ACCOUNTING - GBVMANAGERIAL ACCOUNTING Third Canadian Edition BRENDA M. MALLOUK University of Toronto...
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MANAGERIAL A C C O U N T I N G Third Canadian Edition BRENDA M. MALLOUK University of Toronto GARY SPRAAKMAN York University CECILY A. RAIBORN Texas State University-San Marcos JESSE T. BARFIELD Loyola University-New Orleans MICHAEL R. KINNEY Texas ASM University NELSON E D U C A T I O N
Transcript of ACCOUNTING - GBVMANAGERIAL ACCOUNTING Third Canadian Edition BRENDA M. MALLOUK University of Toronto...
MANAGERIALA C C O U N T I N G
Third Canadian Edition
BRENDA M. MALLOUKUniversity of Toronto
GARY SPRAAKMANYork University
CECILY A. RAIBORNTexas State University-San Marcos
JESSE T. BARFIELDLoyola University-New Orleans
MICHAEL R. KINNEYTexas ASM University
NELSON E D U C A T I O N
CHAPTER 1 The Strategic Content 2
LEARNING OBJECTIVES 2
ON SITE: Dell Incorporated 3MANAGEMENT ACCOUNTING DEFINED 5
Financial Accounting 6Management Accounting 6Cost Accounting 7Management Accountants 7
MANAGEMENT ACCOUNTING: A COMPONENT OF MANAGEMENT CONTROL 8
MANAGEMENT ACCOUNTING: IMPLEMENTING STRATEGY 9
Organizational Structure 10GENERAL NEWS NOTE: Loblaws Struggles for Survival Against Wal-Mart 10
Core Competencies 11Generic Strategies 11Management Accounting Provides Information 12
MANAGEMENT ACCOUNTING'S CONTRIBUTION TO THE VALUE
CREATION CHAIN 13
GENERAL NEWS NOTE: Measuring Shareholder Value 16
RECENT DEVELOPMENTS AND THEIR IMPACT ON
MANAGEMENT ACCOUNTING 17
Information Technology 17Brand Values 17
GENERAL NEWS NOTE: Management Accounting in the 21st Century 18Ethics 20
SITE ANALYSIS: Dell Incorporated 20CHAPTER SUMMARY 21
KEY TERMS 22
END-OF-CHAPTER MATERIALS: 23
Self-Test Questions 23Questions 23Exercises 24Cases 28Ethics 32Solutions to Self-Test Questions 33Endnotes 33
CHAPTER 2 Cost Terminology and Cost Flows 34
LEARNING OBJECTIVES 34
ON SITE: Swiss Chalet 35COMPONENTS OF PRODUCT COST 36
Direct Material 37Direct Labour 37
INTERNATIONAL NEWS NOTE: Price Reductions Demanded 38GENERAL NEWS NOTE: When Is Labour Considered a Fixed Cost? 40GENERAL NEWS NOTE: Robots Save Time and Money for Companies 41
Overhead 42Stage of Production 42Prime and Conversion Costs 43
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COST BEHAVIOUR 45Variable and Fixed Costs 45
INTERNATIONAL NEWS NOTE: Lifetime Contracts Make LabourCost Fixed 46
GENERAL NEWS NOTE: Canada Is the Most Expensive Place toProduce Cars 47
GENERAL NEWS NOTE: Rebates Help Sell Cars 48Variable Versus Fixed Costs: The Tradeoff 50
INTERNATIONAL NEWS NOTE: Using Lean Production at Jefferson PilotFinancial to Increase Profits 51
Empowering Employees to Make Changes That Help Cut Costs 52Outsourcing and Its Impact on Cost 52Mixed Costs 54Step Cost 55High-Low Method 58Scattergraph Method 58
GENERAL NEWS NOTE: The Use of an ERP System Improves Profitability 61ACCUMULATION OF PRODUCT COSTS—A REVIEW 62COST OF GOODS MANUFACTURED AND SOLD 65SITE ANALYSIS: Swiss Chalet 66
APPENDIX 2A: LEAST-SQUARES REGRESSION ANALYSIS 67CHAPTER SUMMARY 70KEY TERMS 71POINTS TO REMEMBER 72DEMONSTRATION PROBLEMS 73SOLUTIONS TO DEMONSTRATION PROBLEMS 74END-OF-CHAPTER MATERIALS: 79
Self-Test Questions 79Questions 81Exercises 81Problems 85Cases 90Ethics 92Solutions to Self-Test Questions 93Endnotes 94
effl Managerial Accounting
CHAPTER 3 Cost-Volume-Profi t Analysis 96
LEARNING OBJECTIVES 96ON SITE: United Online 97GENERAL NEWS NOTE: Using Breakeven Analysis in Medicine 100THE BREAKEVEN POINT 101INTERNATIONAL NEWS NOTE: How German Firms Use Costing
Systems 101Basic Assumptions 102
BASIC CALCULATIONS TO USE IN BREAKEVEN ANALYSIS 104Contribution Margin and Calculating the Breakeven Point 104Contribution Margin Ratio 104
TARGET NET PROFIT 105Fixed Net Profit 105Incremental Analysis for Short-Run Changes 105
GENERAL NEWS NOTE: Operating in Tough Times 108CVP ANALYSIS IN A MULTIPRODUCT ENVIRONMENT 112
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GENERAL NEWS NOTE: Bundling Products Together
UNDERLYING ASSUMPTIONS OF CVP ANALYSIS
MARGIN OF SAFETY AND OPERATING LEVERAGE
Margin of Safety
Operating LeverageGENERAL NEWS NOTE: Managing Operating Leverage
Absorption and Variable Costing
Absorption and Variable Costing Illustrations
COMPARISON OF THE TWO APPROACHES
SITE ANALYSIS: United Online
APPENDIX 3A: CVP ANALYSIS: ALGEBRAIC FORMULAS
CHAPTER SUMMARY
KEY TERMS
POINTS TO REMEMBER
DEMONSTRATION PROBLEMS
SOLUTIONS TO DEMONSTRATION PROBLEMS
END-OF-CHAPTER MATERIALS
Self-Test Questions
Questions
Exercises
Problems
Cases
Ethics
Solutions to Self-Test Questions
Endnotes
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CHAPTER 4 Overhead and Job Costing
LEARNING OBJECTIVES
ON SITE: Myster Mover Ltd.
CAPACITY MEASURES AND SETTING OVERHEAD RATES
DEVELOPING AND USING PREDETERMINED OVERHEAD RATES
Variable Overhead Rate
Fixed Overhead Rate
OVERHEAD APPLICATION
Under- and Overapplied Overhead
DISPOSITION OF UNDER- AND OVERAPPLIED OVERHEAD
Allocating Significant Over- and Underapplied
Manufacturing Overhead
COMBINED OVERHEAD RATES
USING PLANTWIDE VS DEPARTMENTAL OVERHEAD RATES
GENERAL NEWS NOTE: Distorted Information Leads to
Distorted Decisions
JOB ORDER COSTING SYSTEM
GENERAL NEWS NOTE: Customization and Job Costing
JOB ORDER COSTING: DETAILS AND DOCUMENTSMaterials Requisitions
Job Order Cost Sheet
Employee Time SheetsGENERAL NEWS NOTE: Uncompensated Overtime
Overhead
Completion of Production
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GENERAL NEWS NOTE: Impact of TechnologyJOB ORDER COST ILLUSTRATION
INTERNATIONAL NEWS NOTE: What Business Is Doing to Meetthe Needs of Developing Countries?
GENERAL NEWS NOTE: What Does This Job Really Cost?JOB ORDER COSTING TO ASSIST MANAGEMENT
Job Order Product Costing in High-Tech EnvironmentsGENERAL NEWS NOTE: Book Manufacturer's Job Management Solution
Improves Workflow by 33%ERP Helps Control Costs
SITE ANALYSIS: Myster Mover Ltd.APPENDIX 4A ALLOCATION OF SERVICE DEPARTMENT COSTSCHAPTER SUMMARYKEY TERMSPOINTS TO REMEMBER
DEMONSTRATION PROBLEMS
SOLUTIONS TO DEMONSTRATION PROBLEMS
END-OF-CHAPTER MATERIALS:
Self-Test QuestionsQuestionsExercisesProblemsCasesEthicsSolutions to Self-Test QuestionsEndnotes
CHAPTER 5: Process Costing
LEARNING OBJECTIVESON SITE: Ganong Bros. Ltd.
Introduction to Process CostingAccumulating Costs by Separate Cost ComponentsCalculating Equivalent Units of Production
INTRODUCING WEIGHTED AVERAGE AND FIFO PROCESS COSTINGEUP Calculations and Cost AssignmentWeighted Average Method
PROCESS COSTING USING FIFO VALUATIONFIFO MethodSteps One and TwoStep Three: Determine the Equivalent Units of ProductionStep Four: Determine the Total Cost to Account forStep Five: Calculate the Cost Per Equivalent Unit of ProductionStep Six: Assign Costs to InventoriesProcess Costing in a Multidepartmental SettingRecording Information in the Accounts
SPOILED AND LOST UNITSTypes of Lost UnitsAccounting for Lost UnitsIllustrations of Lost UnitsSpoilage—Abnormal and Normal SpoilageMinimizing Spoilage
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HOW HAVE COMPANIES IMPROVED WITH THE INSTALLATION
OF AN ERP SYSTEM?
SITE ANALYSIS: Ganong Bros. Ltd.
CHAPTER SUMMARY
KEY TERMS
POINTS TO REMEMBER
DEMONSTRATION PROBLEMS
SOLUTIONS TO DEMONSTRATION PROBLEMS
END-OF-CHAPTER MATERIALS:
Self-Test QuestionsQuestionsExercisesProblemsCasesEthicsSolutions to Self-Test QuestionsEndnotes
CHAPTER 6 The Budgeting Process
LEARNING OBJECTIVES
ON SITE: The Hospital for Sick ChildrenPURPOSES OF BUDGETING
Strategic and Tactical Planning
THE BUDGETING PROCESS
GENERAL NEWS NOTE: Using Continuous Budgeting
Implementation and Control
PREPARING FLEXIBLE BUDGETS
What Factors Might Cause Costs to Differ?Budget RevisionsPerformance Evaluation
BUDGETING IN AN INTERNATIONAL BUSINESS
GENERAL NEWS NOTE: Budgeting at The J im Pattison Group
GENERAL NEWS NOTE: How Bayer Changed Its System
THE MASTER BUDGET
THE MASTER BUDGET ILLUSTRATED
Sales BudgetProduction BudgetDirect Materials Purchases BudgetDirect Labour BudgetOverhead BudgetSelling and Administrative (S&A) BudgetCapital Budget
GENERAL NEWS NOTE: Readjusted Budgeting and AnalysisCash BudgetCash Receipts and Accounts ReceivableCash Disbursements and Accounts PayableBudgeted Financial StatementsCost of Goods Manufactured StatementIncome StatementBalance SheetCash Flow Statement
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ZERO-BASED BUDGETINGTHE IMPACT OF ENTERPRISE RESOURCE PLANNING SYSTEMS
ON BUDGETINGGENERAL NEWS NOTE: Companies Abandon Traditional
Budgets to Boost Shareholder ValueCONCLUDING COMMENTSSITE ANALYSIS: The Hospital for Sick ChildrenCHAPTER SUMMARYKEY TERMSPOINTS TO REMEMBERDEMONSTRATION PROBLEMSSOLUTION TO DEMONSTRATION PROBLEMEND-OF-CHAPTER MATERIALS:
Self-Test QuestionsQuestionsExercisesProblemsCasesEthicsSolutions to Self-Test QuestionsEndnotes
Introduction to a Standard Cost System
LEARNING OBJECTIVESON SITE: Bright Pearl Seafood Restaurant Inc.STANDARD COST SYSTEMSDEVELOPMENT OF A STANDARD COST SYSTEMMATERIAL STANDARDSLABOUR STANDARDSGENERAL NEWS NOTE: The Beginning of Time and Motion StudiesGENERAL NEWS NOTE: Dell Does It AgainOVERHEAD STANDARDSVARIANCE COMPUTATIONS
Material VariancesPoint of Purchase Material Variance ModelBasing Price Variance on Purchases Rather Than UsageLabour Variances
GENERAL NEWS NOTE: Separating Quality Problems fromEfficiency Problems
Manufacturing Overhead VariancesVariable OverheadFixed Overhead
COST CONTROL AND VARIANCE RESPONSIBILITYMaterial VariancesLabour VariancesOverhead Variances
GENERAL NEWS NOTE: Challenges With Standard CostingVariable OverheadFixed Overhead
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Fixed Overhead Spending Variance 401Volume Variance 402
CONVERSION COST AS AN ELEMENT IN STANDARD COSTING 403
CONSIDERATIONS IN ESTABLISHING STANDARDS 404
Appropriateness 404GENERAL NEWS NOTE: Don't Carry Your Mistakes Forward 405
Attainability 405GENERAL NEWS NOTE: When to Investigate Variances 406CHANGES IN THE USE OF STANDARDS 407
Use of Theoretical Standards for Quality Improvement 407GENERAL NEWS NOTE: Empowering Employees Is an
Ethical Business Practice 408Long-Term Versus Short-Term Standards 408
SALES PRICE AND SALES VOLUME VARIANCES 409
Analyzing Cost Variances 410GENERAL NEWS NOTE: Does Standard Costing Work In
Today's Business Environment? 411The Future of Standard Costing 411
INTERNATIONAL NEWS NOTE: Does Standard Costing Work in Japan? 413Standard Costs and Enterprise Resource Planning Systems 413
GENERAL NEWS NOTE: How ERP Systems Help 414SITE ANALYSIS: Bright Pearl Seafood Restaurant Inc. 415APPENDIX 7A STANDARD COST SYSTEM JOURNAL ENTRIES 416
APPENDIX 7B PROCESS COSTING WITH STANDARD COSTS 418
CHAPTER SUMMARY 418
KEY TERMS 420
POINTS TO REMEMBER 420
DEMONSTRATION PROBLEMS 422
SOLUTIONS TO DEMONSTRATION PROBLEMS 423
END-OF-CHAPTER MATERIALS: 426
Self-Test Questions 426Questions 428Exercises 429Problems 435Cases 444Ethics 446Solutions to Self-Test Questions 448Endnotes 448
CHAPTER 8 Activity-Based Management and Costing
LEARNING OBJECTIVES
ON SITE: Purolator Courier LimitedTHE ABC SYSTEM
DEVELOPING PRODUCT/SERVICE COST INFORMATION
ACTIVITY ANALYSIS
Activity-Based ManagementValue-Added and Nonvalue-Added Activities
GENERAL NEWS NOTE: Activity-Based Costing at UPSABC as Accounting Data Translator
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Cycle Efficiency 460Cost Drivers 461
GENERAL NEWS NOTE: How Do Pieces Impact Costs? 462ACTIVITY-BASED COSTING 462
Level of Cost Incurrence 464Two-Step Allocation 467Activity-Based Costing Illustrated 468Departmental Analysis 470Calculating Unit Costs Using ABC 472Comparison to Traditional Costing 473
DETERMINING WHETHER ABC IS APPROPRIATE 474Product/Service Variety or Complexity 475
GENERAL NEWS NOTE: German Cost Accounting at Work 477Lack of Commonality in Overhead Costs 478Problems in Current Cost Allocations 478Changes in Business Environment 478ABC and the Service Sector 479
GENERAL NEWS NOTE: German Cost Accounting Has ABC Attributes 480ABC Compared to Process Costing and Job-Order Costing 481
OPERATIONAL AND STRATEGIC PLANNING AND CONTROL USING ABC 487Problems With ABC 487
CRITICISMS OF AND CONCLUSIONS ABOUT ABC 488ABC and ERP 490
SITE ANALYSIS: Purolator Courier Limited 491CHAPTER SUMMARY 491KEY TERMS 493POINTS TO REMEMBER 493DEMONSTRATION PROBLEM 494SOLUTION TO DEMONSTRATION PROBLEM 494END-OF-CHAPTER MATERIALS: 495
Self-Test Questions 495Questions 496Exercises 497Problems 504Cases 519Ethics 521Solutions to Self-Test Questions 522Endnotes 522
CHAPTER 9 Relevant Costing 524
LEARNING OBJECTIVES 524
ON SITE: T h e Gillette C o m p a n y 525
THE CONCEPTS OF RELEVANCE AND RELEVANT COSTING 528
INTERNATIONAL NEWS NOTE: W h e r e Is It Cheaper? 531
SUNK COSTS AND JOINT PROCESSES 532
RELEVANT COSTS FOR SPECIFIC DECISIONS 534
GENERAL NEWS NOTE: Making Changes at Kraft 535
Equipment Replacement Decisions 535
GENERAL NEWS NOTE: RFID and Manufactur ing 539
RELEVANT COSTS IN MAKE-OR-OUTSOURCE (BUY) DECISIONS 540
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INTERNATIONAL NEWS NOTE: The New Workplace:
Outsourcing in Japan
SCARCE RESOURCE DECISIONS
SALES MIX AND SALES PRICING DECISIONS
Sales Price Changes and Relative Profitability of ProductsCompensation ChangesAdvertising Budget ChangesSpecial Order Pricing
RELEVANT COSTS IN PRODUCT LINE DECISIONS
GENERAL NEWS NOTE: Product Line Decisions
PRODUCT EXPANSION OR EXTENSION
INTERNATIONAL NEWS NOTE: Changes to Product Lines
GENERAL NEWS NOTE: Longo Brothers Fruit Markets Inc.
Expands W i t h an E-Grocer
SITE ANALYSIS: The Gillette Company
CHAPTER SUMMARY
KEY TERMS
POINTS TO REMEMBER
DEMONSTRATION PROBLEMS
SOLUTIONS TO DEMONSTRATION PROBLEMS
END-OF-CHAPTER MATERIALS:
Self-Test QuestionsQuestionsExercisesProblemsCasesEthicsSolutions to Self-Test QuestionsEndnotes
CHAPTER 10 Controlling Costs
LEARNING OBJECTIVES
ON SITE: Controlling Costs in the SkiesCOST CONTROL
Cost UnderstandingCost Differences Related to Cost Behaviour
GENERAL NEWS NOTE: Cost Management at General ElectricCost Differences Related to Quantity PurchasedCost Differences Related to Inflation/DeflationCost Differences Related to Supply/Supplier Cost AdjustmentsCost Containment
INTERNATIONAL NEWS NOTE: Higher Wages Mean Higher Profits:The Costco Way
Cost Avoidance and ReductionImplementing Cost Control
MANAGING INVENTORYCosts Associated with InventorySuppliers and QuantitiesWhich Supplier?What Quantity?
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When to Order?Problems with the E O Q Model
OUTSOURCINGINTERNATIONAL NEWS NOTE: Controlling the Hidden Costs
of OutsourcingJUST-IN-TIME SYSTEMS
Product ProcessingPlant LayoutEmployee EmpowermentThe Two Most Important Relationships for J ITBackflush Costing
INTERNATIONAL NEWS NOTE: Data Mining, a New Technique forUnderstanding Cost
LIFE CYCLE COSTINGDevelopment StageIntroduction StageGrowth, Maturity, and Harvest StagesCost and Price Changes Over Life
TARGET COSTINGValue Engineering
PROCESS-BASED MANAGEMENTGENERAL NEWS NOTE: The Four Cs of Customer-Focused SolutionsSITE ANALYSIS: Airlines
CHAPTER SUMMARYKEY TERMSPOINTS TO REMEMBERDEMONSTRATION PROBLEMSOLUTION TO DEMONSTRATION PROBLEMEND-OF-CHAPTER MATERIALS:
Self-Test QuestionsQuestionsExercisesProblemsCasesEthicsSolutions to Self-Test QuestionsEndnotes
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CHAPTER 11 iesponsibility Accounting and Transfer Pricing in DecentralizedOrganizations 660
LEARNING OBJECTIVES0U SITE: MultiversityDECENTRALIZATION
Advantages of DecentralizationDisadvantages of DecentralizationResponsibility Accounting Systems
TYPES OF RESPONSIBILITY CENTRESCost Centres
INTERNATIONAL NEWS NOTE: Empirical Evidence for Market-BasedTransfer Prices
Revenue Centres
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Profit Centres 674Investment Centres 675
INTERNATIONAL NEWS NOTE: IBM Cost Centres into Profit Centres 676SUBOPTIMIZATION 677TRANSFER PRICING 678
Cost-Based Transfer Prices 680INTERNATIONAL NEWS NOTE: Transfer Pricing Principles for
Intellectual Property 681Market-Based Transfer Prices 682
NEGOTIATED TRANSFER PRICES 682Dual Pricing 682Choosing the Appropriate Transfer Price 683Transfer Prices for Service Departments 683
TRANSFER PRICING IN A MULTINATIONAL SETTING 686GENERAL NEWS NOTE: CRA Clarifies "Reasonable Efforts" to
Determine Arm's Length Transfer Prices 687INTERNATIONAL NEWS NOTE: Transfer Pricing in China 688SITE ANALYSIS 689CHAPTER SUMMARY 689KEY TERMS 690POINTS TO REMEMBER 691DEMONSTRATION PROBLEM 691SOLUTION TO DEMONSTRATION PROBLEM 691END-OF-CHAPTER MATERIALS: 692
Self-Test Questions 692Questions 693Exercises 694Problems 700Cases 718Ethics 720Solutions to Self-Test Questions 721Endnotes 721
CHAPTER 12 Measuring and Rewarding Performance 722
LEARNING OBJECTIVES 722
ON SITE: Dorel Industries Incorporated 723
MEASURING ORGANIZATIONAL AND EMPLOYEE PERFORMANCE 724INTERNATIONAL NEWS NOTE: Balanced Scorecard for Foster Brewing
International 727INTERNATIONAL NEWS NOTE: Balanced Scorecard at Hilton Hotels 728FINANCIAL PERFORMANCE MEASUREMENTS FOR MANAGERS 729
Cash Flow 729Return on Investment 730Residual Income 732Limitations of Return on Investment and Residual Income 733
ECONOMIC VALUE ADDED 734NONFINANCIAL PERFORMANCE MEASURES 735
Selection of Nonfinancial Measures 736Establishment of Comparison Bases 736Throughput 738Quality Indicators 739
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GENERAL NEWS NOTE: Managing for Quality 740ACTIVITY-BASED COSTING AND PERFORMANCE MEASUREMENT 741PERFORMANCE EVALUATION IN MULTINATIONAL SETTINGS 742GENERAL NEWS NOTE: Performance Measurement Systems:
Traditional Versus Contemporary 743RELATING COMPENSATION AND PERFORMANCE 744
Pay-for-Performance Plans 744Inclusion of Subjective Performance Measures 747Compensation Packages 747Incentives 748Motivating Employees 748
GLOBAL COMPENSATION 749GENERAL NEWS NOTE: A New Compensation Base 750SITE ANALYSIS - 751CHAPTER SUMMARY 751KEY TERMS 752POINTS TO REMEMBER 753DEMONSTRATION PROBLEM 754SOLUTION TO DEMONSTRATION PROBLEM 754END-OF-CHAPTER MATERIALS: 755
Self-Test Questions 755Questions 756Exercises 757Problems 761Cases 773Ethics 776Solutions to Self-Test Questions 777Endnotes 777
CHAPTER 13 Management Accounting Systems 778
LEARNING OBJECTIVES 778ON SITE: The Hudson's Bay Company 779COST MANAGEMENT SYSTEM 780
Designing a Cost Management System 782GENERAL NEWS NOTE: The Dashboard for Managing 783PERFORMANCE MEASUREMENT SYSTEM 784GENERAL NEWS NOTE: How RONA Is Fine-Tuning Its
Financials W i t h Cutting Edge Tools 785FOUR STAGES OF COST MANAGEMENT AND PERFORMANCE
MEASUREMENT SYSTEMS 785Stage I Systems 786Stage I I Systems 786Stage I I I Systems 786
GENERAL NEWS NOTE: Hbc Adds Precision 787Stage I V Systems 788
THE EVOLUTION OF INVENTORY SYSTEMS TO ENTERPRISERESOURCE PLANNING 788
ENTERPRISE RESOURCE PLANNING SYSTEMS 789GENERAL NEWS NOTE: Supply Chain Imperatives 790WAL-MART'S ENTERPRISE RESOURCE PLANNING SYSTEM 792
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GENERAL NEWS NOTE: Shattering ERP Misconceptions 795
COLLABORATION IN THE VALUE CREATION CHAIN 796
SITE ANALYSIS: The Hudson's Bay Company 798
CHAPTER SUMMARY 799
KEY TERMS 800
END-OF-CHAPTER MATERIALS: 800
Self-Test Questions 800
Questions 801
Exercises 802
Problems 804
Cases 804
Ethics 809
Solutions to Self-Test Questions 810
Endnotes 810
WEB CHAPTER 14 Capital Asset Selection and Capital Budgeting W14-2
LEARNING OBJECTIVES W14-2
ON SITE: Petro-Canada W14-3GENERAL NEWS NOTE: Advertising: Capital or Ordinary
Expenditure? W14-4
THE INVESTMENT DECISION W14-5
Is the Activity Worth the Investment? W14-5
Which Assets Can Be Used for the Activity? W14-6
Of the Suitable Assets, Which Are the Best Investments? W14-6
Which of the Best Investments Should the Company Choose? W14-7
CASH FLOWS W14-9
PAYBACK PERIOD W14-11
DISCOUNTED CASH FLOW METHODS W14-12
Net Present Value Method W14-14
Profitability Index W14-16
Internal Rate of Return W14-16
ASSUMPTIONS AND LIMITATIONS OF METHODS W14-18
INVESTING TO MANAGE QUALITY COSTS, TRAINING, AND RESEARCH
AND DEVELOPMENT W14-20
Managing Research and Development W14-21
HIGH-TECH INVESTMENTS AND QUALITATIVE
CONSIDERATIONS W14-23GENERAL NEWS NOTE: Measuring Up W14-24GENERAL NEWS NOTE: How Shall R O I Be Measured? W14-25INVESTING TO MANAGE ENVIRONMENTAL COSTS W14-26GENERAL NEWS NOTE: The Environment W14-27POST-INVESTMENT AUDIT W 14-29GENERAL NEWS NOTE: Bringing Discipline to Capital
Budgets at AnyCorp W14-29CAPITAL BUDGETING WITH ENTERPRISE RESOURCE
PLANNING SYSTEMS W14-30SITE ANALYSIS: Petro-Canada W14-32
APPENDIX W14A: Time Value of Money W14-33
APPENDIX W14B: Accounting Rate of Return W14-35
APPENDIX W14C: The Effect of Taxation on Cash Flows W14-36
CHAPTER SUMMARY W14-43
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KEY TERMS
POINTS TO REMEMBER
DEMONSTRATION PROBLEM
SOLUTION TO DEMONSTRATION PROBLEM
END-OF-CHAPTER MATERIALS
Self-Test QuestionsQuestionsExercisesProblemsCasesEthicsCommunication ActivitiesSolutions To Self-Test QuestionsEndnotes
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Appendix A: Code of Ethics—Society of ManagementAccountants of Canada
Appendix B: Instructions for Writing CasesAppendix C: Present and Future Value TablesGlossaryCompany IndexSubject Index
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