Horngren’s  Financial & Managerial Accounting, The Managerial Chapters, 7th Edition PDF by Tracie L Miller-Nobles and Brenda L Mattison


Horngren’s  Financial & Managerial Accounting, The Managerial Chapters, Seventh Edition

By Tracie L. Miller-Nobles and Brenda L. Mattison

Horngren’s  Financial & Managerial Accounting, The Managerial Chapters, 7th Edition



Introduction to Managerial Accounting 19

Why Is Managerial Accounting Important? 20

Managers’ Role in the Organization 21

Managerial Accounting Functions 22

Ethical Standards of Managers 23

How Are Costs Classified? 25

Manufacturing Companies 25

Direct and Indirect Costs 26

Manufacturing Costs 26

Prime and Conversion Costs 27

Product and Period Costs 28

How Do Manufacturing Companies Prepare Financial Statements? 30

Balance Sheet 30

Income Statement 30

Flow of Product Costs in a Manufacturing Company 31

Calculating Cost of Goods Manufactured 32

Calculating Cost of Goods Sold 34

Flow of Product Costs Through the Inventory Accounts 35

Using the Schedule of Cost of Goods Manufactured to Calculate Unit Product Cost 35

What Are Business Trends That Are Affecting Managerial Accounting? 37

Shift Toward a Service Economy 37

Global Competition 37

Time-Based Competition 37

Advances in Technology 37

Total Quality Management 38

The Triple Bottom Line 38

How Is Managerial Accounting Used in Service and Merchandising Companies? 39

Calculating Cost per Service 39

Calculating Cost per Item 40

Review 40

Assess Your Progress 45

Critical Thinking 64


Job Order Costing 67

How Do Manufacturing Companies Use Job Order and Process Costing Systems? 68

Job Order Costing 68

Process Costing 68

How Do Materials and Labor Costs Flow Through the Job Order Costing System? 70

Materials 71

Labor 75

How Do Overhead Costs Flow Through the Job Order Costing System? 77

Before the Period—Calculating the Predetermined Overhead Allocation Rate 79

During the Period—Allocating Overhead 79

What Happens When Products Are Completed and Sold? 81

Transferring Costs to Finished Goods Inventory 82

Transferring Costs to Cost of Goods Sold 82

How Is the Manufacturing Overhead Account Adjusted? 83

At the End of the Period—Adjusting for Overallocated and Underallocated Overhead 83

How Are Cost of Goods Manufactured and Cost of Goods Sold Calculated? 86

Summary of Journal Entries 86

Cost of Goods Manufactured and Cost of Goods Sold 88

How Do Service Companies Use a Job Order Costing System? 90

Review 92

Assess Your Progress 100

Critical Thinking 120


Process Costing 123

How Do Costs Flow Through a Process Costing System? 124

Job Order Costing Versus Process Costing 124

Flow of Costs Through a Process Costing System 125

What Are Equivalent Units of Production, and How Are They Calculated? 128

How Is a Production Cost Report Prepared for the First Department? 130

Production Cost Report—First Process—Assembly Department 131

How Is a Production Cost Report Prepared for Subsequent Departments? 137

Production Cost Report—Second Process—Cutting Department 137

What Journal Entries Are Required in a Process Costing System? 144

Transaction 1—Materials Purchased 144

Transaction 2—Materials Used 145

Transaction 3—Labor Costs Incurred 145

Transaction 4—Actual Overhead Costs Incurred 145

Transaction 5—Overhead Allocation 146

Transaction 6—Transferring Costs from the Assembly Department to the Cutting Department 146

Transaction 7—Transferring Costs from the Cutting Department to Finished Goods Inventory 146

Transaction 8—Puzzles Sold and Transferring Costs from Finished

Goods Inventory to Cost of Goods Sold 146

Transaction 9—Adjust Manufacturing Overhead 147

How Can the Production Cost Report Be Used to Make Decisions? 148

APPENDIX 3A: Process Costing: First-In, First-Out Method 150

How Is a Production Cost Report Prepared Using the FIFO Method? 150

Step 1: Summarize the Flow of Physical Units 150

Step 2: Compute Output in Terms of Equivalent Units of Production 152

Step 3: Compute the Cost per Equivalent Unit of Production 154

Step 4: Assign Costs to Units Completed and Units in Process 155

Comparison of Weighted-Average and FIFO Methods 158

Review 159

Assess Your Progress 167

Critical Thinking 187


Lean Management Systems: Activity-Based, Just-in-Time, and Quality Management Systems 191

How Do Companies Assign and Allocate Costs? 192

Single Plantwide Rate 194

Multiple Department Rates 196

Comparing Single Plantwide Rate to Multiple Department Rates 198

How Is an Activity-Based Costing System Developed? 199

Step 1: Identify Activities and Estimate Their Total Indirect Costs 200

Step 2: Identify the Allocation Base for Each Activity and Estimate the Total Quantity of Each Allocation Base 201

Step 3: Compute the Predetermined Overhead Allocation Rate for Each Activity 202

Step 4: Allocate Indirect Costs to the Cost Object 203

Traditional Costing Systems Compared with ABC Systems 204

How Can Companies Use Activity-Based Management to Make Decisions? 205

Pricing and Product Mix Decisions 205

Cost Management Decisions 206

How Can Activity-Based Management Be Used in Service Companies? 208

How Do Just-in-Time Management Systems Work? 211

Just-in-Time Management Systems 211

Just-in-Time Costing 213

Recording Transactions in JIT 213

How Do Companies Manage Quality Using a Quality Management System? 216

Quality Management Systems 217

The Four Types of Quality Costs 217

Quality Improvement Programs 218

Review 220

Assess Your Progress 226

Critical Thinking 246


Cost-Volume-Profit Analysis 251

How Do Costs Behave When There Is a Change in Volume? 252

Variable Costs 252

Fixed Costs 253

Mixed Costs 255

What Is Contribution Margin, and How Is It Used to Compute Operating Income? 259

Contribution Margin 259

Unit Contribution Margin 259

Contribution Margin Ratio 260

Contribution Margin Income Statement 260

How Is Cost-Volume-Profit (CVP) Analysis Used for Profit Planning? 261

Assumptions 261

Breakeven Point—Three Approaches 261

Target Profit 263

CVP Graph—A Graphic Portrayal 265

How Is CVP Analysis Used for Sensitivity Analysis? 266

Changes in the Sales Price 267

Changes in Variable Costs 267

Changes in Fixed Costs 268

Using Sensitivity Analysis 269

Cost Behavior Versus Management Behavior 269

What Are Some Other Ways CVP Analysis Can Be Used? 271

Margin of Safety 271

Operating Leverage 272

Sales Mix 274

Review 277

Assess Your Progress 284

Critical Thinking 301

Comprehensive Problem for Chapters M:1–M:5 301


Variable Costing 307

How Does Variable Costing Differ from Absorption Costing? 308

Absorption Costing 308

Variable Costing 308

Comparison of Unit Product Costs 309

How Does Operating Income Differ Between Variable Costing and Absorption Costing? 310

Units Produced Equal Units Sold 311

Units Produced Are More Than Units Sold 312

Units Produced Are Less Than Units Sold 314

Summary 315

How Can Variable Costing Be Used for Decision Making in a Manufacturing Company? 317

Setting Sales Prices 318

Controlling Costs 318

Planning Production 318

Analyzing Profitability 318

Analyzing Contribution Margin 321

Summary 322

How Can Variable Costing Be Used for Decision Making in a Service Company? 323

Operating Income 323

Profitability Analysis 324

Contribution Margin Analysis 325

Review 327

Assess Your Progress 331

Critical Thinking 344


Master Budgets 349

Why Do Managers Use Budgets? 350

Budgeting Objectives 350

Budgeting Benefits 351

Budgeting Procedures 352

Budgeting and Human Behavior 352

What Are the Different Types of Budgets? 353

Strategic and Operational Budgets 353

Static and Flexible Budgets 354

Master Budgets 355

How Are Operating Budgets Prepared for a Manufacturing Company? 356

Sales Budget 357

Production Budget 358

Direct Materials Budget 359

Direct Labor Budget 360

Manufacturing Overhead Budget 361

Cost of Goods Sold Budget 362

Selling and Administrative Expense Budget 363

How Are Financial Budgets Prepared for a Manufacturing Company? 364

Capital Expenditures Budget 364

Cash Budget 364

Budgeted Income Statement 372

Budgeted Balance Sheet 373

How Are Operating Budgets Prepared for a Merchandising Company? 375

Sales Budget 375

Inventory, Purchases, and Cost of Goods Sold Budget 377

Selling and Administrative Expense Budget 377

How Are Financial Budgets Prepared for a Merchandising Company? 378

Capital Expenditures Budget 378

Cash Budget 379

Budgeted Income Statement 383

Budgeted Balance Sheet 384

How Can Information Technology Be Used in the Budgeting Process? 386

Sensitivity Analysis 386

Budgeting Software 386

Review 387

Assess Your Progress 394

Critical Thinking 427


Flexible Budgets and Standard Cost Systems 431

How Do Managers Use Budgets to Control Business Activities? 433

Performance Reports Using Static Budgets 433

Performance Reports Using Flexible Budgets 434

Why Do Managers Use a Standard Cost System to Control

Business Activities? 438

Setting Standards 439

Standard Cost System Benefits 441

Variance Analysis for Product Costs 441

How Are Standard Costs Used to Determine Direct

Materials and Direct Labor Variances? 443

Direct Materials Variances 444

Direct Labor Variances 447

How Are Standard Costs Used to Determine Manufacturing

Overhead Variances? 449

Allocating Overhead in a Standard Cost System 449

Variable Overhead Variances 450

Fixed Overhead Variances 451

What Is the Relationship Among the Product Cost

Variances, and Who Is Responsible for Them? 454

Variance Relationships 455

Variance Responsibilities 456

How Do Journal Entries Differ in a Standard Cost

System? 457

Journal Entries 457

Standard Cost Income Statement 461

Review 463

Assess Your Progress 471

Critical Thinking 486


Responsibility Accounting and Performance

Evaluation 491

Why Do Decentralized Companies Need Responsibility

Accounting? 492

Advantages of Decentralization 492

Disadvantages of Decentralization 493

Responsibility Accounting 494

What Is a Performance Evaluation System, and How Is It

Used? 497

Goals of Performance Evaluation Systems 497

Limitations of Financial Performance Measurement 498

The Balanced Scorecard 498

How Do Companies Use Responsibility Accounting to

Evaluate Performance in Cost, Revenue, and Profit

Centers? 501

Controllable Versus Noncontrollable Costs 501

Responsibility Reports 502

How Does Performance Evaluation in Investment Centers

Differ from Other Centers? 506

Return on Investment (ROI) 507

Residual Income (RI) 510

Limitations of Financial Performance Measures 511

How Do Transfer Prices Affect Decentralized

Companies? 513

Objectives in Setting Transfer Prices 513

Setting Transfer Prices 514

Review 516

Assess Your Progress 522

Critical Thinking 534

Comprehensive Problem for Chapters M:7–M:9 534


Short-Term Business Decisions 541

How Is Relevant Information Used to Make Short-Term

Decisions? 542

Relevant Information 542

Relevant Nonfinancial Information 543

Differential Analysis 544

How Does Pricing Affect Short-Term Decisions? 545

Setting Regular Prices 545

Special Pricing 549

How Do Managers Decide Which Products to Produce and

Sell? 552

Dropping Unprofitable Products and Segments 552

Product Mix 556

Sales Mix 559

How Do Managers Make Outsourcing and Processing

Further Decisions? 560

Outsourcing 560

Sell or Process Further 564

Review 567

Assess Your Progress 574

Critical Thinking 590


Capital Investment Decisions 593

What Is Capital Budgeting? 594

The Capital Budgeting Process 594

Focus on Cash Flows 596

How Do the Payback and Accounting Rate of Return

Methods Work? 598

Payback 598

Accounting Rate of Return (ARR) 601

What Is the Time Value of Money? 604

Time Value of Money Concepts 605

Present Value of a Lump Sum 607

Present Value of an Annuity 608

Present Value Examples 608

Future Value of a Lump Sum 610

Future Value of an Annuity 610

How Do Discounted Cash Flow Methods

Work? 611

Net Present Value (NPV) 611

Internal Rate of Return (IRR) 616

Comparing Capital Investment Analysis Methods 619

Sensitivity Analysis 620

Capital Rationing 623

Review 624

Assess Your Progress 630

Critical Thinking 643

Comprehensive Problem for Chapters M:10 and M:11 643

APPENDIX A—Present Value Tables and Future Value Tables 649

APPENDIX B—The Statement of Cash Flows 653

APPENDIX C—Financial Statement Analysis 721




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