Cost Management: Strategies for Business Decisions

by Hilton, Ronald; Maher, Michael; Selto, Frank

• ISBN13: 9780072830088
• ISBN10: 0072830085
• Edition: 3rd
• Format: Hardcover
• Copyright: 2004-12-30
• Publisher: McGraw-Hill/Irwin

Summary

Hilton/Maher/Selto (HMS) addresses traditional cost concepts, but makes cost accounting functional by focusing on measuring and managing costs. HMS maintains that, "Costs don't just happen," and with a pro-active approach toward costs, accountants can add value to an organization. The real-world approach of this text, including the use of focus companies and the accompanying focus sites, provides a realistic business environment, and aids in student comprehension and interest in the subject.

Table of Contents

Part One Setting the Strategic Foundation: The Importance of Analyzing and Managing Costs	1	(134)
Cost Management and Strategic Decision: Making Evaluating Opportunities and Leading Change	2	(32)
Evaluation of Opportunities at Pursuit Data	4	(1)
Strategic Role of Cost Management	5	(1)
Characteristics of Cost Management	5	(1)
Characteristics of Cost-Management Analysts	6	(1)
Strategic Decision Making	7	(6)
``Where Do We Want to Go?''	8	(2)
``How Do We Want to Get There?''	10	(3)
Formulation of Strategic Action Plans	13	(2)
Eight Elements of Leading and Managing Change	13	(2)
Evaluation of Plans and Outcomes	15	(3)
Benefit-Cost Analysis	16	(1)
Benefit and Cost Variances	16	(2)
Chapter Summary	18	(1)
Appendix A to Chapter One: Institute of Management Accountants: Standards of Ethical Conduct for Management Accountants	19	(1)
Appendix B to Chapter One: Preview of the Remaining Cost Management Chapters	20	(2)
Key Terms	22	(1)
Meeting the Cost Management Challenges	23	(1)
Solutions to You're the Decision Maker	23	(1)
Review Questions	24	(1)
Critical Analysis	24	(1)
Exercises	25	(2)
Problems	27	(4)
Cases	31	(3)
Product Costing Systems: Concepts and Design Issues	34	(52)
The Role of Cost Management at CollegePak Company	36	(2)
The Meaning of Cost	38	(1)
Product Costs, Period Costs, and Expenses	38	(1)
Costs Reported in Financial Statements	38	(6)
Service Firms	40	(1)
Retail Companies	40	(1)
Manufacturing Companies	41	(3)
Stages of Production and the Flow of Costs	44	(4)
Income Statement and Schedule of Cost of Goods Manufactured and Sold	45	(2)
Flow of Manufacturing Costs	47	(1)
Production Costs in the Service Industry	48	(1)
Cost-Management Concepts: Different Costs for Different Purposes	48	(10)
Cost Drivers	48	(1)
Cost Behavior	49	(1)
Variable Costs and Unit-Level Costs	50	(2)
Cost of Resources Used versus Resources Supplied	52	(2)
Committed Costs, Opportunity Costs, and Sunk Costs	54	(2)
Traceability of Resources	56	(2)
What Costs Should Be Considered Product Costs?	58	(1)
Fixed Manufacturing Overhead: The Key	58	(1)
Illustration of Absorption and Variable Costing	59	(7)
Absorption-Costing Income Statements	59	(1)
Variable-Costing Income Statements	59	(2)
Reconciliation of Income under Absorption and Variable Costing	61	(1)
Evaluation of Absorption and Variable Costing	62	(2)
Throughput Costing	64	(1)
Overproduction of Inventory: An Ethical Issue	65	(1)
Chapter Summary	66	(1)
Key Terms	66	(1)
Meeting the Cost Management Challenges	67	(1)
Solutions to You're the Decision Maker	67	(1)
Review Questions	68	(1)
Critical Analysis	68	(1)
Exercises	69	(6)
Problems	75	(9)
Cases	84	(2)
Cost Accumulation for Job-Shop and Batch Production Operations	86	(49)
Choice among Product-Costing Systems	89	(2)
Evaluating Major Types of Product-Costing Systems	89	(2)
Basic Cost-Flow Model	91	(3)
Cost Flows and Jobs	92	(1)
Managing and Using Cost-Flow Information	93	(1)
The Process of Tracking Job-Order Costs	94	(6)
Product-Costing System Design Issues	95	(1)
Recording Job-Order Costs	95	(5)
Use of Predetermined Overhead Rates	100	(6)
Summary of Job-Cost Flows	106	(1)
Selling and Administrative Costs	106	(1)
Meaning of the Overhead Variance	106	(1)
Difference between Actual, Normal, and Standard Costing	107	(3)
Choice of Cost Driver for Overhead Application	110	(1)
Job-Order Costing in Service Organizations	110	(1)
Application of Job-Order Costing to the Value Chain	110	(1)
Job and Project Management	111	(4)
Project Management	112	(1)
Job-Cost and Project Improprieties: An Ethical Issue	113	(2)
Use of Job-Order Costing Information for Planning and Decision Making	115	(1)
Chapter Summary	115	(1)
Key Terms	116	(1)
Meeting the Cost Management Challenges	116	(1)
Solutions to You're the Decision Maker	117	(1)
Review Questions	117	(1)
Critical Analysis	118	(1)
Exercises	118	(5)
Problems	123	(10)
Case	133	(2)
Part Two Activity-Based Management	135	(156)
Activity-Based Costing Systems	136	(42)
PMI Background	138	(1)
PMI's Competitive Situation	138	(2)
PMI's Products and Processes	138	(1)
PMI's Costing-System Options	139	(1)
PMI's Costing-System Team	140	(1)
Traditional Costing System	140	(1)
Undercosting and Overcosting Products: Cost of Dinner Example	140	(1)
Refining a Traditional Costing System	141	(1)
Activity-Based Costing System	141	(2)
Step 1: Identify and Classify Activities Related to Products	143	(4)
Bakery Example	143	(1)
Five-Level Hierarchy of Resources and Activities	143	(1)
Classification Objectives	144	(1)
Methods for Identifying and Classifying Activities	145	(1)
PMI's Activity List	145	(2)
Step 2: Estimate the Cost of Activities	147	(1)
PMI's Use of the Employee Activity Data Sheet	147	(1)
Activity Data Sheet Combined with Accounting Information	147	(1)
Step 3: Calculate a Cost-Driver Rate for the Activity	148	(3)
Cost-Driver Rates: Bakery Example	148	(1)
Practical Capacity Note	148	(1)
Assignment of Cost-Driver Rates to PMI's Activities	148	(3)
Step 4: Assign Activity Costs to Products	151	(2)
Bakery Example	151	(1)
PMI Example	151	(2)
Product and Customer Profitability	153	(2)
Product Profitability	153	(1)
Customer Profitability	154	(1)
Estimation of Costs of New Products Using ABC	155	(1)
MegaBurger Novelty Toy Decision	155	(2)
Activity-Based Costing in Service and Merchandising Companies	157	(1)
Costs and Benefits of Using Activity-Based Costing	157	(1)
Chapter Summary	158	(1)
Appendix to Chapter Four: Unit-Level ABC Costing	158	(1)
Key Terms	159	(1)
Meeting the Cost Management Challenges	159	(1)
Solutions to You're the Decision Maker	160	(1)
Review Questions	160	(1)
Critical Analysis	161	(1)
Exercises	162	(3)
Problems	165	(10)
Cases	175	(3)
Activity-Based Management	178	(34)
Importance of Activity-Based Information to PMI's Success	180	(1)
Activity-Based Costing: Foundation of Process Improvement	180	(1)
Combination of ABC and Target Costing	181	(2)
Importance of Customer-Perceived Value	183	(4)
Eliminating Non-Value-Added Activities: Competitive Necessity	183	(1)
Identifying Value-Added Activities	184	(2)
Performing PMI's Value-Added Analysis	186	(1)
Tasks Required by Activity-Based Management	187	(1)
Detailed Activity Analysis	187	(1)
Identification of Process-Improvement Opportunities	188	(2)
Asking the Question, Why?	189	(1)
Identifying the Cost of Saved Resources	190	(1)
Capacity Utilization	190	(2)
Activity-Based Reporting of Unused Resources	191	(1)
Implementation of Activity-Based Costing and Management	192	(4)
Should All Organizations Adopt ABC and ABM?	192	(1)
Can You Be Sure That ABC and ABM Will Be Successful?	193	(3)
PMI's Decision to Keep MegaBurger as a Customer	196	(1)
Chapter Summary	197	(1)
Key Terms	197	(1)
Meeting the Cost Management Challenges	197	(1)
Solutions to You're the Decision Maker	197	(1)
Review Questions	198	(1)
Critical Analysis	198	(1)
Exercises	199	(4)
Problems	203	(4)
Cases	207	(5)
Managing Customer Profitability	212	(32)
HealthWave, Ltd.	214	(1)
HealthWave's Products	214	(1)
HealthWave's Customers	214	(1)
Importance of Customer Profitability	214	(3)
Measurement of Customer Profitability	215	(1)
Identification of Effective and Ineffective Customer-Related Activities	216	(1)
HealthWave's Traditional Profitability Analysis by Product Line	217	(2)
Customer Sales Analysis	219	(1)
HealthWave Customer Profile	219	(1)
Analysis of Customer Sales Patterns	219	(1)
Sales and Administrative Cost Analysis	220	(6)
Customer Selling Costs	221	(1)
Customer Marketing Costs	222	(1)
Customer Distribution Costs	223	(1)
Customer General and Administration Costs	224	(2)
Customer Profitability Analysis	226	(2)
Identification of Alternative Actions and Choice of Appropriate One	228	(6)
Common-Size Profit Statements	228	(1)
Continue the Status Quo; Do Nothing	229	(1)
Drop Pharmacy Customers	229	(3)
Increase the Efficiency of Serving Pharmacy Customers	232	(1)
Decrease Operating Activity Costs for All Customers	233	(1)
Chapter Summary	234	(1)
Key Terms	234	(1)
Meeting the Cost Management Challenges	234	(1)
Solutions to You're the Decision Maker	235	(1)
Review Questions	236	(1)
Critical Analysis	236	(1)
Exercises	237	(1)
Problems	238	(4)
Cases	242	(2)
Managing Quality and Time to Create Value	244	(47)
Importance of Quality	246	(1)
Costs of Improving Quality	247	(2)
Total Quality Management (TQM)	247	(1)
Return on Quality (ROQ)	247	(1)
Comparison of the Views of Quality	248	(1)
Conflict between TQM and ROQ	248	(1)
Dimensions of Quality	249	(1)
Product and Service Attributes	249	(1)
Customer Service before and after the Sale	249	(1)
How Organizations Measure Quality	250	(7)
Indicators of Quality	250	(2)
Diagnostic Information	252	(4)
Customer Satisfaction	256	(1)
Trade-offs between Quality and Price	257	(3)
Identifying Costs of Quality	257	(1)
Controlling Quality	257	(1)
Failing to Control Quality	258	(1)
Measuring Costs of Quality	259	(1)
Reporting Costs of Quality	259	(1)
Corporate Integrity and Quality	260	(1)
Quality Awards and Certificates	261	(1)
Importance of Managing Time in a Competitive Environment	261	(2)
New Product (or Service) Development Time	261	(1)
Customer-Response Time and Cycle Time	262	(1)
Costs of Time	262	(1)
Management of Process Productivity and Efficiency	263	(8)
Measuring Productivity	263	(1)
Measuring Cycle Time	264	(1)
Measuring Throughput Efficiency	264	(1)
Managing Process Capacity	265	(1)
Measuring Capacity	266	(1)
Managing Quality + Time + Productivity + Capacity = JIT	266	(1)
JIT Manufacturing	267	(1)
JIT Success Factors	268	(3)
Chapter Summary	271	(1)
Appendix to Chapter Seven: Construction and Use of Control Charts	271	(3)
Key Terms	274	(1)
Meeting the Cost Management Challenges	275	(1)
Solutions to You're the Decision Maker	275	(1)
Review Questions	276	(1)
Critical Analysis	276	(1)
Exercises	277	(5)
Problems	282	(5)
Cases	287	(4)
Part Three Process Costing and Cost Allocation	291	(116)
Process-Costing Systems	292	(40)
Introduction to Process Costing	294	(1)
Importance of Process Cost Information	295	(1)
Assignment of Costs to Products	295	(1)
Example 1: Department with No Beginning or Ending WIP Inventory	295	(1)
Example 2: Department with Ending WIP Inventory	296	(2)
Step 1. Summarize the Flow of Physical Units	296	(1)
Step 2. Compute the Equivalent Number of Units Produced	296	(1)
Steps 3, 4, and 5. Cost Analysis	297	(1)
Example 3: Department with Beginning and Ending WIP Inventory	298	(5)
The Basic Idea: Applying the Basic Cost-Flow Model	299	(1)
Five Key Steps	299	(4)
Managerial Use of the Production Cost Report	303	(1)
Sections 1 and 2: Managing the Physical Flow of Units	304	(1)
Sections 3, 4, and 5: Managing Costs	304	(1)
Example 4: Department with Costs Transferred in from Prior Departments	304	(1)
Accounting for Transferred-In Costs	304	(1)
Responsibility for Costs Transferred in from Prior Departments	305	(1)
Example 5: Department with Spoilage Costs	305	(3)
Normal versus Abnormal Spoilage: Is Spoilage Ever Normal?	306	(2)
Accounting for Spoilage Costs	308	(1)
Management of Spirit Beverages' Costs	308	(1)
Choice between Job and Process Costing	309	(1)
Chapter Summary	310	(1)
Appendix A to Chapter Eight: Cost Assignment to Products Using First-In, First-Out Costing	311	(6)
Appendix B to Chapter Eight: Operation Costing	317	(3)
Key Terms	320	(1)
Meeting the Cost Management Challenges	320	(1)
Solutions to You're the Decision Maker	320	(1)
Review Questions	321	(1)
Critical Analysis	321	(1)
Exercises	322	(3)
Problems	325	(4)
Cases	329	(3)
Joint-Process Costing	332	(30)
Joint Product Processes	334	(1)
The Importance of Split Off	334	(1)
One Input---More Than One Output	334	(1)
The Decision Challenge: Which Joint Products to Produce	335	(3)
Estimation of Profits from Joint Products	335	(2)
Decision to Sell Products at Split Off or Process Them Further	337	(1)
Profit Maximization of Joint-Product Processes	337	(1)
Profit Analysis of Option 1: Grade A Standard Lumber	337	(1)
Profit Analysis of Option 2: Grade A Specialty Lumber and Grade B Standard Lumber	337	(1)
Most Profitable Products	337	(1)
Reasons for Allocating Joint Costs	338	(3)
Measuring Performance	338	(1)
Estimating Casualty Losses	339	(1)
Determining and Responding to Regulated Rates	339	(1)
Specifying and Resolving Contractual Interests and Obligations	340	(1)
Joint-Cost Implications in Contracts	340	(1)
Joint Cost-Allocation Methods	341	(4)
Distinguishing between Main and By-Products	342	(1)
Using the Net Realizable Value Method	342	(1)
Using the Physical-Measures Method	343	(2)
Choosing among Joint-Cost Allocation Methods	345	(1)
Basics of Accounting for By-Products	345	(1)
Disposal of Scrap and Waste	346	(1)
Chapter Summary	347	(1)
Appendix to Chapter Nine: Other Economic Value Methods	347	(1)
Key Terms	348	(1)
Meeting the Cost Management Challenges	349	(1)
Solutions to You're the Decision Maker	349	(1)
Review Questions	350	(1)
Critical Analysis	350	(1)
Exercises	351	(3)
Problems	354	(4)
Cases	358	(4)
Managing and Allocating Support-Service Costs	362	(45)
Service-Cost Challenge	364	(1)
Internal or Outsourced Support Services?	364	(1)
Management of Internal Support-Service Costs	365	(2)
Distinguishing between Support-Services and Production Departments	366	(1)
Deciding Who Pays for Internal Support-Service Costs	367	(1)
Reasons for Allocating Service Costs	367	(2)
Decision Making and Cost Allocations	367	(1)
Other Uses of Cost Allocations	368	(1)
Cost-Management Implications for Internal Support Services	369	(1)
Cost Allocation from Support-Service Departments to Internal Customers	369	(16)
Step 1: Identify the Costs to Be Allocated to Internal Customers	370	(1)
Step 2: Choose the Appropriate Cost-Allocation Base(s) and Rate(s)	371	(2)
Step 3: Select and Use a Cost-Allocation Method	373	(9)
Step 4: Determine Whether the Cost Allocations Achieve the Desired Results	382	(2)
Ethical Issues	384	(1)
Chapter Summary	385	(1)
Appendix to Chapter Ten: Reciprocal Method	385	(4)
Key Terms	389	(1)
Meeting the Cost Management Challenges	389	(1)
Solutions to You're the Decision Maker	390	(1)
Review Questions	391	(1)
Critical Analysis	392	(1)
Exercises	393	(3)
Problems	396	(5)
Cases	401	(6)
Part Four Planning and Decision Making	407	(238)
Cost Estimation	408	(50)
Cost Estimation	410	(1)
Costs Do Not Just Happen	410	(1)
Reasons for Estimating Costs	411	(1)
Cost Management	411	(1)
Decision Making	411	(1)
Planning and Standard Setting	412	(1)
A Simple Model: One Cost Driver and Fixed/Variable Cost Behavior	412	(1)
A More Complex Model: Multiple Cost Drivers and Complex Cost Behavior	413	(2)
Cost-Benefit Test	413	(1)
Step Costs	413	(2)
Mixed Costs	415	(1)
Nonlinear Cost Behavior	415	(1)
Cost-Estimation Methods	415	(1)
Statistical Cost Estimation Using Simple Regression Analysis	416	(5)
Simple Model for Regression Analysis	416	(1)
Application of Simple Regression Analysis to C.C. Catering	417	(3)
Use of the Regression Results	420	(1)
High-Low Method	421	(1)
Application of the High-Low Method to C.C. Catering	421	(1)
Use of Multiple Regression Analysis to Estimate Cost-Driver Rates	422	(5)
Application of Multiple Regression Analysis to C.C. Catering	422	(4)
Cautionary Note about Using Regression	426	(1)
Account Analysis Method	427	(2)
Application of Account Analysis to C.C. Catering	427	(2)
Engineering Method	429	(1)
Application of the Engineering Method to C.C. Catering	429	(1)
Comparison of the Methods and Estimates	430	(3)
Relevance of Data Inputs	430	(1)
Costs and Benefits of More Sophisticated and Detailed Methods	431	(1)
Choice of Cost Equation	431	(1)
Application of the Methods to C.C. Catering	431	(1)
C.C. Catering's Hybrid Cost-Estimation Model	432	(1)
Use of the Results	433	(2)
Forecasting	433	(2)
Outsourcing Decision	435	(1)
Costs and Benefits of Product Variety	435	(1)
Ethical Issues	436	(1)
Chapter Summary	437	(1)
Appendix A to Chapter Eleven: Technical Notes on Regression	437	(3)
Appendix B to Chapter Eleven: Learning Curves	440	(3)
Key Terms	443	(1)
Meeting the Cost Management Challenges	443	(1)
Solutions to You're the Decision Maker	443	(1)
Review Questions	444	(1)
Critical Analysis	444	(1)
Exercises	445	(6)
Problems	451	(5)
Cases	456	(2)
Financial and Cost-Volume-Profit Models	458	(48)
Introducing Financial Modeling	460	(2)
Definition of Financial Models	460	(1)
Objectives of Financial Modeling	461	(1)
Using Cost-Volume-Profit (CVP) Planning Models	462	(5)
Basic Cost-Volume-Profit Model	463	(1)
Cost-Volume-Profit Model and the Break-Even Point	463	(2)
Basic CVP Model in Graphical Format	465	(1)
CVP and Target Income	465	(1)
Operating Leverage	466	(1)
Identifying Elements of a Financial Model	467	(2)
Relations among Revenues and Costs	467	(1)
Manual versus Computer Models	467	(1)
Set Up of Computer Spreadsheet Models	467	(2)
Modeling Taxes	469	(1)
Modeling Multiple Products	470	(3)
Multiproduct Profit-Planning Model	472	(1)
Modeling Multiple Cost Drivers	473	(3)
Drivers of Profits	473	(1)
Profit-Planning Models with Multiple Cost Drivers	474	(1)
Use of ABC in Financial Modeling	475	(1)
Using Sensitivity and Scenario Analyses	476	(4)
Sensitivity Analysis: What If?	477	(2)
Scenario Analysis (Best, Worst, and Most Likely Cases)	479	(1)
Modeling Scarce Resources	480	(1)
Profit from a Single Scarce Resource Maximization	480	(1)
Chapter Summary	481	(1)
Appendix A to Chapter Twelve: Theory of Constraints	482	(3)
Appendix B to Chapter Twelve: Linear Programming	485	(4)
Key Terms	489	(1)
Meeting the Cost Management Challenges	489	(1)
Solutions to You're the Decision Maker	489	(1)
Review Questions	490	(1)
Critical Analysis	491	(1)
Exercises	491	(5)
Problems	496	(5)
Cases	501	(5)
Cost Management and Decision Making	506	(46)
Decision-Making Process	508	(1)
Stage I: Setting Goals and Objectives	509	(2)
Selecting Goals	509	(1)
Specifying Tangible Objectives	509	(1)
Setting Tangible Objectives	510	(1)
Stage II: Gathering Information	511	(5)
Objectivity versus Subjectivity	512	(1)
Accuracy	512	(1)
Timeliness	512	(1)
Relevance	512	(1)
Identification of Relevant Costs and Benefits	513	(1)
Impact on the Future	514	(1)
Trade-Off between Information Cost and Quality	515	(1)
Stage III: Evaluating Alternatives	516	(3)
The Decision Tree: A Helpful Decision Aid	516	(1)
Anticipation of the Future Outcome(s) of Each Action	516	(1)
Choice of the Best Alternative: Estimated Benefits and Costs	517	(2)
Choice of the Best Alternative Using Both Quantitative and Qualitative Information	519	(1)
Examples of Common Decisions: Outsource, or Add or Drop a Product, or Service, or Business Unit	519	(6)
Outsourcing or Make-or-Buy Decision	519	(2)
Decision to Add or Drop a Product, Service, or Business Unit	521	(2)
Relevant Costs of Replacing Equipment	523	(2)
Pricing Decisions	525	(8)
Influences on Prices	525	(5)
Special-Order Price Decisions	530	(3)
Chapter Summary	533	(1)
Key Terms	533	(1)
Meeting the Cost Management Challenges	533	(1)
Solutions to You're the Decision Maker	534	(1)
Review Questions	535	(1)
Critical Analysis	535	(1)
Exercises	536	(2)
Problems	538	(10)
Cases	548	(4)
Strategic Issues in Making Investment Decisions	552	(42)
Investment Decisions	554	(1)
Strategic Investments	554	(10)
Uncontrollable External Factors	555	(1)
Information about External Events	556	(1)
Identification of Uncontrollable Future Events	556	(2)
Likelihood of the Occurrence of Future Events	558	(1)
Expected Value Analysis	559	(1)
Internal Information	560	(1)
Forecasts of ShadeTree's Investment Information	561	(3)
Future Actions of Competitors	564	(2)
Real Option Value Analysis	566	(5)
Value of Deferring Irreversible Decisions	567	(3)
Value of the Option to Wait	570	(1)
Legal and Ethical Issues in Strategic Investment Analysis	571	(2)
World Demands Ethical Investment Practice, but What Is It?	571	(1)
Internal Ethical Pressures	572	(1)
Roles of Internal Controls and Audits	572	(1)
Chapter Summary	573	(1)
Appendix A to Chapter Fourteen: Discounted Cash Flow Analysis	573	(6)
Appendix B to Chapter Fourteen: Analysis of ShadeTree Roasters' Decision to Invest Now, Years 1--6	579	(1)
Key Terms	580	(1)
Meeting the Cost Management Challenges	581	(1)
Solutions to You're the Decision Maker	581	(2)
Review Questions	583	(1)
Critical Analysis	584	(1)
Exercises	584	(3)
Problems	587	(3)
Cases	590	(4)
Budgeting and Financial Planning	594	(51)
Strategic Planning: Achieving and Maintaining a Competitive Advantage	596	(1)
What Is a Strategic Long-Range Plan?	596	(1)
What Are the Key Purposes of Budgeting Systems?	597	(1)
Planning	597	(1)
Facilitating Communication and Coordination	597	(1)
Allocating Resources	597	(1)
Managing Financial and Operational Performance	598	(1)
Evaluating Performance and Providing Incentives	598	(1)
Organizations Use Many Types of Budgets	598	(1)
Master Budget as a Planning Tool	598	(4)
Sales Budget: The Starting Point	598	(3)
Operational Budgets: Meeting the Demand for Goods and Services	601	(1)
Budgeted Financial Statements: Completing the Master Budget	601	(1)
Master Budget for Nonprofit Organizations	601	(1)
International Aspects of Budgeting	602	(1)
Activity-Based Budgeting	603	(1)
Illustrating the Master Budget	604	(13)
Sales Budget	604	(1)
Production Budget	604	(2)
Direct-Material Budget	606	(1)
Direct-Labor Budget	607	(1)
Manufacturing-Overhead Budget	607	(2)
Selling, General, and Administrative (SG&A) Expense Budget	609	(1)
Cash Receipts Budget	610	(1)
Cash Disbursements Budget	611	(1)
Cash Budget: Combining Receipts and Disbursements	612	(1)
Budgeted Schedule of Cost of Goods Manufactured and Sold	613	(1)
Budgeted Income Statement	614	(1)
Budgeted Balance Sheet	614	(1)
Assumptions and Predictions Underlying the Master Budget	614	(2)
Financial Planning Models	616	(1)
Responsibility for Budget Administration	617	(1)
Behavioral Implications of Budgets	618	(2)
Budgetary Slack: Padding the Budget	618	(1)
Participative Budgeting	619	(1)
Ethical Issues in Budgeting	619	(1)
Zero-Base Budgeting for Discretionary Costs	620	(1)
Base Budgeting	620	(1)
Contemporary Trends in Budgeting and Financial Planning	620	(1)
Chapter Summary	621	(1)
Appendix to Chapter Fifteen: Inventory Management	621	(4)
Key Terms	625	(1)
Meeting the Cost Management Challenges	626	(1)
Solutions to You're the Decision Maker	626	(1)
Review Questions	627	(1)
Critical Analysis	627	(1)
Exercises	628	(4)
Problems	632	(8)
Cases	640	(5)
Part Five Evaluating and Managing Performance Creating and Managing Value-Added Effort	645	(230)
Standard Costing, Variance Analysis, and Kaizen Costing	646	(42)
Use of Standard-Costing Systems for Control	648	(4)
Management by Exception	648	(1)
Setting Standards	649	(1)
Perfection versus Practical Standards: A Behavioral Issue	650	(1)
Use of Standards by Nonmanufacturing Organizations	651	(1)
Costs and Benefits of Standard-Costing Systems	652	(1)
Cost Variance Analysis	652	(6)
Direct-Material Standards	652	(1)
Direct-Labor Standards	653	(1)
Standard Costs Given Actual Output	653	(1)
Analysis of Cost Variances	653	(1)
Direct-Material Variances	654	(1)
Direct-Labor Variances	655	(2)
Multiple Types of Direct Material and Direct Labor	657	(1)
Allowance for Defects or Spoilage	657	(1)
Significance of Cost Variances: When to Follow Up	658	(3)
Size of Variances	658	(1)
Recurring Variances	658	(1)
Trends	659	(1)
Controllability	659	(1)
Favorable Variances	659	(1)
Costs and Benefits of Investigation	659	(1)
Statistical Analysis	660	(1)
Behavioral Effects of Standard Costing	661	(1)
Controllability of Variances	661	(3)
Which Managers Influence Cost Variances?	662	(1)
Interaction among Variances	662	(2)
Use of Standard Costs for Product Costing	664	(2)
Journal Entries under Standard Costing	664	(1)
Cost Flows under Standard Costing	665	(1)
Impact of Information Technology on Standard Costing	666	(1)
Use of Bar Codes	666	(1)
Computer-Aided Design	666	(1)
Standard Costing: Its Traditional Advantages	667	(1)
Changing Role of Standard-Costing Systems in Today's Manufacturing Environment	667	(3)
Criticisms of Standard Costing in Today's Manufacturing Environment	668	(1)
Adaptation of Standard-Costing Systems	668	(2)
Kaizen Costing	670	(1)
Chapter Summary	671	(1)
Appendix to Chapter Sixteen: Production Mix and Yield Variances	671	(4)
Key Terms	675	(1)
Meeting the Cost-Management Challenges	675	(1)
Solution to You're the Decision Maker	676	(1)
Review Questions	677	(1)
Critical Analysis	677	(1)
Exercises	678	(3)
Problems	681	(5)
Cases	686	(2)
Flexible Budgets, Overhead Cost Management, and Activity-Based Budgeting	688	(54)
Definition of Flexible-Overhead Budgets	690	(7)
Advantages of Flexible Budgets	691	(1)
Activity Measure: Based on Input or Output?	691	(2)
Flexible-Overhead Budget Illustrated	693	(1)
Overhead Application in a Standard-Costing System	694	(1)
Choice of Activity Measure	695	(1)
Impact of Information Technology	696	(1)
Overhead Cost Variances	697	(7)
Flexible Budget: Basis for Management of Overhead Cost	697	(1)
Variable-Overhead Variances	697	(3)
Fixed-Overhead Variances	700	(3)
What Do Four-Way, Three-Way, and Two-Way Variance Analyses Tell the Cost Manager?	703	(1)
Using the Overhead Cost Performance Report In Cost Management	704	(1)
Using Standard Costs in Product Costing	705	(1)
Journal Entries under Standard Costing	705	(1)
Disposition of Variances	706	(1)
Activity-Based Flexible Budget	706	(3)
How Does ABC Affect Performance Reporting?	707	(2)
Other Issues in Variance Analysis	709	(1)
Standard Costing in a Just-in-Time Environment	709	(1)
Sales-Variance Analysis	709	(1)
Chapter Summary	709	(1)
Appendix A to Chapter Seventeen: Proration of Cost Variances	709	(3)
Appendix B to Chapter Seventeen: Standard Costing in a Just-in-Time Environment	712	(2)
Appendix C to Chapter Seventeen: Sales Variance Analysis	714	(7)
Key Terms	721	(1)
Meeting the Cost-Management Challenges	721	(1)
Solution to You're the Decision Maker	722	(2)
Review Questions	724	(1)
Critical Analysis	724	(1)
Exercises	724	(5)
Problems	729	(8)
Cases	737	(5)
Organizational Design, Responsibility Accounting, and Evaluation of Divisional Performance	742	(46)
Decentralized Organizations and Responsibility Accounting	744	(2)
Centralization versus Decentralization	744	(1)
Benefits and Costs of a Decentralized Organization Structure	744	(2)
Responsibility Accounting	746	(1)
Cost Center	746	(1)
Discretionary Cost Center	746	(1)
Revenue Center	746	(1)
Profit Center	746	(1)
Investment Center	747	(1)
Illustration of Responsibility Accounting	747	(3)
Corporate Level	747	(1)
Division Level	748	(1)
Plant Level	749	(1)
Department Level	749	(1)
Work Center Level	750	(1)
Performance Reports	750	(2)
Budgets, Variance Analysis, and Responsibility Accounting	752	(1)
Activity-Based Responsibility Accounting	752	(1)
How Responsibility Accounting Affects Behavior	752	(2)
Does It Provide Information or Place Blame?	753	(1)
Is There Really Cost or Revenue Controllability?	753	(1)
How Can Desired Behavior Be Motivated?	753	(1)
Performance Measurement in Investment Centers	754	(7)
Return on Investment as a Performance Measure	755	(2)
Residual Income as a Performance Measure	757	(3)
Economic Value Added (EVA) as a Performance Measure	760	(1)
Measuring Invested Capital and Income	761	(5)
Measuring Invested Capital	761	(3)
Measuring Investment-Center Income	764	(1)
Determining the Impact of Inflation and Deflation: Current Value versus Historical-Cost Accounting	765	(1)
Measuring Income and Invested Capital: Summary	766	(1)
Use of Investment Center Performance Measures to Provide Managerial Incentives	766	(5)
Return on Investment (ROI)	766	(1)
Residual Income or Economic Value Added	767	(1)
Stock-Price Performance	768	(1)
Nonfinancial Performance Measures	768	(2)
Viewing an Investment Center as a Collection of Investments	770	(1)
Performance Measurement in Nonprofit Organizations	770	(1)
Chapter Summary	771	(1)
Key Terms	771	(1)
Meeting the Cost Management Challenges	771	(1)
Solutions to You're the Decision Maker	772	(1)
Review Questions	772	(1)
Critical Analysis	773	(1)
Exercises	773	(3)
Problems	776	(7)
Cases	783	(5)
Transfer Pricing	788	(30)
Impact of Transfer Pricing on Organizations	790	(10)
Goal and Behavioral Congruence	791	(1)
General Transfer-Pricing Rule	791	(3)
Transfers Based on the External Market Price	794	(1)
Negotiated Transfer Prices	795	(1)
Cost-Based Transfer Prices	796	(2)
Standard versus Actual Costs	798	(1)
Activity-Based Costing	798	(1)
Remedy for Motivational Problems of Transfer-Pricing Policies	798	(1)
Undermining of Divisional Autonomy	798	(1)
Dual Transfer Prices	799	(1)
Global Transfer-Pricing Practices	800	(2)
Multinational Transfer Pricing	800	(2)
Segment Reporting and Transfer Pricing	802	(1)
Transfer Pricing in the Service Industry	803	(1)
Chapter Summary	803	(1)
Key Terms	803	(1)
Meeting the Cost-Management Challenges	803	(1)
Solutions to You're the Decision Maker	804	(1)
Review Questions	804	(1)
Critical Analysis	805	(1)
Exercises	805	(3)
Problems	808	(6)
Cases	814	(4)
Strategy, Balanced Scorecards, and Incentive Systems	818	(57)
Valley Commercial Bank: Ahead of the Competition	820	(1)
Using Leading and Lagging Indicators in Balanced Scorecards to Communicate, Motivate, and Evaluate	820	(4)
Leading and Lagging Indicators	820	(1)
Communicating Strategy to Employees	821	(1)
Motivating Employees and Evaluating Performance	821	(1)
Modern Origin and Use of Balanced Scorecards	822	(1)
Balanced Scorecard's Strategic Performance Measures	822	(2)
Implementation of a Balanced Scorecard	824	(7)
Organizational Learning and Growth	824	(2)
Business and Production Process Performance	826	(2)
Customer Performance	828	(2)
Financial Performance	830	(1)
Benefits and Costs of a Balanced Scorecard	831	(2)
Benefits of a Balanced Scorecard	831	(1)
Costs of a Balanced Scorecard	832	(1)
Unanswered Balanced Scorecard Questions	833	(1)
Balanced Scorecard Implementation at Valley Commercial Bank	833	(2)
Fundamental Principles of Incentive Systems	835	(3)
Unintended Consequences of Incentive Systems	836	(1)
Desired Behavior---It's Where to Begin	837	(1)
Reality Intrudes	837	(1)
Role for Theories of Incentives and Behavior	837	(1)
Features of Performance-Based Incentive Systems	838	(9)
Absolute or Relative Performance	838	(2)
Formula-Based or Subjective Performance	840	(1)
Financial or Nonfinancial Performance	841	(2)
Narrow or Broad Responsibility of Performance	843	(1)
Current or Deferred Rewards	844	(1)
Salary, Bonus, or Stock Rewards	845	(2)
Ethical Aspects of Incentives and Compensation	847	(3)
Incentive Plans in Nonprofit Organizations	848	(1)
Summary of Valley Commercial Bank's Incentive System	849	(1)
Balanced Scorecard-Based Incentives	849	(1)
Chapter Summary	850	(1)
Appendix to Chapter Twenty: Theories of Incentives and Behavior	851	(4)
Key Terms	855	(1)
Meeting the Cost Management Challenges	856	(1)
Solutions to You're the Decision Maker	856	(1)
Review Questions	857	(1)
Critical Analysis	857	(1)
Exercises	858	(3)
Problems	861	(6)
Cases	867	(8)
Glossary	875	(10)
Photo Credits	885	(2)
Bibliography	887	(6)
Company Name Index	893	(4)
Subject Index	897