Managerial Accounting: An Introduction To Concepts .
ManagerialAccountingAn Introduction to Concepts, Methods and Uses10eMichael W. MaherUniversity of California – Davis Clyde P. StickneyDartmouth College Roman L. WeilUniversity of Chicago
Managerial Accounting: An Introduction to Concepts, Methods, and Uses, Tenth EditionMichael W. Maher, Clyde P. Stickney, and Roman L. WeilVP/Editorial Director:Jack W. CalhounAssociate Content Project Manager:Joanna GroteArt Director:Linda HelcherPublisher:Rob DeweyManager, Editorial Media:John BaransInternal Designer:Lisa A. AlbonettiAcquisitions Editor:Keith ChasseSenior Technology Project Manager:Sally NiemanCover Designer:Lisa A. AlbonettiAssociate Developmental Editor:Mike GuendelsbergerEditorial Assistant:Amanda WolfeCover Images:Jason Horowitz/The ImageBank/#Getty ImagesMarketing Communications Manager:Libby ShippFrontlist Buyer:Doug WilkeMarketing Manager:Kristen BloomstromProduction House:ICC Macmillan Inc.Printer:WestEagan, MNMarketing Coordinator:Mary PopelarCOPYRIGHT # 2008, 2006Thomson South-Western, a part of TheThomson Corporation. Thomson, the Starlogo, and South-Western are trademarksused herein under license.Printed in the United States of America1 2 3 4 5 10 09 08 07Student EditionISBN 13: 978-0-324-63976-6Student EditionISBN 10: 0-324-63976-7ALL RIGHTS RESERVED.No part of this work covered by thecopyright hereon may be reproduced orused in any form or by any means—graphic, electronic, or mechanical,including photocopying, recording,taping, Web distribution or informationstorage and retrieval systems, or in anyother manner—without the writtenpermission of the publisher.For permission to use material from thistext or product, submit a request online athttp://www.thomsonrights.com.Library of Congress Control Number:2006908740For more information about our products,contact us at:Thomson Learning Academic ResourceCenter1-800-423-0563Thomson Higher Education5191 Natorp BoulevardMason, OH 45040USA
ForKATHLEEN, KRISTA, ANDREAForALLIE, BAILLIE, CHARLIE, CONMAN,GRETA, ISABELLA, AND LILYAND KATHYWith ThanksFor Our StudentsWhatever be the detail with which you cram your students, the chance of their meeting inafter-life exactly that detail is infinitesimal; and if they do meet it, they will probably haveforgotten what you taught them about it. The really useful training yields a comprehensionof a few general principles with a thorough grounding in the way they apply to a variety ofconcrete details. In subsequent practice the students will have forgotten your particulardetails; but they will remember by an unconscious common sense how to apply principles toimmediate circumstances.Alfred North WhiteheadThe Aims of Education and Other EssaysWITH THANKS
PrefaceOur St atement of PrincipleWe remain convinced that our primary job as educators is to teach problem-solving skills aswell as the organizational (and social) context in which students will, as managers, conducteconomic activities. An increasing number of employers ask that business school graduatesseek out ways to add value to organizations, not just work competently on projects thatsuperiors assign to them. Focusing on problem-solving skills and the organizational context ofdecisions will serve current and future students well in responding to employers’ expectations.Management accounting should not be primarily concerned with making computations.Students should aim to understand the organization’s business issues that created a need forimplementing such concepts as activity-based costing and the balanced scorecard. Andstudents should view the success or failure of these methods and concepts in the context ofthe organization’s operating and business environment. We know many examples in whichthoughtful practitioners developed complex activity-based costing, balanced scorecard, andother management accounting methods only to have them fail in implementation. Thesemethods did not fail because of errors in computations; they failed because their developersdid not sufficiently understand the problems that the organization needed to solve. Or theyfailed because these practitioners could not gain agreement on goals and strategies from bothtop management and the people who would later implement the methods. In other words,understanding business concepts and real incentives for decisions is more valuable than mereproficiency with accounting tools.As educators, and as authors, we aim to help students develop lifelong problem-solvingskills and understand the organizational and social context in which the organization’smembers make decisions. Students educated in this manner can add value to organizationsand society, whether they work in accounting or some other field.The Tenth Edition and the Future of Management AccountingThe tenth edition continues to reflect our philosophy in every respect. We emphasizeconceptual and analytical thinking over training in procedures. The following threeexamples demonstrate how we apply that philosophy. More than three-fourths of the book focuses on managerial decision making (Chapters 1,4–12). This is not a baby cost accounting book. We want our students to focus on businessproblem solving and the business context in which they use accounting information. We devote an entire chapter (Chapter 12) to incentive issues that go beyond theconventional profit and investment center material because students should be awarethat these issues drive management decision making to a large degree. This chapterincludes extensive discussion of problems with incentive systems that lead tofraudulent financial reporting. We provide answers to even-numbered exercises in addition to the usual self-studyproblems so students get immediate feedback on each chapter’s basic ideas. Byenabling students to get immediate feedback on each chapter’s basic ideas, we provideopportunity for instructors to explore the big concepts and to integrate ideas fromdifferent chapters.iv
PrefaceT HEMESOF THER EVIS IONWe wrote this book for students who expect to become managers, whether in marketing,finance, IT, or some other area. Previous editions have taught readers how to use accountinginformation to add value to their organizations and have emphasized concepts over procedures.The tenth edition continues these themes and improves on their application, as the list ofchapter changes makes clear. We have increased our discussion of ethical issues, including theSarbanes-Oxley Act, and management’s use of internal controls to prevent fraud. We haveadded discussions of strategic cost management issues in Chapters 1 and 4, as noted below.T HE ORGANIZ ATIONANDUS EOFT HIS B OOKWe divide the book into three major parts to allow maximum flexibility for instructors’teaching preferences.Part One, ‘‘Overview and Basic Concepts’’ (Chapters 1–3)Part Two, ‘‘Managerial Decision Making’’ (Chapters 4–8)Part Three, ‘‘Motivating Managers to Make Good Decisions’’ (9–13)Part One covers fundamental concepts, including activity-based management, and providesan overview of managerial accounting. After Part One, instructors may cover Parts Two andThree in whichever order they prefer. Chapter 1 introduces managerial accounting and ties itto strategic cost analysis, the value chain, and ethical issues. Chapter 2 presents traditionaljob and process product costing. Chapter 3 covers activity-based costing and management.Part Two discusses concepts and methods useful for managerial decision making. Chapter 4covers strategic management of costs, quality, and time. Chapter 5 discusses cost behaviorand methods of estimating cost driver rates. Chapter 6 discusses financial modeling, withcost volume profit treated as a simple example. Chapter 7 discusses differential cost andrevenue analysis. Chapter 8 discusses long-run decision making involving capital budgeting.Part Three concentrates on managerial planning and performance evaluation. Chapter 9provides an overview of planning and control and discusses development of budgets as toolsfor planning and control. Chapter 10 discusses profit and cost center performance evaluation,including profit variance analysis, cost variance analysis, variance investigation, and the useof nonfinancial performance measures. Chapter 11 focuses on performance evaluation ininvestment centers, including transfer pricing and EVA1. Chapter 12 discusses incentiveissues, including use of the balanced scorecard, internal controls, and ethical problemsrelated to incentive systems, such as financial fraud. Chapter 13 discusses cost allocation,which is self-contained and can be taught anywhere in chapter sequence.The Appendix discusses compound interest calculations used in discounted cash flowanalysis. It provides concepts of the time value of money useful to management accountants.The Glossary defines comprehensively the concepts and terms used by managers andmanagement accountants. It is one of the most comprehensive and informative glossariesthat students might ever find.Major Fe atures of the Tenth EditionE NHANCES C RITIC AL T HINKING S KILL SUsers of previous editions have found this book to be strong in requiring critical thinking. Acritical-thinking approach views accounting as a process of reporting information for peoplev
viPrefaceto use, as opposed to a view of accounting as a set of rules or procedures to follow. We hopeto prepare the next generation of managers and managerial accountants to think throughspecific situations for themselves using the concepts explored in this book.To enhance instructors’ ability to get students into a critical-thinking mode, we includein each chapter a section of assignment materials called Critical Analysis and DiscussionQuestions. We have found these questions particularly useful for in-class assignments forgroups of students who discuss the issues and report the results of their discussion. Thesequestions make good take-home group or individual writing assignments.C ONCEP TUAL A P P ROACHThis edition, like those before it, emphasizes concepts over procedures. We believe studentsin M.B.A. managerial accounting classes should understand the fundamental concepts andsee the ‘‘big picture,’’ leaving more detailed procedures to cost accounting classes and onthe-job training. Although a minority of students taking managerial accounting classes willbecome accountants, all will use managerial accounting concepts during their careers. Weintend to give them a solid grounding in those concepts in this book.E THIC ALANDC ONTROL I S SUESIn previous editions, we integrated discussion of ethical issues throughout the chapters. Inaddition, Chapter 12 (‘‘Incentive Issues’’) had an extensive discussion of financial fraud andethical issues related to incentive plans. In this edition, we discuss ethical issues and coverthe Sarbanes-Oxley Act in Chapter 1, which also has new, provocative assignment items.Chapter 4 (‘‘Strategic Management of Costs, Quality, and Time’’) has new material linkingethical decisions to creating quality products and the effects of good or bad reputation on thecompany. In Chapter 12, we have added a discussion of internal controls from a managementperspective and added new assignment material.VARIE T YOFE ND - OF - CHAP TER A S S IGNMENT M ATERIAL SAccounting instructors know the value of interesting and accurate assignment materials. Wehave written exercises and problems to reflect the new material. We have extensively classtested the assignment material and worked every question, exercise, problem, and case manytimes in preparing this edition.The variety and quantity of end-of-chapter assignment materials make the book suitablefor various approaches to the M.B.A. managerial course. To help the instructor assignhomework and select items for class presentation, we have divided the assignment materialsinto five categories: Review Questions, Critical Analysis and Discussion Questions,Exercises, Problems, and Cases. Review Questions are straightforward questions about key concepts in the chapter. Critical Analysis and Discussion Questions are thought-provoking questions aboutthe challenging issues that managers and accountants face. These questions areparticularly good for written essays and class discussions. Exercises reinforce key concepts in the chapter, often referring the student to a particularillustration. Exercises typically deal with a single topic and are particularly useful forclassroom demonstration. To enhance the self-learning dimension of the book, we includefully worked-out solutions at the end of the chapter to the even-numbered exercises. (Forconvenience, we also place these solutions in the Solutions Manual.) Problems challenge the student to apply and interpret the material in the chapter, manywith thought-provoking discussion or essay questions. We have added more critical-thinkingrequirements to problems, and we have added numerous problems, particularly in Chapters 7(‘‘Differential Cost Analysis for Decision Making’’) and 12 (‘‘Incentive Issues’’).
Preface Cases encourage students to apply concepts from multiple chapters and their othercourses to deal with complex managerial issues. These are particularly good foradvanced students and graduate students with some previous background in managerialaccounting.S ELF -S TUDY P ROBLEMSWITHF ULL S OLUTIONSBetter and more motivated students take every opportunity to test their understanding.Students who find managerial accounting at the M.B.A. level to be more challenging needadditional resources for self-help. We have designed this book to make it easy for students tolearn the basic concepts on their own, thereby making more class time available fordiscussion. Like most other managerial accounting textbooks, this one includes Self-StudyProblems placed at key points in each chapter. (Their answers appear at the end of thechapter.) In addition, the worked-out solutions to half of the exercises in each chapter givestudents ample opportunity to test their knowledge of the basic concepts. Ideally, they willcome to class with a solid understanding of the basic ideas, and instructors can devote classtime to provocative discussion.M ANAGERIAL A P PLIC ATIONSStudents are more motivated to learn the material if they see its application to real-worldproblems, particularly ones they believe they will face. This book contains ManagerialApplications that are similar to sidebars in news magazines. These allow the student toexplore company practices that illustrate concepts discussed in the text without disruptingthe flow of study. See the table of contents for a list of Managerial Applications.Supplements Accompanying the TextINS TRUC TOR’ S M ANUALThe Instructor’s Manual (by P. N. Saksena, Indiana University, South Bend) includeschapter overviews, learning objectives, lecture notes with teaching suggestions, andsuggestions for group discussion, all focusing on the needs of M.B.A. instructors. TheInstructor’s Manual is available on the Instructor’s Resource CD.T ES T B ANKThe Test Bank includes a mix of questions and problems tuned to the lasting needs ofM.B.A. instructors. The Test Bank is available in ExamView format on the Instructor’sResource CD.S OLUTIONS M ANUALThe Solutions Manual (by the text authors) contains responses to questions and solutions toall exercises, problems, and cases. The Solutions Manual is available on the Instructor’sResource CD.INS TRUC TOR’ S R ESOURCE CDWITHE X AMV IE W RThis CD contains the Solutions Manual, Instructor’s Manual, Test Bank files in Word,ExamView1, and PowerPoint slides.vii
viiiPrefaceL EC TURESINP OWER P OINTAccompanying the tenth edition are PowerPoint slides (by Gail Wright, Professor Emeritus,Bryant University), available by download to students and instructors for use in preparingand displaying material for lectures. The PowerPoint slides may be found on the productWeb site and on the Instructor’s Resource CD.P RODUC T S UP PORT W EB S ITEInstructors and students may turn to www.thomsonedu.com/accounting/maher for resourcesgeared to the M.B.A. managerial course such as PowerPoint lectures, instructor supplements,and quizzes.ACKNOWLED GMENTSWe are grateful to a number of people for their comments, criticisms, and suggestions,among them Peter Ben Ezra (George Washington University), P. N. Saksena (IndianaUniversity, South Bend), Felix Amenkhienan (Radford University), Frank LaMarra (WayneState University), Dan Law (Gonzaga University), James Bierstaker (University ofMassachusetts-Boston), Laurie McWhorter (University of North Carolina-Charlotte), JayHolmen (University of Wisconsin-Eau Claire), and Myung-Ho Yoon (Northeastern IllinoisUniversity).We wish to thank Acquisitions Editor Keith Chasse, Developmental Editor MichaelGuendelsberger, Marketing Manager Kristen Bloomstrom Hurd, Content Project ManagerJoanna Grote, Art Director Linda Helcher, Marketing Coordinator Mary Popelar, EditorialAssistant Amanda Wolfe, Project Manager Santosh Vasudevan with ICC Macmillan Inc.,and Executive MarComm Manager Brian Chaffee, among others, for their efforts. Weespecially appreciate their patience and dedication to publishing excellence.M. W. M.C. P. S.R. L. W.
Brief ContentsPreface ivPart OneOverview and Basic Concepts 1Chapter 1Fundamental Concepts 3Chapter 2Measuring Product Costs 33Chapter 3Activity-Based Management 77Part TwoManagerial Decision Making 113Chapter 4Strategic Management of Costs, Quality, and Time 115Chapter 5Cost Drivers and Cost Behavior 141Chapter 6Financial Modeling for Short-Term Decision Making 183Chapter 7Differential Cost Analysis for Operating DecisionsChapter 8Capital Expenditure Decisions 273Part ThreeChapter 9219Motivating Managers to Make Good Decisions 301Profit Planning and Budgeting303Chapter 10Profit and Cost Center Performance Evaluation 349Chapter 11Investment Center Performance EvaluationChapter 12Incentive Issues 429Chapter 13Allocating Costs to Responsibility Centers 461393Appendix: Compound Interest Examples and Applications 491Compound Interest and Annuity Tables 506GlossaryIndex509603ix
ContentsPreface ivPart 1Chapter 1Overview and Basic Concepts 1Fundamental Concepts3Managerial Application: Managers Need Cost Information for Survival 4 UserOrientation 4 Comparing Financial and Managerial Accounting 4 Problem 1.1 forSelf-Study 5 Implementing Strategies 5 Misuses of Accounting Information 5 Key Financial Players in the Organization 6 Ethical Issues 8 ManagerialApplication: J & J’s Credo 10 Understanding Basic Cost Concepts 11 ContrastingIncome Statements for Managerial Use to Those for External Reporting 13 Problem 1.2for Self-Study 14 Managing Costs 14 Combining the Value Chain and Strategic CostAnalysis 17 Managerial Accounting in Modern Production Environments 19 Problem 1.3 for Self-Study 21 Costs and Benefits of Accounting 21 The Makeupof the Book 22 Summary 22 Key Terms and Concepts 23 Solutions to Self-StudyProblems 23 Appendix 1.1: Standards of Ethical Conduct for ManagementAccountants 24 Questions, Exercises, Problems, and Cases 26 Suggested Solutionsto Even-Numbered Exercises 31Chapter 2Measuring Product Costs33Product Costs in Manufacturing Companies 34 Recording Costs by Department andAssigning Costs to Products 34 Fundamental Accounting Model of Cost Flows 35 Problem 2.1 for Self-Study 37 Managerial Application: Using the Basic Cost FlowEquation to Detect Fraud 37 Cost Measure: Actual or Normal Costing 38 Problem2.2 for Self-Study 39 Choosing the Right Cost System 39 Job and Process CostingSystems 41 Problem 2.3 for Self-Study 42 Flow of Costs through Accounts 42 Problem 2.4 for Self-Study 45 Ethical Issues in Job Costing 45 Just-in-Time (JIT)Methods 45 Problem 2.5 for Self-Study 48 Do Integrated Accounting Systems SatisfyManagerial Needs? 49 Summary 49 Key Terms and Concepts 51 Appendix 2.1:Computing Costs of Equivalent Production 51 Solutions to Self-Study Problems 55 Questions
to strategic cost analysis, the value chain, and ethical issues. Chapter 2 presents traditional job and process product costing. Chapter 3 covers activity-based costing and management. Part Two discusses concepts and methods useful for managerial decision making. Chapter 4 covers strategic management of costs, quality, and time.
H2: Financial Versus Managerial Accounting 5) A budget is a managerial accounting tool used in the planning process. Answer: TRUE Diff: 1 LO: 16-1 AICPA Functional: Reporting PE Question Type: Concept H2: Financial Versus Managerial Accounting Test Bank for Horngrens Financial and Managerial Accounting The Managerial Chapters 5th Edition by .
Horngren, Datar & Rajan. Cost Accounting: A Managerial Emphasis, 14th Ed. 2012 Reference Books Garison. Noreen and Brewer, Managerial Accounting, 13th Ed. 2010 Gray and Ricketts; “Cost and Managerial Accounting” Heltger and Matulich; “Managerial Accounting” Moore - Jaedicke- Anderson; “Managerial Accounting”
Managerial Accounting Study Guide . Table of Contents 1. Introduction to Managerial Accounting 2. Introduction to Cost Terms and Cost Concepts . It is important to note that even though financial accounting reports are aimed primarily at external users and managerial accounting reports are aimed primarily at internal users, managers also make .
Textbook Equity Paperback, Principles of Accounting, Volume 1 , Financial Accounting (Chapters 9 – 18), List Price 14.95 PDF Version, Accounting Principles: Managerial Accounting, Free Download Textbook Equity Paperback, Accounting Principles: Managerial Accounting, 316 pages, (chapters 19 – 26 of the original volume).
Textbook Equity Paperback, Principles of Accounting, Volume 1 , Financial Accounting (Chapters 9 - 18), List Price 14.95 PDF Version, Accounting Principles: Managerial Accounting, Free Download Textbook Equity Paperback, Accounting Principles: Managerial Accounting, 316 pages, (chapters 19 - 26 of the original volume).
Garrison, Managerial Accounting, 12th Edition 3 True/False Questions 1. Although financial and managerial accounting differ in many ways, they are similar in that both rely on the same underlying financial data. Answer: True Level: Medium LO: 1 2. Managerial accounting is a branch of financial accounting and serves essentially the
FINANCIAL ACCOUNTING : MEANING, NATURE AND ROLE OF ACCOUNTING STRUCTURE 1.0 Objective 1.1 Introduction 1.2 Origin and Growth of Accounting 1.3 Meaning of Accounting 1.4 Distinction between Book-Keeping and Accounting 1.5 Distinction between Accounting and Accountancy 1.6 Nature of Accounting 1.7 Objectives of Accounting 1.8 Users of Accounting Information 1.9 Branches of Accounting 1.10 Role .
Page 1-5 Managerial Accounting Basics Managerial accounting, also called management accounting, is a field of accounting that provides economic and financial information for managers and other internal users. Managerial accounting applies to all types of
