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This text is written as an integrated work in managerial accounting, and is intended for use as a basic text for
students after completing a first semester or quarter course in financial accounting at either the undergraduate or
This text is organized around the following major areas of managerial accounting:
An Overview of Managerial Accounting. In this section, the text discusses the uses of managerial accounting and contrasts the type and use of information provided by managerial accounting and financial accounting (Chapter 1). Chapter 2 focuses on basic cost information and behavior. In this chapter we distinguish between the different types of costs incurred by organizations. In addition, this chapter discusses the behavior of these costs with changes in activity as well as the effect of cost behavior on managerial decisions.
Cost Accumulation. Chapters 3 through 5 illustrate the process through which the organization accumulates costs with its products and services. In Chapter 3, we focus on production and service processes that require different levels of effort across individual jobs (job-order costing). Chapter 4 illustrates the cost accumulation process for manufacturing environments characterized by the production of a large number of similar products (process costing). Chapter 5 focuses on the process through which overhead costs are accumulated with the organizationís inventory and services. The dedication of an entire chapter to overhead costs is considered necessary given the importance of controlling overhead costs to organizations in manufacturing inventory and providing services.
The Use of Managerial Accounting Information. Chapters 6 through 11 describe various uses of managerial accounting information. Topics discussed in these chapters include variable costing and costvolume-profit analysis (Chapter 6), standard costing and determination of variances (Chapter 7), budgeting (Chapter 8), responsibility accounting (Chapter 9), short-term managerial decisions (Chapter 10), and capital budgeting (Chapter 11). In these chapters, the basic principles of cost behavior and cost accumulation discussed in the preceding two sections are applied to important decisions facing managers in todayís
Part I: Introduction to Managerial Accounting
1 Introduction Managerial Accounting
INTRODUCTION. LEARNING OBJECTIVES. THE NEED FOR MANAGERIAL ACCOUNTING INFORMATION.
ACCOUNTING SYSTEMS AND THE MANAGEMENT PROCESS. Identifying and Gathering
Information on Transactions. Preparing Reports. Using Reports for Decisions and Activities. Feedback.... MORE
The Role of Accountants in the Management Process. LOCATION OF THE ACCOUNTING FUNCTION.
OVERVIEWOF THE MANAGERIAL ACCOUNTING FUNCTION. Preparing Budgets and Devising Standards.
Accumulating Data on Costs and Profits. Comparing Actual Activity with Plans or Budgets. Advising
Management About Nonroutine Decisions. SUMMARY. KEY DEFINITIONS.
2 Analyzing Cost Behavior
LEARNING OBJECTIVES. INTRODUCTION. TYPES OF COSTS. Direct Materials. Direct Labor. Manufacturing
Overhead.OVERVIEWOF COST BEHAVIOR. Level of Activity (Cost Driver).Relevant Range.
ILLUSTRATION OF COST BEHAVIOR. Fixed Costs.Variable Costs. Step Costs. Semi-Variable (Mixed)
Costs. ANALYZING COST BEHAVIOR. The Graphical Method. The Two-Point Method. Semi-Averages
Method. Least Squares Regression Method. COST BEHAVIOR FOR RETAIL AND SERVICE COMPANIES.
USING MANAGERIAL ACCOUNTING INFORMATION: BETTER BOOKS. SUMMARY. KEY DEFINITIONS.
Part II: Cost Accumulation
3 Job-Order Costing
LEARNING OBJECTIVES. INTRODUCTION. IMPORTANCE OF COST ACCUMULATION. Preparation
of Financial Statements. Internal Decision-Making Process. INTRODUCTION TO JOB-ORDER COSTING:
THE ACE CONSTRUCTION COMPANY.Obtain Direct Materials. Incur Manufacturing Costs.Completion
of Production. Sale of Inventory. PREPARATION OF FINANCIAL STATEMENTS. Cost of Goods
Manufactured Statement. Cost of Goods Sold Statement. SUMMARY: THE ACE CONSTRUCTION
COMPANY.USING MANAGERIAL ACCOUNTING INFORMATION: ACE CONSTRUCTION COMPANY.
SUMMARY. KEY DEFINITIONS. ILLUSTRATIVE PROBLEM.
4 Process Costing
LEARNING OBJECTIVES. INTRODUCTION. AN OVERVIEW OF PROCESS COSTING. COMPREHENSIVE
EXAMPLE: THE AMERICAN VEGETABLE COMPANY. Account for Units Produced. Determine
Total Manufacturing Costs. Determine Equivalent Units of Production. Calculate the Cost per Unit.
Accumulate Costs with Inventory Units.Transfer and Completion of Production. JOINT MANUFACTURING
PROCESSES. COST ACCUMULATION FOR SERVICE ORGANIZATIONS. JUST-IN-TIME INVENTORY
AND PRODUCTION MANAGEMENT. USING MANAGERIAL ACCOUNTING
INFORMATION: THE AMERICAN VEGETABLE COMPANY. SUMMARY. KEY DEFINITIONS. ILLUSTRATIVE
5 Overhead Costs and Activity-Based Costing
LEARNING OBJECTIVES. INTRODUCTION. THE NATURE OF MANUFACTURING OVERHEAD
COSTS. Applying Overhead Cost to Production. Recording Overhead Costs. TWO-STAGE ALLOCATIONS
OF SERVICE DEPARTMENT COSTS. Determining Departmental Overhead Rates. Allocating
Service Department Costs to Operating Departments (Stage 1 Allocations). ACTIVITY-BASED COSTING.
Step 1: Identify Overhead Costs Pools. Step 2: Identify Cost Drivers. Step 3: Allocate Costs to Inventory
Items.Other Issues Involved with Activity-Based Costing.USING MANAGERIAL ACCOUNTING
DATA: THE AMERICAN VEGETABLE COMPANY. SUMMARY. KEY DEFINITIONS. ILLUSTRATIVE
Part Ill: Management’s Use of Managerial Accounting Information
6 Cost Behavior—Cost-Volume-Profit Analysis and Variable and Absorption Costing
LEARNING OBJECTIVES. INTRODUCTION.CVP ANALYSIS:GRAPHICAL APPROACH CVP ANALYSIS:
EQUATION APPROACHES.General Equation Approach.Unit Contribution Margin Approach.Contribution
Margin Ratio Approach. OTHER USES OF CVP ANALYSIS. Desired Level of Profit (Before
Taxes).Desired Profit (After Taxes).Variable Levels of Profit.Change in Variable Costs/Contribution Margin.
Change in Fixed Costs. Calculating Necessary Selling Prices. CVP for Multiple Products. OPERATING
LEVERAGE AND AUTOMATED MANUFACTURING PROCESSES. ASSUMPTIONS OF CVP
ANALYSIS. PRACTICAL APPLICATION OF CVP ANALYSIS. INCOME DETERMINATION: ABSORPTION
AND VARIABLE COSTING. Absorption (Full) Costing. Variable (Direct) Costing. Comparing Absorption
and Variable Costing.USING MANAGERIAL ACCOUNTING INFORMATION:GOLDEN MUSIC
PRODUCERS. SUMMARY. KEY DEFINITIONS. ILLUSTRATIVE PROBLEM.
7 Standard Costing and Variance Analysis
LEARNING OBJECTIVES. INTRODUCTION. PERFORMANCE STANDARDS. Direct Materials and Direct
Labor Costs.Manufacturing Overhead Costs.VARIANCE ANALYSIS:DIRECT MATERIALS AND DIRECT
LABOR COSTS. Direct Material Variances. Direct Labor Variances. COST ACCUMULATION IN
A STANDARD COSTING SYSTEM. RECENT DEVELOPMENTS IN THE MANUFACTURING ENVIRONMENT.
BENEFITS OF PERFORMANCE STANDARDS AND STANDARD COSTING.USING MANAGERIAL
ACCOUNTING INFORMATION: SPORTSWORLD. SUMMARY. KEY DEFINITIONS.
ILLUSTRATIVE PROBLEM. Appendix-Variance Analysis: Manufacturing Overhead Costs. VARIABLE
OVERHEAD COSTS. Variable Overhead Efficiency Variance. Variable Overhead Spending Variance.
Summary: Variable Overhead Variances. FIXED OVERHEAD COSTS. Fixed Overhead Volume Variance.
Fixed Overhead Spending Variance. Summary: Fixed Overhead Variances.OVERALL ANALYSIS
OF OVERHEAD VARIANCES. ACCUMULATION OF MANUFACTURING OVERHEAD COSTS WITH
LEARNING OBJECTIVES. INTRODUCTION. PURPOSES OF BUDGETING. THE BUDGETING
PROCESS.COMPREHENSIVE EXAMPLE:OPERATING BUDGETS. Sales Budget. Production Budget.
Direct Materials Purchases and Usage Budgets. Direct Labor and Manufacturing Overhead Budgets.
Nonmanufacturing Expense Budget. BUDGETED FINANCIAL STATEMENTS-OPERATIONS. FINANCIAL
AND RESOURCE BUDGETS. Cash Budget. Accounts Receivable Budget. Inventory Budgets.
Property, Plant and Equipment Budget. Accounts Payable Budget. Notes Payable Budget. Budgeted
Shareholders' Equity. NONQUANTITATIVE ASPECTS OF BUDGETING. The Difficulty of Budget Standards.
Participative Budgeting and Slack. BUDGETS FOR MERCHANDISING AND SERVICE ORGANIZATIONS.
USING MANAGERIAL ACCOUNTING INFORMATION: TOY CONCEPTS, INC. SUMMARY.
KEY DEFINITIONS. ILLUSTRATIVE PROBLEM.
9 Control of the Organization—Responsibility Accounting
LEARNING OBJECTIVES. INTRODUCTION. MANAGEMENT CONTROL SYSTEMS. RESPONSIBILITY
CENTERS. RESPONSIBILITY ACCOUNTING AT BLAST! SNACK FOODS. COST CENTERS.
PROFIT CENTERS. INVESTMENT CENTERS. Return on Investment (ROI). Residual Income. ISSUES
IN EVALUATING INVESTMENT CENTERS. Assets. Net Income. Life of Investment.Transfer Pricing.
TOTAL QUALITY MANAGEMENT.NONFINANCIAL PERFORMANCE AND THE BALANCED SCORECARD.
USE OF MANAGERIAL ACCOUNTING INFORMATION: BLAST! SNACK FOODS. SUMMARY.
KEY DEFINITIONS. ILLUSTRATIVE PROBLEM.
10 The Use of Managerial Accounting Data in Making Short-Term Decisions
LEARNING OBJECTIVES. INTRODUCTION.TERMINOLOGY FOR SHORT-TERM DECISIONS. Decisions.
Relevant Costs. Opportunity Costs. Sunk Costs. Summary. THE USE OF MANAGERIAL ACCOUNTING
DATA IN MAKING SHORT-TERM DECISIONS. Product Pricing Decisions. Contribution
Margin (Variable) Approach. Full-Cost (Absorption) Approach. Setting Prices to Earn a Profit. Elasticity
of Demand. SPECIAL ORDERS. No Excess Capacity. Qualitative Considerations. Summary: Special
Orders. CONTINUATION OF A SEGMENT OR PRODUCT LINE.Other Considerations-Resource Constraints.
Summary: Continuation of a Segment or Product Line. ADDITIONAL PROCESSING. MAKEOR-
BUY DECISIONS. Alternative Use of Capacity. Qualitative Considerations. Other Considerations.
SUMMARY. KEY DEFINITIONS. ILLUSTRATIVE PROBLEM.
11 Capital Budgeting: Search for Long-Run Alternatives
LEARNING OBJECTIVES. INTRODUCTION. AN INTRODUCTION TO CAPITAL BUDGETING. Types
of Capital Budgeting Decisions. Capital Budgeting-Quantitative Factors. Capital Budgeting—Qualitative
Factors.CAPITAL BUDGETINGTECHNIQUES THAT IGNORE THE TIME VALUE OF MONEY. Payback
Period. Average Rate of Return (Accounting Rate of Return). CAPITAL BUDGETING TECHNIQUES
THAT CONSIDER THE TIME VALUE OF MONEY. NET PRESENT VALUE. Future Cash Inflows and
Outflows—Basic. Evaluating Competing Projects Using Net Present Value.Additional Complexities Using
Net Present Value. Limitations of the Net Present Value Method. Advantages of the Net Present Value
Method. Summary-Net Present Value. INTERNAL TIME-ADJUSTED RATE OF RETURN. SUMMARY:
TECHNIQUES THAT CONSIDER THE TIME VALUE OF MONEY. SUMMARY OF CAPITAL BUDGETING
TECHNIQUES. POSTAUDIT OF CAPITAL INVESTMENTS. CAPITAL BUDGETING FOR HIGHTECHNOLOGY
ASSETS. THE USE OF CAPITAL BUDGETING TECHNIQUES IN PRACTICE.SUMMARY. KEY DEFINITIONS. ILLUSTRATIVE PROBLEM. LEARNING OBJECTIVES