Managerial Accounting, 9e

by Kulp, Dragoo, Hartgraves, Morse

| ISBN: 978-1-61853-362-3 | Copyright 2022

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Welcome to Managerial Accounting 9e!

Welcome to the Ninth Edition of Managerial Accounting. Our book presents managerial accounting in the context of a big-picture, decision oriented, business setting. It integrates traditional coverage with contemporary topics, and does so with an eye toward the general business student because a book is not useful if it is not read. An overriding aim of our book is to engage students to read further and understand the materials presented.

Target Audience

Our book is written for all students—not just accounting students. We place managerial accounting in a broad business context, relating it to other business areas. Like the trunk of a tree, our book serves as a strong base for students’ future knowledge growth and as a means of unifying the branches of business management.

Approach and Emphasis

Managerial accounting focuses on using financial and nonfinancial information by managers
and associates of a firm to make strategic, organizational, and operational decisions. Our book
provides a framework for identifying and analyzing decision alternatives and for evaluating
success or failure in accomplishing such organizational goals. Although accountants are important
in the managerial accounting process, managerial accounting is more about managerial tools than
processes. In our era of global competition, continuous improvement, process reengineering, and
employee empowerment, the tools of managerial accounting are used by decision makers at all
levels, rather than just by “managers.”


We emphasize the use of managerial accounting information for decision making within the context of
organizational strategy. The organization and content of our book reflect our belief that students who understand the big picture are better learners, are better decision makers, and are better able to apply what they learn.

Ethics

Managerial ethics receives extensive coverage in this edition. For example, ethics is introduced in the context of measurement and management in Chapter 1 and discussed further in Chapters 4 and 9. Business Insight features and numerous end-of-chapter problems and cases in Chapters 1, 3, 8, 9, 10, and 11 include a variety of decision situations involving ethical dilemmas. The following excerpt is from Chapter 9 and discusses ethical dimensions of the budgeting measurement and management in Chapter 1 and discussed further in Chapters 4 and 9. Business Insight features and numerous end-of-chapter problems and cases in Chapters 1, 3, 8, 9, 10, and 11 include a variety of decision situations involving ethical dilemmas. The following excerpt is from Chapter 9 and discusses ethical dimensions of the budgeting process:

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Unique Pedagogy


Managerial Accounting includes several special features specifically designed to engage students and help them succeed in this course.

Business Insights

Students appreciate and become more engaged when they can see the relevance of what they are learning in the classroom. We have revised and added new Business Insight boxes throughout each chapter to bring the accounting to life for students through current, real-world examples. The following is a representative example:


Decision Making Orientation

One primary goal of a managerial accounting course is to teach students the skills needed to apply their accounting knowledge to solve real business problems and make informed business decisions. With that goal in mind, Managerial Decision boxes in each chapter encourage students to apply the material presented to solving actual business scenarios. The following is a representative example:


Research Insights

Academic research plays an important role in the way business is conducted, accounting is performed, and students are taught. It is important for students to recognize how modern research and modern business practice interact. Therefore, we periodically incorporate relevant research to help students understand the important relation between research and modern business. The following is a representative example:

Reviews

Managerial  accounting  can  be  challenging—especially  for  students  lacking  business  experience  or  previous  exposure to business courses. To reinforce concepts presented in each chapter and to ensure student comprehension, we include in-chapter reviews for each Learning Objective that require students to recall and apply the managerial accounting techniques and concepts just described. The following is a representative example:

Excellent assignment material is a must-have component of any successful textbook (and class). We went to great lengths to create the best assignments possible. We tried to include assignments that reflect our belief that students should  be  trained  in  analyzing  accounting  information  to  make  business  decisions,  as  opposed  to  working  on  mechanical  computations.  Assignments  encourage  students  to  analyze  accounting  information,  interpret  it,  and  apply  the  knowledge  gained  to  a  business  decision.  There  are  five  categories  of  assignments:  Questions, Mini Exercises, Exercises, Problems, and Cases and Projects. The following is a representative example:




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Road Map
LO Learning Objective | Topics Page eLecture Guided Example Assignments
LO2.1

Identify basic patterns of how costs respond to changes in activity cost drivers.

Cost Behavior Patterns :: Variable Costs :: Fixed Costs :: Mixed Costs :: Step Costs :: Factors Affecting Cost Behavior
34 e2-1 Review 2-1

11, 12, 13, 14, 21, 22

LO2.2

Determine a linear total cost estimating equation.

Total Cost Function :: Relevant Range :: Economic vs Accounting Cost Structures :: Additional Cost Behavior Patterns :: Committed and Discretionary Fixed Costs
37 e2-2 Review 2-2

13, 14, 15, 16, 17, 21, 22, 23, 24, 25

LO2.3

Calculate and compare three different approaches to cost estimation.

High-Low Cost Estimation :: Scatter Diagrams :: Least Squares Regression
42 e2-3 Review 2-3

13, 14, 18, 19, 20, 21, 22, 23, 24, 25, 29, 30, 33, 34, 35

LO2.4

Identify and discuss problems encountered in cost estimation.

Additional Issues :: Changes in Technology and Prices :: Matching Activity and Costs :: Identifying Activity Cost Drivers
48 e2-4 Review 2-4

19, 20, 25, 31, 34

LO2.5

Describe and develop alternative classifications for activity cost drivers.

Alternative Classifications :: Manufacturing Cost Hierarchy :: Customer Cost Hierarchy
49 e2-5 Review 2-5

26, 27, 28, 32

Expand/Collapse All
About the Author (pg. iii)
Preface (pg. v)
Brief Contents (pg. xiii)
Contents (pg. xiv)
Chapter 1 Managerial Accounting: Tools for Decision Making (pg. 2)
Uses of Accounting Information (pg. 4)
Financial Accounting (pg. 4)
Managerial Accounting (pg. 5)
Review 1-1 Comparison of Financial to Managerial Accounting (pg. 7)
Strategic Cost Management (pg. 7)
Review 1-2 Management Accounting Information Used for Strategy Purposes (pg. 7)
Missions, Goals, and Strategies (pg. 8)
An Organization’s Mission and Goals (pg. 8)
Strategic Position Analysis (pg. 9)
Managerial Accounting and Goal Attainment (pg. 11)
Planning, Organizing, and Controlling (pg. 12)
Review 1-3 Managerial Accounting Supporting Strategic Position (pg. 13)
Changing Environment of Business (pg. 13)
Global Competition and Its Key Dimensions (pg. 13)
Big Data and Analysis (pg. 14)
Robotics and Cognitive Technologies (pg. 14)
Enterprise Risk Management (ERM) (pg. 15)
Review 1-4 Big Data Analysis and Enterprise Risk Management (pg. 15)
Ethics in Managerial Accounting (pg. 15)
Codes of Ethics (pg. 16)
Corporate Governance (pg. 17)
Sustainability Accounting and Corporate Social Responsibility (pg. 18)
Review 1-5 Corporate Social Responsibility (pg. 19)
Cost Drivers (pg. 19)
Structural Cost Drivers (pg. 19)
Organizational Cost Drivers (pg. 20)
Activity Cost Drivers (pg. 21)
Review 1-6 Classification of Cost Drivers (pg. 22)
Guidance Answers (pg. 22)
Key Terms (pg. 22)
Multiple Choice (pg. 22)
Questions (pg. 23)
Mini Exercises (pg. 24)
Exercises (pg. 26)
Cases and Projects (pg. 27)
Solutions to Review Problems (pg. 29)
Chapter 2 Cost Behavior, Activity Analysis, and Cost Estimation (pg. 32)
Cost Behavior Analysis (pg. 34)
Four Basic Cost Behavior Patterns (pg. 34)
Factors Affecting Cost Behavior Patterns (pg. 36)
Review 2-1 Identifying Cost Behavior (pg. 37)
Total Cost Function for an Organization or Segment (pg. 37)
Relevant Range (pg. 38)
Additional Cost Behavior Patterns (pg. 40)
Committed and Discretionary Fixed Costs (pg. 42)
Review 2-2 Estimating Costs Using a Linear Total Cost Estimating Equation (pg. 42)
Cost Estimation (pg. 42)
High-Low Cost Estimation (pg. 43)
Scatter Diagrams (pg. 44)
Least-Squares Regression (pg. 45)
Review 2-3 Using the High-Low Method to Estimate Costs (pg. 48)
Additional Issues in Cost Estimation (pg. 48)
Changes in Technology and Prices (pg. 48)
Matching Activity and Costs (pg. 49)
Identifying Activity Cost Drivers (pg. 49)
Review 2-4 Identifying Appropriate Cost Drivers (pg. 49)
Alternative Cost Driver Classifications (pg. 49)
Manufacturing Cost Hierarchy (pg. 50)
Customer Cost Hierarchy (pg. 51)
Review 2-5 Classifying Costs Using a Customer Cost Hierarchy (pg. 52)
Guidance Answers (pg. 53)
Key Ratios (pg. 53)
Key Terms (pg. 54)
Multiple Choice (pg. 54)
Questions (pg. 55)
Mini Exercises (pg. 56)
Exercises (pg. 58)
Problems (pg. 61)
Cases and Projects (pg. 63)
Solutions to Review Problems (pg. 66)
Chapter 3 Cost-Volume-Profit Analysis and Planning (pg. 68)
Cost-Volume-Profit Analysis (pg. 70)
Key Assumptions (pg. 71)
Profit Formula (pg. 72)
Review 3-1 Determining the Profit Equation (pg. 74)
Contribution and Functional Income Statements (pg. 74)
Functional Income Statement (pg. 74)
Contribution Income Statement (pg. 74)
Analysis Using Contribution Margin Ratio (pg. 75)
Review 3-2 Preparing a Contribution Income Statement (pg. 76)
Break-Even Point and Profit Planning (pg. 76)
Determining Break-Even Point in Units (pg. 76)
Profit Planning (pg. 78)
Cost-Volume-Profit Graph (pg. 79)
Profit-Volume Graph (pg. 79)
Impact of Income Taxes (pg. 81)
Review 3-3 Applying Cost-Volume-Profit Analysis (pg. 82)
Multiple-Product Cost-Volume-Profit Analysis (pg. 82)
Determining Break-Even and Target Profit Sales Dollars (pg. 82)
Sales Mix Analysis (pg. 84)
Review 3-4 Analyzing Profitability of a Multi-Product Firm (pg. 86)
Review 3-5 Applying Operating Leverage Ratio (pg. 88)
Appendix 3A: Profitability Analysis with Unit and Nonunit Cost Drivers (pg. 88)
Multi-Level Contribution Income Statement (pg. 88)
Variations in Multi-Level Contribution Income Statement (pg. 90)
Review 3-6 Performing a Customer-Level Profitability Analysis (pg. 91)
Guidance Answers (pg. 91)
Key Ratios (pg. 92)
Key Terms (pg. 92)
Multiple Choice (pg. 92)
Questions (pg. 94)
Mini Exercises (pg. 94)
Exercises (pg. 96)
Problems (pg. 100)
Cases and Projects (pg. 105)
Solutions to Review Problems (pg. 106)
Chapter 4 Relevant Costs and Benefits for Decision Making (pg. 110)
Identifying Relevant Costs (pg. 112)
Relevance of Future Revenues (pg. 113)
Relevance of Outlay Costs (pg. 113)
Irrelevance of Sunk Costs (pg. 114)
Sunk Costs Can Cause Ethical Dilemmas (pg. 114)
Relevance of Disposal and Salvage Values (pg. 115)
Relevance of Opportunity Costs (pg. 115)
Review 4-1 Identifying Relevant and Irrelevant Costs (pg. 116)
Differential Analysis of Relevant Costs (pg. 116)
Review 4-2 Preparing a Differential Analysis of Relevant Costs (pg. 117)
Applying Differential Analysis (pg. 117)
Multiple Changes in Profit Plans (pg. 117)
Review 4-3 Applying Differential Analysis to Alternative Profit Scenarios (pg. 119)
Special Orders (pg. 119)
Review 4-4 Estimating the Profitability of Special Orders (pg. 122)
Outsourcing Decisions (Make or Buy) (pg. 122)
Review 4-5 Evaluating an Outsourcing Decision (pg. 125)
Sell or Process Further (pg. 126)
Evaluating Whether to Sell or Process Further LO6 Review 4-6 (pg. 127)
Use of Limited Resources (pg. 128)
Single Constraint (pg. 128)
Multiple Constraints (pg. 129)
Theory of Constraints (pg. 129)
Limitations of Decision Analysis Models (pg. 130)
Review 4-7 Analyzing Profitability Considering a Scarce Resource (pg. 131)
Guidance Answers (pg. 131)
Key Terms (pg. 131)
Multiple Choice (pg. 132)
Questions (pg. 133)
Mini Exercises (pg. 133)
Exercises (pg. 136)
Problems (pg. 140)
Cases and Projects (pg. 144)
Solutions to Review Problems (pg. 147)
Chapter 5 Product Costing: Job and Process Operations (pg. 152)
Inventory Costs in Various Organizations (pg. 154)
Review 5-1 Classifying Inventory Costs (pg. 156)
Inventory Costs for Financial Reporting (pg. 156)
Product Costs and Period Costs (pg. 156)
Three Components of Product Costs (pg. 156)
A Closer Look at Manufacturing Overhead (pg. 158)
Review 5-2 Applying a Predetermined Overhead Rate (pg. 160)
The Production Environment (pg. 160)
Production Files and Records (pg. 161)
Review 5-3 Defining Terms in a Production Environment (pg. 162)
Job Costing for Products and Services (pg. 162)
Job Costing Illustrated (pg. 163)
Statement of Cost of Goods Manufactured (pg. 168)
Overapplied and Underapplied Overhead (pg. 169)
Job Costing in Service Organizations (pg. 170)
Review 5-4 Accounting for Costs of Jobs in a Job Costing System (pg. 171)
Process Costing (pg. 172)
Cost of Production Report (pg. 173)
Weighted Average and First-In, First-Out Process Costing (pg. 176)
Process Costing in Service Organizations (pg. 176)
Review 5-5 Accounting for Costs in a Process Costing System (pg. 177)
Appendix 5A: Absorption and Variable Costing (pg. 178)
Basic Concepts (pg. 178)
Income Under Absorption and Variable Costing (pg. 179)
Production Equals Sales (pg. 179)
Production Exceeds Sales (pg. 179)
Sales Exceed Production (pg. 181)
Evaluating Alternatives to Inventory Valuation (pg. 182)
Review 5-6 Computing Inventory Costs Under Absorption and Variable Costing (pg. 183)
Guidance Answers (pg. 183)
Key Ratios (pg. 183)
Key Terms (pg. 184)
Multiple Choice (pg. 184)
Questions (pg. 185)
Mini Exercises (pg. 186)
Exercises (pg. 188)
Problems (pg. 192)
Cases and Projects (pg. 198)
Solutions to Review Problems (pg. 200)
Chapter 6 Activity-Based Costing, Customer Profitability, and Activity-Based Management (pg. 206)
Activity-Based Costing (ABC) (pg. 208)
Changing Cost Environment (pg. 208)
Review 6-1 Identifying Environment Changes that Impact Cost Structures (pg. 209)
Activity-Based Costing Concepts (pg. 209)
ABC Product Costing Model (pg. 210)
Review 6-2 Identifying Relevant Cost Drivers (pg. 211)
Traditional Product Costing and ABC Compared (pg. 212)
Applying Overhead with a Plantwide Rate (pg. 212)
Applying Overhead with Department Rates (pg. 212)
Applying Overhead with Activity-Based Costing (pg. 214)
Review 6-3 Determining Product Costs Using Traditional and Activity-Based Costing (pg. 217)
Implementation of ABC (pg. 218)
Limitations of ABC Illustration (pg. 218)
Comparing Traditional and Activity-Based Costing (pg. 218)
ABC Implementation Issues (pg. 219)
Review 6-4 Comparing Product Costs Using Traditional and Activity-Based Costing (pg. 220)
ABC and Customer Profitability Analysis (pg. 221)
Customer Profitability Profile (pg. 221)
ABC Customer Profitability Analysis Illustrated (pg. 221)
Review 6-5 Analyzing Customer Profitability (pg. 224)
Activity-Based Management (pg. 224)
The Difference Between ABC and Activity-Based Management (pg. 224)
Review 6-6 Explaining Activity-Based Management (pg. 225)
Guidance Answers (pg. 225)
Key Terms (pg. 226)
Multiple Choice (pg. 226)
Questions (pg. 227)
Exercises (pg. 231)
Problems (pg. 234)
Cases and Projects (pg. 239)
Solutions to Review Problems (pg. 243)
Chapter 7 Additional Topics in Product Costing (pg. 246)
Production and Service Department Costs (pg. 248)
Review 7-1 Discussing Policies for Allocating Service Costs (pg. 249)
Service Department Cost Allocation (pg. 249)
Direct Method (pg. 250)
Step Method (pg. 251)
Linear Algebra (Reciprocal) Method (pg. 253)
Dual Rates (pg. 254)
Review 7-2 Allocating Service Department Costs Using the Direct and Step Methods (pg. 255)
Lean Production and Just-in-Time Inventory Management (pg. 255)
Reducing Incoming Materials Inventory (pg. 256)
Reducing Work-in-Process Inventory (pg. 256)
Reducing Finished Goods Inventory (pg. 258)
Review 7-3 Distinguishing Lean Production from a Traditional Inventory Model (pg. 258)
Performance Evaluation and Recordkeeping with Lean Production and JIT (pg. 258)
Performance Evaluation (pg. 258)
Simplified Recordkeeping (pg. 260)
Review 7-4 Analyzing Performance in Lean Manufacturing (pg. 261)
Increased Focus on Data-Driven Decision Making (pg. 261)
Review 7-5 Discussing Risks and Concerns of Access to Big Data (pg. 262)
Guidance Answers (pg. 262)
Key Ratios (pg. 263)
Key Terms (pg. 263)
Multiple Choice (pg. 263)
Questions (pg. 264)
Mini Exercises (pg. 265)
Exercises (pg. 267)
Problems (pg. 269)
Cases and Projects (pg. 273)
Solutions to Review Problems (pg. 274)
Chapter 8 Pricing and Other Product Management Decisions (pg. 278)
Understanding the Value Chain (pg. 280)
Usefulness of a Value Chain Perspective (pg. 282)
Value-Added and Value Chain Perspectives (pg. 284)
Review 8-1 Classifying Activities Using a Generic Internal Value Chain (pg. 284)
The Pricing Decision (pg. 284)
Economic Approaches to Pricing (pg. 284)
Cost-Based Approaches to Pricing (pg. 285)
Review 8-2 Applying Cost-Based Approaches to Pricing (pg. 288)
Target Costing (pg. 289)
Target Costing Is Proactive for Cost Management (pg. 289)
Target Costing Encourages Design for Production (pg. 290)
Target Costing Reduces Time to Introduce Products (pg. 291)
Target Costing Requires Cost Information (pg. 291)
Target Costing Requires Coordination (pg. 291)
Target Costing Is Key for Products with Short Life Cycles (pg. 292)
Target Costing Helps Manage Life-Cycle Costs (pg. 293)
Review 8-3 Applying Target Costing (pg. 294)
Continuous Improvement Costing (pg. 294)
Review 8-4 Analyzing the Impact of Continuous Improvement Initiatives (pg. 295)
Benchmarking (pg. 296)
Review 8-5 Distinguishing Between Benchmarking and Competitor Research (pg. 297)
Guidance Answers (pg. 297)
Key Ratios (pg. 297)
Key Terms (pg. 297)
Multiple Choice (pg. 297)
Questions (pg. 298)
Mini Exercises (pg. 299)
Exercises (pg. 300)
Problems (pg. 302)
Cases and Projects (pg. 304)
Solutions to Review Problems (pg. 305)
Chapter 9 Operational Budgeting and Profit Planning (pg. 308)
Reasons for Budgeting (pg. 310)
Compel Planning (pg. 310)
Promote Communication and Coordination (pg. 310)
Provide a Guide to Action and Basis of Evaluation (pg. 311)
Aid in Risk Management (pg. 311)
Review 9-1 Discussing the Benefits of Budgeting (pg. 312)
General Approaches to Budgeting (pg. 312)
Output/Input Approach (pg. 312)
Activity-Based Approach (pg. 312)
Incremental Approach (pg. 312)
Minimum Level Approach (pg. 313)
Review 9-2 Applying the Output/Input Approach and Activity-Based Approach to Budgeting (pg. 314)
Master Budget (pg. 314)
Sales Budget (pg. 316)
Purchases Budget (pg. 317)
Selling Expense Budget (pg. 318)
General and Administrative Expense Budget (pg. 318)
Cash Budget (pg. 319)
Budgeted Financial Statements (pg. 321)
Finalizing the Budget (pg. 322)
Review 9-3 Preparing a Budget for a Merchandising Organization (pg. 323)
Budget Development in Manufacturing Organizations (pg. 323)
Production Budget (pg. 324)
Manufacturing Cost Budget (pg. 324)
Review 9-4 Preparing a Budget for a Manufacturer (pg. 327)
Budget Development and Manager Behavior (pg. 327)
Employee Participation (pg. 328)
Budgeting Periods (pg. 328)
Forecasts (pg. 329)
Ethics (pg. 329)
Open Book Management (pg. 329)
Review 9-5 Identifying Manager Behaviors Related to Operational Budgeting (pg. 330)
Guidance Answers (pg. 331)
Key Terms (pg. 331)
Multiple Choice (pg. 331)
Questions (pg. 332)
Mini Exercises (pg. 333)
Exercises (pg. 335)
Problems (pg. 339)
Cases and Projects (pg. 344)
Solutions to Review Problems (pg. 346)
Chapter 10 Standard Costs and Performance Reports (pg. 352)
Responsibility Accounting (pg. 354)
Performance Reporting and Organization Structures (pg. 355)
Types of Responsibility Centers (pg. 355)
Financial and Nonfinancial Performance Measures (pg. 357)
Review 10-1 Identifying Responsibility Centers (pg. 357)
Performance Reporting for Cost Centers (pg. 357)
Development of Flexible Budgets (pg. 358)
Flexible Budgets Emphasize Performance (pg. 358)
Standard Costs and Performance Reports (pg. 359)
Review 10-2 Preparing a Flexible Budget for Performance Reporting (pg. 360)
Variance Analysis for Costs (pg. 360)
Components of Standard Cost Analysis (pg. 360)
Establishing and Using Standards for Direct Materials (pg. 362)
Review 10-3 Calculating Standard Cost Variances for Direct Materials (pg. 364)
Establishing and Using Standards for Direct Labor (pg. 364)
Performance Reports for Revenue Centers (pg. 369)
Inclusion of Controllable Costs (pg. 371)
Revenue Centers as Profit Centers (pg. 371)
Review 10-6 Calculating Revenue Variances (pg. 372)
Appendix 10A: Fixed Overhead Variances (pg. 373)
Review 10-7 Calculating Fixed Overhead Budget Variance (pg. 374)
Appendix 10B: Reconciling Budgeted and Actual Income (pg. 374)
Review 10-8 Reconciling Budgeted and Actual Contribution Margin (pg. 376)
Guidance Answers (pg. 376)
Key Ratios (pg. 376)
Key Terms (pg. 377)
Multiple Choice (pg. 377)
Questions (pg. 378)
Mini Exercises (pg. 378)
Exercises (pg. 380)
Problems (pg. 382)
Cases and Projects (pg. 388)
Solutions to Review Problems (pg. 391)
Chapter 11 Segment Reporting, Transfer Pricing, and Balanced Scorecard (pg. 394)
Strategic Business Segments and Segment Reporting (pg. 396)
Multilevel Segment Income Statements (pg. 398)
Interpreting Segment Reports (pg. 398)
Review 11-1 Reporting by Segment (pg. 400)
Transfer Pricing (pg. 401)
Management Considerations (pg. 401)
Determining Transfer Prices (pg. 403)
Review 11-2 Analyzing Purchase Decisions with Transfer Pricing (pg. 406)
Investment Center Evaluation Measures (pg. 406)
Return on Investment (pg. 406)
Investment Center Income (pg. 409)
Investment Center Asset Base (pg. 409)
Other Valuation Issues (pg. 410)
Residual Income (pg. 410)
Economic Value Added (pg. 410)
Which Measure Is Best? (pg. 411)
Review 11-3 Computing Return on Investment and Residual Income (pg. 413)
Balanced Scorecard (pg. 413)
Balanced Scorecard Framework (pg. 413)
Balanced Scorecard and Strategy (pg. 415)
Review 11-4 Assigning Metrics to the Balanced Scorecard Categories (pg. 417)
Guidance Answers (pg. 417)
Key Ratios (pg. 417)
Key Terms (pg. 417)
Multiple Choice (pg. 418)
Questions (pg. 419)
Mini Exercises (pg. 419)
Exercises (pg. 423)
Problems (pg. 425)
Cases and Projects (pg. 431)
Solutions to Review Problems (pg. 433)
Chapter 12 Capital Budgeting Decisions (pg. 436)
Long-Range Planning and Capital Budgeting (pg. 439)
Review 12-1 Explaining Terms Relevant to Capital Budgeting Decisions (pg. 441)
Capital Budgeting Models That Consider Time Value of Money (pg. 442)
Expected Cash Flows (pg. 442)
Manager Behavior and Expected Cash Flows (pg. 443)
Net Present Value (pg. 443)
Internal Rate of Return (pg. 445)
Cost of Capital (pg. 446)
Review 12-2 Calculating Net Present Value and Internal Rate of Return (pg. 446)
Capital Budgeting Models That Do Not Consider Time Value of Money (pg. 447)
Payback Period (pg. 447)
Accounting Rate of Return (pg. 448)
Review 12-3 Computing the Payback Period and the Accounting Rate of Return (pg. 449)
Evaluation of Capital Budgeting Models (pg. 449)
Review 12-4 Evaluating Investment Proposals (pg. 451)
Additional Aspects of Capital Budgeting (pg. 452)
Using Multiple Investment Criteria (pg. 452)
Evaluating Risk (pg. 452)
Differential Analysis of Project Cash Flows (pg. 453)
Predicting Differential Costs and Revenues for High-Tech Investments (pg. 454)
Taxes in Capital Budgeting Decisions (pg. 456)
Depreciation Tax Shield (pg. 456)
Review 12-6 Calculating Net Present Value with the Consideration of Income Taxes (pg. 459)
Appendix 12A: Time Value of Money (pg. 459)
Future Value (pg. 459)
Present Value (pg. 460)
Annuities (pg. 461)
Unequal Cash Flows (pg. 463)
Deferred Returns (pg. 463)
Review 12-7 Performing Present Value Calculations Using the Table Approach (pg. 464)
Appendix 12B: Table Approach to Determining Internal Rate of Return (pg. 464)
Equal Cash Inflows (pg. 464)
Unequal Cash Inflows (pg. 465)
Review 12-8 Determining the Internal Rate of Return Using the Table Approach (pg. 466)
Guidance Answers (pg. 466)
Key Ratios (pg. 466)
Key Terms (pg. 467)
Multiple Choice (pg. 467)
Questions (pg. 468)
Mini Exercises (pg. 469)
Exercises (pg. 470)
Problems (pg. 473)
Cases and Projects (pg. 475)
Solutions to Review Problems (pg. 480)
Appendix A Managerial Analysis of Financial Statements (pg. 486)
Financial Statement Analysis for Managers (pg. 488)
Review Appendix A-1 Explaining the Importance of Financial Statement Analysis by Internal Managers (pg. 489)
Factors Impacting Financial Statement Analysis (pg. 489)
Review Appendix A-2 Identifying Factors that Influence Financial Statement Analysis (pg. 490)
Application of Financial Statement Analysis (pg. 490)
Evaluative Standards and Benchmarks (pg. 490)
Comparative and Common Size Statements (pg. 491)
Review Appendix A-3 Performing Vertical and Horizontal Analyses (pg. 493)
Solvency Analysis (pg. 495)
Review Appendix A-4 Performing a Ratio Analysis to Evaluate Solvency (pg. 498)
Performance Analysis (pg. 498)
Horizontal Analysis of Solvency and Performance (pg. 502)
Industry Benchmarking of Analysis Measures (pg. 503)
Review Appendix A-5 Performing a Ratio Analysis to Evaluate Performance and Profitability (pg. 505)
Key Terms (pg. 505)
Questions (pg. 505)
Mini Exercises (pg. 506)
Exercises (pg. 508)
Problems (pg. 509)
Cases and Projects (pg. 511)
Solutions to Review Problems (pg. 513)
Appendix B Data Analytics (pg. 518)
Data Analytics (pg. 519)
Big Data (pg. 519)
Types of Data Analytics (pg. 520)
Data Analytics in the Accounting Profession (pg. 520)
The Analytics Mindset (pg. 521)
Data Analytic Tools (pg. 523)
Data Visualization (pg. 523)
Summary of Learning Objectives (pg. 527)
Key Concepts and Terms (pg. 528)
Questions (pg. 528)
Exercises (pg. 529)
Problems (pg. 529)
Glossary (pg. 540)
Index (pg. 550)
Susan Kulp

Susan Kulp

Susan L. Kulp is Professor of Accountancy at the George Washington University School of Business. She received her Ph.D. at Stanford University. Before joining the George Washington University faculty, Professor Kulp was a faculty member at Harvard Business School.

Professor Kulp’s research focuses on performance measurement, incentive, and internal decision-making issues in inter-organizational relationships. The settings that she examines include supply chain relationships, private partnerships, and government entities. Her research highlights the conflicts between inter-organizational contracts and the control systems in place within the partnering firms. She has published research studies in both accounting and operations management journals, including the Journal of Accounting Research, The Accounting Review, Management Science, Production and Operations Research, and Review of Accounting Studies. Professor Kulp currently services as a Department Editor at Decision Sciences. In addition to her published research studies, Professor Kulp has published several Harvard Business School cases focused on management control.

Professor Kulp has taught managerial accounting to undergraduate, MBA, online MBA, and executive MBA
students. Additionally, she teaches financial accounting to online MBA students. Professor Kulp has won several teaching awards.


Amie L. Dragoo

Amie L. Dragoo

Professor of Accounting and Educational Consultant

Former Accounting Department Chair at Edgewood College, Professor Dragoo earned her BA and MBA from Michigan State University, and her doctorate from Edgewood College. She holds a CPA license, and for nearly 15 years has been a Becker Professional Education faculty instructor. Prior to her experiences in higher education, Professor Dragoo was a senior business assurance associate with PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.). Professor Dragoo has extensive teaching experiences, including courses in Intermediate Accounting I and II, Cost Accounting, Advanced Cost Management, Strategic Financial Management, and other advanced courses in financial and managerial accounting. She has received a number of teaching awards including the School of Business Outstanding Faculty Award and the Estervig-Beaubien Excellence in Teaching and Mentoring Award. She has also worked as an independent consultant, including projects in higher education, and has worked with several corporate clients. Professor Dragoo’s research has been published in the Journal of Education for Business and the Journal of Continuing Higher Education and she has contributed to numerous articles published by organizations affiliated with the AICPA. She has been involved in many community-oriented programs including the Volunteer Income Tax Assistance (VITA) program.


Al L. Hartgraves

Al L. Hartgraves

Al L. Hartgraves is Professor Emeritus of Accounting at the Goizueta Business School at Emory University in Atlanta, Georgia. He has been a frequent Guest Professor at Johannes Kepler University in Linz, Austria and at the Helsinki School of Economics and Business Administration in Finland.

His published scholarly and professional articles have appeared in The Accounting Review, Accounting Horizons, Management Accounting, Journal of Accountancy, Journal of Accounting and Public Policy and many other journals. Students at Goizueta Business School have selected him on six occasions to receive the Distinguished Educator Award. In 2002 he received Emory University’s highest teaching award, The Scholar/Teacher Award, and in 2003 he was recognized as the Accounting Educator of the Year by the Georgia Society of CPAs. He has been recognized as an Outstanding Faculty Member in two editions of The Business Week Guide to the Best Business Schools. He is a Certified Public Accountant (inactive) and a Certified Management Accountant, having received the Certificate of Distinguished Performance on the CMA exam. He received his Ph.D. from Georgia State University.


Wayne J. Morse

Wayne J. Morse

Wayne J. Morse, a hiking and canoeing enthusiast, is Professor Emeritus at the Saunders College of Business at Rochester Institute of Technology.

An author or coauthor of more than fifty published papers, monographs, and textbooks, he was a founding member of the Management Accounting section of the American Accounting Association. His most notable writings are in the areas of learning curves, human resource accounting, and quality costs. He was a member of the IMA Committee on Research and an AICPA Board of Examiners subcommittee, and he has served on the editorial boards of Advances in Accounting, Trends in Accounting Education, Issues in Accounting Education, and Management Accounting Research. A Certified Public Accountant, he received his Ph.D. from Michigan State University. Prior to joining RIT, he was on the faculty of the University of Illinois, Duke University, the University of Tennessee, Clarkson University, and the University of Alabama-Huntsville.


Student
Errata
Last Updated: Aug 19 2021

Corrections to identified errors in the text.

Data Analytics Files
Last Updated: Jul 30 2021

Data sets for students. To accompany Appendix B: Data Analytics.

Data Analytics Errata
Last Updated: Sep 8 2021

Corrections to identified errors in Appendix B: Data Analytics

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