Managerial Accounting 5e, Braun and Tietz, Pearson

Table of Contents
1. Introduction to Managerial Accounting 

2. Building Blocks of Managerial Accounting 

3. Job Costing 

4. Activity-Based Costing, Lean Operations, and the Costs of Quality 

5. Process Costing 

6. Cost Behavior 

7. Cost-Volume-Profit Analysis 

8. Relevant Costs for Short-Term Decisions 

9. The Master Budget 

10. Performance Evaluation 

11. Standard Costs and Variances 

12. Capital Investment Decisions and the Time Value of Money 

13. Statement of Cash Flows 

14. Financial Statement Analysis 

15. Sustainability

Managerial Accounting

Brief Contents

Contents

Visual Walk-Through
Content Changes to the Fifth Edition

About the Authors

Managerial Accounting, 5e and prior editions

1 Introduction to Managerial Accounting

Learning Objectives

What Is Managerial Accounting?

Managers’ Three Primary Responsibilities

A Road Map: How Managerial Accounting Fits In

Differences Between Managerial Accounting and Financial Accounting

What Role Do Management Accountants Play?

The Role of Management Accountants

The Skills Required of Management Accountants

Managerial Accounting Is Important to All Careers

Accounting within the Organizational Structure

Professional Associations

Average Salaries of Management Accountants

Professional Ethics

Unethical Versus Illegal Behavior

What Business Trends and Regulations Affect Management Accounting?

Big Data, Data Analytics, and Critical Thinking

Critical Thinking

Shifting Economy

Globalization
Lean Thinking and Focus on Quality

Sustainability, Social Responsibility, and the Triple Bottom Line

Integrated Reporting

The Sarbanes-Oxley Act of 2002

2 Building Blocks of Managerial Accounting

Learning Objectives

What Are the Most Common Business Sectors and Their Activities?

Service, Merchandising, and Manufacturing Companies

Service Companies

Merchandising Companies

Manufacturing Companies

Which Business Activities Make Up the Value Chain?

Coordinating Activities Across the Value Chain

How Do Companies Define Cost?

Cost Objects, Direct Costs, and Indirect Costs

Costs for Internal Decision Making and External Reporting

Costs for Internal Decision Making

Costs for External Reporting

Merchandising Companies’ Product Costs

Manufacturing Companies’ Product Costs

Direct Materials (DM)

Direct Labor (DL)

Manufacturing Overhead (MOH)

Prime and Conversion Costs

Additional Labor Compensation Costs

Recap: Product Costs Versus Period Costs

How Are Product Costs and Period Costs Shown in the Financial Statements?

Service Companies

Merchandising Companies

Manufacturing Companies

Calculating Cost of Goods Manufactured and Cost of Goods Sold

Comparing Balance Sheets

What Other Cost Terms Are Used by Managers?

Controllable Versus Uncontrollable Costs

Relevant and Irrelevant Costs

Fixed and Variable Costs

How Manufacturing Costs Behave

Calculating Total and Average Costs

3 Job Costing

Learning Objectives

What Methods Are Used to Determine the Cost of Manufacturing a Product?

Process Costing

Job Costing

How Do Manufacturers Determine a Job’s Cost?

Overview: Flow of Inventory Through a Manufacturing System

Scheduling Production
Purchasing Raw Materials

Using a Job Cost Record to Keep Track of Job Costs

Tracing Direct Materials Cost to a Job

Tracing Direct Labor Cost to a Job

Allocating Manufacturing Overhead to a Job

What Does Allocating Mean?

Steps to Allocating Manufacturing Overhead

When Is Manufacturing Overhead Allocated to Jobs?

Completing the Job Cost Record and Using It to Make Business Decisions

How Can Job Costing Information Be Enhanced for Decision Making?

Non-Manufacturing Costs

Direct or Variable Costing

How Do Managers Deal with Underallocated or Overallocated Manufacturing

Overhead?

What Journal Entries Are Needed in a Manufacturer’s Job Costing System?

Appendix 3A

How Do Service Firms Use Job Costing to Determine the Amount to Bill Clients?

What Costs Are Considered Direct Costs of Serving a Client?

What Costs Are Considered Indirect Costs of Serving a Client?

Finding the Total Cost of the Job and Adding a Profit Markup

Invoicing Clients Using a Professional Billing Rate

What Journal Entries Are Needed in a Service Firm’s Job Costing System?

End of Chapter
Product Costs and Job Costing Versus Process Costing

4 Activity-Based Costing, Lean Operations, and the Costs of Quality

Learning Objectives

Why and How Do Companies Refine Their Cost Allocation Systems?

Simple Cost Allocation Systems Can Lead to Cost Distortion

Review: Using a Plantwide Overhead Rate to Allocate Indirect Costs

Using Departmental Overhead Rates to Allocate Indirect Costs

Four Basic Steps to Computing and Using Departmental Overhead Rates

Had the Plantwide Overhead Rate Been Distorting Product Costs?

Using Activity-Based Costing to Allocate Indirect Costs

Four Basic Steps to Computing and Using Activity Cost Allocation Rates

One Last Look at Cost Distortion: Comparing the Three Allocation Systems

The Cost Hierarchy: A Useful Guide for Setting Up Activity Cost Pools

How Do Managers Use the Refined Cost Information to Improve Operations?

Activity-Based Management (ABM)

Pricing and Product Mix Decisions

Cutting Costs

Routine Planning and Control Decisions

Using ABC Across the Value Chain and in Service and Merchandising Companies

Passing the Cost-Benefit Test

Circumstances Favoring ABC/ABM Systems

Signs That the Old System May Be Distorting Costs

What Is Lean Thinking?

The Eight Wastes of Traditional Operations

Characteristics of Lean Operations

Value Stream Mapping

Production Occurs in Self-Contained Production Cells

Employee Empowerment: Broad Roles and the Use of Teams

5S Workplace Organization

Continuous Flow

Pull System

Shorter Manufacturing Cycle Times

Smaller Batches

Reduced Setup Times

Point-of-Use Storage

Emphasis on Quality

Supply-Chain Management

Backflush Costing

Are There Any Drawbacks to a Lean Production System?

Lean Operations in Service and Merchandising Companies

How Do Managers Improve Quality?

Costs of Quality (COQ)

Prevention Costs

Appraisal Costs

Internal Failure Costs

External Failure Costs

Relationship Among Costs

Costs of Quality at Service and Merchandising Companies

Using Costs of Quality Reports to Aid Decisions

5 Process Costing

Learning Objectives

Process Costing: An Overview

Two Basic Costing Systems: Job Costing and Process Costing

How Does the Flow of Costs Differ Between Job and Process Costing?

What Are the Building Blocks of Process Costing?

Conversion Costs

Equivalent Units

Inventory Flow Assumptions

How Does Process Costing Work in the First Processing Department?

Step 1: Summarize the Flow of Physical Units

Step 2: Compute Output in Terms of Equivalent Units

Step 3: Summarize Total Costs to Account For

Step 4: Compute the Cost per Equivalent Unit

Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process
Inventory

Average Unit Costs

What Journal Entries Are Needed in a Process Costing System?

How Does Process Costing Work in a Second or Later Processing Department?

Process Costing in SeaView’s Insertion Department

Steps 1 and 2: Summarize the Flow of Physical Units and Compute Output in Terms of
Equivalent Units

Step 1: Summarize the Flow of Physical Units

Step 2: Compute Output in Terms of Equivalent Units

Steps 3 and 4: Summarize Total Costs to Account for and Compute the Cost per
Equivalent Unit

Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process
Inventory

Unit Costs and Gross Profit

Production Cost Reports

Journal Entries in a Second Processing Department

Arctic Springs Data Set: Filtration Department

Arctic Springs Data Set: Bottling Department

6 Cost Behavior

Learning Objectives

Cost Behavior: How Do Changes in Volume Affect Costs?

Variable Costs

Fixed Costs

Mixed Costs

Relevant Range

Other Cost Behaviors

How Do Managers Determine Cost Behavior?

Account Analysis

Scatterplots
High-Low Method

Regression Analysis

Adding a Regression Line, Regression Equation, and R-Square Value to a Scatterplot

Data Concerns

What Are the Roles of Variable Costing and the Contribution Margin Income Statement?

Comparing Absorption Costing and Variable Costing

The Contribution Margin Income Statement

Comparing Income Statement Formats

Service and Merchandising Companies

Comparing Operating Income: Variable Versus Absorption Costing

Scenario 1: Inventory Levels Remain Constant

Scenario 2: Inventory Levels Increase

Scenario 3: Inventory Levels Decrease

Reconciling Operating Income Between the Two Costing Systems

Reconciling Income When Inventory Levels Increase (Scenario 2)

Reconciling Income When Inventory Levels Decrease (Scenario 3)

Key Points to Remember

7 Cost-Volume-Profit Analysis

Learning Objectives

How Does Cost-Volume-Profit Analysis Help Managers?

Data and Assumptions Required for CVP Analysis

The Unit Contribution Margin

The Contribution Margin Ratio

How Do Managers Find the Breakeven Point?

The Income Statement Approach

The Shortcut Approach Using the Unit Contribution Margin

The Shortcut Approach Using the Contribution Margin Ratio

How Do Managers Find the Volume Needed to Earn a Target Profit?

How Much Must We Sell to Earn a Target Profit?

Graphing CVP Relationships

How Do Managers Use CVP to Make Decisions When Business Conditions Change?

Changing the Sales Price and Volume

Changing Variable Costs

Changing Fixed Costs

Changing the Mix of Products Offered for Sale

Multiproduct Company: Finding Breakeven in Terms of Sales Units

Multiproduct Company: Finding Breakeven in Terms of Sales Revenue

What Are Some Common Indicators of Risk?

Margin of Safety

Operating Leverage

Choosing a Cost Structure

8 Relevant Costs for Short-Term Decisions

Learning Objectives

How Do Managers Make Decisions?

Relevant Information

Keys to Making Short-Term Special Decisions

Decision Pitfalls to Avoid

How Do Managers Make Pricing and Special Order Decisions?

Regular Pricing Decisions

Cost-Plus Pricing

Target Costing

Special Order Decisions

Special Order Example

Pitfall to Avoid on Special Order Decisions

How Do Managers Make Other Special Business Decisions?

Decisions to Discontinue Products, Departments, or Stores

Consider the Product’s Contribution Margin and Avoidable Fixed Costs

Other Considerations

Pitfall to Avoid on Discontinuation Decisions

Product Mix Decisions When Resources Are Constrained

Other Considerations

Changing Assumptions: Product Mix When Demand Is Limited

Pitfalls to Avoid in Constraint Decisions

Outsourcing Decisions (Make or Buy)

Outsourcing Example

Determining an Acceptable Outsourcing Price

Alternative Use of Freed Capacity

Pitfall to Avoid on Outsourcing Decisions

Potential Benefits and Drawbacks of Outsourcing

Decisions to Sell As Is or Process Further

Day-old pastries disposal options

Coffee grounds disposal options

9 The Master Budget

Learning Objectives

How and Why Do Managers Use Budgets?

How Are Budgets Used?

How Are Budgets Developed?

Who Is Involved in the Budgeting Process?

What Is the Starting Point for Developing the Budgets?

What Are the Benefits of Budgeting?

Planning

Coordination and Communication

Benchmarking

What Is the Master Budget?

How Are the Operating Budgets Prepared?

Sales Budget

Production Budget

Direct Materials Budget

Direct Labor Budget

Manufacturing Overhead Budget

Operating Expenses Budget

Budgeted Income Statement

How Are the Financial Budgets Prepared?

Capital Expenditures Budget

Cash Collections Budget

Cash Payments Budget

Combined Cash Budget

Budgeted Balance Sheet

Sensitivity Analysis and Flexible Budgeting

How Do the Budgets for Service and Merchandising Companies Differ?

Service Companies

Merchandising Companies

Impact of Credit and Debit Card Sales on Budgeting

Retail Credit Cards

10 Performance Evaluation

Learning Objectives

How Does Decentralization Affect Performance Evaluation?

Advantages and Disadvantages of Decentralization

Advantages

Frees Top Management’s Time

Encourages Use of Expert Knowledge

Improves Customer AND SUPPLIER Relations

Provides Training

Improves Motivation and Retention

Disadvantages
Potential Duplication of Costs

Potential Problems Achieving Goal Congruence

Performance Evaluation Systems

What Is Responsibility Accounting?

Types of Responsibility Centers

Cost Center

Revenue Center

Profit Center

Investment Center

Organization Chart

Responsibility Center Performance Reports

Segment Margin

Organization-wide Performance Reports

Evaluation of Investment Centers

Return on Investment (ROI)

Sales Margin and Capital Turnover

Residual Income (RI)

Goal Congruence

Measurement Issues

Limitations of Financial Performance Evaluation

What Is Transfer Pricing?

Strategies and Mechanisms for Determining a Transfer Price

Global Considerations
How Do Managers Use Flexible Budgets to Evaluate Performance?

Creating a Flexible Budget Performance Report

Volume Variance

Flexible Budget Variance

Underlying Causes of the Variances

Investigating Causes for the Variances

Manufacturing Cost Variances

How Do Companies Incorporate Nonfinancial Performance Measurement?

The Balanced Scorecard

The Four Perspectives of the Balanced Scorecard

Financial Perspective

Customer Perspective

Internal Business Perspective

Learning and Growth Perspective

11 Standard Costs and Variances

Learning Objectives

What Are Standard Costs?

Types of Standards

Information Used to Develop and Update Standards

Computing Standard Costs

Standard Cost of Direct Materials

Standard Cost of Direct Labor

Standard Cost of Manufacturing Overhead

Standard Cost of One Unit

How Do Managers Use Standard Costs to Compute DM and DL Variances?

Using Standard Costs to Develop the Flexible Budget

Direct Materials Variances

Direct Materials Price Variance

Direct Materials Quantity Variance

Evaluating Direct Materials Variances

Computing DM Variances when the Quantity of DM Purchased Differs from the Quantity
of DM Used

Direct Labor Variances

Direct Labor Rate Variance

Direct Labor Efficiency Variance

Summary of Direct Materials and Direct Labor Variances

Advantages and Disadvantages of Using Standard Costs and Variances

Advantages

Disadvantages

How Do Managers Use Standard Costs to Compute MOH Variances?

Variable Manufacturing Overhead Variances

Variable Overhead Rate Variance

Variable Overhead Efficiency Variance

Fixed Manufacturing Overhead Variances

Fixed Overhead Budget Variance

Fixed Overhead Volume Variance

Standard Costing Systems

Appendix 11A

Standard Costing

Standard Costing Income Statement

12 Capital Investment Decisions and the Time Value of Money

Learning Objectives

What Is Capital Budgeting?

Four Popular Methods of Capital Budgeting Analysis

Focus on Cash Flows

Capital Budgeting Process

How Do Managers Calculate the Payback Period and Accounting Rate of Return?

Payback Period

Payback Period with Equal Annual Net Cash Inflows

Payback Period with Unequal Net Cash Inflows

Criticism of the Payback Period Method

Accounting Rate of Return (ARR)

Investments with Equal Annual Net Cash Inflows

Investments with Unequal Net Cash Inflows

How Do Managers Compute the Time Value of Money?

Factors Affecting the Time Value of Money

Future Values and Present Values: Points Along the Time Continuum

Future Value and Present Value Factors

Calculating Future Values of Single Sums and Annuities Using FV Factors

Calculating Present Values of Single Sums and Annuities Using PV Factors

How Do Managers Calculate the Net Present Value and Internal Rate of Return?

Net Present Value (NPV)

NPV with Equal Annual Net Cash Inflows (Annuity)

NPV with Unequal Annual Net Cash Inflows

Capital Rationing and the Profitability Index

NPV of a Project with Residual Value

Sensitivity Analysis

Internal Rate of Return (IRR)

IRR with Equal Annual Net Cash Inflows (Annuity)

IRR with Unequal Annual Net Cash Inflows

How Do the Capital Budgeting Methods Compare?

Present Value Tables and Future Value Tables

Table A Present Value of $1

Table B Present Value of Annuity of $1

Table C Future Value of $1

Table D Future Value of Annuity of $1

Appendix 12B

Solutions to Chapter Examples Using Microsoft Excel

Present Value Examples from Chapter

Example 1: Present Value of an Annuity—Lottery Option #2

Example 2: Present Value of a Lump Sum—Lottery Option #3

NPV Examples from Chapter

Example 1: NPV of Allegra’s Smartphone Project—An Annuity

Example 2: NPV of Allegra’s Speaker Project—Unequal Cash Flows

Example 3: NPV of an Investment with a Residual Value

IRR Examples from Chapter

Example 1: IRR of Allegra’s Smartphone Project—An Annuity

Example 2: IRR of Allegra’s Speaker Project—Unequal Cash Flows

Example 3: IRR of an Investment with a Residual Value

Appendix 12C

Using a TI-83, TI-83 Plus, TI-84, or TI-84 Plus Calculator to Perform Time Value of
Money Calculations

13 Statement of Cash Flows

Learning Objectives

What Is the Statement of Cash Flows?

Three Types of Activities That Generate and Use Cash

Operating Activities

Investing Activities

Financing Activities

Noncash Investing and Financing Activities

Two Methods of Presenting Operating Activities

Direct Method

Indirect Method

Which Method Is Most Commonly Used?

Summary Problem 1
Solution

How Is the Statement of Cash Flows Prepared Using the Indirect Method?

Information Needed to Prepare the Statement of Cash Flows

Preparing the Cash Flows from Operating Activities

Noncash Expenses

Noncash Revenues

Changes in Current Asset Accounts

Accounts Receivable

Prepaid Insurance

INVENTORY

Changes in Current Liability Accounts

Interest Payable

Wages Payable

Interpreting Cash Flows from Operating Activities

Preparing the Cash Flows from Investing Activities

Property, Plant, and Equipment

Accumulated Depreciation

Investments

Preparing the Cash Flows from Financing Activities

Long-Term Liabilities

Common Stock

Retained Earnings

Interpreting the Statement of Cash Flows

Free Cash Flow

Recap: Steps to Preparing the Statement of Cash Flows Using the Indirect Method

How Is the Statement of Cash Flows Prepared Using the Direct Method?

Overview

Determining Cash Payments and Receipts

(1) Cash Receipts from Customers

(2) Cash Payments for Inventory

(3) Cash Payments for Insurance

(4) Cash Payments for Salaries and Wages

(5) Cash Payments for Interest Expense

(6) Cash Payments for Income Taxes

(7) Cash Payments for Other Operating Expenses

Cash Flows from Operating Activities

Comparing the Direct and Indirect Methods

Analysis of Investing and Financing Activities:

Property, Plant, and Equipment:

Accumulated Depreciation:

Gain on Sale of Equipment:

Long-Term Liabilities:

Retained Earnings:

14 Financial Statement Analysis

Learning Objectives

What Are the Most Common Methods of Analysis?

What Is Horizontal Analysis?

Horizontal Analysis of the Income Statement

Horizontal Analysis of the Balance Sheet

Trend Percentages

What Is Vertical Analysis?

How Do We Compare One Company with Another?

Using Microsoft Excel

What Are Some of the Most Common Financial Ratios?

Measuring Ability to Pay Current Liabilities

Current Ratio

Acid-Test Ratio

Measuring Ability to Sell Inventory and Collect Receivables

Inventory Turnover

Accounts Receivable Turnover

Days’ Sales in Receivables

Measuring Ability to Pay Long-Term Debt

Debt Ratio

Times-Interest-Earned Ratio

Measuring Profitability

Gross Profit Percentage

Operating Income Percentage

Rate of Return on Net Sales

Rate of Return on Total Assets

Rate of Return on Common Stockholders’ Equity

Earnings per Share of Common Stock

Analyzing Stock Investments

Price/Earnings Ratio

Dividend Yield

Book Value per Share of Common Stock

Red Flags in Financial Statement Analysis

Cartwright’s Data Set used for S14-6 through S14-10:

15 Sustainability

Learning Objectives

What Is Sustainability, and How Does It Create Business Value?

Historical Overview

The Business Case for Sustainability

Reducing Costs

Generating New Revenue Streams

Increasing Market Share

Improving External Image

Reducing Compliance and Litigation Risks

Attracting and Retaining Labor Talent

Attracting Capital

What Is Sustainability Reporting?

Current State of Sustainability Reporting

Reasons for Sustainability Reporting

Framework for Sustainability Reporting

Development of the G4 Guidelines

Summary of the G4 Guidelines

Assurance of Data in CSR Reports

Sustainability Accounting Standards Board (SASB)

What Is Environmental Management Accounting (EMA)?

EMA Systems

Monetary Information

Physical Information

Materials Flow Accounting

ISO 14000

Uses of Environmental Management Accounting Information

Compliance

Strategy Development

Systems and Information Flow

Costing

Investment Appraisal

Performance Management

External Reporting

Challenges to Implementing EMA Systems

Communication Issues

Hidden Costs

Aggregated Accounting Information

Historical Orientation of Accounting

Undeveloped Field

Future of Environmental Management Accounting

Glossary/Index Combined Glossary/Subject Index