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MANAGERIAL
ACCOUNTING
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MANAGERIAL
ACCOUNTING
Creating Value in a
Dynamic Business Environment
Seventh Edition
Ronald W. Hilton
Cornell University
Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis
Bangkok Bogot Caracas Kuala Lumpur Lisbon London Madrid Mexico City
Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
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www.mhhe.com
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Preface
A MARKET LEADER FOR SIX EDITIONS,
HILTON CONTINUES THAT TRADITION
OF MANAGERIAL ACCOUNTING
INNOVATION AND EXCELLENCE.
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Preface
is a Professor of Accounting
at Cornell University. With bachelors and masters degrees
in accounting from The Pennsylvania State University, he
received his Ph.D. from The Ohio State University.
A Cornell faculty member since 1977, Professor Hilton
also has taught accounting at Ohio State and the University
of Florida, where he held the position of Walter J. Matherly
Professor of Accounting. Prior to pursuing his doctoral
studies, Hilton worked for Peat, Marwick, Mitchell and
Company and served as an officer in the United States Air
Force.
Professor Hilton is a member of the Institute of
Management Accountants and has been active in the
American Accounting Association. He has served as
associate editor of The Accounting Review and as a
member of its editorial board. Hilton also has served on the
editorial board of the Journal of Management Accounting
Research. He has been a member of the
resident faculties of both the Doctoral
Consortium and the New Faculty Consortium
sponsored by the American Accounting
Association.
With wide-ranging research interests, Hilton
has published articles in many journals,
including the Journal of Accounting
Research, The Accounting Review,
Management Science, Decision Sciences,
The Journal of Economic Behavior and
Organization, Contemporary Accounting
Research, and the Journal of Mathematical
Psychology. He also has published a
monograph in the AAA Studies in Accounting Research
series, and he is a co-author of Cost Management:
Strategies for Business Decisions, Budgeting: Profit
Planning and Control, and Cost Accounting: Concepts and
Managerial Applications. Professor Hiltons current research
interests focus on contemporary cost management systems
and international issues in managerial accounting. In recent
years, he has toured manufacturing facilities and consulted
with practicing managerial accountants in North America,
Europe, Asia, and Australia.
VII
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BRINGING REAL-WORLD FOCUS TO
Managerial Accounting.
The world of business is changing dramatically.
As a result, the role of managerial accounting
is very different than it was even a decade
ago. Today, managerial accountants serve as
internal business consultants, working side-byside in cross-functional teams with managers
from all areas of the organization. For a
thorough understanding of managerial
accounting, students should not only be able to
produce accounting information, but also
understand how managers are likely to use
and react to the information.
The goal of Managerial Accounting is to
acquaint students of business with the
fundamental tools of management accounting
and to promote their understanding of the
dramatic ways in which the field is changing.
The emphasis throughout the text is on using
accounting information to help manage an
organization.
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Preface
YOUR MANAGERIAL ACCOUNTING CLASS
Focus Companies.
Focus Companies provide a powerful strategy for
fostering learning, and Hiltons integration of focus
companies throughout the text is unmatched by any
other managerial accounting book. Each chapter
introduces important managerial accounting topics
within the context of a realistic company. Students
see the immediate impact of managerial accounting
decisions on companies and gain exposure to
different types of organizations.
Balanced.
Hiltons Managerial Accounting offers the most
balanced coverage of manufacturing and service
companies. He recognizes that students will be
working in a great variety of business environments
and will benefit from exposure to diverse types of
companies. Hilton uses a wide variety of examples
from retail, service, manufacturing, and nonprofit
organizations.
Contemporary.
Hilton continues to be the leader in presenting the
most contemporary coverage of managerial
accounting topics. The traditional tools of managerial
accounting such as product costing and budgeting
have been updated with current approaches. New
topics such as environmental cost management and
The Sarbanes-Oxley Act have been added.
Flexible.
Managerial Accounting is written in a modular format
allowing topics to be covered in the order you want.
For example, Chapter 17 covers absorption, variable
and throughput costing. Many instructors like to cover
this topic early in the course. So, Chapter 17 is
written so that it can be assigned right after Chapter
3. A table showing the text's flexibility is in the
Instructor's Resource Manual.
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Preface
How Does Managerial Accounting: Creating
CONTRAST COMPANIES
New to this edition, a Contrast Company is
now introduced in each chapter. In most
cases these highlight an industry different
from that of the Focus Company. This
feature allows even greater emphasis on
service-industry firms and other nonmanufacturing environments. The Focus
Companies and Contrast Companies are
listed on the front endpapers.
Walt D isney
Company
IN CONTRAST
to the entertainment services setting of
The Walt Disney Company, we will turn
our attention to Gap, Inc. This major
clothing retailer has over 3,000 stores
around the world, which sell Gap,
Banana Republic, Old Navy, and Forth &
Towne apparel. We will explore Gaps
value chain, which is the set of linked,
value-creating activities, ranging from
securing basic raw materials and energy
to the ultimate delivery of products and
services. As a retailer, Gap focuses on
apparel design, marketing, and sales. All
manufacturing of its clothing lines is
contracted out to garment manufacturers
throughout the world.
Each chapter also includes a contrast company. In most cases, the contrast company will present a key chapter topic
in an industry that is different from that of the focus company. In this chapter, the focus company (Walt Disney) is an
entertainment services company, whereas the contrast company (The Gap) is a fashion retailer.
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REAL-WORLD FOCUS
The Ethical Climate of Business and the Role of the Accountant
Who among us is not shocked and dismayed by the seemingly endless stream of corporate scandals that we have experienced over the past few years. The headlines keep
on comingAOL, Bristol-Myers Squib, Conseco, Enron, Global Crossing, KPMG,
Rite Aid, Tyco, Worldcom, Xeroxand the list goes on. Many of the cases involve
mismanagement, some are characterized by alleged ethical lapses, and in some
instances there is alleged criminal behavior. Who is to blame? According to most observers, there is plenty of blame to go around: greedy corporate executives, managers
who make overreaching business deals, lack of oversight by various companies
boards of directors (particularly the boards audit committees), shoddy work by external auditors, lack of sufficient probing by Wall Street analysts and the financial press,
and some accountants who have been all too willing to push the envelope on aggressive accounting to (or beyond) the edge. Billions of dollars have been lost in employee
pension funds, several states investment portfolios, and the private investment accounts of the public. It will no doubt take many years to sort out the mess. Companies
have gone bankrupt; fortunes have been lost; careers have been ruined; and more of the
same is yet to come. Some of those involved will likely end up in jail. Several financial executives have filed guilty pleas on felony charges. Some are serving time in
LO9
Understand the ethical
responsibilities of a
managerial accountant.
Topic 12
Managerial Accounting:
A Business Partnership with Management
We are looked upon as
business advisors, more
than just accountants,
and that has a lot to do
with the additional
analysis and the
forward-looking goals
we are setting. (1a)1
Caterpillar
The role of managerial accounting is very different now than it was even a decade ago.
In the past, managerial accountants operated in a strictly staff capacity, usually physically separated from the managers for whom they provided reports and information.
Nowadays, managerial accountants serve as internal business consultants, working
side-by-side in cross-functional teams with managers from all areas of the organization. Rather than isolate managerial accountants in a separate accounting department,
companies now tend to locate them in the operating departments where they are working with other managers to make decisions and resolve operational problems.
Managerial accountants take on leadership roles on their teams and are sought out for
the valuable information they provide. The role of the accountant in leading-edge companies has been transformed from number cruncher and financial historian to being
business partner and trusted advisor.2
An organizations management team, on which managerial accountants play an integral role, seeks to create value for the organization by managing resources, activities,
and people to achieve the organizations goals effectively.
Management
Accounting
Practice
Dell Computer
The Hilton text provides a variety of thoughtprovoking, real-world examples to focus students
on managerial accounting as an essential part of
the management process. Featured organizations
include FedEx, Ford, Bank of America,
Amazon.com, the Gap, and many others. These
companies are highlighted in blue in the text.
MASS CUSTOMIZATION
There is no better way to make, sell, and deliver PCs than the way Dell Computer does it, and nobody executes that model better than Dell. The companys machines are made to order and delivered directly to customers, who get the exact machines they want cheaper than they can get them
from Dells competition. Dell has some 24 facilities in and around Austin and employs more than
18,000 local workers. Dell is improving its earnings and gaining market share even in tough economic times.2 Nevertheless, Michael Dell, the companys restless founder, is constantly looking for
ways to improve the companys operations. In one year alone, Dell cut $1 billion out of its costshalf
from manufacturingand Dell executives vowed to cut another $1 billion.
Visit the Topfer Manufacturing Center in Austin, and its hard to conceive how Dell could be
any more efficient. Workers already scuttle about in the 200,000-square-foot plant like ants on a
hot plate. Gathered in cramped six-person cells, they assemble computers from batches of parts
that arrive via a computer-directed conveyor system overhead. If a worker encounters a problem,
Focus on Ethics
Focus on Ethics
WAS WORLDCOMS CONTROLLER JUST
FOLLOWING ORDERS?
Through a series of mergers and acquisitions, WorldCom, Inc.
grew to become the nations second-largest long-distance
telecommunications company. WorldComs core communication
services included network data transmission over public and private networks. Trouble arose for WorldCom because of the immense overcapacity in the telecommunications industry due to
overly optimistic growth projections during the Internet boom.
The combination of overcapacity, decreased demand, and high
fixed costs still poses a serious problem for many of the major
players in the industry.
In June 2002, the company disclosed that it had overstated
earnings for 2001 and the first quarter of 2002 to the tune of
Real-World Examples
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Preface
A FOCUS ON EXCEPTIONAL
END-OF-CHAPTER MATERIAL
Managerial Accounting is known for its comprehensive and reliable end-of-chapter material.
Each chapter includes an extensive selection of assignment material including Review Questions,
Exercises, Problems, and Cases.
Problem 1
Several costs incurred by Myrtle Beach Golf Equipment, Inc. are listed below. For each cost, indicate
which of the following classifications best describe the cost. More than one classification may apply to
the same cost item. For example, a cost may be both a variable cost and a product cost.
Cost Classifications
a. Variable
b.
Fixed
c.
Period
d.
Product
e.
Administrative
f.
Selling
g.
Manufacturing
Key Terms
For each terms definition refer to the indicated page, or turn to the glossary at the end of the text.
11.
13.
14.
15.
empowerment, 7
financial accounting, 10
internal auditor, 13
just-in-time (JIT)
production system, 22
line positions, 13
managerial accounting, 4
non-value-added costs, 24
staff positions, 13
strategic cost
management, 26
theory of constraints, 26
total quality management
(TQM), 23
treasurer, 13
value chain, 24
Review Questions
12.
activity accounting, 24
activity-based costing
(ABC), 24
activity-based management
(ABM), 24
attention-directing
function, 7
balanced scorecard, 9
Certified Management
Accountant (CMA), 28
Problems
Problem 342
Schedule of Cost of Goods
Manufactured and Sold;
Income Statement
(LO 6)
110.
111.
What does the following statement by a managerial accountant at Caterpillar imply about where in the organization the managerial accountants are located? [We] are
a partner with all of the other functions in the business
here. (Reference 1a at end of text.)
112.
113.
114.
Define the following terms: just-in-time, computerintegrated manufacturing cost management system
All applicable Problems are available with McGraw-Hills Homework Manager TM.
The following data refer to Twisto Pretzel Company for the year 20x1.
Work-in-process inventory, 12/31/x0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance on factory and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process inventory, 12/31/x1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished-goods inventory, 12/31/x0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash balance, 12/31/x1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect material used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation on factory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw-material inventory, 12/31/x0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property taxes on factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished-goods inventory, 12/31/x1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of raw material in 20x1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities for factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities for sales and administrative offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect-labor cost incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation on factory building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation on cars used by sales personnel
$ 8,100
13,800
3,600
8,300
14,000
6,000
4,900
2,100
10,100
2,400
15,400
39,000
6,000
2,500
4,000
29,000
3,800
1 200
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Preface
Each chapter includes problems and cases exploring key business areas.
Logos next to the problems identify these topics.
Ethical Issues
Group Work
Internet
Research
International Issues
Business
Communication
Excel
Template
EXCEL
Spreadsheet applications are essential to contemporary accounting practice. Students must recognize the power of spreadsheets and know how accounting data are presented in them. We discuss Excel applications where appropriate in the text.
Exercise 334
Overapplied or Underapplied
Overhead
(LO 4, 5)
The following information pertains to Trenton Glass Works for the year just ended.
Budgeted direct-labor cost: 75,000 hours at $16 per hour
Actual direct-labor cost: 80,000 hours at $17.50 per hour
Budgeted manufacturing overhead: $997,500
Actual selling and administrative expenses: 435,000
Actual manufacturing overhead:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$231,000
Property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,000
82,000
Supervisory salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental of space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect material (see data below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect material:
Beginning inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,000
59,000
30,000
300,000
79,000
48,000
94,000
63,000
Required:
1.
2.
3.
4.
Exercise 335
Predetermined Overhead
Problem 541
Activity-Based Costing
(LO 1, 2, 4, 5, 7)
Compute the firms predetermined overhead rate, which is based on direct-labor hours.
Calculate the overapplied or underapplied overhead for the year.
Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods Sold.
Build a spreadsheet: Construct an Excel spreadsheet to solve requirements (1) and (2) above. Show
how the solution will change if the following data change: budgeted manufacturing overhead was
$990,000, property taxes were $25,000, and purchases of indirect material amounted to $97,000.
The following data pertain to the Oneida Restaurant Supply Company for the year just ended.
World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee.
The company buys toffee beans from around the world and roasts, blends, and packages them for resale.
WGCC currently has 15 different coffees that it offers to gourmet shops in one-pound bags. The major
cost is raw materials; however, there is a substantial amount of manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labor.
Some of the coffees are very popular and sell in large volumes, while a few of the newer blends
have very low volumes. WGCC prices its coffee at full product cost, including allocated overhead, plus
a markup of 30 percent. If prices for certain coffees are significantly higher than market, adjustments are
made. The company competes primarily on the quality of its products, but customers are price-conscious
as well.
Data for the 20x1 budget include manufacturing overhead of $3,000,000, which has been allocated
on the basis of each products direct-labor cost. The budgeted direct-labor cost for 20x1 totals $600,000.
Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffee
beans) will total $6,000,000.
The expected prime costs for one-pound bags of two of the companys products are as follows:
Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kona
Malaysian
$3.20
.30
$4.20
.30
WGCCs controller believes the traditional product-costing system may be providing misleading
cost information. She has developed an analysis of the 20x1 budgeted manufacturing-overhead costs
shown in the following chart.
XIII
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WHAT'S NEW IN THE SEVENTH EDITION?
Contrast Companies
New to the seventh edition is a contrast company
in each chapter. As in previous editions, each
chapter is built around a realistic Focus Company
in which the chapter's key points are illustrated.
In this edition, however, a Contrast Company is
also introduced, which in most cases will feature
an industry different from that of the focus
company. This new feature allows even greater
emphasis on service-industry firms and other
non-manufacturing environments. The focus
companies and contrast companies are listed in
the front endpapers.
Streamlining
To streamline this edition, Chapters 5 and 6 have
been heavily revised and reorganized. Significant
changes to both the content and pedagogy in
these chapters, which cover activity-based
costing and activity-based management, make
these challenging topics more accessible to
students.
Focus on Ethics
Several of the Focus on Ethics pieces have been
revised to make this feature even more useful as
a vehicle for exploring ethical issues in the
classroom. The Focus on Ethics piece in Chapter
1 has been revised to reflect the new Statement
of Ethical Professional Practice adopted by the
Institute of Management Accountants in 2005.
The Focus on Ethics piece in Chapter 5
addresses difficult ethical issues that can arise in
the aftermath of an ABC project. The Chapter 6
ethics piece addresses the use of customer
profitability analysis as the basis for providing
differential treatment for different classes of
customers.
End-of-Chapter Material
The end-of-chapter material has once again been
very heavily revised. Several new problems have
been added, and virtually all of the exercises,
problems, and cases contain data different from
that in the sixth edition.
Build a Spreadsheet
This new feature adds a spreadsheet requirement
to several exercises and problems in each
chapter. Students are asked to build an Excel
spreadsheet that will solve the exercise and then
manipulate the solution by changing some of the
key data in the exercise.
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Heavily revised coverage of key topical areas, brand new pedagogy for the most
challenging topics, and new assignment material make the seventh edition more
useful than ever to students and faculty alike.
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HOW CAN TECHNOLOGY SUPPORT
STUDENT SUCCESS?
Our technology resources help students and instructors focus on learning success. By using the Internet and
multimedia resources, students get book-specific help at their convenience. Compare our technology to that
of any other book and were confident youll agree that Managerial Accounting has the best in the market.
Teaching aids make in-class presentations easy and stimulating. These aids give you more power than ever
to teach your class the way you want.
MCGRAW-HILLS
HOMEWORK MANAGER
McGraw-Hill's Homework Manager is a Web-based
homework management system that gives you unparalleled power and flexibility in creating homework assignments, tests, and quizzes. Homework Manager
duplicates problem structures directly from the end-ofchapter material in your McGraw-Hill textbook, using algorithms to provide limitless variations of textbook
problems. Use Homework Manager to supply online selfgraded practice tests for students, or create assignments
and tests with unique versions of every problem: Homework Manager can grade assignments automatically, provide instant feedback to students, and store all results in
your private gradebook. Detailed results let you see at a
glance how each student does and easily track the
progress of every student in your course.
MCGRAW-HILLS
HOMEWORK MANAGER
PLUS
McGraw-Hill's Homework Manager Plus combines the
power of Homework Manager with the latest interactive
learning technology to create a comprehensive, fully integrated online study package.
Students using Homework Manager Plus can access not
only Homework Manager itself, but the Interactive Online Textbook as well. Far more than a textbook on a
screen, this resource is completely integrated into Homework Manager, allowing students working on assignments
to click a hotlink and instantly review the appropriate material in the textbook.
By including Homework Manager Plus with your textbook
adoption, you're giving your students a vital edge as they
progress through the course and ensuring that the help they
need is never more than a mouse click away.
INTERACTIVE ONLINE
VERSION OF THE TEXTBOOK
In addition to the textbook, students can rely on this online
version of the text for a convenient way to study. While
other publishers offer a simple PDF, this interactive Webbased textbook contains hotlinks to key definitions and is
integrated with Homework Manager to give students quick
access to relevant content as they work through problems,
exercises, and practice quizzes.
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TOPIC TACKLER
This software is a complete
tutorial focusing on areas in
the course that give students
the most trouble. It provides
help on two key topics for
each chapter by use of
Video Clips
PowerPoint Slide Shows
Interactive Exercises
Self-Grading Quizzes
A logo in the text marks the topic covered in Topic
Tackler.
iPOD CONTENT
Harness the power of one of the most popular technology tools students use
todaythe Apple iPod. Our innovative approach allows students to download
audio and video presentations as well as quizzes for each chapter in the text,
right into their iPod and take learning materials with them wherever they go. It
makes review and study time as easy as putting on headphones. Visit the
Managerial Accounting Online Learning Center (www.mhhe.com/hilton7e) to
learn more details on available iPod contentand enhance your learning experience today.
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Preface
HOW CAN TECHNOLOGY SUPPORT
INSTRUCTOR SUCCESS?
ONLINE COURSE MANAGEMENT
(WebCT, eCollege, and TopClass)
PAGEOUT
McGraw-Hills Course Management System,
PageOut, is the easiest way to create a Web site
for your accounting course. Theres no need for
HTML coding, graphic design, or a thick how-to
book. Just fill in a series of boxes and click on one
of our professional designs. In no time your course
is online with a Web site that contains your
syllabus. If you need help, our team of product
specialists is ready to take your course materials
and build a custom Web site to your specifications.
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Preface
FOR STUDENTS
More and more students are studying online. That's why we offer an Online
Learning Center (OLC) that follows Managerial Accounting chapter by chapter.
It doesn't require any building or maintenance and is ready to go the moment you
type in the URL. The OLC includes:
Chapter Objectives
Glossary
Topic Tackler Tutorial
PowerPoint Slides
Narrated Slides
Check Figures
Excel Spreadsheets
FOR INSTRUCTORS
The book's password-protected Instructor's site OLC contains essential course
materials. You can pull all of this material into your PageOut course syllabus or
use it as part of another online course management system such as Blackboard,
WebCT or eCollege. You get all the resources available to students, plus...
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Preface
SUPPLEMENTS
Hiltons instructor and student support materials are comprehensive,
providing you with superior classroom support and bringing out the
best in your students.
The technology supplements and
instructor resources are top notch, and
very appropriate for our students.
Marilyn Okleshen,
Minnesota State University Mankato
Instructor Supplements
Instructors Manual
Test Bank
Instructor Resource
CD-ROM
Resource CD)
ISBN-10: 0073022861
This test bank in Word format
contains multiple-choice questions,
essay, and short problems. Each
test item is coded for level of
difficulty, learning objective, and
type. Type refers to whether the
problem is a recall, an application,
or an analysis problem based on
Blooms taxonomy. Prepared by
Lanny Solomon.
Algorithmic Diploma
Test Bank
ISBN-13: 9780073022864
This CD includes electronic
versions of the Instructors Manual,
Solutions Manual, Test Bank, as
well as PowerPoint slides for
instructor and students, video clips,
exhibits in the text, spreadsheet
templates with solutions, and
additional chapters on Process
Costing: The First-in, First-Out
Method, The Statement of Cash
Flows, and Financial Statement
Analysis and their Solutions
Manuals.
ISBN-10: 007326492X
Solutions Manual
(Available on the password-protected
Instructors Edition OLC and Instructor
Resource CD)
ISBN-13: 9780073264929
This computerized test bank
contains algorithmic problems
enabling instructors to create
similarly structured problems with
different values, allowing every
student to be assigned a unique
quiz or test.
PowerPoint Slides
(Available on the password-protected
Instructors Edition Online Learning
Center (OLC) and Instructors Resource
CD)
Managerial Accounting
Video Library
It has excellent student and instructor
resources.
Michael Tyler,
Barry University
Excellent illustrations, pictures,
support materials, etc.
K.R. Balachandran,
New York University
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Preface
Student Supplements
Excel Templates
(Available on the Online Learning Center)
Study Guide
Check Figures
ISBN-10: 0073022926
ISBN-13: 9780073022925
McGraw-Hills Homework
Manager Plus
This integrates all of the texts
multimedia resources. With just one
access code, students can obtain state
of the art study aids including
Homework Manager and an online
version of the text.
Narrated Slides
(Available on the Online Learning Center)
PowerPoint Slides
McGraw-Hills Homework
Manager
This web-based software duplicates
problem structures directly from the
end-of-chapter material in the textbook.
It uses algorithms to provide a limitless
supply of self-graded practice.
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Preface
Acknowledgments
I Am Grateful
I would like to express my appreciation to people who have provided assistance in the development of
this textbook. First, my gratitude goes to the thousands of managerial accounting students I have had
the privilege to teach over many years. Their enthusiasm, comments, and questions have challenged
me to clarify my thinking about many topics in managerial accounting.
Second, I express my sincere thanks to the following professors who provided extensive reviews for
the seventh edition:
REVIEWERS
Linda Brown, St. Ambrose University
Jeffrey Archambault, Marshall University
Ben Baker, Davidson College
K. R. Balachandran, New York University
Michael Blue, Bloomsburg University
Wayne Bremser, Villanova University
Richard Campbell, University of Rio
Grande
Marilyn Ciolino, Delgado Community
College
Paul Copley, James Madison University
Patricia Derrick, George Washington
University
Barbara Durham, University of Central
Florida
PAST EDITION
REVIEWERS
My grateful appreciation is extended to
those who reviewed previous editions:
Denise Guithues Amrhein, Saint Louis
University
Florence Atiase, University of Texas at
Austin
Rowland Atiase, University of Texas at
Austin
K. R. Balachandran, New York University,
Frederick Bardo, Shippensburg University
Linda Bowen, University of North Carolina
Wayne Bremser, Villanova University
Richard Brody, University of New Haven
Gyan Chandra, Miami University
Paul Copley, University of Georgia
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Preface
I once again thank those individuals whose input over the last edition has helped the book to evolve
to its present form, especially: Noah Barsky, Villanova University; Mohamed Bayou, University of
Michigan, Dearborn; Bruce Bradford, Fairfield University; Dan Daly, Boston College; Theresa
Hammond, Boston College; and Clifford Nelson, University of Connecticut.
I want to thank Beth Woods and Ilene Persoff for their thorough checking of the text and solutions
manual for accuracy and completeness.
The supplements are a great deal of work to prepare. I appreciate the efforts of those who prepared
them, since these valuable aids make teaching the course easier for everyone who uses the text.
Lanny Solomon of the University of Missouri at Kansas City prepared the Test Bank and the
Instructor's Manual. Peggy Hussey of Northern Kentucky University prepared the PowerPoint slides
and Excel spreadsheet templates. Douglas deVidal of the University of Texas at Austin wrote the
Study Guide. Linda Schain of Hofstra University prepared Topic Tackler. Leland Mansuetti authored
the online quizzes.
I acknowledge the Institute of Management Accountants for permission to use problems from Certified
Management Accountant (CMA) examinations. I also acknowledge the American Institute of Certified
Public Accountants for permission to use problems from the Uniform CPA Examinations, Questions,
and Unofficial Answers. I am indebted to Professors Roland Minch, David Solomons and Michael
Maher for allowing the use of their case materials in the text. The source for the actual company
information in Chapters 1 and 2 regarding The Walt Disney Company, Caterpillar, Wal-Mart, and
Southwest Airlines was the companies published annual reports.
Finally, I wish to express my gratitude to the fine people at McGraw-Hill/Irwin who so professionally
guided this book through the publication process.
DeLancey, Stewart Mattson, Gail Korosa, Susanne Riedell, Elizabeth Mavetz, Rose Hepburn, Krista
Bettino, Adam Rooke, Lori Kramer, Ira Roberts and Matthew Perry.
Ronald W. Hilton
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Contents in Brief
Part I
1
2
3
4
Part II
5
6
Part III
7
8
9
10
11
12
13
Part IV
14
15
16
Part V
17
18
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Contents
Part I
Fundamentals and Cost Accumulation
Systems
Decision Making
Planning
Controlling
Organization Chart
Cross-Functional Deployment
Physical Location
Behavioral Issues
e-Business
Global Competition
Cross-Functional Teams
Computer-Integrated Manufacturing
Time-Based Competition
Continuous Improvement
Theory of Constraints
Professional Organizations
Professional Certification
Professional Ethics
Chapter Summary
Key Terms
Review Questions
Exercises
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Contents
Problems
Case
Income Statement
Balance Sheet
Mass-Customization Manufacturing
Manufacturing Costs
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Process-Costing Systems
Job-Cost Record
Direct-Material Costs
Direct-Labor Costs
Manufacturing-Overhead Costs
Sale of Goods
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xxvii
Contents
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Part II
Cost Management Systems,
Activity-Based Costing, and Activity-Based
Management
5 Activity-Based Costing
Flow of Costs
Equivalent Units
Cost Drivers
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Contents
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Part III
Planning, Control, and Cost Management
Systems
Activity-Based Management
Two-Dimensional ABC
Customer-Profitability Analysis
Target Costing
Kaizen Costing
Benchmarking
Reengineering
Theory of Constraints
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Case
Variable Costs
Step-Variable Costs
Fixed Costs
Step-Fixed Costs
Semivariable Cost
Curvilinear Cost
Cost Estimation
Account-Classification Method
Visual-Fit Method
High-Low Method
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Contents
Multiple Regression
Chapter Summary
Review Questions
Exercises
Problems
Cases
8 Cost-Volume-Profit Analysis
Contribution-Margin Approach
Equation Approach
Profit-Volume Graph
Contribution-Margin Approach
Equation Approach
Graphical Approach
Safety Margin
Operating Leverage
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
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Contents
Sales Forecasting
Operational Budgets
Nonprofit Organizations
Activity-Based Budgeting
Sales Budget
Production Budget
Direct-Material Budget
Direct-Labor Budget
Manufacturing-Overhead Budget
Benefits of ABB
Budget Administration
e-Budgeting
Zero-Base Budgeting
Participative Budgeting
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Managing Costs
Management by Exception
Setting Standards
Direct-Material Standards
Direct-Labor Standards
Direct-Material Variances
Direct-Labor Variances
A Statistical Approach
Controllability of Variances
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Contents
Gain-Sharing Plans
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Overhead Budgets
Flexible Budgets
Cost Drivers
Variable Overhead
Fixed Overhead
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
12 Responsibility-Accounting, Quality
Control, and Environmental Cost
Management
Responsibility Centers
Performance Reports
Cost Allocation
Controllability
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Contents
Segmented Reporting
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
Part IV
Using Accounting Information in
Decision Making
Residual Income
Invested Capital
Transfer Pricing
Goal Congruence
An International Perspective
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Cases
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Contents
xxxiii
Relevant Information
M.A.P. Outsourcing
Theory of Constraints
Uncertainty
Chapter Summary
Review Questions
Exercises
Problems
Cases
Customer Demand
Actions of Competitors
Costs
Price Elasticity
Cost-Plus Pricing
Target Costing
Competitive Bidding
Chapter Summary
Key Terms
Review Questions
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Contents
Exercises
Problems
Cases
Chapter Summary
Key Terms
Exercises
Problems
Cases
Part V
Selected Topics for Further Study
Internal-Rate-of-Return Method
Accelerated Depreciation
Payback Method
Accounting-Rate-of-Return Method
Product Costs
Cost-Volume-Profit Analysis
Throughput Costing
Chapter Summary
Key Terms
Review Questions
Exercises
Problems
Case
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Contents
Direct Method
Step-Down Method
Reciprocal-Services Method
Chapter Summary
Key Terms
Exercises
Problems
Cases
Glossary
Photo Credits
Index of Subjects
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MANAGERIAL
ACCOUNTING