Solutions Manual
COST ACCOUNTIN G Fifteenth Edition
Charles T. Horngren Srikant M. Datar Madhav V. Rajan
Acquisitions Editor: Ellen Geary Editorial Project Manager: Nicole Sam Editorial Assistant: Christine Donovan Project Manager: Roberta Sherman Supplements Project Manager: Andra Skaalrud
Copyright © 2015 Pearson Education, Inc. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290.
10 9 8 7 6 5 4 3 2 1 ISBN-13: 978-0-13-342877-3 ISBN 10: 0-13-342877-X
TABLE OF CONTENTS Preface
iv 2
Acquisitions Editor: Ellen Geary Editorial Project Manager: Nicole Sam Editorial Assistant: Christine Donovan Project Manager: Roberta Sherman Supplements Project Manager: Andra Skaalrud
Copyright © 2015 Pearson Education, Inc. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290.
10 9 8 7 6 5 4 3 2 1 ISBN-13: 978-0-13-342877-3 ISBN 10: 0-13-342877-X
TABLE OF CONTENTS Preface
iv 2
Dedication........................................................................................................................................v Supplements Available for 15th Edition
vi
Alternative Suggested Chapter Sequences
viii
Categoriation of Assignment !aterial
"ii
Presentation of Solutions
""viii
!a#or Changes in $e"t $e"t for the 15th Edition
""i"
Changes in Assignment !aterial for the 15th Edition
"""v
Chapter Solutions 1
$he $he !ana !anage gerr and and !ana !anage geme ment nt Accou ccount ntin ing g
1%1 1%1
2
An &ntr &ntrod oduc ucti tion on to Cost Cost $erms rms and and Purp Purpos oses es
2%1 2%1
'
Cost Cost%%(olume% ume%Pr Prof ofiit Anal) nal)si siss
'%1 '%1
*
+ob Costing
*%1
5
Acti Activi vit) t)%, %,as ased ed Cost Costin ing g and and Activ ctivit it)% )%,a ,ase sed d !ana !anagem gement ent
5%1 5%1
-
!ast !aster er ,udg ,udget et and and esp espon onsi sibi bili lit) t) Accou ccount ntin ing g
-%1 -%1
/
0le"ib 0le"ible le ,udgets ,udgets Direct Direct%Co %Cost st (ariances riances and !anagem !anagement ent Control Control
/%1
0le"ib 0le"ible le ,udgets ,udgets 3verhe 3verhead ad Cost Cost (ariances riances and !anage !anagemen mentt Contro Controll
%1
4
&nve &nvent ntor or) ) Cost Costin ing g and and Capa Capaci cit) t) Anal) nal)si siss
4%1 4%1
1
Dete Determ rmin inin ing g 6o7 6o7 Cost Costss ,eha ,ehave ve
1%1 1%1
11
Deci Decisi sion on !a8i !a8ing ng and and ele elevan vantt &nfo &nform rmat atio ion n
11%1 11%1
12
Strate Strateg) g) ,alanc ,alanced ed Scoreca Scorecard rd and Strate Strategic gic Profit Profitabil abilit) it) Anal) Anal)sis sis
12%1 12%1
1'
Pric Pricin ing g Deci Decisi sion onss and and Cost Cost !ana !anagem gemen entt
1'%1 1'%1
1*
Cost Allocati Allocation on Customer% Customer%Profi Profitabil tabilit) it) Anal)sis Anal)sis and Sales%( Sales%(aariance Anal)sis Anal)sis
1*%1
15
Allocat Allocation ion of Support Support%De %Depar partme tment nt Costs Costs Common Common Costs Costs and evenue evenuess
15%1 15%1
1-
Cost Cost Alloca Allocatio tion9 n9 +oint +oint Product Productss and ,)prod ,)product uctss
1-%1 1-%1
1/
Process Cost osting
1/%1
1
Spoi Spoila lage ge e7o e7or8 r8 and and Scra Scrap p
1%1 1%1
14
,alanc ,alanced ed Scorecar Scorecard9 d9 :ualit :ualit) ) $ime $ime and the $heor) $heor) of Constr Constraint aintss
14%1 14%1
2
&nvent &nventor) or) !anagem !anagement ent +ust%i +ust%in%$ n%$im ime e and Simpli Simplifi fied ed Costin Costing g !ethods !ethods
2%1 2%1
21
Capi Capita tall ,udg ,udget etin ing g and and Cost Cost Anal) nal)si siss
21%1 21%1
22
!anagement !anagement Control Control S)stems S)stems $ransfer $ransfer Pricing Pricing and !ultinati !ultinational onal Considerati Considerations ons
22%1
2'
Perfor Performan mance ce !easur !easureme ement nt Compens Compensati ation on and !ultin !ultinati ational onal Consid Considera eratio tions ns
2'%1 2'%1
'
PREFACE $he 8e)s to the success of a course in cost accounting are the assignment and discussion of provocative problem material. $he gathering of high%qualit) assignment material has been a crucial phase of this boo8;s preparatione than8 them for their man) 7onderful contributions. >e appreciate the support of Caroline oop. 6er abilit) to cheerfull) respond to our challenges made our tas8s much more manageable. >e further appreciate the technical support for data anal)sis provided b) De?ett =a7. >e are than8ful to Ellen @ear) and Andra S8aalrud at Pearson for providing continual support in preparing this Solutions !anual. S&AB$ !. DA$A !AD6A( (. A+AB
*
In memory of Charles T. Horngren 192!2"11
Chuc8 6orngren revolutionied cost and management accounting. 6e loved ne7 ideas and introduced man) ne7 concepts. 6e had the unique gift of e"plaining these concepts in simple and creative 7a)s. 6e epitomied e"cellence and never tired of details 7hether it 7as finding e"actl) the right 7ord or 7or8ing and re7or8ing assignment materials. 6e combined his great intellect 7ith genuine humilit) and 7armth and a human touch that inspired others to do their best. 6e taught us man) lessons about life through his amaing discipline his abilit) to ma8e ever)one feel 7elcome and his love of famil). &t 7as a great privilege pleasure and honor to have 8no7n Chuc8 6orngren. 0e7 individuals 7ill have the enormous influence that Chuc8 had on the accounting profession. 0e7er still 7ill be able to do it 7ith the class and st)le that 7as his hallmar8. 6e 7as u nique special and amaing in man) man) 7a)s and at once a role model teacher mentor and friend. 6e 7ill be deepl) missed. Sri8ant !. Datar 6arvard niversit) !adhav v. a#an Stanford niversit)
5
S#PPLE$ENTS A%AILABLE FOR THE 1&TH E'ITION A complete pac8age of supplements is available to assist students and instructors in using 6ogren Cost Accounting 15th edition.
$yA((o)n*+ngLa, !)Accounting=ab is an online home7or8 and assessment tool designed to help students practice cost accounting problems and concepts and to give their instructors feedbac8 on student performance. &t lets cost accounting professors assign a home7or8 deliverable that is automaticall) graded but that also serves as a tutorial e"perience for students. ,ased on Pearson;s !ath= platform 7hich has graded millions of assignments !)Accounting=ab provides a strong reliable platform 7ith a roc8 solid performance histor). $o learn more visit ---.mya((o)n*+ngla,.(om .
For Ins*r)(*ors Ins*r)(*or Reso)r(e Cen*er IRC/ $hese pass7ord%protected resources are accessible from ---.0earsonh+ghere.(om for Cost Accounting 15th ed. esources include the follo7ing9 • • • • •
Solutions !anual $est ,an8 in >ord and in $est@en including algorithmic questions &nstructor;s !anual Po7erPoint Presentations &mage =ibrar)
Ins*r)(*ors $an)al ,) Sandra +. Cereola 215 F %1'%'*2/5%' F 3nline $he chapter%b)%chapter manual offers helpful classroom suggestions and teaching tips. Tes* I*em F+le 215 F %1'%'*2/2%4 F 3nline $his collection of tests for each chapter offers an arra) of questions ranging from eas) to difficult. An electronic version of these questions is also available. $he Test Item File no7 supports Association to Advance Collegiate Schools of ,usiness GAACS,H &nternational Accreditation.
-
Sol)*+ons $an)al 215 F %1'%'*2//% F 3nline $his manual contains the full) 7or8ed%out and accurac)%chec8ed solutions for ever) question e"ercise and problem in the te"t. Po-erPo+n* Presen*a*+ons 215 F %1'%'*2/-%1 F 3nline $hese chapter%b)%chapter presentations provide )ou 7ith a slide sho7 read) for classroom use. se the slides as the) are or edit them to meet )our classroom needs.
For S*)en*s &n addition to this te"tboo8 and ! )Accounting=ab a companion >eb site is available for students at 777.pearsonhighered.comIhorngren.
/
ALTERNATI%E S#33ESTE' CHAPTER SE4#ENCES $he Preface to Cost Accounting noted that our aim in organiing the material 7as to present a modular fle"ible organiation that permits a course to be custom tailored. $his section presents si" possible sequences for a first course in cost accounting. 0or each of these si" sequences 7e also present the sequence of a second course that 7ould result in coverage of man) or all of the topics in Cost Accounting . 3utlines &J( all include Chapters 1 to 4 in var)ing orders of sequence. 3utline (& has a strong Galmost e"clusiveH focus on the decision ma8ing role of cost accounting. >e anal)ed the sequences of chapters assigned b) man) users of the 1*th edition. Although man) instructors tended to follo7 the sequence in the te"t other instructors tailored sequences to fit their particular desires. $hese tailored sequences varied considerabl). ,) far the most popular departure 7as to assign the chapter on process costing GChapter 1/H immediatel) after the coverage of #ob costing GChapter *H and activit)%based costing GChapter 5H. $he ne"t most popular departure 7as to assign Chapter 1 after Chapter 2 or '. All the accompan)ing alternative assignment schedules have an optional provision to facilitate tailoring a course. 3bviousl) instructors should alter an) suggested sequence to suit their preferences. 3$=&BE &9 $his basic course provides a balance of topics bet7een the ma#or purposes of cost accounting9 1. Calculating the cost of products services an d other cost ob#ects 2. 3btaining information for planning and control and performance evaluation '. Anal)ing relevant information for ma8ing decisions 0inishing the first course 7ith Chapters 11 and 1' means that topics 7ith less procedural emphasis are highlighted in the last 7ee8s of the courseK these t7o chapters also introduce topics covered in more detail in a second course. Some instructors ma) assign Chapter 1 7ithout using the Appendi" on Legression Anal)sisM preferring to dela) use of the Appendi" until the second course Gespeciall) if man) students have not been e"posed to regression anal)sis at the time of the basic courseH. 3$=&BE &&9 $his basic course covers the same chapters as 3utline & but assigns Chapter 1 GDetermining 6o7 Costs ,ehavesH immediatel) after Chapter ' GCost (olume%Profit Anal)sisH. &t also assigns Chapter 12 on Strateg) ,alanced Scorecard and Strategic Profitabilit) Anal)sis. $his first part of the second course emphasies cost management and performance evaluation before covering the si" chapters G1*J2H on cost allocation and other aspects of costing s)stems. 3$=&BE &&&9 After covering Chapters 1 to 4 and 11 in the basic course this sequence finishes 7ith a chapter on strategic issues GChapter 12H and t7o chapters on cost allocation topics GChapters 1* and 15H. Some instructors vie7 it as important that students 7ho ta8e onl) one cost accounting course become a7are of ho7 pervasive cost allocation issues are in practice.
3$=&BE &(9 $his basic course is similar to 3utline && 7ith one 8e) e"ception9 Chapter 1/ GProcess CostingH is covered immediatel) after Chapter 5. !an) instructors prefer to cover #ob costing and process costing in sequence so that their differences are highlighted. 3$=&BE (9 $his basic course emphasies technical cost accounting topics more than the other five outlines. Chapters 1/ and 1 e"tend Chapters * and 5K covering * 5 1/ and 1 as a single section of the course provides students 7ith a solid understanding of product costing alternatives. 3$=&BE (&9 $his basic course is adopted b) instructors 7ho 7ish to put most emphasis on the decision ma8ing and performance evaluation aspects of cost accounting. 0inishing the basic course 7ith Chapters 22 and 2' means that behavioral issues are highlighted in the final 7e e8s of the course.
4
O#TLINE I
,AS&C C3SE
Cha0*er 1 2 ' * 5 / 4 1 11 1'
$ests 3ptional
SEC3BD C3SE
Cha0*er 12 1* 15 11/ 1 14 2 21 22 2' $ests 3ptional
O#TLINE II N)m,er of Sess+ons G1H G2H G2H G'H G'H G2H G2H G2H G2H G2H G2H G2H
G'H G*H '2
N)m,er of Sess+ons G'H G2H G2H G2H G2H G2H G2H G2H G2H G2H G2H G'H G-H '2
Cha0*er 1 2 ' 1 * 5 / 4 11 12 1' $ests 3ptional
Cha0*er 21 22 2' 1* 15 11/ 1 14 2
$ests 3ptional
O#TLINE III N)m,er of Sess+ons G1H G2H G2H G2H G'H G'H G2H G2H G2H G2H G2H G2H G2H G'H G2H '2
N)m,er of Sess+ons G'H G2H G2H G'H G2H G2H G'H G2H G2H G2H
G'H G-H '2
1
Cha0*er 1 2 ' * 5 / 4 11 12 1* 15 $ests 3ptional
Cha0*er 1 1' 21 15 1/ 1 14 2 22 2'
$ests 3ptional
N)m,er of Sess+ons G1H G2H G2H G'H G'H G2H G2H G2H G2H G2H G2H G2H G2H G'H G2H '2
N)m,er of Sess+ons G2H G2H G'H G2H G'H G2H G2H G'H G2H G2H
G'H G-H '2
O#TLINE I%
,AS&C C3SE
SEC3BD C3SE
Cha0*er 1 2 ' 1 * 5 1/ / 4 11 1' $ests 3ptional
Cha0*er 12 21 22 2' 1* 15 11 14 2
$ests 3ptional
O#TLINE % N)m,er of Sess+ons G1H G2H G2H G2H G2H G2H G2H G2H G2H G2H G2H G2H G2H G'H G*H '2
N)m,er of Sess+ons G'H G'H G2H G2H G'H G2H G2H G2H G2H G2H
G'H G-H '2
Cha0*er 1 2 ' * 5 1/ 1 / 4
$ests 3ptional
O#TLINE %I N)m,er of Sess+ons G1H G2H G2H G'H G'H G'H G2H G'H G2H G2H G2H
G'H G*H '2
Cha0*er 1 11 12 1' 21 1* 15 114 2 22 2' $ests 3ptional
11
N)m,er of Sess+ons G2H G2H G2H G'H G'H G2H G2H G2H G2H G2H G2H G2H G'H G'H '2
Cha0*er 1 2 ' 1 * 5 11 12 1' 22 2'
$ests 3ptional
Cha0*er / 4 1/ 1 14 2 21 1* 15 1-
$ests 3ptional
N)m,er of Sess+ons G1H G2H G2H G2H G2H G2H G2H G2H G2H G'H G2H G2H
G'H G5H '2
N)m,er of Sess+ons G2H G2H G2H G'H G2H G2H G2H G'H G2H G2H G2H
G'H G5H '2
CATE3ORI5ATION OF ASSI3N$ENT $ATERIAL $he assignment material in the 15th edition has been developed to offer instructors a broad range of options in developing a challenging and interesting course. $he follo7ing e"hibits assist instructors in selecting assignment material. E"hibits P%l and P%2 sho7 assignment material that is based on service or nonprofit and on merchandising Gretail 7holesale or distributionH sectors of the econom). Although man) of the assignments in the 15th edition are based in the manufacturing sector E"hibits P%l and P%2 provide man) e"amples for instructors 7ho 7ish to either select assignment material from a broad range of sectors or intend to concentrate on sectors outside manufacturing. 1.
SE(&CE ABD B3BP30&$ SEC$3S9 $hese assignments include settings such as accounting firms la7 firms advertising agencies ban8 and finance companies lodging companies transportation companies and government agencies
2.
!EC6ABD&S&B@ SEC$3S9 $hese assignments include settings such as distributors 7holesalers and retailers
$here is gro7ing demand from instructors for assignment material in three specific areas
E$6&CS. $he second%to%last problem of man) chapters incorporates an ethical issue facing a management accountant or a manager. E"amples include pressure for coo8ing the boo8s concealing unfavorable information and conflicts of interest bet7een management incentives and compan) values. !an) of these problems require students to consider the &!A Statement of Ethical Professional Practice on p.1 of the te"t.
*.
@=3,A= ABD &B$EBA$&3BA= D&!EBS&3BS. $hese assignments include material based outside the nited States or problems pertaining to companies 7ith operations in more than one countr).
5.
!3DEB C3S$ !ABA@E!EB$ 03B$&E &DEAS. $hese assignments include material that an instructor can use to highlight areas such as customer focus 8e) success factors balanced scorecard value%chain anal)sis strategic anal)sis of operating income +&$ and continuous improvement. Assignment material related to activit)%based costing GA,CH activit)% based management GA,!H and cost drivers is found in man) chapters.
12
E6HIBIT P71 ASSI3N$ENT $ATERIAL FRO$ SER%ICE AN' NOT7FOR7PROFIT SECTORS Cha0*er 1
N)m,er 1%1 1%2 1%2* 1%2/ 1%'5 1%'-
Con*e8* 0ast%food restaurantsK value chain cost classification Construction servicesK 8e) success factors 6ouse%painting serviceK five%step decision%ma8ing process &nternet compan)K planning and control Publishing compan)K ethicsK end%of%)ear actions Shipping compan)K ethical challenges
2
2%1 2%21 2%2-
!ar8eting researchK classification of costs Phone contractK fi"ed and variable costs 0ood and music serviceK total costs and unit costs
'
'%1 '%22 '%24 '%'' '%'* '%'5 '%* '%*/
$ravel agenc)K C(P anal)sis estaurantK C(P anal)sis !usic Societ)K C(P anal)sis $ourismK C(P anal)sis Da)careK C(P anal)sis target operating income $a" preparerK C(P anal)sis margin of safet) Printing compan)K brea8evenK alternative cost structures uncertaint) sensitivit) !useum of artK gross margin contribution margin
*
*%1 *%21 *%2* *%2 *%24 *%'2 *%'' *%'4 *%*1
esidential constructionK #ob costing normal actual Consulting firm #ob costing niversit) pressK #ob costing #ournal entries Canadian accounting firmK actual normal and variation from normal costing >eb%design firmK actual normal and variation from normal costing =a7 firmK #ob costing =a7 firmK #ob costing PrintingK allocation and proration of overhead !usic contracting agenc)K #ob costing
5
5%1/ 5%1 5%22 5%2' 5%2 5%24 5%' 5%'1 5%'2 5%'* 5%'5 5%'
$esting labsK activit)%based costing cost hierarch) Professional services firmK alternative allocation bases Architectural firmK department costing based on activities Printing compan)K activit)%based costing Custom framingK activit)%based costing ,an8ingK activit)%based costing product costing cross%subsidiation =a7 firmK #ob costing single direct% and indirect%cost categories =a7 firmK #ob costing multiple direct% and single indirect%cost categories =a7 firmK #ob costing multiple direct% and indirect%cost categories =a7n care landscapingK first%stage allocation A,C adiolog) centerK department activit)%cost rates 6ealth careK activit)%based costing s)stem 1'
E6HIBIT P71 Con*+n)e/ Cha0*e r -
N)m,er Con*e8* -%1Environmental testingK sales budget -%2' >indo7%7ashingK budgeted cost of #obs -%2 $our compan)K responsibilit) accounting stretch targets -%'* estaurantK purchasing agent responsibilit) accounting -%*2 6air salonK human aspects of budgeting
/
/%2 /%'1
Student loan financingK static and fle"ible budge ts Car detailingK variance anal)sis
%2* %25 %2/ %'/ %* %*1
0ood deliver) serviceK overhead variances Aircraft maintenanceK total overhead '%variance anal)sis ,ac8 office servicesK overhead variances Publishing compan)K activit)%based costing Pet food inspectionK non%financial variances Cloud services providerK overhead variances
4
4%' 4%'4 4%*
Printing pressK metrics to minimie inventor) buildups 6ospital chainK cost allocation do7n7ard demand spiral 6ospital chainK cost allocation responsibilit) accounting ethics
1
1%1/ 1%22 1%2' 1%2* 1%21%'1 1%'2 1%'* 1%'/ 1%'
Car rental contractsK variable% fi"ed% and mi"ed%cost functions $ravel servicesK estimating a cost function high%lo7 method Customer%service costsK estimating a cost function high%lo7 method Consulting servicesK linear cost appro"imation Catering compan)K regression anal)sis Produce clubK high%lo7 method regression anal)sis estaurantK sales and advertising high%lo7 method regression anal)sis Agricultural transportationK interpreting regression anal)sis Bonprofit hospitalK regression choosing among models Bonprofit hospitalK multiple regression
11
11%2* 11%211%2/ 11%'' 11%*2
6ospitalK relevant costs decision on closing surger) centers Printing pressK choosing customers Pia restaurantK relevance of equipment costs =imousine serviceK opportunit) costs relevant costs 0ishing toursK dropping and adding tours
12
12%212%2/ 12%2
Consulting firmK strateg) balanced scorecard Consulting firmK strategic anal)sis of operating income Consulting firmK anal)sis of gro7th price%recover) and productivit) components Consulting firmK identif)ing and managing unused capacit)
12%24
1*
E6HIBIT P71 Con*+n)e/ Cha0*e r
1'
N)m,er Con*e8* 12%' Cable and internet servicesK balanced scorecard social performance 12%'4 AirlineK balanced scorecard environmental and social performance 1'%1$ool repair shopK value%added nonvalue%added costs 1'%1/ ArchitectsK target operating income value%added costs 1'%2 Energ) auditsK target costs effect of process%design changes on service costs 1'%21 6otel managementK cost%plus target return on investment pricing 1'%2* 6otelK price discrimination 1'%2/ Amusement par8K value%engineering target costing A,C 1'%24 epair servicesK cost%plus time and materials ethics 1'%' $emp labor agenc)K cost%plus and mar8et%based pricing 1'%'1 $esting labsK cost%plus and mar8et%based pricing 1'%'2 &ndustrial site cleanupK life%c)cle costing 1'%'' AirlineK price discrimination 1'%'* AirlineK anti%trust la7s pricing 1'%'5 &nterior decorationK preparing a bid pricing ethics
1*
1*%11*%1 1*%21 1*%2' 1*%'1
6ospitalsK cost allocation epair serviceK customer profitabilit) 6otelK cost allocation to divisions Sports teamK variance anal)sis multiple products &nterior designK customer%cost hierarch) and profitabilit) anal)sis
15
15%14
!anagement consultingK direct and step%do7n support department cost allocation !anagement consultingK reciprocal method support department cost allocation Allocation of common living costs Consulting servicesK allocation of common travel costs niversit)K fi"ed cost allocation 6otelK revenue allocation bundled products 3rganied toursK direct step%do7n reciprocal support department allocation
15%2 15%2' 15%2* 15%24 15%'5 15%'-
1/
1/%' 1/%'4
Publishing compan)K transferred%in costs 7eighted%average method Publishing compan)K transferred%in costs 0&03 method
14
14%21 14%2' 14%2* 14%2
Conference centerK qualit) improvement relevant costs and revenues niversit)K 7aiting time niversit)K 7aiting time relevant costs student satisfaction Pia deliver)K qualit) improvement Pareto diagram cause%and%effect diagram 15
E6HIBIT P71 Con*+n)e/ Cha0*e r
N)m,er Con*e8* 14%'* 6ealthcare groupK 7aiting time patient satisfaction compensation
2
2%'1
Deli sand7ich shopK supplier evaluation costs of qualit) timel) deliveries
21
21%1 21%14 21%22 21%'' 21%2* 21%'5
6ospitalK capital budgeting methods no income ta"es 6ospitalK capital budgeting methods income ta"es Construction compan)K pa)bac8 and BP( methods no income ta"es =aundromatK pa)bac8 methods even and uneven cash flo7s ,a8er)K ne7 equipment purchase income ta"es Entertainment centerK recogniing cash flo7s for capital investment pro#ects
22
22%1-
$heme par8sK management control s)stems balanced scorecard
2'
2'%1/ 2'%2 2'%2' 2'%24 2'%'1
Educational servicesK DuPont method einsurance and financial servicesK 3& & E(A (enture capitalK Capital budgeting & estaurantsK 3& measurement alternatives for performance measures !edia groupK 3& & DuPont method investment decisions balanced scorecard !edia groupK division managersN compensation levers of control ,an8K e"ecutive compensation balanced scorecard 6ealth spasK & E(A measurement alternatives goal congruence
2'%'2 2'%'' 2'%'/
1-
E6HIBIT P72 ASSI3N$ENT $ATERIAL FRO$ $ERCHAN'ISIN3 SECTORS Cha0*e r 2
N)m,er Con*e8*
2%'
Entertainment storeK classification of costs Department storeK cost of goods purchased cost of goods sold and income statement etail outlet storeK cost of goods sold and income statement
'
'%14 '%21 '%2' '%25 '%' '%' '%'4 '%*1 '%*-
Doughnut retailingK C(P Car dealerK C(P anal)sis +eans 7holesalerK C(P and sensitivit) anal)sis ug dealerK space rental terms operating leverage !en;s clothing retailerK contribution margin decision ma8ing Shoe storeK sales commissions C(P anal)sis Shoe storeK sales commissions C(P anal)sis Sunglasses storeK C(P alternative cost structures =uggage carrier retailerK sales mi" C(P anal)sis
5
5%25 5%25%'5%*2
Supermar8etK A,C product%line profitabilit) 0urniture 7holesalerK A,C customer profitabilit) Pharmaceuticals distributorK A,C ,oo8storeK activit)%based costing and management
-
-%25 -%2-%24 -%'4
Convenience store chainK activit)%based budgeting Convenience store chainK activit)%based budgeting 8aien budgeting (ideo game distributorK cash flo7 anal)sis >holesalerK cash budgeting
1
1%2 1%*1 1%*2 1%*'
Coffee shopK account anal)sis method high%lo7 method Clothing storeK matching time periods regression ethics Department store chainK cost drivers A,C simple regression anal)sis Department store chainK cost drivers A,C multiple regression anal)sis
11
11%22 11%25
0ood storeK relevant costs contribution margin product emphasis Convenience storesK relevant costs closing and opening stores
12
12%1 12%14 12%2 12%21
$%shirts distributorK strateg) balanced scorecard $%shirts distributorK strategic anal)sis of operating income $%shirts distributorK anal)sis of gro7th price%recover) and productivit) components $%shirts distributorK identif)ing and managing unused capacit)
1'%1
DistributorK target prices target costs A,C
1'
2%14 2%24
1/
E6HIBIT P72 Con*+n)e/ Cha0*e r 1*
15
N)m,er Con*e8* 1*%1/ Environmental products distributorK customer profitabilit) customer% cost hierarch) 1*%14 Pharmaceutical distributorK customer profitabilit) 1*%2* >ine glass retailerK variance anal)sis multiple products 1*%24 Paper distributorK customer profitabilit) 1*%' @elato storesK variance anal)sis multiple products
15%21 15%22 15%25 15%215%2/
2
2%12%1/ 2%1 2%2 2%2
3nline boo8 retailerK direct and step%do7n support department cost allocation 3nline boo8 retailerK reciprocal method support department cost allocation 0ragrance retailerK revenue allocation Auto salesK allocation of common costs Department storeK single%rate dual%rate and practical capacit) allocation Sporting goods retailerK E3: Sporting goods retailerK E3: effect of parameter changes $e"tile retailerK E3: etailerK sensitivit) of E3: to changes in relevant ordering and carr)ing costs cost of prediction error 3nline computer retailerK E3: performance evaluation
21
21%1/ 21%221%'21%'/
6ard7are storesK capital budgeting methods no income ta"es etail outletsK pro#ect choice ta"es 0ood retailerK BP( inflation income ta"es Construction and mining site supplierK BP( of information s)stem income ta"es
22
22%1
Supermar8et chainK benefits and costs of decentraliation
2'
2'%22 2'%2-
Automobile retailerK 3& & E(A Car batter) salesK ris8 sharing incentives benchmar8ing multiple tas8s
1
E6HIBIT P7 ASSI3N$ENT $ATERIAL ON ETHICS Cha0*er 1
N)m,er 1%25 1%21%'' 1%'* 1%'5 1%'-
Con*e8* Division performance Division performance Pharmaceutical compan) budgeting End%of%)ear actions End%of%)ear actions @lobal compan) end%of%)ear actions
2
2%*1
Cost classification
'
'%*
Environmental costs C(P anal)sis
*
*%*
+ob costing contracting cost reimbursement
5
5%*1
ElectronicsK A,C implementation ethics
-
-%*1
!anufacturerK slac8 ethics
/
/%*2
@PS manufacturerK price and efficienc) variances benchmar8ing ethics
%*'
3verhead variances ethics
4
4%*
6ospital chainK cost allocation responsibilit) accounting ethics
11
11%**
Dropping a customer activit)%based costing ethics
1'
1'%24 1'%'5
epair servicesK cost%plus time and materials ethics &nterior decorationK preparing a bid pricing ethics
1*
1*%'4
>riting smaller ordersK customer profitabilit) and ethics
1/
1/%*2
oc8%crushing plantsK benchmar8ing ethics
14
14%1 14%'5
Car seatsK costs of qualit) ethics Auto parts manufacturerK ethics and qualit)
2
2%'-
Container manufacturerK +&$ production relevant benefits relevant costs ethics
22
22%'*
Container manufacturerK transfer pricing goal congruence ethics 14
2'
2'%'-
Picture frame moldingK ethics levers of control
E6HIBIT P7: ASSI3N$ENT $ATERIAL ;ITH 3LOBAL OR INTERNATIONAL SETTIN3 Cha0*e r 1
N)m,er Con*e8*
1%'-
Contract bidding ethical and cultural issues
'
'%1 '%2-
$ravel agenc) C(P anal)sis &nternational cost structure differences C(P anal)sis
*
*%2
Canadian accounting firmK actual normal and variation from normal costing
-
-%2
+apanese motorc)cle manufacturerK revenues production and purchases budgets
/
/%'2
Detergent bottling plant in !e"icoK possible causes for price and efficienc) variances !emor) card manufacturer in $ai7anK direct%cost and selling price variances
/%*
%2'
$elecommunications compan)K manufacturing overhead standard%costing s)stem
1
1%'* 1%'4 1%*
Agricultural transportation in CanadaK interpreting regression results Smartphone manufacturing in oreaK cost estimation Smartphone manufacturing in oreaK cost estimation learning curves
11
11%'1
&nternational outsourcingK relevant costs e"change rates
1-
1-%'-
0lash memor) chips manufacturer in oreaK #oint%cost allocation process further or sell
21
21%2 21%24 21%'1
Clothing manufacturerK selling a plant income ta"es Protot)pe chip manufacturerK equipment replacement no income ta"es 0ragrance manufacturerK DC0 sensitivit) anal)sis no income ta"es
2
E6HIBIT P7: Con*+n)e/ Cha0*er N)m,er Con*e8* 22 22%14 Canadian lumber compan)K transfer%pricing methods goal congruence 22%2 !ultinational computer compan)K transfer pricing alternative transfer% pricing methods global income ta" minimiation 22%2' $elecommunications equipment global mar8etingK multinational transfer pricing global ta" minimiation 22%2* $elecommunications equipment global mar8etingK multinational transfer pricing goal congruence 22%'1 6igh%end fertiliersK multinational transfer pricing global ta" minimiation 22%'' Component manufacturerK international transfer pricing ta"es goal congruence
2'
2'%2* 2'%'
!anufacturing .S. and Bor7a)K multinational performance measurement 3& & !ultinational firm .S. @erman) and Be7 OealandK differing ris8 comparison of profit 3& and &
21
E6HIBIT P7& ASSI3N$ENT $ATERIAL #SIN3 $O'ERN COST $ANA3E$ENT FRONTIER I'EAS
Cha0*er 1
N)m,er 1%11%1/ 1%1 1%14 1%2 1%2 1%24
Con*e8* Computer compan)K value chain cost classification Pharmaceutical compan)K value chain cost classification 0ast food restaurantK value chain cost classification e) success factors e) success factors !a8ing strategic decisions !a8ing strategic decisions
2
2%2*
Smartphone compan)K value chain cost drivers
5
5%15%1/ 5%14 5%2 5%21 5%22 5%2' 5%2* 5%25 5%25%2/ 5%2 5%24 5%'1 5%'2 5%'' 5%'* 5%'5 5%'5%'/ 5%' 5%'4 5%* 5%*1 5%*2
Cost hierarch) at manufacturer $esting labsK A,C cost hierarch) Automotive productsK plant7ide department A,C costing $rophies and plaques manufacturerK plant7ide department A,C costing Calculator manufacturerK A,C process costing Architectural firmsK Department costing based on activities Printing compan)K activit)%based costing Door manufacturerK activit)%based costing Supermar8etK A,C product%line profitabilit) 0urniture 7holesalerK A,C customer profitabilit) 0ood processingK A,C area cost%driver rates product cross%subsidiation Custom framingK activit)%based costing ,an8ingK A,C product costing cross%subsidiation =a7 firmK #ob costing multiple direct% and single indirect%cost categories =a7 firmK #ob costing multiple direct% and indirect%cost categories !anufacturerK first%stage allocation A,C =a7n care landscapingK first%stage allocation A,C adiolog) centerK department activit)%cost rates Pharmaceuticals distributorK A,C ,ag manufacturerK activit)%based costing and management 6ealth careK A,C s)stem Sports manufacturerK unused capacit) activit)%based costing and management ,oat manufacturerK A,C ElectronicsK A,C implementation ethics ,oo8storeK activit)%based costing and management
22
Cha0*er 1
N)m,er 1%11%1/ 1%1 1%14 1%2
Con*e8* Computer compan)K value chain cost classification Pharmaceutical compan)K value chain cost classification 0ast food restaurantK value chain cost classification e) success factors e) success factors
E6HIBIT P7& Con*+n)e/ Cha0*er -
N)m,er Con*e8* -%25 Convenience store chainK activit)%based budgeting -%25 Convenience store chainK activit)%based budgeting 8aien budgeting -%2 $our compan)K responsibilit) accounting stretch targets -%'1 $%shirt manufacturerK 8aien approach -%'* Purchasing agentK responsibilit) accounting -%'5 =uggage manufacturerK activit)%based budgeting -%* Plastic accessories manufacturerK activit)%based budgeting -%*' 0oot7ear manufacturerK activit)%based budgeting
/
/%2' /%2/ /%'1 /%'/ /%' /%*2 /%*2
$%shirt manufacturerK continuous improvement Plastic container manufacturerK benchmar8ing against competitors Sunglass frameIlens manufacturerK responsibilit) issues Sha7l manufacturerK variances custom production #ust%in%time inventor) E)eglass lens manufacturerK use of variances for benchmar8ing @PS manufacturerK variances benchmar8ing ethics Electronics manufacturerK variances standards negotiations
%2-
+e7elr) ma8erK relationship bet7een production%volume and sales%volume variance ana l)sis Shoe manufacturerK activit)%based costing batch%level variance ana l)sis ec)cled plastic shopping bag ma8erK relationship bet7een overhead and sales%volume vari
%'5 %'%'/
Publishing compan)K activit)%based costing batch%level variance anal)sis
4
4%1/ 4%14 4%2* 4%25 4%' 4%'' 4%'5 4%'4 4%* 4%*1
Auto compan)K throughput costing Electronics manufacturerK throughput costing Capacit) management denominator%level capacit) concepts !otorc)cle manufacturerK alternative denominator%level capacities $e"tboo8 publisherK metrics to minimie inventor) buildups Denominator%level choices changes in inventor) levels effect on operating income 3ptical reader manufacturerK do7n7ard demand spiral 6ospital meal serviceK cost allocation do7n7ard demand spiral 6ospital meal serviceK cost allocation responsibilit) accounting ethics Electric car compan)K absorption variable and throughput costing
1
1%'' 1%'4
!anufacturingK cost drivers A,C simple regression anal)sis !anufacturingK cost estimation 2'
Cha0*er 1
N)m,er Con*e8* 1%1Computer compan)K value chain cost classification 1%1/ Pharmaceutical compan)K value chain cost classification 1%1 0ast food restaurantK value chain cost classification 1%14 e) success factors 1%2 e) success factors 1%* !anufacturingK cost estimation learning curves 1%*2 Department store chainK cost drivers A,C simple regression anal)sis 1%*' Department store chainK cost drivers A,C multiple regression anal)sis
E8h+,+* P7& Con*+n)e/ Cha0*er N)m,er Con*e8* 11 11%14 Special order activit)%based costing 11%2 !a8e versus bu) activit)%based costing 11%2* 0iling cabinetsK theor) of constraints throughput margin 11%2PrintersK customer profitabilit) anal)sis 11%'!anufacturingK A,C ma8e versus bu) 11%'4 Electronic testing equipment manufacturerK theor) of constraints throughput margin 11%* $o) manufacturerK theor) of constraints sensitivit) anal)sis 11%*1 Customer profitabilit) activit)%based costing ethics
12
12%112%1/ 12%1 12%14 12%2 12%21 12%22 12%2' 12%2* 12%25 12%212%2/ 12%2 12%24 12%' 12%'1 12%'2 12%'' 12%'* 12%'5 12%'12%'/
,alanced scorecard Anal)sis of gro7th price%recover) and productivit) components !erchandisingK strateg) balanced scorecard !erchandisingK strategic anal)sis of operating income !erchandisingK anal)sis of gro7th price%recover) and productivit) components !erchandisingK identif)ing and managing unused capacit) !anufacturingK strateg) balanced scorecard !anufacturingK strategic anal)sis of operating income !anufacturingK anal)sis of gro7th price%recover) and productivit) components !anufacturingK identif)ing and managing unused capacit) Consulting firmK strateg) balanced scorecard Consulting firmK strategic anal)sis of operating income Consulting firmK anal)sis of gro7th price%recover) and productivit) components Consulting firmK identif)ing and managing unused capacit) !anufacturingK strateg) balanced scorecard !anufacturingK strategic anal)sis of operating income !anufacturingK anal)sis of gro7th price%recover) and productivit) components !anufacturingK identif)ing and managing unused capacit) ,alanced scorecard Petroleum compan)K balanced scorecard =aser printersK balanced scorecard Chocolate manufacturerK balanced scorecard environmental and social performance 2*
Cha0*er 1
N)m,er 1%11%1/ 1%1 1%14 1%2 12%' 12%'4 12%* 12%*1
Con*e8* Computer compan)K value chain cost classification Pharmaceutical compan)K value chain cost classification 0ast food restaurantK value chain cost classification e) success factors e) success factors Cable and internet servicesK balanced scorecard social performance AirlineK balanced scorecard environmental and social performance !anufacturingK partial productivit) measurement !anufacturingK total factor productivit)
E8h+,+* P7& Con*+n)e/ Cha0*er 1'
N)m,er Con*e8* 1'%1$ool repair shopK value%added nonvalue%added costs 1'%1/ ArchitectsK target operating income value%added costs 1'%1 DistributorK target prices target costs A,C 1'%14 !edical instrumentsK target costs effect of product%design changes on product costs 1'%2 Energ) auditsK target costs effect of process%design changes on service costs 1'%21 6otel managementK cost%plus target return on investment pricing 1'%22 !anufacturerK cost%plus target pricing 1'%2' (acuum manufacturerK life%c)cle budgeting and costing 1'%2* 6otelK price discrimination 1'%25 !anufacturerK target pricing 1'%2Cosmetics manufacturerK value engineering target pricing target costing 1'%2/ Amusement par8K value engineering target costing A,C 1'%2 Cand) manufacturerK target return on investment pricing 1'%' $emp labor agenc)K cost%plus and mar8et%based pricing 1'%'1 $esting labsK cost%plus activit)%based costing mar8et%based pricing 1'%'2 &ndustrial site cleanupK life%c)cle costing 1'%'' AirlineK price discrimination 1'%'* AirlineK anti%trust la7s pricing 1'%'>ood sculpture manufacturingK target prices target costs loc8ed%in costs value engineering
1*
1*%1/ 1*%1 1*%14 1*%2 1*%24 1*%' 1*%'1 1*%'* 1*%'5
Environmental products distributorK customer profitabilit) customer%cost hierarch) epair serviceK customer profitabilit) Pharmaceutical distributorK customer profitabilit) +e7elr) manufacturerK customer profitabilit) Paper distributorK customer profitabilit) !anufacturing compan)K customer profitabilit) anal)sis &nterior designK customer%cost hierarch) customer profitabilit) !etal rod manufacturerK cost%hierarch) income statement allocation of corporate division customers e)board manufacturerK cost%hierarch) income statement allocation of corporate division 25
Cha0*er 1
14
N)m,er 1%11%1/ 1%1 1%14 1%2
1*%'4
Con*e8* Computer compan)K value chain cost classification Pharmaceutical compan)K value chain cost classification 0ast food restaurantK value chain cost classification e) success factors e) success factors customers >riting smaller ordersK customer%cost hierarch) profitabilit) and ethics
14%114%1/ 14%1 14%14 14%2
Cell phone equipmentK costs of qualit) Car seatsK costs of qualit) Car seatsK costs%of%qualit) ethics Cell phone coversK nonfinancial measures of qualit) and time Printing pressesK qualit) improvements relevant costs and relevant revenues
E8h+,+* P7& Con*+n)e/ Cha0*er
N)m,er Con*e8* 14%21 Conference center qualit) improvement relevant costs and relevant revenues 14%22 Pet to)sK 7aiting time 14%2' niversit)K 7aiting time 14%2* niversit)K 7aiting time relevant costs student satisfaction 14%25 Cell phonesK nonfinancial measures of qualit) and time 14%2!anufacturerK nonfinancial measures of qualit) manufacturing c)cle efficienc) 14%2/ Cereal manufacturerK statistical qualit) control 14%2 Pia deliver)K qualit) improvement Pareto diagram cause%and%effect diagram 14%24 (alve manufacturingK qualit) improvement relevant costs and relevant revenues 14%' Plastic productsK qualit) improvement relevant costs and relevant revenues 14%'1 Plastic productsK 7aiting times manufacturing lead times 14%'2 Plastic productsK 7aiting times relevant revenues and relevant costs 14%'' >ire harnessesK manufacturing c)cle times relevant revenues and relevant costs 14%'* 6ealthcare groupK 7aiting time patient satisfaction compensation 14%'5 Auto parts manufacturerK qualit) and ethics 14%'$e"tile printingK qualit) improvementK theor) of constraints
2
2%21 2%22 2%2' 2%2* 2%2/ 2%24 2%' 2%'1 2%'2 2%'' 2%'* 2%'5
6ard7are compan)K +&$ production relevant benefits relevant costs Computer assembl)K bac8flush costing and +&$ production Computer assembl)K bac8flush costing t7o trigger points materials purchase and sale Computer assembl)K bac8flush costing t7o trigger points completion of production and sal !usic pla)ersK E3: +&$ production Automotive supplier +&$ purchasing relevant benefits relevant cost Computer manufacturerK supplier evaluation costs of qualit) timel) deliveries Deli sand7ich shopK supplier evaluation costs of qualit) timel) deliveries Electrical metersK bac8flush costing and +&$ production Electrical metersK bac8flush t7o trigger points materials purchase and sale Electrical metersK bac8flush t7o trigger points completion of production and sale Securit) devicesK lean accounting 2-
Cha0*er 1
N)m,er Con*e8* 1%1Computer compan)K value chain cost classification 1%1/ Pharmaceutical compan)K value chain cost classification 1%1 0ast food restaurantK value chain cost classification 1%14 e) success factors 1%2 e) success factors 2%'Container manufacturerK +&$ production relevant benefits relevant costs ethics.
E8h+,+* P7& Con*+n)e/ Cha0*er 21
N)m,er Con*e8* 21%'/ Construction and mining site supplierK BP( of information s)stem income ta"es
22
22%122%1/ 22%1
$heme par8sK management control s)stems balanced scorecard >indo7 manufacturingK cost centers profit centers decentraliation transfer prices Supermar8et chainK benefits and costs of decentraliation
2'
2'%22 2'%2' 2'%2* 2'%25 2'%22'%2/ 2'%' 2'%'1 2'%'2 2'%'' 2'%'2'%'/
Automotive retailerK 3& & E(A (enture capitalK capital budgeting & Gconservation propert)H !anufacturing .S. and Bor7a)K multinational performance measurement 3& & 0ashion product manufacturerK 3& & E(A performance evaluation AutomotiveK ris8 sharing incentives benchmar8ing multiple tas8s Doorbell manufacturingK esidual income and E(A timing issues !ultinational firm .S. @erman) and Be7 OealandK differing ris8 comparison of profit !edia groupK 3& & DuPont method investment decisions balanced scorecard !edia groupK division managersN compensation levers of control ,an8K e"ecutive Gbusiness unitH compensation balanced scorecard Picture frame moldingK levers of control ethics 6ealth spasK & E(A measurement alternatives goal congruence
2/
PRESENTATION OF SOL#TIONS &nstructors have a variet) of vie7s regarding the use of classroom time for home7or8 solutions. !ost instructors put solutions on a blac8board or an overhead pro#ector. &n turn their students franticall) cop) the materials in their notes. 3ur practice is to reproduce the printed home7or8 solutions for distribution either before during or after the discussion for a particular solution. $he members of the class are glad to pa) a modest fee to the school to cover the reproduction costs. &n this 7a) students can spend more of their classroom time in thin8ing rather than 7riting. 0urther the) have a complete set of notes. Some instructors ob#ect to this procedure because it provides students 7ith a LfileM that can be passed along to subsequent classes. Students in subsequent classes 7ill then use the LfileM to avoid conscientious preparation of home7or8. >e used to 7orr) about such practices but long ago 7e decided that there 7ould al7a)s be some students 7ho hurt themselves b) not doing home7or8 in an appropriate 7a). >h) should the vast ma#orit) of students be penalied b) 7ithholding the printed solutions $he benefits of using printed solutions clearl) out7eigh the costs. >e no longer fret about the fe7 students 7ho beat the s)stem Gand themselvesH. Similarl) 7e distribute printed solutions to tests and e"aminations along 7ith a summar) of overall class performance. >e do not devote class time to discussing these solutions. $he students deserve feedbac8 but the) have sufficient motivation to scrutinie the printed solutions and chec8 their errors on an individual basis. &n this 7a) more class time is available for ne7 material. &f students have complaints about grades 7e usuall) as8 them to cool off for 2* hours and to then submit a 7ritten anal)sis of ho7 the) 7ere un#ustl) treated. >e then ta8e these complaints in batches regrade the papers and return the papers. &f the student then 7ants to have a person%to%person discussion of the matter he or she is 7elcome at our office. $his procedure ma) seem too impersonal but 7e recommend it to those teachers 7ho have been through some painful debates that have been inefficient and frustrating for both student and teacher.
2
$A
In keeping with the shifts in the U.S. and world econo!" this edition akes greater #se of erchandising and service sector e$aples" with a corresponding de%ephasis of traditional an#fact#ring settings. &or e$aple" Chapter '( ill#strates linear cost f#nctions in the conte$t of pa!ents for clo#d cop#ting services. Chapter )( highlights inventor! anageent in retail organi*ations and has a revised e$aple +ased on a seller of s#nglasses. Chapter )' now incorporates a new r#nning e$aple that looks at capital +#dgeting in the conte$t of a transportation copan!. Several concepts in action +o$es foc#s on the erchandising and service sectors" incl#ding the #se of activit!%+ased costing to red#ce the costs of health%care deliver! ,Chapter -" the str#ct#re of S/0 costs at 1ordstro ,Chapter ) and an anal!sis of the operating incoe perforance of 2est 2#! ,Chapter '). 3rea*er Em0has+s on S)s*a+na,+l+*y
This edition places signi3cant ephasis on s#staina+ilit! as one of the critical anagerial challenges of the coing decades. Man! anagers are prooting the developent and ipleentation of strategies to achieve long%ter 3nancial" social and environental perforance as ke! iperatives. 4e highlight this in Chapter ' and ret#rn to the thee in several s#+se5#ent chapters. Chapter ') disc#sses the +ene3ts to copanies fro eas#ring social and environental perforance and how s#ch eas#res can +e incorporated in a +alanced scorecard. Chapter )6 provides several e$aples of copanies that andate disclos#res and eval#ate anagers on environental and social etrics. 0 variet! of chapters" incl#ding chapters 7" '(" and '-" contain vignettes that stress thees of energ! independence" #sing cost anal!sis to red#ce environental footprints" and constr#cting LgreenM hoes in a cost%e8ective anner.
24
Ne- C)**+ng7Ege To0+(s
The pace of change in organi*ations contin#es to +e rapid. The '-th edition of Cost Accounting re9ects changes occ#rring in the role of cost acco#nting in organi*ations. •
4e have introd#ced sustainabilit) strategies and the methods companies use to implement sustainabilit) 7ith business goals.
•
•
• •
•
4e have added ideas +ased on acadeic research regarding the weights to +e placed on perforance eas#res in a +alanced scorecard. 4e have provided details on the transfer pricing strategies #sed +! #ltinational technolog! 3rs s#ch as 0pple and /oogle to inii*e incoe ta$es. 4e disc#ss c#rrent trends in the reg#lation of e$ec#tive copensation. 4e descri+e the evol#tion of :nterprise Reso#rce ;lanning s!stes and newer sipli3ed costing s!stes that practice lean acco#nting. 4e disc#ss the role of acco#nting concepts and s!stes in fostering and s#pporting innovation and entreprene#rial activities in 3rs.
O0en+ng %+gne**es
:ach chapter opens with a vignette on a real copan! sit#ation. The vignettes engage the reader in a +#siness sit#ation" or dilea" ill#strating wh! and how the concepts in the chapter are relevant in +#siness. &or e$aple" Chapter ) descri+es how Hostess 2rands" the aker of Twinkies" was driven into li5#idation +! the relativel! high proportion of 3$ed costs in its operations. Chapter 7 e$plains the iportance of jo+ costing for LgreenM hoe+#ilders s#ch as <2 Hoe. Chapter = e$aines Tesla Motors> #nderstanding of 3$ed and varia+le overhead costs for planning and control p#rposes. Chapter ') shows how Volkswagen>s 2ra*ilian s#+sidiar! #sed the +alanced scorecard to g#ide its jo#rne! o#t of the glo+al 3nancial crisis. Chapter '- shows the ipact of two alternative ethods of cost allocation considered +! the U.S. governent for charging c#stoers for the costs of developing LSart /ridsM for power. Chapter )6 descri+es the historical isalignent +etween perforance eas#reent and pa! at 0I/ and the recent changes to the copensation plans for its e$ec#tives. Con(e0*s +n A(*+on Bo8es
&o#nd in ever! chapter" these +o$es cover real%world cost acco#nting iss#es across a variet! of ind#stries incl#ding a#too+ile racing" defense contracting" entertainent" an#fact#ring" and retailing. 1ew e$aples incl#de • • • •
Cost%Vol#e%;ro3t 0nal!sis Makes Mega+#s a Mega%S#ccess ,Chapter 6 &le$i+le 2#dgets at Corning ,Chapter ? 4hat Does It Cost 0T@T 4ireless to Send a Te$t MessageA ,Chapter '( 0re Charita+le Brgani*ations 0llocating oint Costs in a Misleading 4a!A ,Chapter ' '
•
0voiding ;erforance%Meas#reent Silos at Staples ,Chapter )6
S*reaml+ne Presen*a*+on
4e contin#e to tr! to siplif! and strealine o#r presentation of vario#s topics to ake it as eas! as possi+le for a st#dent to learn the concepts" tools" and fraeworks introd#ced in di8erent chapters. 0 ajor change in this edition is the reorgani*ation of Chapters ') and '6. Chapter '6 in the '7th edition" Strateg!" 2alanced Scorecard" and Strategic ;ro3ta+ilit! 0nal!sis" has +een oved to Chapter ') and Chapter ') in the '7th edition" ;ricing Decisions and Cost Manageent" has +een oved to Chapter '6. 0s a res#lt of the switch" Chapter '6 is the 3rst of fo#r chapters on cost allocation. 4e introd#ce the p#rposes of cost allocation in Chapter '6 and disc#ss cost allocation for long%r#n prod#ct costing and pricing. Contin#ing the sae e$aple" Chapter '7 disc#sses cost allocation for c#stoer costing. Chapter '- +#ilds on the Chapter 7 e$aple to disc#ss cost%allocation for s#pport departents. Chapter ' disc#sses joint cost allocation. 0s a res#lt of the reorgani*ation" we have also ade ajor revisions in the str#ct#re and writing of each of these chapters as we disc#ss in detail in the ne$t section. Bther e$aples of ore strealined presentations can +e fo#nd in the followingE •
•
•
•
Chapter ) on the disc#ssion of f#ndaental cost concepts and the anagerial fraework for decision aking Chapter " which has a revised 0ppendi$ that ties together the chapter e$aple and the cash +#dget Chapter =" which has a coprehensive chart that la!s o#t all of the variances descri+ed in Chapters ? and = Chapter F" which #ses a single two%period e$aple to ill#strate the ipact of vario#s inventor! costing ethods and denoinator level choices
'1
HI3HLI3HTS OF NE; CHAPTER7B>7CHAPTER CHAN3ES Cha0*er 1
Chapter ' has +een rewritten to incl#de greater disc#ssion of s#staina+ilit! and wh! this iss#e has +ecoe increasingl! critical for anagers. It also incl#des ore aterial on the iportance of ethics" val#es" and +ehaviors" as well as the role of the Sar+anes%B$le! act in iproving the 5#alit! of 3nancial reporting. Cha0*er 2
Chapter ) has +een #pdated and revised to ake it easier for st#dents to #nderstand core cost concepts and to provide a fraework for how cost acco#nting and cost anageent help anagers ake decisions. Cha0*er Chapter ' no7 includes greater managerial content using e"amples from real companies to illustrate the value of cost%volume%profit anal)sis in managerial decision ma8ing. Cha0*er :
Chapter 7 has +een revised with the addition of s#+stantial new aterial t o the section discussing end%of%period ad#ustments for the difference bet7een !anufacturing 3verhead Control and !anufacturing 3verhead Allocated. $he chapter also no7 discusses criteria for allocating costs and relates them to real e"amples to highlight 7h) managers need allocated cost information to ma8e decisions. Cha0*er &
Chapter - has +een reorgani*ed with a new section on 3rst%stage allocation to help st#dents #nderstand how costs fro the standard acco#nting classi3cations ,salaries" depreciation" rent" etc. are allocated to activit!%cost pools. The disc#ssion of +ehavioral considerations in ipleenting activit!%+ased costing has +een oved to a new section and integrated with other aterial in the chapter. There is also new aterial on the tradeo8s related to allocating facilit!% s#staining costs to prod#cts or not allocating the at all +eca#se these costs do not have good cost drivers. Cha0*er
Chapter has +een signi3cantl! rewritten with the addition of ore anagerial content. In addition" the 0ppendi$ has +een copletel! reworked to tie together the chapter e$aple and the cash +#dget. Cha0*ers ? an @
In Chapter ?" the appendi$ on arket%share and arket%si*e variances has +een replaced with one on i$ and !ield variances" which provide a nat#ral e$tension of eGcienc! variances to settings with s#+stit#ta+le inp#ts. Chapter = now provides a revised coprehensive s#ar! of the variances in +oth Chapters ? and = #sing an innovative new e$hi+it.
'2
Cha0*er 9
Chapter F has +een sipli3ed s#+stantiall! +! a change in the integrated e$aple fro three to two periods. This retains the pedagogical val#e of the e$aple while aking it #ch easier for st#dents to read and #nderstand. :$hi+it F%7 and the aterial aro#nd it have +een sipli3ed f#rther" and the self%st#d! pro+le has also +een revised. Cha0*er 1" Chapter 1 provides a practical guide to the use of various cost estimation techniques 7ith man) illustrative e"amples. $he opening vignette has been revised and 7e include a ne7 discussion of the difference bet7een correlation and causation as 7ell as a more streamlined description of inference and h)pothesis testing 7hen using regression anal)sis. Cha0*er 11 Chapter 11 has been revised substantiall)K the material on L$heor) of Constraints and $hroughput Contribution !arginM from Chapter 14 has no7 been incorporated into a ne7 section in this chapter. $he te"t and numbers have been re7ritten to lin8 7ith the Po7er ecreation problem alread) in Chapter 11 Gand the chapter Appendi"H. $he chapter has been made easier for students to follo7 b) replacing paragraphs 7ith tables. $hroughout there is greater emphasis on understanding 7h) relevant costs and revenues are important 7hen ma8ing decisions. Cha0*er 12
The new Chapter ') ,on the +alanced scorecard has +een rewritten with a copletel! new section on #sing the +alanced scorecard to achieve environental and social goals. $his section describes the motivations for companies to focus on sustainabilit) goals Gsuch as the concept of shared valueH sustainabilit) strategies and the methods companies use to implement sustainabilit) 7ith business goals. $here is also a ne7 e"hibit e"tending the Chipset balanced scorecard to include environmental and social ob#ectives and measures. Cha0*er 1
The new Chapter '6 foc#ses on cost allocation for long%r#n pricing decisions. The aterial on short%r#n costing and pricing fro Chapter ') in the '7th edition has +een oved to Chapter '' . Cha0*er 1: Chapter 1* has been completel) re7ritten. &t continues the same e"ample of Astel Computers from Chapter 1' but s7itches the conte"t from cost allocation for pricing to cost allocation for customer profitabilit). $he order of presentation the content the e"amples and the e"hibits are all ne7. $he chapter no7 starts 7ith customer profitabilit) based on customer%level costs and discusses the hierarchical operating income statement. &t then motivates 7h) corporate division and distribution channel costs need to be allocated and the criteria that can be used to allocate them. $he chapter closes 7ith sales variances and mar8et%share and mar8et%sie variances Gmoved here from Chapter /H. $he e"ample is ne7 and builds on the Astel Computers e"ample that is used throughout Chapter 1' and Chapter 1*.
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Cha0*er 1& Chapter 15 is also heavil) revised 7ith ne7 content e"amples and e"hibits. &t continues the e"ample of obinson Compan) from Chapter * but adds more issues around cost allocation
Chapters '? and '= present act#al costing with the aterial on standard costing disc#ssed in the appendi$. 4e have added a disc#ssion of anagerial iss#es when estiating e5#ivalent #nits and choosing +etween the &I&B and weighted% average costing ethods. Chapter '= ephasi*es the iportance of red#cing spoilage and scrap and ore generall! the thee of striving for a s#staina+le prod#ction and service environent. Cha0*er 19
0s a res#lt of oving aterial on the Theor! of Constraints to Chapter ''" Chapter 'F now foc#ses on 5#alit! and tie. 4e #se the sae ;hoton e$aple thro#gho#t the chapter to disc#ss +oth 5#alit! and $ime%,ased Competition. $his helps to integrate and streamline the chapter. Cha0*er 2" Chapter 2 contains revised content and presentation comparing traditional and #ust%in%time purchasing Gand a changed E"hibit 2%5H. $he sections on supplier evaluation relevant costs of qualit) and timel) deliveries have also been re7ritten as 7ell as the material on Enterprise esource Planning S)stems and =ean Accounting. Cha0*er 21 Chapter 21 has been completel) redone 7ith an entirel) ne7 e"ample and a set of revised Gand clearerH e"hibits. $he focus has shifted from a manufacturing setting to a transportation firm evaluating the purchase of a ne7 h)brid%engine bus. Cha0*er 22 Chapter 22 has been significantl) revised to reflect the latest developments in the controversial use of transfer prices for ta" minimiation b) multinational corporations and provides several real%7orld e"amples. $he revision also highlights the costs and benefits of decentraliation and the tradeoffs involved in setting a transfer pricing polic). Cha0*er 2 Chapter 2' includes a description of the use of environmental social and ethical ob#ectives b) companies as part of top managementNs pa) structures. &t discusses the ne7 SEC regulations on disclosure of e"ecutive compensation and the Dodd%0ran8 Lsa) on pa)M rules. $he chapter also incorporates research findings on the relative 7eight to be placed on different measures of the balanced
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scorecard.
CHAN3ES IN ASSI3N$ENT $ATERIAL FOR THE 1&TH E'ITION !ore than /Q of the e"ercises and problems in the 15th edition are ne7 or revised. $he remaining e"ercises and problems are ta8en from the 1*th edition. $he follo7ing e"hibits indicate the source of each of the e"ercises and problems in the 1*th edition. $hese e"hibits can be read as follo7s9
Categor) GaH Categor) GbH Categor) GcH
Chapter 5 15E R R R 5%"" 5%)) 5%
1*E R R R Be7 5%)) ev 5%
Categor) GaH sho7s that problem 5%"" in the 15th edition is ne7 to this edition. Categor) GbH sho7s that problem 5%)) in the 15th edition is a revision of problem 5%)) in the1*th editionK the ev; in 5%)) ev; indicates that the content and numbers from the 1*th edition have been revised. Categor) GcH sho7s that problem 5% in the 15th edition is problem 5% in the 1*th edition. $he absence of a evM after 5%; means that no change in the content or numbers has been made in continuing use of this problem in the 15th edition.
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Cha0*er 1 1&E 1:E 111/ 1/ ev 1 1 14 14 ev 2 Be7 21 2 22 Be7 2' 21 2* 22 ev 25 2' ev 2 Be7 2/ 2* 2 25 ev 24 Be7 ' 2'1 Be7 '2 2/ ev '' 2 ev '* 24 ev '5 ' ev ''1 ev
Cha0*er 2 1&E 1:E 111/ 1/ 1 1 ev 14 14 ev 2 2 ev 21 21 22 Be7 2' 2' ev 2* 2* 25 25 ev 2 Be7 2/ 2/ 2 2 ev 24 24 ' ' ev '1 '1 '2 '2 ev '' '' ev '* '* '5 '5 ''- ev '/ '/ ev ' ' ev '4 '4 ev * * ev *1 *1 ev *2 *2 ev
Cha0*er 1&E 1:E 11- ev 1/ 1/ 1 1 ev 14 14 ev 2 2 21 21 22 22 ev 2' Be7 2* 2* ev 25 25 ev 22- ev 2/ 2/ ev 2 Be7 24 24 ev ' ' ev '1 '1 '2 '2 ev '' '' ev '* '* ev '5 Be7 ''- ev '/ '/ ev ' ' ev '4 '4 ev * * ev *1 Be7 *2 *2 ev *' *' ev ** ** *5 *5 ev ***/ */ * * ev *4 *4
Cha0*er : 1&E 1:E 11- ev 1/ 1/ 1 1 ev 14 14 2 2 21 21 ev 22 22 ev 2' Be7 2* 2* 25 25 ev 22- ev 2/ 2/ 2 2 ev 24 Be7 ' ' '1 '1 ev '2 '2 ev '' '' ev '* '* '5 '5 ev ' Be7 '/ '/ ev ' ' ev '4 '4 ev * * ev *1 Be7
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Cha0*er & 1&E 1:E 11- ev 1/ 1/ 1 1 14 14 2 2 ev 21 21 ev 22 Be7 2' 22 ev 2* 2' ev 25 2* ev 225 ev 2/ 2- ev 2 2/ ev 24 2 ev ' 24 ev '1 ' ev '2 '1 ev '' Be7 '* Be7 '5 '' ev ''5 '/ '- ev ' '/ ev '4 ' ev * Be7 *1 * ev *2 *1
Cha0*er 1&E 1:E 111/ 1/ ev 1 1 14 14 ev 2 22 ev 21 2 ev 22 21 ev 2' Be7 2* 2' ev 25 2* ev 225 ev 2/ 2- ev 2 Be7 24 2/ ev ' 2 ev '1 24 ev '2 ' ev '' '1 ev '* '2 ev '5 '' ev ''* ev '/ '5 ev ' '- ev '4 '/ ev * ' ev *1 '4 ev *2 * ev *' *1 ev
Cha0*er ? 1&E 1:E 111/ 1/ 1 1 14 14 2 2 ev 21 21 22 22 2' 2' ev 2* 2* 25 222/ 2/ Be7 2 Be7 24 ' ev ' '1 ev '1 '2 ev '2 '' ev '' '* ev '* '5 ev '5 Be7 ''- ev '/ '/ ev ' ' ev '4 Be7 * Be7 *1 '4 ev *2 *1 ev
Cha0*er @ 1&E 1:E 111/ 1/ 1 1 14 14 2 2 ev 21 21 22 22 2' 2' 2* 2* ev 25 25 ev 2'/ ev 2/ Be7 2 2/ ev 24 2 ev ' 24 ev '1 ' '2 '1 '' '2 '* '' ev '5 '5 ev '*1 '/ '- ev ' ' ev '4 '4 ev * * ev *1 Be7 *2 Be7 *' *2 ev
Cha0*er 9 1&E 1:E 111/ 1/ 1 1 ev 14 14 ev 2 2 21 21 22 22 ev 2' 2* ev 2* 25 25 22 Be7 2/ 2 2 24 ev 24 ' ev ' '1 ev '1 '2 ev '2 '' '' '* ev '* 2/ ev '5 '- ev ''/ ev '/ ' ev ' Be7 '4 '4 ev * * ev *1 Be7 *2 Be7
Cha0*er 1" Cha0*er 11 1&E 1:E 1&E 1:E 1111- ev 1/ 1/ 1/ 1/ 1 1 1 1 ev 14 14 14 14 ev 2 21 ev 2 2 21 22 21 21 ev 22 2' 22 22 ev 2' 2* 2' 2' ev 2* 25 ev 2* 14%25 25 2ev 22/ ev 25 25 2/ 2 ev 22- ev 2 24 ev 2/ Be7 24 ' ev 2 2 ' '1 24 24 ev '1 '2 ev ' 12%1 '2 '' ev ev '' '* ev '1 ' '* Be7 '2 '1 ev '5 '- ev '' Be7 ''/ ev '* '2 ev '/ Be7 '5 '5 ev ' Be7 ''- ev '4 Be7 '/ '4 ev * Be7 ' '' ev *1 *2 ev '4 14%'* *2 * ev ev *' *1 ev * Be7 *1 ' ev *2 Be7 *' * ** *1 ev *5 *2 ev
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Cha0*er 12 1&E 1:E 11'%1- ev 1/ 1'%1/ ev 1 1'%1 ev 14 1'%14 ev 2 1'%2 ev 21 1'%21 ev 22 1'%22 2' 1'%2' 2* 1'%2* 25 1'%25 21'%2- ev 2/ 1'%2/ ev 2 1'%2 ev 24 1'%24 ev ' 1'%' ev '1 1'%'1 ev '2 1'%'2 ev '' 1'%'' ev '* 1'%'* '5 1'%'5 ev '1'%'- ev '/ Be7 ' Be7 '4 Be7 * 1'%'/ ev *1 1'%' ev
Cha0*er 1 1&E 1:E 112%14 ev 1/ 12%2 ev 1 12%21 14 12%22 ev 2 Be7 21 12%2' ev 22 12%2* ev 2' Be7 2* 12%2/ ev 25 12%2 ev 2 Be7 2/ Be7 2 12%' ev 24 12%'1 ev ' 12%'2 '1 12%'' ev '2 12%'* ev '' 12%'5 ev '* Be7 '5 12%'- ev '12%'/ ev
Cha0*er 1: 1&E 1:E 111/ 2 ev 1 21 14 22 ev 2 1/ ev 21 1 22 14 ev 2' 2' ev 2* 2* ev 25 25 ev 22- ev 2/ '/ ev 2 24 ev 24 Be7 ' '1 ev '1 ' ev '2 2/ '' 2 '* Be7 '5 Be7 ''2 ev '/ '' ev ' Be7 '4 Be7
Cha0*er 1& 1&E 1:E 11- ev 1/ 1/ 1 1 14 14 2 2 21 21 22 22 2' 2' ev 2* 2* ev 25 25 ev 22- ev 2/ 2/ ev 2 2 ev 24 24 ev ' ' ev '1 '1 ev '2 '2 ev '' '' ev '* '* ev '5 '5 ev ' Be7
Cha0*er 1 1&E 1:E 111/ 1/ 1 1 ev 14 14 2 2 ev 21 21 22 22 ev 2' 2' ev 2* 2* 25 Be7 225 2/ Be7 2 2/ ev 24 2 ev ' 24 ev '1 ' ev '2 '1 ev '' '2 '* '' '5 '* ev '- Be7 '/ Be7
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Cha0*er 1? 1&E 1:E 1- 1- ev 1/ 1/ 1 1 ev 14 14 2 2 21 21 22 22 2' 2' ev 2* 2* ev 25 25 ev 2- 2/ ev 2/ 2 ev 2 Be7 24 *1 ev ' Be7 '1 ' '2 '1 '' '2 '* '' '5 '* ev '- '5 ev '/ '/ ev ' ' ev '4 '4 ev * Be7 *1 Be7 *2 Be7 *' Be7
Cha0*er 1@ 1&E 1:E 11- ev 1/ 1/ 1 1 14 14 2 2 21 Be7 22 Be7 2' 22 ev 2* 2' ev 25 2* ev 225 ev 2/ 2- ev 2 2/ 24 2 ev ' 24 ev '1 ' ev '2 '1 ev '' '2 ev '* '' ev '5 Be7 ''5 ev '/ '- ev ' '/ ev '4 ' ev * * ev *1 '4 ev
