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Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index
PA 1.

LO 9.3Use the following information to answer the questions that follow.

Bluff Run Golf Courses, Income Statement, Month Ending July 31, 2018 for Blue Course, Black Course, and Gold Course, respectively: Revenues: Greens fees revenue, $62,500, $89,000, $42,800; Outings revenue, $?, $6,000, $28,000; Total revenue, $73,500, $95,000, $70,800; Expenses: Landscaping, $7,800, $14,200, $6,400; Wages, $43,900, $?, $32,600; Repairs and maintenance, $5,600, $2,600, $4,400; Fuel, $3,100, $3,000, $1,980; Utilities, $1,800, $3,000, $1,650; Total expenses, $62,200, $79,100, $47,030; Operating income $11,300, $15,900, $?; Operating income %, $?, $?, $?.
  1. Calculate the operating income percentage for each of the courses. Comment on how your analysis has changed for each course.
  2. Perform a vertical analysis for each course. Based on your analysis, what accounts would you want to investigate further? How might management utilize this information?
  3. Which method of analysis (using a dollar value or percentage) is most relevant and/or useful? Explain.
PA 2.

LO 9.3Use Netflix’s 2017 annual report to answer the following questions.

  1. Using the revenue and contribution profit information, calculate the contribution profit (loss) percentage for each of the divisions. Comment on how your analysis has changed compared to your analysis of the dollar amounts for each division.
  2. Since companies typically do not publicly provide more than macro levels of asset values, let’s assume the following level of assets (investment):
    Assets (fictitious) for 2017, 2016, and 2015 respectively: Domestic streaming, $15,000,000, $14,000,000, $10,000,000; International streaming, $6,000,000, $4,000,000, $2,000,000; Domestic DVD, $1,500,000, $2,000,000, $3,000,000.
    Calculate the return on investment (ROI) for each division. Comment on the results.
  3. Assume that Netflix uses a cost of capital of 7%. Calculate the residual income (RI) for each of the divisions. Comment on the results.
PA 3.

LO 9.3The income statement comparison for Forklift Material Handling shows the income statement for the current and prior year.

Forklift Material Handling, Income Statement Comparison for the current year and prior year, respectively (amounts in thousands): Sales, $33,750, $24,750; Cost of goods sold, $21,938, $16,830; Gross profit, $11,813, $7,920; Expenses: Wages, $8,775, $6,188; Utilities, $675, $250; Repairs, $169, $325; Selling, $506, $200; Total expenses, $10,125, $6,963; Operating income, $?, $?; Operating income %, $?, $?; Total assets (investment base) $4,500, $1,500; Return on investment, $?, $?; Residual income (8% cost of capital) $?, $?.
  1. Determine the operating income (loss) (dollars) for each year.
  2. Determine the operating income (percentage) for each year.
  3. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the return on investment. Was the decision to invest additional assets in the company successful? Explain.
  4. Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in part C.
PA 4.

LO 9.3Assume you are the leather department manager at the Famous Football Factory. The leather department is a cost center and you are reviewing the scrap costs for the previous year, shown here:

Famous Football Factory Cost Center Data-Leather Division. For each month, respectively, starting with January: Leather scrap expense: $10,000, $10,100, $10,302, $10,405, $11,029, $11,801, $13,100, $14,278, $15,135, $11,351, $11,351, $11,465.
  1. Using Microsoft Excel or another spreadsheet application, create a line chart with markers showing the leather scrap expense. Describe your observations.
  2. Knowing that leather is susceptible to indoor temperature, you decide to talk with the maintenance manager and obtain the following information:
For each month, respectively, starting with January: Average indoor temperature (degrees Fahrenheit): 70, 71, 70, 70, 71, 73, 74, 76, 74, 72, 71, 70; Air conditioning spare parts inventory: $3,500, $3,150, $2,898, $2,695, $2,426, $2,207, $2,031, $2,010, $2,010, $2,010, $2,010, $1,990; Number of air conditioning breakdowns: 0, 0, 0, 1, 2, 4, 4, 6, 5, 1, 0, 0.

Using Microsoft Excel or another spreadsheet application, create individual line charts with markers showing the indoor temperature, spare parts inventory, and breakdowns. Describe your observations and actions you might consider.

PA 5.

LO 9.4Financial information for BDS Enterprises for the year-ended December 31, 20xx, was gathered from an accounting intern, who has asked for your guidance on how to prepare an income statement format that will be distributed to management. Subtotals and totals are included in the information, but you will need to calculate the values.

  1. In the correct format, prepare the income statement using the following information:
  2. Calculate the profit margin, return on investment, and residual income. Assume an investment base of $100,000 and 6% cost of capital.
  3. Prepare a short response to accompany the income statement that explains why uncontrollable costs are included in the income statement.
Pretax income $?, Gross profit $?, Allocated costs (uncontrollable) $2,035, Labor expense $41,580, Sales $189,000, Research and development (uncontrollable) $315, Depreciation expense $17,000, Net income/(loss) $?, Cost of goods sold $119,070, Selling expense $1,250, Total expenses $?, Marketing costs (uncontrollable) $790, Administrative expense $690, Income tax expense (21% of pretax income) $?, Other expenses $320.
PA 6.

LO 9.4Using the information from BDS Enterprises, prepare the income statement to include all costs, but separate out uncontrollable costs. Insert subtotals where appropriate (include one for operating income) before the uncontrollable costs. Income tax expense should be based on all expenses (that is, it will be the same amount as in question 1). Calculate net income, profit margin, ROI, and RI, excluding uncontrollable expenses. Prepare a short response to accompany the income statement that explains why uncontrollable costs are separated in the income statement.

PA 7.

LO 9.4Management of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer pricing system for the company. The Transportation Department of the company sells all of its product to the Bottling Department of the company. Thus the Transportation Department’s sales become the Bottling Department’s cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed as follows. Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price (thus three different income statements) and calculate the operating income/loss percentage. Prepare a brief summary of the results.

Cost-basted $0.62, Market-based $0.74, Negotiated $0.70, Gallons transferred 278,000. Great Springs Bottled Water, Income Statement, Month Ending August 31,2018 for Transportation and Bottling, respectively: Sales, $?, $286,000; Cost of good sold, $89,627, $?; Gross profit, $?, $?; Fuel/utility expense, $15,000, $3,200; Wages expense, $43,090, $57,200; Costs allocated form corporate, $17,236, $15,000; Total expenses, $75,326, $75,400; Operating income/(loss) $, $?, $?; Operating income/(loss) %, ?, ?.
PA 8.

LO 9.4The following revenue data were taken from the December 31, 2017, Coca-Cola annual report (10-K):

Chart showing 2017 (in millions) for Europe, Middle East, Africa; Latin America; North America; Asia Pacific; and Bottle Investments; respectively: Outside sales, $7,332, $3,956, $8,651, $4,767, $10,524; Intersegment sales, $42, $73, $1,986, $409, $81; Total sales, $7,374, $4,029, $10,637, $5,176, $10,605. Chart showing 2016 (in millions) for Europe, Middle East, Africa; Latin America; North America; Asia Pacific; and Bottle Investments, respectively: Outside sales, $7,014 , $3,746, $6,437, $4,788, $19,751; Intersegment sales, $264, $73, $3,773, $506, $134; Total sales, $7,278, $3,819, $10,210, $5,294, $19,885.

For each segment and each year, calculate intersegment sales (another name for transfer sales) as a percentage of total sales. Using Microsoft Excel or another spreadsheet application, create a clustered column graph to show the 2016 and 2017 percentages for each division. Comment on your observations of this data. How might a division sales manager use this data?

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