Managerial Accounting Focus on Decision Making

by Jackson, Steve; Sawyers, Roby; Jenkins, Greg

• ISBN13: 9780324304169
• ISBN10: 0324304161
• Edition: 3rd
• Format: Hardcover
• Copyright: 2005-01-03
• Publisher: South-Western College Pub

Summary

First and foremost, the emphasis of this managerial accounting text is decision making as opposed to number crunching. Additionally, this text is unique in its first-person, discovery learning approach using a 4-step decision-making model throughout. It truly conveys a management perspective, by including coverage of topics such as ABM, the value chain, and balanced scorecard evaluation techniques. It is also the first managerial text to incorporate coverage on knowledge management (Ch. 13), highlighting the latest developments for improved managerial decision making.

Table of Contents

Accounting Information and Managerial Decisions	2	(23)
Introduction	4	(1)
Accounting Information	4	(1)
Knowledge Management Tools	5	(3)
Data and Knowledge Warehouses	5	(1)
Enterprise Resource Planning Systems	6	(1)
Electronic Data Interchange	7	(1)
The Users of Accounting Information	8	(2)
External Users	8	(1)
Internal Users	9	(1)
The Functional Areas of Management	10	(1)
The Operations and Production Function	10	(1)
The Marketing Function	10	(1)
The Finance Function	10	(1)
The Human Resource Function	10	(1)
The Role of the Managerial Accountant	11	(1)
The Information Needs of Internal and External Users	11	(1)
An Introduction to Decision Making	11	(2)
A Decision-Making Model	13	(1)
Step 1: Define the Problem	13	(1)
Step 2: Identify Objectives	13	(1)
Step 3: Identify and Analyze Available Options	13	(1)
Step 4: Select the Best Option	14	(1)
Relevant Factors and Decision Making	14	(1)
Risk and Decision Making	15	(1)
Ethics and Decision Making	15	(10)
Part 1 The Costing of Products and Services	25	(114)
Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows	26	(38)
Introduction	28	(1)
Manufacturing, Merchandising, and Service Companies	28	(1)
The Production Process	28	(3)
Manufacturing in a Traditional Environment	28	(1)
Manufacturing in a JIT Environment	29	(2)
Product Costs in a Manufacturing Company	31	(2)
Direct Materials	32	(1)
Direct Labor	32	(1)
Manufacturing Overhead	33	(1)
Nonmanufacturing Costs	33	(1)
Life-Cycle Costs and the Value Chain	34	(1)
Cost Flows in a Manufacturing Company-Traditional Environment with Inventory	35	(1)
The Cost-of-Goods-Sold Model for a Traditional Manufacturing Company with Inventory	36	(5)
Cost Flows in a Manufacturing Company---JIT Environment	41	(1)
Merchandising Companies and the Cost of Products	42	(1)
Service Companies and the Cost of Services	43	(1)
Product Costs and Period Costs	43	(21)
Job Costing, Process Costing, and Operations Costing	64	(38)
Introduction	66	(1)
Product-Costing Systems	66	(2)
Job Costing	66	(1)
Process Costing	67	(1)
Operations Costing	67	(1)
Basic Job-Order Costing for Manufacturing and Service Companies	68	(3)
Measuring and Tracking Direct Material	68	(2)
Measuring and Tracking Direct Labor	70	(1)
Manufacturing Overhead	71	(1)
Cost Drivers and Overhead Rates	71	(4)
Plantwide Overhead Rates	72	(1)
Departmental Overhead Rates	73	(2)
The Use of Estimates	75	(5)
Predetermined Overhead Rates	76	(1)
The Problem of Over- and Underapplied Overhead	77	(3)
Basic Process Costing	80	(1)
Backflush Costing	81	(2)
Appendix---Additional Topics in Process Costing	83	(19)
First-In, First-Out (FIFO)	84	(1)
Weighted Average Method	85	(17)
Activity-Based Costing	102	(37)
Introduction	104	(1)
Activity-Based Costing	104	(2)
Unit-, Batch-, Product-, and Facility-Level Costs	105	(1)
Stage 1- Identification of Activities	105	(1)
Stage 2- Identification of Cost Drivers	106	(1)
ABC and Just in Time (JIT)	106	(2)
Cost Flows and ABC	108	(1)
Traditional Overhead Allocation and ABC-An Example	108	(2)
Topsail's Stage 1: Identification of Activities	110	(1)
Topsail's Stage 2: Identification of Cost Drivers and Allocation of Costs	110	(4)
ABC Systems in Service Industries	114	(1)
ABC and Nonmanufacturing Activities	114	(1)
Benefits and Limitations of ABC	115	(24)
Part 2 Costs and Decision Making	139	(154)
Cost Behavior and Relevant Costs	140	(34)
Introduction	142	(1)
The Behavior of Fixed and Variable Costs	142	(3)
The Cost Equation	145	(1)
Cost Behavior and Decision Making	145	(2)
Step Costs	147	(1)
Mixed Costs	148	(3)
Separating Mixed Costs into Their Fixed and Variable Components	149	(2)
Regression Analysis	151	(4)
Using a Spreadsheet Program to Perform Regression Analysis	151	(3)
Regression Statistics	154	(1)
Other Uses of Regression Analysis	155	(1)
Estimating Regression Results Using the High/Low Method	155	(1)
Cost Behavior, Activity-Based Costing, and Activity-Based Management	156	(1)
Relevant Costs and Cost Behavior	156	(1)
The Impact of Income Taxes on Costs and Decision Making	157	(1)
Taxes and Decision Making	157	(1)
After-Tax Costs and Revenues	157	(1)
Before- and After-Tax Income	158	(16)
Cost-Volume-Profit Analysis and Variable Costing	174	(40)
Introduction	176	(1)
The Contribution Margin Income Statement	176	(3)
Contribution Margin per Unit	177	(2)
Contribution Margin Ratio	179	(1)
The Contribution Margin and Its Uses	179	(1)
What-If Decisions Using CVP	180	(2)
Option 1- Reduce Variable Costs	180	(1)
Option 2- Increase Sales Incentives (Commissions)	181	(1)
Option 3- Increase Advertising	182	(1)
Changes in Price and Volume	182	(1)
Changes in Cost, Price, and Volume	183	(2)
Break-Even Analysis	185	(1)
Break-Even Calculations with Multiple Products	186	(2)
Break-Even Calculations Using Activity-Based Costing	188	(1)
Target Profit Analysis (Before and After Tax)	189	(1)
The Impact of Taxes	190	(1)
Assumptions of CVP Analysis	191	(1)
Costing Structure and Operating Leverage	192	(2)
Operating Leverage	192	(2)
Variable Costing for Decision Making	194	(20)
Short-Term Tactical Decision Making	214	(32)
Introduction	216	(1)
Special Orders	216	(2)
Outsourcing and Other Make-or-Buy Decisions	218	(5)
Strategic Aspects of Outsourcing and Make-or-Buy Decisions	219	(1)
The Make-or-Buy Decision	220	(3)
The Decision to Drop a Product or a Service	223	(1)
Resource Utilization Decisions	224	(2)
The Theory of Constraints	226	(1)
Decisions to Sell or Process Further	227	(2)
ABC Relevant-Cost Analysis	229	(17)
Long-Term (Capital Investment) Decisions	246	(47)
Introduction	248	(1)
Focus on Cash Flow	248	(1)
Discounted Cash Flow Analysis	249	(1)
Net Present Value	250	(1)
Internal Rate of Return	251	(1)
The Problem of Uneven Cash Flows	252	(1)
Screening and Preference Decisions	253	(3)
The Impact of Taxes on Capital Investment Decisions	256	(3)
An Extended Example	259	(2)
The Impact of Uncertainty on Capital Investment Decisions	261	(1)
Sensitivity Analysis	262	(1)
The Impact of the New Manufacturing Environment on Capital Investment Decisions	262	(1)
The Payback Method	263	(2)
Appendix: Time Value of Money and Decision Making	265	(28)
Future Value	265	(3)
Present Value	268	(5)
Annuities	273	(20)
Part 3 Planning, Performance, Evaluation, and Control	293	(150)
The Use of Budgets in Planning and Decision Making	294	(42)
Introduction	296	(1)
The Budget Development Process	296	(2)
Budgets for Planning, Operating, and Control	296	(2)
Advantages of Budgeting	298	(1)
The Master Budget	298	(2)
Budgeting for Sales	300	(1)
Operating Budgets--An Example	301	(7)
Production Budget	301	(2)
Material Purchases Budget	303	(2)
Direct Labor Budget	305	(1)
Manufacturing Overhead Budget	305	(3)
Selling and Administrative Expense Budget	308	(1)
Cash Budgets	308	(4)
Why Focus on Cash?	308	(1)
The Cash Receipts Budget	309	(1)
The Cash Disbursements Budget	309	(1)
Summary Cash Budget	310	(2)
Budgeted Financial Statements	312	(4)
Budgets for a Manufacturing Company in a JIT Environment	316	(1)
Budgets for Merchandising Companies and Service Companies	316	(1)
Nonfinancial Budgets	316	(1)
Budgeting in an International Environment	316	(1)
Static versus Flexible Budgets	317	(2)
ABC and Flexible Budgets	319	(17)
Variance Analysis---A Tool for Cost Control and Performance Evaluation	336	(36)
Introduction	338	(1)
Standard Costing	338	(2)
Ideal versus Practical Standards	339	(1)
Use of Standards by Nonmanufacturing Organizations	340	(1)
Flexible Budgeting with Standard Costs	340	(3)
Sales Volume Variance	341	(1)
Flexible Budget Variance	342	(1)
Sales Price Variance	343	(1)
Variable Manufacturing Cost Variances	343	(4)
Analyzing Variable Manufacturing Cost Variances	345	(1)
Direct Material Variances	345	(2)
Direct Labor Variances	347	(1)
Variable Overhead Variances	348	(2)
Fixed Overhead Variances	350	(1)
Overhead Variance Analysis Using Activity-Based Costing	351	(1)
Selling and Administrative Expense Variance	352	(1)
Interpreting and Using Variance Analysis	353	(19)
Management by Exception	354	(1)
Interpreting Favorable and Unfavorable Variances	354	(1)
Behavioral Considerations	355	(17)
Decentralization and Performance Evaluation	372	(40)
Introduction	374	(1)
Management of Decentralized Organizations	374	(2)
Responsibility Accounting and Segment Reporting	376	(1)
Cost, Revenue, Profit, and Investment Centers	376	(2)
Profit Center Performance and Segmented Income Statements	378	(3)
The Segmented Income Statement	379	(2)
Segment Performance and Activity-Based Costing	381	(1)
Investment Centers and Measures of Performance	381	(9)
Return on Investment	382	(3)
Residual Income	385	(1)
ROI vs. Residual Income	386	(1)
Economic Value Added (EVA)	386	(3)
Decentralization and Performance Evaluation in a Multinational Company	389	(1)
Performance and Management Compensation Decisions	390	(3)
Cash Compensation	390	(1)
Stock-Based Compensation	391	(1)
Noncash Benefits and Perks	392	(1)
Measuring and Rewarding Performance in a Multinational Environment	392	(1)
Segment Performance and Transfer Pricing	393	(1)
General Model for Computing Transfer Prices	393	(19)
International Aspects of Transfer Pricing	395	(17)
Performance Evaluation Using the Balanced Scorecard	412	(31)
Introduction	414	(1)
The Balanced Scorecard	414	(1)
Financial Perspective	415	(1)
Customer Perspective	415	(1)
Internal Business Perspective	415	(1)
Learning and Growth Perspective	415	(1)
Measuring and Controlling Quality Costs	416	(2)
The Costs of Quality	418	(1)
Minimizing Quality Costs	419	(3)
Measuring and Controlling Environmental Costs	422	(1)
Environmental Costing	423	(2)
Productivity	425	(1)
Efficiency and Timeliness	426	(2)
Marketing Effectiveness	428	(1)
A Summary of Key Nonfinancial Measures of the Balanced Scorecard	429	(14)
Part 4 The Impact of Management Decisions	443	(54)
The Strategic Use of Managerial Accounting Information	444	(26)
Introduction	446	(1)
Strategy and Creating a Competitive Advantage	446	(1)
Pricing of Products and Services	447	(5)
Economic Concepts and Pricing	447	(1)
Costs and Pricing	447	(1)
Target Pricing	448	(1)
Cost-Plus Pricing	449	(2)
Time and Material Pricing	451	(1)
Value Pricing	451	(1)
Other Pricing Policies	451	(1)
Legal and Ethical Issues in Pricing	451	(1)
Cost Management and Strategy	452	(18)
The Value Chain	452	(2)
Supply-Chain Management	454	(2)
Customer Relationship Management	456	(1)
Activity-Based Management and the Value Chain	457	(13)
Internal Control, Corporate Governance, and Ethics	470	(27)
Introduction	472	(1)
Fraud	472	(1)
Sarbanes-Oxley Act of 2002	472	(1)
Types of Fraud	473	(3)
Misappropriation of Assests	475	(1)
Causes of Fraud	476	(2)
Situational Pressures and Incentives	477	(1)
Opportunities	477	(1)
Personal Characteristics and Attitudes	478	(1)
Combating Fraud	478	(1)
Internal Control	479	(3)
Control Environment	480	(1)
Risk Assessment	481	(1)
Control Activities	481	(1)
Information and Communication	482	(1)
Monitoring	482	(1)
The Impact of Information Technology on Internal Control	482	(2)
Corporate Governance	484	(2)
The Need for Ethics	486	(11)
Ethics Programs	487	(1)
Codes of Ethics	487	(2)
Responding to Ethics Violations	489	(8)
Part 5 Other Topics	497	(60)
Financial Statement Analysis	498	(32)
Introduction	500	(1)
Why Analyze Financial Statements?	500	(1)
Limitations of Financial Statement Analysis	501	(1)
The Impact of Inflation on Financial Statement Analysis	501	(1)
Horizontal Analysis	501	(4)
Vertical Analysis	505	(2)
Ratio Analysis	507	(23)
Ratio Analysis and Return on Investment	507	(1)
Current Ratio	508	(1)
Acid-Test Ratio	509	(1)
Cash Flow from Operations to Current-Liabilities Ratio	509	(2)
Accounts Receivable Analysis	511	(1)
Inventory Analysis	511	(2)
Cash-to-Cash Operating Cycle Ratio	513	(1)
Debt-to-Equity Ratio	513	(1)
Times-Interest-Earned Ratio	513	(1)
Debt Service Coverage Ratio	513	(1)
Cash Flow from Operations to Capital Expenditures Ratio	514	(1)
Return on Assets	515	(1)
Return on Common Stockholders' Equity	516	(1)
Earnings per Share	517	(1)
Price Earnings Ratio	517	(13)
The Statement of Cash Flows	530	(27)
Introduction	532	(1)
Purpose of the Statement of Cash Flows	532	(3)
The Composition of the Statement of Cash Flows	532	(1)
Operating Activities	533	(1)
Investing Activities	533	(1)
Financing Activities	533	(2)
The Definition of Cash: Cash and Cash Equivalents	535	(1)
Noncash Transactions	535	(1)
Cash Flows from Operating Activities	536	(1)
Direct Method	536	(1)
Indirect Method	537	(1)
The Statement of Cash Flows and the Accounting Equation	537	(1)
Preparing the Statement of Cash Flows	538	(7)
Direct Method	540	(1)
Indirect Method	541	(4)
Using the Cash Flow Statement in Decision Making	545	(1)
Cash Flow Adequacy	545	(12)
Glossary	557	(5)
Company Index	562	(1)
Subject Index	563