Horngren’s Cost Accounting: A Managerial Emphasis, Eighth Canadian Edition
By Srikant M Datar, Madhav V Rajan and Louis Beaubien
Table of Contents:
Preface xix
PART ONE Cost Accounting Fundamentals 1
1 The Accountant’s Vital Role in Decision Making 1
iTunes Variable Pricing: Downloads Are Down, but Profits
Are Up Accounting Systems: Financial and Management
Accounting 2
Strategic Decisions and Management Accounting 3
Value-Chain and Supply-Chain Analysis and Key Success Factors 4
Value-Chain Analysis 4
Key Success Factors (KSF) 5
Sustainability in Action: Management Accounting
Beyond the Numbers
Decision Making, Planning, and Control: The Five-Step
Decision-Making Process 6
Key Management Accounting Guidelines and
Organization Structure 9
Cost-Benefit Approach 9
Behavourial and Technical Considerations 9
Different Costs for Different Purposes 9
Corporate Structure and Governance: Accountability,
Ethics, and Social Responsibility 10
Corporate Governance 11
Professional Ethics 11
Institutional Support 12
Corporate Social Responsibility (CSR) 13
Sustainability Accounting 14
Alternative Reporting 15
Pulling It All Together-Problem tor Self-Study 161 Decision
Points 171 Terms to Learn 171 Assignment Material 181 ShortAnswer
Questions 181 Exercises 181 Problems 20 I Collaborative
Learning Case 23
2 An Introduction to Cost Terms and
Purposes 24
High Fixed Costs and the Implications for Production
Costs and Cost Terminology 25
Commonly Used Classifications of
Manufacturing Costs 25
Direct Costs and Indirect Costs 26
Factors Affecting Direct/Indirect Cost
Classifications 2 7
Prime Costs and Conversion Costs 27
Cost-Behaviour Patterns: Variable Costs and Fixed
Costs 28
Variable Costs 28
Fixed Costs 28
Cost Drivers 30
Sustainability in Action: How Enterprise Carshare
Reduces Business Transportation Costs
Total Costs and Unit Costs 31
Unit Costs 31
Cost of Goods Sold and the Statement of
Comprehensive Income 32
Inventory Valuation and the Statement of Financial
Position 34
Types of Inventory 35
lnventoriable Costs 35
Period Costs 35
Illustrating the Flow of Inventoriable Costs: A
Manufacturing-Sector Example 36
lnventoriable Costs and Period Costs for a
Merchandising Company 39
Measuring and Classifying Costs Requires Judgment 40
Measuring Labour Costs 40
Decision Framework and Flexibility of Costing
Methods 41
Concepts in Action: Don’t Overcharge the
Government
Pulling It All Together-Problem for Self-Study 431 Decision
Points 441 Terms to Learn 441 Assignment Material 451 ShortAnswer
Questions 451 Exercises 451 Problems 511 Collaborative
Learning Cases 56
3 Cost- Volume- Profit Analysis 5 8
How Coachella Tunes Up the Sweet Sound of Profits
Essentials of CVP Analysis 59
CVP Analysis: An Example 60
Expressing CVP Relationships 62
Contribution Margin Percentage: Breakeven Point
in Revenue 64
Using CVP to Calculate a Target Operating
Income 64
Contribution Margin, Gross Margin, Operating
Margin, and Net Income Margin 65
Target Net Income and Income Taxes 66
Using CVP Analysis to Make More Complex Decisions 67
CVP Analysis for Decision Making 67
Decision to Advertise 67
Decision to Reduce Selling Price 68
Margin of Safety and Risk 68
Alternative Fixed- and Variable-Cost Structures 70
Operating Leverage 70
Sustainability in Action: Cost-Volume-Profit Analysis
Makes Subway’s $5 Foot-Long Sandwiches a
Success But Innovation Challenges Loom
Decision Models and Uncertainty 72
Role of a Decision Model 72
Expected Value 73
Effects of Sales Mix on Income 73
Multiple Cost Drivers 75
CVP Analysis in Non-Profit and Public Sector
Organizations 76
Pulling It All Together-Problem tor Self-Study 771 Decision
Points 80 I Terms to Learn 80 I Assignment Material 81 1 Short Answer
Questions 81 1 Exercises 811 Problems 871 Collaborative
Learning Cases 97
4 Job Costing 100
What Does It Cost To Do the Job?
Building Blocks of Costing Systems 101
Job-Costing and Process-Costing Systems 101
Job Costing: Evaluation and Implementation 102
Actual, Budgeted, and Normal Costing 103
Normal Costing 103
Additional Points ro Consider When Calculating
Job-Cost Allocation Rares 107
Concepts in Action: Job Costing on the
Next-Generation Military Fighter Plane
Actual Costing 108
A Normal Job-Costing System and Cost Flow 109
General Ledger 110
Explanations of Transactions 110
Subsidiary Ledgers 112
Budgeted Indirect Costs and End-of-Accounting-Year
Adjustments 115
Adjusted Allocation-Rate Approach 116
Proration Approach 117
~’rite-off to Cost of Goods Sold Approach 118
Choice Among Approaches 118
Variations from Normal Costing-Budgeted Costing: A
Service-Sector Example 118
Pulling it all Together-Problem for Self-Study 120 I Decision
Points 1221 Terms to Learn 1231 Assignment Material 1231
Short-Answer Questions 1231 Exercises 1231 Problem 1321
Collaborative Learning Cases 137
5 Activity-Based Costing
and Management 140
Accurate Assignment = Better Profit
Product Costing: Overcosting and Undercosting 141
Undercosting and Overcosting 141
Product-Cost Cross-Subsidization 141
Simple Costing System at Plastim Corporation 142
Design, Manufacturing, and Distribution
Processes 14 2
Overview of Plastim’s Simple Costing System 143
Applying the Five-Step Decision-Making Process at
Plastim 145
Guidelines for Refining a Costing System 146
Activity-Based Costing Systems 146
Plastim’s ABC System 147
Cost Hierarchies 149
Implementing Activity-Based Costing 150
Comparing Alternative Costing Systems 153
Considerations in Implementing Activity Based-
Costing Systems 154
ABC: The Foundation of ABM 154
Pricing and Product-Mix Decisions 155
Cost Reduction and Process Improvement
Decisions 155
Design Decisions 156
Sustainability in Action: Mayo Clinic Uses
Time-Driven Activity-Based Costing to
Reduce Costs and Improve Care
ABC in Service and Merchandising Companies 157
Pulling It All Together-Problem for Self-Study 1581 Decision
Points 1611 Terms to Learn 1621 Assignment Material 1621
Short-Answer Questions 1621 Exercises 1621 Problems 1701
Mini-Case 178
PART TWO Tools for Planning and
Control 181
6 Master Budget and Responsibility
Accounting 181
Budgets Communicate Choices
The Decision Framework and Budgets 182
Advantages of Budgets 183
Approaches to Budgeting 184
Operating and Strategic Performance
Assessment 185
Coordination and Communication 185
The Master Operating Budget 186
Time Coverage 186
Steps in Developing an Operating Budget 186
Basic Data and Requirements 188
Preparing a Master Operating Budget 190
Preparing the Cash Budget 198
Concepts in Action: Web-Enabled Budgeting and
Hendrick Motorsports
Preparation of the Cash Budget 201
Responsibility Versus Controllability 206
Organizational Structure and Responsibility 206
Feedback 207
Definition of Controllability 207
Emphasis on Information and Behaviour 208
Human Aspects of Budgeting 208
Sustainability in Action: 24 Hour Fitness and
Internet-Based Budgeting
Budgeting: A Process in Transition 209
Pulling It All Together-Problem for Self-Study 210
APPENDIX 6A: Three Budget Strategies:
Sensitivity Analysis, Kaizen Budgeting, and
Activity-Based Budgets 215
Decision Points 2181 Terms to Learn 2191 Assignment
Material 2191 Short-Answer Questions 2191 Exercises 220 I
Problems 2251 Mini-Case 235
7 Flexible Budgets, Variances, and
Management Control: I 241
Keeping It Real
The 5 DM Framework and Variance Analysis 242
Static and Flexible Budgets 242
The Costing System at Webb Company 243
Static-Budget Variances 244
Developing a Flexible Budget from Cost Data 246
Flexible-Budget Variances and Sales-Volume
Variances 246
Direct Variable Rate and Efficiency Variances 249
An Illustration of Rate and Efficiency Variances for
Inputs 250
Rate Variances 252
Efficiency Variances 252
Presentation of Rate and Efficiency Variances for
Inputs 254
Flexible Budgeting and Activity-Based Costing 256
Relating Batch Costs to Product Output 256
Rate and Efficiency Variances 257
Focus on Hierarchy 258
Managerial Uses of Variance Analysis 258
Performance Evaluation 258
Financial and Nonfinancial Performance
Measures 259
Sustainability in Action: Sustainability and Variance
Analysis
When to Investigate Variances 260
Continuous Improvement 260
Concepts in Action: Starbucks Reduces Direct-Cost
Variances to Brew a Turnaround
Impact of Inventories 262
Pulling It All Together-Problem for Self-Study 262
APPENDIX 7k Budgets, Benchmarks, and Standards 264
APPENDIX 78: Mix and Yield Level 4 Variances for
Substitutable Inputs 269
Decision Points 2741 Terms to Learn 2751 Assignment
Material 2751 Short-Answer Questions 2751 Exercises 2761
Problems 280 I Mini-Cases 287
8 Flexible Budgets, Variances, and
Management Control: II 290
Tracking Performance
Flexible-Budget MOH Cost Variances 291
Planning for Overhead Costs 292
Assigning Fixed Manufacturing Overhead
At Webb 293
Fixed Overhead Cost Variance Calculation and
Analysis 293
Production-Volume Variance Calculation and
Analysis 295
Journal Entries for Fixed Overhead Costs and
Variances 297
Concepts in Action: Cost Allocation Base Denominator
Decision: There Is a Right Way
Sustainable Overhead 299
Flexible-Budget Variable Overhead Variances 300
Variable Overhead Cost Variance Calculations and
Analyses 300
Level 2 Variable Manufacturing Overhead Variance
Analysis 301
Level 3 Variable Manufacturing Overhead Rate and
Efficiency Variances 302
Journal Entries for Variable Overhead Costs and
Variances 304
Activity-Based Costing and Variance Analysis 306
ABC Variance Analyses 306
ABC Variance Analysis for Fixed Manufacturing
Overhead Cost 308
Summary of All Overhead Cost Variances 309
Concepts in Action: Interdependencies and Shared
Benefits
Non-manufacruring Variance Anal)•sis 312
Nonfinancial Performance Measures 312
Pulling It All Together-Problem for Self-Study 3151 Decision
Points 3171 Terms ta Learn 3181 Assignment Material 3181
Short-Answer Questions 3181 Exercises 3181 Problems 3231
Mini-Case 331
9 Income Effects of Denominator Level
on Inventory Valuation 332
Capacity-Level Choices
Denominator Levels: A Complex Decision wirh
Complex Effects 333
The Decision Framework and Denominator
Choice 335
Sustainability in Action: Sustainability
Rying High
Effecrs on Reporting, Cosring, Pricing, and
Evaluarion 337
Produce Costing 340
Produce Pricing: rhe Downward Demand
Spiral 341
Concepts in Action: Denominator-Level Choice Reflects
Recoverable Costs in Strategic Pricing
Performance Evaluation 342
Capacity Decisions and Denominaror-Level
Issues 343
Inventory Valuation: Variable and Absorption
Costing 343
Variable Costing 343
Absorption Costing 343
Comparing Variable and Absorption Costing 344
Variable vs. Absorprion Cosring: Operating Income and
Income Sraremenrs 345
Comparing Income Sraremenrs for One Year 345
Comparing Income Sraremenrs for Multiple Years 347
Concepts in Action: Capacity at Nissan
Variable Costing and the Effect of Sales and
Production on Operating Income 351
Explaining Differences in Operating Income 352
Effect of Sales and Production on Operating
Income 352
Performance Evaluation: Undesirable Buildup of
Inventories 354
Pulling It All Together-Problem for Self-Study 358 I Decision
Points 357
APPENDIX 9A: Throughput Super-Variable Costing 358
APPENDIX 98: Breakeven ~der Two Costing Policies 361
Terms to Learn 3621 Assignment Material 3621 Short-Answer
Questions 363 I Exercises 3631 Problems 3671 Collaborative
Learning Cases 3741 Mini-Case 375
PART THREE Cost Information for
Decisions 377
10 Analysis of Cost Behavior 377
Cisco Understands Its Costs While Helping the
Environment
Basic Assumptions and Examples of Cost
Functions 378
Basic Assumptions 378
Linear Cost Functions 378
Cost Classification: Choice of Cost Object 379
The Cause-and-Effect Criterion 380
Cost Drivers and the Decision-Making Process 381
Cost Estimation Methods 381
Industrial Engineering Method 381
Conference Method 382
Account Analysis Method 382
Quantitative Analysis Method 383
Seeps in Estimating a Cost Function Using Quantitative
Analysis 383
The High-Low Method Compared co Regression
Analysis 385
Nonlinear Cost Functions 387
Time as a Competitive Tool 388
Customer-Response Time and On-Time
Performance 388
Bottlenecks and “Time Drivers 389
Concepts in Action: Netflix Works to Overcome
Internet Bottlenecks
Relevant Revenues and Costs of Delays 392
Balanced Scorecard and Time-Based Measures 394
Quality as an Element of Cost 396
Analyzing Quality: Nonfinancial Measures 398
Concepts in Action: What Does It Cost to Send a Text
Message?
Data Collection and Adjustment Issues 401
Pulling it all Together-Problem tar Self-Study 402
APPENDIX 1OA: Regression Analysis 405
APPENDIX 10B: Learning Curves 414
Decision Points 4181 Terms ta Learn 4191 Assignment
Material 420 I Short-Answer Questions 420 I Exercises 420 I
Problems 4251 Collaborative Learning Cases 431
11 Decision Making and Relevant
Information 43 7
Relevant Costs, Porter, and Twitter
Relevant Information and Decision Making 438
The Concept of Relevance 4 38
Relevant Costs and Relevant Revenues 438
Quantitative and Qualitative Information 440
Output Level Changes: Short- and Long-Term
Decisions 441
Outsourcing-Make or Buy-and Idle Facilities 442
Potential Problems in Relevant-Cost Analysis 445
Sustainability in Action: Starbucks Sustains
Opportunity Costs and Outsourcing 447
The “Total-Alternatives” Approach 44 7
The Opportunity-Cost Approach 44 7
The Carrying Costs of Inventory 449
Product Mix Decisions 451
The Theory of Constraints 452
Irrelevance of Past Costs and Equipment Replacement
Decisions 454
Decisions and Performance Evaluation 456
APPENDIX 11 A: Linear Programming 4 5 7
APPENDIX 11 B: Using Excel Solver 460
Pulling it all Together-Problem for Self-Study 4651 Decision points
467 Terms to Learn 467 Assignment Material 4681 Short-Answer
Questions 4681 Exercises 4681 Problems 4741 Collaborative
Learning Cases 480
12 Pricing Decisions: Profitability and Cost
Management 485
Extreme Pricing and Cost Management at IKEA
Major Influences on Pricing 486
Costing and Pricing for the Short Run 487
Relevant Costs for Short-Run Pricing Decisions 487
Strategic and Other Factors in Short-Run
Pricing 487
Effect of ‘lime Horizon on Short-Run Pricing
Decisions 488
Costing and Pricing for the Long Run 488
Calculating Product Costs for Long-Run Pricing
Decisions 488
Target Costing for Target Pricing 491
Understanding Customers’ Perceived Value 491
Competitor Analysis 491
Sustainability in Action: H&M Uses Target Pricing to
Bring Fast Fashion to Stores Worldwide
Implementing Target Pricing and Target Costing 492
Value-Analysis and Cross-Functional Teams 493
Cost-Plus Pricing 496
Concepts in Action: Operating Income Analysis
Reveals Strategic Challenges at Best Buy
Alternative Cost-Plus Methods 497
Cost-Plus Pricing Contrasted Against Target Pricing 499
Fixed and Variable Cost Coverage 499
Life-Cycle Costing and Relevant Qualitative Factors in
Pricing 499
Developing Life-Cycle Reports 501
Conducting Fair Business and Pricing Decisions 501
Managing Environmental and Sustainability Costs 504
Pulling it all Together-Problem for Self-Study 505 Decision
points 508 Terms to Learn 508 Assignment Material 509 Short Answer
Questions 509 Exercises 509 Problems 516 Collaborative
Learning Case 520
13 Strategy, the Balanced Scorecard, and
Profitability Analysis 523
Barclays Tums to the Balanced Scorecard
Five Forces Analysis to Define Strategic Altematies 524
The Decision Framework Applied to Chipset’s Strategy 526
Strategy Maps and the Balanced Scorecard 527
Balanced Scorecard: Measures of Performance 529
Four Perspectives of the Balanced Scorecard 529
Concepts in Action: Balanced Scorecard Helps Infosys
Transform into a Leading Consultancy
Nonfinancial BSC Measures at Chipset 532
Implementing a Balanced Scorecard 533
Features of a Good Balanced Scorecard 534
Pitfalls When Implementing a Balanced Scorecard 535
Strategic Analysis of Operating Income 535
The Growth Component 537
The Price-Recovery Component 538
The Productivity Component 539
Further Analysis of Growth, Price-Recovery, and
Productivity Components 540
Specific Productivity Improvement Measures 542
Calculating and Comparing Total Factor
Productivity 543
Downsizing and the Management of Processing
Capacity 544
Engineered and Discretionary Costs 544
Identifying Unused Capacity for Engineered and
Discretionary Overhead Costs 545
Managing Unused Capacity 545
Pulling it all Together-Problem for Self-Study 5461 Decision
Points 5491 Terms to Learn 550 I Assignment Material 550 I
Short-Answer Questions 550 I Exercises 550 I Problems 5551
Collaborative Learning Cases 558
PART FOUR Cost Allocation and
Revenues 562
14 Period Cost Application 562
Good Period Overhead Cost-Application Methods Improve
Management Decisions
Purposes of Cost Allocation 563
Four Possible Purposes 564
Criteria to Guide Cost-Allocation Decisions 564
Deciding Between Single- and Dual-Rate Cost
Methods 566
Single-Rate and Dual-Rate Methods 566
Allocation Based on the Demand for {or Usage of)
Computer Services 568
Allocation Based on the Supply of Capacity 569
Single-Rate Versus Dual-Rate Method 570
Budgeted Versus Actual Costs, and the Choice of
Allocation Base 571
Budgeted Versus Actual Rates 572
Budgeted Versus Actual Usage 572
Manufacturing Overhead Cost Allocation Methods
Are Irrelevant 574
Sustainability in Action: Urban Allocation Decisions
Deciding Among Direct, Seep-Down, and Reciprocal
Cost Allocation Methods 575
Relevance 575
Direct Method 576
Step-Down Method 577
Reciprocal Method-Linear Equation and Solver 579
Allocating Common Costs 583
Stand-Alone Cost Allocation Method 584
Incremental Cost Allocation Method 584
Justifying Reimbursement Costs 585
Contracting 585
Fairness of Pricing 586
Pulling it all Together- Problem for Self-Study 586 1
Decision Points 5881 Terms to Learn 5891 Assignment
Material 5891 Short-Answer Questions 590 I Exercises 590 I
Problems 595
15 Cost Allocation: Joint Products and
Byproducts 605
Challenges of Joint Cost Allocation
Joint-Cost Basics 606
Approaches to Allocating Joint Cost 608
Physical Measure Method 609
Sales Value at Split off Method 611
Two More Methods to Allocate Joint Cost 612
Nee Realizable Value {NRV) Method 613
Constant Gross Margin Percentage of NRV
Method 615
Comparison of the Four Methods 615
Irrelevance of Joint Costs for Decision Making 617
Sell or Process Further? 618
Challenges for Management Accountants 619
Sustainability in Action: Overcoming the Challenges
of Joint Cost Allocation
Accounting for Byproducts 620
Method A: Byproducts Are Recognized ~Then
Production Is Completed 622
Method B: Byproducts Are Recognized at
Time of Sale 623
Pulling it all Together– Problem for Self-Study 6241 Decision
Points 6261 Terms to Learn 6261 Assignment Material 6271
Short-Answer Questions 6271 Exercises 6271 Problems 6331
Collaborative Learning Cases 637
16 Revenue and Customer Profitability
Analysis 640
Revenue
Revenue Allocation and Bundled Produces 641
Sustainability in Action: Revenue Allocation by the
Government and First Nations
Deciding on a Revenue-Allocation Method 642
Stand-Alone Revenue-Allocation Methods 643
Incremental Revenue-Allocation Method 644
Ocher Revenue-Allocation Methods 64 7
ABC: The Cost Object is the Customer 647
Customer ABC Analysis 64 7
Contribution Margin Variance Analyses 651
Static-Budget Contribution Margin
Variance 653
Flexible-Budget and Sales-Volume Contribution
Margin Variances 653
Sales-Mix and Sales-Quantity Contribution Margin
Variances 656
Market-Share Variance 658
Marker-Size Contribution Margin
Variance 659
Concepts in Action: Variance Analysis
and Standard Costing Help Sandoz
Manage Its Overhead Costs
Customer Profitability Analysis 662
Assessing Customer Value 663
Customer Mix Analysis 664
Drop a Customer 665
Add a Customer 666
Drop or Add Branches 667
Pulling it all Together– Problem for Self-Study 6681 Decision
Points 6691 Terms to Learn 670 I Assignment Material 670 I
Short-Answer Questions 670 I Exercises 6711 Problems 6741
Collaborative Learning Case 686
17 Process Costing 691
Allocation Affects Net Income-Reliable Estimates Are
Important
Process Costing and Decision Making 692
Process Costing: Alternative Methods 694
Concepts in Action: NI 52-109-lnternal Control System Design
Weighted-Average Method with no Beginning WIP
Inventory 696
Global Defence-Ending WIP Inventory Valuation
Using the Weighted-Average Method 698
Journal Entries 700
Weighted-Average Method with Beginning and Ending
WJP Inventory 702
First-In, First-Out and Standard-Cost Methods 705
Comparing Weighted-Average and Fifo Methods 709
Computations Under Standard Costing 710
Accounting for Variances 712
Hybrid-Costing Systems 712
Sustainability in Action: Hybrid Costing for Under Armour 3D Printed Shoes
Transferred-in Costs in Process Costing 714
Transferred-in Costs and the Weighted-Average
Method 715
Transferred-in Costs and the FIFO Method 717
Common Mistakes with Transferred-in Costs 720
Pulling it all Together-Problem for Self-Study 7211 Decision
Points 7221 Terms to Learn 7231 Assignment Material 7231
Short-Answer Questions 7231 Exercises 7241 Problems 7281
Collaborative Learning Cases 732
18 Spoilage, Rework, and Scrap 737
Airbag Rework Sinks Honda’s Record Year
Defining and Accounting for Spoilage, Rework, and
Scrap 738
Spoilage in Process Costing Using Weighted-Average
and FIFO 740
Count All Spoilage 740
Five-Step Procedure for Process Costing with
Spoilage 741
Weighted-Average Method and Spoilage 742
FIFO Method and Spoilage 742
Sustainability in Action: Managing Waste and
Environmental Costs at Toyota
Journal Entries 746
Inspection Points and Allocating Costs of Normal
Spoilage 746
Job Costing and Spoilage 749
Reworked Units and Scrap 751
Normal Rework Common to All Jobs 751
Accounting for Scrap 752
Recognizing Scrap at the Time of Sale 752
Recognizing Scrap at the Time of Production 753
Pulling it all Together-Problem for Self-Study 7541 Decision
Points 755
APPENDIX 1 BA: Standard-Costing Method and SpoiIage 7 5 6
Terms to Learn 7591 Assignment Material 7591 Short-Answer
Questions 7591 Exercises 7591 Problems 7631 Collaborative
Learning Case 768
PART FIVE Control and Budgeting
Strategies 771
19 Inventory Cost Management Strategies 771
VW Adjusts Production
Inventory Management 772
Costs Associated with Goods for Sale 772
Economic Order Quantity Procurement Model 773
When to Order, Assuming Cercainry 775
Safety Stock 776
Just-in-Time Procurement and EOQ Model
Parameters 777
Concepts in Action: Overcoming Wireless Data
Bottlenecks
Challenges in Supply-Chain Cost Management 779
Estimating Relevant Costs of a Supply Chain 779
Cost of a Prediction Error 780
Goal-Congruence Issues 781
Relevance and the JIT Strategy of Supply-Chain
Management 781
Performance Measures and Control 784
Inventory Management: MRP and ERP 784
Enterprise Resource Planning {ERP) Systems 785
Backflush Costing 785
Simplified Normal or Standard Costing 786
Accounting for Variances 789
Special Considerations in Backflush Costing 793
Sustainability in Action: Inventory Management as
Strategy
Lean Accounting 794
Pulling it all Together-Problem for Self-Study 7961 Decision
Points 7981 Terms to Learn 7981 Assignment Material 7991
Short-Answer Questions 7991 Exercises 7991 Problems 8031
Collaborative Learning Case 809
20 Capital Budgeting: Methods of
Investment Analysis 811
Cedar Fair Entertainment Company and Capital
Investments
Capital Budgeting and Decision Making
{5DM Approach) 812
A Note on Sources of Capital and Timing of
Investments 814
Discounted Cash Flows and the ‘lime Value of Money 814
Net Present Value Method 815
Internal Rate of Return Method 817
Comparison of Net Present Value and Internal Rate
of Return Methods 818
Sensitivity Analysis 819
Income Tax and DCF in Capital Budgeting 820
Tax Shields and the Effect on Investment
Cash Flows 820
Relevant Information and DCF 822
Sustainability in Action: Capital Budgeting for
Sustainable Business
Non-DCF Methods in Capital Budgeting 826
Payback Period 826
Accrual Accounting Rate of Return 828
Strategic Factors in Capital Budgeting Decisions 829
Customer Value and Capital Budgeting 830
Concepts in Action: Capital Budgeting at Disney
lnvestment in Research and Development 831
Capital Budgeting and Control: Evaluation and Application 831
Management Control: Performance Evaluation 831
Management Control: The Investment Activity 832
Management Control: The Post-Investment Audit 832
Pulling it all Together-Problem for Self-Study 8341 Decision
Points 836
APPENDIX 20A: Capital Budgeting and Inflation 83 7
APPENDIX 208: The Weighted Average Cost of
Capital 839
Tenns ta Learn 8411 Assignment Material 8411 Short-Answer
Questions 8411 Exercises 8421 Problems 8511 Collaborative
Learning Cases 855
21 Transfer Pricing and Multinational
Management Control Systems 859
Software Multinationals and Transfer Pricing
Management Control Systems 860
Formal and Informal Systems 860
Effective Management Control 860
Organizational Structure and Decentralization 861
Decentralization in Multinational Companies 861
Decisions About Responsibility Centres 862
Concepts in Action-Strategy: Transfer-Pricing
Dispute Temporarily Stops the Flow of Fiji Water
Transfer Pricing 863
Alternative Transfer-Pricing Methods 864
Criteria for Evaluating Transfer Prices 864
Concepts in Action-Strategy: US$3.4 Billion Is an
Incentive
Transfer Pricing in Practice 865
Interprovincial Transfers and Taxes 868
Market-Based Transfer Prices 868
Distress Prices 869
Cost-Based and Negotiated Transfer Prices 869
Full-Cost Bases 869
Variable Cost Bases 870
Prorating the Difference Between Minimum and
Maximum Transfer Prices 871
Negotiated Transfer Prices and MNC Issues 871
Dual Pricing 872
A General Guideline for Transfer-Pricing Situations 873
Multinational Corporation (MNC) Transfer Pricing and
Tax Considerations 874
Concepts in Action: India Calls Vodafone on
Transfer-Pricing Policy
Pulling it all Together- Problem for Self-Study 8761 Decision
Points 8791 Terms to Learn 880 I Assignment Material 880 I
Short-Answer Questions 880 I Exercises 8811 Problems 8871
Collaborative Learning Cases 890
22 Multinational Performance Measurement
and Compensation 893
Qualitative and Nonfinancial Measures Are Relevant
Financial and Nonfinancial Performance
Measures 894
Governance and Compensation Decisions 894
Concepts in Action: BP Shareholders Fight to Reject
CEO’s Pay Package
Accounting Performance Measures 898
Return on Investment 899
Residual Income 901
Sustainability in Action: Analysis of Operating Income
Uncovers Strategies to Improve Profitability and Sustainability
Economic Value Added 903
Return on Sales 904
Comparing Performance Measures 904
Selecting the Time Horizon 905
Defining “Investment” 906
Evaluating Performance Measurement Alternatives 907
Current Cost 907
Long-Term Assets: Gross or Net Book Value? 909
Selecting Performance Goals 910
Selecting the Level of Relevance-The Timing of Feedback 910
Performance Measurement in Multinational Companies 910
Calculating the Foreign Division’s ROI in the Foreign Currency 911
Calculating the Foreign Division’s ROI in Canadian Dollars 911
Levels of Analysis Differ Between Managers and Subunits 912
Benchmarks and Relative Performance Evaluation 913
Executive Performance Measures and Compensation 914
Team-Based Compensation Arrangements 915
Executive Compensation Arrangements 916
Strategy and Levers of Control 917
Concepts in Action-Governance: Courage Boundaries
and Beliefs Pulling it all Together-Problem for Self-Study 919 Decision
Points 921 Terms to Learn 921 Assignment Material 921
Short-Answer Questions 922 Exercises 922 Problems 928
Collaborative Learning Cases 934
Appendix A Notes on Compound Interest and Interest Tables 937
Glossary 943
Name Index 959
Subject Index 965