteristics of a Flexible Budget
Deficiencies of the Static Budget
How a Flexible Budget Works
Using Flexible Budgeting Concept in Performance Evaluation
The Measure of Activity--A Critical Choice

VARIABLE OVERHEAD VARIANCES--A CLOSER LOOK

The Problem of Actual versus Standard Hours
Spending Variance Alone

Interpreting the Spending Variance

Both Spending and Efficiency Variances

Interpreting the Efficiency Variance
Control of the Efficiency Variance

Activity-Based Costing and the Flexible Budget
OVERHEAD RATES AND FIXED OVERHEAD ANALYSIS

Flexible Budgets and Overhead Rates

Denominator Activity
Computing the Overhead Rate

Overhead Application in a Standard Cost System
The Fixed Overhead Variances
The Budget Variance--A Closer Look
The Volume Variance--A Closer Look
Graphic Analysis of Fixed Overhead Variances
Cautions in Fixed Overhead Analysis
Overhead Variances and Under- or Overapplied Overhead Cost

Summary
Review Problem: Overhead Analysis
Glossary
Questions
Problems
Cases
Group and Internet Exercises

DECENTRALIZATION IN ORGANIZATIONS

Advantages and Disadvantages of Decentralization
Decentralization and Segment Reporting
Cost, Profit, and Investment Centers

Cost Center
Profit Center
Investment Center

Responsibility Centers

SEGMENT REPORTING AND PROFITABILITY ANALYSIS

Levels of Segmented Statements
Sales and Contribution Margin
Traceable and Common Fixed Costs

Identifying Traceable Fixed costs
Activity-Based Costing

Traceable Costs Can Become Common Costs
Segment Margin
There Is More Than One Way to Segment a Company
Segmented Financial Information on External Reports

HINDRANCES TO PROPER COST ASSIGNMENT

Omission of Costs
Inappropriate Methods for Allocating Costs among Segments
Segmented Financial Information on External Reports

Failure to Trace Costs Directly
Inappropriate Allocation Base

Arbitrarily Dividing Common Costs among Segments

RATE OF RETURN FOR MEASURING MANAGERIAL PERFORMANCE

The Return on Investment (ROI) Formula
Net Operating Income and Operating Assets Defined
Plant and Equipment: Net BookValue or Gross Cost?

CONTROLLING THE RATE OF RETURN

Approach 1: Increase Sales
Approach 2: Reduce Expenses
Approach 3: Reduce Assets

Increase Sales
Reduce Expenses
Reduce Operating Assets
ROI and the Balanced Scorecard
Criticiams of ROI

RESIDUAL INCOME--ANOTHER MEASURE OF PERFORMANCE

Motivation and Residual Income
Divisional Comparison and Residual Income

Summary
Review Problem 1: Segmented Statements
Review Problem 2: Return on Investment (ROI) and Residual Income
Glossary
APPENDIX 12A: TRANSFER PRICING
Review Problem 3: Transfer Pricing
Questions
Problems
Cases
Group and Internet Exercises

COST CONCEPTS FOR DECISION MAKING

Identifying Relevant Costs and Benefits
Different Costs for Different Purposes
An Example of Identifying Relevant Costs and Benefits
Reconciling the Total and Differential Approaches
Why Isolate Relevant Costs?

ADDING AND DROPPING PRODUCT LINES AND OTHER SEGMENTS

An Illustration of Cost Analysis
A Comparative Format
Beware of Allocated Fixed Costs
The Make or Buy Decision
Strategic Aspects of the Make or Buy Decision
An Example of Make or Buy
Opportunity Cost

SPECIAL ORDERS
UTILIZATION OF A CONSTRAINED RESOURCE

Contribution in Relation to a Constrained Resource
Managing Restraints
The Problem of Multiple Restraints

JOINT PRODUCT COSTS AND THE CONTRIBUTION APPROACH

The Pitfalls of Allocation
Sell or Process Further Decisions

ACTIVITY-BASED COSTING AND RELEVANT COSTS
Summary
Review Problem 1: Relevant Costs
Glossary
Questions
Problems
Cases
Group and Internet Exercises

CAPITAL BUDGETING--PLANNING INVESTMENTS

Typical Capital Budgeting Decisions
The Time Value of Money

DISCOUNTED CASH FLOWS--THE NET PRESENT VALUE METHOD

The Net Present Value Method Illustrated
Emphasis on Cash Flows

Typical Cash Outflows
Typical Cash Inflows

Recovery of the Original Investments
Simplifying Assumptions
Choosing a Discount Rate
An Extended Example of the Net Present Value Method

DISCOUNTED CASH FLOWS--THE INTERNAL RATE OF RETURN METHOD

The Internal Rate of Return Method Illustrated
Salvage Value and Other Cash Flows
Using the Internal Rate of Return
The Cost of Capital as a Screening Tool
Comparison of the Net Present Value and the Internal Rate of Return Methods

EXPANDING THE NET PRESENT VALUE METHOD

The Total-Cost Approach
The Incremental-Cost Approach
Least-Cost Decisions

UNCERTAIN CASH FLOWS

An Example
Real Options

PREFERENCE DECISIONS--THE RANKING OF INVESTMENT PROJECTS

Internal Rate of Return Method
Net Present Value Method

OTHER APPROACHES TO CAPITAL BUDGETING DECISIONS

The Payback Method
Evaluation of the Payback Method
An Extended Example of Payback
Payback and Uneven Cash Flows
The Simple Rate of Return Method
Criticisms of the Simple Rate of Return

POSTAUDIT OF INVESTMENT PROJECTS
Summary
Review Problem 1: Basic Present Value Computations
Review Problem 2: Comparison of Capital Budgeting Methods
Glossary
APPENDIX 14A: THE CONCEPT OF PRESENT VALUE
APPENDIX 14B: INFLATION AND CAPITAL BUDGETING
APPENDIX 14C: FUTURE VALUE AND PRESENT VALUE TABLES
APPENDIX 14D: INCOME TAXES IN CAPITAL BUDGETING DECISIONS
Questions
Problems
Cases
Group and Internet Exercises

ALLOCATIONS USING THE DIRECT AND STEP METHODS

Selecting Allocation Bases
Interdepartmental Services

Direct Method
Step Method
Reciprocal Method
Revenue Producing Departments

ALLOCATING COSTS BY BEHAVIOR

Variable Costs
Fixed Costs
Should Actual or Budgeted Costs Be Allocated?
A Summary of Cost Allocation Guidelines
Implementing the Allocation Guidelines

Basic Allocation Techniques

EFFECT OF ALLOCATIONS ON OPERATING DEPARTMENTS
AN EXTENDED EXAMPLE
SOME CAUTIONS IN ALLOCATING SERVICE DEPARTMENT COSTS

Pitfalls in Allocating Fixed Costs
Beware of Sales Dollars as an Allocation Base

Summary
Review Problem: Direct and Step Methods
Glossary
Questions
Problems
Cases
Group and Internet Exercises

THE BASIC APPROACH TO A STATEMENT OF CASH FLOWS

Definition of Cash
Constructing the Statement of Cash Flows Using Changes in Noncash Balance Sheet Accounts

AN EXAMPLE OF A SIMPLIFIED STATEMENT OF CASH FLOWS

Constructing a Simplified Statement of Cash Flows
The Need for a More Detailed Statement

ORGANIZATION OF THE FULL-FLEDGED STATEMENT OF CASH FLOWS

Operating Activities
Investing Activities
Financing Activities

OTHER ISSUES IN PREPARING THE STATEMENT OF CASH FLOWS

Cash Flows: Gross or Net?
Operating Activities: Direct or Indirect Method?
Direct Exchange Transactions

AN EXAMPLE OF A FULL-FLEDGED STATEMENT OF CASH FLOWS

Eight Basic Steps to Preparing the Statement of Cash Flows
Setting Up the Worksheet (Steps 1--4)
Adjustments to Reflect Gross, Rather than Net, Amounts (Step 5)
Classifying Entries as Operating, Investing, or Financing Activities (Step 6)
The Completed Statement of Cash Flows (Steps 7 and 8)
Interpretation of the Statement of Cash Flows
Depreciation, Depletion, and Amortization

Summary
Review Problem
Glossary

APPENDIX 16A: THE DIRECT METHOD OF DETERMINING THE NET CASH PROVIDED BY OPERATING ACTIVITIES
Questions
Problems
Group and Internet Exercises

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

Comparison of Financial Data
The Need to Look beyond Ratios

STATEMENTS IN COMPARATIVE AND COMMON-SIZE FORM

Dollar and Percentage Changes on Statements

Horizontal Analysis
Trend Percentages

Common-Size Statements

The Balance Sheet
The Income Statement

RATIO ANALYSIS--THE COMMON STOCKHOLDER

Earnings per Share
Price-Earnings Ratio
Dividend Payout and Yield Ratios

The Dividend Payout Ratio
The Dividend Yield Ratio

Return on Total Assets
Return on Common Stockholders' Equity
Financial Leverage

The Impact of Income Taxes
The Desirability of Leverage

Book Value per Share

RATIO ANALYSIS--THE SHORT-TERM CREDITOR

Working Capital
Current Ratio
Acid-Test (Quick) Ratio
Accounts Receivable Turnover
Inventory Turnover

RATIO ANALYSIS--THE LONG-TERM CREDITOR

Times Interest Earned Ratio
Debt-to-Equity Ratio

SUMMARY OF RATIOS AND SOURCES OF COMPARATIVE RATIO DATA
Summary
Review Problem: Selected Ratios and Financial Leverage
Glossary
Questions
Problems
Group and Internet Exercises

INTRODUCTION
THE ECONOMISTS' APPROACH TO PRICING

Elasticity of Demand
The Profit-Miximizing Price

THE ABSORPTION COSTING APPROACH TO COST-PLUS PRICING

Setting a Target Selling Price Using the Absorption Costing Approach
Determining the Markup Percentage
Problems with the Absorption Costing Approach

TARGET COSTING

Reasons for Using Target Costing
An Example of Target Costing

SERVICE COMPANIES--TIME AND MATERIAL PRICING

Time Component
Material Component
An Example of Time and Material Pricing

Summary
Glossary
Problems