Table Of ContentManagerial Accounting
Fourth Edition
Karen Wilken Braun, PhD, CPA, CGMA
Case Western Reserve University
Wendy M. Tietz, PhD, CPA, CGMA, CMA
Kent State University
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Library of Congress Cataloging-in-Publication Data
Braun, Karen Wilken.
Managerial accounting/Karen Wilken Braun, Case Western Reserve University, Wendy M. Tietz, Kent State
University.—Fourth edition.
pages cm
Includes index.
ISBN-13: 978-0-13-342837-7
ISBN-10: 0-13-342837-0
1. Managerial accounting. I. Tietz, Wendy M. II. Title.
HF5657.4.B36 2015
658.15’11—dc23 2013035886
10 9 8 7 6 5 4 3 2 1
ISBN-13: 978-0-13-342837-7
ISBN-10: 0-13-342837-0
BRIEF CONTENTS
1
Introduction to Managerial Accounting 1
2
Building Blocks of Managerial Accounting 46
3
Job Costing 102
4
Activity-Based Costing, Lean Operations, and the Costs of Quality 176
5
Process Costing 247
6
Cost Behavior 309
7
Cost-Volume-Profit Analysis 382
8
Relevant Costs for Short-Term Decisions 443
9
The Master Budget 502
10
Performance Evaluation 572
11
Standard Costs and Variances 642
12
Capital Investment Decisions and the Time Value of Money 698
13
Statement of Cash Flows 765
14
Financial Statement Analysis 823
15
Sustainability 876
Company Names Index I-1
Glossary/Index I-5
iii
CONTENTS
1 2
Introduction to Managerial Building Blocks of Managerial
Accounting 1 Accounting 46
What is Managerial Accounting? 2 What are the Most Common Business
Sectors and Their Activities? 47
Managers’ Three Primary Responsibilities 2
Service, Merchandising, and Manufacturing
A Road Map: How Managerial Accounting
Companies 47
Fits In 3
Which Business Activities Make up the Value
Differences Between Managerial Accounting
Chain? 49
and Financial Accounting 4
Coordinating Activities Across the Value Chain 50
What Role do Management Accountants
Play? 6 How do Companies Define Cost? 52
Organizational Structure 6 Cost Objects, Direct Costs, and Indirect Costs 52
The Changing Roles of Management Costs for Internal Decision Making and External
Accountants 7 Reporting 54
The Skills Required of Management Merchandising Companies’ Inventoriable
Accountants 8 Product Costs 56
Professional Associations 9 Manufacturing Companies’ Inventoriable
Product Costs 57
Average Salaries of Management Accountants 10
Prime and Conversion Costs 59
Ethics 11
Additional Labor Compensation Costs 59
Examples of Ethical Dilemmas 12
Recap: Inventoriable Product Costs Versus Period
What Regulatory Issues Affect
Costs 60
Management Accounting? 17
How are Inventoriable Product Costs
Sarbanes-Oxley Act of 2002 17
and Period Costs Shown in the Financial
International Financial Reporting Standards Statements? 63
(IFRS) 18
Service Companies 63
Extensible Business Reporting Language
Merchandising Companies 63
(XBRL) 18
Manufacturing Companies 65
What Business Trends Affect Management
Accounting? 19 Comparing Balance Sheets 68
Sustainability and Corporate Reporting 68
Sustainability, Social Responsibility, and the Triple
Bottom Line 19 What Other Cost Terms are Used
Integrated Reporting 20 by Managers? 69
Shifting Economy 21 Controllable Versus Uncontrollable Costs 69
Global Marketplace 21 Relevant and Irrelevant Costs 69
Advanced Information Systems 22 Fixed and Variable Costs 70
Lean Operations 23 How Manufacturing Costs Behave 71
Total Quality Management 23 Calculating Total and Average Costs 72
End of Chapter 27 End of Chapter 76
iv
Contents v
3 4
Job Costing 102 Activity-Based Costing, Lean
Operations, and the Costs
What Methods are Used to Determine the
of Quality 176
Cost of Manufacturing a Product? 103
Process Costing 103 Why and How do Companies Refine
Their Cost Allocation Systems? 177
Job Costing 104
Simple Cost Allocation Systems Can Lead to Cost
How do Manufacturers Determine a Job’s
Distortion 177
Cost? 105
Review: Using a Plantwide Overhead Rate to
Overview: Flow of Inventory Through
Allocate Indirect Costs 178
a Manufacturing System 105
Using Departmental Overhead Rates to Allocate
Scheduling Production 106
Indirect Costs 180
Purchasing Raw Materials 107
Using Activity-Based Costing to Allocate Indirect
Using a Job Cost Record to Accumulate Job Costs 185
Costs 108
How do Managers Use the Refined Cost
Tracing Direct Materials Cost to a Job 110
Information to Improve Operations? 192
Tracing Direct Labor Cost to a Job 112
Activity-Based Management (ABM) 192
Allocating Manufacturing Overhead to a Job 114
Passing the Cost-Benefit Test 194
Completing the Job Cost Record and Using it
to Make Business Decisions 117 What is Lean Thinking? 200
How Can Job Costing Information The Eight Wastes of Traditional Operations 200
be Enhanced for Decision Making? 119 Characteristics of Lean Operations 202
Non-Manufacturing Costs 121 Lean Operations in Service and Merchandising
Companies 207
Direct or Variable Costing 121
How do Managers Improve Quality? 207
How do Managers Deal with
Underallocated or Overallocated Costs of Quality (COQ) 208
Manufacturing Overhead? 125 Relationship Among Costs 209
What Journal Entries are Needed in a Using Costs of Quality Reports to Aid
Manufacturer’s Job Costing System? 127 Decisions 210
End of Chapter 215
APPENDIX 3A 141
How do Service Firms Use Job Costing
to Determine the Amount to Bill
5
Clients? 141 Process Costing 247
What Costs are Considered Direct Costs
of Serving the Client? 141 Process Costing: An Overview 248
What Costs are Considered Indirect Costs Two Basic Costing Systems: Job Costing
of Serving the Client? 142 and Process Costing 248
Finding the Total Cost of the Job and Adding How Does the Flow of Costs Differ Between Job
a Profit Markup 143 and Process Costing? 249
Invoicing the Client Using a Professional What are the Building Blocks of Process
Billing Rate 143 Costing? 252
What Journal Entries are Needed in a Service
Conversion Costs 252
Firm’s Job Costing System? 144
Equivalent Units 252
End of Chapter 145
Inventory Flow Assumptions 253
vi Contents
How Does Process Costing Work in the How do Managers Determine Cost
First Processing Department? 254 Behavior? 324
Step 1: Summarize the Flow of Physical Units 256 Account Analysis 324
Step 2: Compute Output in Terms of Equivalent Scatter Plots 324
Units 256
High-Low Method 326
Step 3: Summarize Total Costs to Account
Regression Analysis 328
For 258
Data Concerns 332
Step 4: Compute the Cost per Equivalent
Unit 258 What are the Roles of Variable Costing
and the Contribution Margin Income
Step 5: Assign Total Costs to Units Completed
Statement? 333
and to Units in Ending Work in Process
Inventory 259 Comparing Absorption Costing and Variable
Average Unit Costs 259 Costing 333
The Contribution Margin Income Statement 335
What Journal Entries are Needed in
a Process Costing System? 261 Comparing Operating Income: Variable Versus
Absorption Costing 338
How Does Process Costing Work
Reconciling Operating Income Between the Two
in a Second or Later Processing
Costing Systems 340
Department? 267
End of Chapter 347
Process Costing in SeaView’s Insertion
Department 267
Steps 1 and 2: Summarize the Flow of Physical
7
Units and Compute Output in Terms of
Cost-Volume-Profit
Equivalent Units 269
Analysis 382
Steps 3 and 4: Summarize Total Costs to Account
for and Compute the Cost per Equivalent
How Does Cost-Volume-Profit Analysis
Unit 270
Help Managers? 383
Step 5: Assign Total Costs to Units Completed
Data and Assumptions Required for CVP
and to Units in Ending Work in Process
Analysis 383
Inventory 271
The Unit Contribution Margin 384
Unit Costs and Gross Profit 271
The Contribution Margin Ratio 385
Production Cost Reports 272
How do Managers Find the Breakeven
Journal Entries in a Second Processing
Department 273 Point? 387
End of Chapter 280 The Income Statement Approach 388
The Shortcut Approach Using the Unit
Contribution Margin 389
6 The Shortcut Approach Using the Contribution
Cost Behavior 309 Margin Ratio 390
How do Managers Find the Volume
Cost Behavior: How do Changes in Volume
Needed to Earn a Target Profit? 391
Affect Costs? 310
How Much Must we Sell to Earn a Target
Variable Costs 310
Profit? 391
Fixed Costs 313
Graphing CVP Relationships 393
Mixed Costs 316
How do Managers Use CVP to Plan for
Relevant Range 318
Changing Business Conditions? 398
Other Cost Behaviors 319
Changing the Sales Price 398
Contents vii
Changing Variable Costs 399 How are the Operating Budgets
Changing More Than One Factor 400 Prepared? 507
Changing Fixed Costs 401 Sales Budget 507
Changing the Mix of Products Offered for Production Budget 508
Sale 403
Direct Materials Budget 510
What are Some Common Indicators Direct Labor Budget 511
of Risk? 407
Manufacturing Overhead Budget 512
Margin of Safety 407 Operating Expenses Budget 513
Operating Leverage 408 Budgeted Income Statement 514
Choosing a Cost Structure 411
How are the Financial Budgets
End of Chapter 417 Prepared? 519
Capital Expenditures Budget 519
Cash Collections Budget 519
8
Relevant Costs for Short-Term Cash Payments Budget 520
Decisions 443 Combined Cash Budget 522
Budgeted Balance Sheet 523
How do Managers Make Decisions? 444
Sensitivity Analysis and Flexible
Relevant Information 444 Budgeting 525
Relevant Nonfinancial Information 445 How do the Budgets for Service and
Keys to Making Short-Term Special Decisions 446 Merchandising Companies Differ? 527
How do Managers Make Special Order Service Companies 527
and Regular Pricing Decisions? 448 Merchandising Companies 527
Special Order Decisions 448 Impact of Credit and Debit Card Sales on
Budgeting 529
Regular Pricing Decisions 452
End of Chapter 534
How do Managers Make Other Special
Business Decisions? 460
Decisions to Discontinue Products, Departments, 10
or Stores 460 Performance
Product Mix Decisions when Resources are Evaluation 572
Constrained 464
Outsourcing Decisions (Make or Buy) 466 How Does Decentralization Affect
Performance Evaluation? 573
Decisions to Sell As Is or Process Further 470
End of Chapter 476 Advantages and Disadvantages of
Decentralization 573
Performance Evaluation Systems 574
9 What is Responsibility Accounting? 574
The Master Budget 502
Types of Responsibility Centers 575
How and Why do Managers Use Responsibility Center Performance Reports 577
Budgets? 503 Evaluation of Investment Centers 579
How are Budgets Used? 503 What is Transfer Pricing? 586
How are Budgets Developed? 503
Strategies and Mechanisms for Determining
What are the Benefits of Budgeting? 505 a Transfer Price 587
What is the Master Budget? 506
viii Contents
How do Managers Use Flexible Budgets to 12
Evaluate Performance? 593 Capital Investment
Decisions and the Time
Creating a Flexible Budget Performance
Report 594 Value of Money 698
Underlying Causes of the Variances 596
What is Capital Budgeting? 699
How do Companies Incorporate
Four Popular Methods of Capital Budgeting
Nonfinancial Performance
Analysis 699
Measurement? 598
Focus on Cash Flows 700
The Balanced Scorecard 598
Capital Budgeting Process 700
End of Chapter 607
How do Managers Calculate the
Payback Period and Accounting Rate of
Return? 702
11
Standard Costs Payback Period 702
and Variances 642 Accounting Rate of Return (ARR) 705
How do Managers Compute the Time Value
What are Standard Costs? 643
of Money? 711
Types of Standards 643
Factors Affecting the Time Value of Money 711
Information Used to Develop and Update
Future Values and Present Values: Points Along the
Standards 644
Time Continuum 712
Computing Standard Costs 644
Future Value and Present Value Factors 713
How do Managers Use Standard Costs
Calculating Future Values of Single Sums and
to Compute DM and DL Variances? 647
Annuities Using FV Factors 714
Using Standard Costs to Develop the Flexible Calculating Present Values of Single Sums and
Budget 647 Annuities Using PV Factors 715
Direct Materials Variances 647
How do Managers Calculate the Net
Direct Labor Variances 653 Present Value and Internal Rate of
Summary of Direct Materials and Direct Labor Return? 718
Variances 655
Net Present Value (NPV) 719
Advantages and Disadvantages of Using Standard
Internal Rate of Return (IRR) 724
Costs and Variances 655
How do the Capital Budgeting Methods
How do Managers Use Standard Costs to
Compare? 727
Compute MOH Variances? 660
APPENDIX 12A 731
Variable Manufacturing Overhead Variances 660
Present Value Tables and Future Value
Fixed Manufacturing Overhead Variances 662
Tables 731
Standard Costing Systems 664
Table A Present Value of $1 731
APPENDIX 11A 668
Table B Present Value of Annuity of $1 732
Standard Costing 668
Table C Future Value of $1 733
Standard Costing Income Statement 671 Table D Future Value of Annuity of $1 734
End of Chapter 672
APPENDIX 12B 735
Solutions to Chapter Examples Using
Microsoft Excel 735
Contents ix
APPENDIX 12C 739 Vertical Analysis 828
Using a TI-83, TI-83 Plus, TI-84, or TI-84 How do we Compare One Company with
Plus Calculator to Perform Time Value of Another? 830
Money Calculations 739
What are Some of the Most Common
End of Chapter 745 Financial Ratios? 835
Measuring Ability to Pay Current Liabilities 835
Measuring Ability to Sell Inventory and Collect
13
Receivables 836
Statement of Cash
Measuring Ability to Pay Long-Term Debt 838
Flows 765
Measuring Profitability 839
What is the Statement of Cash Flows? 766 Analyzing Stock Investments 841
Three Types of Activities That Generate and Use Red Flags in Financial Statement
Cash 767 Analysis 843
Two Methods of Presenting Operating
End of Chapter 850
Activities 769
How is the Statement of Cash Flows
Prepared Using the Indirect Method? 774 15
Information Needed to Prepare the Statement of Sustainability 876
Cash Flows 774
What is Sustainability and How Does it
Preparing the Cash Flows from Operating
Create Business Value? 877
Activities 774
Historical Overview 878
Preparing the Cash Flows from Investing
Activities 780 The Business Case for Sustainability 879
Preparing the Cash Flows from Financing What is Sustainability Reporting? 883
Activities 782
Current State of Sustainability Reporting 883
Interpreting the Statement of Cash Flows 784
Reasons for Sustainability Reporting 884
Recap: Steps to Preparing the Statement of Cash
Framework for Sustainability Reporting 884
Flows Using the Indirect Method 784
What is Environmental Management
How is the Statement of Cash Flows
Accounting (EMA)? 888
Prepared Using the Direct Method? 785
EMA Systems 888
Overview 785
Uses of Environmental Management Accounting
Determining Cash Payments and Receipts 786
Information 890
End of Chapter 794
Challenges to Implementing EMA Systems 891
Future of Environmental Management
Accounting 893
14
Financial Statement End of Chapter 895
Analysis 823
Company Names Index I-1
What are the Most Common Methods of
Glossary/Index I-5
Analysis? 824
Horizontal Analysis 824
Horizontal Analysis of the Income Statement 826
Horizontal Analysis of the Balance Sheet 826
Trend Percentages 826
