Managerial Accounting 14e PDF

 Less managing. More teaching. Greater learning. STUDENTS......

 Less managing. More teaching. Greater learning. STUDENTS... INSTRUCTORS... Want to get better grades? (Who doesn’t?) Would you like your students to show up for class more prepared? (Let’s face it, class is much more fun if everyone is engaged and prepared…) Prefer to do your homework online? (After all, you are online anyway.) Want an easy way to assign homework online and track student progress? Need a better way to study before the big test? (A little peace of mind is a good thing…) (Less time grading means more time teaching…) Want an instant view of student or class performance relative to learning objectives? (No more wondering if students understand…) With McGraw-Hill's Connect Plus Accounting, ™ Need to collect data and generate reports required for administration or STUDENTS GET: accreditation? (Say goodbye to manually tracking student learning outcomes…) Easy online access to homework, tests, and quizzes assigned by your instructor. Want to record and post your lectures for students to view online? Immediate feedback on how you’re doing. (No more wishing you could call your instructor at 1 a.m.) Quick access to lectures, practice materials, With McGraw-Hill's Connect Plus Accounting, ™ eBook, and more. (All the material you need to be successful is right at your fingertips.) INSTRUCTORS GET: A Self-Quiz and Study tool that assesses your knowledge and recommends specific Simple assignment management, allowing you to readings, supplemental study materials, spend more time teaching. and additional practice work.* Auto-graded assignments, quizzes, and tests. LearnSmart – intelligent flash Detailed Visual Reporting where student and cards that adapt to your specific section results can be viewed and analyzed. needs and provide you with 24 x 7 personalized study.* Sophisticated online testing capability. *Available with select McGraw-Hill titles. A filtering and reporting function that allows you to easily assign and report on materials that are correlated to accreditation standards, learning outcomes, and Bloom’s taxonomy. An easy-to-use lecture capture tool. The option to upload course documents for student access. ISBN: 0078111005 Front endsheets Author: Garrison Color: 4c Title: Managerial Accounting 14e Pages: 2,3  Want an online, searchable version of your textbook? Wish your textbook could be available online while you’re doing your assignments? Connect™ Plus Accounting eBook If you choose to use Connect™ Plus Accounting, you have an affordable and searchable online version of your book integrated with your other online tools. Connect™ Plus Accounting eBook offers features like: Topic search Direct links from assignments Adjustable text size Jump to page number Print by section Want to get more value from your textbook purchase? Think learning accounting should be a bit more interesting? Check out the STUDENT RESOURCES section under the Connect™ Library tab. Here you’ll find a wealth of resources designed to help you achieve your goals in the course. You’ll find things like quizzes, PowerPoints, and Internet activities to help you study. Every student has different needs, so explore the STUDENT RESOURCES to find the materials best suited to you. ISBN: 0078111005 Front endsheets Author: Garrison Color: 4c Title: Managerial Accounting Pages: 4, Insert  Rev.Confirming Pages Managerial Accounting gar11005_fm_i-xxxvi.indd i 27/11/10 3:20 PM  Rev.Confirming Pages gar11005_fm_i-xxxvi.indd ii 27/11/10 3:20 PM  Rev.Confirming Pages Managerial Accounting Fourteenth Edition Ray H. Garrison, D.B.A., CPA Professor Emeritus Brigham Young University Eric W. Noreen, Ph.D., CMA Professor Emeritus University of Washington Peter C. Brewer, Ph.D., CPA Miami University—Oxford, Ohio gar11005_fm_i-xxxvi.indd iii 27/11/10 3:21 PM  Rev.Confirming Pages MANAGERIAL ACCOUNTING Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2012, 2010, 2008, 2006, 2003, 2000, 1997, 1994, 1991, 1988, 1985, 1982, 1979, 1976 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6 5 4 3 2 1 ISBN 978-0-07-811100-6 MHID 0-07-811100-5 Vice president and editor-in-chief: Brent Gordon Editorial director: Stewart Mattson Publisher: Tim Vertovec Sponsoring editor: Donna Dillon Executive director of development: Ann Torbert Development editor: Katie Jones Vice president and director of marketing: Robin J. Zwettler Marketing director: Brad Parkins Senior marketing manager: Kathleen Klehr Vice president of editing, design, and production: Sesha Bolisetty Lead project manager: Pat Frederickson Senior buyer: Carol A. Bielski Lead designer: Matthew Baldwin Senior photo research coordinator: Keri Johnson Senior media project manager: Allison Souter Media project manager: Cathy L. Tepper Cover image: © Getty Images Typeface: 10.5/12 Times Roman Compositor: Laserwords Private Limited Printer: R. R. Donnelley Library of Congress Cataloging-in-Publication Data Garrison, Ray H. Managerial accounting / Ray H. Garrison, Eric W. Noreen, Peter C. Brewer. — 14th ed. p. cm. Includes index. ISBN-13: 978-0-07-811100-6 (alk. paper) ISBN-10: 0-07-811100-5 (alk. paper) 1. Managerial accounting. I. Noreen, Eric W. II. Brewer, Peter C. III. Title. HF5657.4.G37 2012 658.15’11—dc22 2010045770 www.mhhe.com gar11005_fm_i-xxxvi.indd iv 27/11/10 3:22 PM  Rev.Confirming Pages Dedication To our families and to our many colleagues who use this book. gar11005_fm_i-xxxvi.indd v 27/11/10 3:22 PM  Rev.Confirming Pages About the Authors Ray H. Garrison is emeritus professor of accounting at Brigham Young University, Provo, Utah. He received his BS and MS degrees from Brigham Young University and his DBA degree from Indiana University. As a certified public accountant, Professor Garrison has been involved in management consulting work with both national and regional accounting firms. He has published articles in The Accounting Review, Management Accounting, and other professional journals. Innovation in the classroom has earned Professor Garrison the Karl G. Maeser Distinguished Teaching Award from Brigham Young University. Eric W. Noreen has held appointments at institutions in the United States, Europe, and Asia. He is emeritus professor of accounting at the University of Washington. He received his BA degree from the University of Washington and MBA and PhD degrees from Stanford University. A Certified Management Accountant, he was awarded a Certificate of Distinguished Performance by the Institute of Certified Management Accountants. Professor Noreen has served as associate editor of The Accounting Review and the Journal of Accounting and Economics. He has numerous articles in academic journals including: the Journal of Accounting Research; The Accounting Review ; the Journal of Accounting and Economics; Accounting Horizons; Accounting, Organizations and Society; Contemporary Accounting Research; the Journal of Management Accounting Research; and the Review of Accounting Studies. Professor Noreen has won a number of awards from students for his teaching. vi Garrison Noreen Brewer gar11005_fm_i-xxxvi.indd vi 27/11/10 3:22 PM  Rev.Confirming Pages Peter C. Brewer is a professor in the Department of Accountancy at Miami University, Oxford, Ohio. He holds a BS degree in accounting from Penn State University, an MS degree in accounting from the University of Virginia, and a PhD from the University of Tennessee. He has published more than 30 articles in a variety of journals including: Management Accounting Research, the Journal of Information Systems, Cost Management, Strategic Finance, the Journal of Accountancy, Issues in Accounting Education, and the Journal of Business Logistics. Professor Brewer is a member of the editorial board of the Journal of Accounting Education and has served on the editorial board of Issues in Accounting Education. His article “Putting Strategy into the Balanced Scorecard” won the 2003 International Federation of Accountants’ Articles of Merit competition, and his articles “Using Six Sigma to Improve the Finance Function” and “Lean Accounting: What’s It All About?” were awarded the Institute of Management Accountants’ Lybrand Gold and Silver Medals in 2005 and 2006. He has received Miami University’s Richard T. Farmer School of Business Teaching Excellence Award and has been recognized on two occasions by the Miami University Associated Student Government for “making a remarkable commitment to students and their educational development.” He is a leading thinker in undergraduate management accounting curriculum innovation and is a frequent presenter at various professional and academic conferences. Prior to joining the faculty at Miami University, Professor Brewer was employed as an auditor for Touche Ross in the firm’s Philadelphia office. He also worked as an internal audit manager for the Board of Pensions of the Presbyterian Church (U.S.A.). He frequently collaborates with companies such as Harris Corporation, Ghent Manufacturing, Cintas, Ethicon Endo-Surgery, Schneider Electric, Lenscrafters, and Fidelity Investments in a consulting or case writing capacity. Managerial Accounting F our t e e nt h Edi t i o n vii gar11005_fm_i-xxxvi.indd vii 27/11/10 3:22 PM  Rev.Confirming Pages Let Garrison be Your Guide For centuries, the lighthouse has provided guidance and safe passage for sailors. Similarly, Garrison/Noreen/Brewer has successfully guided millions of students through managerial accounting, helping them sail It is the ‘Bible’ of smoothly through the course. Managerial Accounting. Mark Motluck, Decades ago, lighthouses were still being operated manually. In these Anderson University days of digital transformation, lighthouses are run using automatic lamp changers and other modern devices. In much the same way, Garrison/ An excellent choice Noreen/Brewer has evolved over the years. Today, the Garrison book for a first course in not only guides students—accounting majors and other business majors managerial accounting. alike—safely through the course but is enhanced by a number of powerful Steven Huddart, new tools to augment student learning and increase student motivation. Penn State McGraw-Hill’s Connect™ Accounting offers a number of features to facilitate student learning. Embedded within Connect Accounting, our NEW intelligent technology, LearnSmart, offers flashcards that personalize Garrison is the study experience by constantly adapting, emphasizing the concepts a the gold standard student still needs to master. NEW animated, narrated Guided Examples of all accounting texts. connected to practice exercises within Connect Accounting provide a Gene Johnson, Clark College step-by-step walkthrough of a similar exercise, assisting students when they need it most. Connect Accounting’s NEW Self-Quiz and Study provides a study plan that recommends specific readings from the text, supplemental narrated PowerPoints, and practice exercises that will improve students’ understanding of each learning objective. Finally, the student library within Connect gives students access to additional resources, such as forms for the NEW Applying Excel feature, Interactive Presentations for each learning objective, an electronic version of the textbook, and more. Just as the lighthouse continues to provide reliable guidance to seafarers, the Garrison/Noreen/Brewer book continues its tradition of helping students sail successfully through managerial accounting by always focusing on three important qualities: relevance, accuracy, and clarity. viii Garrison Noreen Brewer gar11005_fm_i-xxxvi.indd viii 27/11/10 3:22 PM  Rev.Confirming Pages Garrison’s Managerial Accounting text is one of RELEVANCE. Every effort is made to help students the best introductory texts available today. It provides relate the concepts in this book to the decisions made by working students with the tools and managers. In the fourteenth edition, the authors have written a information needed to help new Chapter 1 with the goal of helping all business students better them successfully learn this understand why managerial accounting is relevant to their future material in an interesting careers. New and revised In Business boxes throughout the book and engaging manner. link chapter concepts to pertinent real-world examples. Service The Garrison text is the industry references appear throughout the chapter narrative and only option. end-of-chapter material to provide students with relevant context Tracy Campbell Tuttle, San Diego Mesa Community College for the material they are learning. The robust Connect Accounting technology package is populated with new and exciting tools to help keep students engaged in the learning process. For these reasons and many more, a student reading Garrison should Good service industry never have to ask “Why am I learning this?” materials. The more I read the book, the more I appreciated this information. ACCURACY. The Garrison book continues to set the The homework... directed standard for accurate and reliable material in its fourteenth toward service business edition. With each revision, the authors evaluate the book and expands the relevance of the its supplements in their entirety, working diligently to ensure material to the student. that the end-of-chapter material, solutions manual, and test Don Lucy, bank are consistent, current, and accurate. Indian River State College CLARITY. Generations of students have praised Garrison for the friendliness and readability of its writing, but A well-done text that is a that’s just the beginning. In the fourteenth edition, the authors pleasure to teach from. have rewritten various chapters with input and guidance from Joseph Gerard, University of Wisconsin—Whitewater instructors around the country to ensure that teaching and learning from Garrison remains as easy as it can be. In addition, the authors have taken an active role in building out Connect Accounting, carefully reviewing its various components to ensure It’s still the best book on the clarity and consistency with the textbook. market, and my students continually tell me what a The authors’ steady focus on these three core elements has led great book it is. to tremendous results. Managerial Accounting has consistently led Charles Caliendo, the market, being used by over two million students and earning University of Minnesota a reputation for reliability that other texts aspire to match. Managerial Accounting F our t e e nt h Edi t i o n ix gar11005_fm_i-xxxvi.indd ix 27/11/10 3:23 PM  Rev.Confirming Pages Garrison’s Managerial Accounting includes pedagogical elements that engage and instruct students without cluttering the pages or interrupting student learning. Garrison’s key pedagogical tools enhance and support students’ understanding of the concepts rather than compete with the narrative for their attention. Job-Order Costing 113 NEW to the fourteenth edition of Garrison! Available with McGraw-Hill’s Connect™ Accounting. Applying Excel LEARNING OBJECTIVES 1, 4, 7 Applying Excel The Excel worksheet form that appears below is to be used to recreate part of the example on page 104. Download the workbook containing this form from the Online Learning Center at www. mhhe.com/garrison14e. On the website you will also receive instructions about how to use this This NEW and exciting end-of-chapter feature links worksheet form. the power of Excel with managerial accounting concepts by illustrating how Excel functionality can be used to better understand accounting data. Applying Excel goes beyond plugging numbers into a template by providing students with an opportunity to build their own Excel worksheets and formulas. Students are then asked “what if” questions in which they analyze not You should proceed to the requirements below only after completing your worksheet. Required: only how related pieces of accounting data affect each 1. Check your worksheet by changing the estimated total amount of the allocation base in the Data area to 60,000 machine-hours, keeping all of the other data the same as in the original example. If your worksheet is operating properly, the predetermined overhead rate should now be $5.00 per machine-hour. If you do not get this answer, find the errors in your work- other but why they do. Applying Excel immediately sheet and correct them. 2. How much is the underapplied (overapplied) manufacturing overhead? Did it change? Why or why not? Determine the underapplied (overapplied) manufacturing overhead for a different company precedes the Exercises in twelve of the fifteen chapters with the following data: Allocation base................................... Machine-hours in the book and is also integrated with McGraw- Estimated manufacturing overhead cost................ $100,000 Estimated total amount of the allocation base........... Actual manufacturing overhead cost.................. Actual total amount of the allocation base.............. 50,000 machine-hours $90,000 40,000 machine-hours Hill’s Connect™ Accounting, allowing students to practice their skills online with algorithmically generated datasets. An excellent pedagogical feature that helps further reinforce students’ knowledge of key gar11005_ch03_083-140.indd 113 11/11/10 11:28 AM concepts in the text book, while strengthening students’ Excel skills that are so important in the work place. This will further enhance an already excellent text. Marianne L. James, California State University, Los Angeles [Applying Excel is] an excellent way for students to programmatically develop spreadsheet skills without having to be taught spreadsheet techniques by the instructor. A significant associated benefit is that students gain more exposure to the dynamics of accounting information by working with what-if scenarios. Earl Godfrey, Gardner–Webb University x Garrison Noreen Brewer gar11005_fm_i-xxxvi.indd x 27/11/10 3:23 PM  Rev.Confirming Pages Powerful Pedagogy Opening Vignette 8 Each chapter opens with a Business Focus Chapter feature that provides a real-world example for students, allowing them to see how the chapter’s information and insights apply to the world outside the classroom. Learning Profit Planning Planning for a Crisis—Civil War Objectives alert students to what they Preservation Trust should expect as they progress through the The Civil War Preservation Trust (CWPT) is a private, nonprofit chapter. organization with 70,000 mem- bers that works to preserve the nation’s remaining Civil War battlefields—many of which are threatened by commercial devel- LEARNING OBJECTIVES opment such as shopping cen- ters, houses, industrial parks, After studying Chapter 8, you I like how you engage the and casinos. To forestall devel- opment, the CWPT typically pur- should be able to: chases the land or development LO1 Understand why organizations reader with the “Business rights to the land. The CWPT has saved over 25,000 acres from development, includ- ing, for example, 698 acres of battlefield at Gettysburg. budget and the processes they use to create budgets. Focus” at the beginning CWPT’s management team was particularly concerned about the budget proposal for 2009, which was to be presented to the board of directors in the fall of 2008. LO2 Prepare a sales budget, including a schedule of The CWPT is wholly supported by contributions from its members and many of those of the chapter. members had been adversely affected by the ongoing financial crisis that followed the collapse of the subprime mortgage market. Consequently, the funds that would be LO3 expected cash collections. Prepare a production budget. available for operations in 2009 were particularly difficult to predict. Accordingly, the BU SINESS FOCU S Kathy Crusto-Way, budget for 2009 contained three variations based on progressively pessimistic eco- nomic assumptions. The more pessimistic budgets were called contingent budgets. LO4 Prepare a direct materials budget, including a schedule of Tarrant County College As 2008 progressed and member contributions declined somewhat from previous lev- els, CWPT switched to the first contingent budget. This contingent budget required a expected cash disbursements for purchases of materials. number of actions to reduce costs including a hiring freeze and a salary freeze, but maintained an aggressive program of protecting battlefield acreage through purchases LO5 Prepare a direct labor budget. of land and development rights. Fortunately, the CWPT did not have to switch to the most pessimistic budget—which would have involved layoffs and other extraordinary LO6 Prepare a manufacturing This textbook speaks to cost-saving measures. Instead of reacting in a panic mode to unfavorable developments, CWPT used the LO7 overhead budget. Prepare a selling and budgeting process to carefully plan in advance for a number of possible contingencies. today’s student with Sources: Communications with James Lighthizer, president, and David Duncan, director of membership and administrative expense budget. Excel-based visuals, discussions development, Civil War Preservation Trust; and the CWPT website, civilwar.org. LO8 Prepare a cash budget. LO9 Prepare a budgeted income on hot topics, such as statement. LO10 Prepare a budgeted balance corporate responsibility, and sheet. 335 examples from recognizable companies. It also prepares students for business and gar11005_ch08_335-382.indd 335 18/11/10 4:37 PM CPA and CMA examinations. A text the students Alison Jill Brock, will enjoy reading. Imperial Valley College Ruth W. Epps, Virginia Commonwealth University Managerial Accounting F our t e e nt h Edi t i o n xi gar11005_fm_i-xxxvi.indd xi 27/11/10 3:23 PM  Rev.Confirming Pages p IN BUSINESS THE ZIPCAR COMES TO COLLEGE CAMPUSES Zipcar is a car sharing service based in Cambridge, Massachusetts. The company serves 13 cities In Business Boxes and 120 university campuses. Members pay a $50 annual fee plus $7 an hour to rent a car. They can use their iPhones to rent a car, locate it in the nearest Zipcar parking lot, unlock it using an These helpful boxed features offer a glimpse access code, and drive it off the lot. This mixed cost arrangement is attractive to customers who need a car infrequently and wish to avoid the large cash outlay that comes with buying or leasing a vehicle. into how real companies use the managerial Source: Jefferson Graham, “An iPhone Gets Zipcar Drivers on Their Way,” USA Today, September 30, 2009, p. 3B. accounting concepts discussed within the chapter. Each chapter contains from three to fourteen of these current examples. I found the text to be thorough and Flexible Budgets and Performance Analysis 393 well organized. I was Victoria: Let me show you what I’ve got. [Victoria shows Rick the flexible budget per- formance report in Exhibit 9–7.] I simply used the cost formulas to update the budget MANAGERIAL ACCOUNTING IN particularly impressed to reflect the increase in client-visits you experienced in March. That allowed me to come up with a better benchmark for what the costs should have been. Rick: That’s what you labeled the “flexible budget based on 1,100 client-visits”? ACTION The Wrap-up Victoria: That’s right. Your original budget was based on 1,000 client-visits, so it with the numerous understated what some of the costs should have been when you actually served 1,100 customers. Rick: That’s clear enough. These spending variances aren’t quite as shocking as the real-world examples variances on my first report. Victoria: Yes, but you still have an unfavorable variance of $2,360 for client gratuities. Rick: I know how that happened. In March there was a big Democratic Party fundrais- ing dinner that I forgot about when I prepared the March budget. To fit all of our included in the “in regular clients in, we had to push them through here pretty fast. Everyone still got top-rate service, but I felt bad about not being able to spend as much time with each Managerial customer. I wanted to give my customers a little extra something to compensate them for the less personal service, so I ordered a lot of flowers, which I gave away by the business” boxes to bunch. Victoria: With the prices you charge, Rick, I am sure the gesture was appreciated. Rick: One thing bothers me about the report. When we discussed my costs before, you make the topical called rent, liability insurance, and employee health insurance fixed costs. How can I have a variance for a fixed cost? Doesn’t fixed mean that it doesn’t change? Victoria: We call these costs fixed because they shouldn’t be affected by changes in Accounting in Action Vignettes the level of activity. However, that doesn’t mean that they can’t change for other discussions more reasons. Also, the use of the term fixed also suggests to people that the cost can’t be controlled, but that isn’t true. It is often easier to control fixed costs than variable costs. For example, it would be fairly easy for you to change your insurance bill by meaningful. adjusting the amount of insurance you carry. It would be much more difficult for you These vignettes depict cross- to significantly reduce your spending on hairstyling supplies—a variable cost that is a necessary part of serving customers. Rick: I think I understand, but it is confusing. Victoria: Just remember that a cost is called variable if it is proportional to activity; it Jerry Thorne, functional teams working is called fixed if it does not depend on the level of activity. However, fixed costs can change for reasons unrelated to changes in the level of activity. And controllability has little to do with whether a cost is variable or fixed. Fixed costs are often more North Carolina controllable than variable costs. together in real-life settings, A & T State University IN BUSINESS working with the products HOTELS MANAGE REVENUE AND COST LEVERS AMID RECESSION When the economy spiraled downward in 2009, it forced hotel chains to make tough decisions in an effort to achieve their profit goals. For example, Wyndham Hotels and Resorts decided to take sewing kits, mouthwash, and showercaps out of its rooms—instead, requiring customers to ask and services that students for these amenities at the front desk. Intercontinental Hotels Group stopped delivering newspapers to loyalty-program members’ rooms; Marriott International cut back its breakfast offerings; and the Ritz-Carlton reduced operating hours at its restaurants, spas, and retail shops. In addition, many gar11005_ch02_024-082.indd 42 hotel chains reduced their rental rates. 02/11/10 4:31 PM recognize from their own A flexible budget performance report can help hotel managers analyze how the changes described above impact net operating income. It isolates activity, revenue, and spending variances that help identify the underlying reasons for differences between budgeted and actual net operating income. lives. Students are shown Source: Sarah Nassauer, “No Showercaps at the Inn,” The Wall Street Journal, January 22, 2009, pp. D1–D2. step-by-step how accounting gar11005_ch09_383-417.indd 393 concepts are implemented 18/11/10 2:35 PM in organizations and how these concepts are applied to solve everyday business problems. First, “The Issue” is introduced through a dialogue; the student then walks through the implementation process; finally, “The Wrap-up” summarizes the big picture. xii Garrison Noreen Brewer gar11005_fm_i-xxxvi.indd xii 27/11/10 3:23 PM  Rev.Confirming Pages End-of-Chapter Material Applying Excel LEARNING OBJECTIVES 1, 2, 3, 4 Available with McGraw-Hill’s Connect™ Accounting. Managerial Accounting has earned a reputation for the best The Excel worksheet form that appears on the next page is to be used to recreate the Review Prob- lem on pages 398–399. Download the workbook containing this form from the Online Learning Center at www.mhhe.com/garrison14e. On the website you will also receive instructions about how to use this worksheet form. You should proceed to the requirements below only after completing your worksheet. end-of-chapter practice material of any text on the market. Required: 1. Check your worksheet by changing the revenue in cell D4 to $16.00; the cost of ingredients in cell D5 to $6.50; and the wages and salaries in cell B6 to $10,000. The activity variance ffor net operating i income i h ld now be should b $850 $ U andd the h spending di variance i f totall expenses for Our problem and case material continues to conform to should be $410 U If you do not get these answers find the errors in your worksheet and Exercises All applicable exercises are available with McGraw-Hill’s Connect™ Accounting. AACSB recommendations and makes a great starting point EXERCISE 9–1 Prepare a Flexible Budget [LO1] Gator Divers is a company that provides diving services such as underwater ship repairs to clients in the Tampa Bay area. The company’s planning budget for March appears below: for class discussions and group projects. When Ray Garrison Problems Gator Divers Planning Budget For the Month Ended March 31 All applicable problems are available with McGraw-Hill’s Connect™ Accounting. first wrote Managerial Accounting, he started with the end- gar11005_ch09_383-417.indd 400 PROBLEM 9–20 Activity and Spending Variances [LO1, LO2, LO3] You have just been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing sys- 18/11/10 2:35 PM tem and “do what you can to help us get better control of our manufacturing overhead costs.” You of-chapter material, then wrote the narrative in support of it. find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for April: This unique approach to textbook authoring not only ensured All applicable cases are available with McGraw-Hill’s Connect™ Accounting. Cases consistency between the end-of-chapter material and text CASE 2–25 Scattergraph Analysis; Selection of an Activity Base [LO4] Mapleleaf Sweepers of Toronto manufactures replacement rotary sweeper brooms for the large sweeper trucks that clear leaves and snow from city streets. The business is seasonal, with the largest demand during and just preceding the fall and winter months. Because there are so many different content but also underscored Garrison’s fundamental belief kinds of sweeper brooms used by its customers, Mapleleaf Sweepers makes all of its brooms to order. in the importance of applying theory through practice. It gar11005_ch09_383-417.indd 410 18/11/10 2:38 PM gar11005_ch02_024-082.indd 65 02/11/10 4:33 PM is not enough for students to read, they must also understand. To this A proven, comprehensive day, the guiding principle of that first edition remains, and Garrison’s text that effectively covers superior end-of-chapter material continues to provide accurate, current, important managerial and relevant practice for students. accounting topics. [The] end-of-chapter materials are In this edition, the authors have added a NEW end-of-chapter feature called gar11005_ch09_383-417.indd 402 18/11/10 2:35 PM second to none. Applying Excel. Applying Excel integrates key course concepts and Excel—a Jerry Kreuze, software students will encounter in the workplace, whether they go into Western Michigan University accounting or any other business major. With Applying Excel, students not only gain practice working with Excel software, they also learn how Excel can be used to present accounting data and how that data is interrelated. This text is a comprehensive and very readable For more information on this exciting new feature, please see page x. presentation of essential introductory managerial accounting topics. The end- of-chapter materials are excellent and enhance the chapter material. Darlene Coarts, University of Northern Iowa Managerial Accounting F our t e e nt h E di t i o n xiii gar11005_fm_i-xxxvi.indd xiii 27/11/10 3:23 PM  Rev.Confirming Pages Garrison’s Managerial Accounting is one of the most well-written Author-Written Supplements managerial accounting textbooks that I have Unlike other managerial accounting texts, the book’s authors write ever used or reviewed in all of the major supplements, ensuring a perfect fit between text my 30-year career as a and supplements. For more information on Managerial Accounting’s professor of management supplements package, see page xxi. accounting. The problem material is excellent, Instructor’s Manual the ancillary material Test bank is outstanding, and the Solutions Manual publisher support is Workbook/Study Guide unequaled. The on-line homework system is Utilizing the Icons superior to all that I have To reflect our service-based economy, the text is replete used or reviewed. with examples from service-based businesses. A helpful icon Olen L. Greer, Missouri State University distinguishes service-related examples in the text. This is a tremendously The IFRS icon highlights content that may be affected by well-organized and written the impending change to IFRS and possible convergence text that is full of real world between U.S. GAAP and IFRS. examples. Complex topics are explained in a simple and yet detailed fashion. Ethics assignments and examples serve as a reminder that Matt Muller, good conduct is vital in business. Icons call out content Adirondack Community College that relates to ethical behavior for students. This is still the best managerial accounting The writing icon denotes problems that require students to book out there for use critical thinking as well as writing skills to explain their accounting and non- decisions. accounting students! Alfred C Greenfield, Jr., An Excel icon alerts students that spreadsheet templates are High Point University available for use with select problems and cases. xiv Garrison Noreen Brewer gar11005_fm_i-xxxvi.indd xiv 27/11/10 3:24 PM  Rev.Confirming Pages New to the Fourteenth Edition Faculty feedback helps us continue to improve Managerial Accounting. In response to reviewer suggestions, the authors have made the following changes to the text: A NEW Applying Excel feature has been added to Chapters 2–13. Applying Excel gives students the opportunity to practice using Excel formulas to build their own worksheets. They are then asked a series of “what if” questions, all of which illustrate the relationship among various pieces of accounting data. The Applying Excel feature links directly to the concepts introduced in the chapter, providing students with an invaluable opportunity to apply what they have learned using a software they will use throughout their careers, whether they become an accountant or not. Chapter 1 has been completely overhauled to help all business students better understand why managerial accounting is relevant to their future careers. Chapter 2 has been extensively rewritten to include coverage of mixed costs and contribution format income statements. The redundant coverage of the schedule of cost of goods manufactured has been eliminated so that it is now only covered in the Job-Order Costing chapter. The comparison of financial and managerial accounting has been moved to Chapter 1. Chapter 14 This chapter has been completely overhauled to simplify the process of creating a statement of cash flows. New In Business boxes have been added throughout to provide relevant and updated real-world examples for use in classroom discussion and to support student understanding of key concepts as they read through a chapter. The end-of-chapter practice material has been updated throughout. Chapter 1 of cost of goods manufactured, which in previous editions was This chapter has been completely rewritten to better motivate all covered in Chapter 2 as well as the Job-Order Costing chapter. business students to take an interest in managerial accounting Now this topic is covered only once in the Job-Order Costing and to appreciate its relevance to their future careers. The chapter using normal costing principles. Second, we moved new version of Chapter 1 answers three questions: (1) What is the coverage of mixed costs, scattergraph plots, and the high- Managerial Accounting? (2) Why Does Managerial Accounting low method from the Cost Behavior chapter to Chapter 2. This Matter to Your Career? and (3) What Skills Do Managers Need enables instructors to introduce cost estimation earlier in the to Succeed? It also retains coverage of two topics important to course. The least-squares regression appendix has also been all managers: (1) ethics in business and (2) corporate social moved from the Cost Behavior chapter to Chapter 2. Third, responsibility. we moved coverage of traditional and contribution format income statements for merchandising companies from the Chapter 2 Cost Behavior chapter to Chapter 2. This enables instructors This chapter has been completely revised to achieve three to introduce contribution format income statements earlier objectives. First, we eliminated redundant coverage of the schedule in the course. Using merchandising companies as the initial Managerial Accounting F our t e e nt h E di t i o n xv gar11005_fm_i-xxxvi.indd xv 27/11/10 3:25 PM  Rev.Confirming Pages platform for comparing income statement formats provides an framework from the prior chapter and explains how it can be easily understood (student-friendly) introduction to this topic. used to break down spending variances into quantity and price The more complex arena of manufacturing cost accounting is variances. covered in later chapters such as the Job-Order Costing and Chapter 11 Variable Costing chapters. The Cost Behavior chapter has been This chapter has been renamed and reorganized. The new title completely eliminated given that its key learning objectives have is Performance Measurement in Decentralized Organizations. been transferred to Chapter 2. The appendix dealing with further It is now organized in three main sections. The first section classification of labor costs has been moved from Chapter 2 to discusses financial performance measures for investment the Job-Order Costing chapter. centers. The second section discusses nonfinancial operating Chapter 3 performance measures. The third section explains how the In this chapter, we adjusted the learning objectives to provide a balanced scorecard framework can be used to pull together more logical progression from computing an overhead rate (LO1), financial and nonfinancial measures into one strategy-driven to applying overhead cost to jobs (LO2), and then to computing performance measurement system. Also, the coverage of a job cost (LO3). We also added a cost formula approach to segmented income statements was moved to an earlier chapter. computing predetermined overhead rates. We were able to do Chapter 12 this because the high-low method is now covered in Chapter 2. The title of this chapter has been changed from Relevant Costs We deleted what were formerly learning objectives 1 and 2 for Decision Making to Differential Analysis: The Key to Decision from the prior edition of the book and incorporated an exhibit Making. This change acknowledges that revenues as well as formerly from Chapter 2 that provides a conceptual overview of costs can be relevant to decisions. We have also improved the manufacturing cost flows. discussion related to utilization of a constrained resource. The Chapter 6 prior edition of the book had one learning objective related to The coverage of variable and absorption costing has been this topic, whereas now we break down the discussion of this reorganized so that variable costing is discussed first, followed by topic into two learning objectives. The first learning objective absorption costing. Discussing variable costing first (rather than focuses on determining the most profitable use of a constraining absorption costing) is consistent with the title of the chapter, resource, and the second learning objective focuses on calculating which focuses on variable costing as a tool for management. the value of obtaining more of the constrained resource. We The coverage of segmented income statements has been moved expanded the discussion related to the latter learning objective. from Chapter 12 in the prior edition of the book to this chapter. Chapter 14 The common theme that now joins together the chapter’s two The chapter has been rewritten to simplify the process of main topics is the contribution format income statement. The preparing a statement of cash flows. We have added Exhibit 14–4, chapter now demonstrates how the contribution format is used which succinctly summarizes the main points that students for Variable Costing income statements and how it can be used need to understand to prepare a statement of cash flows and for segmented income statements. revised Exhibit 14–1 so that it provides a more student-friendly Chapter 10 definition of operating, investing, and financing activities than This chapter’s general model for standard cost variance analysis in previous editions. We have replaced the worksheet method has been reorganized to more clearly integrate with the variance with an approach that students can use to more efficiently analysis framework introduced in the prior chapter. The prior solve end-of-chapter problems and also replaced the two chapter introduces a framework for computing activity and walkthrou