## Horngren’s Cost Accounting: A Managerial Emphasis, Eighth Canadian Edition

By Srikant M Datar, Madhav V Rajan and Louis Beaubien

**Table of Contents**

Preface xix

PART ONE Cost Accounting Fundamentals 1

1 The Accountant’s Vital Role in Decision Making 1

iTunes Variable Pricing: Downloads Are Down, but Profits

Are Up Accounting Systems: Financial and Management

Accounting 2

Strategic Decisions and Management Accounting 3

Value-Chain and Supply-Chain Analysis and Key Success Factors 4

Value-Chain Analysis 4

Key Success Factors (KSF) 5

Sustainability in Action: Management Accounting

Beyond the Numbers

Decision Making, Planning, and Control: The Five-Step

Decision-Making Process 6

Key Management Accounting Guidelines and

Organization Structure 9

Cost-Benefit Approach 9

Behavourial and Technical Considerations 9

Different Costs for Different Purposes 9

Corporate Structure and Governance: Accountability,

Ethics, and Social Responsibility 10

Corporate Governance 11

Professional Ethics 11

Institutional Support 12

Corporate Social Responsibility (CSR) 13

Sustainability Accounting 14

Alternative Reporting 15

Pulling It All Together-Problem tor Self-Study 161 Decision

Points 171 Terms to Learn 171 Assignment Material 181 ShortAnswer

Questions 181 Exercises 181 Problems 20 I Collaborative

Learning Case 23

2 An Introduction to Cost Terms and

Purposes 24

High Fixed Costs and the Implications for Production

Costs and Cost Terminology 25

Commonly Used Classifications of

Manufacturing Costs 25

Direct Costs and Indirect Costs 26

Factors Affecting Direct/Indirect Cost

Classifications 2 7

Prime Costs and Conversion Costs 27

Cost-Behaviour Patterns: Variable Costs and Fixed

Costs 28

Variable Costs 28

Fixed Costs 28

Cost Drivers 30

Sustainability in Action: How Enterprise Carshare

Reduces Business Transportation Costs

Total Costs and Unit Costs 31

Unit Costs 31

Cost of Goods Sold and the Statement of

Comprehensive Income 32

Inventory Valuation and the Statement of Financial

Position 34

Types of Inventory 35

lnventoriable Costs 35

Period Costs 35

Illustrating the Flow of Inventoriable Costs: A

Manufacturing-Sector Example 36

lnventoriable Costs and Period Costs for a

Merchandising Company 39

Measuring and Classifying Costs Requires Judgment 40

Measuring Labour Costs 40

Decision Framework and Flexibility of Costing

Methods 41

Concepts in Action: Don’t Overcharge the

Government

Pulling It All Together-Problem for Self-Study 431 Decision

Points 441 Terms to Learn 441 Assignment Material 451 ShortAnswer

Questions 451 Exercises 451 Problems 511 Collaborative

Learning Cases 56

3 Cost- Volume- Profit Analysis 5 8

How Coachella Tunes Up the Sweet Sound of Profits

Essentials of CVP Analysis 59

CVP Analysis: An Example 60

Expressing CVP Relationships 62

Contribution Margin Percentage: Breakeven Point

in Revenue 64

Using CVP to Calculate a Target Operating

Income 64

Contribution Margin, Gross Margin, Operating

Margin, and Net Income Margin 65

Target Net Income and Income Taxes 66

Using CVP Analysis to Make More Complex Decisions 67

CVP Analysis for Decision Making 67

Decision to Advertise 67

Decision to Reduce Selling Price 68

Margin of Safety and Risk 68

Alternative Fixed- and Variable-Cost Structures 70

Operating Leverage 70

Sustainability in Action: Cost-Volume-Profit Analysis

Makes Subway’s $5 Foot-Long Sandwiches a

Success But Innovation Challenges Loom

Decision Models and Uncertainty 72

Role of a Decision Model 72

Expected Value 73

Effects of Sales Mix on Income 73

Multiple Cost Drivers 75

CVP Analysis in Non-Profit and Public Sector

Organizations 76

Pulling It All Together-Problem tor Self-Study 771 Decision

Points 80 I Terms to Learn 80 I Assignment Material 81 1 Short Answer

Questions 81 1 Exercises 811 Problems 871 Collaborative

Learning Cases 97

4 Job Costing 100

What Does It Cost To Do the Job?

Building Blocks of Costing Systems 101

Job-Costing and Process-Costing Systems 101

Job Costing: Evaluation and Implementation 102

Actual, Budgeted, and Normal Costing 103

Normal Costing 103

Additional Points ro Consider When Calculating

Job-Cost Allocation Rares 107

Concepts in Action: Job Costing on the

Next-Generation Military Fighter Plane

Actual Costing 108

A Normal Job-Costing System and Cost Flow 109

General Ledger 110

Explanations of Transactions 110

Subsidiary Ledgers 112

Budgeted Indirect Costs and End-of-Accounting-Year

Adjustments 115

Adjusted Allocation-Rate Approach 116

Proration Approach 117

~’rite-off to Cost of Goods Sold Approach 118

Choice Among Approaches 118

Variations from Normal Costing-Budgeted Costing: A

Service-Sector Example 118

Pulling it all Together-Problem for Self-Study 120 I Decision

Points 1221 Terms to Learn 1231 Assignment Material 1231

Short-Answer Questions 1231 Exercises 1231 Problem 1321

Collaborative Learning Cases 137

5 Activity-Based Costing

and Management 140

Accurate Assignment = Better Profit

Product Costing: Overcosting and Undercosting 141

Undercosting and Overcosting 141

Product-Cost Cross-Subsidization 141

Simple Costing System at Plastim Corporation 142

Design, Manufacturing, and Distribution

Processes 14 2

Overview of Plastim’s Simple Costing System 143

Applying the Five-Step Decision-Making Process at

Plastim 145

Guidelines for Refining a Costing System 146

Activity-Based Costing Systems 146

Plastim’s ABC System 147

Cost Hierarchies 149

Implementing Activity-Based Costing 150

Comparing Alternative Costing Systems 153

Considerations in Implementing Activity Based-

Costing Systems 154

ABC: The Foundation of ABM 154

Pricing and Product-Mix Decisions 155

Cost Reduction and Process Improvement

Decisions 155

Design Decisions 156

Sustainability in Action: Mayo Clinic Uses

Time-Driven Activity-Based Costing to

Reduce Costs and Improve Care

ABC in Service and Merchandising Companies 157

Pulling It All Together-Problem for Self-Study 1581 Decision

Points 1611 Terms to Learn 1621 Assignment Material 1621

Short-Answer Questions 1621 Exercises 1621 Problems 1701

Mini-Case 178

PART TWO Tools for Planning and

Control 181

6 Master Budget and Responsibility

Accounting 181

Budgets Communicate Choices

The Decision Framework and Budgets 182

Advantages of Budgets 183

Approaches to Budgeting 184

Operating and Strategic Performance

Assessment 185

Coordination and Communication 185

The Master Operating Budget 186

Time Coverage 186

Steps in Developing an Operating Budget 186

Basic Data and Requirements 188

Preparing a Master Operating Budget 190

Preparing the Cash Budget 198

Concepts in Action: Web-Enabled Budgeting and

Hendrick Motorsports

Preparation of the Cash Budget 201

Responsibility Versus Controllability 206

Organizational Structure and Responsibility 206

Feedback 207

Definition of Controllability 207

Emphasis on Information and Behaviour 208

Human Aspects of Budgeting 208

Sustainability in Action: 24 Hour Fitness and

Internet-Based Budgeting

Budgeting: A Process in Transition 209

Pulling It All Together-Problem for Self-Study 210

APPENDIX 6A: Three Budget Strategies:

Sensitivity Analysis, Kaizen Budgeting, and

Activity-Based Budgets 215

Decision Points 2181 Terms to Learn 2191 Assignment

Material 2191 Short-Answer Questions 2191 Exercises 220 I

Problems 2251 Mini-Case 235

7 Flexible Budgets, Variances, and

Management Control: I 241

Keeping It Real

The 5 DM Framework and Variance Analysis 242

Static and Flexible Budgets 242

The Costing System at Webb Company 243

Static-Budget Variances 244

Developing a Flexible Budget from Cost Data 246

Flexible-Budget Variances and Sales-Volume

Variances 246

Direct Variable Rate and Efficiency Variances 249

An Illustration of Rate and Efficiency Variances for

Inputs 250

Rate Variances 252

Efficiency Variances 252

Presentation of Rate and Efficiency Variances for

Inputs 254

Flexible Budgeting and Activity-Based Costing 256

Relating Batch Costs to Product Output 256

Rate and Efficiency Variances 257

Focus on Hierarchy 258

Managerial Uses of Variance Analysis 258

Performance Evaluation 258

Financial and Nonfinancial Performance

Measures 259

Sustainability in Action: Sustainability and Variance

Analysis

When to Investigate Variances 260

Continuous Improvement 260

Concepts in Action: Starbucks Reduces Direct-Cost

Variances to Brew a Turnaround

Impact of Inventories 262

Pulling It All Together-Problem for Self-Study 262

APPENDIX 7k Budgets, Benchmarks, and Standards 264

APPENDIX 78: Mix and Yield Level 4 Variances for

Substitutable Inputs 269

Decision Points 2741 Terms to Learn 2751 Assignment

Material 2751 Short-Answer Questions 2751 Exercises 2761

Problems 280 I Mini-Cases 287

8 Flexible Budgets, Variances, and

Management Control: II 290

Tracking Performance

Flexible-Budget MOH Cost Variances 291

Planning for Overhead Costs 292

Assigning Fixed Manufacturing Overhead

At Webb 293

Fixed Overhead Cost Variance Calculation and

Analysis 293

Production-Volume Variance Calculation and

Analysis 295

Journal Entries for Fixed Overhead Costs and

Variances 297

Concepts in Action: Cost Allocation Base Denominator

Decision: There Is a Right Way

Sustainable Overhead 299

Flexible-Budget Variable Overhead Variances 300

Variable Overhead Cost Variance Calculations and

Analyses 300

Level 2 Variable Manufacturing Overhead Variance

Analysis 301

Level 3 Variable Manufacturing Overhead Rate and

Efficiency Variances 302

Journal Entries for Variable Overhead Costs and

Variances 304

Activity-Based Costing and Variance Analysis 306

ABC Variance Analyses 306

ABC Variance Analysis for Fixed Manufacturing

Overhead Cost 308

Summary of All Overhead Cost Variances 309

Concepts in Action: Interdependencies and Shared

Benefits

Non-manufacruring Variance Anal)•sis 312

Nonfinancial Performance Measures 312

Pulling It All Together-Problem for Self-Study 3151 Decision

Points 3171 Terms ta Learn 3181 Assignment Material 3181

Short-Answer Questions 3181 Exercises 3181 Problems 3231

Mini-Case 331

9 Income Effects of Denominator Level

on Inventory Valuation 332

Capacity-Level Choices

Denominator Levels: A Complex Decision wirh

Complex Effects 333

The Decision Framework and Denominator

Choice 335

Sustainability in Action: Sustainability

Rying High

Effecrs on Reporting, Cosring, Pricing, and

Evaluarion 337

Produce Costing 340

Produce Pricing: rhe Downward Demand

Spiral 341

Concepts in Action: Denominator-Level Choice Reflects

Recoverable Costs in Strategic Pricing

Performance Evaluation 342

Capacity Decisions and Denominaror-Level

Issues 343

Inventory Valuation: Variable and Absorption

Costing 343

Variable Costing 343

Absorption Costing 343

Comparing Variable and Absorption Costing 344

Variable vs. Absorprion Cosring: Operating Income and

Income Sraremenrs 345

Comparing Income Sraremenrs for One Year 345

Comparing Income Sraremenrs for Multiple Years 347

Concepts in Action: Capacity at Nissan

Variable Costing and the Effect of Sales and

Production on Operating Income 351

Explaining Differences in Operating Income 352

Effect of Sales and Production on Operating

Income 352

Performance Evaluation: Undesirable Buildup of

Inventories 354

Pulling It All Together-Problem for Self-Study 358 I Decision

Points 357

APPENDIX 9A: Throughput Super-Variable Costing 358

APPENDIX 98: Breakeven ~der Two Costing Policies 361

Terms to Learn 3621 Assignment Material 3621 Short-Answer

Questions 363 I Exercises 3631 Problems 3671 Collaborative

Learning Cases 3741 Mini-Case 375

PART THREE Cost Information for

Decisions 377

10 Analysis of Cost Behavior 377

Cisco Understands Its Costs While Helping the

Environment

Basic Assumptions and Examples of Cost

Functions 378

Basic Assumptions 378

Linear Cost Functions 378

Cost Classification: Choice of Cost Object 379

The Cause-and-Effect Criterion 380

Cost Drivers and the Decision-Making Process 381

Cost Estimation Methods 381

Industrial Engineering Method 381

Conference Method 382

Account Analysis Method 382

Quantitative Analysis Method 383

Seeps in Estimating a Cost Function Using Quantitative

Analysis 383

The High-Low Method Compared co Regression

Analysis 385

Nonlinear Cost Functions 387

Time as a Competitive Tool 388

Customer-Response Time and On-Time

Performance 388

Bottlenecks and “Time Drivers 389

Concepts in Action: Netflix Works to Overcome

Internet Bottlenecks

Relevant Revenues and Costs of Delays 392

Balanced Scorecard and Time-Based Measures 394

Quality as an Element of Cost 396

Analyzing Quality: Nonfinancial Measures 398

Concepts in Action: What Does It Cost to Send a Text

Message?

Data Collection and Adjustment Issues 401

Pulling it all Together-Problem tar Self-Study 402

APPENDIX 1OA: Regression Analysis 405

APPENDIX 10B: Learning Curves 414

Decision Points 4181 Terms ta Learn 4191 Assignment

Material 420 I Short-Answer Questions 420 I Exercises 420 I

Problems 4251 Collaborative Learning Cases 431

11 Decision Making and Relevant

Information 43 7

Relevant Costs, Porter, and Twitter

Relevant Information and Decision Making 438

The Concept of Relevance 4 38

Relevant Costs and Relevant Revenues 438

Quantitative and Qualitative Information 440

Output Level Changes: Short- and Long-Term

Decisions 441

Outsourcing-Make or Buy-and Idle Facilities 442

Potential Problems in Relevant-Cost Analysis 445

Sustainability in Action: Starbucks Sustains

Opportunity Costs and Outsourcing 447

The “Total-Alternatives” Approach 44 7

The Opportunity-Cost Approach 44 7

The Carrying Costs of Inventory 449

Product Mix Decisions 451

The Theory of Constraints 452

Irrelevance of Past Costs and Equipment Replacement

Decisions 454

Decisions and Performance Evaluation 456

APPENDIX 11 A: Linear Programming 4 5 7

APPENDIX 11 B: Using Excel Solver 460

Pulling it all Together-Problem for Self-Study 4651 Decision points

467 Terms to Learn 467 Assignment Material 4681 Short-Answer

Questions 4681 Exercises 4681 Problems 4741 Collaborative

Learning Cases 480

12 Pricing Decisions: Profitability and Cost

Management 485

Extreme Pricing and Cost Management at IKEA

Major Influences on Pricing 486

Costing and Pricing for the Short Run 487

Relevant Costs for Short-Run Pricing Decisions 487

Strategic and Other Factors in Short-Run

Pricing 487

Effect of ‘lime Horizon on Short-Run Pricing

Decisions 488

Costing and Pricing for the Long Run 488

Calculating Product Costs for Long-Run Pricing

Decisions 488

Target Costing for Target Pricing 491

Understanding Customers’ Perceived Value 491

Competitor Analysis 491

Sustainability in Action: H&M Uses Target Pricing to

Bring Fast Fashion to Stores Worldwide

Implementing Target Pricing and Target Costing 492

Value-Analysis and Cross-Functional Teams 493

Cost-Plus Pricing 496

Concepts in Action: Operating Income Analysis

Reveals Strategic Challenges at Best Buy

Alternative Cost-Plus Methods 497

Cost-Plus Pricing Contrasted Against Target Pricing 499

Fixed and Variable Cost Coverage 499

Life-Cycle Costing and Relevant Qualitative Factors in

Pricing 499

CONTENTS e XIII

Developing Life-Cycle Reports 501

Conducting Fair Business and Pricing Decisions 501

Managing Environmental and Sustainability Costs 504

Pulling it all Together-Problem for Self-Study 505 Decision

points 508 Terms to Learn 508 Assignment Material 509 Short Answer

Questions 509 Exercises 509 Problems 516 Collaborative

Learning Case 520

13 Strategy, the Balanced Scorecard, and

Profitability Analysis 523

Barclays Tums to the Balanced Scorecard

Five Forces Analysis to Define Strategic Altematies 524

The Decision Framework Applied to Chipset’s Strategy 526

Strategy Maps and the Balanced Scorecard 527

Balanced Scorecard: Measures of Performance 529

Four Perspectives of the Balanced Scorecard 529

Concepts in Action: Balanced Scorecard Helps Infosys

Transform into a Leading Consultancy

Nonfinancial BSC Measures at Chipset 532

Implementing a Balanced Scorecard 533

Features of a Good Balanced Scorecard 534

Pitfalls When Implementing a Balanced Scorecard 535

Strategic Analysis of Operating Income 535

The Growth Component 537

The Price-Recovery Component 538

The Productivity Component 539

Further Analysis of Growth, Price-Recovery, and

Productivity Components 540

Specific Productivity Improvement Measures 542

Calculating and Comparing Total Factor

Productivity 543

Downsizing and the Management of Processing

Capacity 544

Engineered and Discretionary Costs 544

Identifying Unused Capacity for Engineered and

Discretionary Overhead Costs 545

Managing Unused Capacity 545

Pulling it all Together-Problem for Self-Study 5461 Decision

Points 5491 Terms to Learn 550 I Assignment Material 550 I

Short-Answer Questions 550 I Exercises 550 I Problems 5551

Collaborative Learning Cases 558

PART FOUR Cost Allocation and

Revenues 562

14 Period Cost Application 562

Good Period Overhead Cost-Application Methods Improve

Management Decisions

Purposes of Cost Allocation 563

Four Possible Purposes 564

Criteria to Guide Cost-Allocation Decisions 564

Deciding Between Single- and Dual-Rate Cost

Methods 566

Single-Rate and Dual-Rate Methods 566

Allocation Based on the Demand for {or Usage of)

Computer Services 568

Allocation Based on the Supply of Capacity 569

Single-Rate Versus Dual-Rate Method 570

Budgeted Versus Actual Costs, and the Choice of

Allocation Base 571

Budgeted Versus Actual Rates 572

Budgeted Versus Actual Usage 572

Manufacturing Overhead Cost Allocation Methods

Are Irrelevant 574

Sustainability in Action: Urban Allocation Decisions

Deciding Among Direct, Seep-Down, and Reciprocal

Cost Allocation Methods 575

Relevance 575

Direct Method 576

Step-Down Method 577

Reciprocal Method-Linear Equation and Solver 579

Allocating Common Costs 583

Stand-Alone Cost Allocation Method 584

Incremental Cost Allocation Method 584

Justifying Reimbursement Costs 585

Contracting 585

Fairness of Pricing 586

Pulling it all Together- Problem for Self-Study 586 1

Decision Points 5881 Terms to Learn 5891 Assignment

Material 5891 Short-Answer Questions 590 I Exercises 590 I

Problems 595

15 Cost Allocation: Joint Products and

Byproducts 605

Challenges of Joint Cost Allocation

Joint-Cost Basics 606

Approaches to Allocating Joint Cost 608

Physical Measure Method 609

Sales Value at Split off Method 611

Two More Methods to Allocate Joint Cost 612

Nee Realizable Value {NRV) Method 613

Constant Gross Margin Percentage of NRV

Method 615

Comparison of the Four Methods 615

Irrelevance of Joint Costs for Decision Making 617

Sell or Process Further? 618

Challenges for Management Accountants 619

Sustainability in Action: Overcoming the Challenges

of Joint Cost Allocation

Accounting for Byproducts 620

Method A: Byproducts Are Recognized ~Then

Production Is Completed 622

Method B: Byproducts Are Recognized at

Time of Sale 623

Pulling it all Together– Problem for Self-Study 6241 Decision

Points 6261 Terms to Learn 6261 Assignment Material 6271

Short-Answer Questions 6271 Exercises 6271 Problems 6331

Collaborative Learning Cases 637

16 Revenue and Customer Profitability

Analysis 640

Revenue

Revenue Allocation and Bundled Produces 641

Sustainability in Action: Revenue Allocation by the

Government and First Nations

Deciding on a Revenue-Allocation Method 642

Stand-Alone Revenue-Allocation Methods 643

Incremental Revenue-Allocation Method 644

Ocher Revenue-Allocation Methods 64 7

ABC: The Cost Object is the Customer 647

Customer ABC Analysis 64 7

Contribution Margin Variance Analyses 651

Static-Budget Contribution Margin

Variance 653

Flexible-Budget and Sales-Volume Contribution

Margin Variances 653

Sales-Mix and Sales-Quantity Contribution Margin

Variances 656

Market-Share Variance 658

Marker-Size Contribution Margin

Variance 659

Concepts in Action: Variance Analysis

and Standard Costing Help Sandoz

Manage Its Overhead Costs

Customer Profitability Analysis 662

Assessing Customer Value 663

Customer Mix Analysis 664

Drop a Customer 665

Add a Customer 666

Drop or Add Branches 667

Pulling it all Together– Problem for Self-Study 6681 Decision

Points 6691 Terms to Learn 670 I Assignment Material 670 I

Short-Answer Questions 670 I Exercises 6711 Problems 6741

Collaborative Learning Case 686

17 Process Costing 691

Allocation Affects Net Income-Reliable Estimates Are

Important

Process Costing and Decision Making 692

Process Costing: Alternative Methods 694

Concepts in Action: NI 52-109-lnternal Control System Design

Weighted-Average Method with no Beginning WIP

Inventory 696

Global Defence-Ending WIP Inventory Valuation

Using the Weighted-Average Method 698

Journal Entries 700

Weighted-Average Method with Beginning and Ending

WJP Inventory 702

First-In, First-Out and Standard-Cost Methods 705

Comparing Weighted-Average and Fifo Methods 709

Computations Under Standard Costing 710

Accounting for Variances 712

Hybrid-Costing Systems 712

Sustainability in Action: Hybrid Costing for Under Armour 3D Printed Shoes

Transferred-in Costs in Process Costing 714

Transferred-in Costs and the Weighted-Average

Method 715

Transferred-in Costs and the FIFO Method 717

Common Mistakes with Transferred-in Costs 720

Pulling it all Together-Problem for Self-Study 7211 Decision

Points 7221 Terms to Learn 7231 Assignment Material 7231

Short-Answer Questions 7231 Exercises 7241 Problems 7281

Collaborative Learning Cases 732

18 Spoilage, Rework, and Scrap 737

Airbag Rework Sinks Honda’s Record Year

Defining and Accounting for Spoilage, Rework, and

Scrap 738

Spoilage in Process Costing Using Weighted-Average

and FIFO 740

Count All Spoilage 740

Five-Step Procedure for Process Costing with

Spoilage 741

Weighted-Average Method and Spoilage 742

FIFO Method and Spoilage 742

Sustainability in Action: Managing Waste and

Environmental Costs at Toyota

Journal Entries 746

Inspection Points and Allocating Costs of Normal

Spoilage 746

Job Costing and Spoilage 749

Reworked Units and Scrap 751

Normal Rework Common to All Jobs 751

Accounting for Scrap 752

Recognizing Scrap at the Time of Sale 752

Recognizing Scrap at the Time of Production 753

Pulling it all Together-Problem for Self-Study 7541 Decision

Points 755

APPENDIX 1 BA: Standard-Costing Method and SpoiIage 7 5 6

Terms to Learn 7591 Assignment Material 7591 Short-Answer

Questions 7591 Exercises 7591 Problems 7631 Collaborative

Learning Case 768

PART FIVE Control and Budgeting

Strategies 771

19 Inventory Cost Management Strategies 771

VW Adjusts Production

Inventory Management 772

Costs Associated with Goods for Sale 772

Economic Order Quantity Procurement Model 773

When to Order, Assuming Cercainry 775

Safety Stock 776

Just-in-Time Procurement and EOQ Model

Parameters 777

Concepts in Action: Overcoming Wireless Data

Bottlenecks

Challenges in Supply-Chain Cost Management 779

Estimating Relevant Costs of a Supply Chain 779

Cost of a Prediction Error 780

Goal-Congruence Issues 781

Relevance and the JIT Strategy of Supply-Chain

Management 781

Performance Measures and Control 784

Inventory Management: MRP and ERP 784

Enterprise Resource Planning {ERP) Systems 785

Backflush Costing 785

Simplified Normal or Standard Costing 786

Accounting for Variances 789

Special Considerations in Backflush Costing 793

Sustainability in Action: Inventory Management as

Strategy

Lean Accounting 794

Pulling it all Together-Problem for Self-Study 7961 Decision

Points 7981 Terms to Learn 7981 Assignment Material 7991

Short-Answer Questions 7991 Exercises 7991 Problems 8031

Collaborative Learning Case 809

20 Capital Budgeting: Methods of

Investment Analysis 811

Cedar Fair Entertainment Company and Capital

Investments

Capital Budgeting and Decision Making

{5DM Approach) 812

A Note on Sources of Capital and Timing of

Investments 814

Discounted Cash Flows and the ‘lime Value of Money 814

Net Present Value Method 815

Internal Rate of Return Method 817

Comparison of Net Present Value and Internal Rate

of Return Methods 818

Sensitivity Analysis 819

Income Tax and DCF in Capital Budgeting 820

Tax Shields and the Effect on Investment

Cash Flows 820

Relevant Information and DCF 822

Sustainability in Action: Capital Budgeting for

Sustainable Business

Non-DCF Methods in **Capital Budgeting** 826

Payback Period 826

Accrual Accounting Rate of Return 828

Strategic Factors in Capital Budgeting Decisions 829

Customer Value and Capital Budgeting 830

Concepts in Action: Capital Budgeting at Disney

lnvestment in Research and Development 831

Capital Budgeting and Control: Evaluation and

Application 831

Management Control: Performance Evaluation 831

Management Control: The Investment

Activity 832

Management Control: The Post-Investment

Audit 832

Pulling it all Together-Problem for Self-Study 8341 Decision

Points 836

APPENDIX 20A: Capital Budgeting and Inflation 83 7

APPENDIX 208: The Weighted Average Cost of

Capital 839

Tenns ta Learn 8411 Assignment Material 8411 Short-Answer

Questions 8411 Exercises 8421 Problems 8511 Collaborative

Learning Cases 855

21 Transfer Pricing and Multinational

Management Control Systems 859

Software Multinationals and Transfer Pricing

Management Control Systems 860

Formal and Informal Systems 860

Effective Management Control 860

Organizational Structure and Decentralization 861

Decentralization in Multinational Companies 861

Decisions About Responsibility Centres 862

Concepts in Action-Strategy: Transfer-Pricing

Dispute Temporarily Stops the Flow of Fiji

Water

Transfer Pricing 863

Alternative Transfer-Pricing Methods 864

Criteria for Evaluating Transfer Prices 864

Concepts in Action-Strategy: US$3.4 Billion Is an

Incentive

Transfer Pricing in Practice 865

Interprovincial Transfers and Taxes 868

Market-Based Transfer Prices 868

Distress Prices 869

Cost-Based and Negotiated Transfer Prices 869

Full-Cost Bases 869

Variable Cost Bases 870

Prorating the Difference Between Minimum and

Maximum Transfer Prices 871

Negotiated Transfer Prices and MNC Issues 871

Dual Pricing 872

A General Guideline for Transfer-Pricing

Situations 873

Multinational Corporation (MNC) Transfer Pricing and

Tax Considerations 874

Concepts in Action: India Calls Vodafone on

Transfer-Pricing Policy

Pulling it all Together- Problem for Self-Study 8761 Decision

Points 8791 Terms to Learn 880 I Assignment Material 880 I

Short-Answer Questions 880 I Exercises 8811 Problems 8871

Collaborative Learning Cases 890

22 Multinational Performance Measurement

and Compensation 893

Qualitative and Nonfinancial Measures Are Relevant

Financial and Nonfinancial Performance

Measures 894

Governance and Compensation Decisions 894

Concepts in Action: BP Shareholders Fight to Reject

CEO’s Pay Package

Accounting Performance Measures 898

Return on Investment 899

Residual Income 901

Sustainability in Action: Analysis of Operating Income

Uncovers Strategies to Improve Profitability and

Sustainability

Economic Value Added 903

Return on Sales 904

Comparing Performance Measures 904

Selecting the Time Horizon 905

Defining “Investment” 906

Evaluating Performance Measurement Alternatives 907

Current Cost 907

Long-Term Assets: Gross or Net Book Value? 909

Selecting Performance Goals 910

Selecting the Level of Relevance-The Timing of

Feedback 910

Performance Measurement in Multinational

Companies 910

Calculating the Foreign Division’s ROI in the Foreign

Currency 911

Calculating the Foreign Division’s ROI in Canadian

Dollars 911

Levels of Analysis Differ Between Managers and

Subunits 912

Benchmarks and Relative Performance Evaluation 913

Executive Performance Measures and Compensation 914

Team-Based Compensation Arrangements 915

Executive Compensation Arrangements 916

Strategy and Levers of Control 917

Concepts in Action-Governance: Courage Boundaries

and Beliefs Pulling it all Together-Problem for Self-Study 919 Decision

Points 921 Terms to Learn 921 Assignment Material 921

Short-Answer Questions 922 Exercises 922 Problems 928

Collaborative Learning Cases 934

Appendix A Notes on Compound Interest and Interest

Tables 937

Glossary 943

Name Index 959

Subject Index 965