Cost Management : A Strategic Emphasis

by Blocher, Edward J.; Stout, David E.; Cokins, Gary; Chen, Kung H.

• ISBN13: 9780073128153
• ISBN10: 0073128155
• Edition: 4th
• Format: Hardcover
• Copyright: 2006-10-03
• Publisher: McGraw-Hill/Irwin

Summary

Cost Management: A Strategic Emphasis, by Blocher/Stout/Cokins/Chen is the first cost accounting text to offer integrated coverage of strategic management topics in cost accounting. The text is written to help students understand more about management and the role of cost accounting in helping an organization succeed. This text aims to teach management concepts and methods, and to demonstrate how managers use cost management information to make better decisions and improve their organization's competitiveness. In teaching these key management skills, the text takes on a strategic focus. It addresses issues such as:How does a firm compete? What type of cost management information is needed for a firm to succeed? How does the management accountant develop and present this information?This text helps students learn why, when, and how cost information is used to make effective decisions that lead a firm to success.

Table of Contents

PART ONE INTRODUCTION TO COST MANAGEMENT	2	(168)
Cost Management and Strategy: An Overview	2	(28)
The Uses of Cost Management	3	(4)
The Four Functions of Management	4	(2)
Strategic Management and Strategic Cost Management	6	(1)
Types of Organizations	6	(1)
The Contemporary Business Environment	7	(3)
The Global Business Environment	7	(1)
Manufacturing Technologies	8	(1)
The New Economy: Use of Information Technology, the Internet, and E-Commerce	8	(1)
Focus on the Customer	8	(1)
Management Organization	9	(1)
Social, Political, and Cultural Considerations	9	(1)
The Strategic Focus of Cost Management	10	(1)
Contemporary Management Techniques	10	(3)
Benchmarking	10	(1)
Total Quality Management	11	(1)
Business Process Improvement	11	(1)
Activity-Based Costing and Management	11	(1)
Reengineering	11	(1)
The Theory of Constraints	11	(1)
Mass Customization	12	(1)
Target Costing	12	(1)
Life-Cycle Costing	12	(1)
The Value Chain	12	(1)
The Balanced Scorecard	12	(1)
How a Firm Succeeds: The Competitive Strategy	13	(2)
Strategic Measures of Success	14	(1)
Developing a Competitive Strategy: Strategic Positioning	15	(2)
Cost Leadership	15	(1)
Differentiation	16	(1)
Other Strategic Issues	16	(1)
The Professional Environment of Cost Management	17	(4)
Professional Organizations	17	(2)
Professional Certifications	19	(1)
Professional Ethics	20	(1)
Summary	21	(1)
Appendix A: More about Strategy	22	(1)
Key Terms	23	(1)
Comments on Cost Management in Action	23	(1)
Self-Study Problem	24	(1)
Questions	24	(1)
Brief Exercises	25	(1)
Exercises	25	(1)
Problems	26	(3)
Solution to Self-Study Problem	29	(1)
Implementing Strategy: The Balanced Scorecard and the Value Chain	30	(24)
Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis	31	(2)
Execution	33	(2)
Value-Chain Analysis	35	(3)
Value-Chain Analysis in Computer Manufacturing	37	(1)
The Balanced Scorecard	38	(5)
The Balanced Scorecard Reflects Strategy	39	(1)
The Strategy Map	40	(2)
Expanding the Balanced Scorecard Sustainability	42	(1)
Summary	43	(1)
Key Terms	43	(1)
Comments on Cost Management in Action	43	(1)
Self-Study Problems	44	(1)
Questions	44	(1)
Brief Exercises	45	(1)
Exercises	45	(1)
Problems	45	(7)
Solutions to Self-Study Problems	52	(2)
Basic Cost Management Concepts	54	(30)
Cost Drivers, Cost Pools, and Cost Objects	55	(9)
Cost Assignment and Cost Allocation: Direct and Indirect Costs	55	(3)
Cost Drivers and Cost Behavior	58	(1)
Activity-Based Cost Drivers	58	(1)
Volume-Based Cost Drivers	59	(4)
Structural and Executional Cost Drivers	63	(1)
Cost Concepts for Product and Service Costing	64	(4)
Cost Accounting for Products and Services	64	(1)
Product Costs and Period Costs	64	(1)
Manufacturing, Merchandising, and Service Costing	65	(3)
Cost Concepts for Planning and Decision Making	68	(2)
Relevant Cost	68	(1)
Attributes of Cost Information for Decision Making	69	(1)
Cost Concepts for Management and Operational Control	70	(1)
Controllability	70	(1)
Summary	70	(1)
Key Terms	71	(1)
Comments on Cost Management in Action	71	(1)
Self-Study Problem	71	(1)
Questions	72	(1)
Brief Exercises	72	(1)
Exercises	73	(5)
Problems	78	(4)
Solution to Self-Study Problem	82	(2)
Job Costing	84	(36)
Product Costing Systems	84	(2)
Cost Accumulation: Job or Process Costing?	85	(1)
Cost Measurement: Actual, Normal, or Standard Costing?	85	(1)
Overhead Assignment under Normal Costing: Volume-Based or Activity-Based?	85	(1)
The Strategic Role of Product Costing	86	(1)
Job Costing: The Cost Flows	86	(7)
Direct Materials Costs	87	(2)
Direct Labor Costs	89	(2)
Factory Overhead Costs	91	(1)
Actual Costing	91	(1)
Normal Costing	91	(2)
The Application of Factory Overhead in Normal Costing	93	(4)
Cost Drivers for Factory Overhead Application	93	(1)
Applying Factory Overhead Costs	93	(1)
Departmental Overhead Rates	94	(1)
Disposition of Underapplied and Overapplied Overhead	95	(2)
Job Costing in Service Industries	97	(1)
Operation Costing	98	(2)
Summary	100	(1)
Appendix A: Spoilage, Rework, and Scrap in Job Costing	101	(2)
Key Terms	103	(1)
Comments on Cost Management in Action	103	(1)
Self-Study Problem	103	(1)
Questions	104	(1)
Brief Exercises	104	(1)
Exercises	105	(3)
Problems	108	(10)
Solution to Self-Study Problem	118	(2)
Activity-Based Costing and Management	120	(50)
The Strategic Role of Activity-Based Costing	120	(1)
Role of Volume-Based Costing	121	(1)
Activity-Based Costing	122	(2)
Resources, Activities, Resource Consumption Cost Drivers, and Activity Consumption Cost Drivers	122	(1)
What Is Activity-Based Costing?	122	(1)
The Two-Stage Cost Assignment Procedure	123	(1)
Steps in Developing an Activity-Based Costing System	124	(2)
Step 1: Identify Resource Costs and Activities	124	(1)
Step 2: Assign Resource Costs to Activities	125	(1)
Step 3: Assign Activity Costs to Cost Objects	126	(1)
Benefits and Limitations of Activity-Based Costing	126	(2)
Benefits	126	(1)
Limitations	127	(1)
A Comparison of Volume-Based and Activity-Based Costing	128	(2)
Volume-Based Costing	128	(1)
Activity-Based Costing	129	(1)
Activity-Based Management	130	(3)
What Is Activity-Based Management?	130	(1)
Activity Analysis	131	(1)
Value-Added Analysis	131	(2)
Activity-Based Costing/Management (ABC/M) Applications	133	(5)
ABC/M in Manufacturing: Industrial Air Conditioner Units	133	(2)
ABC/M Application in the Service Industry: A Retirement and Assisted Living Community	135	(1)
ABC/M Applications in Government	136	(2)
Customer Profitability Analysis	138	(4)
Customer Cost Analysis	139	(1)
Customer Profitability Analysis	140	(1)
Customer Value Assessment	141	(1)
Implementation Issues	142	(2)
Multiple-Stage Activity-Based Costing	143	(1)
Time-Driven Activity-Based Costing	143	(1)
Summary	144	(1)
Key Terms	144	(1)
Comments on Cost Management in Action	145	(1)
Self-Study Problem	145	(1)
Questions	146	(1)
Brief Exercises	146	(1)
Exercises	147	(6)
Problems	153	(14)
Solution to Self-Study Problem	167	(3)
PART TWO PLANNING AND DECISION MAKING	170	(234)
Cost Estimation	170	(48)
Strategic Role of Cost Estimation	170	(2)
Using Cost Estimation to Predict Future Costs	171	(1)
Using Cost Estimation to Identify Cost Drivers	171	(1)
Six Steps of Cost Estimation	172	(1)
Step 1: Define the Cost Object to Be Estimated	172	(1)
Step 2: Determine the Cost Drivers	172	(1)
Step 3: Collect Consistent and Accurate Data	172	(1)
Step 4: Graph the Data	172	(1)
Step 5: Select and Employ the Estimation Method	173	(1)
Step 6: Assess the Accuracy of the Cost Estimation	173	(1)
Cost Estimation Methods	173	(10)
An Illustration of Cost Estimation	173	(1)
High-Low Method	173	(3)
Work Measurement	176	(1)
Regression Analysis	176	(6)
Using Spreadsheet Software for Regression Analysis	182	(1)
Data Requirements and Implementation Problems	183	(2)
Data Accuracy	183	(1)
Selecting the Time Period	183	(1)
Nonlinearity Problems	184	(1)
Summary	185	(1)
Appendix A: Learning Curve Analysis	186	(3)
Appendix B: Regression Analysis	189	(6)
Key Terms	195	(1)
Comments on Cost Management in Action	195	(1)
Self-Study Problems	196	(1)
Questions	197	(1)
Brief Exercises	198	(1)
Exercises	199	(3)
Problems	202	(12)
Solutions to Self-Study Problems	214	(4)
Cost-Volume-Profit Analysis	218	(36)
Cost-Volume-Profit Analysis	218	(2)
Contribution Margin and Contribution Income Statement	219	(1)
Strategic Role of CVP Analysis	220	(2)
CVP Analysis for Breakeven Planning	222	(3)
Equation Method: For Breakeven in Units	222	(1)
Equation Method: For Breakeven in Dollars	222	(1)
Contribution Margin Method	223	(2)
CVP Analysis for Profit Planning	225	(4)
Revenue Planning	225	(1)
Cost Planning	225	(3)
Including Income Taxes in CVP Analysis	228	(1)
CVP Analysis for Activity-Based Costing	229	(2)
Sensitivity Analysis of CVP Results	231	(3)
What-If Analysis of Sales: Contribution Margin and Contribution Margin Ratio	231	(1)
Margin of Safety	231	(1)
Operating Leverage	232	(2)
CVP Analysis with Two or More Products	234	(2)
CVP Analysis for Not-for-Profit Organizations	236	(1)
Assumptions and Limitations of CVP Analysis	236	(2)
Linearity and the Relevant Range	236	(1)
Identifying Fixed and Variable Costs for CVP Analysis	237	(1)
Summary	238	(1)
Key Terms	239	(1)
Comments on Cost Management in Action	239	(1)
Self-Study Problem	239	(1)
Questions	239	(1)
Brief Exercises	240	(1)
Exercises	240	(2)
Problems	242	(11)
Solution to Self-Study Problem	253	(1)
Strategy and the Master Budget	254	(62)
Role of Budgets	255	(1)
Strategy, the Long-Term Plan, and the Master Budget	256	(4)
Importance of Strategy in Budgeting	256	(2)
Formulation of Strategy	258	(1)
Strategic Goals and Long-Term Objectives	258	(1)
Short-Term Objectives and the Master Budget	258	(2)
Budgeting Process	260	(3)
Budget Committee	260	(1)
Budget Period	261	(1)
Budget Guidelines	262	(1)
Initial Budget Proposal	262	(1)
Negotiation, Review, and Approval	262	(1)
Revision	263	(1)
Master Budget	263	(13)
Sales Budget	263	(2)
Manufacturing Budgets	265	(4)
Merchandise Purchases Budget	269	(2)
Selling and General Administrative Expense Budget	271	(1)
Cash Receipts (Collections) Budget	272	(1)
Cash Budget	272	(2)
Budgeted Income Statement	274	(1)
Budgeted Balance Sheet	274	(2)
Budgeting in Service Companies and International Firms, and Not-for-Profit Organizations	276	(3)
Budgeting in Service Industries	276	(2)
Budgeting in Not-for-Profit Organizations	278	(1)
Budgeting in International Settings	278	(1)
Alternative Budgeting Approaches	279	(3)
Zero-Base Budgeting (ZBB)	279	(1)
Activity-Based Budgeting (ABB)	280	(1)
Kaizen (Continuous Improvement) Budgeting	281	(1)
Computer Software in Budgeting and Planning	282	(2)
Ethical and Behavioral Issues in Budgeting	284	(3)
Ethics in Budgeting	284	(1)
Goal Congruence	284	(1)
Difficulty Level of the Budget Target	285	(1)
Authoritative or Participative Budgeting?	286	(1)
Role of the Budget Department or Controller	286	(1)
Summary	287	(1)
Key Terms	287	(1)
Comments on Cost Management in Action	287	(1)
Self-Study Problems	288	(1)
Questions	289	(1)
Brief Exercises	290	(1)
Exercises	291	(8)
Problems	299	(14)
Solutions to Self-Study Problems	313	(3)
Decision Making with Relevant Costs and a Strategic Emphasis	316	(44)
The Decision-Making Process	317	(1)
Relevant Cost Analysis	318	(3)
Relevant Cost Information	318	(1)
Batch-Level Cost Drivers	319	(1)
Fixed Costs and Depreciation	320	(1)
Other Relevant Information: Opportunity Costs	320	(1)
Strategic Cost Analysis	321	(1)
Special-Order Decisions	322	(3)
Cost Analysis	322	(1)
Strategic Analysis	323	(1)
Is TTS Now Operating at Full Capacity?	323	(1)
Excessive Relevant Cost Pricing	324	(1)
Other Important Factors	325	(1)
Make, Lease, or Buy Decision	325	(2)
Cost Analysis	325	(2)
Strategic Analysis	327	(1)
Sell Before or After Additional Processing	327	(2)
Cost Analysis	327	(1)
Strategic Analysis	328	(1)
Profitability Analysis	329	(3)
Profitability Analysis: Keep or Drop a Product Line	329	(1)
Strategic Analysis	330	(1)
Profitability Analysis: Evaluating Programs	331	(1)
Profitability Analysis: Service and Not-for-Profit Organizations	331	(1)
Multiple Products and Limited Resources	332	(3)
Case 1: One Production Constraint	332	(1)
Case 2: Two or More Production Constraints	333	(2)
Behavioral and Implementation Issues	335	(2)
Consideration of Strategic Objectives	335	(1)
Predatory Pricing	335	(1)
Replacement of Variable Costs with Fixed Costs	336	(1)
Proper Identification of Relevant Factors	336	(1)
Summary	337	(1)
Appendix A: Linear Programming and the Product Mix Decision	337	(3)
Key Terms	340	(1)
Comments on Cost Management in Action	340	(1)
Self-Study Problems	340	(1)
Questions	341	(1)
Brief Exercises	341	(1)
Exercises	342	(4)
Problems	346	(12)
Solutions to Self-Study Problems	358	(2)
Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing	360	(44)
Target Costing	362	(7)
Value Engineering	363	(2)
Target Costing and Kaizen	365	(1)
An Illustration: Target Costing in Health Product Manufacturing	366	(1)
An Illustration Using Quality: Function Deployment (OFD)	367	(1)
Benefits of Target Costing	368	(1)
The Theory of Constraints	369	(7)
The Use of the Theory of Constraints Analysis in Health Product Manufacturing	370	(1)
Steps in the Theory of Constraints Analysis	370	(5)
Theory of Constraints Reports	375	(1)
Activity-Based Costing and the Theory of Constraints	375	(1)
Life-Cycle Costing	376	(3)
The Importance of Design	377	(1)
The Use of Life-Cycle Costing in a Software Firm	378	(1)
Strategic Pricing Using the Product Life Cycle	379	(3)
Pricing Using the Cost Life Cycle	379	(2)
Strategic Pricing for Phases of the Sales Life Cycle	381	(1)
The Use of the Sales Life Cycle in Computer Manufacturing	381	(1)
Summary	382	(1)
Appendix A: Using the Flow Diagram to Identify Constraints	382	(2)
Key Terms	384	(1)
Comments on Cost Management in Action	384	(1)
Self-Study Problem	384	(1)
Questions	385	(1)
Brief Exercises	385	(1)
Exercises	386	(5)
Problems	391	(10)
Solution to Self-Study Problem	401	(3)
PART THREE PROCESS COSTING AND COST ALLOCATION	404	(90)
Process Costing	404	(90)
Characteristics of Process Costing Systems	405	(3)
Equivalent Units	405	(1)
Flow of Costs in Process Costing	406	(1)
Steps in Process Costing	407	(1)
Process Costing Methods	408	(1)
Illustration of Process Costing	408	(11)
Weighted-Average Method	409	(3)
First-In, First-Out (FIFO) Method	412	(7)
Comparison of Weighted-Average and FIFO Methods	419	(1)
Process Costing with Multiple Departments	419	(6)
Transferred-In-Costs	420	(1)
Weighted-Average Method	420	(2)
The FIFO Method	422	(3)
Journal Entries for Process Costing	425	(1)
Implementation and Enhancement of Process Costing	426	(2)
Activity-Based Costing and the Theory of Constraints	426	(1)
Just-in-Time Systems and Backflush Costing	427	(1)
Summary	428	(1)
Appendix A: Spoilage in Process Costing	428	(4)
Key Terms	432	(1)
Comments on Cost Management in Action	432	(1)
Self-Study Problems	432	(1)
Questions	433	(1)
Brief Exercises	434	(1)
Exercises	434	(3)
Problems	437	(11)
Solutions to Self-Study Problems	448	(6)
Appendix B: Cost Allocation: Service Departments and Joint Product Costs	454	(1)
The Strategic Role of Cost Allocation	455	(1)
The Ethical Issues of Cost Allocation	456	(1)
Cost Allocation to Service and Production Departments	456	(12)
Departmental Approach	457	(11)
Cost Allocation in Service Industries	468	(2)
Joint Product Costing	470	(5)
Methods for Allocating Joint Costs to Joint Products	471	(4)
Summary	475	(1)
Appendix A By-Product Costing	475	(3)
Key Terms	478	(1)
Comments on Cost Management in Action	478	(1)
Self-Study Problem	478	(1)
Questions	478	(1)
Brief Exercises	479	(1)
Exercises	480	(1)
Problems	481	(11)
Solution to Self-Study Problem	492	(2)
PART FOUR OPERATIONAL CONTROL	494	(204)
The Flexible Budget and Standard Costing: Direct Materials and Direct Labor	494	(56)
Management Accounting and Control Systems	495	(1)
Evaluating Operating Performance	495	(2)
Effectiveness	495	(2)
Standard Costs	497	(7)
Standard Costs versus a Standard Cost System	497	(1)
Types of Standards	498	(1)
Selection of Standards	499	(1)
Sources of Standards	499	(2)
Standard-Setting Procedures	501	(1)
Establishing Standard Costs	501	(1)
Standard Cost Sheet	502	(2)
Flexible Budgets and Operational Control	504	(12)
The Flexible Budget	504	(1)
Assessing Efficiency	505	(2)
Breakdown of the Total Flexible Budget Variance	507	(1)
Selling Price Variance	508	(1)
Variable Cost Flexible Budget Variances	508	(1)
Further Analysis of the Total Variable Cost Flexible Budget Variance	509	(1)
General Model for Analysis of Variable Cost Variances	509	(1)
Direct Materials Variances	510	(3)
Direct Labor Variances	513	(2)
Timing of Variance Recognition	515	(1)
Effect of the New Manufacturing Technology	516	(1)
Behavioral and Implementation Issues	516	(1)
Summary	517	(2)
Appendix A: Recording Cost Flows and Variances in a Standard Cost System	519	(3)
Key Terms	522	(1)
Comments on Cost Management in Action	522	(1)
Self-Study Problems	523	(1)
Questions	524	(1)
Brief Exercises	525	(1)
Exercises	526	(8)
Problems	534	(13)
Solutions to Self-Study Problems	547	(3)
The Flexible Budget: Factory Overhead	550	(60)
Standard Overhead Costs: Planning versus Control	551	(1)
Variance Analysis for Factory Overhead Costs	552	(10)
Variable Overhead Cost Analysis	553	(1)
Interpretation and Implications of Variable Overhead Variances	554	(1)
Fixed Overhead Cost Analysis	555	(4)
Interpretation of Fixed Factory Overhead Variances	559	(1)
Alternative Analyses of Factory Overhead Variances	559	(2)
Summary of Factory Overhead Variances	561	(1)
Recording Standard Factory Overhead Costs	562	(3)
Journal Entries and Variances for Factory Overhead Costs	562	(1)
Variance Disposition	563	(2)
Standard Costs in Service Organizations	565	(3)
Overhead Variances in ABC Systems	568	(4)
ABC-Based Flexible Budgets for Control	569	(3)
Investigation of Variances	572	(4)
Type of Standard	572	(1)
Expectations of the Organization	572	(1)
Magnitude, Pattern, and Impact of a Variance	572	(1)
Causes and Controllability	573	(3)
Company Practices	576	(1)
Summary	576	(2)
Appendix A: Variance Investigation Decisions Under Uncertainty	578	(2)
Key Terms	580	(1)
Comments on Cost Management in Action	580	(1)
Self-Study Problems	581	(1)
Questions	582	(1)
Brief Exercises	583	(1)
Exercises	583	(1)
Problems	583	(23)
Solutions to Self-Study Problems	606	(4)
The Flexible Budget: Further Analysis of Productivity and Sales	610	(38)
The Strategic Role of the Flexible Budget in Analyzing Sales and Productivity	610	(2)
Analyzing Productivity	612	(7)
Partial Productivity	613	(5)
Total Productivity	618	(1)
Analyzing Sales: Comparison with the Master Budget	619	(8)
Sales Volume Variance Decomposed: Sales Quantity and Sales Mix Variances	620	(4)
Sales Quantity Variance Decomposed: Market Size and Market Share Variances	624	(3)
Analyzing Sales: Comparison with Prior Year Results	627	(3)
Analysis of Selling Price and Volume Variances	628	(1)
Analysis of Mix and Quantity Variances	629	(1)
Analysis of Variable Cost Variances	629	(1)
Summary	630	(1)
Key Terms	631	(1)
Comments on Cost Management in Action	631	(1)
Self-Study Problems	631	(1)
Questions	632	(1)
Brief Exercises	633	(1)
Exercises	634	(2)
Problems	636	(8)
Solutions to Self-Study Problems	644	(4)
The Management and Control of Quality	648	(50)
The Strategic Importance of Quality	649	(3)
Baldrige Quality Award	649	(1)
ISO 9000 and ISO 14000	649	(1)
Quality and Profitability: Conceptual Linkage	650	(1)
Empirical Evidence---Does TQM Matter?	651	(1)
Accounting's Role in the Management and Control of Quality	652	(1)
Chapter Preview	652	(1)
Total Quality Management (TQM)	652	(2)
The Meaning of Quality	652	(2)
Characteristics of Total Quality Management	654	(1)
The Need for a New Accounting System	654	(1)
Comprehensive Framework for Managing and Controlling Quality	654	(3)
Knowledge of Business Processes	654	(1)
Role of the Customer	655	(1)
Financial Component	656	(1)
Nonfinancial Performance Indicators	656	(1)
Feedback Loops	656	(1)
Relevant Cost Analysis	656	(1)
Link to Operations Management	656	(1)
Breadth of the System	656	(1)
Setting Quality-Related Expectations	657	(4)
Setting Quality Expectations: A Six Sigma Approach	657	(2)
Setting Quality Expectations: Goalpost versus Absolute Conformance Standards	659	(1)
Goalpost Conformance	659	(1)
Absolute Quality Conformance	660	(1)
Goalpost or Absolute Conformance?	660	(1)
Financial Measures and Costs of Quality	661	(5)
Relevant Cost Analysis	661	(1)
Cost of Quality (COQ) Reporting	662	(2)
Quality Cost Reports	664	(1)
Data Definition, Sources, and Collection	664	(1)
Report Format	665	(1)
Illustration of a Cost of Quality Report	665	(1)
COQ and Activity-Based Costing (ABC)	666	(1)
Nonfinancial Quality Indicators	666	(2)
Internal Nonfinancial Quality Metrics	666	(1)
External (Customer Satisfaction) Quality Metrics	667	(1)
Role of Nonfinancial Performance Measures	667	(1)
Detecting and Correcting Poor Quality	668	(5)
Detecting Poor Quality	668	(2)
Taking Corrective Action	670	(3)
Summary	673	(1)
Appendix A: Taguchi Quality Loss Functions	673	(3)
Key Terms	676	(1)
Comments on Cost Management in Action	677	(1)
Self-Study Problems	677	(1)
Questions	678	(1)
Brief Exercises	679	(1)
Exercises	680	(7)
Problems	687	(9)
Solutions to Self-Study Problems	696	(2)
PART FIVE MANAGEMENT CONTROL	698	(86)
Management Control and Strategic Performance Measurement	698	(44)
Performance Evaluation and Control	699	(3)
Operational Control versus Management Control	699	(1)
Objectives of Management Control	699	(1)
Employment Contracts	700	(2)
Design of Management Control Systems for Motivation and Evaluation	702	(2)
Informal Control Systems	703	(1)
Formal Control Systems	704	(1)
Strategic Performance Measurement	704	(2)
Decentralization	704	(1)
Types of Strategic Business Units	705	(1)
The Balanced Scorecard	706	(1)
Cost Strategic Business Units	706	(5)
Strategic Issues Related to Implementing Cost SBUs	706	(2)
Implementing Cost SBUs in Departments	708	(2)
Outsourcing Cost SBUs	710	(1)
Cost Allocation	710	(1)
Revenue Strategic Business Units	711	(1)
Profit Strategic Business Units	712	(4)
Strategic Role of Profit SBUs	712	(1)
The Contribution Income Statement	713	(1)
Variable Costing versus Full Costing	714	(2)
Strategic Performance Measurement and the Balanced Scorecard	716	(4)
Management Control in Service Firms and Not-for-Profit Organizations	720	(2)
Summary	722	(1)
Key Terms	722	(1)
Comments on Cost Management in Action	722	(1)
Self-Study Problem	723	(1)
Questions	723	(1)
Brief Exercises	724	(1)
Exercises	725	(2)
Problems	727	(13)
Solution to Self-Study Problem	740	(2)
Strategic Investment Units and Transfer Pricing	742	(42)
Part One: Strategic Investment Units	743	(1)
The Strategic Role of Investment Units	743	(1)
Return on Investment	744	(9)
ROI Equals Return on Sales Times Asset Turnover	744	(1)
Illustration of Evaluation Using Return on Investment	744	(3)
Use of Return on Investment	747	(4)
Strategic Issues in Using Return on Investment	751	(2)
Residual Income	753	(2)
Limitations of Residual Income	754	(1)
Economic Value Added	755	(1)
Using Average Total Assets	755	(1)
Part Two: Transfer Pricing	756	(1)
When Is Transfer Pricing Important?	756	(1)
Objectives of Transfer Pricing	757	(1)
International Transfer Pricing Objectives	757	(1)
Transfer Pricing Methods	758	(3)
Choosing the Right Transfer Pricing Method	758	(3)
International Tax Issues in Transfer Pricing	761	(2)
The Arm's-Length Standard	761	(1)
Advance Pricing Agreements	762	(1)
Summary	763	(1)
Key Terms	763	(1)
Comments on Cost Management in Action	763	(1)
Self-Study Problems	764	(1)
Questions	764	(1)
Brief Exercises	764	(1)
Exercises	765	(6)
Problems	771	(11)
Solutions to Self-Study Problems	782	(2)
PART SIX ADVANCED TOPICS IN COST MANAGEMENT	784	(86)
Management Compensation, Business Analysis, and Business Valuation	784	(34)
Part One: Management Compensation	784	(1)
Types of Management Compensation	785	(1)
Strategic Role and Objectives of Management Compensation	786	(2)
Design the Compensation Plan for Existing Strategic Conditions	786	(1)
Risk Aversion and Management Compensation	786	(1)
Ethical Issues	787	(1)
Objectives of Management Compensation	787	(1)
Bonus Plans	788	(4)
Bases for Bonus Compensation	788	(2)
Bonus Compensation Pools	790	(1)
Bonus Payment Options	790	(2)
Tax Planning and Financial Reporting	792	(1)
Management Compensation in Service Firms	793	(1)
Part Two: Business Analysis and Business Valuation	794	(1)
Business Analysis	795	(3)
The Balanced Scorecard	795	(1)
Financial Ratio Analysis	795	(3)
Business Valuation	798	(3)
The Discounted Cash Flow Method	798	(2)
Multiples-Based Valuation	800	(1)
Enterprise Value	800	(1)
Summary	801	(1)
Key Terms	801	(1)
Comments on Cost Management in Action	801	(1)
Self-Study Problem	802	(1)
Questions	802	(1)
Brief Exercises	803	(1)
Exercises	803	(4)
Problems	807	(9)
Solution to Self-Study Problem	816	(2)
Capital Budgeting	818	(52)
Strategy and the Capital Budgeting Process	819	(2)
Underlying Nature of Capital Expenditures	819	(1)
Organizational Strategy and the Nature of Capital Investment Analysis	819	(1)
Effect of Capital Expenditures on Strategic Cost Drivers	820	(1)
Chapter Overview---Where Are We Headed?	821	(1)
The Role of Accounting in the Capital Budgeting Process	821	(3)
Linkage to Master Budget	821	(1)
Linkage to the Balanced Scorecard (BSC)	821	(2)
Generation of Relevant Financial Data for Decision-Making Purposes	823	(1)
Conducting Post-Audits	823	(1)
Identification of Relevant Cash-Flow Data for Capital Expenditure Analysis	824	(8)
Why Focus on Cash Flows?	824	(1)
Cash Flows---A Framework for Analysis	825	(1)
Sample Data Set: Mendoza Company---Equipment Replacement Decision	825	(2)
Determining After-Tax Cash Flows for Capital Investment Analysis	827	(5)
Recap---Cash Flow Information for the Mendoza Company Investment Proposal	832	(1)
Discounted Cash Flow (DCF) Capital Budgeting Decision Models	832	(7)
Types of Capital Budgeting Decision Models	832	(1)
DCF Models: Specifying the Discount Rate	832	(2)
Estimating the WACC	834	(2)
Net Present Value (NPV) Decision Model	836	(1)
Internal Rate of Return (IRR) Decision Model	837	(2)
Comparison of NPV and IRR Methods: Which to Use?	839	(1)
Sensitivity Analysis	839	(3)
What-If-Analyses	839	(2)
Scenario Analysis	841	(1)
Monte Carlo Simulation	841	(1)
Other Capital Budgeting Decision Models	842	(4)
Payback Period	842	(2)
Accounting (Book) Rate of Return	844	(2)
Behavioral Issues in Capital Budgeting	846	(2)
Common Behavioral Problems: Cost Escalation, Incrementalism, and Uncertainty Intolerance	846	(1)
Goal-Congruency Issues	847	(1)
Addressing the Goal-Congruency Problem	847	(1)
Summary	848	(1)
Appendix A: DCF Models: Some Advanced Considerations	848	(3)
Key Terms	851	(1)
Comments on Cost Management in Action	851	(1)
Self-Study Problem	852	(1)
Questions	853	(1)
Brief Exercises	854	(1)
Exercises	855	(3)
Problems	858	(8)
Solution to Self-Study Problem	866	(4)
Present Value Tables	870	(2)
Glossary	872	(10)
Index	882