A Managerial Emphasis I

i I - A Managerial Emphasis I Twelfh Edi,,,, Upper Saddle River, NJ 7458

CONTENTS Ii One Cos Accouning Fundamenals 1 GLOBAL?"?VE"" OF CC"^"IY The Accounan's Role in he Organizaion 1 Managemen Accouning, Financial Accouning, and Cos Accouning 2 Sraegic Decisions and he Managemen Accounan 3 The Managemen Accounan's Ro Sraegy 4 Value-Chain Analysis 4 Supply-Chain Analysis 5 Key Success Facors G Planning and Conrol Sysems 7 Feedback: Linking Planning and Conrol 7 C O N C E P T S I N A C T I O N : E-Business Simbglas and he Managamen Accoaran 8 An hmple: Planning and Conrol and he Managemen Accounan 9 Problem-Solving,Scorekeeping, and Aenion-Direcing Roles 1 Key Managemen Accouning Guidelines 11 Cos-BenefiApproach,I1 Behavioral and Technical Consideraions II GLOBAL SURVEYS OF COMPANY PRACTICE: Today's Managemen Accounan 12 Differen Coss for Diferen Purposes 13 Organizaion Srucure and he Managemen Accounan 13 Line and Saff Relaionships 13 The Chief Financial Officer and he Conroller 13 Feus ON VALUES AND BEHAVIORS 15 Managemen Accouning Beyond he Numbers Professional Ehics 15 Ehical Guidelines 16 Tpical Ehical Challenges 17 PRACTICE: Disingw-kins B ~ ~ W R Vlariable RVL Coss and Fixed Coss 31 Cos Drivers 32 C O N C E P T S I N A C T I O N : How Applicaion Service Providers (ASPS)Influence Cos srucures 33 Relevan Range 33 Relaionships of Tpes of Coss 34 Toal Coss and Uni Cosq q4 Uni Coss 34 Use Uni Coss Cauiously 36 Manufacuring-, Merchandising-, and Service-Secor Companies 36 Financial Saemens, Invenoriable Coss, and Period Coss 36 Tpes of Invenory 3 7 Commonly Used Classificaions of Manufacuring Coss 37 Invenoriable Coss 37 Period Coss 38 Illusrainghe Flow of Invenoriable Coss and Period Coss 38 Manufacuring-Secor Example 38 Recap of Invenoriable Coss and Period Coss 4 Prime Coss and Conversion Coss 42 Measuring Coss Requires Judgmen 42 Measuring Labor Coss 42 Overime Premium and Idle Time 43 44 Benefis of Defining Accouning' T DifferenMeanings of Produc Coss 44 A Framework For Cos Accouning and Cos Managemen 46 Problem for Self-sudy 47 Problem for Self-sudy 18 Decision Poins 18 Terms o learn 19 Assignmen Maerial 19 Regal Marine 24 3 Cos-Volume-Profi Analysis 6 2 An Inroducion o Cos Terms and Purposes 26 Coss and Cos Terminology 27 Direc Coss and Indirec Coss 27 Cos Tracing and Cos Aflocaion 27 uson VALUES AND BEHAVIORS 29 rging he US, Governmen Facors Affecing Direc/Indirec Cos Classificaions 29 Cos-Behavior Paerns: Variable Coss and Fixed Coss 3 Cos-Volume-ProfiAssumpions and Terminology 61 Essenials of CVP Analysis 62 Equaion Mehod 63 Conribuion Margin Mehod 64 Graph Mehod 64 Breakeven Poin and Targe Operaing Income 65 Targe Operaing Income GG Targe Ne Income and Income Taxes 67 Using CVP Analysis for Decision Making 68 Decision o Adverise 68 Decision o Reduce Selling Price 69 xi

5 Aciviy-Based Cosing and Aciviy-Based Sensiidy Analysis and Uncerainy 69 Cos Planning and CVP 71 Alernaive F~ed-Cos/Variable-CosSrucures 71 Operaing Leverage 72 s Managemen 138 74 ON VALUES AND BEHAVIORS Worldcom: Simply a Maer of Poor Planning? Effecs of Sales Mix on Income 74 CONCEPTS I N A C T I O N : Influencing Cos Srucures o Manage he Risk-Reurn Trade-off a Amazon.com 791 Muliple Cos Drivers 77 CVP Analysis in Service and Nonprofi Organizaions 78 Conribuion Margin Versus Gross Margin 78 Merchandising Secor 79 Manufacuring Secor 79 Problem for Self-sudy 79 Decision Poins 8 APPENDIX: Decision Models and Uncerainy 81 Terms o learn 84 Sore 24 95 Assignmen Maerial 84 Broad Averaging and Is Consequences 139 Undercosing and Overcosing 139 Produc-Cos Cross-Subsidizaion 14 Simple Cosing Sysem a Plasim Corporaion 14 Design, Manufacuring, and Disribuion Processes 14 Simple Cosing Sysem Using a Single Indirec-Cos 1 4Pool Refining a Cosing Sysem 143 Aciviy-Based Cosing Sysems 144 Plasim? ABC Sysem 145 Cos Hierarchies 147 Implemening Aciviy-Based Cosing a Plasim 148 Comparing Alernaive Cosing Sysems 152 Using ABC Sysems for Improving Cos Managemen and Profiabiliy 152 Aciviy-Based Cosing and Deparmen-Cosing Sysems 155 Implemening ABC sysems 156 ABC in Service and Merchandising Companies 157 1 GLOBAL SURVEYS OF COMPANY PRACTICE: Varying Ineres in Aciviy-Based Cosing 158 cu$on VALUES AND BEHAVIORS 4 JobCosing 97 Building-Block Conceps of Cosing Sysems 98 Job-Cosing and Process-Cosing Sysems 99 Acual Cosing in Manufacuring 1 General Approach o lob Cosing 11 C'^" SuccessfullyChampioning ABC CONCEPTS I N A C T I O N : Analyzing and Managing Mulichannel Banking wih AciviylBased Cosing 16, U ~ # PnV r fin.13 ~ ANY PRACTICE: e Cumx-naa~CQmaum wuawa 159 Jsed for Manufacuring Overhead 13 Problem for Selfsudy -1 61 Decision Poins 163 Terms o learn 164 Assignmen Maerial 1 6 4 Case: Aciviy-Based Cosing: Columbo Frozen Yogur 179 The Role of Technology 15 CONCEPTS I N A C T I O N : Job Cosing on #he Join Srike Figher Proiec 16 Time Period Used o Compue Indirec-Cos Raes 16 cuson VALUBS AND BEHAVIORS U3 #- 5? Xi 17 Enron's Caasrophic Misakes Normal Cosing 18 A Normal Job-Cosing Sysem in Manufacuring 19 General Ledger and Subsidiary Ledgers 19 Explanaions of Transacions 111 Nonmanufacuring Coss and lob Cosing 118 Budgeed Indirec Coss and End-of-Accouning-Year Adjusmens 118 Adjused Allocaion-RaeApproach 119 Proraion Approach 119 Wrie-Of o Cos of Goods Sold Approach 121 Choice Among Approaches 121 Muliple Overhead Coss Pools 122 Variaions From Normal Cosing: A Service-Secor Example 122 Problem for Self-sudy 123 Decision Poins 125 Terms o learn 126 Assignmen Maerial 126 Wheeled Coach 137 Par Two Tools for Planning and Conrol.-- 6 Maser Budge and Responsibiliy Accouning 18 Budges and he Budgeing Cycle 181 Sraegic Plans and OperaingPlans 181 Budgeing Cycle and Maser Budge I82 Advanages of Budges 182 Coordinaion and Communicaion 182 Framework for judging Pegormance 183 Moivaing Managers and Oher Employees 183 Challenges in Adminisering Budges 183 Time Coverage of Budges 184 Seps in Developing an Operaing Budge 184 -- - - O U L - - LS---.L- PW -T: Budge 5 s I -JUd 'l oa Compuer-Based Financial Planning Models 193 C N C E P T S I N A C T I O N : Web-Enabled Budgeing and Hendrick Mborsporh 194 Kaizen Budgeing 195 Aciviy-Based Budgeing 196 Pi

Budgeing and Responsibiliy Accouning 197 Organizaion Srucurea d Responsibiliy 197 Feedback 198 Responsibiliy and Conrollhbiliy 198 Human Aspecs of Budgeing 199 g in Mulinaional Companies 2 us Benchmarking and Variance Analysis 241 Problem for Self-sudy 242 Decision Poins 243 Terms o learn 244 Assignmen Maerial 244 Case: Managemen Conrol a Sarbucks 255 21 OM VALUIS AND BCIIAWORS anagemen Accounans: The Hear of he Budgeing Process Problem for Self-sudy 22 Decision Poins 23 APPENDIX: The Cash Budge 23 Terms o learn 27 Assignmen Maerial 28 Riz-Carlon Hoels 22 The Use of Variances 222 ces and Sales-VolumeVariances 225 Flexible-BudgeVariances 226 Price Variances and Efficiency Variances For Direc-Cos Quaniies 22 7 Daa for Calculaing Webb's Price Variances and EfficiencyVariances 229 Price Variances 23 Efficiency Variance 231 C O N C E P T S I N A C T I O N : WeaponsAgains Wase Variance Analysis a Sandor 232 Summary of Variances 233 Journaf Enries Using Sandard Coss 234 Implemening Sandard Cosing 235 Sandard Cosing und Informaion Technology 235 Wide Applicabiliy of Sandard Cosing 235 Managemen Uses of Variances 236 Muliple Causes of Variances 236 When o Invesigae Variances 236 Peformance Measuremen Using Variances 236 Organizaion Learning 237 Coninuous Improvemen 237 1ON VALUES AND BEHAVIORS 238 Saybucks, McDonald's, and Johnson & Johnson: Making Good Use of Variances Financial and Nonfinancial Po$onnance Measures 238 Variance Analysis and Aciviy-Based Cosing 239 Relaing Bach Coss o Produc Oupu 239 Price and EfficiencyVariances 24 Focus on Hierarchy 24 8 Flexible Budges, Overhead Cos Variances, and Managemen Conrol 256 Planning of Variable and Fixed Overhead Coss 257 Planning Variable Overhead Coss 257 Planning Fixed Overhead Coss 257 Sandard Cosing a Webb Company 257 Developing Budgeed Variable Overhead Cos Raes 258 Variable Overhead Cos Variances 259 Flexible-BudgeAnalysis 259 Variable Overhead Eficiency Variance 26 Variable Overhead Spending Variance 261 Journal Enries for Variable Manufacuring Overhead Coss and Variances 263 Developing Budgeed Fixed Overhead Raes 263 Fixed Overhead Cos Variances 264 Producion-VolumeVariance 265 Compuing he Producion-Volume Variance 266 Inerpreing he Producion-VolumeVariance 267 Journal Enries for Fixed Manufacuring Overhead Coss and Variances 268 C O N C E P T S I N A C T I O N : Variance Analysis and Sandard Cosing: Helping Sandor Manage Overhead Coss 269 cus ON VALUES AND BEHAVIORS 27 The Challenges of Overhead Variances Inegraed Analysis of Overhead Cos Variances 271 4-, 3-, 2-, and I-VarianceAnalysis 271 Producion-VolumeVariance and Sales-VolumeVariance 273 GLOBAL SURVEYS OF COMPANY PRACTICE: Variance Analysis and Conrol Decisions 274 Financial and Nonfinancial Performance Measures 275 Overhead Cos Variances in Nonmanufacuring and Service Seings 276 Aciviy-Based Cosing and Variance Analysis 276 Flexible Budge and Variance Analysisfor Variable Seup Overhead Coss 277 Ffexible Budge and Variance Analysisfor Fixed Seup Overhead Coss 279 Problem for Self-sudy 28 Decision Poins 282 Terms Assignmen Maerial 283 Case: Teva Spor o Learn 283 Sandals 292 9 Invenory Cosing and Capaciy Analysis 294 Par One: Invenory Cosing for Manufacuring Companies 295 Variable Cosing and Absorpion Cosing 295 Daa for Sassen Companyfor 26 295 Comparing Income Saemens over One Year 297 n 3 ni 3 v, xiii

Explaining Differences in Operaing Income 298 Daa for Sassen Company for 26,2~7,and 28 298 Comparing Income Saemens over firee Years 299 Efec of Sales and Producion on OperaingIncome 31 Performance Measures and Absorpion Cosing 32 Undesirable Buildup of Invenories 33 FeusON VALUES AND BEHAVIORS 33 Brisol-Myers-Squibb'sQuesionable Invenory Sraegy GLOBAL SUF'"YS OF mnhanal'mm PW '"'E: of Variablc Gosing a m - - _- _ Usage --xcosing by Companies 34 Proposals for Revising Pe$ormance Evaluaion 34 Throughpu Cosing 35 Indusrial Engineering Mehod 337 Conference Mehod 337 Accoun Analysis Mehod 338 Quaniaive Analysis Mehods 338 Seps in Esimaing a Cos Funcion Using Quaniaive Analysis 338 High-Low Mehod 341 Regression Analysis Mehod 342 Evaluaing Cos Drivers of he Esimaed Cos Funcion 344 F@CUS ON VALUES AND BEHAVIORS 345 Boeing's Managemen Accounans: Embracing Opporuniies and Taking Challenges Cos Drivers and Aciviy-Based Cosing 347 Nonlineariy and Cos Funcions 347 CONCEPTS IN A C T I O N : Yield Improvemen#sand he Producion-Volume Variance a Analog Devices 36 C O N C E P T S I N A C T I O N : Acivi~-Based Comparison of Alernaive Invenory-CosingMehods 37 Problem for Self-sudy 38 Par Two: Denominaor-Level Capaciy Conceps and Fixed-Cos Capaciy Analysis 39 Alernaive Denominaor-Level Capaciy Conceps for Absorpion Cosing 39 Theoreical Capaciy and Pracical Capaciy 39 Normal Capaciy Uilizaion and Maser-Budge Capaciy Uilizaion 31 Effec on Budgeed Fixed Manufacuring Cos Rae 31 Choosing a Capaciy Level 311 Produc Cosing and Capaciy Managemen 311 Pricing Decisions and he Downward Demand Spiral 312 Peflormance Evaluaion 313 Exernal Reporing 314 RegulaoryRequiremens 316 Dificulies in Forecasing Chosen Denominaor-Level Concep 316 Capaciy Coss and Denominaor-Level Issues 317 Learning Curves and Nonlinear Cos Funcions 349 Cumulaive Average-Time Learning Model 35 Incremenal Uni-Time Learning Model 35 Seing Prices, Budges, and Sandards 352 Daa Collecion and Adjusmen Issues 353 Problem for Self-sudy 3 1 8 Decision Poins 3 18 APPENDIX: Breakeven Poins in Variable Cosing and Absorpion Cosing 31 9 Terms o learn 32 Assignmen Maerial 32 Cavco Indusries 33 1 Par ' 1 Cos Informaion for Decisions 332 Cosing: Idenlfying Cos and Revenue Drivers 348 Problem for Selfsudy 354 Decision Poins 356 APPENDIX: Regression Analysis 356 Terms o learn 363 Assignmen Maerial 364 U.S. Brewing Indusry 377 Case: 11 Decision Making and Relevan Informaion 378 Informaion and he Decision Process 379 The Concep of Relevance 38 Relevan Coss and Relevan Revenues 38 Qualiaive and Quaniaive Relevan Informaion 381 An Illusraion of Relevance: Choosing Oupu Levels 381 One-Time-Only Special Orders 381 Poenial Problems in Relevan-Cos Analysis 383 Insourcing-versus-Ousourcingand Make-versus-Buy Decisions 384 Ousourcing and Idle Faciliies 384 Sraegic and Qualiaive Facors 386 Opporuniy Coss and Ousourcing 386 C O N C E P T S I N A C T I O N : The Benefis 1 Deermining How Coss Behave 332 v c, 2 xiv General Issues in Esimaing Cos Funcions 333 Basic Assumpions and Examples of Cos Funcions 333 Brief Review of Cos Classificaion 335 Cos Esimaion 336 The Cause-and-EffecCrierion in Choosing Cos Drivers 336 Cos Esimaion Mehods 336 GLOBAL SURVEYS OF COMPANY PRACTICE: Inernaional Comparison of Cos Classificaion by Companies 337 and Cosh of UOffshoringw 387 The Opporuniy Cos Approach 388 C O N C E P T S I N A C T I O N : Deia Airlines, he Inerne, and Opporuniy Coss 389 Carrying Coss oflnuenory 39 Produc-Mix Decisions Under Capaciy Consrains 391 Cusomer Profiabiliy, Aciviy-Based Cosing, and Relevan Coss 393 Relevan-Revenueand Relevan-CosAnalysis of Dropping a Cusomer 394

Relevan-Revenue and Relevan-CosAnalysis ofadding a Cusomer 395 Relevan-Revenueand Relevan-Cos Ahalysis of Closing or Adding Branches or Segmens 395 Irrelevance of Pas Coss and Equipmen-Replacemen Decisions 396 Decisions and Performance Evaluaion 398 Par Four Cos Allocaion and Revenues 455 13 Sraegy, Balanced Scorecard, and Sraegic Profiabiliy Analysis 455 Wha Is Sraegy? 456 Sraegy Implemenaion and he Balanced Scorecard 45 / The Balanced Scorecard 457 Qualiy Improvemen and Reengineering a Chipse 458 Four Perspecives of he Balanced Scorecard 459 Implemening a Balanced Scorecard 461 Aligning he Balanced Scorecard o Sraegy 461 cus O N VALUES AND BEHA'WRS 399 Beyond h e Walls of he Accouning Deparmen Problem for Self-sudy 399 Decision Poins 41 APPENDIX: Linear Programming 41 Terms o learn 44 Sore 24 417 Assignmen Maerial 44 cuso N VALUES AND BEHAVIORS Pricing Decisions and Cos Managemen 419-3MPANY PRA -- ; Widening m e a-errormanc measuremen. ans Using he Balanced SCVacad 4 6 4 Major Influences on Pricing Decisions 42 Cusomers, Compeiors, and Coss 42 Time Horizon of Pricing Decisions 42 Cosing and Pricing for he Shor Run 421 Relevan Coss for Shor-Run Pricing Decisions 421 Sraegic and Oher Facors in Shor-Run Pricing 421 Cosing and Pricing for he Long Run 422 CalculaingProduc Coss fm Long-Run Pricing Decisions 422 Alernaive Long-Run Pricing Approaches 424 Targe Cosing for Targe Pricing 425 Undersanding Cusomers Perceived Value 425 Doing Compeior Analysis 425 Implemening Targe Pricing and Targe Cosing 425 Value Engineering, Cos Incurrence, and Locked-In Coss 426 Evaluaing he Success of Sraegy and Implemenaion 465 SraegicAnalysis of Operaing Income 465 Growh Componen of Change in Operaing Income 467 Price-Recovery Componen of Change in Operaing Income 468 Produciviy Componen of Change in OperaingIncome 469 Furher Analysis of Growh, Price-Recovery, and Produciviy Componens 4 71 Downsizing and he Managemen of Capaciy 472 C O N C E P T S I N A C T I O N : Orow)hversus-ProfiabCliy Choices of Doi-Corn Companies 473 Idenifylng Unused Capaciyfor Engineered and Discreionary Overhead Coss 474 Managing Unused Capaciy 475 C O N C E P T S I N A C T I O N : kreme Tawe Pricing and Cos Managemen a I K M 427 Problem for Self-sudy 476 Value -Chain Analysis and Cross-FuncionalTeams 428 cuso N VALUES AND BCHAVIORS 462 The New Wave of Accouning: Conribuing o Sraegy Feaures of a Good Balanced Scorecard 462 Pifalls in Implemening a Balanced Scorecard 463 GLOBAL SURVEYS OF COMPANY PRACTICE: Differences in Pricing Pracices and Cos Managemen Mehods in Various Counries 4 3 5 Life-Cycle Produc Budgeing and Cosing 436 Life-Cycle Budgeing and Pricing Decisions 436 Cusomer Life-Cycle Cosing 438 Consideraions Oher han Coss in Pricing Decisions 438 Effecs of Anirus Laws on Pricing 439 Prablem for Selfsudy 441 Decision Poins 442 Terms o learn 443 Assignmen Maerial 443 Grand Canyon Railway 454 Decision Poins 479 APPENDIX: Produciviy Measuremen 48 429 Pricing Decisions Are Never Arbirary Achieving he Targe Cos per Uni for Provalue 43 Cos-Based (Cos-Plus) Pricing 432 Cos-plus Targe Rae of Reurn on Invesmen 432 Alernaive Cos-plus Mehods 433 Cos-plus Pricing and Targe Pricing 434 Terms o learn 482 Assignmen Maerial 482 McDonald's Corporaion 49 14 Cos Allocaion, Cusomer-Profiabiliy I / Analysis, and Sales-Variance Analysis 492 Purposes of Cos Allocaion 493 Crieria o Guide Cos-Allocaion Decisions 494 Cos Allocaion and Cosing Sysems 496 Allocaing Corporae Coss o Divisions and Producs 498 GLOBAL SURVEYS OF COMPANY PRACTICE: Allocaion of Corporae and Oher Suppor Cook o Divisions and Deparmens 499 Implemening Corporae Cos Allocaions 5 Cusomer Revenues and Cusomer Coss 51 Cusomer Revenue Analysis 52 Cusomer Cos Analysis 52 Cusomer-LevelCoss 53 c1 6 5 in f # XY

F@cusO N VALUES AND BEHAVIORS 55 So Is he Cusomer Always Righ? C O N C E P T S I N A C T I O N : Cusomer Profiabiliw a Nexel 56 Cusomer-ProfiabiliyProfiles 56 Sales Variances 58 Saic-Budge Variance 59 Flexible-BudgeVariance and Sales-Volume Variance 59 Sales-Mix and Sales-QuaniyVariances 51 Sales-Mix Variance 51 Sales-Quaniy Variance 511 Marke-Share and Marke-SizeVariances 512 Marke-Share Variance 512 Marke-Size Variance 513 Problem for Self-sudy 5 14 Decision Poins 5 15 APPENDIX Mix and Yield Variances for Subsiuable Inpus 516 Terms o learn 5 19 Cos Allocaion 53 Assignmen Maerial 5 19 Revenue-AllocaionMehods 548 Sand-Alone Revenue-Allocaion Mehod 549 Incremenal Revenue-Allocaion Mehod 549 Oher Revenue-Allocaion Mehods 551 Problem for Self-sudy 552 Decision Poins 553 Terms o learn 554 Assignmen Maerial 554 Case: Sanford Universiy 564 16 Cos Allocaion: Join Producs and Byproducs 565 Join-Cos Basics 566 Main Producs, Join Producs, and Byproducs 566 Why Allocae join Coss? 567 Approaches o Allocaing Join Coss 567 Sales Value a SplioffMehod 569 Physical-Measure Mehod 57 Ne Realizable Value (NRV) Mehod 571 Consan Gross-Margin Percenage NRV Mehod 572 Choosing a Mehod 573 No Allocaing Join Coss 574 GLOBAL SURVEYS OF COMPANY PRACTICE: Join-Cos Allocaion in he Oil Pach 575 Par Five Qualiy and JIT 531 15 Allocaion of Suppor-DeparmenCoss, Common Coss, and Revenues 531 Allocaing Coss of a Suppor Deparmen o Operaing Deparmens 532 Single-Rae and Dual-Rae Mehods 532 Allocaion Based on he Demand for or Usage of Compuer Services 533 Allocaion Based on he Supply of Capaciy 534 Budgeed versus Acual Raes 535 Budgeed Usage, Acual Usage, and Capaciy-Level Allocaion Bases 535 cuso N VALUES AND BEHAVIORS 536 Finance Execuives a Boeing: Seing he Wrong Example Allocaing Coss of Muliple Suppor Deparmens 537 Direc Mehod 538 Sep-Down Mehod 539 Reciprocal Mehod 54 Overview of Mehods 542 GLOBAL SURVEYS OF COMPANY PRACTICE: Allocaion of Suppor-Deparmen Coss 544 c v) z Allocaing Common Coss 544 Sand-Alone Cos-AllocaionMehod 544 Incremenal Cos-Allocaion Mehod 545 Cos Allocaions and Conracs 546 Conracing wih he U.S. Governmen 546 Fairness of Pricing 546 Revenue Allocaion and Bundled Producs 547 C O N C E P T S I N A C T I O N : Conruc Dispues xvi over Reimbursable Coss for U.S. Governmen Agencies 548 Irrelevance of Join Coss for Decision Making 575 Sell-or-Process-FurherDecisions 575 Join-Cos Allocaion and Performance Evaluaion 576 F@cusON VALUES AND BEHAVIORS 577 Managemen Accounans: Overcoming he Pifalls of Allocaing Join Coss Pricing Decisions 577 Accouning for Byproducs 577 Producion Mehod: Byproducs Recognined a Time Producion Is Compleed 578 Sales Mehod: Byproducs Recognized a Time of Sale 579 C O N C E P T S I N A C T I O N : Chicken Precessing: Cosing of Join M u c i s and Byproducs 58 Problem for Self-sudy 58 Decision Poins 582 Terms o learn 583 Assignmen Maerial 583 Case: Memory Manufacuring Company 593 17 Process Cosing 594 Illusraing Process Cosing 595 Case 1: Process Cosing wih Zero Beginning and Zero Ending Work-in-ProcessInvenory 596 Case 2: Process Cosing wih Zero Beginning bu Some Ending Work-In-ProcessInvenory 597 Physical Unis and Equivalen Unis (Seps 1 and 2) 598 Calculaion of Produc Coss (Seps 3, 4, and 5) 599 Journal Enries GOO GLOBAL SURVEYS OF COMPANY PRACTICE: Precess Cosing in DWren Indusries 6 Case 3: Process Cosing wih Some Beginning and Some Ending Work-in-Process Invenory 61 Weighed-Average Mehod 62 Firs-in, Firs-ou Mehod 64

F@CusON VALUES AND BEHAVIORS 65 Making Esimaions for All Royal Duch/Shell: he Wrong Reasons Comparison of Weighed-Average and FIFO Mehods 68 Sandard-Cosing Mehod of Process Cosing 69 Compuaions Under Sandard Cosing 61 Accouningfor Variances 612 Transferred-In Coss in Process Cosing 612 Transfmed-In Coss and he Weighed-Average Mehod 614 Transfmd-In Coss and he FIFO Mehod 615 Poins o Remember abou ~ansferred-lncoss 617 Hybrid-Cosing Sysems 617 CONCEPTS I N ACTION: Hybrid CoHing for Cusomized Shoes a Adidar 618 Problem for Self-sudy 6 18 Decision Poins 619 APPENDR Operaion Cosing 62 Terms o learn 623 Assignmen Maerial 623 Nanucke Necars 63 1 Terminology 633 Differen Types of Spoilage 633 Normal Spoilage 633 Abnormal Spoilage 634 Process Cosing and Spoilage 634 Coun All Spoilage 634 The Five-Sep Procedure for Process Cosing wih Spoilage 635 Weighed-Average Mehod and Spoilage 637 GLOBAL SURVEYS OF COMPANY PRACTICE: Rejecion in he Elecronics Indusry 638 f FIFO Mehod and Spoilage 638 Sandard-Cosing Mehod and Spoilage 64 journal Enries 64 Inspecion Poins and Allocaing Coss of Normal Spoilage 642 Job Cosing and Spoilage 642 Job Cosing and Rework 644 Accouning for Scrap 645 Recognizing Scrap a he Time of Is Sale 645 Recognizing Scrap a he Time of Is Producion 646 CONCEPTS I N ACTION: Managing Wase and Environmenal Coss a Toyoa 647 Problem for Self-sudy 648 Decision Poins 648 APPENDIX Inspecion and Spoilage a Various Sages of Compleion in Process Cosing 649 Terms o learn 651 Assignmen Maerial 651 The Unied libbey-nippon Plan 658 Balanced Scorecard: Qualiy, Time, and he Theory of Consrains 659 Par One: Qualiy as a Compeiive Tool 66 The Financial Perspecive: Coss of Qualiy 661 Case: The Cusomer Perspecive: Nonfinancial Measures of Cusomer Saisfacion 663 The Inernal-Business-ProcessPerspecive: Analyzing Qualiy Problems and Improving Qualiy 664 Conrol Chars 664 Pareo Diagrams 665 Cause-and-EffecDiagrams 665 Relevan Coss and Benefis of Evaluaing Qualiy Improvemen 666 F@cusON VALUES AND BEHAVIORS 668 The Cos of Qualiy Failure a Firesone Nonfinancial Measures of Inernal-Business-Process Qualiy 668 The Learning-and-GrowhPerspecive for Qualiy Improvemens 669 Evaluaing Qualiy Performance 669 Advanages of COQ Measures 669 Advanages of Nonfinancial Measures of Qualiy 669 Par Two: Time as a Compeiive Tool 67 Cusomer-ResponseTime and On-Time Performance 67 Time Drivers and Coss of Time 671 Uncerainy and Boleneck as Drivers of Time 671 CONCEPTS I N ACTION: Overcoming Bolenecks on he Inerne 672 Relevan Revenues and Coss of Time 673 Par Three: Theory of Consrains and ThroughpuConribuion Analysis 675 Managing Bolenecks 675 Balanced Scorecard and Time-Relaed Measures 678 Problem for Self-sudy 678 Decision Poins 679 Terms o learn 68 Assignmen Maerial 68 RizCarlon Hoel Company 69 2 Invenory Managemen, Jus-in-Time, and Backflush Cosing 691 Invenory Managemen in Reail Organizaions 691 Coss Associaed wih Goods for Sale 692 Economic-Order-Quaniy Decision Model 692 When o Order, Assuming Cerainy 694 Safey Sock 695 Esimaing Invenory-Relaed Relevan Coss and Their Effecs 697 Consideraions in Obaining Esimaes of Relevan Coss 697 Cos ofa Producion Error 697 Conflic Beween he EOQ Decision Model and Managers Pe$ormance Evaluaion 698 Jus-in-TimePurchasing 698 ]IT Purchasing and EOQ Model Parameers 699 Relevan Coss ofjit Purchasing 699 Supplier Evaluaion and Relevan Coss of Qualiy and Timely Deliveries 7 JIT Purchasing, Planning and Conrol, and Supply-Chain Analysis 71 Invenory Managemen and MRP 72 8 Z -4 m f VI xvii

AL! WE CC 'Ah KT Challenges in securing ne meneis o w suppby-chain Managemen 73 Invenory Managemen and JlTProducion 73 Efec of JIT Sysems on Produc Cosing 74 Financial Benefis of JIT and Relevan Coss 74 Enerprise Resource Planning (ERPI Sysems 76 PerformanceMeasures and Conrol in JIT Producion 76 77 Challenges of Invenory Valuaion and JIT Implemenaion Backflush Cosing 77 Simplified Normal or Sandard Cosing 77' Accouningfor Variances 71 Special Consideraions in Backjlush Cosing 713 ' 1 $ I < -.I Problem for Self-sudy 714 Decision Poins 715 Terms o learn 716 Assignmen Maerial 716 Regal Marine 723 Invesmen Decisions and Managemen Conrol Sysems 724 21 Capial Budgeing and Cos Analysis 724 Two Dimensions of Cos Analysis 724 Sages of Capial Budgeing 725 Discouned Cash Flow 726 Ne Presen Value Mehod 72 7 Inernal Rae-of-Reurn Mehod 728 Comparison of Ne Presen Value and Inernal Rae-of-Reurn Mehods 73 SensiiviyAnalysis 73 Payback Mehod 731 Uniform Cash Flows 731 Nonuniform Cash Flows 732 Accrual Accouning Rae-of Reurn Mehod 732 Evaluaing Managers and Goal Congruence Issues 733 Relevan Cash Flows in Discouned Cash Flow Analysis 734 -BAL SURVEYS OF COMPANY -- 4CTICE Cornparison of Capial Budgering Mehods 735 Relevan Afer-Tax Flows 736 Caegories of Cash Flows 737 Managing he Projec 74 741 Long=TermConracs and Performance Evaluaion a Enron Sraegic Consideraions in Capial Budgeing 741 8 xviii GLOBAL SUr"7YS OF raa'nah'" PRP -"E: Global Budgeing w AES rwrvranon r42 Cusomer Value and Capial Budgeing 743 Invesmen in Research and Developmen 743 Problem for Self-sudy 743 Transfer Pricing, and Mulinaional Consideraions 759 Managemen Conrol Sysems 76 Evaluaing Managemen Conrol Sysems 76 Organizaion Srucure and Decenralizaion 761 Benefis of Decenralizaion 762 Coss of Decenralizaion 762 Comparison of Benefis and Coss 763 Decenralizaion in Mulinaional Companies 763 Choices Abou ResponsibiliyCeners 764 Transfer Pricing 764 An Illusraion of Transfer Pricing 765 Marke-Based Transfer Prices 768 Perfecly Compeiive Marke Case 768 Disress Prices 768 Cos-Based Transfer Prices 769 Full-Cos Bases 769 Variable Cos Bases 771 Proraing he DiffmenceBeween Maximum and Minimum Transfir Prices 771 Dual Pricing 772 Negoiaed Transfer Prices 772 A General Guideline for Transfer-PricingSiuaions 773 GLOBAL SURVEYS OF COMPANY PRACTICE: Domesic and Mulinaional Transfer-Pricing Pracices 774 Mulinaional Transfer-Pricingand Tax Consideraions 776 C O N C E P T S I N A C T I O N : U.S. Inernal Revenue Service, Japanese Naional lax Agency, and Transfer-Pricing Oameo 777 cuson VALUES AN BEHAVIORS 779 Transfer Pricing Pressures Problem for Self-sudy 779 Decision Poins 781 Terms o Assignmen Maerial 782 Case: Informaion learn 781 Sysems Corporaion 79 23 Performance Measuremen, Compensaion, and Mulinaional Consideraions 791 cuson VALUES AND BEHAVIORS v) I- Terms o learn 748 Assignmen Maerial 748 Capial Budgeing a Pearson Educaion 758 22 Managemen Conrol Sysems, C O N C E P T S I N A C T I O N : Afer he Encore: Jus-in-Time Live Concer CDs 75 cus ON VALUES AND BEHAVIORS APPENDIX: Capial Budgeing and Inflaion 746 Decision Poins 745 Financial and Nonfinancial Performance Measures 792 Choosing Among Differen Performance Measures: Sep 1 793 Reurn on Invesmen 793 Residual Income 795 Economic Value Added 796 Reurn on Sales 797 Comparing Perfmmance Measures 798 Choosing he Time Horizon of he Performance Measures: SeD 2 798 9

GLOBAL SURVEYS OF COMPANY PRACTICE: Key Financial Performance Measures Used Around heolobe 799 Choosing Alernaive Definiions for Performance Measures: Sep 3 8 Choosing Measuremen Alernaives for Performance Measures: Sep 4 8 Curren Cos 8 Long-Term Asses: Gross or Ne Book Value? 81 Choosing Targe Levels of Performance: Sep 5 83 Choosing he Timing of Feedbad<: Sep G 83 Performance Measuremen in Mulinaional Companies 84 Calculaing he Foreign Division? ROI in he Foreign Currency 84 Calculaing he Foreign Division? ROI in U.S. Dollars 85 Disincion Beween Managers and Organizaion Unis 85 Re Basic Trade-Ofi Creaing Incenives versus Imposing Risk 86 Inensiy of Incenives and Financial and Nonfinancial Measuremens 87 Benchmarks and Relaive Perjormance Evaluaion 87 Performance Measures a he Individual Aciviy Level 88 Performing Muliple Tasks 88 Teum-Based Compensaion Arrangemens 88 Execuive Performance Measures and Compensaion 89 CONCEPTS IN ACTION: CEOCompensdon and Company Pedormance 81 Sraegy and Levers of Conrol 811 F~CUS ON VALUES AND BEHAVIORS 811 The Courage o Say No Problem for Self-sudy 8 1 3 Decision Poins 8 14 Terms o learn 8 15 Assignmen Maerial 8 15 McDonald s Corporaion 824 Appendix A Global Surveys of Company Pracice 825 Appendix B Recommended Readings 829 Appendix C: Noes on Compound Ineres and Ineres Tables 833 Appendix D Cos Acouning in Professional Examinaions 841 Glossary 845 Auhor Index 857 Company Index 859 Subjec Index 861 8 f rn f VI xix