Managerial Accounting

734 Pages·2008·15.19 MB·English

by  Carl S. Warren

Wa r r e n R e e v e D u c h a c
MANAGERIAL
ACCOUNTING
10e
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia,Athens
James M. Reeve
Professor Emeritus of Accounting
University of Tennessee,Knoxville
Jonathan E. Duchac
Professor of Accounting
Wake Forest University
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Wa r r e n R e e v e D u c h a c
MANAGERIAL
ACCOUNTING
10e
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia,Athens
James M. Reeve
Professor Emeritus of Accounting
University of Tennessee,Knoxville
Jonathan E. Duchac
Professor of Accounting
Wake Forest University
Managerial Accounting, 10e
Warren Reeve Duchac
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The Author Team
Carl S. Warren
Dr.Carl S.Warren is Professor Emeritus of Accounting at the University of Georgia,
Athens.Dr.Warren has taught classes at the University of Georgia,University of Iowa,
Michigan State University, and University of Chicago. Professor Warren focused his
teaching efforts on principles of accounting and auditing.He received his Ph.D.from
Michigan State University and his B.B.A.and M.A.from the University of Iowa.During
his career,Dr.Warren published numerous articles in professional journals,including
The Accounting Review, Journal of Accounting Research, Journal of Accountancy, The CPA
Journal, and Auditing: A Journal of Practice & Theory. Dr.Warren has served on numerous
committees of the American Accounting Association,the American Institute of Certified
Public Accountants,and the Institute of Internal Auditors.He has also consulted with
numerous companies and public accounting firms. Warren’s outside interests include
playing handball,golfing,skiing,backpacking,and fly-fishing.
James M. Reeve
Dr.James M.Reeve is Professor Emeritus of Accounting and Information Management at
the University of Tennessee. Professor Reeve taught on the accounting faculty for 25
years, after graduating with his Ph.D. from Oklahoma State University. His teaching
effort focused on undergraduate accounting principles and graduate education in the
Master of Accountancy and Senior Executive MBA programs. Beyond this, Professor
Reeve is also very active in the Supply Chain Certification program, which is a major
executive education and research effort of the College.His research interests are varied
and include work in managerial accounting,supply chain management,lean manufac-
turing,and information management.He has published over 40articles in academic and
professional journals, including the Journal of Cost Management, Journal of Management
Accounting Research, Accounting Review, Management Accounting Quarterly, Supply Chain
Management Review, and Accounting Horizons. He has consulted or provided training
around the world for a wide variety of organizations, including Boeing, Procter and
Gamble, Norfolk Southern, Hershey Foods, Coca-Cola, and Sony. When not writing
books,Professor Reeve plays golf and is involved in faith-based activities.
Jonathan Duchac
Dr.Jonathan Duchac is the Merrill Lynch and Co.Professor of Accounting and Director of
the Program in Enterprise Risk Management at Wake Forest University.He earned his
Ph.D.in accounting from the University of Georgia and currently teaches introductory and
advanced courses in financial accounting.Dr.Duchac has received a number of awards
during his career,including the Wake Forest University Outstanding Graduate Professor
Award,the T.B.Rose award for Instructional Innovation,and the University of Georgia
Outstanding Teaching Assistant Award.In addition to his teaching responsibilities,Dr.
Duchac has served as Accounting Advisor to Merrill Lynch Equity Research,where he
worked with research analysts in reviewing and evaluating the financial reporting prac-
tices of public companies.He has testified before the U.S.House of Representatives,the
Financial Accounting Standards Board,and the Securities and Exchange Commission; and
has worked with a number of major public companies on financial reporting and account-
ing policy issues.In addition to his professional interests,Dr.Duchac is the Treasurer of
The Special Children’s School of Winston-Salem; a private,nonprofit developmental day
school serving children with special needs.Dr.Duchac is an avid long-distance runner,
mountain biker, and snow skier. His recent events include the Grandfather Mountain
Marathon,the Black Mountain Marathon,the Shut-In Ridge Trail run,and NO MAAM
(Nocturnal Overnight Mountain Bike Assault on Mount Mitchell).
v
Leading by Example
For nearly 80years,Accounting has been used effectively to teach generations of busi-
nessmen and women. The text has been used by millions of business students. For
many,this book provides the only exposure to accounting principles that they will ever
receive.As the most successful business textbook of all time,it continues to introduce
students to accounting through a variety of time-tested ways.
The previous edition, 9e, started a new journey into learning more about the
changing needs of accounting students through a variety of new and innovative
research and development methods.Our Blue Sky Workshops brought accounting fac-
ulty from all over the country into our book development process in a very direct and
creative way.Many of the features and themes present in this text are a result of the col-
laboration and countless conversations we’ve had with accounting instructors over the
last several years.10e continues to build on this philosophy and strives to be reflective
of the suggestions and feedback we receive from instructors and students on an ongo-
ing basis. We’re very happy with the results, and think you’ll be pleased with the
improvements we’ve made to the text.
The original author of Accounting,James McKinsey,could not have imagined the
success and influence this text has enjoyed or that his original vision would continue to
lead the market into the twenty-first century.As the current authors,we appreciate the
responsibility of protecting and enhancing this vision,while continuing to refine it to
meet the changing needs of students and instructors.Always in touch with a tradition
of excellence but never satisfied with yesterday’s success,this edition enthusiastically
embraces a changing environment and continues to proudly lead the way.We sincerely
thank our many colleagues who have helped to make it happen.
“The teaching of accounting is no longer designed to train professional accountants
only.With the growing complexity of business and the constantly increasing difficulty
of the problems of management,it has become essential that everyone who aspires to a
position of responsibility should have a knowledge of the fundamental principles of
accounting.”
— James O.McKinsey,Author,first edition,1929
vi
Leading by Example
Textbooks continue to play an invaluable role in the teaching and learning
environment. Continuing our focus from previous editions, we reached
out to accounting teachers in an effort to improve the textbook presenta-
tion. New for this edition, we have extended our discussions to reach out
to students directly in order to learn what they value in a textbook. Here’s
a preview of some of the improvements we’ve made to this edition based
on student input:
NEW! Guiding Principles System
Students can easily locate the information they need to master course concepts with the
new “Guiding Principles System (GPS).” At the beginning of every chapter,this inno-
vative system plots a course through the chapter content by displaying the chapter
objectives,major topics,and related Example Exercises.The GPS reference to the chap-
ter “At a Glance” summary completes this proven system.
After studying this chapter, you should be able to:
1 2 3 4
Describe managerial Describe and illustrate Describe and Describe the uses of
accounting and the role the following costs: illustratethe managerial accounting
of managerial 1. direct and indirect followingstatements information.
accounting in a costs for a manufacturing
business. 2. direct materials, direct business:
labor, and factory 1. balance sheet
overhead costs 2. statement of cost of
3. product and period goods manufactured
costs 3. income statement
Managerial Manufacturing Financial Statements Uses of Managerial
Accounting Operations: Costs for a Manufacturing Accounting
and Terminology Business
Differences Between
Managerial and Direct and Balance Sheet for a
Financial Accounting Indirect Costs Manufacturing
Business
The Management Manufacturing
Accountant in the Costs
Organization EE1-2 Ifnocr oam Me aSntuaftaecmtuernitng
(page 10) Company
MAcacnoaugnetirniagl in the EE1-3 EE1-5
MProacneasgsement EE(1p-a4ge 11) (page 18)
EE1-1 (page 13)
(page 6)
At a Glance Menu Turn to pg 19
NEW! Written for Today’s Students
Designed for today’s students,the 10th edition has been extensively revised using an
innovative, high-impact writing style that emphasizes topics in a concise and clearly
written manner.Direct sentences,concise paragraphs,numbered lists,and step-by-step
calculations provide students with an easy-to-follow structure for learning accounting.
This is achieved without sacrificing content or rigor.
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Leading by Example
NEW! Revised Coverage of Investments
A new chapter on investments and fair value accounting has been written to consoli-
date coverage of both dept and equity investments. The chapter also contains a con-
ceptual discussion of fair value accounting and its increasing role in defining today’s
modern accounting methods.
NEW! IFRS
No topic is on the minds of many accounting practitioners more than the possible
convergence of IFRS and GAAP. How accounting educators handle this emerging
reality is perhaps even more of a question going forward. In the financial chapters
found within this text, IFRS icons now exist in the margin to help highlight certain
areas where differences exist between these standards.
NEW! Modern User-Friendly Design
Based on students’testimonials of what they find most useful,this streamlined presenta-
tion includes a wealth of helpful resources without the clutter.To update the look of the
material,some exhibits use computerized spreadsheets to better reflect the changing envi-
ronmentof business.Visual learners will appreciate the generous number of exhibits and
illustrations used to convey concepts and procedures.
Exhibit 4
Retained NetSolutions
Earnings Retained Earnings Statement
For the Year Ended December 31, 2011
Statement for
Merchandising
Retained earnings, January 1, 2011 $128,800
Business Net income for the year $75,400
Less dividends 18,000
Increase in retained earnings 57,400
Retained earnings, December 31, 2011 $186,200
Journal Page 25
Post.
Date Description Ref. Debit Credit
2011
Jan. 3 Cash 1,800
Sales 1,800
To record cash sales.
viii
Leading by Example
Chapter Updates and Enhancements
The following includes some of the specific content changes that can be
found in Managerial Accounting, 10e.
Chapter 1: Managerial Accounting Concepts
and Principles
• Added a new section at the beginning of the chapter on the uses of managerial
accounting,which references subsequent chapters where the uses are described and
illustrated.
• Added an illustration of comparing merchandising and manufacturing income
statements.
• Added format for the cost of goods manufactured statement.
• Added stepwise preparation of the cost of goods manufactured.
Chapter 2: Job Order Costing
• Added format for the entries used to dispose of overapplied or underapplied factory
overhead.
• Changed order of entries so that entries for sales and cost of goods sold are shown
separately from the finished goods entry for completed units.
Chapter 3: Process Cost Systems
• Revised Exhibit 2 and accompanying narrative so that Exhibit 2 ties into Exhibit 8,
which illustrates entries for Frozen Delights.
• Revised illustration of cost of production report so that units are classified into groups
consisting of beginning work in process units (Group 1),started and completed units
(Group 2),and ending work in process units (Group 3).This aids students in computing
unit costs and assigning costs to groups using first-in, first-out inventory cost flow.
Accompanying exhibits and art also classify units by these groups.
• Revised and expanded the section on using the cost of production report for decision
making to include an example from Frozen Delights.
Chapter 4: Cost Behavior and Cost-Volume-Profit
Analysis
• Supplemented the mixed cost discussion by adding an equation for determining
fixed costs.
• Added contribution margin equation to cost-volume-profit discussion.
• Added unit contribution margin equation to cost-volume-profit discussion.
• Added “change in income from operations” equation based on unit contribution
margin to cost-volume-profit discussion.
• Incorporated a discussion of computing break-even in sales dollars using contribu-
tion margin ratio.
• Added a stepwise approach to discussion of preparing cost-volume-profit and prof-
it-volume charts.
• Added equation for computing the percent change in income from operations using
“operating leverage.”
• Expanded discussion of margin of safety so that margin of safety may be expressed
in sales dollars,units,or percent of current sales.
• Revised appendix on variable costing to include format for variable costing income
statement.
ix