MANAGERIAL. Third Canadian Edition. BRENDA M. MALLOUK University of Toronto. GARY SPRAAKMAN York University

Transcription

1 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

2 CHAPTER 1 The Strategic Content 2 LEARNING OBJECTIVES 2 ON SITE: Dell Incorporated 3 MANAGEMENT ACCOUNTING DEFINED 5 Financial Accounting 6 Management Accounting 6 Cost Accounting 7 Management Accountants 7 MANAGEMENT ACCOUNTING: A COMPONENT OF MANAGEMENT CONTROL 8 MANAGEMENT ACCOUNTING: IMPLEMENTING STRATEGY 9 Organizational Structure 10 GENERAL NEWS NOTE: Loblaws Struggles for Survival Against Wal-Mart 10 Core Competencies 11 Generic Strategies 11 Management 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 17 Brand Values 17 GENERAL NEWS NOTE: Management Accounting in the 21st Century 18 Ethics 20 SITE ANALYSIS: Dell Incorporated 20 CHAPTER SUMMARY 21 KEY TERMS 22 END-OF-CHAPTER MATERIALS: 23 Self-Test Questions 23 Questions 23 Exercises 24 Cases 28 Ethics 32 Solutions to Self-Test Questions 33 Endnotes 33 CHAPTER 2 Cost Terminology and Cost Flows 34 LEARNING OBJECTIVES 34 ON SITE: Swiss Chalet 35 COMPONENTS OF PRODUCT COST 36 Direct Material 37 Direct Labour 37 INTERNATIONAL NEWS NOTE: Price Reductions Demanded 38 GENERAL NEWS NOTE: When Is Labour Considered a Fixed Cost? 40 GENERAL NEWS NOTE: Robots Save Time and Money for Companies 41 Overhead 42 Stage of Production 42 Prime and Conversion Costs 43 NEL

3 COST BEHAVIOUR 45 Variable and Fixed Costs 45 INTERNATIONAL NEWS NOTE: Lifetime Contracts Make Labour Cost Fixed 46 GENERAL NEWS NOTE: Canada Is the Most Expensive Place to Produce Cars 47 GENERAL NEWS NOTE: Rebates Help Sell Cars 48 Variable Versus Fixed Costs: The Tradeoff 50 INTERNATIONAL NEWS NOTE: Using Lean Production at Jefferson Pilot Financial to Increase Profits 51 Empowering Employees to Make Changes That Help Cut Costs 52 Outsourcing and Its Impact on Cost 52 Mixed Costs 54 Step Cost 55 High-Low Method 58 Scattergraph Method 58 GENERAL NEWS NOTE: The Use of an ERP System Improves Profitability 61 ACCUMULATION OF PRODUCT COSTS A REVIEW 62 COST OF GOODS MANUFACTURED AND SOLD 65 SITE ANALYSIS: Swiss Chalet 66 APPENDIX 2A: LEAST-SQUARES REGRESSION ANALYSIS 67 CHAPTER SUMMARY 70 KEY TERMS 71 POINTS TO REMEMBER 72 DEMONSTRATION PROBLEMS 73 SOLUTIONS TO DEMONSTRATION PROBLEMS 74 END-OF-CHAPTER MATERIALS: 79 Self-Test Questions 79 Questions 81 Exercises 81 Problems 85 Cases 90 Ethics 92 Solutions to Self-Test Questions 93 Endnotes 94 effl Managerial Accounting CHAPTER 3 Cost-Volume-Profit Analysis 96 LEARNING OBJECTIVES 96 ON SITE: United Online 97 GENERAL NEWS NOTE: Using Breakeven Analysis in Medicine 100 THE BREAKEVEN POINT 101 INTERNATIONAL NEWS NOTE: How German Firms Use Costing Systems 101 Basic Assumptions 102 BASIC CALCULATIONS TO USE IN BREAKEVEN ANALYSIS 104 Contribution Margin and Calculating the Breakeven Point 104 Contribution Margin Ratio 104 TARGET NET PROFIT 105 Fixed Net Profit 105 Incremental Analysis for Short-Run Changes 105 GENERAL NEWS NOTE: Operating in Tough Times 108 CVP ANALYSIS IN A MULTIPRODUCT ENVIRONMENT 112 NEL

4 GENERAL NEWS NOTE: Bundling Products Together UNDERLYING ASSUMPTIONS OF CVP ANALYSIS MARGIN OF SAFETY AND OPERATING LEVERAGE Margin of Safety Operating Leverage GENERAL 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 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 DOCUMENTS Materials Requisitions Job Order Cost Sheet Employee Time Sheets GENERAL NEWS NOTE: Uncompensated Overtime Overhead Completion of Production Table of Contents

5 GENERAL NEWS NOTE: Impact of Technology JOB ORDER COST ILLUSTRATION INTERNATIONAL NEWS NOTE: What Business Is Doing to Meet the 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 Environments GENERAL 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 COSTS 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 CHAPTER 5: Process Costing LEARNING OBJECTIVES ON SITE: Ganong Bros. Ltd. Introduction to Process Costing Accumulating Costs by Separate Cost Components Calculating Equivalent Units of Production INTRODUCING WEIGHTED AVERAGE AND FIFO PROCESS COSTING EUP Calculations and Cost Assignment Weighted Average Method PROCESS COSTING USING FIFO VALUATION FIFO Method Steps One and Two Step Three: Determine the Equivalent Units of Production Step Four: Determine the Total Cost to Account for Step Five: Calculate the Cost Per Equivalent Unit of Production Step Six: Assign Costs to Inventories Process Costing in a Multidepartmental Setting Recording Information in the Accounts SPOILED AND LOST UNITS Types of Lost Units Accounting for Lost Units Illustrations of Lost Units Spoilage Abnormal and Normal Spoilage Minimizing Spoilage a Managerial Accounting NEL

6 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 Questions Questions Exercises Problems Cases Ethics Solutions to Self-Test Questions Endnotes CHAPTER 6 The Budgeting Process LEARNING OBJECTIVES ON SITE: The Hospital for Sick Children PURPOSES 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 Revisions Performance Evaluation BUDGETING IN AN INTERNATIONAL BUSINESS GENERAL NEWS NOTE: Budgeting at The Jim Pattison Group GENERAL NEWS NOTE: How Bayer Changed Its System THE MASTER BUDGET THE MASTER BUDGET ILLUSTRATED Sales Budget Production Budget Direct Materials Purchases Budget Direct Labour Budget Overhead Budget Selling and Administrative (S&A) Budget Capital Budget GENERAL NEWS NOTE: Readjusted Budgeting and Analysis Cash Budget Cash Receipts and Accounts Receivable Cash Disbursements and Accounts Payable Budgeted Financial Statements Cost of Goods Manufactured Statement Income Statement Balance Sheet Cash Flow Statement Table of Contents sb

7 CHAPTER 7 ZERO-BASED BUDGETING THE IMPACT OF ENTERPRISE RESOURCE PLANNING SYSTEMS ON BUDGETING GENERAL NEWS NOTE: Companies Abandon Traditional Budgets to Boost Shareholder Value CONCLUDING COMMENTS SITE ANALYSIS: The Hospital for Sick Children CHAPTER SUMMARY KEY TERMS POINTS TO REMEMBER DEMONSTRATION PROBLEMS SOLUTION TO DEMONSTRATION PROBLEM END-OF-CHAPTER MATERIALS: Self-Test Questions Questions Exercises Problems Cases Ethics Solutions to Self-Test Questions Endnotes Introduction to a Standard Cost System LEARNING OBJECTIVES ON SITE: Bright Pearl Seafood Restaurant Inc. STANDARD COST SYSTEMS DEVELOPMENT OF A STANDARD COST SYSTEM MATERIAL STANDARDS LABOUR STANDARDS GENERAL NEWS NOTE: The Beginning of Time and Motion Studies GENERAL NEWS NOTE: Dell Does It Again OVERHEAD STANDARDS VARIANCE COMPUTATIONS Material Variances Point of Purchase Material Variance Model Basing Price Variance on Purchases Rather Than Usage Labour Variances GENERAL NEWS NOTE: Separating Quality Problems from Efficiency Problems Manufacturing Overhead Variances Variable Overhead Fixed Overhead COST CONTROL AND VARIANCE RESPONSIBILITY Material Variances Labour Variances Overhead Variances GENERAL NEWS NOTE: Challenges With Standard Costing Variable Overhead Fixed Overhead SEE Managerial Accounting NEL

8 ( ( Fixed Overhead Spending Variance 401 Volume Variance 402 CONVERSION COST AS AN ELEMENT IN STANDARD COSTING 403 CONSIDERATIONS IN ESTABLISHING STANDARDS 404 Appropriateness 404 GENERAL NEWS NOTE: Don't Carry Your Mistakes Forward 405 Attainability 405 GENERAL NEWS NOTE: When to Investigate Variances 406 CHANGES IN THE USE OF STANDARDS 407 Use of Theoretical Standards for Quality Improvement 407 GENERAL NEWS NOTE: Empowering Employees Is an Ethical Business Practice 408 Long-Term Versus Short-Term Standards 408 SALES PRICE AND SALES VOLUME VARIANCES 409 Analyzing Cost Variances 410 GENERAL NEWS NOTE: Does Standard Costing Work In Today's Business Environment? 411 The Future of Standard Costing 411 INTERNATIONAL NEWS NOTE: Does Standard Costing Work in Japan? 413 Standard Costs and Enterprise Resource Planning Systems 413 GENERAL NEWS NOTE: How ERP Systems Help 414 SITE ANALYSIS: Bright Pearl Seafood Restaurant Inc. 415 APPENDIX 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 426 Questions 428 Exercises 429 Problems 435 Cases 444 Ethics 446 Solutions to Self-Test Questions 448 Endnotes 448 CHAPTER 8 Activity-Based Management and Costing LEARNING OBJECTIVES ON SITE: Purolator Courier Limited THE ABC SYSTEM DEVELOPING PRODUCT/SERVICE COST INFORMATION ACTIVITY ANALYSIS Activity-Based Management Value-Added and Nonvalue-Added Activities GENERAL NEWS NOTE: Activity-Based Costing at UPS ABC as Accounting Data Translator NEL Table of Contents

9 Cycle Efficiency 460 Cost Drivers 461 GENERAL NEWS NOTE: How Do Pieces Impact Costs? 462 ACTIVITY-BASED COSTING 462 Level of Cost Incurrence 464 Two-Step Allocation 467 Activity-Based Costing Illustrated 468 Departmental Analysis 470 Calculating Unit Costs Using ABC 472 Comparison to Traditional Costing 473 DETERMINING WHETHER ABC IS APPROPRIATE 474 Product/Service Variety or Complexity 475 GENERAL NEWS NOTE: German Cost Accounting at Work 477 Lack of Commonality in Overhead Costs 478 Problems in Current Cost Allocations 478 Changes in Business Environment 478 ABC and the Service Sector 479 GENERAL NEWS NOTE: German Cost Accounting Has ABC Attributes 480 ABC Compared to Process Costing and Job-Order Costing 481 OPERATIONAL AND STRATEGIC PLANNING AND CONTROL USING ABC 487 Problems With ABC 487 CRITICISMS OF AND CONCLUSIONS ABOUT ABC 488 ABC and ERP 490 SITE ANALYSIS: Purolator Courier Limited 491 CHAPTER SUMMARY 491 KEY TERMS 493 POINTS TO REMEMBER 493 DEMONSTRATION PROBLEM 494 SOLUTION TO DEMONSTRATION PROBLEM 494 END-OF-CHAPTER MATERIALS: 495 Self-Test Questions 495 Questions 496 Exercises 497 Problems 504 Cases 519 Ethics 521 Solutions to Self-Test Questions 522 Endnotes 522 CHAPTER 9 Relevant Costing 524 LEARNING OBJECTIVES 524 ON SITE: The Gillette Company 525 THE CONCEPTS OF RELEVANCE AND RELEVANT COSTING 528 INTERNATIONAL NEWS NOTE: Where 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 Manufacturing 539 RELEVANT COSTS IN MAKE-OR-OUTSOURCE (BUY) DECISIONS 540 ato Managerial Accounting NEL

10 OUtfiKF 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 Products Compensation Changes Advertising Budget Changes Special 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 With 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 Questions Questions Exercises Problems Cases Ethics Solutions to Self-Test Questions Endnotes CHAPTER 10 Controlling Costs LEARNING OBJECTIVES ON SITE: Controlling Costs in the Skies COST CONTROL Cost Understanding Cost Differences Related to Cost Behaviour GENERAL NEWS NOTE: Cost Management at General Electric Cost Differences Related to Quantity Purchased Cost Differences Related to Inflation/Deflation Cost Differences Related to Supply/Supplier Cost Adjustments Cost Containment INTERNATIONAL NEWS NOTE: Higher Wages Mean Higher Profits: The Costco Way Cost Avoidance and Reduction Implementing Cost Control MANAGING INVENTORY Costs Associated with Inventory Suppliers and Quantities Which Supplier? What Quantity? Table of Contents

11 When to Order? Problems with the EOQ Model OUTSOURCING INTERNATIONAL NEWS NOTE: Controlling the Hidden Costs of Outsourcing JUST-IN-TIME SYSTEMS Product Processing Plant Layout Employee Empowerment The Two Most Important Relationships for JIT Backflush Costing INTERNATIONAL NEWS NOTE: Data Mining, a New Technique for Understanding Cost LIFE CYCLE COSTING Development Stage Introduction Stage Growth, Maturity, and Harvest Stages Cost and Price Changes Over Life TARGET COSTING Value Engineering PROCESS-BASED MANAGEMENT GENERAL NEWS NOTE: The Four Cs of Customer-Focused Solutions SITE ANALYSIS: Airlines CHAPTER SUMMARY KEY TERMS POINTS TO REMEMBER DEMONSTRATION PROBLEM SOLUTION TO DEMONSTRATION PROBLEM END-OF-CHAPTER MATERIALS: Self-Test Questions Questions Exercises Problems Cases Ethics Solutions to Self-Test Questions Endnotes CHAPTER 11 iesponsibility Accounting and Transfer Pricing in Decentralized Organizations 660 LEARNING OBJECTIVES 0U SITE: Multiversity DECENTRALIZATION Advantages of Decentralization Disadvantages of Decentralization Responsibility Accounting Systems TYPES OF RESPONSIBILITY CENTRES Cost Centres INTERNATIONAL NEWS NOTE: Empirical Evidence for Market-Based Transfer Prices Revenue Centres Managerial Accounting NEL

12 Profit Centres 674 Investment Centres 675 INTERNATIONAL NEWS NOTE: IBM Cost Centres into Profit Centres 676 SUBOPTIMIZATION 677 TRANSFER PRICING 678 Cost-Based Transfer Prices 680 INTERNATIONAL NEWS NOTE: Transfer Pricing Principles for Intellectual Property 681 Market-Based Transfer Prices 682 NEGOTIATED TRANSFER PRICES 682 Dual Pricing 682 Choosing the Appropriate Transfer Price 683 Transfer Prices for Service Departments 683 TRANSFER PRICING IN A MULTINATIONAL SETTING 686 GENERAL NEWS NOTE: CRA Clarifies "Reasonable Efforts" to Determine Arm's Length Transfer Prices 687 INTERNATIONAL NEWS NOTE: Transfer Pricing in China 688 SITE ANALYSIS 689 CHAPTER SUMMARY 689 KEY TERMS 690 POINTS TO REMEMBER 691 DEMONSTRATION PROBLEM 691 SOLUTION TO DEMONSTRATION PROBLEM 691 END-OF-CHAPTER MATERIALS: 692 Self-Test Questions 692 Questions 693 Exercises 694 Problems 700 Cases 718 Ethics 720 Solutions to Self-Test Questions 721 Endnotes 721 CHAPTER 12 Measuring and Rewarding Performance 722 LEARNING OBJECTIVES 722 ON SITE: Dorel Industries Incorporated 723 MEASURING ORGANIZATIONAL AND EMPLOYEE PERFORMANCE 724 INTERNATIONAL NEWS NOTE: Balanced Scorecard for Foster Brewing International 727 INTERNATIONAL NEWS NOTE: Balanced Scorecard at Hilton Hotels 728 FINANCIAL PERFORMANCE MEASUREMENTS FOR MANAGERS 729 Cash Flow 729 Return on Investment 730 Residual Income 732 Limitations of Return on Investment and Residual Income 733 ECONOMIC VALUE ADDED 734 NONFINANCIAL PERFORMANCE MEASURES 735 Selection of Nonfinancial Measures 736 Establishment of Comparison Bases 736 Throughput 738 Quality Indicators 739 NEL Table of Contents

13 GENERAL NEWS NOTE: Managing for Quality 740 ACTIVITY-BASED COSTING AND PERFORMANCE MEASUREMENT 741 PERFORMANCE EVALUATION IN MULTINATIONAL SETTINGS 742 GENERAL NEWS NOTE: Performance Measurement Systems: Traditional Versus Contemporary 743 RELATING COMPENSATION AND PERFORMANCE 744 Pay-for-Performance Plans 744 Inclusion of Subjective Performance Measures 747 Compensation Packages 747 Incentives 748 Motivating Employees 748 GLOBAL COMPENSATION 749 GENERAL NEWS NOTE: A New Compensation Base 750 SITE ANALYSIS CHAPTER SUMMARY 751 KEY TERMS 752 POINTS TO REMEMBER 753 DEMONSTRATION PROBLEM 754 SOLUTION TO DEMONSTRATION PROBLEM 754 END-OF-CHAPTER MATERIALS: 755 Self-Test Questions 755 Questions 756 Exercises 757 Problems 761 Cases 773 Ethics 776 Solutions to Self-Test Questions 777 Endnotes 777 CHAPTER 13 Management Accounting Systems 778 LEARNING OBJECTIVES 778 ON SITE: The Hudson's Bay Company 779 COST MANAGEMENT SYSTEM 780 Designing a Cost Management System 782 GENERAL NEWS NOTE: The Dashboard for Managing 783 PERFORMANCE MEASUREMENT SYSTEM 784 GENERAL NEWS NOTE: How RONA Is Fine-Tuning Its Financials With Cutting Edge Tools 785 FOUR STAGES OF COST MANAGEMENT AND PERFORMANCE MEASUREMENT SYSTEMS 785 Stage I Systems 786 Stage II Systems 786 Stage III Systems 786 GENERAL NEWS NOTE: Hbc Adds Precision 787 Stage IV Systems 788 THE EVOLUTION OF INVENTORY SYSTEMS TO ENTERPRISE RESOURCE PLANNING 788 ENTERPRISE RESOURCE PLANNING SYSTEMS 789 GENERAL NEWS NOTE: Supply Chain Imperatives 790 WAL-MART'S ENTERPRISE RESOURCE PLANNING SYSTEM 792 Managerial Accounting NEL

14 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 W14-3 GENERAL 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 W14-23 GENERAL NEWS NOTE: Measuring Up W14-24 GENERAL NEWS NOTE: How Shall ROI Be Measured? W14-25 INVESTING TO MANAGE ENVIRONMENTAL COSTS W14-26 GENERAL NEWS NOTE: The Environment W14-27 POST-INVESTMENT AUDIT W GENERAL NEWS NOTE: Bringing Discipline to Capital Budgets at AnyCorp W14-29 CAPITAL BUDGETING WITH ENTERPRISE RESOURCE PLANNING SYSTEMS W14-30 SITE 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 NEL Table of Contents

15 KEY TERMS POINTS TO REMEMBER DEMONSTRATION PROBLEM SOLUTION TO DEMONSTRATION PROBLEM END-OF-CHAPTER MATERIALS Self-Test Questions Questions Exercises Problems Cases Ethics Communication Activities Solutions To Self-Test Questions Endnotes W14-45 W14-45 W14-47 W14-47 W14-49 W14-49 W14-50 W14-51 W14-55 W14-64 W14-66 W14-67 W14-69 W14-70 Appendix A: Code of Ethics Society of Management Accountants of Canada Appendix B: Instructions for Writing Cases Appendix C: Present and Future Value Tables Glossary Company Index Subject Index