Managerial Accounting, 5th Edition
By Karen Wilken Braun and Wendy M. Tietz
Contents:
Introduction to Managerial Accounting 1
What Is Managerial Accounting? 2
Managers’ Three Primary Responsibilities 2
A Road Map: How Managerial Accounting Fits In 3
Differences Between Managerial Accounting and Financial Accounting 4
What Role Do Management Accountants Play? 6
The Role of Management Accountants 6
The Skills Required of Management Accountants 7
Managerial Accounting Is Important to All Careers 8
Accounting within the Organizational Structure 9
Professional Associations 10
Average Salaries of Management Accountants 12
Professional Ethics 12
Examples of Ethical Dilemmas 14
What Business Trends and Regulations
Affect Management Accounting? 18
Big Data, Data Analytics, and Critical Thinking 18
Shifting Economy 20
Globalization 20
Lean Thinking and Focus on Quality 21
Sustainability, Social Responsibility, and the Triple
Bottom Line 21
Integrated Reporting 22
The Sarbanes-Oxley Act of 2002 23
End of Chapter 27
Building Blocks of Managerial Accounting 48
What Are the Most Common Business
Sectors and Their Activities? 49
Service, Merchandising, and Manufacturing
Companies 49
Which Business Activities Make Up the Value
Chain? 51
Coordinating Activities Across the Value Chain 52
How Do Companies Define Cost? 55
Cost Objects, Direct Costs, and Indirect Costs 55
Costs for Internal Decision Making and External
Reporting 57
Merchandising Companies’ Product Costs 58
Manufacturing Companies’ Product Costs 60
Prime and Conversion Costs 61
Additional Labor Compensation Costs 62
Recap: Product Costs Versus Period Costs 62
How Are Product Costs and Period Costs
Shown in the Financial Statements? 65
Service Companies 65
Merchandising Companies 65
Manufacturing Companies 67
Comparing Balance Sheets 70
What Other Cost Terms Are Used by
Managers? 71
Controllable Versus Uncontrollable Costs 71
Relevant and Irrelevant Costs 71
Fixed and Variable Costs 72
How Manufacturing Costs Behave 73
Calculating Total and Average Costs 73
End of Chapter 78
3 Job Costing 104
What Methods Are Used to Determine the
Cost of Manufacturing a Product? 105
Process Costing 105
Job Costing 106
How Do Manufacturers Determine a Job’s
Cost? 107
Overview: Flow of Inventory Through a
Manufacturing System 107
Scheduling Production 108
Purchasing Raw Materials 109
Using a Job Cost Record to Keep Track of Job
Costs 110
Tracing Direct Materials Cost to a Job 112
Tracing Direct Labor Cost to a Job 114
Allocating Manufacturing Overhead to a Job 116
Completing the Job Cost Record and Using It to
Make Business Decisions 119
How Can Job Costing Information Be
Enhanced for Decision Making? 121
Non-Manufacturing Costs 121
Direct or Variable Costing 123
How Do Managers Deal with
Underallocated or Overallocated
Manufacturing Overhead? 127
What Journal Entries Are Needed in a
Manufacturer’s Job Costing System? 129
APPENDIX 3A 143
How Do Service Firms Use Job Costing
to Determine the Amount to Bill
Clients? 143
What Costs Are Considered Direct Costs of
Serving a Client? 143
What Costs Are Considered Indirect Costs of
Serving a Client? 144
Finding the Total Cost of the Job and Adding a
Profit Markup 145
Invoicing Clients Using a Professional Billing
Rate 145
What Journal Entries Are Needed in a Service
Firm’s Job Costing System? 146
End of Chapter 147
Activity-Based Costing, Lean
Operations, and the Costs of
Quality 175
Why and How Do Companies Refine Their
Cost Allocation Systems? 176
Simple Cost Allocation Systems Can Lead to Cost
Distortion 17 6
Review: Using a Plantwide Overhead Rate to
Allocate Indirect Costs 177
Contents vii
Using Departmental Overhead Rates to Allocate
Indirect Costs 179
Using Activity-Based Costing to Allocate Indirect
Costs 184
How Do Managers Use the Refined Cost
Information to Improve Operations? 191
Activity-Based Management (ABM) 191
Passing the Cost-Benefit Test 193
What Is Lean Thinking? 198
The Eight Wastes of Traditional Operations 198
Characteristics of Lean Operations 200
Lean Operations in Service and Merchandising
Companies 205
How Do Managers Improve Quality? 206
Costs of Quality (COO) 206
Relationship Among Costs 207
Using Costs of Quality Reports to Aid
Decisions 208
End of Chapter 213
5 Process Costing 245
Process Costing: An Overview 246
Two Basic Costing Systems: Job Costing and
Process Costing 246
How Does the Flow of Costs Differ Between Job
and Process Costing? 247
What Are the Building Blocks of Process
Costing? 250
Conversion Costs 250
Equivalent Units 250
Inventory Flow Assumptions 251
How Does Process Costing Work in the
First Processing Department? 252
Step 1: Summarize the Flow of Physical Units 254
Step 2: Compute Output in Terms of Equivalent
Units 254
Step 3: Summarize Total Costs to Account For 256
Step 4: Compute the Cost per Equivalent Unit 256
Step 5: Assign Total Costs to Units Completed
and to Units in Ending Work in Process
Inventory 257
Average Unit Costs 257
What Journal Entries Are Needed in a
Process Costing System? 259
How Does Process Costing Work in a Second
or Later Processing Department? 264
Process Costing in SeaView’s Insertion
Department 264
Steps 1 and 2: Summarize the Flow of Physical
Units and Compute Output in Terms of
Equivalent Units 266
Steps 3 and 4: Summarize Total Costs to
Account for and Compute the Cost per Equivalent
Unit 267
Step 5: Assign Total Costs to Units Completed
and to Units in Ending Work in Process
Inventory 268
Unit Costs and Gross Profit 268
Production Cost Reports 269
Journal Entries in a Second Processing
Department 270
End of Chapter 275
6 Cost Behavior 307
Cost Behavior: How Do Changes in Volume
Affect Costs? 308
Variable Costs 308
Fixed Costs 311
Mixed Costs 314
Relevant Range 316
Other Cost Behaviors 317
How Do Managers Determine Cost
Behavior? 322
Account Analysis 322
Scatterplots 322
High-Low Method 324
Regression Analysis 326
Data Concerns 330
What Are the Roles of Variable Costing
and the Contribution Margin Income
Statement? 331
Comparing Absorption Costing and Variable
Costing 331
7 The Contribution Margin Income Statement 333
Comparing Operating Income: Variable Versus
Absorption Costing 336
Reconciling Operating Income Between the Two
Costing Systems 338
End of Chapter 346
Cost-Volume-Profit
Analysis 381
How Does Cost-Volume-Profit Analysis
Help Managers? 382
Data and Assumptions Required for CVP
Analysis 382
The Unit Contribution Margin 383
The Contribution Margin Ratio 385
How Do Managers Find the Breakeven
Point? 386
The Income Statement Approach 387
The Shortcut Approach Using the Unit
Contribution Margin 388
The Shortcut Approach Using the Contribution
Margin Ratio 388
How Do Managers Find the Volume
Needed to Earn a Target Profit? 389
How Much Must We Sell to Earn a Target
Profit? 389
Graphing CVP Relationships 391
How Do Managers Use CVP to Make
Decisions When Business Conditions
Change? 396
Changing the Sales Price and Volume 396
Changing Variable Costs 398
Changing Fixed Costs 399
Changing the Mix of Products Offered for Sale 402
What Are Some Common Indicators of
Risk? 406
Margin of Safety 406
Operating Leverage 407
Choosing a Cost Structure 409
End of Chapter 415
8 Relevant Costs for Short-Term
Decisions 443
How Do Managers Make Decisions? 444
Relevant Information 444
Keys to Making Short-Term Special Decisions 445
Decision Pitfalls to Avoid 446
How Do Managers Make Pricing and
Special Order Decisions? 448
Regular Pricing Decisions 448
Special Order Decisions 453
How Do Managers Make Other Special
Business Decisions? 460
Decisions to Discontinue Products, Departments,
or Stores 460
Product Mix Decisions When Resources Are
Constrained 464
Outsourcing Decisions (Make or Buy) 467
Decisions to Sell As Is or Process Further 472
End of Chapter 477
9 The Master Budget 507
How and Why Do Managers Use
Budgets? 508
How Are Budgets Used? 508
How Are Budgets Developed? 508
What Are the Benefits of Budgeting? 510
What Is the Master Budget? 511
How Are the Operating Budgets
Prepared? 512
Sales Budget 512
Production Budget 513
Direct Materials Budget 515
Direct Labor Budget 516
Manufacturing Overhead Budget 517
Operating Expenses Budget 518
Budgeted Income Statement 519
How Are the Financial Budgets
Prepared? 524
Capital Expenditures Budget 524
Cash Collections Budget 524
Cash Payments Budget 525
Combined Cash Budget 527
Budgeted Balance Sheet 528
Sensitivity Analysis and Flexible
Budgeting 530
Contents ix
How Do the Budgets for Service and
Merchandising Companies Differ? 531
Service Companies 531
Merchandising Companies 531
Impact of Credit and Debit Card Sales on
Budgeting 533
End of Chapter 540
1 Q Performance Evaluation 583
How Does Decentralization Affect
Performance Evaluation? 584
Advantages and Disadvantages of
Decentralization 584
Performance Evaluation Systems 585
What Is Responsibility Accounting? 585
Types of Responsibility Centers 586
Responsibility Center Performance
Reports 588
Evaluation of Investment Centers 590
What Is Transfer Pricing? 597
Strategies and Mechanisms for Determining a
Transfer Price 598
How Do Managers Use Flexible Budgets to
Evaluate Performance? 603
Creating a Flexible Budget Performance
Report 604
Underlying Causes of the Variances 607
How Do Companies Incorporate
Nonfinancial Performance
Measurement? 609
The Balanced Scorecard 609
End of Chapter 617
11 Standard Costs and
Variances 653
What Are Standard Costs? 654
Types of Standards 654
Information Used to Develop and Update
Standards 655
Computing Standard Costs 655
How Do Managers Use Standard Costs to
Compute DM and DL Variances? 658
Using Standard Costs to Develop the Flexible
Budget 658
Direct Materials Variances 658
Direct Labor Variances 664
Summary of Direct Materials and Direct Labor
Variances 666
Advantages and Disadvantages of Using Standard
Costs and Variances 666
How Do Managers Use Standard Costs to
Compute MOH Variances? 671
Variable Manufacturing Overhead Variances 671
Fixed Manufacturing Overhead Variances 673
Standard Costing Systems 675
APPENDIX 11A 679
Standard Costing 679
Standard Costing Income Statement 682
End of Chapter 683
12 Capital Investment
Decisions and the Time
Value of Money 71 o
What Is Capital Budgeting? 711
Four Popular Methods of Capital Budgeting
Analysis 711
Focus on Cash Flows 712
Capital Budgeting Process 712
How Do Managers Calculate the
Payback Period and Accounting Rate of
Return? 714
Payback Period 714
Accounting Rate of Return (ARR) 717
How Do Managers Compute the Time
Value of Money? 723
Factors Affecting the Time Value of Money 723
Future Values and Present Values: Points Along the
Time Continuum 724
Future Value and Present Value Factors 725
Calculating Future Values of Single Sums and
Annuities Using FV Factors 726
Calculating Present Values of Single Sums and
Annuities Using PV Factors 727
How Do Managers Calculate the Net
Present Value and Internal Rate of
Return? 730
Net Present Value (NPV) 731
Internal Rate of Return (IRR) 736
How Do the Capital Budgeting Methods
Compare? 739
APPENDIX 12A 743
Present Value Tables and Future Value
Tables 743
Table A Present Value of $1 743
Table B Present Value of Annuity of $1 744
Table C Future Value of $1 745
Table D Future Value of Annuity of $1 746
APPENDIX 12B 747
Solutions to Chapter Examples Using
Microsoft Excel 747
APPENDIX 12C 751
Using a Tl-83, Tl-83 Plus, Tl-84, or Tl-84
Plus Calculator to Perform Time Value of
Money Calculations 751
End of Chapter 757
1 3 Statement of Cash
Flows 779
What Is the Statement of Cash Flows? 780
Three Types of Activities That Generate and Use
Cash 781
Two Methods of Presenting Operating
Activities 783
How Is the Statement of Cash Flows
Prepared Using the Indirect Method? 788
Information Needed to Prepare the Statement of
Cash Flows 788
Preparing the Cash Flows from Operating
Activities 788
Preparing the Cash Flows from Investing
Activities 794
Preparing the Cash Flows from Financing
Activities 796
Interpreting the Statement of Cash Flows 798
Recap: Steps to Preparing the Statement of Cash
Flows Using the Indirect Method 798
How Is the Statement of Cash Flows
Prepared Using the Direct Method? 799
Overview 799
Determining Cash Payments and Receipts 800
End of Chapter 808
14 Financial Statement
Analysis 838
What Are the Most Common Methods of
Analysis? 839
What Is Horizontal Analysis? 839
Horizontal Analysis of the Income Statement 841
Horizontal Analysis of the Balance Sheet 841
Trend Percentages 841
What Is Vertical Analysis? 843
How Do We Compare One Company with
Another? 845
Using Microsoft Excel 845
What Are Some of the Most Common
Financial Ratios? 849
Contents xi
Measuring Ability to Pay Current Liabilities 849
Measuring Ability to Sell Inventory and Collect
Receivables 850
Measuring Ability to Pay Long-Term Debt 852
Measuring Profitability 853
Analyzing Stock Investments 857
Red Flags in Financial Statement
Analysis 858
End of Chapter 865
1 5 Sustainability 894
What Is Sustainability, and How Does It
Create Business Value? 895
Historical Overview 896
The Business Case for Sustainability 897
What Is Sustainability Reporting? 902
Current State of Sustainability Reporting 902
Reasons for Sustainability Reporting 903
Framework for Sustainability Reporting 903
What Is Environmental Management
Accounting (EMA)? 908
EMA Systems 908
Uses of Environmental Management Accounting
Information 909
Challenges to Implementing EMA Systems 911
Future of Environmental Management
Accounting 912
End of Chapter 914
Glossary/Index 1-1