CHARLES E. DAVIS I ELIZABETH DAVIS

Transcription

1 CHARLES E. DAVIS I ELIZABETH DAVIS WILEY John Wiley & Sons, Inc.

2 Preface The Development Story Acknowledgments Dedication Author Biographies Brief Chapter T:>-iiiourliipillilii>I V ix xii xii xiii xiv mum Unit 1.1 What Is Managerial Accounting? 3 Definition of Managerial Accounting 3 Comparison of Managerial and Financial Accounting 4 Internal versus External Users 5 Lack of Mandated Rules 5 Focus on Operating Segments 5 Focus on the Future 6 Emphasis on Timeliness 6 The Manager's Role / 7 Planning 8 Controlling and Evaluating 8 Decision Making 9 Management in Action,- 9 The Managerial Accountant's Role 10 REALITY CHECK Just Because Polly wants a cracker doesn't mean she'll get it 12 ' UNIT 1.1 REVIEW Unit 1.1 Practice Exercise 13 Selected Unit 1.1 Answers 13 Unit 1.2 Different Strategies, Different Information 14 Matching Accounting Information to an Organization's Strategy 14 Product Differentiation versus Low-Cost Production 14 REALITY CHECK Strategic planning sometimes requires nerves of steel 15 Market Share: Build, Hold, Harvest, or Divest 15 Monitoring Strategic Performance 16 The Balanced Scorecard 16 Supply Chain Management 17 Just-In-Time (JIT) Inventory 18 REALITY CHECK A supply chain touchdown 19 Enterprise Resource Planning (ERP) Systems 20 UNIT 1.2 REVIEW Unit 1.2 Practice Exercise 21 Selected Unit 1.2 Answers 21 Unit 1.3 Ethical Considerations in Managerial Accounting 22 REALITY CHECK Blowing the whistle 27 UNIT 1.3 REVIEW Unit 1.3 Practice Exercise 28 Selected Unit 1.3 Answers 28 CHAPTER SUMMARY CASES C&C's History A Brief Look at C&C's Resources Industry Statistics FOCUS SUMMARY Unit 2.1 Cost Behavior Patterns Variable Costs Fixed Costs XV

3 Discretionary versus Committed Fixed Costs 51 Step Costs 51 Mixed Costs 52 REALITY CHECK If it looks like a variable cost UNIT 2.1 REVIEW Unit 2.1 Practice Exercise 54 Selected Unit 2.1 Answers " 54 Unit 2.2 Cost Estimation 55 Scattergraphs 56 High-Low Method 58 Regression Analysis 60 REALITY CHECK Where does the relevant range end? 61 Cost Estimation and the Relevant Range 61 UNIT 2.2 REVIEW Unit 2.2 Practice Exercise 62 Selected Unit 2.2 Answers 62 Unit 2.3 Contribution Margin Analysis 63 Contribution Margin 64 REALITY CHECK The contribution margin recipe 65 Contribution Format Income Statement 66 UNIT 2.3 REVIEW Unit 2.3 Practice Exercise 69 Selected Unit 2.3 Answers 69 CHAPTER SUMMARY CASES Chapter 3 Cost-Volurne-Pfofit Analysis and Pricing Decisions Unit 3.1 Breakeven Analysis 82 The Breakeven Point 82 REALITY CHECK Who really uses breakeven analysis? 84 Breakeven Graphs 8 4 Margin of Safety 86 UNIT 3.1 REVIEW Unit 3.1 Practice Exercise 87 Selected Unit 3.1 Answers 87 Unit 3.2 Cost-Volume-Profit Analysis 88 Target Operating Income 88 Target Net Income 89 What-lf Analysis 90 Limitations of CVP Analysis 91 Cost Structure and Operating Leverage 92 REALITY CHECK Fixed versus variable costs 94 UNIT 3.2 REVIEW Unit 3.2 Practice Exercise 96 Selected Unit 3.2 Answers 96. Unit 3.3 Multiproduct CVP Analysis 97 REALITY CHECK What's in the mix? 99 Limitations of Multiproduct CVP Analysis 101 UNIT 3.3 REVIEW Unit 3.3 Practice Exercise 102 Selected Unit 3.3 Answers 102 Unit 3.4 Pricing Decisions 103 Influences on Price 103 Cost-Pius Pricing 104 Target Costing 105 REALITY CHECK Filling the tank empties the wallet 106 xvi

4 UNIT 3.4 REVIEW Unit 3.4 Practice Exercise 107 Selected Unit 3.4 Answers 108 CHAPTER SUMMARY CASES Unit 4.3 Job Order Costing 143 Accumulating Direct Job Costs 144 Tracing Direct Materials Costs 145 Tracing Direct Labor Costs 146 Allocating Manufacturing Overhead Costs 147 REALITY CHECK Tracking direct labor costs 148 Calculating the Predetermined Overhead Rate 149 Applying Manufacturing Overhead to Jobs 149 Chapter 4 Product Costing for Manufacturing Companies Unit 4.1 Product and Period Costs Product Costs Direct Materials Direct Labor Overhead Period Costs Selling Costs General and Administrative Costs REALITY CHECK Showing cost classifications in published financial statements UNIT 4.1 REVIEW Unit 4.1 Practice Exercise Selected Unit 4.1 Answers Unit 4.2 Product Cost Flows Inventory Account Definitions Recording of Cost Flows REALITY CHECK A lotta latte Schedule of Cost of Goods Manufactured UNIT 4.2 REVIEW Unit 4.2 Practice Exercise Selected Unit 4.2 Answers REALITY CHECK Here come the robots 150 UNIT 4.3 REVIEW Unit 4.3 Practice Exercise 152 Selected Unit 4.3 Answers 152 Unit 4.4 Underapplied and Overapplied Manufacturing Overhead 153 Closing Underapplied and Overapplied Overhead to Cost of Goods Sold 154 Prorating Underapplied and Overapplied Overhead 155 UNIT 4.4 REVIEW Unit 4.4 Practice Exercise 157 Selected Unit 4.4 Answers 157 CHAPTER SUMMARY CASES ~ 173 tiibj&a &i#»i4^%!^rfd^^ Process Costing Cost Flows Comparison of Process Job Order Costing Similarities Differences Costing and XV

5 Cost Accumulation and Reporting Reconciling Activity and Costs Calculating Equivalent Units Allocating Product Costs to Units 1 83 loo REALITY CHECK Costs in the oyster bed 186 Process Costing Recap FOCUS REVIEW PRACTICE QUESTIONS FOCUS 2 PRACTICE EXERCISE SELECTED FOCUS 2 ANSWERS FOCUS SUMMARY CASES ? JL Oil 182 loo A S *J 196 Chapter 5 Planning and Forecasting T Unit 5.1 Planning and the Budgeting Process What Is a Budget? The Budgeting Process Information Flows Behavioral Issues Starting Points REALITY CHECK The changing budget process Time Frames UNIT 5.1 REVIEW Unit 5.1 Practice Exercise Selected Unit 5.1 Answers Variable and Absorption Costing Absorption Costing versus Variable Costing Income Effects of Variable Costing When Production Volume Equals Sales Volume When Production Volume Exceeds Sales Volume ' REALITY CHECK Variable costing, German style ' When Production Volume is Less than Sales Volume Reconciling Income under Absorption Costing and Variable Costing FOCUS REVIEW PRACTICE QUESTIONS FOCUS 3 PRACTICE EXERCISE SELECTED FOCUS 3 ANSWERS FOCUS SUMMARY CASE Unit 5.2 Performance Standards 225 REALITY CHECK The diamond standard 226 Ideal versus Practical Standards 226 Product Standards 227 Direct Materials 227 Direct Labor 229 Manufacturing Overhead 230 UNIT 5.2 REVIEW Unit 5.2 Practice Exercise 231 Selected Unit 5.2 Answers 231 Unit 5.3 Building the Master Budget: The Operating Budget 232 The Sales Budget 234 The Selling and Administrative Expense Budget 235 The Production Budget 237 The Direct Materials Purchases Budget 238 The Direct Labor Budget 241 The Manufacturing Overhead Budget 242 The Ending Inventory and Cost of Goods Sold Budget 244 Ending Raw Materials 244 Ending Finished Goods 246 iii

6 REALITY CHECK Budgeting around the world Cost of Goods Sold UNIT 5.3 REVIEW Unit 5.3 Practice Exercise Selected Unit 5.3 Answers Unit 6.1 Flexible Budgets: A Performance Evaluation Tool 286 Static Budgets 286 Variances 287 Management by Exception 287 Unit 5.4 Building the Master Budget: The Cash Budget 250 Cash Available to Spend 250 The Cash Receipts Budget 252 Cash Disbursements 253 REALITY CHECK Is there a crystal ball for forecasting sales and collections? 254 The Cash Payments for Materials Budget 255 Other Cash Disbursements 256 Cash Excess (Cash Needed) 256 Short-Term Financing 257 Ending Cash Balance 257 UNIT 5.4 REVIEW Unit 5.4 Practice Exercise, 259 Selected Unit 5.4 Answers 259 Unit 5.5 Pro-Forma Financial Statements 260 The Pro-Forma Income Statement 261 The Pro-Forma Balance Sheet 262 REALITY CHECK How the pros use, pro-formas 263 Assets 263 Liabilities and Stockholders' Equity 264 UNIT 5.5 REVIEW Unit 5.5 Practice Exercise 265 Selected Unit 5.5 Answers 265 CHAPTER SUMMARY "274 CASES Flexible Budgets 288 REALITY CHECK Who's being flexible? 289 Using Flexible Budgets to Analyze Static Budget Variances 290 A Revised Performance Report 291 Computing Sales Volume Variances 292 Computing Flexible Budget Variances 293 Using Variances to Evaluate the Sales Strategy 294 UNIT 6.1 REVIEW Unit 6.1 Practice Exercise 296 Selected Unit 6.1 Answers 297 Unit 6.2 Variance Analysis: Direct Materials 298 Analyzing the Direct Materials Variances 299 Direct Materials Price Variance 299 REALITY CHECK Big things in small packages 301, Direct Materials Quantity Variance 301 Interpreting Direct Materials Variances 302 Explaining Direct Materials Price Variances 303 Explaining Direct Materials Quantity Variances 303 REALITY CHECK A variance to remember 304 UNIT 6.2 REVIEW Unit 6.2 Practice Exercise 305 Selected Unit 6.2 Answers 306 Unit 6.3 Variance Analysis: Direct Labor 307 Analyzing the Direct Labor Variances 307 Direct Labor Rate Variance 307 Direct Labor Efficiency Variance 309 xix

7 Interpreting Direct Labor Variances Explaining Direct Labor Rate Variances Explaining Direct Labor Efficiency Variances REALITY CHECK Fast and furious or slow and steady? UNIT 6.3 REVIEW Unit 6.3 Practice Exercise Selected Unit 6.3 Answers Unit 6.4 Variance Analysis: Overhead Variable Overhead Variable Overhead Spending Variance Variable Overhead Efficiency Variance Interpreting Variable Overhead Variances Fixed Overhead UNIT 6.4 REVIEW Unit 6.4 Practice Exercise Selected Unit 6.4 Answers CHAPTER SUMMARY CASES FOCUS ON 4 Standard i ostmgisystem f Standard Costing Systems 336 Recording Direct Materials 337 Recording Direct Labor 338 Recording Variable Overhead 339 REALITY CHECK Are standard costing systems headed for extinction? 340 Recording Fixed Overhead 341 Transferring Completed Units to Finished Goods Inventory 342 Recording Cost of Goods Sold 343 Disposing of Variances 343 Advantages of Standard Costing 344 FOCUS REVIEW PRACTICE QUESTIONS FOCUS 4 PRACTICE EXERCISE SELECTED FOCUS 4 ANSWERS FOCUS SUMMARY Chapter 7 ActiviiyrBased Costing and Activity-Based lyianagement Unit 7.1 Activity-Based Costing 356 Why Activity-Based Costing? 356 Classification of Activities 359 REALITY CHECK At the center of activity 360 UNIT 7.1 REVIEW Unit 7.1 Practice Exercise 363 Selected Unit 7.1 Answers 363 Unit 7.2 Developing Activity-Based Product Costs 364 Step 1: Identify Activities 364 Step 2: Develop Activity Cost Pools 365 Step 3: Calculate Activity Cost Pool Rates 366 Step 4: Allocate Costs to Products or Services 368 Step 5: Calculate Unit Product Costs 369 REALITY CHECK Can activity-based costing solve the FAA's funding crisis? 370 UNIT 7.2 REVIEW Unit 7.2 Practice Exercise 373 Selected Unit 7.2 Answers 374 Unit 7.3 Activity-Based Management 376 Activity Management 377 Process Improvement 378 Reassessment of Product Profitability 379 xx

8 - * * j REALITY CHECK Activity figures to the rescue Activity-Based Budgeting UNIT 7.3 REVIEW Unit 7.3 Practice Exercise Selected Unit 7.3 Answers CHAPTER SUMMARY CASE XT\JVSU3;vvJIN 3>vSUSTOmeTiktZliQjixaD11 Customer Profitability Identifying Unprofitable Customers Addressing Unprofitable Customers REALITY CHECK Sprint drops more than a call FOCUS REVIEW PRACTICE QUESTIONS Focus 5 Practice Exercise SELECTED FOCUS 5 ANSWERS * FOCUS SUMMARY ENDNOTE 1 nfof riiii ol? ft liisiiiinl iir ia 1 Decisiljn^pfiiiigippijii^Piifiia Unit 8.1 Identifying Relevant Information What Is Relevant Information? fplfwifi All REALITY CHECK My brain's about to explode! 421 Relevant Cost Identification: An Example 423 A Relevant Cost Decision Model 424 UNIT 8.1 REVIEW Unit 8.1 Practice Exercise Selected Unit 8.1 Answers Unit 8.2 Special Order Pricing Characteristics of a Special Order Relevant Costs of a Special Order REALITY CHECK I'll give you this much Qualitative Issues in Special Order Pricing Recap of the Decision Pr/-»f face 11ULCJJ UNIT 8.2 REVIEW Unit 8.2 Practice Exercise Selected Unit 8.2 Answers Unit 8.3 Outsourcing Outsourcing Defined REALITY CHECK Take it outside A Basic Outsourcing Decision Model Alternative Uses for Facilities Qualitative Issues in Outsourcing Recap of the Decision Process UNIT 8.3 REVIEW 1 Jnit" ft "3 Practicp Fxprrisp Selected Unit 8.3 Answers Unit 8.4 Allocating Constrained Resources Contribution Margin per Constrained Resource Allocation of Constrained Resources 442 Theory of Constraints 442 REALITY CHECK Money doesn't grow on trees 443 Recap of the Decision Process 444 xxi

9 UNIT 8.4 REVIEW Unit 8.4 Practice Exercise Selected Unit 8.4 Answers Unit 8.5 Keeping or Eliminating Operations Identification of Common Costs Segment Margin Analysis REALITY CHECK At the drop of a hat Additional Factors to Consider Recap of the Decision Process UNIT 8.5 REVIEW Unit 8.5 Practice Exercise Selected Unit 8.5 Answers CHAPTER SUMMARY CASES Chapter 9 Capital Budgeting Unit 9.1 Capital Budgeting Decisions 472 Investing in Capital Assets 472 Making Capital Budgeting Decisions 473. Screening Decisions versus Preference Decisions 474 REALITY CHECK Going on a capital spending spree 475 Cash Flow Identification 475 Post-Implementation Audit 477 UNIT 9.1 REVIEW Unit 9.1 Practice Exercise 477 Selected Unit 9.1 Answers 478 Unit 9.2 Time Value of Money 479 Present Value of $1 479 Calculating Present Value 480 Compound Interest Discount Rates and Present Value Present Value of an Annuity Calculating Present Value of an Annuity Using Excel to Calculate Present Values REALITY CHECK The sport of present value UNIT 9.2 REVIEW Unit 9.2 Practice Exercise Selected Unit 9.2 Answers Unit 9.3 Discounted Cash Flow Techniques Net Present Value Amount and Timing of the Cash Flows Appropriate Discount Rate Present Value of Each Cash Flow REALITY CHECK Don't discount the choice of a discount rate Net Present Value of the Project Another Look at Net Present Value Calculations Using Excel to Calculate Net Present Value Assumptions of the Net Present Value Model Internal Rate of Return Projects with Even Cash Flows Projects with Uneven Cash Flows Using Excel to Calculate Internal Rate of Return Assumptions of the Internal Rate of Return Model Screening and Preference Decisions using NPVand IRR UNIT 9.3 REVIEW Unit 9.3 Practice Exercise Selected Unit 9.3 Answers Unit 9.4 Other Capital Budgeting Techniques Payback Period Projects with Even Cash Flows XXII

10 Projects with Uneven Cash Flows 498 Limitations of the Payback Period 499 Accounting Rate of Return 500 REALITY CHECK So many choices, so little money 501 UNIT 9.4 REVIEW Unit 9.4 Practice Exercise 502 Selected Unit 9.4 Answers 502 CHAPTER SUMMARY CASES Chapter 10 Decentralization and Performance Evaluation Unit 10.1 Centralized versus Decentralized Organizations 518 Why Decentralization? 519 Advantages of Decentralization 519 Disadvantages of Decentralization 520 REALITY CHECK Can nonprofits profit from decentralization? 521 Responsibility Accounting 521 Cost Centers 521 Profit Centers 522 Investment Centers 522 UNIT 10.1 REVIEW Unit 10.1 Practice Exercise 523 Selected Unit 10.1 Answers 524 Unit 10.2 Segment Evaluation 524 Defining a Segment ' 525 Segment Margin Income Statements 525 REALITY CHECK The whole isn't always greater than the sum of its parts 526 When Traceable Fixed Costs Become Common Costs 527 Segment Reporting, Segment Margin, and GAAP 527 UNIT 10.2 REVIEW Unit 10.2 Practice Exercise Selected Unit 10.2 Answers Unit 10.3 Return on Investment Return on Investment The DuPont Model Increase in Sales Revenue Decrease in Expenses Decrease in Assets Shortcomings of Return on Investment 534 REALITY CHECK What's your blog's ROI?. 535 UNIT 10.3 REVIEW Unit 10.3 Practice Exercise 537 Selected Unit 10.3 Answers, 537 Unit 10.4 Residual Income and EVA 538 Residual Income 538 Shortcomings of Residual Income 539 Economic Value Added (EVA) 539 Step 1: Calculating Net Operating Profit 540 Step 2: Calculating Invested Capital 540 Step 3: Calculating the Weighted- Average Cost of Capital 540 Step 4: Calculating EVA 541 EVA Compared to Residual Income 541 REALITY CHECK Putting EVA in the driver's seat 542 UNIT 10.4 REVIEW Unit 10.4 Practice Exercise 543 Selected Unit 10.4 Answers 543 Chapter 10 Appendix: Transfer Pricing XXlll

11 Appendix Practice Exercise Selected Appendix Answers REALITY CHECK The taxing transfer CHAPTER SUMMARY CASE valuation A a!anged Apprpach',^f 566 Unit 11.1 Performance Measures 568 Lagging Indicators 568 Leading Indicators 569 Financial versus Nonfinancial Measures 570 REALITY CHECK Batter up 572 Choosing the Right Measures 572 Using Measures to Drive Performance 573 UNIT 11.1 REVIEW Unit 11.1 Practice Exercise. 575 Selected Unit 11.1 Answers 575 Unit 11.2 The Balanced Scorecard 576 The Four Balanced Scorecard Perspectives 577 Learning and Growth Perspective 577 Internal Business Processes. Perspective 578 Customer Perspective 579 Financial Perspective 579 Building a Balanced Scorecard 580 C&C Sports' Strategy Map 581 Learning and Growth Perspective 582 Internal Business Processes Perspective 582 Customer Perspective 582 REALITY CHECK Balancing act 583 Financial Perspective 583 C&C Sports' Balanced Scorecard 583 Learning and Growth Perspective 583 Internal Business Processes Perspective 584 Customer Perspective Financial Perspective UNIT 11.2 REVIEW Unit 11.2 Practice Exercise Selected Unit 11.2 Answers Unit 11.3 Benchmarking REALITY CHECK Benchmarking in health care UNIT 11.3 REVIEW Unit 11.3 Practice Exercise Selected Unit 11.3 Answers Chapter 11 Appendix: Measures of Meeting Delivery Expectations Appendix Practice Exercise Selected Appendix Answers CHAPTER SUMMARY CASE Chapter 12 Financial Statement Analysis Unit 12.1 Horizontal Analysis of Financial Statements Preparing a Horizontal Analysis Interpreting a Horizontal Analysis Preparing a Trend Analysis REALITY CHECK An apple a day UNIT 12.1 REVIEW Unit 12.1 Practice Exercise Selected Unit 12.1 Answers XXIV

12 Unit 12.2 Common-Size Financial Statements 612 Preparing the Common-Size Balance Sheet 613 Preparing the Common-Size Income Statement 615 Interpreting the Common-Size Statements 615 REALITY CHECK Hospitals suffer from bad debts 616 UNIT 12.2 REVIEW Unit 12.2 Practice Exercise 618 Selected Unit 12.2 Answers 618 Unit 12.3 Ratio Analysis 619 Liquidity Ratios 620 Working Capital 622 Current Ratio 622 Acid-Test or Quick Ratio 622 Accounts Receivable Turnover 622 Average Collection Period 623 Inventory Turnover 623 REALITY CHECK Cash flow in a global supply chain.' 624 Average Days to Sell Inventory 624 Interpreting Liquidity Ratios 625 Leverage Ratios 626 Debt Ratio 627 Debt-to-Equity Ratio 627 Times Interest Earned Ratio 627 Interpreting Leverage Ratios 627 Profitability Ratios 628 Gross Margin Percentage " 628 Return on Assets 629 Return on Common Stockholders' Equity 629 Interpreting Profitability Ratios 630 Market Measure Ratios 630 Earnings per Share 630 Price/Earnings Ratio 631 Dividend Payout Ratio 631 Interpreting Market Measure Ratios 632 Limitations of Financial Statement Analysis 632 UNIT 12.3 REVIEW Unit 12.3 Practice Exercise 634 Selected Unit 12.3 Answers 634 Unit 12.4 Industry Analysis 635 REALITY CHECK Growing strong farms 636 Published Industry Ratio Analyses 636 Industry Statistics 638 UNIT 12.4 REVIEW Unit 12.4 Practice Exercise 640 Selected Unit 12.4 Answers 640 CHAPTER SUMMARY CASES Chapter 13 Statement of Cash Flows Unit 13.1 Categorizing Cash Flows 658 Operating Activities 659 REALITY CHECK Cash is king 660 Investing Activities 660 Financing Activities 661 UNIT 13.1 REVIEW Unit 13.1 Practice Exercise 662 Selected Unit 13.1 Answers 663 Unit 13.2 Cash Flows Provided by Operating Activities: The Indirect Method 664 REALITY CHECK How does cash register? 668 UNIT 13.2 REVIEW Unit 13.2 Practice Exercise 669 Selected Unit 13.2 Answers 669 XXV

13 Unit 13.3 Cash Flows Provided by Investing and Financing Activities Cash Flows Provided by Investing Activities Property and Equipment Other Investing Assets Cash Flows Provided by Financing Activities Debt Financing Equity Financing UNIT 13.3 REVIEW Unit 13.3 Practice Exercise Selected Unit 13.3 Answers UNIT 13.4 REVIEW Unit 13.4 Practice Exercise Selected Unit 13.4 Answers Chapter 13 Appendix: Cash Flows Provided by Operating Activities: The Direct Method Appendix Practice Exercise Selected Appendix Answers CHAPTER SUMMARY CASE Unit 13.4 Constructing and Interpreting the Statement of Cash Flows Analyzing the Statement of Cash Flows A Look to the Future GLOSSARY G-1 Photo Credits PC-1 COMPANY INDEX CI-1 SUBJECT INDEX SI-1 XXVI