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Overview and Basic Concepts I Chapter 1 Fundamental Concepts 3 Managerial Application: Managers Need Cost Information for Survival 4 User Orientation 4 j Comparing Financial and Managerial Aciounting 4 Problem I1 for Self-Study 5 1 Implementing Strategies 5 1 Misuses of Accounting Information 5 Key Financial Players in the Organization 6 Ethical Issues 8 I Managerial Application: J & J's Credo 10 Understanding Basic Cost Concepts I Contrasting Income Statements to Manageial Use to Those for External Reporting 13 Problem 1.2 for Sel--Study 14 1 Managing Costs 14 I Combining the Vatue Chain and Strategic Cost Analysis 17 1 Managerial Accounting in Modern Production Environments 19 Problem 1.3 for Self-Study 21 | Costs and Benefits of Accounting 21 The Makeup of the Book 22 Summary 22 Key Terms and Concepts 23 Solutions to SClf-Study Problems 23 1 Appendix I.l: Standards of Ethical Conduct for Management Accountants 24 Questions, Exercises. Problems, and Cases 26 Suggested Solutions to Even-Numbered Exercises 31 Chapter 2 Measuring Product Costs 33 Product Costs in Manufaciuring Companies 34 1 Recording Costs by Department and Assigning Costs to Products 34 | Fundamental Accounting Model of Cost Flow:s 35 Probliem 2.1 for Self-Study 37 Managerial Applicatiomn: Using the Basic Cost Filo Equation to Detect Fraud 37 Cost Measure: Actual or Normal Costing 38 Problem 2.2 for Self-Study 39 1 Choosing the Right Cost System 39 I Job and Process Costing Systems 41 i Proberm 2.3 for Self-Studv 4 I Flow of Costs through Accountis 42 Probiern m .4 fio Si -Study 45 I Ethical Issues in Job Costing 45 1 Just-imTime ( IT' Methods 45 i Problem 2i.5 for Self-Study 48 Do Integrated Acconting Systems Satisfy Manageria Needs? 49 i Summary 49 I Key Terms and Concepts 51 | Appendix 2.: Coniputing Costs of Equivalent Production 51 a Solutions to Self-Study Problems 55 | Questions. Exercises Problemsn, ad Caes 57 Suggested Soltions to Even-Numbered Exercise. 72 Chapter 3 Activity-Based Management 77 Strategic Use of Activity,-Based Management 78 1 Activity Analysis 78 I Traditional Methods versus Activity-Based Costing 80 | Activity-Based Costing 8?1 Activity-Based Costing Methods 81 1 Activity-Based Costing Illustrated 84 I Problenm 3i for Self- Study 86 [ Activity-Based Management and Costing in Marketing 86 | Managerial Application: Cost MIanagement in Action: Why Hewlett-Packard Now Manages Supplers Itnstead of Overhead 87 1 Cost irchies 87 1 ProbleIn 3. for Scif-Study 89 Managerial Application: Resources Used versus Resources Sippled in Health Care 90 1 Managerial Application: Impact of ABC on Shareholder Value 93 Summary 93 1 Key Terms and Concepts 94 | Solutions to Self-Stu md V oblems 95 Questions. Exercises. Problems. and Cases 96 I Smugested Solutions to fNen-Numbered Exercises 110 Manageriai Decision Making 113 Chapter 4 Strategic Management of Costs. Qua lity, and Time 115 Why Is Quality Important? 115 1 Traditional versus Quality-Based View 116 1 Quality According to to the Customer 117 I Quality and the Value Chain 118 j Quality Control 119 1 Costs of Failing to Control and Improve Quality 119 i Trading Off Quality Control and Failure Costs 119 1 Problem 4.1 for Self-Study 121 1 Measuring the Cost of Quality in a Nonman.ufacturnma Setting 122 1 Is Quality Free? 122 i Managerial Application: Quality 'Reputation and Ethics 123 I Identifyiny QuaIity Problems t3 12 Just-in-Time and Total Quaiity Management 124 1 The Importance of Time ia i Comnpetiti e Environment 125 I Using Activity-Based Management to Impro7ve Customer Response Time 127 i Strategic Performance Measurement Usin, the Balanced Scorecard 127 1 Traditional Managerial Accounting Systems Can Limit the Impact of Tota1 Quality Managemen 1218 8 Summary 129 1 Key Terms and Concepts 130 1 Sol taio to Self-Study Problem 130 I Questions. Exercises, and Priobems 130 1 Suggested Solutions to Even-Numbered Exercises 138 Chapter 5 Cost Drivers and Cost Behavior 141 The Nature of Fixed and Variable Costs 142 I Types of Fixed Costs 14155 I Other Cost Behavior Patterns 145 I Problem 51i for Self-Study 148 I Problemn 5.2 for Self- Study i 50 I Cost Estiati na Mehods 150 istimating Costs Using Historical Data 15 I Problem 5.3 for Self-Study 157 Data Problemis 158 1 Ethical Issues in Data Analysiis 158 1 Managerial Application: United Airlines Uses Regression to Estimate Cost Behavior 159 I Strengths and Weaknesses orf Cost Estimation Methods 159 Problem 5.4 for Self-Study 161 1 Summary 161 1 Key Terms and Concetps 162 Solutions to Self-Study Problems 163 1 Appendix 5.1: Deriving Learnirng Curves 165 I Appendix 5.2: interpreting Regression Analvsis Output 166 1 Questions, Exercises, and Problems 168 1 Suggested Solutions to Even-Nurnb d ered Excises 180 Chapter 6 Financial ModeLing for Short-Term Decision Making 183 What is Financial Modeling? 184 1 The Cost-Volurme-Profit Model 184 I Applications of Financial Modeling 188 I Problem 6.1 for Self-Study 190 1 Problem 6.2 for Self-Study i91-192 1 Using Sales Dollars a a Measure of Volume 193 1 incone Taxes i93 i Managerial Applieation: Calculating Break-Een Points for a Bre wpub 194 t Multiple Product Financial Modeling 195 I Problem 6.3 for Self-Stud,y 98 1 Simpificnations and Assumptions 199 I Financial Modeling and ABC's Multiple-Cost Drivers 200 1 Summary 202 I Key Terms and Concepts 2203 1 Solutions to SIelf-Study Problemis 203 Questions. Exercises, Problems, and Cases 205 1 Suggested Solutions to Even-Numbered Exercises 216 Chapter 7 Differentiat Cost Analysis for Operating Decisions 219 The Differential Principle 220 1 Major Influences on Pricing 221 i Short-Run versus Long-Run Pricing Decisions 222 1 Differential Approach to Pricin g 23 I Problem 7,. for Self-Stud y 224 l Long-Run Pricing Decisions 224 i Managerial Application: Pricing Practices in Various Countries 225 1 Life-Cycle Product Costing and Pricing 225 1 Legal Issues Relating Costs to Prices 225 1 Using Target Prices to Set Target Costs 226 Customer Profitability and Differential Analysis 226 1 Problem 7.2 for Self-Study 228 | Product Choice Decisions 228 I Theory of Constraints and Throughput Contribution Analysis 230 i Make-or-Buy Decisions 232 Managerial Application: Cost Management in Action: XWhy Hewlett-Packard Now Manages Suppliers Instead of Overhead 232 I Problem 7.3 for Self-Study 233 1 Joint Products: Sell or Process Further 234 1 Problem 7.4 for Self-Study 235 1 Adding and Dropping Parts of Operations 235 Problem 7.5 for Self-Study 236 1 inventory Managerment Decisions 236 1 Innovations in Inventory Management and Flexible Manufacturing 238 Problem 7.6 for Self-Study 239 Summary 239 i Key Terms and Concepts 241 Solutions to Self-Study Problems 241 | Appendix 71: Linear Programming 243 Appendix 7.2: Economic Order Quantity Model 248 Qiestions, Exercises, Problems, and Cases 249 I Suggested Solutions to Even-Numbered Exercises 268 Chapter 8 Capita Expenditure Decisions 273 Capital Budgeting: Investment and Financing Decisions 274 Strategic Considerations 274 1 Managerial Application: Environmental Investments 275 Discounted Cash Flow 275 1 A Basic Example of Discounted Cash Flow Analysis 277 Expanded Example of Discounted Cash Flow Analysis 278 Problem 8.1 for Self- Study 279 Sensitivity of Net Present Value to Estimates 280 IInternal Rate of Return 282 Net Present Value and Internal Rate of Return: A Comparison 283 Problem 8.2 for Self-Study 283 Managerial Application: Investing in Improved Technology 284 1 Justification of Investments in Advanced Production Systems 2a84 Problem 8.3 for Self-Study 285 1 Identifying Good Investments 286 1 Audits and Capital Budgeting 287 Behavioral Issues 287 S Summary 288 1 Key Tenrs and Concepts 289 Solutions to Self-Study Problems 289 1 Questi onsc Exercises P'rblems, and Cases 292 Suggested Solutions to Even-Numbered Exercises 298 P t 3 Motivating Managers to Make Good Decisions 301 Chapter 9 Profit P anning and Budgeting 303 Strategic Planning 304 The Organizational Plan 304 I The Hiuman Element ir Budgeting 306 1 Managerial Application: Honesty in Managerial Reporting 307 Tools for Pianing and Performnance Evaluation 308 The Process of Developing the Master Budget 309 r Managerial Application: Developing Master Budgets Thkroughout the World 309 i Where to Start? With Your Customers (Forecasting Sales) 310 i Victoria's GCourmet Coffee: A Comprehensive Illustration 31 1 Managerial Application: Using the Internet for Budgeting 317 1 Incentives for Accurate Forecasts 317 Comparison of the Flexible and Master Budgets 317 1 Problem: 9.1 for Self-Study 3191 Budgeting in Nonprofit Organizations 319 Ethical issues in Budgetin 319 I Establishing an Operating Budget in the Real World 320 1 Summary 323 i Key Terms and Concepts 323 Solutions to Self-Study Problems 324 | Appendix 9.: Comprehensive Master Budget--Victoria's Gourmet Coffee 324 Appendix 9,2: Incentive Model for Accurate Reporting 330 f Questions, Exercises, Problems, and Cases 331 j Suggested Solutions to Even-Numbered Exercises 345 Chapter 10 Profit and Cost Center Performance Eva nation 349 Variance Analysis 349 I Responsibility for Marketing an Admiiistraive Variances 350 Problem 10 1 for Self-Study 353 Cost Variance Analysis 353 . Production Cost ariance Analysis 353 Reasons for Materials, Labor, and Variable Manufacturing Overhead Variances 354 1 Managerial Application: AnAntidote to Biased Standards: How Workers Develop Their Own Standards at NUMMI 355 I Problem r0l2 for Self- Study 35S Problem 10.3 for Self-Study 359 H Vriable Overhead in Ssr ice Organizations 361 Period-to-Period Analysis of Changes in Financial Performance 361 1 Problem 10.4 for Self-Study 365 1 Activity-Based Standard Costing 366 i Variance Analysis in High-Technology Companies 367 Quality Control and Variance Investigation 368 1 Problem 10.5 for Self-Study 370 Enployee Participation 370 Surmmary 371 Key ferns and Concepts^.. 372 AI A pendix 10. 1: Mix a'lnd Yield Variances 372 I Problemn 10.6 for Self-Study 373 1 Solutions to Self-Study Problems 374 1 Questions, Exercises. Problems, and Cases 376 1 Suggested Solutioin to Even-Numnbere Exercises 390 Chapter 11 Investment Center Performance Eva uation 393 Divisional Oraanization and Performance 393 Returin on finvestment as the Perforlinance Measure 395 j Transfer Pricing: Measuring Divisioal Rev enu and Co ts for Tiransauions Transfer Pricing 402 I Managerial Application: Just-in-Time Production in J apan and the internal Revenue Service in the United States 403 I Problem ! 12 for Self-Studii 403 I Measurin Division Operating Costs 403 I Measuring tie Investment in Division Investment 4005 1 Ecoornic Value Added 407 I Managerial Applicationm Does Economic Value Added Beat Earings? 409 Problem I'0 3 for Self-Study 410 I Summary 410 i Key Terms and Concepts 411 Solutions :0o Self-Study Prohblems 411 Ii Qi:estions. Exercises, Problems, and Cases 412 I Suggested Solsions to Even-Nurnbhcred Exercises 425 Chapter 12 Incentive Issues 429 Divisional Incentive Compensation Plans 429 1 Managerial AppliCation. Conflicts in an Incentive Compensation Plan 431 I Views of Behavior 431 i Using the Baianced Scorecard 433 1 Building the Incentive Plan Around the Balanced Scorecard 434 1 Managerial Application: Does Customer Satisfaction Pay Off? 437 Manageria Application: Successfully Implementing the Balanced Scorecard: The FMC Experience 439 1 Problem 12.1 for Self-Study 439 1 Motivational Issues in Designing Incentive Systems for Division Managers and Their Subordinates 439 1 Applications to Nonprofit Organizations 442 1 Problems with Incentive Compensation Plans 443 4 Fraudulent Financial Reporting 443 1 Types of Fraud 444 I Managerial Application: Software Company's Stock Tanks after Premature Revenue Recognition Disclosed 445 1 CausCs of Financial Fraud 446 Environmental Conditions 447 Internal Controls to Protect Assets and Provide Quality information 447 1 Incentive Problems in International Markets 449 1 Problem 12.2 for Seif-Study 450 t Summary 450 I Key Termni and Concepts 451 1 Solutions to Self-Study Problems 451 Questions, Exercises. ProNems, and Cases 451 i Suggested Solutions to Even-Numbered Exercises 4(60 Chapter 13 Atlocating Costs to Responsibility Centers 4651 The Nature of Common Costs 461 I Purposes of Common Cost Allocations 462 I Cost Allocation 463 1 Probem 13.1 for Self-Study 469 1 Marketing and Administrative Costs 471 1 Allocating Joint-Process Costs 472 1 Joint-Process Cost Alloc"ation Methods 472 | Problem 13.2 for Self-Study 473 1 Problem 13.3 for Self-Study 4-74 Summary 475 1 Key Terms and Concepts 475 i Solutions to Self-Study Problems 476 1 Questions, Exercises, Problems, and Cases 477 1 Suggested Solutions to Even-Numbered Exercises 488