CONTENTS
CHAPTER 1 Introduction to Cost Management ........................................................... 1-1
CHAPTER 2 Basic Cost Management Concepts ......................................................... 2-1
CHAPTER 3 Cost Behavior ............................................................................................ 3-1
CHAPTER 4 Activity-Based Costing ............................................................................. 4-1
COMPREHENSIVE PROBLEM: PART 1............................................................................. CP1-1
CHAPTER 5 Product and Service Costing: Job-Order System.................................. 5-1
CHAPTER 6 Process Costing ........................................................................................ 6-1
CHAPTER 7 Allocating Costs of Support Departments and Joint Products ............ 7-1
CHAPTER 8 Budgeting for Planning and Control ....................................................... 8-1
CHAPTER 9 Standard Costing: A Functional-Based Control Approach................... 9-1
CHAPTER 10 Decentralization: Responsibility Accounting,
Performance Evaluation, and Transfer Pricing ...................................... 10-1
COMPREHENSIVE PROBLEM: PART 2............................................................................. CP2-1
CHAPTER 11 Strategic Cost Management ..................................................................... 11-1
CHAPTER 12 Activity-Based Management..................................................................... 12-1
CHAPTER 13 The Balanced Scorecard: Strategic-Based Control............................... 13-1
CHAPTER 14 Quality and Environmental Cost Management....................................... 14-1
CHAPTER 15 Lean Accounting and Productivity Measurement.................................. 15-1
COMPREHENSIVE PROBLEM: PART 3............................................................................. CP3-1
CHAPTER 16 Cost-Volume-Profit Analysis .................................................................... 16-1
CHAPTER 17 Activity Resource Usage Model and Tactical
Decision Making ........................................................................................ 17-1
CHAPTER 18 Pricing and Profitability Analysis ............................................................ 18-1
CHAPTER 19 Capital Investment..................................................................................... 19-1
CHAPTER 20 Inventory Management: Economic Order Quantity,
JIT, and the Theory of Constraints .......................................................... 20-1
COMPREHENSIVE PROBLEM: PART 4............................................................................. CP4-1
iii
, COMPREHENSIVE PROBLEM: PART 1
CHAPTERS 1–4
1. Basic Enhanced Premium
Method I $15.00 $22.00 $28.00
Method II* 10.50 15.40 19.60
*0.7 × $15.00; 0.7 × $22.00; 0.7 × $28.00
Method I costs include all production, marketing, and customer service costs.
There may be, and very likely is, very little R&D function in the Cable Service
Division. Thus, this first unit cost could satisfy both value-chain and operat-
ing cost definitions. The objectives include pricing decisions, product mix
decisions, and strategic and tactical profitability analysis. Method II costs in-
clude only production costs; complying with external financial reporting
guidelines is the primary managerial objective of this method.
2. Direct tracing is a cost assignment method that relies on physically observ-
able causal relationships to assign costs to cost objects. Driver tracing relies
on causal factors called drivers to assign costs to cost objects. Allocation re-
lies on assumed linkages or convenience (ease of use) to assign cost to cost
objects. The cost assignment approach used by the Cable Service Division
appears to be allocation intensive. No non-unit-level drivers are being used to
assign costs. Apparently, the usual and only product cost definition provided
by the accounting system is based on production costs. Other variants such
as the one provided are obtained only by special efforts. This provides evi-
dence that the division is using a functional-based cost accounting system.
Other differences that distinguish the two systems (but are not mentioned)
are the presence or absence of detailed activity information, whether activi-
ties or costs are the focus, whether the emphasis is on local or systemwide
performance measurement, and the use (or nonuse) of nonfinancial perform-
ance measures.
CP1-1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
,Comp. Prob. 1 (Continued)
3. The two divisions differ based on the nature of their output. Telephones are
tangible products, and cable services are intangible products. Tangible prod-
ucts are produced by converting materials through the use of labor and other
inputs such as plant, land, and machinery. Services are tasks or activities
performed for a customer or an activity performed by a customer using an
organization’s products or facilities. Cable service differs from telephones in
that cable services are intangible and perishable (cannot be inventoried).
Phones can be felt, seen, and stored. Cable services cannot.
4. Cable Service Division
Income Statement
For the Month of March
Sales revenue ........................................................................... $27,800,000a
Cost of services sold ............................................................... 14,105,000b
Gross margin ............................................................................ $13,695,000
Less: Operating expenses ....................................................... 6,045,000c
Income before income taxes .............................................. $ 7,650,000
a
($16 × 50,000) + ($30 × 500,000) + ($40 × 300,000)
b
($10.50 × 50,000) + ($15.40 × 500,000) + ($19.60 × 300,000)
c
($4.50 × 50,000) + ($6.60 × 500,000) + ($8.40 × 300,000)
CP1-2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
, Comp. Prob. 1 (Continued)
5.
Phone Division
Income Statement
For the Month of March
Sales ..................................................................... $1,170,000
Cost of goods sold:
Beginning finished goods inventory ............ $ 480,000
Add: Cost of goods manufactured* .............. 832,000
Goods available for sale ................................ $1,312,000
Less: Ending finished goods inventory ....... 375,000 937,000
Gross margin ....................................................... $ 233,000
Less: Selling expenses ....................................... 170,000
Income before income taxes ......................... $ 63,000
*Statement of Cost of Goods Manufactured
For the Month of March
Direct materials:
Beginning inventory....................................... $ 23,000
Add: Purchases.............................................. 312,000
Materials available ......................................... $335,000
Less: Ending inventory.................................. 40,000
Direct materials used ..................................... $295,000
Direct labor........................................................... 117,000
Overhead:
Plant and equipment depreciation................ $ 50,000
Materials handling.......................................... 85,000
Inspections ..................................................... 60,000
Scheduling...................................................... 30,000
Power .............................................................. 30,000
Plant supervision ........................................... 12,000
Manufacturing engineering ........................... 21,000
Supplies .......................................................... 17,000
Rework ............................................................ 30,000 335,000
Total manufacturing costs added ...................... $747,000
Add: Beginning work in process........................ 130,000
Less: Ending work in process............................ (45,000)
Cost of goods manufactured ........................ $832,000
CP1-3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
CHAPTER 1 Introduction to Cost Management ........................................................... 1-1
CHAPTER 2 Basic Cost Management Concepts ......................................................... 2-1
CHAPTER 3 Cost Behavior ............................................................................................ 3-1
CHAPTER 4 Activity-Based Costing ............................................................................. 4-1
COMPREHENSIVE PROBLEM: PART 1............................................................................. CP1-1
CHAPTER 5 Product and Service Costing: Job-Order System.................................. 5-1
CHAPTER 6 Process Costing ........................................................................................ 6-1
CHAPTER 7 Allocating Costs of Support Departments and Joint Products ............ 7-1
CHAPTER 8 Budgeting for Planning and Control ....................................................... 8-1
CHAPTER 9 Standard Costing: A Functional-Based Control Approach................... 9-1
CHAPTER 10 Decentralization: Responsibility Accounting,
Performance Evaluation, and Transfer Pricing ...................................... 10-1
COMPREHENSIVE PROBLEM: PART 2............................................................................. CP2-1
CHAPTER 11 Strategic Cost Management ..................................................................... 11-1
CHAPTER 12 Activity-Based Management..................................................................... 12-1
CHAPTER 13 The Balanced Scorecard: Strategic-Based Control............................... 13-1
CHAPTER 14 Quality and Environmental Cost Management....................................... 14-1
CHAPTER 15 Lean Accounting and Productivity Measurement.................................. 15-1
COMPREHENSIVE PROBLEM: PART 3............................................................................. CP3-1
CHAPTER 16 Cost-Volume-Profit Analysis .................................................................... 16-1
CHAPTER 17 Activity Resource Usage Model and Tactical
Decision Making ........................................................................................ 17-1
CHAPTER 18 Pricing and Profitability Analysis ............................................................ 18-1
CHAPTER 19 Capital Investment..................................................................................... 19-1
CHAPTER 20 Inventory Management: Economic Order Quantity,
JIT, and the Theory of Constraints .......................................................... 20-1
COMPREHENSIVE PROBLEM: PART 4............................................................................. CP4-1
iii
, COMPREHENSIVE PROBLEM: PART 1
CHAPTERS 1–4
1. Basic Enhanced Premium
Method I $15.00 $22.00 $28.00
Method II* 10.50 15.40 19.60
*0.7 × $15.00; 0.7 × $22.00; 0.7 × $28.00
Method I costs include all production, marketing, and customer service costs.
There may be, and very likely is, very little R&D function in the Cable Service
Division. Thus, this first unit cost could satisfy both value-chain and operat-
ing cost definitions. The objectives include pricing decisions, product mix
decisions, and strategic and tactical profitability analysis. Method II costs in-
clude only production costs; complying with external financial reporting
guidelines is the primary managerial objective of this method.
2. Direct tracing is a cost assignment method that relies on physically observ-
able causal relationships to assign costs to cost objects. Driver tracing relies
on causal factors called drivers to assign costs to cost objects. Allocation re-
lies on assumed linkages or convenience (ease of use) to assign cost to cost
objects. The cost assignment approach used by the Cable Service Division
appears to be allocation intensive. No non-unit-level drivers are being used to
assign costs. Apparently, the usual and only product cost definition provided
by the accounting system is based on production costs. Other variants such
as the one provided are obtained only by special efforts. This provides evi-
dence that the division is using a functional-based cost accounting system.
Other differences that distinguish the two systems (but are not mentioned)
are the presence or absence of detailed activity information, whether activi-
ties or costs are the focus, whether the emphasis is on local or systemwide
performance measurement, and the use (or nonuse) of nonfinancial perform-
ance measures.
CP1-1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
,Comp. Prob. 1 (Continued)
3. The two divisions differ based on the nature of their output. Telephones are
tangible products, and cable services are intangible products. Tangible prod-
ucts are produced by converting materials through the use of labor and other
inputs such as plant, land, and machinery. Services are tasks or activities
performed for a customer or an activity performed by a customer using an
organization’s products or facilities. Cable service differs from telephones in
that cable services are intangible and perishable (cannot be inventoried).
Phones can be felt, seen, and stored. Cable services cannot.
4. Cable Service Division
Income Statement
For the Month of March
Sales revenue ........................................................................... $27,800,000a
Cost of services sold ............................................................... 14,105,000b
Gross margin ............................................................................ $13,695,000
Less: Operating expenses ....................................................... 6,045,000c
Income before income taxes .............................................. $ 7,650,000
a
($16 × 50,000) + ($30 × 500,000) + ($40 × 300,000)
b
($10.50 × 50,000) + ($15.40 × 500,000) + ($19.60 × 300,000)
c
($4.50 × 50,000) + ($6.60 × 500,000) + ($8.40 × 300,000)
CP1-2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
, Comp. Prob. 1 (Continued)
5.
Phone Division
Income Statement
For the Month of March
Sales ..................................................................... $1,170,000
Cost of goods sold:
Beginning finished goods inventory ............ $ 480,000
Add: Cost of goods manufactured* .............. 832,000
Goods available for sale ................................ $1,312,000
Less: Ending finished goods inventory ....... 375,000 937,000
Gross margin ....................................................... $ 233,000
Less: Selling expenses ....................................... 170,000
Income before income taxes ......................... $ 63,000
*Statement of Cost of Goods Manufactured
For the Month of March
Direct materials:
Beginning inventory....................................... $ 23,000
Add: Purchases.............................................. 312,000
Materials available ......................................... $335,000
Less: Ending inventory.................................. 40,000
Direct materials used ..................................... $295,000
Direct labor........................................................... 117,000
Overhead:
Plant and equipment depreciation................ $ 50,000
Materials handling.......................................... 85,000
Inspections ..................................................... 60,000
Scheduling...................................................... 30,000
Power .............................................................. 30,000
Plant supervision ........................................... 12,000
Manufacturing engineering ........................... 21,000
Supplies .......................................................... 17,000
Rework ............................................................ 30,000 335,000
Total manufacturing costs added ...................... $747,000
Add: Beginning work in process........................ 130,000
Less: Ending work in process............................ (45,000)
Cost of goods manufactured ........................ $832,000
CP1-3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
