8TH EDITION
DON R. HANSEN
Oklahoma State University
•
•
•
MARYANNE M. MOWEN
Oklahoma State University
Managerial Accounting, Eighth Edition
Don R. Hansen, Maryanne M. Mowen
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The eighth edition of Hansen & Mowen’s Managerial Accounting introduces students to the fundamentals of management accounting. Though it is assumed that students have been introduced to the basics of financial accounting, extensive knowledge of financial accounting is not needed. The emphasis is on the use of accounting infor-mation in today’s business environment, so this text provides coverage of the most cutting edge topics and developments in the field. Thus, the text should be of value to students with a variety of backgrounds. Although written to serve undergraduates, the text has been used successfully at the graduate level. There is sufficient variety in the assignment material to accommodate both undergraduate and graduate students.
Many business school students who are required to take a course in manage-ment accounting are not accounting majors. For these students, it is often difficult to appreciate the value of the concepts being taught. Managerial Accounting, 8e, over-comes this attitude by using introductory chapter scenarios based on real-world set-tings, photos illustrating practical applications of management accounting concepts, and realistic examples illustrating the concepts within the chapters. Seeing that effec-tive management requires a sound understanding of how to use accounting informa-tion should pique the interests of both accounting and nonaccounting majors.
One major area of improvement for this edition has been to enhance the quality and quantity of end-of-chapter material. As a result of extensive focused reviewing and analysis, the end-of-chapter material now offers several activities by level of dif-ficulty for each learning objective to ensure that students will have plenty of oppor-tunity to practice the concepts they learn in the chapter. The end-of-chapter activities are unmatched by any text on the market.
We are confident that this innovative managerial accounting text will prepare your students to perform at their best. The new edition will ensure stronger student performance and ongoing satisfaction with your managerial accounting course.
NEW Features of the Eighth Edition
The eighth edition now offers even more to ensure you and your students experience a higher level of performance in managerial accounting, including:
The Most Current Coverage of Contemporary Topics.
A new entire chap-ter on Activity-Based Management (Chapchap-ter 5), a new chapchap-ter covering LeanAccounting (Chapter 16), and a new appendix on Joint Product Costing (after Chap-ter 7) in this edition dedicate significant attention to the most current issues in managerial accounting today. New materials on simplifying ABC are also introduced in Chapter 4.
Streamlined, Reorganized Table of Contents.
We have streamlined, reor-ganized, and carefully tailored this edition’s contents to reflect the way your students best learn contemporary and traditional managerial accounting topics. Special topics are now grouped together in the last part of the text to enhance understanding.Variety and Strength in End-of-Chapter Problems and Exercises.
Based on detailed reviewer feedback, exercises and problems now offer more variety and are clearly classified both by level of difficulty and by corresponding learning objectives for your ease in selecting appropriate assignments for each class. All end-of-chapter materials directly correspond to AACSB and CMA standards to ensure stu-dent comprehension and positive outcomes. Furthermore, there are a significant number of new and revised exercises and problems in each chapter.
iv
Connection throughout Chapter-Opening Scenarios.
New chapter-opener cases now introduce a fictional company that is referenced throughout each chapter to connect and illustrate major chapter concepts. These cases provide a focused look at how each chapter’s managerial accounting concepts apply to today’s business world.New! Ethical Insights Boxes.
Important ethical concepts capture student interest, assist in retaining critical managerial accounting topics, and show students how to learn from ethical dilemmas as they prepare for CPA and CMA exams. These are identified by a marginal icon.New! Managers Decide Decision-Making Boxes.
This edition’s new emphasis on decision-making throughout each chapter challenges students to apply what they learn in a decision context and shows the relevance of managerial accounting concepts to the real business world.NEW! ThomsonNOW™ for Managerial Accounting.
This outcomes-driven, integrated online learning and course management system provides the ultimate in flexibility and ease of use with the results you want NOW to support your course goals and ensure positive student performance. You’ll save time as you efficiently teach and reinforce content with an integrated eBook, interactive learning tools, and personalized study plans; test with an algorithmic test bank; and grade results based on AACSB and CMA accreditation standards.Hallmark Features
We have also retained those features that have made this text successful through seven editions:
Integrated Strategic Cost Management Concepts.
An emphasis on budg-eting, ABM, and decentralization keeps materials relevant and prepares today’s stu-dents for situations they will encounter.Unique Environmental Cost Management Chapter.
Introduce your stu-dents to the emerging field of environmental cost management with new, actual examples that demonstrate the value of environmental cost management as they show how managers can reduce costs by implementing environmentally conscious processes.New E-Commerce Coverage in First Chapter.
A new section presented early in this edition (within Chapter 1) overviews the impact of e-commerce on today’s management accounting issues.Integrated Strategic Cost Management Concepts.
An emphasis through-out this edition on budgeting, ABM, and decentralization keeps the materials rele-vant to situations encountered in the business world.Integrated Coverage of Contemporary and Traditional Topics.
This edition introduces the latest costing techniques alongside more traditional topics to help students see the advantages and disadvantages of a traditional cost manage-ment system versus cost managemanage-ment systems that include practices such as ABC, ABM, target costing, and the Balanced Scorecard. Coverage of both traditional and contemporary topics helps ensure that students are well prepared to work in a vari-ety of business environments.Integrated Use of Spreadsheets.
To accurately reflect industry practice, this edition illustrates key managerial techniques, such as regression, using spreadsheets rather than cumbersome manual calculations.International Coverage.
A full chapter (Chapter 18) highlighting international issues, as well as numerous international examples integrated throughout the text, emphasizes the critical importance of this topic.v
Simplified Budgeting Coverage.
A simpler example more clearly illustrates important budgeting concepts in this edition.Least Squares Regression Manual Computation.
Coverage of manual computation of regression coefficients helps students understand the technical and theoretical concepts underlying ordinary least squares analysis.Ethics Coverage.
As with previous editions, the eigthth edition emphasizes the study of ethical conduct for management accountants. The role of ethics is discussed in Chapter 1, and the Statement of Ethical Professional Conduct developed by the Institute of Management Accountants is introduced. The impact of the Sarbanes-Oxley Act and its ethics requirements for publicly traded companies is discussed. Chapter 1 has several substantive problems on ethics, and subsequent chapters have at least one problem or case involving an ethical dilemma. These problems allow the instructor to introduce value judgments into management accounting decision making. Chapter 14, dealing with international issues in management accounting, also has a section that discusses ethics in the international environment.Real-World Emphasis.
The eighth edition incorporates real-world applications of management accounting concepts, making the study of these concepts more familiar and interesting to the student. Real-company examples are incorporated throughout. Names of real companies are highlighted throughout the text for easy identification and are listed in a company index at the back of the text. Photos are included to help students relate to the real-world nature of management accounting.Increased Coverage of Service Industry.
Service businesses are experienc-ing unprecedented growth in today’s economy. Managers of service businesses often use the same management accounting models as manufacturers, but they must adapt them to their own unique situations of providing intangibles to consumers. To address this need, many service industry applications are included in the eighth edition. In addition, many real-company examples of service businesses are given.Chapter Organization and Structure
Each chapter is carefully structured to help students focus on important concepts and retain them. Components found in each chapter include:
Learning Objectives.
Each chapter begins with a set of learning objectives to guide students in their study of the chapter. These objectives outline the organiza-tional flow of the chapter and serve as points of comprehension and evaluation. Learning objectives are tied to specific sections of topic coverage within the chapter. They are repeated in the margin at the beginning of the corresponding chapter cov-erage and are summarized at the end of the chapter.Summary of Learning Objectives.
Each chapter concludes with a compre-hensive summary of the learning objectives. Students can review and test their knowledge of key concepts and evaluate their ability to complete chapter objectives.Scenario.
An interesting, real-world scenario opens each chapter. The scenario ties directly to concepts covered in the chapter and helps students relate chapter topics to actual business happenings. “Questions to Think About,” critical-thinking ques-tions that appear at the end of each scenario, are designed to pique student interest in the chapter and stimulate class discussion.Key Terms.
Throughout each chapter, key terms appear in bold font for quick identification. A list of key terms, with page references, is presented at the end of each chapter to provide additional reinforcement. All key terms are defined in a comprehensive glossary at the end of the text.Review Problems.
Each chapter contains at least one review problem with the accompanying solution provided. These review problems demonstrate the applica-tion of major concepts and procedures covered in the chapter.vi
Questions for Writing and Discussion.
Approximately 15 to 25 short-answer questions appear at the end of each chapter to test students’ knowledge of chapter concepts. Many of the questions call for students to use critical thinking and written and oral communication skills. Several questions can be used to stimulate class par-ticipation and discussion.Exercises and Problems.
Exercises and problems are correlated by learning objectives, listed in the margin below the exercise and problem titles. A document showing correlations of each end of chapter activity by level of difficulty, learning objective, and AACSB and CMA learning outcomes standards is available on the free website. Exercises and problems adapted from past CMA exams are designated with a margin icon.Exercises.
Exercises usually emphasize one or two chapter concepts and can be completed fairly quickly (30 minutes maximum). Exercises require basic application and computation and often ask students to interpret and explain their results.Problems.
Each chapter contains many end-of-chapter problems, with varying degrees of length and difficulty. Problems usually have more than one issue and present challenging situations, complex computations, and interpretations.Managerial Decision Cases.
Most chapters contain at least two cases. Cases have greater depth and complexity than problems. They are designed to help stu-dents integrate multiple concepts and further develop their analytical skills. Several cases deal with ethical behavior.Research Assignments.
Research assignments appear in all chapters (except Chapter 1), allowing students to expand their research and communication skills beyond the classroom. One research assignment in each chapter, labeled “Cyber-case,” requires the student to research information on the Internet.Check Figures.
Key figures for solutions to selected problems and cases are pro-vided at the end of the text as an aid to students as they prepare their answers.Chapter by Chapter Changes
Chapter 1
Added material on Sarbanes-Oxley (SOX) and ethics requirements for publicly-traded companies. Added section on corporate codes of conduct mandated by SOX.Chapter 4
New materials on simplifying ABC have been added.Chapter 5
This is a newly named and formed chapter with some new material and some elements previously found in other chapters; consolidating materials per-taining to activity-based management (ABM).Chapter 6
Major revision due to the combining of two previous chapters on job-order costing and process costing.Chapter 7
Added appendix on joint product costing.Chapter 10
Combines two previous chapters into one. Includes absorption and variable costing, segmented reporting, investment center performance evaluation, and transfer pricing.Chapter 16
Half of this chapter is brand-new material focusing on lean manufac-turing and lean accounting. Value streams, pull manufacmanufac-turing, lead times, forms and sources of waste, value stream costing, value stream reporting, value stream reporting, and value-stream performance measurement are examples of topics discussed.vii
Ancillaries
Instructor’s Manual,
0-324-37717-7 (Prepared by Scott Colvin, Naugatuck Val-ley Community Technical College). The instructor’s manual contains a complete set of lecture notes for each chapter and a transition guide for the seventh edition of Management Accounting, as well as other widely used management accounting texts.Solutions Manual,
0-324-64499-X (Prepared by Don Hansen and Maryanne Mowen, Oklahoma State University). The solutions manual contains the solutions for all end-of-chapter questions, exercises, problems, and cases. Solutions have been verified multiple times to ensure their accuracy and reliability.Test Bank,
0-324-37622-7 (Prepared by Jane Stoneback, Central Connecticut State University). Revised for the eighth edition, the test bank offers multiple-choice prob-lems, short probprob-lems, and essay problems. Designed to make exam preparation as convenient as possible for the instructor, each test bank chapter contains enough questions and problems to permit the preparation of several exams without repeti-tion of material. All quesrepeti-tions are identified by level of difficulty, learning objective, and AACSB and CMA learning outcomes standards.ExamView
®Testing Software.
This supplement, included on the Instructor’sResource CD-ROM, contains all of the questions in the printed test bank. This pro-gram is an easy-to-use test creation software compatible with Microsoft Windows. Instructors can add or edit questions, instructions, answers, and select questions (randomly or numerically) by previewing them on the screen. Instructors can also create and administer quizzes online, whether over the Internet, a local area network (LAN), or a wide area network (WAN).
Spreadsheet Templates.
Spreadsheet templates using Microsoft Excel are avail-able for downloading from the product support website. These templates provide outlined formats of solutions for selected end-of-chapter exercises and problems. These exercises and problems are identified with a margin symbol. The templates allow students to develop spreadsheet and “what-if” analysis skills.PowerPoint Slides
(Prepared by Gail Wright, Bryant University). Selected trans-parencies of key concepts and exhibits from the text are available in PowerPoint presentation software. Available on the Instructor’s Resource CD-ROM or the prod-uct support website.Instructor’s Resource CD-ROM,
0-324-23493-7. Key instructor ancillaries (solutions manual, instructor’s manual, test bank, ExamView®, and PowerPoint®slides) are provided on CD-ROM, giving instructors the ultimate tool for customiz-ing lectures and presentations.
Product Website
(http://thomsonedu.com/accounting/hansen). A website designed specifically for Managerial Accounting, 8e includes online and download-able instructor and student resources. The website features an interactive study center organized by chapter, with learning objectives, Web links, glossaries, and online quizzes with automatic feedback.ThomsonNOW
TM Make the most of your course with ThomsonNOW™ forHansen & Mowen Managerial Accounting, 8e. This integrated, online learning and
course management system provides the ultimate in flexibility and ease of use with the results you want NOW. ThomsonNOW supports your course goals and ensures positive student performance. You’ll save time as you efficiently teach and reinforce content with an integrated eBook, Experience Managerial Accounting videos, interac-tive learning tools, and personalized study plans; test with an algorithmic test bank; and grade results based on AACSB and CMA accreditation standards. For more infor-mation visit http://www.thomsonedu.com
viii
JoinIn
TMon TurningPoint
® JoinInTMon TurningPoint®is a unique Microsoft®PowerPoint®-based, interactive student response system and lecture tool that merges
the instructor’s PowerPoint presentation with interactive questions that assess stu-dents’ understanding of material on the spot. As students are quizzed using clicker technology, instructors can use the instant feedback to lecture more efficiently.
JoinIn on TurningPoint is the right solution to help you: • Boost students’ interaction and engagement.
• Assist students who lack confidence to participate by interacting anonymously. • Illustrate the relevance of lecture topics with polls, data slicing, and ranking the
popularity of answers. • Check attendance. • Improve retention.
• Assess students’ understanding of a concept instantaneously and identify the “Teachable Moment.”
• Manage your lecture, make assessments, collect student responses, and post results to your gradebook, all in one tool.
WebTutor™ Toolbox on WebCT
®and on Blackboard
®WebTutor Toolboxcomplements Managerial Accounting, 8e by providing interactive reinforcement. Web-Tutor’s online teaching and learning environment brings together content manage-ment, assessmanage-ment, communication, and collaboration capabilities for enhancing in-class instruction or as a study resource for students. Access certificates for WebTutor can be bundled with the textbook or sold separately. For more information, includ-ing a demo, visit http://e.thomsonlearninclud-ing.com
Business & Company Resource Center.
The power to answer all types of business queries is at your fingertips with Business & Company Resource Center(BCRC). Unlike other available online business resources, this comprehensive
data-base offers a dynamic research opportunity, providing accurate, up-to-date company and industry intelligence for thousands of firms. BCRC provides access to a wide variety of global business information including competitive intelligence, career and investment opportunities, business rankings, company histories and much more. To learn more visit http://www.gale.com/BusinessRC/
Experience Managerial Accounting Video Series.
A series of 14 videos illustrating key management accounting concepts including job order, cost volume profit, activity based costing, Pricing, cost behavior, budgeting, process costing and more. These videos feature companies such as Washburn Guitar, BP, Hard Rock Café, Cold Stone Creamery, and more. Access to these videos can be included at no addi-tional cost with a new book or can be purchased separately at the bookstore or pur-chased directly online. See your Thomson South-Western sales representative for more details or visit http://thomsonedu.com/accounting/hansenAcknowledgments
We would like to express our appreciation for all who have provided helpful com-ments and suggestions. The reviewers of the prior editions helped make it a success-ful product. Many valuable comments from instructors and students have helped us make significant improvements in the text. We would particularly like to thank the following reviewers, who provided in-depth reviews:
Reviewers
Alex Ampadu
University at Buffalo
James Aselta
Sacred Heart University
Professor Rowland Atiase
University of Texas at Austin
Kashi R. Balachandran
New York University
H. Francis Bush
Virginia Military Institute
Michael Flores
ix
Professor Ananda R. Ganguly
Purdue University
Liming Guan
University of Hawaii at Manoa
Pamela Z. Jackson
Augusta State University
Gordon Klein
UCLA
Cathy X. Larson
Middlesex Community College
J. Mike Metzcar, CPA
Indiana Wesleyan University
Theodora L. Moten
LeTourneau University
Cynthia Nye
Bellevue University
Kathy F. Otero
University of Texas at El Paso
Frederick W. Rankin
Colorado State University
Juan M. Rivera
University of Notre Dame
Richard Schmidt
LeTourneau University Online
E. Daniel Shim
Sacred Heart University
Dr. John J. Surdick
Xavier University
Lynda Thoman
Purdue University
Wendy Tietz
Kent State University
Bill Wempe
Texas Christian University
Scott White
Lindenwood University
James E. Williamson
San Diego State University
George R. Wilson
University of Georgia
Priscilla S. Wisner
Montana State University
Zoomerang Survey Participants Wagdy M. Abdallah
Seton Hall University
Joseph Adamo Cazenovia College Sue Aman Kaskaskia College Douglas M. Asbury University of Findlay Sandra Bailey Oregon Tech Kashi Balachandran
New York University
Carroll Barnes
Minneapolis Community & Technical College Nancy E. Coulmas Bloomsburg University Kevin Devine Xavier University Maggie Houston
Wright State University
Celina Jozsi
University of South Florida
Patti Lopez
Valencia Community College
Lowell Mooney
Georgia Southern University
Abbie Gail Parham
Georgia Southern University
Angela Sandberg
Jacksonville State University
Akili J. Sanyika
Georgia Perimeter College
Ramgopal Venkataraman
University of Minnesota - Twin Cities
Priscilla Wisner
Montana State University
We also would like to thank our verifiers for the text and solutions manual— Scott Butterfield, Clayton State University; and Ann Martel, Marquette University. Their careful editing helped us produce a text and ancillary package of high quality and accuracy.
We also want to express our gratitude to the Institute of Management Accoun-tants for its permission to use adapted problems from past CMA examinations. The IMA has also given us permission to reprint the ethical standards of conduct for management accountants.
Finally, we should offer special thanks to the staffs of Thomson Publishing and Lachina Publishing Services. They have been helpful and have carried out their tasks with impressive expertise and professionalism.
Don R. Hansen Maryanne M. Mowen
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A b o u t t h e A u t h o r s
Don R. Hansen
Dr. Don R. Hansen is Professor of Accounting at Oklahoma State University. He received his Ph.D. from the University of Arizona in 1977. He has an undergraduate degree in mathematics from Brigham Young University. His research interests include activity-based costing and mathematical modeling. He has published articles in both accounting and engineering journals including The Accounting Review, The
Journal of Management Accounting Research, Accounting Horizons, and IIE Transactions.
He has served on the editorial board of The Accounting Review. His outside interests include family, church activities, reading, movies, watching sports, and studying Spanish.
Maryanne M. Mowen
Dr. Maryanne M. Mowen is Associate Professor of Accounting at Oklahoma State University. She received her Ph.D. from Arizona State University in 1979. Dr. Mowen brings an interdisciplinary perspective to teaching and writing in cost and manage-ment accounting, with degrees in history and economics. In addition, she does scholarly research in behavioral decision theory. She has published articles in jour-nals such as Decision Science, The Journal of Economics and Psychology, and The Journal
of Management Accounting Research. Dr. Mowen’s interests outside the classroom
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Preface iii
Part I
Basic Management Accounting Concepts
1
B r i e f C o n t e n t s
Chapter 1
Introduction: The Role, History, and Direction of Management
Accounting 2
Chapter 2
Basic Management Accounting Concepts 32
Chapter 3
Activity Cost Behavior 70
Chapter 4
Activity-Based Product Costing 116
Chapter 5
Activity-Based Management 164
Chapter 8
Budgeting for Planning and Control 314
Chapter 9
Standard Costing: A Managerial Control Tool 366
Chapter 10
Segmented Reporting, Investment Center Evaluation,
and Transfer Pricing 416
Part V
Managerial Decision Making
469
Chapter 15
Quality Costs and Productivity: Measurement, Reporting,
and Control 666
Chapter 16
Lean Accounting, Target Costing, and the Balanced
Scorecard 722
Chapter 17
Environmental Cost Management 776
Chapter 18
International Issues in Management Accounting 816
Activity-Based Accounting
69
Part II
Part III
Product and Service Costing
211
Chapter 6
Job-Order and Process Costing 212
Chapter 7
Support-Department Cost Allocation 270
Part IV
Planning and Control
313
Chapter 11
Cost-Volume-Profit Analysis: A Managerial Planning Tool 470
Chapter 12
Tactical Decision Making 514
Chapter 13
Capital Investment Decisions 562
Chapter 14
Inventory Management 620
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C o n t e n t s
Preface iii
PART 1
BASIC MANAGEMENT ACCOUNTING CONCEPTS
Chapter 1 • Introduction:
The Role, History, and Direction
of Management Accounting 2
Management Accounting Information
System 4
Information Needs of Managers
and Other Users 4 The Management
Process 5 Organization Type 7
Management Accounting and Financial
Accounting 7
A Brief Historical Perspective of
Management Accounting 9
Current Focus of Management
Accounting 10
Activity-Based Management 10 Customer
Orientation 11 Cross-Functional
Perspective 13 Total Quality Management
13 Time as a Competitive Element 14
Efficiency 14 E-business 15
The Role of the Management Accountant 15
Structure of the Company 15
Sarbanes-Oxley Act of 2002 16
Management Accounting and Ethical
Conduct 17
Ethical Behavior 17 Company Codes
of Conduct and SOX 18 Standards of
Ethical Conduct for Management
Accountants 19
Certification 21
The CMA 21 The CPA 21 The CIA 22
Summary of Learning Objectives 22
Key Terms 23
Questions for Writing and Discussion 23
Exercises 24
Problems 28
Research Assignment 31
Chapter 2 • Basic Management
Accounting Concepts 32
Cost Assignment: Direct Tracing, Driver
Tracing, and Allocation 34
Cost 35 Cost Objects 35 Accuracy of
Assignments 36
Product and Service Costs 39
Different Costs for Different Purposes 41
Product Costs and External Financial
Reporting 42
External Financial Statements 44
Income Statement: Manufacturing
Firm 44 Income Statement: Service
Organization 46
Types of Management Accounting Systems:
A Brief Overview 46
FBM versus ABM Accounting Systems 47
Choice of a Management Accounting
System 50
Summary of Learning Objectives 51
Key Terms 51
Review Problems 52
Questions for Writing and Discussion 54
Exercises 55
Problems 61
Managerial Decision Cases 66
Research Assignments 68
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Chapter 3 • Activity Cost
Behavior 70
The Basics of Cost Behavior 72
Fixed Costs 72 Variable Costs 73 Mixed
Costs 74 Classifying Costs According to
Behavior 75
Activities, Resource Usage, and Cost
Behavior 78
Flexible Resources 78 Committed
Resources 78 Step-Cost Behavior 79
Implications for Control and Decision
Making 81
Methods for Separating Mixed Costs into
Fixed and Variable Components 82
Linearity Assumption 83 The High-Low
Method 86 The Scatterplot Method 87
The Method of Least Squares 90 Using
the Regression Programs 91
Reliability of Cost Formulas 93
R
2—The Coefficient of Determination 93
Coefficient of Correlation 93
Multiple Regression 94
Managerial Judgment 96
Summary of Learning Objectives 98
Key Terms 98
Review Problems 99
Questions for Writing and Discussion 100
Exercises 101
Problems 109
Managerial Decision Case 114
Research Assignment 115
Chapter 4 • Activity-Based Product
Costing 116
Unit Costs 118
Importance of Unit Product Costs 119
Production of Unit Cost Information 119
Functional-Based Product Costing 119
Plantwide Rates 120 Departmental
Rates 122
Limitations of Functional-Based Cost
Accounting Systems 124
Non-Unit-Related Overhead Costs 125
Product Diversity 126 An Example
Illustrating the Failure of Unit-Based
Overhead Rates 126
Activity-Based Product Costing: Detailed
Description 129
Identifying Activities and Their Attributes
129 Assigning Costs to Activities 132
Assigning Activity Costs to Other Activities
133 Assigning Costs to Products 133
Detailed Classification of Activities 134
Reducing the Size and Complexity of the
Activity-Based Costing System 137
Reducing Rates Using Consumption Ratios
137 Reducing Rates by Approximating
ABC 137 Comparison with
Functional-Based Costing 139
Summary of Learning Objectives 139
Key Terms 140
Review Problems 140
Questions for Writing and Discussion 143
Exercises 144
Problems 150
Managerial Decision Cases 158
Research Assignment 162
Chapter 5 • Activity-Based
Management 164
Activity-Based Management: A Conceptual
Overview 166
Implementing ABM 167 ABM and
Responsibility Accounting 170
Financial-Based Responsibility Compared with
Activity-Based Responsibility 171
Process Value Analysis 175
Driver Analysis: The Search for Root Causes
175 Activity Analysis: Identifying and
Assessing Value Content 176 Activity
Performance Measurement 178
Measures of Activity Performance 179
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Value- and Non-Value-Added Cost
Reporting 179 Trend Reporting 181
The Role of Kaizen Standards 182
Benchmarking 183 Drivers and
Behavioral Effects 184 Activity Capacity
Management 184
Activity-Based Customer and Supplier
Costing 186
Activity-Based Customer Costing 186
Activity-Based Supplier Costing 188
Summary of Learning Objectives 190
Key Terms 190
Review Problems 190
Questions for Writing and Discussion 192
Exercises 193
Problems 202
Managerial Decision Case 209
Research Assignment 210
PART 3
PRODUCT AND SERVICE COSTING
Chapter 6 • Job-Order and Process
Costing 212
Characteristics of the Job-Order and Process
Environment 214
Job-Order Production and Costing 214
Process Production and Costing 214
Cost Flows Associated with Job-Order
Costing 215
Calculating Unit Cost with Job-Order
Costing 215 Job-Order Cost Sheet 216
The Flow of Costs through the Accounts
218
The Process Environment and Cost
Flows 225
Types of Process Manufacturing 226 How
Costs Flow Through the Accounts in Process
Costing 226 Accumulating Costs in the
Production Report 227
The Impact of Work-in-Process Inventories
on Process Costing 228
Equivalent Units of Production 228 Two
Methods of Treating Beginning
Work-in-Process Inventory 230
Weighted Average Costing 230
Five Steps in Preparing a Production Report
230 Example of the Weighted Average
Method 231 Evaluation of the Weighted
Average Method 233
Multiple Inputs and Multiple
Departments 234
Nonuniform Application of Manufacturing
Inputs 234 Multiple Departments 238
Appendix A: Production Report—FIFO
Costing 239
Differences between the FIFO and
Weighted Average Methods 239 Example of
the FIFO Method 239
Appendix B: Journal Entries Associated with
Job-Order and Process Costing 243
Journal Entries Associated with Job-Order
Costing 243 Journal Entries Associated with
Process Costing 245
Summary of Learning Objectives 246
Key Terms 247
Review Problems 248
Questions for Writing and Discussion 251
Exercises 252
Problems 261
Managerial Decision Case 267
Research Assignment 268
Chapter 7 • Support-Department Cost
Allocation 270
An Overview of Cost Allocation 272
Types of Departments 272 Allocating
Costs from Departments to Products 273
Types of Allocation Bases 274 Objectives
of Allocation 275
Allocating One Department’s Costs to
Another Department 277
A Single Charging Rate 277 Multiple
Charging Rates 278 Budgeted versus
Actual Usage 279
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Choosing a Support-Department Cost
Allocation Method 280
Direct Method of Allocation 281
Sequential Method of Allocation 282
Reciprocal Method of Allocation 285
Comparison of the Three Methods 286
Departmental Overhead Rates and Product
Costing 288
Appendix: Joint Cost Allocation 289
Accounting for Joint Product Costs 289
Summary of Learning Objectives 291
Key Terms 292
Review Problems 292
Questions for Writing and Discussion 296
Exercises 296
Problems 304
Managerial Decision Cases 308
Research Assignments 311
PART 4
PLANNING AND CONTROL
Chapter 8 • Budgeting for Planning
and Control 314
Description of Budgeting 316
Budgeting and Planning and Control 316
Advantages of Budgeting 317
Preparing the Master Budget 318
Directing and Coordinating 319 Major
Components of the Master Budget 319
Preparing the Operating Budget 319
Preparing the Financial Budget 325
Using Budgets for Performance
Evaluation 331
Static Budgets versus Flexible Budgets 331
The Behavioral Dimension of Budgeting 334
Activity-Based Budgeting 337
Static Activity Budgets 337 Activity
Flexible Budgeting 338
Summary of Learning Objectives 340
Key Terms 341
Review Problems 341
Questions for Writing and Discussion 344
Exercises 344
Problems 352
Managerial Decision Cases 363
Research Assignment 365
Chapter 9 • Standard Costing: A
Managerial Control Tool 366
Unit Standards 368
How Standards Are Developed 368 Types
of Standards 369 Why Standard Cost
Systems Are Adopted 369
Standard Product Costs 371
Variance Analysis: General Description 373
Price and Efficiency Variances 373 The
Decision to Investigate 373
Variance Analysis: Materials and Labor 376
Direct Materials Variances 376 Direct
Labor Variances 380
Variance Analysis: Overhead Costs 382
Variable Overhead Variances 382 Fixed
Overhead Variances 386
Appendix: Accounting for Variances 389
Entries for Direct Materials Variances 389
Entries for Direct Labor Variances 389
Disposition of Materials and Labor
Variances 390 Overhead Variances 390
Summary of Learning Objectives 391
Key Terms 392
Review Problem 392
Questions for Writing and Discussion 394
Exercises 395
Problems 402
Managerial Decision Cases 410
Research Assignments 413
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Chapter 10 • Segmented Reporting,
Investment Center Evaluation, and
Transfer Pricing 416
Decentralization and Responsibility Centers
418
Reasons for Decentralization 418 Divisions
in the Decentralized Firm 419
Measuring the Performance of Profit Centers
Using Variable and Absorption Income
Statements 422
Inventory Valuation 423 Income
Statements Using Variable and Absorption
Costing 423 Production, Sales, and Income
Relationships 424 The Treatment of Fixed
Overhead in Absorption Costing 427
Evaluating Profit-Center Managers 428
Segmented Income Statements Using
Variable Costing 429
Measuring the Performance of Investment
Centers Using ROI 431
Return on Investment 431 Margin and
Turnover 432 Advantages of ROI 433
Disadvantages of the ROI Measure 435
Measuring the Performance of Investment
Centers Using Residual Income and
Economic Value Added 436
Residual Income 436 Economic Value
Added (EVA) 438
Transfer Pricing 439
Impact of Transfer Pricing on Divisions and
the Firm as a Whole 440 Transfer Pricing
Policies 441 Market Price 442 Cost-Based
Transfer Prices 442 Negotiated Transfer
Prices 443
Summary of Learning Objectives 443
Key Terms 444
Review Problems 445
Questions for Writing and Discussion 449
Exercises 450
Problems 455
Managerial Decision Cases 463
Research Assignment 467
PART 5
MANAGERIAL DECISION MAKING
Chapter 11 • Cost-Volume-Profit
Analysis: A Managerial Planning
Tool 470
Break-Even Point in Units 472
Using Operating Income in CVP Analysis
472 Shortcut to Calculating Break-Even
Units 474 Unit Sales Needed to Achieve
Targeted Profit 475
Break-Even Point in Sales Dollars 477
Profit Targets and Sales Revenue 478
Comparison of the Two Approaches 479
Multiple-Product Analysis 479
Break-Even Point in Units 480 Sales Dollars
Approach 482
Graphical Representation of CVP
Relationships 483
The Profit-Volume Graph 483 The
Cost-Volume-Profit Graph 484 Assumptions of
Cost-Volume-Profit Analysis 485
Changes in the CVP Variables 487
Introducing Risk and Uncertainty 489
Sensitivity Analysis and CVP 491
CVP Analysis and Activity-Based Costing 492
Example Comparing Conventional and ABC
Analysis 493 Strategic Implications:
Conventional CVP Analysis versus ABC
Analysis 494 CVP Analysis and JIT 495
Summary of Learning Objectives 496
Key Terms 496
Review Problems 497
Questions for Writing and Discussion 499
Exercises 499
Problems 505
Managerial Decision Cases 511
Research Assignment 513
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Chapter 12 • Tactical Decision
Making 514
Tactical Decision Making 516
Model for Making Tactical Decisions 517
Relevant Costs Defined 520 Ethics in
Tactical Decision Making 521
Relevance, Cost Behavior, and the Activity
Resource Usage Model 522
Flexible Resources 522 Committed
Resources 523
Illustrative Examples of Relevant Cost
Applications 524
Make-or-Buy Decisions 524 Keep-or-Drop
Decisions 526 Special-Order Decisions 530
Decisions to Sell or Process Further 531
Product Mix Decisions 533
One Constrained Resource 533 Multiple
Constrained Resources 534
Pricing 534
Cost-Based Pricing 534 Target Costing and
Pricing 536 Legal Aspects of Pricing 537
Fairness and Pricing 539
Appendix: Linear Programming 539
Summary of Learning Objectives 542
Key Terms 543
Review Problem 543
Questions for Writing and Discussion 544
Exercises 544
Problems 551
Managerial Decision Cases 558
Research Assignments 561
Chapter 13 • Capital Investment
Decisions 562
Types of Capital Investment Decisions 564
Nondiscounting Models 566
Payback Period 566 Accounting Rate of
Return 568
Discounting Models: The Net Present Value
Method 569
NPV Defined 569 An Example Illustrating
Net Present Value 570
Internal Rate of Return 570
Example: Multiple-Period Setting with
Uniform Cash Flows 571 Multiple-Period
Setting: Uneven Cash Flows 572
Postaudit of Capital Projects 573
Honley Medical Company: An Illustrative
Application 573 One Year Later 574
Benefits of a Postaudit 574
Mutually Exclusive Projects 575
NPV Compared with IRR 575 Example:
Mutually Exclusive Projects 576
Computation and Adjustment of Cash
Flows 578
Adjusting Forecasts for Inflation 578
Conversion of Gross Cash Flows to
After-Tax Cash Flows 580
Capital Investment: The Advanced
Manufacturing Environment 585
How Investment Differs 586 How
Estimates of Operating Cash Flows Differ
586 Salvage Value 588 Discount Rates
589
Appendix A: Present Value Concepts 589
Future Value 589 Present Value 590
Present Value of an Uneven Series of Cash
Flows 591 Present Value of a Uniform
Series of Cash Flows 591
Summary of Learning Objectives 594
Key Terms 595
Review Problems 595
Questions for Writing and Discussion 597
Exercises 598
Problems 607
Managerial Decision Cases 615
Research Assignments 619
Chapter 14 • Inventory
Management 620
Traditional Inventory Management 622
Inventory Costs 622 Traditional Reasons
for Holding Inventory 622 Economic
Order Quantity: The Traditional Inventory
Model 624 Computing EOQ 625 Reorder
xviii
Point 625 EOQ and Inventory
Management 627
JIT Inventory Management 628
Basic Features of JIT 629 Setup and
Carrying Costs: The JIT Approach 632
Due-Date Performance: The JIT Solution
634 Avoidance of Shutdown and Process
Reliability: The JIT Approach 634
Discounts and Price Increases: JIT Purchasing
versus Holding Inventories 637 JIT’s
Limitations 638
Theory of Constraints 639
Basic Concepts 639 TOC Steps 640
Summary of Learning Objectives 645
Key Terms 646
Review Problems 646
Questions for Writing and Discussion 648
Exercises 649
Problems 655
Managerial Decision Case 661
Research Assignment 662
PART 6
SPECIAL TOPICS
Chapter 15 • Quality Costs and
Productivity: Measurement, Reporting,
and Control 666
Measuring the Costs of Quality 668
Quality Defined 668 Costs of Quality
Defined 670 Measuring Quality Costs 671
Reporting Quality Cost Information 673
Quality Cost Reports 673 Quality Cost
Function: Acceptable Quality View 675
Quality Cost Function: Zero-Defects View
675 Activity-Based Management and
Optimal Quality Costs 678 Trend
Analysis 679
Using Quality Cost Information 680
Scenario A: Strategic Pricing 681 Scenario
B: New Product Analysis 683
Productivity: Measurement and Control 684
Partial Productivity Measurement 686
Total Productivity Measurement 688
Price-Recovery Component 691 Quality and
Productivity 691 Gainsharing 692
Summary of Learning Objectives 693
Key Terms 694
Review Problems 694
Questions for Writing and Discussion 697
Exercises 697
Problems 707
Managerial Decision Cases 717
Research Assignments 719
Chapter 16 • Lean Accounting,
Target Costing, and the Balanced
Scorecard 722
Lean Manufacturing 724
Value by Product 725 Value Stream 725
Value Flow 726 Pull Value 729 Pursue
Perfection 731
Lean Accounting 732
Focused Value Streams and Traceability of
Overhead Costs 733 Value Stream Costing
with Multiple Products 735 Value Stream
Reporting 736 Decision Making 736
Performance Measurement 737
Life-Cycle Cost Management and the Role of
Target Costing 738
The Balanced Scorecard: Basic Concepts 744
Strategy Translation 744 The Role of
Performance Measures 745 The Financial
Perspective 748 Customer Perspective 748
Process Perspective 750 Learning and
Growth Perspective 754
Summary of Learning Objectives 755
Key Terms 755
Review Problems 756
Questions for Writing and Discussion 758
Exercises 758
Problems 765
Managerial Decision Case 774
Research Assignment 775
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Chapter 17 • Environmental Cost
Management 776
Measuring Environmental Costs 778
The Benefits of Ecoefficiency 778
Environmental Quality Cost Model 780
Environmental Cost Report 782 Reducing
Environmental Costs 783 An
Environmental Financial Report 785
Assigning Environmental Costs 786
Environmental Product Costs 786
Functional-Based Environmental Cost
Assignments 786 Activity-Based
Environmental Cost Assignments 787
Life-Cycle Cost Assessment 788
Product Life Cycle 788 Assessment
Stages 789
Strategic-Based Environmental Responsibility
Accounting 792
Environmental Perspective 793 The Role
of Activity Management 794
Summary of Learning Objectives 797
Key Terms 797
Review Problem 798
Questions for Writing and Discussion 800
Exercises 801
Problems 808
Research Assignment 814
Chapter 18 • International Issues in
Management Accounting 816
Management Accounting in the International
Environment 818
Levels of Involvement in International
Trade 818
Importing and Exporting 819
Wholly Owned Subsidiaries 821 Joint
Ventures 822
Foreign Currency Exchange 823
Managing Transaction Risk 824 Managing
Economic Risk 827 Managing Translation
Risk 828
Decentralization 829
Advantages of Decentralization in the MNC
829 Creation of Divisions 830
Measuring Performance in the Multinational
Firm 830
Political and Legal Factors Affecting
Performance Evaluation 832 Multiple
Measures of Performance 833
Transfer Pricing and the Multinational
Firm 833
Performance Evaluation 833 Income Taxes
and Transfer Pricing 834
Ethics in the International Environment 836
Summary of Learning Objectives 838
Key Terms 838
Review Problem 839
Questions for Writing and Discussion 840
Exercises 840
Problems 846
Managerial Decision Cases 848
Research Assignment 851
Glossary 852
Subject Index 864
Company Index 873
Basic Management
Accounting Concepts
Chapter 1:
Introduction: The Role, History, and Direction
of Management Accounting
Chapter 2 :
Basic Management Accounting Concepts
PART 1
Introduction: The Role, History,
and Direction of Management
Accounting
l e a r n i n g o b j e c t i v e s
After studying this chapter, you should be able to:
1. Discuss the need for management accounting information.
2. Differentiate between management accounting and financial accounting. 3. Provide a brief historical description of management accounting.
4. Identify the current focus of management accounting.
5. Describe the role of management accountants in an organization.
6. Explain the importance of ethical behavior for managers and management
accountants.
7. List three forms of certification available to management accountants.
Scenario
Consider the following comments made by individuals from several different organizations:
A. Partner of a Legal Firm: The managing
partner of Collins, Ling, and Jefferson, a large regional law firm, just received a request to bid on a potential job from MegaProducts, Inc. (MPI). MPI had decided to outsource most of its legal work. Its request for proposals provided each law firm with a record of the hours of legal service and the types of services provided by MPI’s internal legal staff for the past five years. The bid was to take the form of a flat hourly billing rate. Competition for this job was intense. In order to generate a competitive bid, the partner needed an accurate assessment of cost per hour for each type of legal service that would be performed. Then she could obtain the weighted-average cost per hour based on the expected hours of each type of service. Finally, she could calculate an hourly billing rate that would provide the law firm with a reasonable dollar return. (Product costing and pricing decision)
B. Plant Manager: Jeff Rand, plant manager,
identified three projects that could
improve quality and decrease the factory’s production time. First, only suppliers who provide components with a defect rate of less than one per thousand would be selected. Second, die-making operations could be automated. Third, manufacturing cells would be formed for each major prod-uct. Jeff knew that once the alternatives were implemented he would need to know if and by how much the number of defec-tive units dropped and if cycle time actu-ally decreased. He also needed a way to track those changes to the resulting pro-duction costs to see if they decreased—to see if cost improvement actually occurred. (Continuous improvement)
C. Chief Executive Officer of a Cruise Line:
The recession had resulted in decreased profits; the CEO wondered if the cruise line should consider reducing costs and services.
The controller suggested that profit would increase if current passenger volume was maintained but variable costs were reduced by $10 per passenger. The marketing vice president suggested that reducing fares could increase overall profit. She claimed that reducing fares by 20 percent and increasing advertising by $500,000 would increase the number of passengers by 20 percent. A combination of the two approaches might change the strategic position of the cruise line. Therefore, the CEO asked for revised budgets to see which approach (or a combination of the two) offered the most profit—in both the short run and the long run. (Planning and cost-volume-profit analysis)
D. Hospital Administrator: After reading the
latest monthly performance report for sub-units of the hospital, the administrator was very pleased with the performance of the laboratory. Last month, the laboratory had reduced costs even while the number of tests run had increased. As a result, the laboratory attracted more business by charging lower rates that were justified by the lower costs. The lab manager had told the administrator that the activity-based management approach that had been installed had resulted in significant waste reduction. The administrator felt that this management system could be profitably used by other subunits, such as radiology and physical therapy. (Managerial control)
Q u e s t i o n s t o T h i n k A b o u t
1. Who uses management accounting
information?
2. For what purposes is management
accounting information used?
3. Should a management accounting system
provide both financial and nonfinancial information?
4. What organizations need a management
Management Accounting Information System
The management accounting information system provides information needed to satisfy specific management objectives. At the heart of a management accounting information system are processes; they are described by activities such as collecting, measuring, storing, analyzing, reporting, and managing information. Information on economic events is processed into outputs that satisfy the system’s objectives. Out-puts may include special reports, product costs, customer costs, budgets, performance reports, and even personal communication. The operational model of a manage-ment accounting information system is illustrated in Exhibit 1-1.
The management accounting information system is not bound by any formal criteria that define the nature of the processes, inputs, or outputs. The criteria are flexible and based on management objectives. The management accounting system has three broad objectives:
1. To provide information for costing out services, products, and other objects of interest to management.
2. To provide information for planning, controlling, evaluation, and continuous improvement.
3. To provide information for decision making.
These three objectives show that managers and other users need access to man-agement accounting information and need to know how to use it. It can help them identify and solve problems and evaluate performance. Accounting information is used in all phases of management, including planning, controlling, and decision making. Furthermore, the need for such information is not limited to manufacturing organizations; it is used in manufacturing, merchandising, service, and nonprofit organizations as well.
Information Needs of Managers and Other Users
The opening scenarios can be used to illustrate each of the management accounting system objectives. Scenario A (bidding by a legal firm) shows the importance of determining the cost of products (objective 1). Scenario B emphasizes the impor-tance of tracking costs and nonfinancial measures of performance over time. Thus, Scenario A emphasizes the importance of accuracy in product costing, while Sce-nario B underscores the importance of tracking efficiency measures—using both financial and nonfinancial measures (objective 2). Trends in these measures allow
4
P a r t 1 / B a s i c M a n a g e m e n t A c c o u n t i n g C o n c e p t sObjective 1
Discuss the need for management accounting information. Processes Economic Events Collecting Measuring Storing Analyzing Reporting Managing Users Inputs Special Reports Product Costs Customer Costs Budgets Performance Reports Personal Communication Outputs
managers to evaluate the soundness of decisions designed to improve productivity, lower costs, increase market share, and improve profitability. For example, Huffman Corporation, a manufacturer of machine tools, tracks cycle-time changes for pro-ducing its products. The cycle time for propro-ducing the latest version of its computer-ized grinding machine dropped from 2,400 hours to 800 hours within a five-year period. These productivity gains have created a 35 percent compound growth rate in earnings.1Accuracy in cost assignments and the use of nonfinancial information by
both managers and nonmanagers have emerged as fundamental requirements for many organizations. These and other related issues have led to the development of an improved management accounting information system known as an activity-based
cost management information system.
Scenarios B, C, and D illustrate planning, controlling, evaluation, and continu-ous improvement (objective 2). Managers, executives, and workers need an informa-tion system that will identify problems, such as the possibility of cost overruns, or benefits, such as the ability of a subunit manager to innovate and increase efficiency (Scenario C). Once problems are known, actions can be taken to identify and imple-ment solutions. Scenario B also illustrates that both financial and nonfinancial information is needed so that workers can evaluate and monitor the effects of deci-sions that are intended to improve operational and unit performance. Operational and financial performance information allows workers to assess the effectiveness of their efforts to improve. Workers and managers should be committed to continu-ously improving the activities they perform. Continuous improvement means searching for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and reducing costs. Thus, information is needed to help identify opportunities for improvement and to evaluate the progress made in implementing actions designed to create improvement.
The third objective, providing information for decision making, is intertwined with the first two. For example, information on the costs of products, customers, processes, and other objects of interest to management can be the basis for identify-ing problems and alternative solutions. Similar observations can be made about information pertaining to planning, controlling, and evaluation. Examples include using product costs to prepare a bid (Scenario A), helping a manager decide whether to increase profits by reducing prices and increasing advertising or decreasing vari-able costs or both, or helping a manager decide whether to change the organiza-tion’s strategic position (Scenario C). This last scenario also underscores the impor-tance of strategic decision making, which is defined as the process of choosing among alternative strategies with the goal of selecting one or more strategies that provide a company with a reasonable assurance of long-term growth and survival.
The Management Process
The management process is defined by the following activities: (1) planning, (2) con-trolling, and (3) decision making. The management process describes the functions carried out by managers and empowered workers. Empowering workers to partici-pate in the management process means giving them a greater say in how the com-pany operates. Thus, employee empowerment is the authorizing of operational per-sonnel to plan, control, and make decisions without explicit authorization from middle- and higher-level management.
Employee empowerment rests on the belief that employees closest to the work can provide valuable input in terms of ideas, plans, and problem solving. Workers are allowed to shut down production and identify and correct problems. Their input
5
C h a p t e r 1 / I n t r o d u c t i o n : T h e R o l e , H i s t o r y, a n d D i r e c t i o n o f M a n a g e m e n t A c c o u n t i n g
1 Steve Liesman, “High-Tech Devices Speed Manufacturing and May Play Larger Role in Economy,” Wall Street
Journal Interactive Edition (February 15, 2001). Access the referenced article in the chapter web links at the
is sought and used to improve production processes. Two examples illustrate the power of this concept. First, empowered workers at Duffy Tool and Stamping
saved $14,300 per year by redesigning a press operation.2In one department,
com-pleted parts (made by a press) came down a chute and fell into a parts tub. When the tub became full, press operators had to stop operation while the stock operator removed the full tub and replaced it with an empty one. Empowered workers redesigned the operation so that each press had a chute with two branches—each leading to a different tub. Now completed parts are routed into one branch of the chute. When the tub associated with the active branch becomes full, the completed parts are routed to the other branch and its tub while the full tub is being removed and replaced with an empty tub. This new design avoids machine downtime and produces significant savings. Second, GR Spring and Stampingimplemented an employee empowerment program, and within a four-year period, the number of ideas implemented increased from 0.67 per employee to 11.22 per employee.3
Increased involvement in managing the company through employee empowerment is a key element in enhancing continuous improvement efforts.
Planning
The managerial activity called planning is the detailed formulation of action to achieve a particular end; it requires setting objectives and identifying meth-ods to achieve those objectives. For example, a firm’s objective may be to increase its profitability by improving the overall quality of its products. By improving product quality, the firm should be able to reduce scrap and rework, decrease the number of customer complaints and warranty work, reduce the cost of inspection, and so on, thus increasing profitability. But how can this be accomplished? Managers must develop a plan that, when implemented, will lead to the achievement of the desired objective. A plant manager, for example, may start a supplier evaluation program to identify and select suppliers who are willing and able to supply defect-free parts. In another example, empowered workers might identify production causes of defects and create new methods for producing a product that will reduce scrap and rework and the need for inspection. The new methods should be clearly specified and detailed in the plan.6
P a r t 1 / B a s i c M a n a g e m e n t A c c o u n t i n g C o n c e p t sDirect labor workers are very closely con-nected to products and services. They are often able to see opportunities for improved efficiency and quality that managers cannot. Employee empower-ment recognizes this and affords employ-ees the power to make beneficial changes.
©
Getty Images/PhotoDisc
2 George F. Hanks, “Excellence Teams in Action,” Management Accounting (February 1995): p. 35.
3 Joseph F. Castellano, Donald Klein, and Harper Roehm, “Minicompanies: The Next Generation of Employee Empowerment,” Management Accounting (March 1998): pp. 22–30.
