Managerial Accounting, 5th Edition PDF by Karen Wilken Braun and Wendy M Tietz


Managerial Accounting, Fifth Edition

By Karen Wilken Braun and Wendy M. Tietz

Managerial Accounting, Fifth Edition


Introduction to Managerial Accounting 1

What Is Managerial Accounting? 2

Managers’ Three Primary Responsibilities 2

A Road Map: How Managerial Accounting Fits In 3

Differences Between Managerial Accounting and Financial Accounting 4

What Role Do Management Accountants Play? 6

The Role of Management Accountants 6

The Skills Required of Management Accountants 7

Managerial Accounting Is Important to All Careers 8

Accounting within the Organizational Structure 9

Professional Associations 10

Average Salaries of Management Accountants 12

Professional Ethics 12

Examples of Ethical Dilemmas 14

What Business Trends and Regulations

Affect Management Accounting? 18

Big Data, Data Analytics, and Critical Thinking 18

Shifting Economy 20

Globalization 20

Lean Thinking and Focus on Quality 21

Sustainability, Social Responsibility, and the Triple

Bottom Line 21

Integrated Reporting 22

The Sarbanes-Oxley Act of 2002 23

End of Chapter 27

Building Blocks of Managerial Accounting 48

What Are the Most Common Business

Sectors and Their Activities? 49

Service, Merchandising, and Manufacturing

Companies 49

Which Business Activities Make Up the Value

Chain? 51

Coordinating Activities Across the Value Chain 52

How Do Companies Define Cost? 55

Cost Objects, Direct Costs, and Indirect Costs 55

Costs for Internal Decision Making and External

Reporting 57

Merchandising Companies’ Product Costs 58

Manufacturing Companies’ Product Costs 60

Prime and Conversion Costs 61

Additional Labor Compensation Costs 62

Recap: Product Costs Versus Period Costs 62

How Are Product Costs and Period Costs

Shown in the Financial Statements? 65

Service Companies 65

Merchandising Companies 65

Manufacturing Companies 67

Comparing Balance Sheets 70

What Other Cost Terms Are Used by

Managers? 71

Controllable Versus Uncontrollable Costs 71

Relevant and Irrelevant Costs 71

Fixed and Variable Costs 72

How Manufacturing Costs Behave 73

Calculating Total and Average Costs 73

End of Chapter 78

3 Job Costing 104

What Methods Are Used to Determine the

Cost of Manufacturing a Product? 105

Process Costing 105

Job Costing 106

How Do Manufacturers Determine a Job’s

Cost? 107

Overview: Flow of Inventory Through a

Manufacturing System 107

Scheduling Production 108

Purchasing Raw Materials 109

Using a Job Cost Record to Keep Track of Job

Costs 110

Tracing Direct Materials Cost to a Job 112

Tracing Direct Labor Cost to a Job 114

Allocating Manufacturing Overhead to a Job 116

Completing the Job Cost Record and Using It to

Make Business Decisions 119

How Can Job Costing Information Be

Enhanced for Decision Making? 121

Non-Manufacturing Costs 121

Direct or Variable Costing 123

How Do Managers Deal with

Underallocated or Overallocated

Manufacturing Overhead? 127

What Journal Entries Are Needed in a

Manufacturer’s Job Costing System? 129


How Do Service Firms Use Job Costing

to Determine the Amount to Bill

Clients? 143

What Costs Are Considered Direct Costs of

Serving a Client? 143

What Costs Are Considered Indirect Costs of

Serving a Client? 144

Finding the Total Cost of the Job and Adding a

Profit Markup 145

Invoicing Clients Using a Professional Billing

Rate 145

What Journal Entries Are Needed in a Service

Firm’s Job Costing System? 146

End of Chapter 147

Activity-Based Costing, Lean

Operations, and the Costs of

Quality 175

Why and How Do Companies Refine Their

Cost Allocation Systems? 176

Simple Cost Allocation Systems Can Lead to Cost

Distortion 17 6

Review: Using a Plantwide Overhead Rate to

Allocate Indirect Costs 177

Contents vii

Using Departmental Overhead Rates to Allocate

Indirect Costs 179

Using Activity-Based Costing to Allocate Indirect

Costs 184

How Do Managers Use the Refined Cost

Information to Improve Operations? 191

Activity-Based Management (ABM) 191

Passing the Cost-Benefit Test 193

What Is Lean Thinking? 198

The Eight Wastes of Traditional Operations 198

Characteristics of Lean Operations 200

Lean Operations in Service and Merchandising

Companies 205

How Do Managers Improve Quality? 206

Costs of Quality (COO) 206

Relationship Among Costs 207

Using Costs of Quality Reports to Aid

Decisions 208

End of Chapter 213

5 Process Costing 245

Process Costing: An Overview 246

Two Basic Costing Systems: Job Costing and

Process Costing 246

How Does the Flow of Costs Differ Between Job

and Process Costing? 247

What Are the Building Blocks of Process

Costing? 250

Conversion Costs 250

Equivalent Units 250

Inventory Flow Assumptions 251

How Does Process Costing Work in the

First Processing Department? 252

Step 1: Summarize the Flow of Physical Units 254

Step 2: Compute Output in Terms of Equivalent

Units 254

Step 3: Summarize Total Costs to Account For 256

Step 4: Compute the Cost per Equivalent Unit 256

Step 5: Assign Total Costs to Units Completed

and to Units in Ending Work in Process

Inventory 257

Average Unit Costs 257

What Journal Entries Are Needed in a

Process Costing System? 259

How Does Process Costing Work in a Second

or Later Processing Department? 264

Process Costing in SeaView’s Insertion

Department 264

Steps 1 and 2: Summarize the Flow of Physical

Units and Compute Output in Terms of

Equivalent Units 266

Steps 3 and 4: Summarize Total Costs to

Account for and Compute the Cost per Equivalent

Unit 267

Step 5: Assign Total Costs to Units Completed

and to Units in Ending Work in Process

Inventory 268

Unit Costs and Gross Profit 268

Production Cost Reports 269

Journal Entries in a Second Processing

Department 270

End of Chapter 275

6 Cost Behavior 307

Cost Behavior: How Do Changes in Volume

Affect Costs? 308

Variable Costs 308

Fixed Costs 311

Mixed Costs 314

Relevant Range 316

Other Cost Behaviors 317

How Do Managers Determine Cost

Behavior? 322

Account Analysis 322

Scatterplots 322

High-Low Method 324

Regression Analysis 326

Data Concerns 330

What Are the Roles of Variable Costing

and the Contribution Margin Income

Statement? 331

Comparing Absorption Costing and Variable

Costing 331


The Contribution Margin Income Statement 333

Comparing Operating Income: Variable Versus

Absorption Costing 336

Reconciling Operating Income Between the Two

Costing Systems 338

End of Chapter 346


Analysis 381

How Does Cost-Volume-Profit Analysis

Help Managers? 382

Data and Assumptions Required for CVP

Analysis 382

The Unit Contribution Margin 383

The Contribution Margin Ratio 385

How Do Managers Find the Breakeven

Point? 386

The Income Statement Approach 387

The Shortcut Approach Using the Unit

Contribution Margin 388

The Shortcut Approach Using the Contribution

Margin Ratio 388

How Do Managers Find the Volume

Needed to Earn a Target Profit? 389

How Much Must We Sell to Earn a Target

Profit? 389

Graphing CVP Relationships 391

How Do Managers Use CVP to Make

Decisions When Business Conditions

Change? 396

Changing the Sales Price and Volume 396

Changing Variable Costs 398

Changing Fixed Costs 399

Changing the Mix of Products Offered for Sale 402

What Are Some Common Indicators of

Risk? 406

Margin of Safety 406

Operating Leverage 407

Choosing a Cost Structure 409

End of Chapter 415

8 Relevant Costs for Short-Term

Decisions 443

How Do Managers Make Decisions? 444

Relevant Information 444

Keys to Making Short-Term Special Decisions 445

Decision Pitfalls to Avoid 446

How Do Managers Make Pricing and

Special Order Decisions? 448

Regular Pricing Decisions 448

Special Order Decisions 453

How Do Managers Make Other Special

Business Decisions? 460

Decisions to Discontinue Products, Departments,

or Stores 460

Product Mix Decisions When Resources Are

Constrained 464

Outsourcing Decisions (Make or Buy) 467

Decisions to Sell As Is or Process Further 472

End of Chapter 477

9 The Master Budget 507

How and Why Do Managers Use

Budgets? 508

How Are Budgets Used? 508

How Are Budgets Developed? 508

What Are the Benefits of Budgeting? 510

What Is the Master Budget? 511

How Are the Operating Budgets

Prepared? 512

Sales Budget 512

Production Budget 513

Direct Materials Budget 515

Direct Labor Budget 516

Manufacturing Overhead Budget 517

Operating Expenses Budget 518

Budgeted Income Statement 519

How Are the Financial Budgets

Prepared? 524

Capital Expenditures Budget 524

Cash Collections Budget 524

Cash Payments Budget 525

Combined Cash Budget 527

Budgeted Balance Sheet 528

Sensitivity Analysis and Flexible

Budgeting 530

Contents ix

How Do the Budgets for Service and

Merchandising Companies Differ? 531

Service Companies 531

Merchandising Companies 531

Impact of Credit and Debit Card Sales on

Budgeting 533

End of Chapter 540

1 Q Performance Evaluation 583

How Does Decentralization Affect

Performance Evaluation? 584

Advantages and Disadvantages of

Decentralization 584

Performance Evaluation Systems 585

What Is Responsibility Accounting? 585

Types of Responsibility Centers 586

Responsibility Center Performance

Reports 588

Evaluation of Investment Centers 590

What Is Transfer Pricing? 597

Strategies and Mechanisms for Determining a

Transfer Price 598

How Do Managers Use Flexible Budgets to

Evaluate Performance? 603

Creating a Flexible Budget Performance

Report 604

Underlying Causes of the Variances 607

How Do Companies Incorporate

Nonfinancial Performance

Measurement? 609

The Balanced Scorecard 609

End of Chapter 617

11 Standard Costs and

Variances 653

What Are Standard Costs? 654

Types of Standards 654

Information Used to Develop and Update

Standards 655

Computing Standard Costs 655

How Do Managers Use Standard Costs to

Compute DM and DL Variances? 658

Using Standard Costs to Develop the Flexible

Budget 658

Direct Materials Variances 658

Direct Labor Variances 664

Summary of Direct Materials and Direct Labor

Variances 666

Advantages and Disadvantages of Using Standard

Costs and Variances 666

How Do Managers Use Standard Costs to

Compute MOH Variances? 671

Variable Manufacturing Overhead Variances 671

Fixed Manufacturing Overhead Variances 673

Standard Costing Systems 675


Standard Costing 679

Standard Costing Income Statement 682

End of Chapter 683

12 Capital Investment

Decisions and the Time

Value of Money 71 o

What Is Capital Budgeting? 711

Four Popular Methods of Capital Budgeting

Analysis 711

Focus on Cash Flows 712

Capital Budgeting Process 712

How Do Managers Calculate the

Payback Period and Accounting Rate of

Return? 714

Payback Period 714

Accounting Rate of Return (ARR) 717

How Do Managers Compute the Time

Value of Money? 723

Factors Affecting the Time Value of Money 723

Future Values and Present Values: Points Along the

Time Continuum 724

Future Value and Present Value Factors 725

Calculating Future Values of Single Sums and

Annuities Using FV Factors 726

Calculating Present Values of Single Sums and

Annuities Using PV Factors 727

How Do Managers Calculate the Net

Present Value and Internal Rate of

Return? 730

Net Present Value (NPV) 731

Internal Rate of Return (IRR) 736

How Do the Capital Budgeting Methods

Compare? 739


Present Value Tables and Future Value

Tables 743

Table A Present Value of $1 743

Table B Present Value of Annuity of $1 744

Table C Future Value of $1 745

Table D Future Value of Annuity of $1 746


Solutions to Chapter Examples Using

Microsoft Excel 747


Using a Tl-83, Tl-83 Plus, Tl-84, or Tl-84

Plus Calculator to Perform Time Value of

Money Calculations 751

End of Chapter 757

1 3 Statement of Cash

Flows 779

What Is the Statement of Cash Flows? 780

Three Types of Activities That Generate and Use

Cash 781

Two Methods of Presenting Operating

Activities 783

How Is the Statement of Cash Flows

Prepared Using the Indirect Method? 788

Information Needed to Prepare the Statement of

Cash Flows 788

Preparing the Cash Flows from Operating

Activities 788

Preparing the Cash Flows from Investing

Activities 794

Preparing the Cash Flows from Financing

Activities 796

Interpreting the Statement of Cash Flows 798

Recap: Steps to Preparing the Statement of Cash

Flows Using the Indirect Method 798

How Is the Statement of Cash Flows

Prepared Using the Direct Method? 799

Overview 799

Determining Cash Payments and Receipts 800

End of Chapter 808

14 Financial Statement

Analysis 838

What Are the Most Common Methods of

Analysis? 839

What Is Horizontal Analysis? 839

Horizontal Analysis of the Income Statement 841

Horizontal Analysis of the Balance Sheet 841

Trend Percentages 841

What Is Vertical Analysis? 843

How Do We Compare One Company with

Another? 845

Using Microsoft Excel 845

What Are Some of the Most Common

Financial Ratios? 849

Contents xi

Measuring Ability to Pay Current Liabilities 849

Measuring Ability to Sell Inventory and Collect

Receivables 850

Measuring Ability to Pay Long-Term Debt 852

Measuring Profitability 853

Analyzing Stock Investments 857

Red Flags in Financial Statement

Analysis 858

End of Chapter 865

1 5 Sustainability 894

What Is Sustainability, and How Does It

Create Business Value? 895

Historical Overview 896

The Business Case for Sustainability 897

What Is Sustainability Reporting? 902

Current State of Sustainability Reporting 902

Reasons for Sustainability Reporting 903

Framework for Sustainability Reporting 903

What Is Environmental Management

Accounting (EMA)? 908

EMA Systems 908

Uses of Environmental Management Accounting

Information 909

Challenges to Implementing EMA Systems 911

Future of Environmental Management

Accounting 912

End of Chapter 914

Glossary/Index 1-1

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