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• Auto-Graded Excel Projects-Using proven, field-tested technology, MyAccountingLab's new auto-graded Excel Projects allow instructors to seamlessly integrate Excel content into their course without having to manually grade spreadsheets. Students have the opportunity to practice important Accounting skills in Microsoft Excel, helping them to master key concepts and gain proficiency in Excel. Students simply download a spreadsheet, work live on an accounting problem in Excel, and then upload that file back into MyAccountingLab, where they receive reports on their work that provide personalized, detailed feedback to pinpoint where they went wrong on any step of the problem. Available with select titles.
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Accounting in the Headlines.
One of the biggest challenges for accounting instructors is that students often feel disengaged from the course material, which can seem abstract and unrelated to their personal experiences. But by incorporating real-life exam- ples, instructors can spark student interest and engagement, especially when teaching accounting at the introductory level.
Accounting in the Headlines, an award-winning blog by renowned author Wendy Tietz, does just that with stories about real companies and events that can be used in the accounting classroom to illustrate introductory financial and managerial accounting concepts.
Concise, tailorable, and updated on a weekly basis, these articles easily fit into the typical introductory accounting curriculum, whether the course is delivered in-person or online. Accounting in the Headlines articles, along with multiple-choice and polling questions, can be assigned through MyAccounting lab and Learning Catalytics™. Instructors are also provided with discussion questions, PowerPoint slides, and handout files, to support learning initiatives.
http://accountingintheheadlines.com
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Managerial Accounting
Fifth Edition
Karen Wilken Braun, PhD, CPA, CGMA Case Western Reserve University
Wendy M. Tietz, PhD, CPA, CGMA, CMA Kent State University
@ Pearson New York, NY
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@Pearson ISBN 13: 978-0-13-412852-8 ISBN 10: 0-13-412852-4
BRIEF CONTENTS
1 Introduction to Managerial Accounting 1 2 Building Blocks of Managerial Accounting 48 3 Job Costing 104 4 Activity-Based Costing, Lean Operations, and the Costs of Quality 175 5 Process Costing 245 6 Cost Behavior 307 7 Cost-Volume-Profit Analysis 381 8 Relevant Costs for Short-Term Decisions 443 9 The Master Budget 507
1 Q Performance Evaluation 583 11 Standard Costs and Variances 653 1 2 Capital Investment Decisions and the Time Value of Money 71 o 1 3 Statement of Cash Flows 779 1 4 Financial Statement Analysis 838 1 5 Sustainability 894
Glossary/Index 1-1
V
CONTENTS
1
2
vi
Introduction to Managerial Accounting 1
What Is Managerial Accounting? 2
Managers' Three Primary Responsibilities 2
A Road Map: How Managerial Accounting Fits In 3
Differences Between Managerial Accounting and Financial Accounting 4
What Role Do Management Accountants Play? 6
The Role of Management Accountants 6
The Skills Required of Management Accountants 7
Managerial Accounting Is Important to All Careers 8
Accounting within the Organizational Structure 9
Professional Associations 10
Average Salaries of Management Accountants 12
Professional Ethics 12
Examples of Ethical Dilemmas 14
What Business Trends and Regulations Affect Management Accounting? 18
Big Data, Data Analytics, and Critical Thinking 18
Shifting Economy 20
Globalization 20
Lean Thinking and Focus on Quality 21
Sustainability, Social Responsibility, and the Triple Bottom Line 21
Integrated Reporting 22
The Sarbanes-Oxley Act of 2002 23
End of Chapter 27
Building Blocks of Managerial Accounting 48
What Are the Most Common Business Sectors and Their Activities? 49
Service, Merchandising, and Manufacturing Companies 49
Which Business Activities Make Up the Value Chain? 51
Coordinating Activities Across the Value Chain 52
How Do Companies Define Cost? 55
Cost Objects, Direct Costs, and Indirect Costs 55
Costs for Internal Decision Making and External Reporting 57
Merchandising Companies' Product Costs 58
Manufacturing Companies' Product Costs 60
Prime and Conversion Costs 61
Additional Labor Compensation Costs 62
Recap: Product Costs Versus Period Costs 62
How Are Product Costs and Period Costs Shown in the Financial Statements? 65
Service Companies 65
Merchandising Companies 65
Manufacturing Companies 67
Comparing Balance Sheets 70
What Other Cost Terms Are Used by Managers? 71
Controllable Versus Uncontrollable Costs 71
Relevant and Irrelevant Costs 71
Fixed and Variable Costs 72
How Manufacturing Costs Behave 73
Calculating Total and Average Costs 73
End of Chapter 78
3 Job Costing 104 What Methods Are Used to Determine the
Cost of Manufacturing a Product? 105
Process Costing 105
Job Costing 106
How Do Manufacturers Determine a Job's Cost? 107
Overview: Flow of Inventory Through a Manufacturing System 107
4
Scheduling Production 108
Purchasing Raw Materials 109
Using a Job Cost Record to Keep Track of Job Costs 110
Tracing Direct Materials Cost to a Job 112
Tracing Direct Labor Cost to a Job 114
Allocating Manufacturing Overhead to a Job 116
Completing the Job Cost Record and Using It to Make Business Decisions 119
How Can Job Costing Information Be Enhanced for Decision Making? 121
Non-Manufacturing Costs 121
Direct or Variable Costing 123
How Do Managers Deal with Underallocated or Overallocated Manufacturing Overhead? 127
What Journal Entries Are Needed in a Manufacturer's Job Costing System? 129
APPENDIX 3A 143
How Do Service Firms Use Job Costing to Determine the Amount to Bill Clients? 143
What Costs Are Considered Direct Costs of Serving a Client? 143
What Costs Are Considered Indirect Costs of Serving a Client? 144
Finding the Total Cost of the Job and Adding a Profit Markup 145
Invoicing Clients Using a Professional Billing Rate 145
What Journal Entries Are Needed in a Service Firm's Job Costing System? 146
End of Chapter 147
Activity-Based Costing, Lean Operations, and the Costs of Quality 175
Why and How Do Companies Refine Their Cost Allocation Systems? 176
Simple Cost Allocation Systems Can Lead to Cost Distortion 17 6
Review: Using a Plantwide Overhead Rate to Allocate Indirect Costs 177
Contents vii
Using Departmental Overhead Rates to Allocate Indirect Costs 179
Using Activity-Based Costing to Allocate Indirect Costs 184
How Do Managers Use the Refined Cost Information to Improve Operations? 191
Activity-Based Management (ABM) 191
Passing the Cost-Benefit Test 193
What Is Lean Thinking? 198
The Eight Wastes of Traditional Operations 198
Characteristics of Lean Operations 200
Lean Operations in Service and Merchandising Companies 205
How Do Managers Improve Quality? 206
Costs of Quality (COO) 206
Relationship Among Costs 207
Using Costs of Quality Reports to Aid Decisions 208
End of Chapter 213
5 Process Costing 245 Process Costing: An Overview 246
Two Basic Costing Systems: Job Costing and Process Costing 246
How Does the Flow of Costs Differ Between Job and Process Costing? 247
What Are the Building Blocks of Process Costing? 250
Conversion Costs 250
Equivalent Units 250
Inventory Flow Assumptions 251
How Does Process Costing Work in the First Processing Department? 252
Step 1: Summarize the Flow of Physical Units 254
Step 2: Compute Output in Terms of Equivalent Units 254
Step 3: Summarize Total Costs to Account For 256
Step 4: Compute the Cost per Equivalent Unit 256
Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process Inventory 257
Average Unit Costs 257
viii Contents
What Journal Entries Are Needed in a Process Costing System? 259
How Does Process Costing Work in a Second or Later Processing Department? 264
Process Costing in SeaView's Insertion Department 264
Steps 1 and 2: Summarize the Flow of Physical Units and Compute Output in Terms of Equivalent Units 266
Steps 3 and 4: Summarize Total Costs to Account for and Compute the Cost per Equivalent Unit 267
Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process Inventory 268
Unit Costs and Gross Profit 268
Production Cost Reports 269
Journal Entries in a Second Processing Department 270
End of Chapter 275
6 Cost Behavior 307 Cost Behavior: How Do Changes in Volume Affect Costs? 308
Variable Costs 308
Fixed Costs 311
Mixed Costs 314
Relevant Range 316
Other Cost Behaviors 317
How Do Managers Determine Cost Behavior? 322
Account Analysis 322
Scatterplots 322
High-Low Method 324
Regression Analysis 326
Data Concerns 330
What Are the Roles of Variable Costing and the Contribution Margin Income Statement? 331
Comparing Absorption Costing and Variable Costing 331
7
The Contribution Margin Income Statement 333
Comparing Operating Income: Variable Versus Absorption Costing 336
Reconciling Operating Income Between the Two Costing Systems 338
End of Chapter 346
Cost-Volume-Profit Analysis 381
How Does Cost-Volume-Profit Analysis Help Managers? 382
Data and Assumptions Required for CVP Analysis 382
The Unit Contribution Margin 383
The Contribution Margin Ratio 385
How Do Managers Find the Breakeven Point? 386
The Income Statement Approach 387
The Shortcut Approach Using the Unit Contribution Margin 388
The Shortcut Approach Using the Contribution Margin Ratio 388
How Do Managers Find the Volume Needed to Earn a Target Profit? 389
How Much Must We Sell to Earn a Target Profit? 389
Graphing CVP Relationships 391
How Do Managers Use CVP to Make Decisions When Business Conditions Change? 396
Changing the Sales Price and Volume 396
Changing Variable Costs 398
Changing Fixed Costs 399
Changing the Mix of Products Offered for Sale 402
What Are Some Common Indicators of Risk? 406
Margin of Safety 406
Operating Leverage 407
Choosing a Cost Structure 409
End of Chapter 415
8 Relevant Costs for Short-Term Decisions 443
How Do Managers Make Decisions? 444
Relevant Information 444
Keys to Making Short-Term Special Decisions 445
Decision Pitfalls to Avoid 446
How Do Managers Make Pricing and Special Order Decisions? 448
Regular Pricing Decisions 448
Special Order Decisions 453
How Do Managers Make Other Special Business Decisions? 460
Decisions to Discontinue Products, Departments, or Stores 460
Product Mix Decisions When Resources Are Constrained 464
Outsourcing Decisions (Make or Buy) 467
Decisions to Sell As Is or Process Further 472
End of Chapter 477
9 The Master Budget 507 How and Why Do Managers Use
Budgets? 508
How Are Budgets Used? 508
How Are Budgets Developed? 508
What Are the Benefits of Budgeting? 510
What Is the Master Budget? 511
How Are the Operating Budgets Prepared? 512
Sales Budget 512
Production Budget 513
Direct Materials Budget 515
Direct Labor Budget 516
Manufacturing Overhead Budget 517
Operating Expenses Budget 518
Budgeted Income Statement 519
How Are the Financial Budgets Prepared? 524
Capital Expenditures Budget 524
Cash Collections Budget 524
Cash Payments Budget 525
Combined Cash Budget 527
Budgeted Balance Sheet 528
Sensitivity Analysis and Flexible Budgeting 530
Contents ix
How Do the Budgets for Service and Merchandising Companies Differ? 531
Service Companies 531
Merchandising Companies 531
Impact of Credit and Debit Card Sales on Budgeting 533
End of Chapter 540
1 Q Performance Evaluation 583 How Does Decentralization Affect
Performance Evaluation? 584
Advantages and Disadvantages of Decentralization 584
Performance Evaluation Systems 585
What Is Responsibility Accounting? 585
Types of Responsibility Centers 586
Responsibility Center Performance Reports 588
Evaluation of Investment Centers 590
What Is Transfer Pricing? 597
Strategies and Mechanisms for Determining a Transfer Price 598
How Do Managers Use Flexible Budgets to Evaluate Performance? 603
Creating a Flexible Budget Performance Report 604
Underlying Causes of the Variances 607
How Do Companies Incorporate Nonfinancial Performance Measurement? 609
The Balanced Scorecard 609
End of Chapter 617
x Contents
11 Standard Costs and Variances 653
What Are Standard Costs? 654
Types of Standards 654
Information Used to Develop and Update Standards 655
Computing Standard Costs 655
How Do Managers Use Standard Costs to Compute DM and DL Variances? 658
Using Standard Costs to Develop the Flexible Budget 658
Direct Materials Variances 658
Direct Labor Variances 664
Summary of Direct Materials and Direct Labor Variances 666
Advantages and Disadvantages of Using Standard Costs and Variances 666
How Do Managers Use Standard Costs to Compute MOH Variances? 671
Variable Manufacturing Overhead Variances 671
Fixed Manufacturing Overhead Variances 673
Standard Costing Systems 675
APPENDIX 11A 679
Standard Costing 679
Standard Costing Income Statement 682
End of Chapter 683
12 Capital Investment Decisions and the Time Value of Money 71 o
What Is Capital Budgeting? 711
Four Popular Methods of Capital Budgeting Analysis 711
Focus on Cash Flows 712
Capital Budgeting Process 712
How Do Managers Calculate the Payback Period and Accounting Rate of Return? 714
Payback Period 714
Accounting Rate of Return (ARR) 717
How Do Managers Compute the Time Value of Money? 723
Factors Affecting the Time Value of Money 723
Future Values and Present Values: Points Along the Time Continuum 724
Future Value and Present Value Factors 725
Calculating Future Values of Single Sums and Annuities Using FV Factors 726
Calculating Present Values of Single Sums and Annuities Using PV Factors 727
How Do Managers Calculate the Net Present Value and Internal Rate of Return? 730
Net Present Value (NPV) 731
Internal Rate of Return (IRR) 736
How Do the Capital Budgeting Methods Compare? 739
APPENDIX 12A 743
Present Value Tables and Future Value Tables 743
Table A Present Value of $1 743
Table B Present Value of Annuity of $1 744
Table C Future Value of $1 745
Table D Future Value of Annuity of $1 746
APPENDIX 12B 747
Solutions to Chapter Examples Using Microsoft Excel 747
APPENDIX 12C 751
Using a Tl-83, Tl-83 Plus, Tl-84, or Tl-84 Plus Calculator to Perform Time Value of Money Calculations 751
End of Chapter 757
1 3 Statement of Cash Flows 779
What Is the Statement of Cash Flows? 780
Three Types of Activities That Generate and Use Cash 781
Two Methods of Presenting Operating Activities 783
How Is the Statement of Cash Flows Prepared Using the Indirect Method? 788
Information Needed to Prepare the Statement of Cash Flows 788
Preparing the Cash Flows from Operating Activities 788
Preparing the Cash Flows from Investing Activities 794
Preparing the Cash Flows from Financing Activities 796
Interpreting the Statement of Cash Flows 798
Recap: Steps to Preparing the Statement of Cash Flows Using the Indirect Method 798
How Is the Statement of Cash Flows Prepared Using the Direct Method? 799
Overview 799
Determining Cash Payments and Receipts 800
End of Chapter 808
14 Financial Statement Analysis 838
What Are the Most Common Methods of Analysis? 839
What Is Horizontal Analysis? 839
Horizontal Analysis of the Income Statement 841
Horizontal Analysis of the Balance Sheet 841
Trend Percentages 841
What Is Vertical Analysis? 843
How Do We Compare One Company with Another? 845
Using Microsoft Excel 845
What Are Some of the Most Common Financial Ratios? 849
Contents xi
Measuring Ability to Pay Current Liabilities 849
Measuring Ability to Sell Inventory and Collect Receivables 850
Measuring Ability to Pay Long-Term Debt 852
Measuring Profitability 853
Analyzing Stock Investments 857
Red Flags in Financial Statement Analysis 858
End of Chapter 865
1 5 Sustainability 894 What Is Sustainability, and How Does It
Create Business Value? 895
Historical Overview 896
The Business Case for Sustainability 897
What Is Sustainability Reporting? 902
Current State of Sustainability Reporting 902
Reasons for Sustainability Reporting 903
Framework for Sustainability Reporting 903
What Is Environmental Management Accounting (EMA)? 908
EMA Systems 908
Uses of Environmental Management Accounting Information 909
Challenges to Implementing EMA Systems 911
Future of Environmental Management Accounting 912
End of Chapter 914
Glossary/Index 1-1
Visual Walk-Through
Technology Makes it Simple Expanded to include several new topics , these features give students step-by-step directions on how to use Microsoft Excel 2016 to perform the accounting task with more efficiency. Examples ----- include: scatterplots, regression analysis, capital budgeting, CVP graphs, budgeting, and sensitivity analysis.
Assume the local fitness d ub di arges a membership fee of $30 per month for unlimited use of the exercise equipment plus an additional fee of $5 for every instructo.--led exercise class you attend .
1. Express the monthly cost of belonging to the fitness dub as a cost equation . 2. What is you r expected cost for a month in which you attend five instructor-led classes? 3. If your attendance doubles to 10 dasses per month. will your tota l cost for the month
double? Explain.
Please see page 380 for solutions .
Video Solutions Found in the eText and MyAccountingLab , the video solutions feature the author walking through the Try It! problems on a white board. Designed to give students detailed help when they need it.
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Try It! Interactive Questions Found throughout the chapter, Try It! interactive questions give students the opportunity to apply the concept they just learned. Linking in the eText will allow students to practice in MyAccountingLab ® without interrupting their interaction with the eText. Students' performance on the questions creates a precise adaptive study plan for additional practice.
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Sustainability Within every chapter is a section on how sustain- ability relates to the main chapter topic.
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Also included is a quick reference on which end-of-chapter problems correspond to the sustainability concept .
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Sustainability Chapter This chapter provides a deeper dive into how sustainability can generate business value. It also includes sections on sustainability reporting, the Sustainability Accounting Standards Board, and environmental man- agement accounting systems .