Managerial Accounting

by Garrison, Ray H.; Noreen, Eric W.; Brewer, Peter C.

• ISBN13: 9780072834949
• ISBN10: 0072834943
• Edition: 11th
• Format: Hardcover
• Copyright: 2004-12-08
• Publisher: McGraw-Hill/Irwin

Summary

As the long-time best-seller, Garrison has helped guide close to 2 million students through the challenging waters of managerial accounting since it was first published. It identifies the three functions managers must perform within their organizations-plan operations, control activities, and make decisions-and explains what accounting information is necessary for these functions, how to collect it, and how to interpret it. To achieve this, Managerial Accounting, 11/E, focuses, now as in the past, on three qualities:Relevance: Every effort is made to help students relate the concepts in this book to the decisions made by working managers. With insightful chapter openers, the popular Managerial Accounting in Action segments within the chapters, and stimulating end-of-chapter exercises, a student reading Garrison should never have to ask "Why am I learning this?"Balance: There's more than one type of business, and so Garrison covers a variety of business models, including not-for-profit, retail, service, and wholesale organizations as well as manufacturing. In the eleventh edition, service company examples are highlighted with icons in the margins of the text.Clarity: Generations of students have praised Garrison for the friendliness and readability of its writing, but that's just the beginning. Technical discussions have been simplified, material has been reordered, and the entire book carefully retuned to make teaching-and learning-from Garrison as easy as it can be. In addition, the supplements package is written by Garrison, Noreen, and Brewer, ensuring that students and professors will work with clear, well-written supplements that employ consistent terminology.

Table of Contents

Managerial Accounting and the Business Environment	2	(32)
The Work of Management and the Need for Managerial Accounting Information	4	(2)
Planning	5	(1)
Directing and Motivating	5	(1)
Controlling	5	(1)
The End Results of Managers' Activities	6	(1)
The Planning and Control Cycle	6	(1)
Comparison of Financial and Managerial Accounting	6	(3)
Emphasis on the Future	6	(2)
Relevance of Data	8	(1)
Less Emphasis on Precision	8	(1)
Segments of an Organization	8	(1)
Generally Accepted Accounting Principles (GAAP)	9	(1)
Managerial Accounting---Not Mandatory	9	(1)
Organizational Structure	9	(3)
Decentralization	9	(1)
Line and Staff Relationships	10	(1)
The Chief Financial Officer	11	(1)
The Changing Business Environment	12	(8)
Just-In-Time (JIT)	12	(2)
JIT Consequences	14	(1)
Benefits of a JIT System	15	(1)
Total Quality Management (TQM)	15	(1)
Process Reengineering	16	(1)
The Theory of Constraints (TOC)	17	(1)
International Competition	18	(1)
E-Commerce	19	(1)
Professional Ethics	20	(7)
Code of Conduct for Management Accountants	22	(2)
Company Codes of Conduct	24	(2)
Codes of Conduct on the International Level	26	(1)
The Certified Management Accountant (CMA)	27	(7)
Summary	27	(1)
Glossary	28	(1)
Questions	29	(1)
Exercises	30	(1)
Problems	31	(2)
Group and Internet Exercises	33	(1)
Cost Terms, Concepts, and Classifications	34	(52)
General Cost Classifications	36	(2)
Manufacturing Costs	36	(1)
Direct Materials	36	(1)
Direct Labor	36	(1)
Manufacturing Overhead	37	(1)
Nonmanufacturing Costs	38	(1)
Product Costs versus Period Costs	38	(3)
Product Costs	38	(1)
Period Costs	39	(2)
Cost Classifications on Financial Statements	41	(4)
The Balance Sheet	41	(1)
The Income Statement	42	(1)
Schedule of Cost of Goods Manufactured	43	(2)
Product Cost Flows	45	(3)
Inventoriable Costs	45	(1)
An Example of Cost Flows	46	(2)
Cost Classifications for Predicting Cost Behavior	48	(2)
Variable Cost	48	(1)
Fixed Cost	49	(1)
Cost Classifications for Assigning Costs to Cost Objects	50	(1)
Direct Cost	50	(1)
Indirect Cost	50	(1)
Cost Classifications for Decision Making	51	(35)
Differential Cost and Revenue	51	(1)
Opportunity Cost	52	(1)
Example 1	52	(1)
Example 2	52	(1)
Example 3	52	(1)
Sunk Cost	53	(1)
Summary	53	(1)
Review Problem 1: Cost Terms	54	(1)
Review Problem 2: Schedule of Cost of Goods Manufactured and Income Statement	55	(2)
Glossary	57	(1)
Appendix 2A: Further Classification of Labor Costs'	58	(1)
Appendix 2B: Cost of Quality	59	(9)
Questions	68	(1)
Exercises	69	(4)
Problems	73	(9)
Cases	82	(2)
Group and Internet Exercises	84	(2)
Systems Design: Job-Order Costing	86	(58)
Process and Job-Order Costing	88	(1)
Process Costing	88	(1)
Job-Order Costing	89	(1)
Job-Order Costing---An Overview	89	(9)
Measuring Direct Materials Cost	90	(1)
Job Cost Sheet	91	(1)
Measuring Direct Labor Cost	91	(2)
Application of Manufacturing Overhead	93	(1)
Using the Predetermined Overhead Rate	94	(1)
The Need for a Predetermined Rate	94	(2)
Choice of an Allocation Base for Overhead Cost	96	(1)
Computation of Unit Costs	96	(1)
Summary of Document Flows	96	(2)
Job-Order Costing---The Flow of Costs	98	(6)
The Purchase and Issue of Materials	98	(1)
Issue of Direct and Indirect Materials	98	(1)
Issue of Direct Materials Only	99	(1)
Labor Cost	99	(1)
Manufacturing Overhead Costs	100	(1)
The Application of Manufacturing Overhead	101	(1)
The Concept of a Clearing Account	101	(1)
Nonmanufacturing Costs	102	(1)
Cost of Goods Manufactured	103	(1)
Cost of Goods Sold	103	(1)
Summary of Cost Flows	104	(1)
Problems of Overhead Application	104	(8)
Underapplied and Overapplied Overhead	104	(5)
Disposition of Under- or Overapplied Overhead Balances	109	(1)
Closed Out to Cost of Goods Sold	109	(1)
Allocated between Accounts	110	(1)
A General Model of Product Cost Flows	110	(1)
Multiple Predetermined Overhead Rates	110	(1)
Job-Order Costing in Service Companies	111	(1)
Use of Information Technology	112	(32)
Summary	113	(1)
Review Problem: Job-Order Costing	114	(2)
Glossary	116	(1)
Appendix 3A: The Predetermined Overhead Rate and Capacity	117	(1)
Questions	118	(1)
Exercises	119	(7)
Problems	126	(12)
Cases	138	(4)
Group and Internet Exercises	142	(2)
Systems Design: Process Costing	144	(38)
Comparison of Job-Order and Process Costing	146	(1)
Similarities between Job-Order and Process Costing	146	(1)
Differences between Job-Order and Process Costing	146	(1)
A Perspective of Process Cost Flows	147	(5)
Processing Departments	147	(1)
The Flow of Materials, Labor, and Overhead Costs	148	(1)
Materials, Labor, and Overhead Cost Entries	148	(1)
Materials Costs	149	(1)
Labor Costs	149	(1)
Overhead Costs	150	(1)
Completing the Cost Flows	150	(2)
Equivalent Units of Production	152	(1)
Weighted-Average Method	152	(1)
Production Report---Weighted-Average Method	153	(6)
Step 1: Prepare a Quantity Schedule and Compute the Equivalent Units	155	(1)
Step 2: Compute Costs per Equivalent Unit	156	(1)
Step 3: Prepare a Cost Reconciliation	156	(1)
Example of a Cost Reconciliation	156	(3)
Operation Costing	159	(23)
Summary	159	(1)
Review Problem: Process Cost Flows and Reports	160	(2)
Glossary	162	(1)
Appendix 4A: FIFO Method	162	(6)
Questions	168	(1)
Exercises	169	(5)
Problems	174	(6)
Cases	180	(1)
Group and Internet Exercises	181	(1)
Cost Behavior: Analysis and Use	182	(46)
Types of Cost Behavior Patterns	184	(12)
Variable Costs	184	(1)
The Activity Base	185	(1)
Extent of Variable Costs	186	(1)
True Variable versus Step-Variable Costs	187	(1)
True Variable Costs	187	(1)
Step-Variable Costs	187	(1)
The Linearity Assumption and the Relevant Range	188	(1)
Fixed Costs	188	(2)
Types of Fixed Costs	190	(1)
Committed Fixed Costs	190	(1)
Discretionary Fixed Costs	191	(1)
The Trend toward Fixed Costs	192	(1)
Is Labor a Variable or a Fixed Cost?	192	(1)
Fixed Costs and the Relevant Range	193	(1)
Mixed Costs	194	(2)
The Analysis of Mixed Costs	196	(10)
Diagnosing Cost Behavior with a Scattergraph Plot	198	(3)
The High-Low Method	201	(3)
The Least-Squares Regression Method	204	(2)
Multiple Regression Analysis	206	(1)
The Contribution Format Income Statement	206	(22)
Why a New Income Statement Format?	206	(1)
The Contribution Approach	207	(1)
Summary	207	(1)
Review Problem 1: Cost Behavior	208	(1)
Review Problem 2: High-Low Method	209	(1)
Glossary	210	(1)
Appendix 5A: Least-Squares Regression Using Microsoft® Excel	210	(2)
Questions	212	(1)
Exercises	213	(4)
Problems	217	(6)
Cases	223	(4)
Group and Internet Exercises	227	(1)
Cost-Volume-Profit Relationships	228	(46)
The Basics of Cost-Volume-Profit (CVP) Analysis	231	(4)
Contribution Margin	231	(2)
CVP Relationships in Graphic Form	233	(1)
Preparing the CVP Graph	233	(2)
Contribution Margin Ratio (CM Ratio)	235	(1)
Some Applications of CVP Concepts	236	(3)
Change in Fixed Cost and Sales Volume	236	(1)
Change in Variable Costs and Sales Volume	237	(1)
Change in Fixed Cost, Sales Price, and Sales Volume	237	(1)
Change in Variable Cost, Fixed Cost, and Sales Volume	238	(1)
Change in Regular Sales Price	239	(1)
Break-Even Analysis	239	(5)
Break-Even Computations	239	(1)
The Equation Method	239	(1)
The Contribution Margin Method	240	(1)
Target Profit Analysis	241	(1)
The CVP Equation	241	(1)
The Contribution Margin Approach	242	(1)
The Margin of Safety	242	(2)
CVP Considerations in Choosing a Cost Structure	244	(3)
Cost Structure and Profit Stability	244	(2)
Operating Leverage	246	(1)
Structuring Sales Commissions	247	(1)
The Concept of Sales Mix	248	(2)
The Definition of Sales Mix	248	(1)
Sales Mix and Break-Even Analysis	248	(2)
Assumptions of CVP Analysis	250	(24)
Summary	251	(1)
Review Problem: CVP Relationships	251	(3)
Glossary	254	(1)
Questions	254	(1)
Exercises	255	(5)
Problems	260	(8)
Cases	268	(4)
Group and Internet Exercises	272	(2)
Variable Costing: A Tool for Management	274	(38)
Overview of Absorption and Variable Costing	276	(2)
Absorption Costing	276	(1)
Variable Costing	276	(1)
Unit Cost Computations	277	(1)
Income Comparison of Absorption and Variable Costing	278	(2)
Extended Comparison of Income Data	280	(4)
Effect of Changes in Production on Net Operating Income	284	(4)
Variable Costing	285	(1)
Absorption Costing	285	(3)
Choosing a Costing Method	288	(24)
The Impact on the Manager	288	(1)
CVP Analysis and Absorption Costing	289	(1)
Decision Making	290	(1)
External Reporting and Income Taxes	290	(1)
Advantages of Variable Costing and the Contribution Approach	291	(1)
Variable Costing and the Theory of Constraints	292	(1)
Impact of JIT Inventory Methods	292	(1)
Summary	293	(1)
Review Problem: Contrasting Variable and Absorption Costing	293	(2)
Glossary	295	(1)
Questions	295	(1)
Exercises	296	(4)
Problems	300	(6)
Cases	306	(4)
Group and Internet Exercises	310	(2)
Activity-Based Costing: A Tool to Aid Decision Making	312	(64)
How Costs Are Treated under Activity-Based Costing	315	(2)
Nonmanufacturing Costs and Activity-Based Costing	315	(1)
Manufacturing Costs and Activity-Based Costing	315	(1)
Plantwide Overhead Rate	315	(1)
Departmental Overhead Rates	316	(1)
The Costs of Idle Capacity in Activity-Based Costing	317	(1)
Designing an Activity-Based Costing (ABC) System	317	(6)
Step 1: Identify and Define Activities and Activity Cost Pools	320	(3)
The Mechanics of Activity-Based Costing	323	(7)
Step 2: Whenever Possible, Directly Trace Overhead Costs to Activities and Cost Objects	323	(1)
Step 3: Assign Costs to Activity Cost Pools	324	(3)
Step 4: Calculate Activity Rates	327	(1)
Step 5: Assign Costs to Cost Objects	328	(2)
Step 6: Prepare Management Reports	330	(1)
Comparison of Traditional and ABC Product Costs	330	(5)
Product Margins Computed Using the Traditional Cost System	330	(1)
The Differences between ABC and Traditional Product Costs	331	(4)
Targeting Process Improvements	335	(2)
Activity-Based Costing and External Reports	337	(1)
The Limitations of Activity-Based Costing	338	(38)
Summary	339	(1)
Review Problem: Activity-Based Costing	340	(1)
Glossary	341	(1)
Appendix 8A: ABC Action Analysis	342	(8)
Questions	350	(1)
Exercises	351	(10)
Problems	361	(8)
Cases	369	(6)
Group and Internet Exercises	375	(1)
Profit Planning	376	(50)
The Basic Framework of Budgeting	378	(9)
Personal Budgets	378	(1)
Difference between Planning and Control	378	(1)
Advantages of Budgeting	378	(1)
Responsibility Accounting	379	(1)
Choosing a Budget Period	380	(1)
The Self-Imposed Budget	381	(1)
Human Factors in Budgeting	382	(1)
Zero-Based Budgeting	382	(2)
The Budget Committee	384	(1)
The Master Budget: An Overview	385	(1)
The Sales Budget	385	(1)
The Cash Budget	385	(1)
Sales Forecasting---A Critical Step	385	(2)
Preparing the Master Budget	387	(12)
The Sales Budget	389	(1)
The Production Budget	390	(1)
Inventory Purchases---Merchandising Company	391	(1)
The Direct Materials Budget	391	(2)
The Direct Labor Budget	393	(1)
The Manufacturing Overhead Budget	394	(1)
The Ending Finished Goods Inventory Budget	395	(1)
The Selling and Administrative Expense Budget	395	(1)
The Cash Budget	396	(3)
The Budgeted Income Statement	399	(3)
The Budgeted Balance Sheet	400	(2)
International Aspects of Budgeting	402	(24)
Summary	403	(1)
Review Problem: Budget Schedules	403	(2)
Glossary	405	(1)
Questions	406	(1)
Exercises	406	(2)
Problems	408	(13)
Cases	421	(4)
Group and Internet Exercises	425	(1)
Standard Costs and the Balanced Scorecard	426	(64)
Standard Costs---Management by Exception	429	(2)
Who Uses Standard Costs?	430	(1)
Setting Standard Costs	431	(4)
Ideal versus Practical Standards	431	(1)
Setting Direct Materials Standards	432	(1)
Setting Direct Labor Standards	432	(2)
Setting Variable Manufacturing Overhead Standards	434	(1)
Are Standards the Same as Budgets?	435	(1)
A General Model for Variance Analysis	435	(1)
Price and Quantity Variances	435	(1)
Using Standard Costs---Direct Materials Variances	436	(5)
Materials Price Variance---A Closer Look	438	(1)
Isolation of Variances	439	(1)
Responsibility for the Variance	439	(1)
Materials Quantity Variance---A Closer Look	440	(1)
Using Standard Costs---Direct Labor Variances	441	(2)
Labor Rate Variance---A Closer Look	441	(1)
Labor Efficiency Variance---A Closer Look	442	(1)
Using Standard Costs---Variable Manufacturing Overhead Variances	443	(2)
Manufacturing Overhead Variances---A Closer Look	443	(2)
Variance Analysis and Management by Exception	445	(2)
International Uses of Standard Costs	447	(1)
Evaluation of Controls Based on Standard Costs	447	(2)
Advantages of Standard Costs	447	(1)
Potential Problems with the Use of Standard Costs	448	(1)
Balanced Scorecard	449	(41)
Common Characteristics of Balanced Scorecards	450	(2)
A Company's Strategy and the Balanced Scorecard	452	(2)
Tying Compensation to the Balanced Scorecard	454	(1)
Advantages of Timely and Graphic Feedback	454	(2)
Some Measures of Internal Business Process Performance	456	(1)
Delivery Cycle Time	456	(1)
Throughput (Manufacturing Cycle) Time	456	(1)
Manufacturing Cycle Efficiency (MCE)	457	(1)
Some Final Observations Concerning the Balanced Scorecard	458	(1)
Summary	459	(1)
Review Problem: Standard Costs	459	(2)
Glossary	461	(1)
Appendix 10A: General Ledger Entries to Record Variances	462	(2)
Questions	464	(1)
Exercises	465	(6)
Problems	471	(13)
Cases	484	(4)
Group and Internet Exercises	488	(2)
Flexible Budgets and Overhead Analysis	490	(48)
Flexible Budgets	492	(6)
Characteristics of a Flexible Budget	492	(1)
Deficiencies of the Static Budget	493	(1)
How a Flexible Budget Works	494	(1)
Using the Flexible Budgeting Concept in Performance Evaluation	495	(3)
The Measure of Activity---A Critical Choice	498	(1)
Variable Overhead Variances---A Closer Look	498	(4)
Actual versus Standard Hours	498	(1)
Spending Variance Alone	499	(1)
Interpreting the Spending Variance	500	(1)
Both Spending and Efficiency Variances	500	(1)
Interpreting the Efficiency Variance	500	(1)
Control of the Efficiency Variance	501	(1)
Activity-Based Costing and the Flexible Budget	502	(1)
Overhead Rates and Fixed Overhead Analysis	502	(36)
Flexible Budgets and Overhead Rates	502	(1)
Denominator Activity	503	(1)
Computing the Overhead Rate	504	(1)
Overhead Application in a Standard Cost System	505	(1)
The Fixed Overhead Variances	505	(1)
The Budget Variance---A Closer Look	506	(1)
The Volume Variance---A Closer Look	507	(1)
Graphic Analysis of Fixed Overhead Variances	508	(1)
Cautions in Fixed Overhead Analysis	509	(1)
Overhead Variances and Under- or Overapplied Overhead Cost	509	(1)
Summary	509	(1)
Review Problem: Overhead Analysis	510	(2)
Glossary	512	(1)
Questions	513	(1)
Exercises	513	(6)
Problems	519	(12)
Cases	531	(4)
Group and Internet Exercises	535	(3)
Segment Reporting and Decentralization	538	(62)
Decentralization in Organizations	540	(1)
Advantages and Disadvantages of Decentralization	540	(1)
Responsibility Accounting	541	(2)
Cost, Profit, and Investment Centers	541	(1)
Cost Center	541	(1)
Profit Center	541	(1)
Investment Center	542	(1)
An Organizational View of Responsibility Centers	542	(1)
Decentralization and Segment Reporting	543	(10)
Building a Segmented Income Statement	543	(3)
Levels of Segmented Statements	546	(1)
Sales and Contribution Margin	546	(2)
Traceable and Common Fixed Costs	548	(1)
Identifying Traceable Fixed Costs	548	(1)
Activity-Based Costing	548	(2)
Traceable Costs Can Become Common Costs	550	(1)
Segment Margin	550	(2)
Segmented Financial Information on External Reports	552	(1)
Hindrances to Proper Cost Assignment	553	(2)
Omission of Costs	553	(1)
Inappropriate Methods for Assigning Traceable Costs among Segments	554	(1)
Failure to Trace Costs Directly	554	(1)
Inappropriate Allocation Base	554	(1)
Arbitrarily Dividing Common Costs among Segments	554	(1)
Evaluating Investment Center Performance---Return on Investment	555	(6)
The Return on Investment (ROI) Formula	556	(1)
Net Operating Income and Operating Assets Defined	556	(1)
Understanding ROI---The DuPont Perspective	556	(2)
Example 1: Increased Sales without Any Increase in Operating Assets	558	(1)
Example 2: Decreased Operating Expenses with No Change in Sales or Operating Assets	559	(1)
Example 3: Decreased Operating Assets with No Change in Sales or Operating Expenses	559	(1)
Example 4: Invest in Operating Assets to Increase Sales	560	(1)
ROI and the Balanced Scorecard	560	(1)
Criticisms of ROI	561	(1)
Residual Income	561	(39)
Motivation and Residual Income	563	(1)
Divisional Comparison and Residual Income	563	(2)
Summary	565	(1)
Review Problem 1: Segmented Statements	565	(1)
Review Problem 2: Return on Investment (ROI) and Residual Income	565	(2)
Glossary	567	(1)
Appendix 12A: Transfer Pricing	568	(6)
Review Problem 3: Transfer Pricing	574	(2)
Questions	576	(1)
Exercises	576	(6)
Problems	582	(12)
Cases	594	(3)
Group and Internet Exercises	597	(3)
Relevant Costs for Decision Making	600	(52)
Cost Concepts for Decision Making	601	(8)
Identifying Relevant Costs and Benefits	601	(1)
Different Costs for Different Purposes	602	(1)
An Example of Identifying Relevant Costs and Benefits	602	(4)
Reconciling the Total and Differential Approaches	606	(2)
Why Isolate Relevant Costs?	608	(1)
Adding and Dropping Product Lines and Other Segments	609	(4)
An Illustration of Cost Analysis	609	(2)
A Comparative Format	611	(1)
Beware of Allocated Fixed Costs	611	(2)
The Make or Buy Decision	613	(2)
Strategic Aspects of the Make or Buy Decision	613	(1)
An Example of Make or Buy	614	(1)
Opportunity Cost	615	(1)
Special Orders	616	(2)
Utilization of a Constrained Resource	618	(4)
Contribution in Relation to a Constrained Resource	618	(2)
Managing Constraints	620	(1)
The Problem of Multiple Constraints	621	(1)
Joint Product Costs and the Contribution Approach	622	(3)
The Pitfalls of Allocation	622	(1)
Sell or Process Further Decisions	622	(3)
Activity-Based Costing and Relevant Costs	625	(27)
Summary	626	(1)
Review Problem: Relevant Costs	626	(1)
Glossary	627	(1)
Questions	628	(1)
Exercises	628	(6)
Problems	634	(8)
Cases	642	(8)
Group and Internet Exercises	650	(2)
Capital Budgeting Decisions	652	(64)
Capital Budgeting---Planning Investments	654	(1)
Typical Capital Budgeting Decisions	654	(1)
The Time Value of Money	654	(1)
Discounted Cash Flows---The Net Present Value Method	655	(6)
The Net Present Value Method Illustrated	655	(2)
Emphasis on Cash Flows	657	(1)
Typical Cash Outflows	657	(1)
Typical Cash Inflows	657	(1)
Recovery of the Original Investment	658	(1)
Simplifying Assumptions	658	(1)
Choosing a Discount Rate	659	(1)
An Extended Example of the Net Present Value Method	659	(2)
Discounted Cash Flows---The Internal Rate of Return Method	661	(2)
The Internal Rate of Return Method Illustrated	661	(1)
Salvage Value and Other Cash Flows	661	(1)
Using the Internal Rate of Return	662	(1)
The Cost of Capital as a Screening Tool	662	(1)
Comparison of the Net Present Value and the Internal Rate of Return Methods	662	(1)
Expanding the Net Present Value Method	663	(4)
The Total-Cost Approach	663	(2)
The Incremental-Cost Approach	665	(1)
Least-Cost Decisions	666	(1)
Uncertain Cash Flows	667	(2)
An Example	668	(1)
Real Options	668	(1)
Preference Decisions---The Ranking of Investment Projects	669	(1)
Internal Rate of Return Method	669	(1)
Net Present Value Method	670	(1)
Other Approaches to Capital Budgeting Decisions	670	(6)
The Payback Method	671	(1)
Evaluation of the Payback Method	671	(2)
An Extended Example of Payback	673	(1)
Payback and Uneven Cash Flows	674	(1)
The Simple Rate of Return Method	674	(2)
Criticisms of the Simple Rate of Return	676	(1)
Postaudit of Investment Projects	676	(40)
Summary	677	(1)
Review Problem I: Basic Present Value Computations	678	(1)
Review Problem 2: Comparison of Capital Budgeting Methods	679	(1)
Glossary	680	(1)
Appendix 14A: The Concept of Present Value	681	(3)
Appendix 14B: Inflation and Capital Budgeting	684	(3)
Appendix 14C: Future Value and Present Value Tables	687	(4)
Appendix 14D: Income Taxes in Capital Budgeting Decisions	691	(4)
Questions	695	(1)
Exercises	696	(6)
Problems	702	(8)
Cases	710	(4)
Group and Internet Exercises	714	(2)
Service Department Costing: An Activity Approach	716	(32)
Allocations Using the Direct and Step Methods	718	(5)
Selecting Allocation Bases	718	(1)
Interdepartmental Services	719	(1)
Direct Method	720	(1)
Step Method	721	(1)
Reciprocal Method	722	(1)
Revenue Producing Departments	723	(1)
Allocating Costs by Behavior	723	(4)
Variable Costs	723	(1)
Fixed Costs	723	(1)
Should Actual or Budgeted Costs Be Allocated?	724	(1)
A Summary of Cost Allocation Guidelines	725	(1)
Implementing the Allocation Guidelines	725	(1)
Base Allocation Techniques	725	(2)
Effect of Allocations on Operating Departments	727	(1)
An Extended Example	728	(1)
Some Cautions in Allocating Service Department Costs	729	(19)
Pitfalls in Allocating Fixed Costs	729	(2)
Beware of Sales Dollars as an Allocation Base	731	(1)
Summary	732	(1)
Review Problem: Direct and Step Methods	733	(1)
Glossary	734	(1)
Questions	734	(1)
Exercises	734	(4)
Problems	738	(5)
Cases	743	(3)
Group and Internet Exercises	746	(2)
``How Well Am I Doing?'' Statement of Cash Flows	748	(38)
The Basic Approach to a Statement of Cash Flows	750	(3)
Definition of Cash	750	(1)
Constructing the Statement of Cash Flows Using Changes in Noncash Balance Sheet Accounts	751	(2)
An Example of a Simplified Statement of Cash Flows	753	(3)
Constructing a Simplified Statement of Cash Flows	753	(2)
The Need for a More Detailed Statement	755	(1)
Organization of the Full-Fledged Statement of Cash Flows	756	(2)
Operating Activities	756	(1)
Investing Activities	757	(1)
Financing Activities	757	(1)
Other Issues in Preparing the Statement of Cash Flows	758	(1)
Cash Flows: Gross or Net?	758	(1)
Operating Activities: Direct or Indirect Method?	758	(1)
Direct Exchange Transactions	759	(1)
An Example of a Full-Fledged Statement of Cash Flows	759	(27)
Eight Basic Steps to Preparing the Statement of Cash Flows	759	(2)
Setting Up the Worksheet (Steps 1--4)	761	(1)
Adjustments to Reflect Gross, Rather than Net, Amounts (Step 5)	762	(2)
Classifying Entries as Operating, Investing, or Financing Activities (Step 6)	764	(1)
The Completed Statement of Cash Flows (Steps 7 and 8)	765	(1)
Interpretation of the Statement of Cash Flows	765	(1)
Depreciation, Depletion, and Amortization	766	(1)
Summary	767	(1)
Review Problem	768	(2)
Glossary	770	(1)
Appendix 16A: The Direct Method of Determining the Net Cash Provided by Operating Activities	771	(1)
Questions	772	(1)
Exercises	773	(3)
Problems	776	(7)
Group and Internet Exercises	783	(3)
``How Well Am I Doing?'' Financial Statement Analysis	786	(38)
Limitations of Financial Statement Analysis	788	(1)
Comparison of Financial Data	788	(1)
The Need to Look beyond Ratios	788	(1)
Statement in Comparative and Common-Size Form	789	(5)
Dollar and Percentage Changes on Statements	789	(1)
Common-Size Statements	789	(5)
Ratio Analysis---The Common Stockholder	794	(4)
Earnings per Share	794	(1)
Price-Earnings Ratio	794	(1)
Dividend Payout and Yield Ratios	795	(1)
The Dividend Payout Ratio	795	(1)
The Dividend Yield Ratio	795	(1)
Return on Total Assets	795	(1)
Return on Common Stockholders' Equity	796	(1)
Financial Leverage	796	(1)
Book Value per Share	797	(1)
Ratio Analysis---The Short-Term Creditor	798	(3)
Working Capital	798	(1)
Current Ratio	798	(1)
Acid-Test (Quick) Ratio	799	(1)
Accounts Receivable Turnover	800	(1)
Inventory Turnover	800	(1)
Ratio Analysis---The Long-Term Creditor	801	(1)
Times Interest Earned Ratio	801	(1)
Debt-to-Equity Ratio	802	(1)
Summary of Ratios and Sources of Comparative Ratio Data	802	(22)
Summary	802	(2)
Review Problem: Selected Ratios and Financial Leverage	804	(3)
Glossary	807	(1)
Questions	807	(1)
Exercises	807	(5)
Problems	812	(12)
Appendix Pricing Products and Services	824	(16)
Introduction	825	(1)
The Economists' Approach to Pricing	825	(5)
Elasticity of Demand	826	(1)
The Profit-Maximizing Price	827	(3)
The Absorption Costing Approach to Cost-Plus Pricing	830	(3)
Setting a Target Selling Price Using the Absorption Costing Approach	830	(1)
Determining the Markup Percentage	831	(1)
Problems with the Absorption Costing Approach	832	(1)
Target Costing	833	(7)
Reasons for Using Target Costing	833	(1)
An Example of Target Costing	834	(1)
Summary	834	(1)
Glossary	835	(1)
Questions	835	(1)
Exercises	835	(1)
Problems	836	(4)
Appendix Profitability Analysis	840	(13)
Introduction	841	(1)
Absolute Profitability	841	(1)
Relative Profitability	841	(3)
Volume Trade-Off Decisions	844	(2)
Managerial Implications	846	(7)
Summary	847	(1)
Glossary	848	(1)
Questions	848	(1)
Exercises	848	(1)
Problems	849	(3)
Cases	852	(1)
Photo Credits	853	(1)
Index	854