Managerial accounting 10e by duhac

Warren Reeve Duchac

MANAGERIAL

ACCOUNTING
10e
Carl S. Warren
Professor Emeritus of Accounting
University of Georgia, Athens

James M. Reeve
Professor Emeritus of Accounting
University of Tennessee, Knoxville

Jonathan E. Duchac
Professor of Accounting
Wake Forest University


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Warren Reeve Duchac

MANAGERIAL

ACCOUNTING
10e
Carl S. Warren
Professor Emeritus of Accounting

University of Georgia, Athens

James M. Reeve
Professor Emeritus of Accounting
University of Tennessee, Knoxville

Jonathan E. Duchac
Professor of Accounting
Wake Forest University


Managerial Accounting, 10e
Warren Reeve Duchac
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1 2 3 4 5 6 7 11 10 09 08


The Author Team
Carl S. Warren
Dr. Carl S. Warren is Professor Emeritus of Accounting at the University of Georgia,
Athens. Dr. Warren has taught classes at the University of Georgia, University of Iowa,
Michigan State University, and University of Chicago. Professor Warren focused his
teaching efforts on principles of accounting and auditing. He received his Ph.D. from
Michigan State University and his B.B.A. and M.A. from the University of Iowa. During
his career, Dr. Warren published numerous articles in professional journals, including
The Accounting Review, Journal of Accounting Research, Journal of Accountancy, The CPA
Journal, and Auditing: A Journal of Practice & Theory. Dr. Warren has served on numerous
committees of the American Accounting Association, the American Institute of Certified
Public Accountants, and the Institute of Internal Auditors. He has also consulted with
numerous companies and public accounting firms. Warren’s outside interests include
playing handball, golfing, skiing, backpacking, and fly-fishing.

James M. Reeve

Dr. James M. Reeve is Professor Emeritus of Accounting and Information Management at
the University of Tennessee. Professor Reeve taught on the accounting faculty for 25
years, after graduating with his Ph.D. from Oklahoma State University. His teaching
effort focused on undergraduate accounting principles and graduate education in the
Master of Accountancy and Senior Executive MBA programs. Beyond this, Professor
Reeve is also very active in the Supply Chain Certification program, which is a major
executive education and research effort of the College. His research interests are varied
and include work in managerial accounting, supply chain management, lean manufacturing, and information management. He has published over 40 articles in academic and
professional journals, including the Journal of Cost Management, Journal of Management
Accounting Research, Accounting Review, Management Accounting Quarterly, Supply Chain
Management Review, and Accounting Horizons. He has consulted or provided training
around the world for a wide variety of organizations, including Boeing, Procter and
Gamble, Norfolk Southern, Hershey Foods, Coca-Cola, and Sony. When not writing
books, Professor Reeve plays golf and is involved in faith-based activities.

Jonathan Duchac
Dr. Jonathan Duchac is the Merrill Lynch and Co. Professor of Accounting and Director of
the Program in Enterprise Risk Management at Wake Forest University. He earned his
Ph.D. in accounting from the University of Georgia and currently teaches introductory and
advanced courses in financial accounting. Dr. Duchac has received a number of awards
during his career, including the Wake Forest University Outstanding Graduate Professor
Award, the T.B. Rose award for Instructional Innovation, and the University of Georgia
Outstanding Teaching Assistant Award. In addition to his teaching responsibilities, Dr.
Duchac has served as Accounting Advisor to Merrill Lynch Equity Research, where he
worked with research analysts in reviewing and evaluating the financial reporting practices of public companies. He has testified before the U.S. House of Representatives, the
Financial Accounting Standards Board, and the Securities and Exchange Commission; and
has worked with a number of major public companies on financial reporting and accounting policy issues. In addition to his professional interests, Dr. Duchac is the Treasurer of
The Special Children’s School of Winston-Salem; a private, nonprofit developmental day
school serving children with special needs. Dr. Duchac is an avid long-distance runner,
mountain biker, and snow skier. His recent events include the Grandfather Mountain

Marathon, the Black Mountain Marathon, the Shut-In Ridge Trail run, and NO MAAM
(Nocturnal Overnight Mountain Bike Assault on Mount Mitchell).
v


Leading by Example
For nearly 80 years, Accounting has been used effectively to teach generations of businessmen and women. The text has been used by millions of business students. For
many, this book provides the only exposure to accounting principles that they will ever
receive. As the most successful business textbook of all time, it continues to introduce
students to accounting through a variety of time-tested ways.
The previous edition, 9e, started a new journey into learning more about the
changing needs of accounting students through a variety of new and innovative
research and development methods. Our Blue Sky Workshops brought accounting faculty from all over the country into our book development process in a very direct and
creative way. Many of the features and themes present in this text are a result of the collaboration and countless conversations we’ve had with accounting instructors over the
last several years. 10e continues to build on this philosophy and strives to be reflective
of the suggestions and feedback we receive from instructors and students on an ongoing basis. We’re very happy with the results, and think you’ll be pleased with the
improvements we’ve made to the text.
The original author of Accounting, James McKinsey, could not have imagined the
success and influence this text has enjoyed or that his original vision would continue to
lead the market into the twenty-first century. As the current authors, we appreciate the
responsibility of protecting and enhancing this vision, while continuing to refine it to
meet the changing needs of students and instructors. Always in touch with a tradition
of excellence but never satisfied with yesterday’s success, this edition enthusiastically
embraces a changing environment and continues to proudly lead the way. We sincerely
thank our many colleagues who have helped to make it happen.

“The teaching of accounting is no longer designed to train professional accountants
only. With the growing complexity of business and the constantly increasing difficulty
of the problems of management, it has become essential that everyone who aspires to a
position of responsibility should have a knowledge of the fundamental principles of

accounting.”
— James O. McKinsey, Author, first edition, 1929

vi


Leading by Example
Textbooks continue to play an invaluable role in the teaching and learning
environment. Continuing our focus from previous editions, we reached
out to accounting teachers in an effort to improve the textbook presentation. New for this edition, we have extended our discussions to reach out
to students directly in order to learn what they value in a textbook. Here’s
a preview of some of the improvements we’ve made to this edition based
on student input:

Guiding Principles System

NEW!

Students can easily locate the information they need to master course concepts with the
new “Guiding Principles System (GPS).” At the beginning of every chapter, this innovative system plots a course through the chapter content by displaying the chapter
objectives, major topics, and related Example Exercises. The GPS reference to the chapter “At a Glance” summary completes this proven system.

After studying this chapter, you should be able to:
2

1

3

4

Describe managerial
accounting and the role
of managerial
accounting in a
business.

Describe and illustrate
the following costs:
1. direct and indirect
costs
2. direct materials, direct
labor, and factory
overhead costs
3. product and period
costs

Describe and
illustrate the
following statements
for a manufacturing
business:
1. balance sheet
2. statement of cost of
goods manufactured
3. income statement

Describe the uses of
managerial accounting
information.

Managerial
Accounting

Manufacturing
Operations: Costs
and Terminology

Financial Statements
for a Manufacturing
Business

Uses of Managerial
Accounting

Direct and
Indirect Costs

Balance Sheet for a
Manufacturing
Business

Differences Between
Managerial and
Financial Accounting
The Management
Accountant in the
Organization

Manufacturing

Costs
1-2

EE (page 10)
EE 1-3
(page 11)
EE 1-4
(page 13)

Managerial
Accounting in the
Management
Process
1-1

EE (page 6)

At a Glance

NEW!

Income Statement
for a Manufacturing
Company
1-5

EE (page 18)

Menu

Turn to pg 19

Written for Today’s Students

Designed for today’s students, the 10th edition has been extensively revised using an
innovative, high-impact writing style that emphasizes topics in a concise and clearly
written manner. Direct sentences, concise paragraphs, numbered lists, and step-by-step
calculations provide students with an easy-to-follow structure for learning accounting.
This is achieved without sacrificing content or rigor.
vii


Leading by Example
NEW!

Revised Coverage of Investments

A new chapter on investments and fair value accounting has been written to consolidate coverage of both dept and equity investments. The chapter also contains a conceptual discussion of fair value accounting and its increasing role in defining today’s
modern accounting methods.

NEW!

IFRS

No topic is on the minds of many accounting practitioners more than the possible
convergence of IFRS and GAAP. How accounting educators handle this emerging
reality is perhaps even more of a question going forward. In the financial chapters
found within this text, IFRS icons now exist in the margin to help highlight certain
areas where differences exist between these standards.

NEW!

Modern User-Friendly Design

Based on students’ testimonials of what they find most useful, this streamlined presentation includes a wealth of helpful resources without the clutter. To update the look of the
material, some exhibits use computerized spreadsheets to better reflect the changing environment of business. Visual learners will appreciate the generous number of exhibits and
illustrations used to convey concepts and procedures.

Exhibit 4
Retained
Earnings
Statement for
Merchandising
Business

NetSolutions
Retained Earnings Statement
For the Year Ended December 31, 2011
$128,800

Retained earnings, January 1, 2011
Net income for the year
Less dividends
Increase in retained earnings
Retained earnings, December 31, 2011

$75,400
18,000
57,400
$186,200

Journal
Date

Description

Page 25
Post.
Ref.

Debit

Credit

2011

Jan.

viii

3

Cash
Sales
To record cash sales.

1,800
1,800

Leading by Example
Chapter Updates and Enhancements
The following includes some of the specific content changes that can be
found in Managerial Accounting, 10e.

Chapter 1: Managerial Accounting Concepts
and Principles
• Added a new section at the beginning of the chapter on the uses of managerial
accounting, which references subsequent chapters where the uses are described and
illustrated.
• Added an illustration of comparing merchandising and manufacturing income
statements.
• Added format for the cost of goods manufactured statement.
• Added stepwise preparation of the cost of goods manufactured.

Chapter 2: Job Order Costing
• Added format for the entries used to dispose of overapplied or underapplied factory
overhead.
• Changed order of entries so that entries for sales and cost of goods sold are shown
separately from the finished goods entry for completed units.

Chapter 3: Process Cost Systems
• Revised Exhibit 2 and accompanying narrative so that Exhibit 2 ties into Exhibit 8,
which illustrates entries for Frozen Delights.
• Revised illustration of cost of production report so that units are classified into groups
consisting of beginning work in process units (Group 1), started and completed units
(Group 2), and ending work in process units (Group 3). This aids students in computing
unit costs and assigning costs to groups using first-in, first-out inventory cost flow.
Accompanying exhibits and art also classify units by these groups.
• Revised and expanded the section on using the cost of production report for decision

making to include an example from Frozen Delights.

Chapter 4: Cost Behavior and Cost-Volume-Profit
Analysis
• Supplemented the mixed cost discussion by adding an equation for determining
fixed costs.
• Added contribution margin equation to cost-volume-profit discussion.
• Added unit contribution margin equation to cost-volume-profit discussion.
• Added “change in income from operations” equation based on unit contribution
margin to cost-volume-profit discussion.
• Incorporated a discussion of computing break-even in sales dollars using contribution margin ratio.
• Added a stepwise approach to discussion of preparing cost-volume-profit and profit-volume charts.
• Added equation for computing the percent change in income from operations using
“operating leverage.”
• Expanded discussion of margin of safety so that margin of safety may be expressed
in sales dollars, units, or percent of current sales.
• Revised appendix on variable costing to include format for variable costing income
statement.
ix


Leading by Example
Chapter 5: Variable Costing for
Management Analysis
• Chapter objectives revised slightly.
• Generic absorption and variable costing income reporting formats illustrated in
Objective 1, followed by numerical examples.
• Graphic on page 184 revised to include units manufactured = units sold.
• Formulas (equations) added for contribution margin analysis section, Objective 5.
• Exhibits 11, 12, and 16 revised for clarity.

Chapter 6: Budgeting
•
•
•
•

Made minor changes to chapter objectives.
Added stepwise approach to preparing a flexible budget.
Modified the definition of the master budget.
Added new classifications of budget components of the master budget as operating,
investing, and financing budget components.
• Added format for determining “total units to be produced.”
• Added format for determining “direct materials to be purchased.”

Chapter 7: Performance Evaluation Using Variances
from Standard Costs
• Added a 2nd level heading for Objective 1, “Criticisms of Standard Costs.”
• Added several new headings for Objective 2, “Budget Performance Report” and
“Manufacturing Cost Variances.”
• Revised discussion of “Manufacturing Cost Variances” to better tie into subsequent
discussion of standard cost variances.
• Utilized a new equation format for computing standard cost variances. Using these
equations, a positive amount indicates an unfavorable variance while a negative
amount indicates a favorable variance. Later in the chapter, positive variance amounts
are recorded as debits and negative variance amounts are recorded as credits.
• Revised the factory overhead variance discussion to include equations for computing
total, variable, and fixed factory overhead rates. These rates are then used to explain
and illustrate the computation of the controllable factory overhead variance and the
volume factory overhead variance.

• Revised the factory overhead variance discussion to use equations for computing the
controllable and volume variances.
• Revised the discussion of how the total factory overhead cost variance is related to
overapplied or underapplied overhead balance. Further explanation is provided to
show how the overapplied or underapplied overhead balance can be separated into
the controllable and volume variances.
• Added new key terms for budgeted variable factory overhead, favorable cost variance, unfavorable cost variance, and standards.

Chapter 8: Performance Evaluation for Decentralized
Operations
• Modified the chapter objectives slightly.
• Added equations for computing service department charge rates.
• Presented equations for allocating service department charges to decentralized
operations (divisions).

x


Leading by Example
• Added example format for determining residual income.
• Added equations for computing increases and decreases in divisional income using
different negotiated transfer prices.

Chapter 9: Differential Analysis and Product Pricing
• Added section on managerial decision making. Objective 1 now includes a new flowchart depicting the steps that define the decision-making process.
• Added equations (e.g., markup percentages, desired profit) to “Setting Normal
Product Selling Prices” Section.
• Adopted a stepwise approach to setting normal prices for each cost-plus (total,
product, variable) concept.
• Added Exhibit 11 to summarize cost-plus approaches to setting normal prices.

• Added equation to determine “contribution margin per bottleneck constraint.”
• Presented equations for assessing product pricing and cost decisions related to bottlenecks.
• Added equation for determining “activity rate” in Activity-Based Costing appendix.

Chapter 10: Capital Investment Analysis
• Replaced XM Satellite Radio with Carnival Corporation as the opener vignette.
• Revised the learning objectives so that the nonpresent value (average rate of return
and cash payback) methods have a separate learning objective from the present value
(net present value and internal rate of return) methods.
• Added an equation for determining the “average investment” for use in the average
rate of return method.
• Added an equation for determining the “cash payback period.”
• Added a graphic for determining the present value of $1 along with additional explanations of present values.
• Added format for using the net present value method that is consistent with that
shown in the solutions manual.
• Added an equation for determining the present value index.

Chapter 11: Cost Allocation and Activity-Based Costing
• Added discussion and illustration of conditions when a single-plantwide rate might
cause product cost distortions.
• Added equations for determining activity rates.

Chapter 12: Cost Management for Just-in-Time
Environments
•
•
•
•

Chapter Objective 1 revised slightly.

Added equation for computing “Value-Added Ratio” for lead time.
Added equation for computing “Total Within-Batch Wait Time.”
Deleted Learning Objective 2 (Andersen Metal Fabricators" illustration) from previous edition.
• Moved discussion of JIT for nonmanufacturing setting to precede implications of JIT
for cost accounting.

xi


Leading by Example
Chapter 13: Statement of Cash Flows
• Revised beginning section discussing the statement of cash flows (SCF) and illustrating the format for the SCF under the direct and indirect methods.
• Revised beginning discussion of direct method to emphasize conversion of accrual
income statement to cash flows from operations (on an item-by-item basis). New
graphic for conversion of interest expense to cash payments for interest provides
visual reinforcement for this topic.
• Used stepwise format for preparing the statement of cash flows under indirect and
direct methods.
• Used stepwise format for preparing the work sheet for the indirect method in the end-ofchapter appendix.

Chapter 14: Financial Statement Analysis
• New chapter opener features Nike, Inc.
• Real world financial statement analysis problem features data from the Nike, Inc.
2007 10K, which can be found in Appendix B in the back of the text.
• Each ratio is highlighted in a boxed screen for easier review.
• Appendix on “Unusual Items on the Income Statement” was added.

xii

Leading by Example
Managerial Accounting, 10e, is unparalleled in pedagogical innovation. Our
constant dialogue with accounting faculty continues to affect how we refine
and improve the text to meet the needs of today’s students. Our goal is to
provide a logical framework and pedagogical system that caters to how students of today study and learn.

1

Describe and
illustrate reporting income from
operations under absorption and variable
costing.

EX 5-1

Inventory valuation
under absorption
costing and variable
costing

b. Inventory,
$294,840

Clear Objectives and Key Learning
Outcomes
To help guide students, the authors provide clear chapter objectives
and important learning outcomes. All aspects of the chapter materials relate back to these key points and outcomes, which keeps students focused on the most important topics and concepts in order to
succeed in the course.

At the end of the first year of operations, 5,200 units remained in the finished goods

inventory. The unit manufacturing costs during the year were as follows:
Direct materials
Direct labor
Fixed factory overhead
Variable factory overhead

$35.00
16.80
5.60
4.90

Determine the cost of the finished goods inventory reported on the balance sheet under
(a) the absorption costing concept and (b) the variable costing concept.

Example Exercises
Example Exercises were developed to reinforce concepts and procedures in a bold, new
way. Like a teacher in the classroom, students follow the authors’ example to see how to
complete accounting applications as they are presented in the text. This feature also provides a list of Practice Exercises that parallel the Example Exercises so students get the practice they need. In addition, the Practice Exercises also include references to the chapter
Example Exercises so that students can easily cross-reference when completing homework.
See the example of the
application being presented.

Follow along as
the authors
work through
the Example
Exercise.
Try these
corresponding
end-of-chapter

exercises for
practice!

Example Exercise 2-2

2

Direct Labor Costs

During March, Hatch Company accumulated 800 hours of direct labor costs on Job 101 and 600 hours
on Job 102. The total direct labor was incurred at a rate of $16 per direct labor hour for Job 101 and $12
per direct labor hour for Job 102. Journalize the entry to record the flow of labor costs into production
during March.

Follow My Example 2-2
Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wages Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*Job 101
Job 102
Total

$12,800
7,200
_______
$20,000
_______

800 hrs.
600 hrs.

20,000*
20,000

$16
$12

For Practice: PE 2-2A, PE 2-2B

xiii


Leading by Example
“At a Glance” Chapter Summary
The “At a Glance” summary grid ties everything together and helps students stay on
track. First, the Key Points recap the chapter content for each chapter objective. Second,
the related Key Learning Outcomes list all of the expected student performance capabilities that come from completing each objective. In case students need further practice
on a specific outcome, the last two columns reference related Example Exercises and
their corresponding Practice Exercises. In addition, the “At a Glance” grid guides struggling students from the assignable Practice Exercises to the resources in the chapter that
will help them complete their homework. Through this intuitive grid, all of the chapter
pedagogy links together in one cleanly integrated summary.

2

Prepare a cost of production report.
Key Points

Example
Exercises

Practice

Exercises

• Determine the whole units
charged to production and to be
assigned costs.

3-2

3-2A, 3-2B

• Compute the equivalent units
with respect to materials.

3-3

3-3A, 3-3B

• Compute the equivalent units
with respect to conversion.

3-4

3-4A, 3-4B

• Compute the costs per
equivalent unit.

3-5

3-5A, 3-5B

• Allocate the costs to beginning
inventory, units started and
completed, and ending
inventory.

3-6

3-6A, 3-6B

Key Learning Outcomes

Manufacturing costs must be allocated
between the units that have been completed
and those that remain within the department.
This allocation is accomplished by allocating
costs using equivalent units of production during
the period for the beginning inventory, units
started and completed, and the ending
inventory.

• Prepare a cost of production
report.

Provides a conceptual
review of each
objective.

Creates a checklist of
skills to help review for

a test.

Real-World Chapter
Openers

xiv

H

A

P

T

E

R

2

Job Order Costing

©2006 James Goulden/AAAphotos.org—All Rights Reserved

Building on the strengths of past editions,
these openers continue to relate the
accounting and business concepts in the
chapter to students’ lives. These openers
employ examples of real companies and

provide invaluable insight into real practice.
Several of the openers created especially for
this edition focus on interesting companies
such as Washburn Guitars, The North Face,
and Netflix.

C

Directs the student
to this helpful
feature!

D A N

A

D O N E G A N ’ S

s we discussed in Chapter 1, Dan Donegan of the
rock band Disturbed uses a custom-made guitar purchased from Washburn Guitars. In fact, Dan Donegan designed his guitar in partnership with Washburn Guitars,
which contributed to Washburn’s Maya Series of guitars.
The Maya guitar is a precision instrument that amateurs
and professionals are willing to pay between $1,400 and
$7,000 to own. In order for Washburn to stay in business,
the purchase price of the guitar must be greater than the
cost of producing the guitar. So, how does Washburn determine the cost of producing a guitar?
Costs associated with creating a guitar include materials such as wood and strings, the wages of employees who
build the guitar, and factory overhead. To determine the

G U I T A R

purchase price of Dan’s Maya, Washburn identifies and
records the costs that go into the guitar during each step
of the manufacturing process. As the guitar moves through
the production process, the costs of direct materials, direct
labor, and factory overhead are recorded. When
the guitar is complete, the costs that have been
recorded are added up to determine the cost of
Dan’s unique Maya Series guitar. The company
then prices the guitar to achieve a level of profit
over the cost of the guitar. This chapter introduces the principles of accounting systems that
accumulate costs in the same manner as they
were for Dan Donegan’s guitar.


Leading by Example
Business Connection and Comprehensive
Real-World Notes
Students get a close-up look at how accounting operates in the marketplace through a
variety of items in the margins and in the “Business Connection” boxed features. In addition, a variety of end-ofchapter exercises and
problems employ reallargest business, such as Ford Motor Company, compaTHE ACCOUNTING EQUATION
nies use the accounting equation. Some examples taken
world data to give stuThe accounting equation serves as the basic foundation for from recent financial reports of well-known companies are
the accounting systems of all companies. From the small- shown below.
dents a feel for the materiest business, such as the local convenience store, to the
al that accountants see
Company
Assets*
Liabilities
Owner’s Equity

daily. No matter where
$13,043
$16,920
The Coca-Cola Company
$ 29,963
Circuit City Stores, Inc.
4,007
2,216
1,791
they are found, elements
Dell Inc.
25,635
21,196
4,439
2,589
10,905
eBay Inc.
13,494
that use material from real
1,433
17,040
Google
18,473
McDonald’s
29,024
13,566
15,458
companies are indicated
32,074
31,097

Microsoft Corporation
63,171
Southwest Airlines Co.
13,460
7,011
6,449
with a unique icon for a
Wal-Mart
151,193
89,620
61,573
consistent presentation.
*Amounts are shown in millions of dollars.

Integrity, Objectivity, and Ethics in Business
In each chapter, these cases help students develop their ethical compass. Often coupled
with related end-of-chapter activities, these cases can be discussed in class or students
can consider the cases as they read the chapter. Both the section and related end-ofchapter materials are indicated with a unique icon for a consistent presentation.

ACCOUNTING REFORM
The financial accounting and reporting failures of Enron,
WorldCom, Tyco, Xerox, and others shocked the investing public. The disclosure that some of the nation’s largest and best-known corporations had overstated profits
and misled investors raised the question: Where were the
CPAs?
In response, Congress passed the Investor Protection,
Auditor Reform, and Transparency Act of 2002, called the

Sarbanes-Oxley Act. The Act establishes a Public Company
Accounting Oversight Board to regulate the portion of the
accounting profession that has public companies as clients.

In addition, the Act prohibits auditors (CPAs) from providing certain types of nonaudit services, such as investment
banking or legal services, to their clients, prohibits employment of auditors by clients for one year after they
last audited the client, and increases penalties for the
reporting of misleading financial statements.

xv


Leading by Example
Summaries
Within each chapter, these synopses draw special attention to important points and
help clarify difficult concepts.

Self-Examination Questions
Five multiple-choice questions, with answers at the end of the chapter, help students
review and retain chapter concepts.

Illustrative Problem and Solution
A solved problem models one or more of the chapter’s assignment problems so that students can apply the modeled procedures to end-of-chapter materials.

Market Leading End-of-Chapter Material
Students need to practice accounting so that they can understand and use it. To give
students the greatest possible advantage in the real world, Managerial Accounting, 10e,
goes beyond presenting theory and procedure with comprehensive, time-tested, endof-chapter material.

xvi


Online Solutions
South-Western, a division of Cengage Learning, offers a vast array of

online solutions to suit your course needs. Choose the product that best
meets your classroom needs and course goals. Please check with your
Cengage representative for more details or for ordering information.

Aplia
Founded in 2000 by economist and Stanford professor Paul Romer, Aplia is an educational technology company dedicated to improving learning by increasing student
effort and engagement. Currently, our products support college-level courses and have
been used by more than 650,000 students at over 750 institutions.
For students, Aplia offers a way to stay on top of coursework with regularly scheduled homework assignments. Interactive tools and content further increase engagement
and understanding.
For professors, Aplia offers high-quality, auto-graded assignments, which ensure
that students put forth effort on a regular basis throughout the term. These assignments
have been developed for a range of textbooks and are easily customized for individual
teaching schedules.
Every day, we develop our
products by responding to the
needs and concerns of the students
and professors who use Aplia in
their classrooms. As you explore
the features and benefits Aplia has
to offer, we hope to hear from you
as well.
Welcome to Aplia.

CengageNOW Express
CengageNOW Express™ for Warren/Reeve/Duchac Managerial Accounting,
10e, is an online homework solution that delivers better student outcomes—NOW!
CengageNOW Express focuses on the textbook homework that is central to success in
accounting with streamlined course start-up, straightforward assignment creation,
automatic grading and tracking student progress, and instant feedback for students.

• Streamlined Course Start-Up: All Brief Exercises, Exercises, Problems, and
Comprehensive Problems are available immediately for students to practice.
• Straightforward Assignment Creation: Select required exercises and problems, and
CengageNOW Express automatically applies faculty approved, Accounting
Homework Options.
• Automatic grading and tracking student progress: CengageNOW Express grades and
captures students’ scores to easily monitor their progress. Export the grade book to
Excel for easy data management.
• Instant feedback for students: Students stay on track with instructor-written hints
and immediate feedback with every assignment. Links to the e-book, animated exercise demonstrations, and Excel spreadsheets from specific assignments are ideal for
student review.

xvii


Online Solutions
CengageNOW
CengageNOW for Warren/Reeve/Duchac Managerial Accounting, 10e, is
a powerful and fully integrated online teaching and learning system that provides you
with flexibility and control. This complete digital solution offers a comprehensive set of
digital tools to power your course. CengageNOW offers the following:
• Homework, including algorithmic variations
• Integrated E-book
• Personalized Study Plans, which include a variety of multimedia assets (from
exercise demonstrations to video to iPod content) for students as they master the
chapter materials
• Assessment options which include the full test bank, including algorithmic
variations
• Reporting capability based on AACSB, AICPA, and IMA competencies and standards
• Course Management tools, including grade book

• WebCT and Blackboard Integration

WebTutor™!
Available packaged with Warren/Reeve/Duchac Managerial Accounting,
10e, or for individual student purchase Jumpstart your course with customizable, rich, text-specific content within your Course Management System.
• Jumpstart—Simply load a WebTutor cartridge into your Course Management System.
• Customizable—Easily blend, add, edit, reorganize, or delete content.
• Content—Rich, text-specific content, media assets, quizzing, test bank, weblinks, discussion topics, interactive games and exercises, and more.
Visit www.cengage.com for more information.
xviii


For the Instructor
When it comes to supporting instructors, South-Western is unsurpassed.
Managerial Accounting, 10e, continues the tradition with powerful print and
digital ancillaries aimed at facilitating greater course successes.

Instructor’s Manual This manual contains a number of resources designed to aid
instructors as they prepare lectures, assign homework, and teach in the classroom. For each
chapter, the instructor is given a brief synopsis and a list of objectives. Then each objective
is explored, including information on Key Terms, Ideas for Class Discussion, Lecture Aids,
Demonstration Problems, Group Learning Activities, Exercises and Problems for
Reinforcement, and Internet Activities. Also, Suggested Approaches are included that incorporate many of the teaching initiatives being stressed in higher education today, including
active learning, collaborative learning, critical thinking, and writing across the curriculum.

Solutions Manual The Solutions Manual contains answers to all exercises, problems,
and activities that appear in the text. As always, the solutions are author-written and
verified multiple times for numerical accuracy and consistency with the core text.
Solutions transparencies are also available.
Test Bank For each chapter, the Test Bank includes True/False questions, MultipleChoice questions, and Problems, each marked with a difficulty level, chapter objective

association, and a tie-in to standard course outcomes. Along with the normal update
and upgrade of the 2,800 test bank questions, variations of the new Example Exercises
have been added to this bank for further quizzing and better integration with the textbook. In addition, the bank provides a grid for each chapter that compiles the correlation of each question to the individual chapter’s objectives, as well as a ranking of difficulty based on a clearly described categorization. Through this helpful grid, making a
test that is comprehensive and well-balanced is a snap!
ExamView® Pro Testing Software This intuitive software allows you to easily customize exams, practice tests, and tutorials and deliver them over a network, on the
Internet, or in printed form. In addition, ExamView comes with searching capabilities
that make sorting the wealth of questions from the printed test bank easy. The software
and files are found on the IRCD.

PowerPoint® Each presentation, which is included on the IRCD and on the product
support site, enhances lectures and simplifies class preparation. Each chapter contains
objectives followed by a thorough outline of the chapter that easily provide an entire
lecture model. Also, exhibits from the chapter, such as the new Example Exercises, have
been recreated as colorful PowerPoint slides to create a powerful, customizable tool.

Instructor Excel® Templates These templates provide the solutions for the problems and exercises that have Enhanced Excel® templates for students. Through these
files, instructors can see the solutions in the same format as the students. All problems
with accompanying templates are marked in the book with an icon and are listed in the
information grid in the solutions manual. These templates are available for download
on www.cengage.com/accounting/warren or on the IRCD.

Instructor’s Resource CD-ROM This convenient resource includes the PowerPoint®
Presentations, Instructor’s Manual, Solutions Manual, Test Bank, ExamView®, An
Instructor’s Guide to Online Resources, and Excel Application Solutions. Lively demonstrations of support technology are also included. All the basic material an instructor
would need is available in one place on this IRCD.

xix


For the Student

Students come to accounting with a variety of learning needs. Managerial
Accounting, 10e, offers a broad range of supplements in both printed form
and easy-to-use technology. We continue to refine our entire supplement
package around the comments instructors have provided about their
courses and teaching needs.

Study Guide This author-written guide provides students Quiz and Test Hints,
Matching questions, Fill-in-the-Blank questions (Parts A & B), Multiple-Choice questions, True/False questions, Exercises, and Problems for each chapter. Designed to
assist students in comprehending the concepts and principles in the text, solutions for
all of these items are available in the guide for quick reference.
Working Papers for Exercises and Problems The traditional working papers
include problem-specific forms for preparing solutions for Exercises, A & B Problems,
the Continuing Problem, and the Comprehensive Problems from the textbook. These
forms, with preprinted headings, provide a structure for the problems, which helps
students get started and saves them time. Additional blank forms are included.

Blank Working Papers These Working Papers are available for completing exercises and problems either from the text or prepared by the instructor. They have no
preprinted headings. A guide at the front of the Working Papers tells students which
form they will need for each problem.
Enhanced Excel® Templates These templates are provided for selected long or
complicated end-of-chapter exercises and problems and provide assistance to the
student as they set up and work the problem. Certain cells are coded to display a red
asterisk when an incorrect answer is entered, which helps students stay on track.
Selected problems that can be solved using these templates are designated by an icon.

Klooster & Allen General Ledger Software Prepared by Dale Klooster and
Warren Allen, this best-selling, educational, general ledger package introduces students
to the world of computerized accounting through a more intuitive, user-friendly system
than the commercial software they’ll use in the future. In addition, students have access
to general ledger files with information based on problems from the textbook and practice sets. The program is enhanced with a problem checker that enables students to

determine if their entries are correct and emulates commercial general ledger packages
more closely than other educational packages. Problems that can be used with
Klooster/Allen are highlighted by an icon. A free Network Version is available to
schools whose students purchase Klooster/Allen GL.
Product Support Web Site www.cengage.com/accounting/warren. This site provides students with a wealth of introductory accounting resources, including quizzing
and supplement downloads and access to the Enhanced Excel® Templates.

xx


Acknowledgments
Many of the enhancements made to Managerial Accounting, 10e, are a direct result of countless conversations we’ve had with principles of accounting students over the past several years. We want to take
this opportunity to thank them for their perspectives and feedback on textbook use; we think that 10e
represents our finest edition yet!
Bucks County Community
College
Instructors: Lori Grady,
Judy Toland
Bernadette Allen
Matarazzo
Vikas Patel
Erica Olsen
Eric Goldner
Shelly Rushbrook
Eamon Coleman
Tracy Bunsick
Baltimore City Community
College
Instructors: Jeff Hillard,
John Wiley

Sulaimon Adeyemi
Udeya Diour
Dwain White
Debra Witherspoon
Jacqueline Tuggle
Mabono Soumahoo
Des Moines Area
Community College
Instructors: Shea Mears,
Patty Holmes
Zach Schmidt
Angie Lee
Tim Hoffman
Richard Palmer
Sharon Beattie
Joseph J. Johnson
Armina Kahrimanovic
Ryan Wisnousky
Lindsay Tripp
Tiffany Shuey
Jenny Leonard
Susann Shaffner
Cori Shanahan
Nicholas Wallace
Kyle Melohn
Wendy Doolittle
LaRue Brannan
Nicholas Christopher
Yaeger
Jason Aitchison

Kean University
Instructor: Gary Schader
Margherita Marjotta
Hugo Prado
Marta Domanska

Nicole Foy
Andrea Colbert
Khatija Bibi
Houston Community
College
Instructor: Linda
Flowers
Yildirim Kocoglu
Ana Zelaya
Seungkyu Kim
Mohammad Arsallan
Bakali
Vanessa K. Rangel
Cher Lay
Sherika Gibson
Ulsi Ramos
Muhammad Shaikha
Hong Yang
Pamela Ruiz
Yvonne Ngo
Lansing Community
College
Instructor: Patricia
Walczak

Ana Topor
John Barrett
Brandon Smithwick
Bradley L. Moore
Cassandra DeVos
Elizabeth C. Escalera
Clara Powers
Lance Spencer
Jennifer Jones
Aristoteles Paiva Lopes
Oakland Community
College
Instructor: Deborah
Niemer
Paul Boker
Tracie M. Leitner
Thetnia Lynette Cobb
Vera Kolaj
Olivia Burke
Thomas J. Zuchowski
Ryan Shead
Austen Michaels
Michaele Jones
Bradlee J. VanAlstine
Tim Doherty
Vanya Jelezarova
Nilda Dervishaj
Maja Lulgjuraj

Pierce Radtke

Butler Community
College
Instructors: Jennifer
Brewer, Janice Akao
Sarah Kirkwood
Kimberly Brothers
Christine Brown
Chelsey Perkins
Thomas Mackay
Tucker Stewart
Austin Birkholtz
Santa Monica College
Instructors: Greg Brookins,
Terri Bernstein, and Pat
Halliday
Julieta Loreto
Noah Johnson
Matthew Nyby
Anitha Guna Wijaya
Jovani Rodriguez
Michelle Sharma
Marisol Granele
Prashila Sharma
Karlie Bryant
Wing San Kwong
Anthony Mitchell
Metropolitan Community
College
Instructor: Idalene
Williams

Suquett Saunders
Danette Cook
Ewokem Akohachere
Ivina Washington
Queen Esther Tucker
Jamie Rusch
Daisuke Motomura
Comlanri S. Zannou
Melissa Brunious
Marc Anderson
Keith Costello
Robyn Adler
Kelly Fitzgerald
Volunteer State
Community College
Instructor: Brent
Trentham
Kris Anderson
Jasmine Cox

Wendy Nabors
Patrick Farmer
Justin Gill
Kathryn Gambrell
Dana Mihalko
Kavitha Sudheendra
April Jeffries
Ray Mefford
Ashlee Kilpatrick
Cedar Valley

Instructor: S.T. Desai
Tiffany King
Kareem Aziz
Ebony Wingard
Cheryl Boyd
Dwevelyn Jennings
Kal Takieddin
Lazari Vanly
Adrian McKinney
Tanya Hubbard
Angela Fulbright
Tenisha Blair
Jamie Riley
Roshunda Webb
Porsha Espie
Keisha Murrell
Dawn Smith
Sinclair Community College
Instructor: Donna
Chadwick
Emanuel Gena
Victoria Wiseman
Daniel Hulet
Naaman Beck
Eric Pedro
Kathy Ernest
Jessica Weiss
Jessica Baker
Champer Murtery
Steve Huffman

Regis Allison
Hiba Ligawad
Cara Scott
Tammy Baughman
Kevin Ricketts
Nora Hatlab
Mary Kasper

Nicole Sutherland,
Grossmont College
Katie Longo, Southern
Adventist University
Joel Hughes, Southern
Adventist University
Lisa Hubbard, Mid-State
Technical College
Amanda Baker,
Davenport University
Phillipe Bouzy, Southern
Adventist University
Barbara Bryant, DeKalb
Technical College
Charisse Dolina,
Maharishi School of
Management
Amanda Worrell,
Southern Adventist
University
Angela Snider, Cardinal
Stritch University

Star Maddox, DeKalb
Technical College
Charles Balliet, Lehigh
Carbon CC
Ashley Heath, Buena
Vista University
Brianna Miller, Southern
Adventist University
John Varga,
Orange Coast College
Roger Montero, East
Los Angeles College
Terry Thorpe,
Irvine Valley
Jim Sugden,
Orange Coast College

WebEx Focus Group
Participants
April Wakefield,
Northcentral Technical
College

xxi


The following instructors
are members of our Blue
Sky editorial board,
whose helpful comments

and feedback continue to
have a profound impact
on the presentation and
core themes of this text:

Ana M. Cruz
Miami Dade College

Gloria Worthy
Southwest Tennessee
Community College

Walter DeAguero
Saddleback College

Lee Smart
Southwest Tennessee
Community College
Rick Andrews
Sinclair Community College
Donna Chadwick
Sinclair Community
College
Warren Smock
Ivy Tech Community College

Terry Dancer
Arkansas State University
David L. Davis
Tallahassee Community

College

Robert Dunlevy
Montgomery County
Community College
Richard Ellison
Middlesex County College
W. Michael Fagan
Raritan Valley Community
College
Carol Flowers
Orange Coast College

Shirly A. Kleiner
Johnson County
Community College

Carol Welsh
Rowan University

Patrick Borja
Citrus College

Michael M. Landers
Middlesex College

Chris Widmer
Tidewater Community
College

Robert Adkins
Clark State Community
College

Phillip Lee
Nashville State
Community College

Lynnette Mayne Yerbury
Salt Lake Community
College

Melvin Williams
College of the Mainland

Denise Leggett
Middle Tennessee State
University

The following instructors have participated in
the review process,
focus groups, and marketing events for this
new edition:

Patrick Rogan
Consumes River
College

Lynne Luper
Ocean County College

Maria C. Mari
Miami Dade College
Thomas S. Marsh
Northern Virginia
Community College—
Annandale
Cynthia McCall
Des Moines Area
Community College

Gary Schader
Kean University

Linda S. Flowers
Houston Community
College

Priscilla Wisner
Montana State University

Mike Foland
Southwest Illinois College

Andrea Murowski
Brookdale Community
College

Audrey Hunter
Broward Community College

Anthony Fortini
Camden Community College

Rachel Pernia
Essex County College

Renee Rigoni
Monroe Community College
Terry Thorpe
Irvine Community College
Patricia Walczak
Lansing Community College
Judith Zander
Grossmont College
Gilda M. Agacer
Monmouth University
Irene C. Bembenista
Davenport University
Laurel L. Berry
Bryant & Stratton College
Bill Black
Raritan Valley Community
College
Gregory Brookins
Santa Monica College

Barbara M. Gershowitz
Nashville State
Community College
Angelina Gincel

Middlesex County College
Lori Grady
Bucks County Community
College
Joseph R. Guardino
Kingsborough Community
College
Amy F. Haas
Kingsborough Community
College
Betty Habershon
Prince George’s
Community College
Patrick A. Haggerty
Lansing Community
College

Rebecca Carr
Arkansas State University

Becky Hancock
El Paso Community
College

James L. Cieslak
Cuyahoga Community
College

Paul Harris
Camden County College

Sue Cook
Tulsa Community College

xxii

Patricia H. Holmes
Des Moines Area
Community College

Brenda Fowler
Alamance Community
College

James Cieslaks
Cuyahoga Community
College

Shelia Ammons
Austin Community College

Felicia Baldwin
Daley College

Peggy Smith
Baker College—Auburn
Hills

Debra Kiss
Davenport University

Christopher Mayer
Bergen Community
College

Dawn Peters
Southwest Illinois College
Gary J. Pieroni
Diablo Valley College

Audrey Hunter
Broward Community College

Debra Prendergast
Northwestern Business
College

Cathy Montesarchio
Broward Community
College

Eric Rothernburg
Kingsborough Community
College
Richard Sarkisian
Camden Community College
Gerald Savage
Essex Community College
Janice Stoudemire
Midlands Technical

College
Linda H. Tarrago
Hillsborough Community
College

Lawrence Roman
Cuyahoga Community
College

Darlene B. Lindsey
Hinds Community College

Michelle Grant
Bossier Parish Community
College

Lou Rosamillia
Hudson Valley Community
College

Sandee Cohen
Columbia College—Chicago

Laurel L. Berry
Bryant and Stratton
College
Judy Toland
Bucks County Community
College
Lori Grady

Bucks County Community
College
Rafik Elias
California State University
—Los Angeles
Norris Dorsey
California State University
—Northridge

Judy Toland
Buck Community College

Angela Siedel
Cambria-Rowe Business
College

Bob Urell
Irvine Valley College

Suryakant Desai
Cedar Valley College

Marilyn Ciolino
Delgado Community
College
Patti Holmes
Des Moines Area
Community College
Gary J. Pieroni
Diablo Valley College

Rebecca Brown
DMACC—Carroll Campus
Chris Gilbert
East Los Angeles College
Satoshi K. Kojima
East Los Angeles College
Ron Ozur
East Los Angeles College
Lorenzo Ybarra
East Los Angeles College
Carol Dutchover
Eastern New Mexico
University—Roswell
Peter VanderWeyst
Edmonds Community
College
Debbie Luna
El Paso Community
College
Lee Cannell
El Paso Community
College


Kenneth O’Brien
Farmingdale State College
Lynn Clements
Florida Southern College
Sara Seyedin
Foothill College

Aaron Reeves
Forest Park Community
College
Ron Dustin
Fresno City College
Christy Kloezman
Glendale Community
College
Scott Stroher
Glendale Community
College
Brenda Bindschatel
Green River Community
College
Judith Zander
Grossmont College

Susan Logorda
Lehigh Carbon Community
College
Kirk Canzano
Long Beach City College
Frank Iazzetta
Long Beach City College
Anothony Dellarte
Luzerne County Community
College
Bruce England
Massasoit Community
College

Idalene Williams
Metropolitan Community
College
Cathy Larson
Middlesex Community
College
Janice Stoudemire
Midlands Technical
College

Dick Ahrens
Pierce College
Catherine Jeppson
Pierce College
Al Partington
Pierce College
Mercedes Martinez
Rio Hondo College
Michael Chaks
Riverside Community
College
Cheryl Honore
Riverside Community
College
Frank Stearns
Riverside Community
College
Patricia Worsham
Riverside Community
College

Leonard Cronin
Rochester Community
College

Dominque Svarc
Harper College

Renee Rigoni
Monroe Community
College

Jennifer Finley
Hill College

Janice Feingold
Moorpark College

Michelle Powell Dancy
Holmes Community
College

Yaw Mensah
Rutgers University

Patricia Feller
Nashville State
Community College

Terry Thorpe
Irvine Community College

David Juriga
Saint Louis Community
College

Ray Wurzburger
New River Community
College

Doug Larson
Salem State College

Leslie Thysell
John Tyler Community
College

Desta Damtew
Norfolk State University

Carol Welsh
Rowan University

David L. Davis
Tallahassee Community
College
Chris Widmer
Tidewater Community
College
Julie Gilbert
Triton College

Stephanie Farewell
U of Arkansas—
Little Rock
Sanford Kahn
University of Cincinnati
Suzanne McCaffrey
University of
Mississippi
Pete Rector
Victor Valley College
Daniel Gibbons
Waubonsee Community
College
The following instructors created content for
the supplements that
accompany the text:
Christine Jonick
Gainesville State College
CengageNOW
Janice Stoudemire
Midlands Technical
College
CengageNOW

Greg Brookins
Santa Monica College

Angie LaTourneau
Winthrop University
CengageNOW

Dan King
Shoreline Community
College

Ann Martel
Marquette University
CengageNOW

Ann Gregory
South Plains College

Robin Turner
Rowan-Cabarrus
Community College
CengageNOW

Shirly A. Kleiner
Johnson County
Community College

Andrew McKee
North Country Community
College

Alex Clifford
Kennebec Valley Technical
College

Greg Lauer

North Iowa Area
Community College

Eric Rothenburg
Kingsborough Community
College

Debra Prendergast
Northwestern Business
College

John Dudley
La Harbor College

Lynne Luper
Ocean County College

Abdul Qastin
Lakeland College

Audrey Morrison
Pensacola Junior College

John Teter
St. Petersburg
College

Patricia Walczak
Lansing Community
College

Judy Grotrian
Peru State College

Bonnie Scrogham
Sullivan University

Gloria Worthy
Southwest Tennessee
Community College
Beatrice Garcia
Southwest Texas Junior
College

Sheila Ammons
Austin Community College
CengageNOW
Tracie Nobles
Austin Community College
CengageNOW

Patti Lopez
Valencia Community
College
General Ledger Software
LuAnn Bean
Florida Institute of
Technology
Test Bank
Barbara Durham

University of Central
Florida
Test Bank
Doug Cloud
Pepperdine University
PowerPoint Presentations
Kirk Lynch
Sandhills Community
College
Instructor’s Manual
Lori Grady
Bucks County Community
College
JoinIN/Turning Point
Kevin McFarlane
Front Range Community
College
Achievement Tests, Web
Quizzes
L.L. Price
Pierce College
Leaping Lizards Lawn Care
Practice Set
Don Lucy
Indian River Community
College
Bath Designs, Danielle’s
Dog Care Practice Sets
Jose Luis Hortensi
Miami Dade College

Fitness City Merchandise
Practice Set
Edward Krohn,
Miami Dade, College
Star Computer Sales and
Services Practice Set
Ana Cruz & Blanca Ortega,
Miami Dade College
Artistic Décor Practice Set

Craig Pence
Highland Community
College
Spreadsheets

xxiii


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