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Contents Part I Fundamentals and Cost Accumulation Systems 1 The Changing Role of Managerial Accounting in a Dynamic Business Environment 2 Managerial Accounting: A Business Partnership with Management 4 Managing Resources, Activities, and People 4 Decision Making 5 Planning 5 Directing Operational Activities 5 Controlling 6 How Managerial Accounting Adds Value to the Organization 6 Objectives of Managerial Accounting Activity 6 The Balanced Scorecard 8 M.A.P. The Balanced Scorecard 9 Managerial versus Financial Accounting 10 Managerial Accounting in Different Types of Organizations 11 Where Are Managerial Accountants Located in an Organization? 12 Organization Chart 12 Line and Staff Positions 12 Cross-Functional Deployment 13 Physical Location 14 Major Themes in Managerial Accounting 16 Information and Incentives 16 Behavioral Issues 17 Costs and Benefits 17 Evolution and Adaptation in Managerial Accounting 17 e-Business 17 Service versus Manufacturing Firms 18 Emergence of New Industries 18 Global Competition 18 Focus on the Customer 19 Cross-Functional Teams 19 Computer-Integrated Manufacturing 20 Product Life Cycles and Diversity 20 Time-Based Competition 20 M.A.P. The Internet as a Lifeline 21 Information and Communication Technology 21 Just-in-Time Inventory Management 22 Total Quality Management 23 Continuous Improvement 23 Cost Management Systems 23 Strategic Cost Management and the Value Chain 24 Theory of Constraints 25 The Ethical Climate of Business and the Role of the Accountant 25 Managerial Accounting as a Career 26 Professional Organizations 27 Professional Certification 27 Professional Ethics 27 Focus on Ethics: Standards of Ethical Conduct for Practitioners of Managerial Accounting and Financial Management 27 Chapter Summary 28 Key Terms 29 Review Questions 29 Exercises 30 Problems 30 Cases 32 Current Issues in Managerial Accounting 33 2 Basic Cost Management Concepts and Accounting for Mass Customization Operations 34 What Do We Mean by a Cost? 36 Product Costs, Period Costs, and Expenses 36 Costs on Financial Statements 38 Income Statement 38 Balance Sheet 40 Manufacturing Operations and Manufacturing Costs 41 M.A.P. Mass Customization 42 Mass-Customization Manufacturing 42 Manufacturing Costs 43 Manufacturing Cost Flows 45 Production Costs in Service Industry Firms and Nonprofit Organizations 47 Basic Cost Management Concepts: Different Costs for Different Purposes 48 The Cost Driver Team 48 Variable and Fixed Costs 49 The Cost Management and Control Team 50 M.A.P. Airline Industry: Cost Structure, Cost Drivers, and a Shifting Business Model 52 The Outsourcing Action Team 54 Costs and Benefits of Information 57 Focus on Ethics:Was WorldCom?s Controller Just Following Orders? 57 Chapter Summary 58 Review Problems on Cost Classifications 59 Key Terms 60 Review Questions 60 Exercises 61 Problems 64 Cases 73 Current Issues in Managerial Accounting 75 3 Product Costing and Cost Accumulation in a Batch Production Environment 76 Product and Service Costing 78 Product Costing in Nonmanufacturing Firms 78 Flow of Costs in Manufacturing Firms 79 Types of Product-Costing Systems 79 Job-Order Costing Systems 80 Process-Costing Systems 81 Summary of Alternative Product-Costing Systems 81 Accumulating Costs in a Job-Order Costing System 81 Job-Cost Record 82 Direct-Material Costs 82 Direct-Labor Costs 84 Manufacturing-Overhead Costs 84 M.A.P. Supply Chain Management 85 Summary of Event Sequence in Job-Order Costing 86 Illustration of Job-Order Costing 88 Purchase of Material 88 Use of Direct Material 88 Use of Indirect Material 88 Use of Direct Labor 89 Use of Indirect Labor 89 Incurrence of Manufacturing-Overhead Costs 90 Application of Manufacturing Overhead 90 Summary of Overhead Accounting 91 Selling and Administrative Costs 92 Completion of a Production Job 92 Sale of Goods 92 Underapplied and Overapplied Overhead 93 Schedule of Cost of Goods Manufactured 94 Schedule of Cost of Goods Sold 95 Posting Journal Entries to the Ledger 95 Further Aspects of Overhead Application 97 Accuracy versus Timeliness of Information: A Cost-Benefit Issue 97 Choosing the Cost Driver for Overhead Application 99 Limitation of Direct Labor as a Cost Driver 99 Departmental Overhead Rates 99 M.A.P. Are Layoffs a Good Way to Cut Costs during an Economic Downturn? 100 Two-Stage Cost Allocation 100 Project Costing: Job-Order Costing in Nonmanufacturing Organizations 102 Changing Technology in Manufacturing Operations 103 Electronic Data Interchange 103 M.A.P. Online Purchasing 103 Use of Bar Codes 104 Focus on Ethics: Did Boeing Exploit Accounting Rules to Conceal Cost Overruns and Production Snafus? 104 Chapter Summary 105 Key Terms 106 Appendix to Chapter 3: Activity-Based Costing: An Introduction 106 Review Questions 109 Exercises 110 Problems 115 Cases 127 Current Issues in Managerial Accounting 129 4 Process Costing and Hybrid Product- Costing Systems 130 Comparison of Job-Order Costing and Process Costing 132 Flow of Costs 132 Differences between Job-Order and Process Costing 134 Equivalent Units: A Key Concept 134 Equivalent Units 135 Illustration of Process Costing 136 Basic Data for Illustration 136 M.A.P. Process-Costing Steps in Paper Manufacturing 138 Weighted-Average Method of Process Costing 138 Other Issues in Process Costing 142 Actual versus Normal Costing 142 Other Cost Drivers for Overhead Application 143 Subsequent Production Departments 143 Hybrid Product-Costing Systems 143 Operation Costing for Batch Manufacturing Processes 144 Chapter Summary 147 Key Terms 148 Appendix to Chapter 4: Process Costing in Sequential Production Departments 148 Review Questions 151 Exercises 152 Problems 155 Cases 163 Current Issues in Managerial Accounting 165 Part II Cost Management Systems, Activity-Based Costing, and Activity-Based Management 5 Activity-Based Costing and Cost Management Systems 166 Aerotech Corporation: A Tale of Two Cities 168 Aerotech?s Phoenix Plant: Traditional Production Process 168 Production Process 168 Plant Layout 169 Traditional, Volume-Based Product-Costing System 169 Trouble in Phoenix 171 Activity-Based Costing System 172 Interpreting the ABC Product Costs 177 The Punch Line 179 Why Traditional, Volume-Based Systems Distort Product Costs 179 M.A.P. Cost Distortion at Rockwell International 182 Activity-Based Costing: Some Key Issues 182 Cost Drivers 182 Homogeneous Activity Cost Pools 184 M.A.P. Activity Cost Drivers in the Health Care Industry 184 Collecting ABC Data 185 Activity Dictionary and Bill of Activities 186 Direct versus Indirect Costs 186 When Is a New Product-Costing System Needed? 187 Cost Management Systems 188 Non-Value-Added Costs 189 Identifying Non-Value-Added Costs in the Phoenix Plant 190 Activity-Based Costing in the Service Industry 191 M.A.P. Activity-Based Costing in the Service Industry 192 Focus on Ethics: Ethical Issues Surrounding Activity-Based Costing 193 Chapter Summary 194 Review Problems on Cost Drivers and Product-Cost Distortion 194 Key Terms 195 Review Questions 195 Exercises 196 Problems 200 Cases 212 6 Activity-Based Management and Today?s Advanced Manufacturing Environment 216 Aerotech?s Bakersfield Plant: Advanced Manufacturing Technology 218 Just-in-Time Inventory and Production Management 218 Flexible Manufacturing System 220 Plant Layout at Aerotech?s Bakersfield Facility 221 Cost Management System in Bakersfield 222 Two-Dimensional ABC and Activity-Based Management 224 Using ABM to Eliminate Non-Value-Added Activities and Costs 224 Achieving Cost Reduction 226 Customer-Profitability Analysis 226 Illustration of Customer-Profitability Analysis 227 M.A.P. DHL 230 M.A.P. Bank One Corp. and FedEx 231 M.A.P. Dow Chemical Company 232 Target Costing, Kaizen Costing, and Continuous Improvement 232 Target Costing 233 Kaizen Costing 234 Toyota: Target Costing and Kaizen Costing in Action 234 Benchmarking 236 Reengineering 236 Theory of Constraints 236 Focus on Ethics: Ethical Issues Surrounding ABM and Cost-Reduction Initiatives 237 Chapter Summary 238 Key Terms 238 Review Questions 239 Exercises 239 Problems 243 Cases 251 Current Issues in Managerial Accounting 252 Part III Planning, Control, and Cost Management Systems 7 Activity Analysis, Cost Behavior, and Cost Estimation 254 Cost Behavior Patterns 256 Variable Costs 257 Step-Variable Costs 257 Fixed Costs 258 Step-Fixed Costs 259 Semivariable Cost 260 Curvilinear Cost 262 Using Cost Behavior Patterns to Predict Costs 263 M.A.P. Is Direct Labor a Variable or a Fixed Cost? 264 Engineered,Committed,and Discretionary Costs 265 Shifting Cost Structure in the Contemporary Manufacturing Environment 266 Operations-Based versus Volume-Based Cost Drivers 266 Cost Behavior in Other Industries 267 Cost Estimation 267 Account-Classification Method 268 Visual-Fit Method 268 High-Low Method 270 Least-Squares Regression Method 271 Multiple Regression 273 Data Collection Problems 274 Engineering Method of Cost Estimation 275 Effect of Learning on Cost Behavior 275 Costs and Benefits of Information 276 Focus on Ethics: Cisco Systems,Wal-Mart, Taco Bell, Starbucks, U-Haul, General Dynamics, and Farmer?s Insurance: Is Direct Labor a Variable Cost? 277 Chapter Summary 277 Review Problems on Cost Behavior and Estimation 277 Key Terms 279 Appendix to Chapter 7: Finding the Least-Squares Regression Estimates 279 Review Questions 281 Exercises 282 Problems 286 Cases 294 Current Issues in Managerial Accounting 297 8 Cost-Volume-Profit Analysis 298 Illustration of Cost-Volume-Profit Analysis 300 Projected Expenses and Revenue 300 The Break-Even Point 301 Contribution-Margin Approach 302 Equation Approach 303 Graphing Cost-Volume-Profit Relationships 304 Interpreting the CVP Graph 304 Alternative Format for the CVP Graph 306 Profit-Volume Graph 306 Target Net Profit 307 Contribution-Margin Approach 307 Equation Approach 308 Graphical Approach 308 Applying CVP Analysis 308 Safety Margin 308 Changes in Fixed Expenses 309 Changes in the Unit Contribution Margin 309 Predicting Profit Given Expected Volume 311 Interdependent Changes in Key Variables 312 CVP Information in Published Annual Reports 313 M.A.P. Airlines Keep a Close Eye on Break-Even Load Factors 313 CVP Analysis with Multiple Products 313 Assumptions Underlying CVP Analysis 316 Role of Computerized Planning Models and Electronic Spreadsheets 316 CVP Relationships and the Income Statement 316 Traditional Income Statement 317 Contribution Income Statement 317 Comparison of Traditional and Contribution Income Statements 318 Cost Structure and Operating Leverage 318 Operating Leverage 319 M.A.P. Operating Leverage Helps These Web Companies Become Profitable 321 Labor-Intensive Production Processes versus Advanced Manufacturing Systems 321 Cost Structure and Operating Leverage: A Cost-Benefit Issue 321 M.A.P. Cost Structure and Operating Leverage 322 CVP Analysis, Activity-Based Costing, and Advanced Manufacturing Systems 322 A Move toward JIT and Flexible Manufacturing 324 ABC Provides a Richer Understanding of Cost Behavior and CVP Relationships 325 Chapter Summary 326 Review Problems on Cost-Volume-Profit Analysis 326 Key Terms 327 Appendix to Chapter 8: Effect of Income Taxes 327 Review Questions 330 Exercises 330 Problems 333 Cases 334 Current Issues in Managerial Accounting 345 9 Profit Planning, Activity-Based Budgeting, and e-Budgeting 346 Purposes of Budgeting Systems 348 Types of Budgets 348 The Master Budget: A Planning Tool 349 Sales of Services or Goods 349 Sales Forecasting 349 Operational Budgets 351 Budgeted Financial Statements 352 Nonprofit Organizations 352 Activity-Based Budgeting 352 M.A.P. Activity-Based Budgeting (ABB) at American Express and AT&T Paradyne 353 Using Activity-Based Budgeting to Prepare the Master Budget 354 Sales Budget 355 Production Budget 355 Direct-Material Budget 356 Direct-Labor Budget 358 Manufacturing Overhead Budget 359 Activity-Based Budgeting and the Cost Hierarchy 359 Benefits of ABB 359 Selling, General, and Administrative (SG&A) Expense Budget 360 Cash Receipts Budget 361 Cash Disbursements Budget 362 Cash Budget: Combining Receipts and Disbursements 364 Budgeted Schedule of Cost of Goods Manufactured and Sold 365 Budgeted Income Statement 366 Budgeted Statement of Cash Flows 367 Budgeted Balance Sheet 368 Assumptions and Predictions Underlying the Master Budget 369 Financial Planning Models 370 Budget Administration 370 M.A.P. Budget Administration at Cornell University 371 e-Budgeting 371 Firewalls and Information Security 371 M.A.P. Lockheed Martin 372 Zero-Base Budgeting 372 International Aspects of Budgeting 373 Budgeting Product Life-Cycle Costs 373 Behavioral Impact of Budgets 374 Budgetary Slack: Padding the Budget 375 Participative Budgeting 376 Focus on Ethics: Is Padding the Budget Unethical? 376 Chapter Summary 377 Key Terms 377 Appendix to Chapter 9: Inventory Management 378 Review Questions 381 Exercises 382 Problems 386 Cases 399 Current Issues in Managerial Accounting 404 10 Standard Costing, Operational Performance Measures, and the Balanced Scorecard 406 Managing Costs 408 Management by Exception 408 Setting Standards 409 Methods for Setting Standards 409 Participation in Setting Standards 410 Perfection versus Practical Standards: A Behavioral Issue 410 Use of Standards by Nonmanufacturing Organizations 410 Cost Variance Analysis 410 Direct-Material Standards 411 Direct-Labor Standards 412 Standard Costs Given Actual Output 412 Analysis of Cost Variances 412 Direct-Material Variances 413 Direct-Labor Variances 415 M.A.P. Parker Hannifin Corporation?s Brass Products Division 416 Multiple Types of Direct Material or Direct Labor 417 Allowing for Spoilage or Defects 417 Significance of Cost Variances 417 A Statistical Approach 419 Behavioral Impact of Standard Costing 420 Controllability of Variances 421 Interaction among Variances 422 Standard Costs and Product Costing 423 Advantages of Standard Costing 423 Changing Role of Standard-Costing Systems in Today?s Manufacturing Environment 424 Criticisms of Standard Costing in Today?s Manufacturing Environment 424 M.A.P. Cost of Ownership 425 Adapting Standard-Costing Systems 426 Operational Performance Measures in Today?s Manufacturing Environment 427 Gain-Sharing Plans 430 The Balanced Scorecard 431 Lead and Lag Measures: The Key to the Balanced Scorecard 432 Linking the Balanced Scorecard to Organizational Strategy 434 M.A.P. Linking the Balanced Scorecard to Organizational Strategy 434 Focus on Ethics: Sacrificing Quality to Cut Standard Costs 436 Chapter Summary 436 Review Problem on Standard Costing and Operational Performance Measures 437 Key Terms 439 Appendix to Chapter 10: Use of Standard Costs for Product Costing 439 Review Questions 441 Exercises 442 Problems 445 Cases 455 Current Issues in Managerial Accounting 457 11 Flexible Budgeting and the Management of Overhead and Support Activity Costs 458 Overhead Budgets 460 Flexible Budgets 460 Advantages of Flexible Budgets 461 The Activity Measure 461 Flexible Overhead Budget Illustrated 463 Overhead Application in a Standard-Costing System 464 Choice of Activity Measure 464 Criteria for Choosing the Activity Measure 465 Changing Manufacturing Technology: Computer-Integrated Manufacturing 465 Cost Drivers 465 Cost Management Using Overhead Cost Variances 466 Variable Overhead 467 Fixed Overhead 470 Overhead Cost Performance Report 473 M.A.P. Cost Management Systems in Germany 473 Activity-Based Flexible Budget 473 Focus on Ethics: Misstated Standards Affect Accuracy of Reports 476 Chapter Summary 477 Review Problem on Overhead Variances 478 Key Terms 479 Appendix A to Chapter 11: Standard Costs and Product Costing 479 Appendix B to Chapter 11: Sales Variances 480 Review Questions 482 Exercises 482 Problems 485 Cases 497 Current Issues in Managerial Accounting 499 12 Responsibility Accounting, Quality Control, and Environmental Cost Management 500 Responsibility Centers 502 Illustration of Responsibility Accounting 503 Performance Reports 505 Budgets, Variance Analysis, and Responsibility Accounting 506 Cost Allocation 507 Cost Allocation Bases 508 Allocation Bases Based on Budgets 509 Activity-Based Responsibility Accounting 509 Behavioral Effects of Responsibility Accounting 510 Information versus Blame 510 Controllability 510 Motivating Desired Behavior 510 Segmented Reporting 511 Segments versus Segment Managers 513 Key Features of Segmented Reporting 513 Customer Profitability Analysis and Activity-Based Costing 513 Total Quality Management 513 Measuring and Reporting Quality Costs 514 Changing Views of Optimal Product Quality 516 M.A.P. Six Sigma for Quality Management and Cost Reduction 518 ISO 9000 Standards 519 Environmental Cost Management 520 Classifying Environmental Costs 520 Managing Private Environmental Costs 521 Environmental Cost Strategies 523 Tie-In to the Responsibility Accounting System 523 Focus on Ethics: Short-Sighted View of Cost Cutting 523 Chapter Summary 524 Review Problems on Responsibility Accounting 525 Key Terms 526 Review Questions 526 Exercises 527 Problems 529 Cases 537 Current Issues in Managerial Accounting 539 13 Investment Centers and Transfer Pricing 540 Delegation of Decision Making 542 Obtaining Goal Congruence: A Behavioral Challenge 542 Adaptation of Management Control Systems 543 Measuring Performance in Investment Centers 543 Return on Investment 544 Residual Income 546 Economic Value Added 548 M.A.P. Pay for Performance Based on EVA 550 Measuring Income and Invested Capital 550 Invested Capital 550 Measuring Investment-Center Income 553 Inflation: Historical-Cost versus Current-Value Accounting 554 Other Issues in Segment Performance Evaluation 554 Alternatives to ROI, Residual Income, and Economic Value Added (EVA) 554 Importance of Nonfinancial Information 555 Measuring Performance in Nonprofit Organizations 555 Transfer Pricing 556 Goal Congruence 556 General Transfer-Pricing Rule 557 Transfers Based on the External Market Price 560 Negotiated Transfer Prices 561 Cost-Based Transfer Prices 562 Standard versus Actual Costs 563 Undermining Divisional Autonomy 563 An International Perspective 563 M.A.P. Transfer Pricing and Tax Issues 564 Transfer Pricing in the Service Industry 565 Behavioral Issues: Risk Aversion and Incentives 565 Goal Congruence and Internal Control Systems 565 Chapter Summary 566 Review Problems on Investment Centers and Transfer Pricing 567 Key Terms 568 Review Questions 568 Exercises 568 Problems 571 Cases 576 Current Issues in Managerial Accounting 580 Part IV Using Accounting Information in Decision Making 14 Decision Making: Relevant Costs and Benefits 582 The Managerial Accountant?s Role in Decision Making 584 Steps in the Decision-Making Process 584 Quantitative versus Qualitative Analysis 585 Obtaining Information: Relevance, Accuracy, and Timeliness 585 Relevant Information 587 Unique versus Repetitive Decisions 587 Importance of Identifying Relevant Costs and Benefits 587 Identifying Relevant Costs and Benefits 588 Sunk Costs 588 Irrelevant Future Costs and Benefits 590 Opportunity Costs 591 Summary 592 Analysis of Special Decisions 592 Accept or Reject a Special Offer 592 Outsource a Product or Service 594 M.A.P. Outsourcing 594 Add or Drop a Service, Product, or Department 597 M.A.P. Adding a Service 599 Special Decisions in Manufacturing Firms 599 Joint Products: Sell or Process Further 599 Decisions Involving Limited Resources 601 Theory of Constraints 603 Uncertainty 603 Activity-Based Costing and Today?s Advanced Manufacturing Environment 604 Conventional Outsourcing (Make-or-Buy) Analysis 605 Activity-Based Costing Analysis of the Outsourcing Decision 606 Other Issues in Decision Making 607 Incentives for Decision Makers 607 Short-Run versus Long-Run Decisions 608 Pitfalls to Avoid 608 Focus on Ethics: Effects of Decision to Close a Department and Outsource 609 Chapter Summary 609 Review Problem on Relevant Costs 610 Key Terms 611 Appendix to Chapter 14: Linear Programming 611 Review Questions 613 Exercises 614 Problems 617 Cases 629 Current Issues in Managerial Accounting 631 15 Target Costing and Cost Analysis for Pricing Decisions 632 Major Influences on Pricing Decisions 634 Customer Demand 634 Actions of Competitors 634 Costs 635 Political, Legal, and Image-Related Issues 635 Economic Profit-Maximizing Pricing 636 Total Revenue, Demand, and Marginal Revenue Curves 636 Contents xxxi hil02878_fm.qxd 11/19/03 12:53 PM Page xxxi Total Cost and Marginal Cost Curves 638 Profit-Maximizing Price and Quantity 638 Price Elasticity 640 Limitations of the Profit-Maximizing Model 641 Costs and Benefits of Information 641 Role of Accounting Product Costs in Pricing 642 Cost-Plus Pricing 642 Absorption-Cost Pricing Formulas 643 Variable-Cost Pricing Formulas 644 Determining the Markup 644 Cost-Plus Pricing: Summary and Evaluation 646 Strategic Pricing of New Products 646 M.A.P. Cost Cutting to Maintain Prices 647 Target Costing 647 M.A.P. Pricing on the Internet by ?e-Tailers? 648 A Strategic Profit and Cost Management Process 648 Activity-Based Costing and Target Costing 650 Product-Cost Distortion and Pricing: The Role of Activity-Based Costing 651 Value Engineering and Target Costing 651 Time and Material Pricing 653 Competitive Bidding 654 Effect of Antitrust Laws on Pricing 656 Chapter Summary 657 Review Problem on Cost-Plus Pricing 658 Key Terms 659 Review Questions 659 Exercises 660 Problems 662 Cases 669 Current Issues in Managerial Accounting 671 16 Capital Expenditure Decisions 672 Section 1: Discounted-Cash-Flow Analysis 674 Net-Present-Value Method 675 Internal-Rate-of-Return Method 675 Comparing the NPV and IRR Methods 678 Assumptions Underlying Discounted- Cash-Flow Analysis 679 Choosing the Hurdle Rate 679 Depreciable Assets 680 Comparing Two Investment Projects 681 Managerial Accountant?s Role 683 Postaudit 683 Real Option Analysis 684 Section 2: Income Taxes and Capital Budgeting 684 After-Tax Cash Flows 685 Accelerated Depreciation 688 Modified Accelerated Cost Recovery System (MACRS) 688 Gains and Losses on Disposal 691 Investment in Working Capital 692 Extended Illustration of Income-Tax Effects in Capital Budgeting 693 M.A.P. Capital Budgeting at Pharmaceutical Firms 696 Ranking Investment Projects 696 Section 3: Alternative Methods for Making Investment Decisions 698 Payback Method 698 Accounting-Rate-of-Return Method 700 Estimating Cash Flows: The Role of Activity-Based Costing 702 M.A.P. Interactive Television?Capital Budgeting and ABC 703 Justification of Investments in Advanced Manufacturing Systems 703 Focus on Ethics: Dysfunctional Focus on Early Cash Flows 705 Chapter Summary 705 Key Terms 706 Appendix A to Chapter 16: Future Value and Present Value Tables 707 Appendix B to Chapter 16: Impact of Inflation 709 Review Questions 711 Exercises 712 Problems 715 Cases 721 Current Issues in Managerial Accounting 723 Part V Selected Topics for Further Study 17 Absorption, Variable, and Throughput Costing 724 Product Costs 726 Illustration of Absorption and Variable Costing 726 Absorption-Costing Income Statements 727 Variable-Costing Income Statements 729 Reconciling Income under Absorption and Variable Costing 729 Cost-Volume-Profit Analysis 731 Evaluation of Absorption and Variable Costing 731 M.A.P. IRS: Unique Product Packaging Is an Inventoriable Cost 733 Throughput Costing 733 Throughput-Costing Income Statements 733 Focus on Ethics: Incentive to Overproduce Inventory 734 Chapter Summary 735 Key Terms 736 Appendix to Chapter 17: Effect of the Volume Variance under Absorption and Variable Costing 736 Review Questions 738 Exercises 739 Problems 741 Cases 746 Current Issues in Managerial Accounting 748 18 Allocation of Support Activity Costs and Joint Costs 750 Section 1: Service Department Cost Allocation 752 Direct Method 755 Step-Down Method 755 Reciprocal-Services Method 756 Fixed versus Variable Costs 757 Dual Cost Allocation 758 M.A.P. Cost Management in the Health Care Industry 759 Allocate Budgeted Costs 761 Today?s Advanced Manufacturing Environment 761 The Rise of Activity-Based Costing 761 Section 2: Joint Product Cost Allocation 762 Allocating Joint Costs 762 M.A.P. Joint Cost Allocation in the Petroleum Industry 764 Chapter Summary 765 Key Terms 765 Appendix to Chapter 18: Reciprocal-Services Method 765 Review Questions 767 Exercises 767 Problems 769 Cases 774 Current Issues in Managerial Accounting 775 Appendix I: Compound Interest and the Concept of Present Value 776 References for Management Accountants: In Their Own Words 783 Glossary 786 Photo Credits 797 Index of Companies and Organizations 799 Index of Subjects 801
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