Solution Manual for Horngren's Cost Accounting, 17th Edition

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Horngren’s Cost Accounting
17th Edition
Srikant M. Datar
Harvard University
Madhav V. Rajan
University of Chicago
Instructor’s Solutions
Manual

i
TABLE OF CONTENTS
Preface iii
Dedication.................................................................................................................................. iv
Supplements Available for the 17th Edition v
Alternative Suggested Chapter Sequences vii
Categorization of Assignment Material xi
Presentation of Solutions xxvii
Major Changes in Text for the 17th Edition xxviii
Highlights of New Chapter-by-Chapter Changes xxxi
Changes in Assignment Material for the 17th Edition xxxv
Chapter Solutions
1 The Manager and Management Accounting 1-1
2 An Introduction to Cost Terms and Purposes 2-1
3 Cost-Volume-Profit Analysis 3-1
4 Job Costing 4-1
5 Activity-Based Costing and Activity-Based Management 5-1
6 Master Budget and Responsibility Accounting 6-1
7 Flexible Budgets, Direct-Cost Variances, and Management Control 7-1
8 Flexible Budgets, Overhead Cost Variances, and Management Control 8-1
9 Inventory Costing and Capacity Analysis 9-1
10 Determining How Costs Behave 10-1
11 Data Analytic Thinking and Prediction 11-1
12 Decision Making and Relevant Information 12-1
13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis 13-1
14 Pricing Decisions and Cost Management 14-1
15 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis 15-1
16 Allocation of Support-Department Costs, Common Costs, and Revenues 16-1
17 Cost Allocation: Joint Products and Byproducts 17-1
18 Process Costing 18-1
19 Spoilage, Rework, and Scrap 19-1

iii
PREFACE
The keys to the success of a course in cost accounting are the assignment and discussion of
provocative problem material. The gathering of high-quality assignment material has been a
crucial phase of this book’s preparation—not a painful afterthought.
Please review the preface in the text in conjunction with examining the suggestions in this
Instructor’s Solutions Manual. Please also read all the front matter of this manual.
Mark Awada, Connie Belden, Caitlin Bowler, Molly Brown, Renee Castrigano, Tom Clausen,
Barbara Dunham, Merle Ederhof, Paul Hamilton, Anna Jensen, and Ashley Shea assisted us
greatly with contributing, critiquing, and checking of the problems and their solutions. We thank
them for their many wonderful contributions.
We appreciate the technical support for data analysis provided by DeYett Law. Her ability to
cheerfully respond to our challenges made our tasks much more manageable.
We are thankful to Ellen Geary, Lacey Vitetta, Chris DeJohn, Michael Trinchetto, Sara Eilert,
Martha LaChance, and Claudia Fernandes at Pearson for providing continual support in preparing
this Solutions Manual.
SRIKANT M. DATAR
MADHAV V. RAJAN

iv
In memory of Charles T. Horngren 1926–2011
Chuck Horngren revolutionized cost and management accounting. He loved new
ideas and introduced many new concepts. He had the unique gift of explaining these
concepts in simple and creative ways. He epitomized excellence and never tired
of details, whether it was finding exactly the right word
or working and reworking assignment materials.
He combined his great intellect with genuine humility and warmth and a human
touch that inspired others to do their best. He taught us many lessons about
life through his amazing discipline, his ability to make everyone
feel welcome, and his love of family.
It was a great privilege, pleasure, and honor to have known
Chuck Horngren. Few individuals will have the enormous influence that
Chuck had on the accounting profession. Fewer still will be able to do it with the
class and style that was his hallmark. He was unique, special, and amazing
in many, many ways and, at once, a role model, teacher, mentor, and friend.
He will be deeply missed.
Srikant M. Datar
Harvard University
Madhav V. Rajan
University of Chicago

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v
SUPPLEMENTS AVAILABLE FOR THE 17TH EDITION
A complete package of supplements is available to assist students and instructors in using
Horngren, Cost Accounting, 17th edition.
MyLab Accounting
MyLab Accounting is an online homework and assessment tool designed to help students practice
cost accounting problems and concepts and to give their instructors feedback on student
performance. It lets cost accounting professors assign a homework deliverable that is automatically
graded but that also serves as a tutorial experience for students.
Based on Pearson’s MathXL platform, which has graded millions of assignments, MyLab
Accounting provides a strong, reliable platform with a rock solid performance history. To learn
more, visit pearsonmylabandmastering.com.
For Instructors
Instructor Resource Center (IRC)
These password-protected resources are accessible from www.pearsonhighered.com for Cost
Accounting, 17th ed. Resources include the following:
• Instructor’s Solutions Manual
• Test Bank in Word and in TestGen, including algorithmic questions
• Instructor’s Resource Manual
• PowerPoint Presentations
• Image Library
Instructor’s Solutions Manual
© 2021 | 978-0-13562849-2 | Online
This manual contains the fully worked-out and accuracy-checked solutions for every question,
exercise, and problem in the text.
Test Bank
By Michael Griffin
© 2021 | 978-0-13-562855-3 | Online
This collection of tests for each chapter offers an array of questions ranging from easy to difficult.
The Test Bank supports Association to Advance Collegiate Schools of Business (AACSB)
International Accreditation and is available in MS Word.
TestGen
© 2021 | 978-0-13-563256-7 | Online
This test-generating program allows instructors to add, edit, or delete questions from the test bank;
analyze test results; and organize a database of exams and student results.

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vi
Instructor’s Resource Manual
By Donna McGovern
© 2021 | 978-0-13-562856-0 | Online
The chapter-by-chapter manual offers helpful classroom suggestions and teaching tips.
PowerPoint Presentations
By Jinhee Trone
© 2021 | 978-0-13-563282-6 | Online
These chapter-by-chapter presentations provide you with a slide show ready for classroom use.
Use the slides as they are or edit them to meet your classroom needs.
Image Library
© 2021 | 978-0-13-563253-6 | Online
The image library contains all photos, tables, exhibits and figures from the text, so that instructors
can use them in their custom presentations.

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vii
ALTERNATIVE SUGGESTED CHAPTER SEQUENCES
The Preface to Cost Accounting noted that our aim in organizing the material was to present a
modular, flexible organization that permits a course to be custom tailored. This section presents
six possible sequences for a first course in cost accounting. For each of these six sequences, we
also present the sequence of a second course that would result in coverage of many or all of the
topics in Cost Accounting. Outlines I–V all include Chapters 1 to 9 in varying orders of sequence.
Outline VI has a strong (almost exclusive) focus on the decision making role of cost accounting.
We analyzed the sequences of chapters assigned by many users of the 16th edition. Although many
instructors tended to follow the sequence in the text, other instructors tailored sequences to fit their
particular desires. These tailored sequences varied considerably. By far the most popular departure
was to assign the chapter on process costing (Chapter 18) immediately after the coverage of job
costing (Chapter 4) and activity-based costing (Chapter 5). The next most popular departure was
to assign Chapter 10 after Chapter 2 or 3. All the accompanying alternative assignment schedules
have an optional provision to facilitate tailoring a course. Obviously, instructors should alter any
suggested sequence to suit their preferences.
OUTLINE I: This basic course provides a balance of topics between the major purposes of cost
accounting:
1. Calculating the cost of products, services, and other cost objects
2. Obtaining information for planning and control and performance evaluation
3. Analyzing relevant information for making decisions
Finishing the first course with Chapters 12 and 13 means that topics with less procedural emphasis
are highlighted in the last weeks of the course; these two chapters also introduce topics covered in
more detail in a second course. Some instructors may assign Chapter 10 without using the
Appendix on “Regression Analysis,” preferring to delay use of the Appendix until the second
course (especially if many students have not been exposed to regression analysis at the time of the
basic course). Chapter 11 covers data science applications to management accounting. Instructors
may choose to cover this in the first or the second course.
OUTLINE II: This basic course covers the same chapters as Outline I but assigns Chapter 10
(Determining How Costs Behaves) immediately after Chapter 3 (Cost Volume-Profit Analysis). It
also replaces Chapter 14 on Pricing Decisions and Cost Management with Chapter 13 on Strategy,
Balanced Scorecard, and Strategic Profitability Analysis. This first part of the second course
emphasizes cost management and performance evaluation before covering the six chapters (15–
21) on cost allocation and other aspects of costing systems.
OUTLINE III: After covering Chapters 1 to 9 and 12 in the basic course, this sequence finishes
with a chapter on strategic issues (Chapter 13) and two chapters on cost allocation topics (Chapters
15 and 16). Some instructors view it as important that students who take only one cost accounting
course become aware of how pervasive cost allocation issues are in practice.

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viii
OUTLINE IV: This basic course is similar to Outline II with one key exception: Chapter 18
(Process Costing) is covered immediately after Chapter 5. Many instructors prefer to cover job
costing and process costing in sequence so that their differences are highlighted.
OUTLINE V: This basic course emphasizes technical cost accounting topics and data analysis
more than the other five outlines. Chapters 18 and 19 extend Chapters 4 and 5; covering 4, 5, 18,
and 19 as a single section of the course provides students with a solid understanding of product
costing alternatives.
OUTLINE VI: This basic course is adopted by instructors who wish to put most emphasis on the
decision making and performance evaluation aspects of cost accounting. Finishing the basic course
with Chapters 23 and 24 means that behavioral issues are highlighted in the final weeks of the
course.

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xi
CATEGORIZATION OF ASSIGNMENT MATERIAL
The assignment material in the 17th edition has been developed to offer instructors a broad range
of options in developing a challenging and interesting course. The following exhibits assist
instructors in selecting assignment material.
Exhibits P-l and P-2 show assignment material that is based on service or nonprofit and on
merchandising (retail, wholesale, or distribution) sectors of the economy. Although many of the
assignments in the 17th edition are based in the manufacturing sector, Exhibits P-l and P-2 provide
many examples for instructors who wish to either select assignment material from a broad range
of sectors or intend to concentrate on sectors outside manufacturing.
1. SERVICE AND NONPROFIT SECTORS: These assignments include settings such as
law, accounting, and management consulting firms, healthcare providers, advertising
agencies and market research firms, bank and finance companies, internet and phone
service providers, lodging companies, transportation companies, and government agencies
2. MERCHANDISING SECTORS: These assignments include settings such as distributors,
wholesalers, and retailers
There is growing demand from instructors for assignment material in three specific areas—ethics,
global or international, and modern cost management. Exhibits P-3 to P-5 show assignment
material in the 17th edition on these three topics.
3. ETHICS. The second-to-last problem of many chapters incorporates an ethical issue facing
a management accountant or a manager. Examples include pressure for “managing” cost
numbers, deliberately overstating budget estimates, and conflicts of interest between
management interests and incentives and the best interests of the company, customers, and
employees. Many of these problems require students to consider the IMA Statement of
Ethical Professional Practice on p.17 of the text.
4. GLOBAL AND INTERNATIONAL DIMENSIONS. These assignments include material
based outside the United States or problems pertaining to companies with operations in
more than one country.
5. MODERN COST MANAGEMENT FRONTIER IDEAS. These assignments include
material that an instructor can use to highlight areas such as customer focus, key success
factors, balanced scorecard, value-chain analysis, strategic analysis of operating income,
JIT, and continuous improvement. Assignment material related to activity-based costing
(ABC), activity-based management (ABM), and cost drivers is found in many chapters.
Chapter 11 on Data Analytic Thinking and Prediction describes how machine learning
models are an important tool to gain management accounting insights.

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xii
EXHIBIT P-1
ASSIGNMENT MATERIAL FROM SERVICE AND NOT-FOR-PROFIT SECTORS
Chapter Number Context
1 1-19 Fast-food restaurants; value chain, cost classification
1-20 Consultation services; key success factors
1-21 Transportation, trucking services
1-23 Landscaping services
1-27 Windshield replacement; professional ethics
1-28 Internet company; planning and control
1-36 Publishing company; ethics; end-of-year actions
2 2-23 Marketing research; classification of costs
2-26 Restaurant; fixed, variable, and total costs
2-31 Corporate training services; t

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xiii
EXHIBIT P-1 (Continued)
Chapter Number Context
5 5-35 Lawn care/landscaping company; first-stage allocation, time-driven ABC
5-36 Radiology center; department, activity-cost rates
5-39 Medical clinic; activity-based costing system
6 6-21 Environmental testing; sales budget
6-28 Snow-removal; budgeted cost of jobs
6-33 Tour company; responsibility accounting, stretch targets
6-39 Food-service trucks; purchasing agent responsibility accounting
7 7-33
7-35
7-46
Student loan financing; static and flexible budgets
Cleaning service; variance analysis
Day spa; mixed and yield variance analysis

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xiv
EXHIBIT P-1 (Continued)
Chapter Number Context
pruning
11 11-34 Investment management; predicting loan defaults, likelihood values
11-35 Investment management; predicting loan defaults, payoff matrix and
choosing cutoff values
11-39 Bank; loan classification, model thresholds, and payoff matrices
11-40 Bank; loan classification, model thresholds, payoff matrices, and
sensitivity analysis
12 12-30 Convenience store; relevant costs, decision on closing stores
12-31 Printing press; choosing customers
12-32 Bakery; relevance of equipment costs
12-38 Painting service; opportunity costs, relevant costs
12-47 City tours; dropping and adding tours
13 13-29

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xv
EXHIBIT P-1 (Continued)
Chapter Number Context
16 16-18 Trucking operations; dual-rate method, budgeted versus actual costs
16-19 Management consulting; direct and step-down support department cost
allocation
16-20 Management consulting; reciprocal method support department cost
allocation
16-23 Internet and phone services; allocation of common living costs
16-24 Consulting services; allocation of common travel costs
16-29 University; fixed cost allocation
16-35 Hotel; revenue allocation, bundled products
16-36 Service; direct, step-down, reciprocal support department allocation
18 18-33 Spa; Operation costing
20 20-24 University – registration advisor; waiting time
20-25 University – registration advisor; waiting time, relevant costs, student
satisfaction
20-29 Pizza delivery; quality improvement, Pareto diagram, cause-and-effect
diagram
22 22-23 Hospital; capital budgeting methods, no income taxes
22-24 Hospital; capital budgeting methods, income taxes
22-27
22-28
Construction company; payback and NPV methods, no income taxes

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xvi
EXHIBIT P-2
ASSIGNMENT MATERIAL FROM MERCHANDISING SECTORS
Chapter Number Context
2 2-24 College store; classification of costs
2-35 Department store; cost of goods purchased, cost of goods sold, and
income statement
2-36 Retail outlet store; cost of goods purchased, cost of goods sold, and
income statement
3 3-24 Deli sub shop; CVP
3-28 Jeans wholesaler; CVP and sensitivity analysis
3-31 Rug dealer; space rental terms, operating leverage
3-35 Men’s clothing retailer; contribution margin, decision making
3-37 Retail store; decision making under uncertainty, expected value
3-43 Shoe store; sales commissions, CVP analysis
3-44 Shoe store; sales commissions, CVP analysis
3-46 Cell phone covers; CVP, alternative cost structures
3-51 Luggage carrier retailer; sales mix, CVP analysis
5 5-27 Supermarket; ABC, product-line profitability
5-28 Furniture wholesaler; ABC, customer profitability
5-37 Pharmaceuticals distributor; ABC
5-43 Retail store; activity-based costing and activity-based management
6

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xvii
EXHIBIT P-2 (Continued)
Chapter Number Context
13 13-24 T-shirts distributor; identifying and managing unused capacity
14 14-19 Distributor; target prices, target costs, ABC
14-21
14-30
Solar-heating systems vendor; target costs, process-design changes
Vendor; cost-plus, time and materials, ethics
15 15-19 Environmental products distributor; customer profitability, customer-
cost hierarchy
15-21 Pharmaceutical distributor; customer profitability
15-26 Wine glass retailer; variance analysis, multiple products
15-31 Paper distributor; customer profitability
16 16-21 Online book retailer; direct and step-down support department cost
allocation
16-22 Online book retailer; reciprocal method support department cost
allocation
16-25 Retailer; revenue allocation
16-26 Auto sales; allocation of common costs
16-27 Department store; single-rate, dual-rate and practical capacity allocation
16-33 Furniture retailer; revenue allocation
20 20-22 Flower store; quality improvement, relevant costs, relevant revenues

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xviii
EXHIBIT P-3
ASSIGNMENT MATERIAL ON ETHICS
Chapter Number Context
1 1-26 Division performance
1-27 Division performance
1-34 Pharmaceutical company, budgeting
1-35 Snack foods division; End-of-year actions
1-36 Consumer magazines; End-of-year actions
1-37 Furniture manufacturing global company, end-of-year actions
2 2-47 Cost classification; ethics
3 3-53 Environmental costs, CVP analysis, ethics
4 4-45 Job costing, ethics
5 5-42 Electronics; ABC, implementation, ethics
6 6-46 Manufacturer; slack, ethics
7 7-47 GPS manufacturer; price and efficiency variances, benchmarking, ethics

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xix
EXHIBIT P-4
ASSIGNMENT MATERIAL WITH GLOBAL OR INTERNATIONAL SETTING
Chapter Number Context
1 1-37 Contract bidding, ethical and cultural issues
3 3-23 Travel agency, CVP analysis
3-32 International cost structure differences, CVP analysis
4 4-33 Canadian accounting firm; job costing, actual, normal and variation of
normal costing
5 5-20 Tax advice for multinational firms; Alternative allocation bases for a
professional services firm
6 6-25 Mexico bicycle manufacturer; revenues, production and purchases
budgets
8 8-28 Telecommunications company; manufacturing overhead, standard-
costing system
10 10-39 Agricultural transportation in Canada; interpreting regression results
12 12-36 International outsourcing; relevant costs, exchange rates
22 22-34 Prototype chip manufacturer based in Ireland; equipment replacement, no
income taxes
23 23-20 Computer manufacturing; Multinational transfer pricing, effect of
alternative transfer-pricing methods, global income tax minimization
23-22
23-23
23-30

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xx
EXHIBIT P-5
ASSIGNMENT MATERIAL USING MODERN COST MANAGEMENT FRONTIER IDEAS
Chapter Number Context
1 1-17 Computer company; value chain, cost classification
1-18 Pharmaceutical company; value chain, cost classification
1-19 Fast food restaurant; value chain, cost classification
1-20 Key success factors
1-21 Key success factors
1-29 Making strategic decisions
1-30 Making strategic decisions
2 2-30 Technology company; value chain, cost drivers
2-31 Cost drivers and functions
5 5-18 Cost hierarchy at manufacturer
5

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xxi
EXHIBIT P-5 (Continued)
Chapter Number Context
6 6-30 Convenience store chain; activity-based budgeting
6-31 Convenience store chain; activity-based budgeting, kaizen budgeting
6-33 Tour company; responsibility accounting, stretch targets
6-36 T-shirt manufacturer; kaizen approach
6-39 Purchasing agent; responsibility accounting
6-44 Wooden playground equipment manufacturer; activity-based budgeting
6-47 Chemical company; kaizen budgeting for carbon emissions
6-48 Footwear manufacturer; activity-based budgeting
7 7-32 Insulated cups manufacturer; benchmarking against competitors
7-38
7-42
Bicycle manufacturer; responsibility issues in supply chain
Game manufacturer; variances, custom production, just-in-time
manufacturing

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xxii
Exhibit P-5 (Continued)
Chapter Number Context
10 10-45 Manufacturing; cost estimation, learning curves
10-47 Department store chain; cost drivers, ABC, simple regression analysis
10-48 Department store chain; cost drivers, ABC, multiple regression analysis
11 11-21 Bank; Gini impurity
11-22 Bank; Gini impurity
11-23 Investment company; loan classification, decision trees
11-24 Mobile phone services; stay or leave, decision trees
11-25 Mobile phone services; stay or leave, decision trees and pruning
11-26 Consumer credit; detecting fraudulent activity, maximum likelihood
11-27 Receiver operating characteristic (ROC) curve
11-28 TV retailer; segmenting customers, confusion matrices, payoff matrix, and
choosing cutoff values

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xxiii
Exhibit P-5 (Continued)
Chapter Number Context
13 13-19 Electric motor manufacturer; balanced scorecard
13-20 Electric motor manufacturer; analysis of growth, price-recovery and
productivity components
13-21 Merchandising; strategy, balanced scorecard
13-22 Merchandising; strategic analysis of operating income
13-23 Merchandising; analysis of growth, price-recovery, and productivity
components
13-24 Merchandising; identifying and managing unused capacity
13-25 Machine manufacturer; strategy, balanced scorecard
13-26 Machine manufacturer; strategic analysis of operating income
13-27 Machine manufacturer; analysis of growth, price-recovery and
productivity components
13-28 Machine manufacturer; identifying and managing unused capacity
13-29 Architecture firm; strategy, balanced scorecard

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xxvi
Exhibit P-5 (Continued)
Chapter Number Context
21 21-39 Electrical meters; backflush, two trigger points, completion of production
and sale
21-40 Security devices; lean accounting
21-41 Pump manufacturer; JIT production, relevant benefits, relevant costs,
ethics.
23 23-16 Window manufacturing; cost centers, profit centers, decentralization,
transfer prices
24 24-23
24-24
24-25
24-26
24-29
24-30
Sports equipment; ROI and RI
ROI, RI, measurement of assets
Electric car manufacturer; ROI, RI
Insurance and financial services company; ROI, RI, EVA
Automotive retailer; ROI, RI, EVA
Venture capital; capital budgeting, RI (conservation property)
24-31 Manufacturing, U.S. and Norway; multinational performance
measurement, ROI, RI

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xxvii
PRESENTATION OF SOLUTIONS
Instructors have a variety of views regarding the use of classroom time for homework solutions.
Most instructors put solutions on a blackboard or an overhead projector. In turn, their students
frantically copy the materials in their notes. Our practice is to reproduce the printed homework
solutions for distribution either before, during, or after the discussion for a particular solution. The
members of the class are glad to pay a modest fee to the school to cover the reproduction costs. In
this way, students can spend more of their classroom time in thinking rather than writing. Further,
they have a complete set of notes.
Some instructors object to this procedure because it provides students with a “file” that can be
passed along to subsequent classes. Students in subsequent classes will then use the “file” to avoid
conscientious preparation of homework. We used to worry about such practices, but long ago, we
decided there would always be some students who hurt themselves by not doing homework in an
appropriate way. Why should we penalize the vast majority of students by withholding the printed
solutions? The benefits of using printed solutions clearly outweigh the costs. We no longer fret
about the few students who beat the system (and themselves). Moreover, schools using My
Accounting Lab can have new problems assigned to students where the problem structure is the
same but the numbers are different.
Similarly, we distribute printed solutions to tests and examinations along with a summary of
overall class performance. We do not devote class time to discussing these solutions. The students
deserve feedback, but they have sufficient motivation to scrutinize the printed solutions and check
their errors on an individual basis. In this way, more class time is available for new material.
If students have complaints about grades, we usually ask them to cool off for 24 hours and then to
submit a written analysis of how they were unjustly treated. We then take these complaints in
batches, regrade the papers, and return the papers. If the student then wants to have a person-
to-person discussion of the matter, he or she is welcome at our office. This procedure may seem
too impersonal, but we recommend it to those teachers who have been through some painful
debates that have been inefficient and frustrating for both student and teacher.

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xxviii
MAJOR CHANGES IN TEXT OF THE 17TH EDITION
Increased Focus on Merchandising and Service Sectors
In keeping with the shifts in the U.S. and world economy, this edition makes great use of
merchandising and service sector examples, with corresponding de-emphasis of traditional
manufacturing settings. For example, Chapter 10 illustrates linear cost functions in the context of
payments for cloud computing services. Chapter 11 describes revenue management using big-
data analytics at a company investing in loans. Chapter 21 highlights inventory management in
retail organizations and uses an example based on a seller of sunglasses. Chapter 22 incorporates
a running example that looks at capital budgeting in the context of a transportation company.
Several Concepts in Action boxes focus on the merchandising and service sectors, including
achieving cost leadership at Costco (Chapter 1), reducing fixed costs at Lyft (Chapter 2), using
activity-based costing to reduce the costs of health care delivery at the Mayo Clinic (Chapter 5),
developing Internet-based budgeting at P. F. Chang’s (Chapter 6), analyzing operating income
performance at Buffalo Wild Wings (Chapter 13), and Facebook’s work to overcome mobile
data bottlenecks (Chapter 20).
Greater Emphasis on Sustainability
This edition places significant emphasis on sustainability as one of the critical managerial
challenges of the coming decades. Many managers are promoting the development and
implementation of strategies to achieve long-term financial, social, and environmental
performance as key imperatives. We highlight this in Chapter 1 and return to the theme in
several subsequent chapters. Chapter 13 discusses the benefits to companies from measuring
social and environmental performance and how such measures can be incorporated in a balanced
scorecard. Chapter 24 provides several examples of companies that mandate disclosures and
evaluate managers on environmental and social metrics. A variety of chapters, including
Chapters 2, 6, 10, 14, and 22, contain material that stress themes of recognizing and accounting
for environmental costs; energy independence; setting stretch targets to motivate greater carbon
reductions; using cost analysis, carbon tax, and cap-and-trade auctions to reduce environmental
footprints; and constructing “green” homes in a cost-effective manner.
Focus on Innovation
We discuss the role of accounting concepts and systems in fostering and supporting innovation
and entrepreneurial activities in firms. In particular, we discuss the challenges posed by
recognizing R&D costs as period expenses even though the benefits of innovation accrue in later
periods. In Chapter 6, we describe how companies budget for innovation expenses and develop
measures to monitor success of the innovation efforts delinked from operational performance in
the current period. Chapter 12 presents the importance of nonfinancial measures when making
decisions about innovation. Chapter 14 stresses that innovation starts with understanding
customer needs, while Chapter 20 discusses process innovations for improving quality. Many of
the organizations used in “Concepts in Action” emphasize innovation (e.g., Lyft, Chapter 2;
Mayo Clinic, Chapter 5; Facebook, Chapter 20). The running examples used in Chapter 2 and
Chapter 20 focus on an innovative company (Tesla) and an innovative product (3D printers).

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xxix
New Cutting-Edge Topics
The pace of change in organizations continues to be rapid. The seventeenth edition of Cost
Accounting reflects changes occurring in the role of cost accounting in organizations.
• We have added new material and a new Chapter 11 to explain recent trends in big data and
data analytics to manage revenues and predict costs. Companies are increasingly looking for
management accountants who can interface with data scientists.
• We have introduced sustainability strategies and the methods companies use to implement
sustainability and business goals.
• We describe ideas based on academic research regarding the weights placed on performance
measures in a balanced scorecard. We have a section on methods to evaluate strategy maps
such as the strength of links, differentiators, focal points, and trigger points.
• We provide details on the transfer pricing strategies used by multinational technology firms
such as Apple and Google to minimize income taxes.
• We discuss current trends in the regulation of executive compensation.
• We describe the evolution of enterprise resource planning systems and newer simplified
costing systems that practice lean accounting.
Opening Vignettes
Each chapter opens with a vignette on a real company situation. The vignettes engage the reader
in a business situation or dilemma, illustrating why and how the concepts in the chapter are
relevant in business. For example, Chapter 2 describes how teen apparel chain Aeropostale was
driven into bankruptcy by the relatively high proportion of fixed costs in its operations. Chapter
5 explains the use of activity-based costing by IBM to evaluate the true cost of data breaches.
Chapter 9 highlights Under Armor’s use of a new internal company system to better manage its
inventory and supply chain with efficiency and precision to reduce inventory costs. Chapter 15
shows how Starbucks changed its rewards program to better align rewards with customer
spending. Chapter 19 shows the impact on Tesla of the rework costs associated with a drastic
ramp-up of production to meet unprecedented customer demand. Chapter 24 describes the
misalignment between performance measurement and pay at General Electric.
Concepts in Action Boxes
Found in every chapter, these boxes cover real-world cost accounting issues across a variety of
industries, including defense contracting, entertainment, manufacturing, retailing, and sports.
New examples include:
• Cost Leadership at Costco: Rock-Bottom Prices and Sky-High Profits (Chapter 1)

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