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Cost Management Systems 23Managerial Accounting as a Career 23Professional Organizations 23Professional Certification 24Managerial Accounting and the Ethical Climateof Business 24Focus on Ethics: IMA Statement of EthicalProfessional Practice 26Chapter Summary 27Key Terms 28Review Questions 28Exercises 28Problems 29Cases 31The Changing Role of ManagerialAccounting in a Dynamic BusinessEnvironment 2Managerial Accounting: A BusinessPartnership with Management 5Managing Resources, Activities, and PeopleDecision Making 6Planning 6Directing Operational Activities 6Controlling 6How Managerial Accounting Adds Valueto the Organization 6Objectives of Managerial Accounting ActivityM.A.P. Using Managerial Accounting toMonetize the Internet 8The Balanced Scorecard 9Managerial versus Financial Accounting 10Managerial Accounting in Different Types ofOrganizations 12Where Do We Find Managerial Accountantsin an Organization? 12Organization Chart 14Cross-Functional Deployment 16Physical Location 16The Operational Context of ManagerialAccounting 17Managerial Accounting and theValue Chain 18Capacity and Capacity Costs 20M.A.P. Managing the Costs of UnusedCapacity in the Auto Industry: A GlobalChallenge 222Basic Cost Management Concepts34What Do We Mean by a Cost? 36Product Costs, Period Costs,and Expenses 37Costs on Financial Statements 38Income Statement 38Balance Sheet 40Manufacturing Operations and ManufacturingCosts 41Assembly Manufacturing 42Manufacturing Costs 42Manufacturing Cost Flows 44Production Costs in Service Industry Firms andNonprofit Organizations 44

Basic Cost Management Concepts: DifferentCosts for Different Purposes 46The Cost Driver Team 47Variable and Fixed Costs 4 7M.A.P. Understanding Exploding Health CareCosts 50The Cost Management and Control Team 50M.A.P. How Airlines Spend your Airfare 52The Outsourcing Action Team 52Costs and Benefits of Information 55Costs in the Service Industry56Focus on Ethics: Was WorldCom's ControllerJust Following Orders? 58Chapter Summary 59Review Problems on Cost Classifications 59Key Terms 61Review Questions 61Exercises 62Problems 65Cases 75M.A.P. Supply Chain Management 88Summary of Event Sequence in Job-OrderCosting 89Illustration of Job-Order Costing 89Purchase of Material 91Use of Direct Material 91Use of Indirect Material 91Use of Direct Labor 92Use of Indirect Labor 92Incurrence of Manufacturing-OverheadCosts 92Application of Manufacturing Overhead 93Summary of Overhead Accounting 94Selling and Administrative Costs 94Completion of a Production Job 95Sale of Goods 95Underapplied and OverappliedOverhead 95Schedule of Cost of GoodsManufactured 97Schedule of Cost of Goods Sold 97Posting Journal Entries to the Ledger 98Further Aspects of OverheadApplication 98Actual and Normal Costing 98Choosing the Cost Driver for OverheadApplication 101Departmental Overhead Rates 1013Product Costing and CostAccumulation in a Batch ProductionEnvironment 78Product and Service Costing 80Product Costing in Nonmanufacturing Firms 81Flow of Costs in Manufacturing Firms 81Types of Product-Costing Systems 83Job-Order Costing Systems 83Process-Costing Systems 84Summary of Alternative Product-CostingSystems 84Accumulating Costs in a Job-Order CostingSystem 84Job-Cost Record 84Direct-Material Costs 85Direct-Labor Costs 87Manufacturing-Overhead Costs 87Two-Stage Cost Allocation102Project Costing: Job-Order Costing inNonmanufacturing Organizations 103Changing Technology in ManufacturingOperations 105EDI and XML 105Use of Bar Codes and RFID Systems 106M.A.P. Radio Frequency IdentificationSystems (RFID) 106Focus on Ethics: Did Boeing ExploitAccounting Rules to Conceal Cost Overrunsand Production Snafus? 107Chapter Summary 108Review Problem on Job-Order Costing 108Key Terms 110Review Questions 110Exercises 110Problems 116Cases 128

Activity-Based Costing SystemABC Stage One168169ABC Stage Two 170Interpreting the ABC Product Costs 173The Punch Line 175Why Traditional, Volume-Based Systems DistortProduct Costs 175Process Costing and HybridProduct-Costing Systems132Comparison of Job-Order Costing andProcess Costing 134Flow of Costs 134Differences Between Job-Order and ProcessCosting 136Equivalent Units: A Key ConceptEquivalent Units 136136Illustration of Process Costing 138Basic Data for Illustration 139M.A.P. New York Wine Industry 140Weighted-Average Method of Process Costing 141Other Issues in Process Costing 145Actual versus Normal Costing 145Other Cost Drivers for OverheadApplication 145Subsequent Production Departments 145Hybrid Product-Costing Systems 146Operation Costing for Batch ManufacturingProcesses 146Chapter Summary 149Review Problem on Process Costing 150Key Terms 151Review Questions 151Exercises 151Problems 154Case 163M.A.P. Cost Distortion at RockwellInternational 177Activity-Based Costing: Some KeyIssues 178Cost Drivers178M.A.P. Cost Distortion at DHLExpress 179Collecting ABC Data 180Activity Dictionary and Bill ofActivities 181Activity-Based ManagementTwo-Dimensional ABC182182Using ABM to Identify Non-Value-AddedActivities and Costs 182Customer-Profitability Analysis185Illustration of Customer-ProfitabilityAnalysis 185M.A.P. Customer Profitability Analysis at BankOne Corp. 187Activity-Based Costing in the ServiceIndustry 188Activity-Based Costing at Delaware MedicalCenter 189Interpreting the Primary Care Unit's ABCInformation 190Focus on Ethics: Ethical Issues SurroundingActivity-Based Costing 192Chapter Summary 193Review Problems on Cost Drivers and Product-CostDistortion 194Key Terms 195Review Questions 196Activity-Based Costing andManagement 164Traditional, Volume-Based Product-CostingSystem 167Trouble in Denver 167Exercises 196Problems 202Cases 220

6Activity Analysis, Cost Behavior,and Cost Estimation 2247Cost Behavior Patterns 227Variable Costs 227Step-Variable Costs 228Fixed Costs 229Step-Fixed Costs 229Semivariable Cost 231Curvilinear Cost 232Using Cost Behavior Patterns to PredictCosts 233M.A.P. Is Direct Labor a Variable or a FixedCost? 234Engineered, Committed, and DiscretionaryCosts 235Cost Behavior in Other Industries 236Cost Estimation 236Account-Classification Method 236Visual-Fit Method 237High-Low Method 239Least-Squares Regression Method 240Multiple Regression 242Data Collection Problems 242Engineering Method of Cost Estimation 243Effect of Learning on Cost Behavior243Focus on Ethics: Cisco Systems, Walmart,Taco Bell, Starbucks, U-Haul, GeneralDynamics, and Farmer's Insurance: Is DirectLabor a Variable Cost? 245Chapter Summary 245Review Problems on Cost Behavior and Estimation 246Key Terms 247Appendix to Chapter 6: Least-Squares Regression UsingMicrosoft Excel 248Review Questions 250Exercises 250Problems 255Cases 262Cost-Volume-Profit Analysis266Illustration of Cost-Volume-ProfitAnalysis 269Projected Expenses and Revenue 269The Break-Even Point 270Contribution-Margin Approach 270Equation Approach 271Graphing Cost-Volume-ProfitRelationships 272Interpreting the CVP Graph 273Alternative Format for the CVP Graph 275Profit-Volume Graph 275Target Profit 276Contribution-Margin Approach 276Equation Approach 276Graphical Approach 277Applying CVP Analysis 277Safety Margin 277Changes in Fixed Expenses 277Changes in the Unit Contribution Margin 278Predicting Profit Given Expected Volume 279Interdependent Changes in Key Variables 280CVP Information in Published AnnualReports 281M.A.P. Airlines Keep a Close Eye on BreakEven Load Factors 281CVP Analysis with Multiple Products282Assumptions Underlying CVPAnalysis 284Role of Computerized Planning Modelsand Electronic Spreadsheets 284CVP Relationships and the IncomeStatement 285Traditional Income Statement 285Contribution Income Statement 285Comparison of Traditional and ContributionIncome Statements 286

Cost Structure and Operating Leverage 287Operating Leverage 288M.A.P. Six Sigma for Quality Managementand Cost Reduction 330ISO 9000 Standards 330M.A.P. Operating Leverage Helps WebCompanies to be Profitable 289Cost Structure and Operating Leverage:A Cost-Benefit Issue 290Section 3: Costs of EnvironmentalSustainability 332Classifying Environmental Costs 332Managing Private Environmental Costs 333ISO 14000 Standards and the GRI SustainabilityReporting Framework 335M.A.P. Health-Care Costs and OperatingLeverage 291CVP Analysis, Activity-Based Costing, andAdvanced Manufacturing Systems 291A Move Toward JIT and FlexibleManufacturing 292Chapter Summary 294Review Problem on Cost-Volume-Profit Analysis 295Key Terms 296Appendix to Chapter 7: Effect of Income Taxes 296Review Questions 298Exercises 299Problems 302Cases 313Focus on Ethics: Incentive to OverproduceInventory 336Chapter Summary 337Review Problem on Absorption and VariableCosting 338Key Terms 339Review Questions 340Exercises 340Problems 343Cases 34898Variable Costing and the Costs ofQuality and Sustainability316Section 1 : Absorption and VariableCosting 318Fixed Manufacturing Overhead: The Key 319Illustration of Absorption and VariableCosting 320Absorption-Costing IncomeStatements 320Variable-Costing Income Statements 321Reconciling Income under Absorption andVariable Costing 321Cost-Volume-Profit Analysis 323Evaluation of Absorption and Variable Costing 324M.A.P. 1RS: Unique Product Packaging is anInventoriable Cost 325Section 2: Costs of Assuring Ouality 325Measuring and Reporting Quality Costs 325Changing Views of Optimal Product Quality 326Financial Planning and Analysis:The Master Budget 350Financial Planning and Analysis (FP&A)Systems 352Purposes of Budgeting 353Types of Budgets 354The Master Budget: A Planning Tool 354Sales of Services or Goods 354Sales Forecasting 355Operational Budgets 356Financing Budgets 357M.A.P. The Budget: Valuable Planning Toolor Costly Waste of Time? 358Budgeted Financial Statements 359Activity-Based Budgeting359Developing the Master Budget 360Sales Budget 362Purchases Budget 363Direct Labor Budget 363

Production Overhead and SG&A Budgets 365Financing Budgets 366Budgeted Financial Statements 369Summary: Key Features of a MasterBudget 370Extending the Master Budget for aManufacturing Firm 371Production Budget 372Direct-Material Budget 373Budgeted Schedule of Cost of GoodsManufactured and Sold 375Budgeted Balance Sheet 376Assumptions and Predictions Underlying theMaster Budget 377Financial Planning Models 378Budget Administration 378M.A.P. Budget Administration at CornellUniversity 379International Aspects ofBudgeting 380Behavioral Impact of Budgets 380Budgetary Slack: Padding theBudget 381Participative Budgeting 381Focus on Ethics: Is Padding the BudgetUnethical? 382Chapter Summary 382Review Problem on Preparing Master BudgetSchedules 383Key Terms 385Review Questions 385Exercises 386Problems 390Cases 40110 Standard Costing and Analysisof Direct Costs 408Managing Costs 410Management by Exception 411Setting Standards 412Methods for Setting Standards 412Participation in Setting Standards 412Perfection versus Practical Standards: ABehavioral Issue 413Use of Standards by ServiceOrganizations 413Cost Variance Analysis 414Direct-Material Standards 414Direct-Labor Standards 415Standard Costs Given Actual Output 415Analysis of Cost Variances 416Direct-Material Variances 417Direct-Labor Variances 419M.A.P. Parker Hannifin Corporation'sBrass Products Division 421Multiple Types of Direct Material or DirectLabor 421Allowing for Production Loss 422Significance of Cost Variances 422A Statistical Approach 425Behavioral Impact of StandardCosting 425Controllability of Variances 426Interaction among Variances 427Standard Costs and ProductCosting 427Evaluation of Standard CostingSystems 428Advantages of Standard Costing 428Criticisms of Standard Costing in Today'sManufacturing Environment 429M.A.P. Working with Suppliers to ManageCosts 430Focus on Ethics: Sacrificing Quality toCut Standard Costs 431Chapter Summary 432Review Problem on Standard Costing and Analysisof Direct Costs 432Key Terms 434Appendix to Chapter 10: Use of Standard Costs forProduct Costing 435Review Questions 437Exercises 437Problems 439Cases 448