Cost Accounting - A Managerial Emphasis 14th ed - C. Horngren, et al., (Pearson, 2012)

Cost AccountingA Managerial Emphasis
Fourteenth Edition
Charles T. Horngren
Stanford University
Srikant M. Datar
Harvard University
Madhav V. Rajan
Stanford University
Prentice Hall
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ISBN-13: 978-0-13-210917-8
ISBN-10: 0-13-210917-4
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Library of Congress Cataloging-in-Publication Data
Horngren, Charles T.,
Cost accounting : a managerial emphasis / Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan. -- 14th ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-13-210917-8 (hbk. : alk. paper) 1. Cost accounting. I. Datar, Srikant M. II. Rajan, Madhav V. III.
Title.
HF5686.C8H59 2012
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iii
Brief Contents
1 The Manager and Management Accounting 2
2 An Introduction to Cost Terms and Purposes 26
3 Cost-Volume-Profit Analysis 62
4 Job Costing 98
5 Activity-Based Costing and Activity-Based Management 138
6 Master Budget and Responsibility Accounting 182
7 Flexible Budgets, Direct-Cost Variances, and Management Control 226
8 Flexible Budgets, Overhead Cost Variances, and Management Control 262
9 Inventory Costing and Capacity Analysis 300
10 Determining How Costs Behave 340
11 Decision Making and Relevant Information 390
12 Pricing Decisions and Cost Management 432
13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis 466
14 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis 502
15 Allocation of Support-Department Costs, Common Costs, and Revenues 542
16 Cost Allocation: Joint Products and Byproducts 576
17 Process Costing 606
18 Spoilage, Rework, and Scrap 644
19 Balanced Scorecard: Quality, Time, and the Theory of Constraints 670
20 Inventory Management, Just-in-Time, and Simplified Costing Methods 702
21 Capital Budgeting and Cost Analysis 738
22 Management Control Systems, Transfer Pricing, and Multinational Considerations 774
23 Performance Measurement, Compensation, and Multinational Considerations 806
1 The Manager and Management
Accounting 2
iTunes Variable Pricing: Downloads Are Down, but Profits
Are Up
Financial Accounting, Management Accounting, and
Cost Accounting 3
Strategic Decisions and the Management Accountant 5
Value Chain and Supply Chain Analysis and Key
Success Factors 5
Value-Chain Analysis 6
Supply-Chain Analysis 7
Key Success Factors 7
Decision Making, Planning, and Control: The Five-Step
Decision-Making Process 9
Key Management Accounting Guidelines 11
Cost-Benefit Approach 12
Behavioral and Technical Considerations 12
Different Costs for Different Purposes 12
Organization Structure and the Management
Accountant 13
Line and Staff Relationships 13
The Chief Financial Officer and the Controller 13
Professional Ethics 14
Institutional Support 14
Concepts in Action: Management Accounting Beyond
the Numbers
Typical Ethical Challenges 17
Problem for Self-Study 18 | Decision Points 18 | Terms to
Learn 19 | Assignment Material 19 | Questions 19 |
Exercises 20 | Problems 22 | Collaborative Learning
Problem 25
2 An Introduction to Cost Terms and
Purposes 26
GM Collapses Under the Weight of its Fixed Costs
Costs and Cost Terminology 27
Direct Costs and Indirect Costs 28
Challenges in Cost Allocation 29
Factors Affecting Direct/Indirect Cost
Classifications 29
Cost-Behavior Patterns: Variable Costs and Fixed
Costs 30
Cost Drivers 32
Concepts in Action: How Zipcar Helps Reduce
Twitter’s Transportation Costs
Relevant Range 33
Relationships of Types of Costs 34
Total Costs and Unit Costs 35
Unit Costs 35
Use Unit Costs Cautiously 35
Business Sectors, Types of Inventory, Inventoriable
Costs, and Period Costs 36
Manufacturing-, Merchandising-, and Service-Sector
Companies 36
Types of Inventory 37
Commonly Used Classifications of Manufacturing
Costs 37
Inventoriable Costs 37
Period Costs 38
Illustrating the Flow of Inventoriable Costs and Period
Costs 39
Manufacturing-Sector Example 39
Recap of Inventoriable Costs and Period Costs 42
Prime Costs and Conversion Costs 43
Measuring Costs Requires Judgment 44
Measuring Labor Costs 44
Overtime Premium and Idle Time 44
Benefits of Defining Accounting Terms 45
Different Meanings of Product Costs 45
A Framework for Cost Accounting and Cost
Management 47
Calculating the Cost of Products, Services, and Other
Cost Objects 47
Obtaining Information for Planning and Control and
Performance Evaluation 47
Analyzing the Relevant Information for Making
Decisions 47
Problem for Self-Study 48 | Decision Points 50 | Terms to
Learn 51 | Assignment Material 51 | Questions 51 |
Exercises 52 | Problems 56 | Collaborative Learning
Problem 61
3 Cost-Volume-Profit Analysis 62
How the “The Biggest Rock Show Ever” Turned a Big Profit
Essentials of CVP Analysis 63
Contribution Margins 64
Expressing CVP Relationships 66
Cost-Volume-Profit Assumptions 68
Breakeven Point and Target Operating Income 68
Breakeven Point 68
Target Operating Income 69
Target Net Income and Income Taxes 70
Using CVP Analysis for Decision Making 72
Decision to Advertise 72
Decision to Reduce Selling Price 73
Contents
iv
CONTENTS ᭹ V
Sensitivity Analysis and Margin of Safety 73
Cost Planning and CVP 75
Alternative Fixed-Cost/Variable-Cost Structures 75
Operating Leverage 76
Effects of Sales Mix on Income 77
Concepts in Action: Fixed Costs, Variable Costs, and
the Future of Radio
CVP Analysis in Service and Nonprofit Organizations 80
Contribution Margin Versus Gross Margin 81
Problem for Self-Study 82 | Decision Points 83
APPENDIX: Decision Models and Uncertainty 84
Terms to Learn 86 | Assignment Material 87 |
Questions 87 | Exercises 87 | Problems 91 |
Collaborative Learning Problem 97
4 Job Costing 98
Job Costing and Nexamp’s Next Generation Energy and
Carbon Solutions
Building-Block Concepts of Costing Systems 99
Job-Costing and Process-Costing Systems 100
Job Costing: Evaluation and Implementation 102
Time Period Used to Compute Indirect-Cost
Rates 103
Normal Costing 104
General Approach to Job Costing 104
Concepts in Action: Job Costing on Cowboys Stadium
The Role of Technology 109
Actual Costing 110
A Normal Job-Costing System in Manufacturing 111
General Ledger 112
Explanations of Transactions 113
Subsidiary Ledgers 114
Budgeted Indirect Costs and End-of-Accounting-Year
Adjustments 117
Underallocated and Overallocated Direct Costs 118
Adjusted Allocation-Rate Approach 118
Proration Approach 119
Write-Off to Cost of Goods Sold Approach 121
Choice Among Approaches 121
Variations from Normal Costing: A Service-Sector
Example 122
Problem for Self-Study 123 | Decision Points 125 | Terms to
Learn 126 | Assignment Material 126 | Questions 126 |
Exercises 127 | Problems 132 | Collaborative Learning
Problem 137
5 Activity-Based Costing and Activity-
Based Management 138
LG Electronics Reduces Costs and Inefficiencies Through
Activity-Based Costing
Broad Averaging and Its Consequences 139
Undercosting and Overcosting 140
Product-Cost Cross-Subsidization 140
Simple Costing System at Plastim Corporation 141
Design, Manufacturing, and Distribution
Processes 141
Simple Costing System Using a Single Indirect-Cost
Pool 142
Applying the Five-Step Decision-Making Process at
Plastim 144
Refining a Costing System 145
Reasons for Refining a Costing System 145
Guidelines for Refining a Costing System 146
Activity-Based Costing Systems 146
Plastim’s ABC System 146
Cost Hierarchies 149
Implementing Activity-Based Costing 150
Implementing ABC at Plastim 150
Comparing Alternative Costing Systems 153
Considerations in Implementing Activity-Based-
Costing Systems 154
Concepts in Action: Successfully Championing ABC
Using ABC Systems for Improving Cost Management
and Profitability 156
Pricing and Product-Mix Decisions 156
Cost Reduction and Process Improvement
Decisions 156
Design Decisions 157
Planning and Managing Activities 158
Activity-Based Costing and Department Costing
Systems 158
ABC in Service and Merchandising Companies 159
Concepts in Action: Time-Driven Activity-Based
Costing at Charles Schwab
Problem for Self-Study 160 | Decision Points 163 | Terms to
Learn 164 | Assignment Material 164 | Questions 164 |
Exercises 165 | Problems 172 | Collaborative Learning
Problem 181
6 Master Budget and Responsibility
Accounting 182
“Scrimping” at the Ritz: Master Budgets
Budgets and the Budgeting Cycle 184
Strategic Plans and Operating Plans 184
Budgeting Cycle and Master Budget 185
Advantages of Budgets 185
Coordination and Communication 185
Framework for Judging Performance and Facilitating
Learning 186
Motivating Managers and Other Employees 186
Challenges in Administering Budgets 187
Developing an Operating Budget 187
Time Coverage of Budgets 187
Steps in Preparing an Operating Budget 188
Financial Planning Models and Sensitivity Analysis 197
Concepts in Action: Web-Enabled Budgeting and
Hendrick Motorsports
Budgeting and Responsibility Accounting 199
VI ᭹ CONTENTS
Organization Structure and Responsibility 199
Feedback 200
Responsibility and Controllability 200
Human Aspects of Budgeting 201
Budgetary Slack 201
Kaizen Budgeting 203
Budgeting in Multinational Companies 203
Problem for Self-Study 204 | Decision Points 205
APPENDIX: The Cash Budget 206
Terms to Learn 211 | Assignment Material 211 |
Questions 211 | Exercises 211 | Problems 215 |
Collaborative Learning Problem 224
7 Flexible Budgets, Direct-Cost Variances,
and Management Control 226
The NBA: Where Frugal Happens
Static Budgets and Variances 227
The Use of Variances 227
Static Budgets and Static-Budget Variances 228
Flexible Budgets 230
Flexible-Budget Variances and Sales-Volume
Variances 231
Sales-Volume Variances 232
Flexible-Budget Variances 233
Price Variances and Efficiency Variances for Direct-Cost
Inputs 234
Obtaining Budgeted Input Prices and Budgeted Input
Quantities 234
Data for Calculating Webb’s Price Variances and
Efficiency Variances 235
Price Variances 236
Efficiency Variance 236
Concepts in Action: Starbucks Reduces Direct-Cost
Variances to Brew a Turnaround
Summary of Variances 239
Journal Entries Using Standard Costs 240
Implementing Standard Costing 241
Standard Costing and Information Technology 241
Wide Applicability of Standard Costing 242
Management Uses of Variances 242
Multiple Causes of Variances 242
When to Investigate Variances 242
Performance Measurement Using Variances 243
Organization Learning 243
Continuous Improvement 244
Financial and Nonfinancial Performance
Measures 244
Benchmarking and Variance Analysis 244
Problem for Self-Study 246 | Decision Points 247
APPENDIX: Market-Share and Market-Size Variances 248
Terms to Learn 249 | Assignment Material 250 |
Questions 250 | Exercises 250 | Problems 254 |
Collaborative Learning Problem 260
8 Flexible Budgets, Overhead Cost
Variances, and Management Control 262
Overhead Cost Variances Force Macy’s to Shop for
Changes in Strategy
Planning of Variable and Fixed Overhead Costs 263
Planning Variable Overhead Costs 264
Planning Fixed Overhead Costs 264
Standard Costing at Webb Company 264
Developing Budgeted Variable Overhead Rates 265
Developing Budgeted Fixed Overhead Rates 266
Variable Overhead Cost Variances 267
Flexible-Budget Analysis 267
Variable Overhead Efficiency Variance 267
Variable Overhead Spending Variance 269
Journal Entries for Variable Overhead Costs and
Variances 270
Fixed Overhead Cost Variances 271
Production-Volume Variance 272
Interpreting the Production-Volume Variance 273
Journal Entries for Fixed Overhead Costs and
Variances 274
Integrated Analysis of Overhead Cost Variances 276
4-Variance Analysis 277
Combined Variance Analysis 278
Production-Volume Variance and Sales-Volume
Variance 278
Concepts in Action: Variance Analysis and
Standard Costing Help Sandoz Manage Its
Overhead Costs
Variance Analysis and Activity-Based Costing 281
Flexible Budget and Variance Analysis for Direct
Labor Costs 282
Flexible Budget and Variance Analysis for Fixed
Setup Overhead Costs 284
Overhead Variances in Nonmanufacturing Settings 285
Financial and Nonfinancial Performance
Measures 286
Problem for Self-Study 287 | Decision Points 289 | Terms to
Learn 290 | Assignment Material 290 | Questions 290 |
Exercises 290 | Problems 294 | Collaborative Learning
Problem 299
9 Inventory Costing and Capacity
Analysis 300
Lean Manufacturing Helps Companies Reduce Inventory
and Survive the Recession
Variable and Absorption Costing 301
Variable Costing 301
Absorption Costing 302
Comparing Variable and Absoption Costing 302
Variable vs. Absorption Costing: Operating Income and
Income Statements 303
Comparing Income Statements for One Year 303
Comparing Income Statements for Three Years 305
CONTENTS ᭹ VII
Variable Costing and the Effect of Sales and
Production on Operating Income 308
Absorption Costing and Performance Measurement 309
Undesirable Buildup of Inventories 310
Proposals for Revising Performance Evaluation 311
Comparing Inventory Costing Methods 312
Throughput Costing 312
A Comparison of Alternative Inventory-Costing
Methods 313
Denominator-Level Capacity Concepts and Fixed-Cost
Capacity Analysis 314
Absorption Costing and Alternative Denominator-
Level Capacity Concepts 314
Effect on Budgeted Fixed Manufacturing Cost
Rate 315
Choosing a Capacity Level 316
Product Costing and Capacity Management 316
Pricing Decisions and the Downward Demand
Spiral 317
Performance Evaluation 318
Concepts in Action: The “Death Spiral” and the End of
Landline Telephone Service
External Reporting 320
Tax Requirements 322
Planning and Control of Capacity Costs 323
Difficulties in Forecasting Chosen Denominator-Level
Concept 323
Difficulties in Forecasting Fixed Manufacturing
Costs 323
Nonmanufacturing Costs 324
Activity-Based Costing 324
Problem for Self-Study 324 | Decision Points 326
APPENDIX: Breakeven Points in Variable Costing and
Absorption Costing 327
Terms to Learn 328 | Assignment Material 328 |
Questions 328 | Exercises 329 | Problems 334 |
Collaborative Learning Problem 339
10 Determining How Costs Behave 340
Management Accountants at Cisco Embrace
Opportunities, Enhance Sustainability
Basic Assumptions and Examples of Cost Functions 341
Basic Assumptions 342
Linear Cost Functions 342
Review of Cost Classification 343
Identifying Cost Drivers 344
The Cause-and-Effect Criterion 345
Cost Drivers and the Decision-Making Process 345
Cost Estimation Methods 346
Industrial Engineering Method 346
Conference Method 346
Account Analysis Method 347
Quantitative Analysis Method 347
Steps in Estimating a Cost Function Using Quantitative
Analysis 348
High-Low Method 350
Regression Analysis Method 352
Evaluating Cost Drivers of the Estimated Cost
Function 353
Choosing Among Cost Drivers 354
Concepts in Action: Activity-Based Costing:
Identifying Cost and Revenue Drivers
Cost Drivers and Activity-Based Costing 356
Nonlinear Cost Functions 357
Learning Curves 358
Cumulative Average-Time Learning Model 359
Incremental Unit-Time Learning Model 360
Incorporating Learning-Curve Effects into Prices and
Standards 361
Data Collection and Adjustment Issues 362
Problem for Self-Study 364 | Decision Points 366
APPENDIX: Regression Analysis 367
Terms to Learn 375 | Assignment Material 375 |
Questions 375 | Exercises 375 | Problems 382 |
Collaborative Learning Problem 388
11 Decision Making and Relevant
Information 390
Relevant Costs, JetBlue, and Twitter
Information and the Decision Process 391
The Concept of Relevance 392
Relevant Costs and Relevant Revenues 393
Qualitative and Quantitative Relevant
Information 394
An Illustration o...