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Contents v
Decision to Advertise 78 Write-off to Cost of Goods Sold Approach 131

Decision to Reduce the Selling Price 78 Choosing Among Approaches 132
Determining Target Prices 79 Variations from Normal Costing: A Service-Sector
Concepts in Action: Cost–Volume–Profit Analysis Makes Example 133
Subway’s $5 Foot-Long Sandwiches a Success But
Problem for Self-Study 135 | Decision Points 137 |
Innovation Challenges Loom
Sensitivity Analysis and Margin of Safety 80 Terms to Learn 138 | Assignment Material 138 |
Cost Planning and CVP 82 Questions 138 | Multiple-Choice Questions 139 |
Alternative Fixed-Cost/Variable-Cost Exercises 140 | Problems 146
Structures 82
Operating Leverage 83 5 Activity-Based Costing and
Effects of Sales Mix on Income 85 Activity-Based Management 152
CVP Analysis in Service and Not-for-Profit
General Motors and Activity-Based Costing
Organizations 87
Broad Averaging and Its Consequences 153
Contribution Margin Versus Gross Margin 88
Undercosting and Overcosting 153
Problem for Self-Study 89 | Decision Points 90 Product-Cost Cross-Subsidization 154
Simple Costing System at Plastim Corporation 154
APPendIx: decision Models and Uncertainty 91 Design, Manufacturing, and Distribution
Terms to Learn 94 | Assignment Material 95 | Processes 154
Questions 95 | Multiple-Choice Questions 95 | Simple Costing System Using a Single Indirect-Cost
Exercises 96 | Problems 100 Pool 155
Applying the Five-Step Decision-Making Process at
4 Job Costing 107 Plastim 157
Refining A Costing System 158
Job Costing and the World’s Tallest Building
Reasons for Refining a Costing System 159
Building-Block Concepts of Costing Systems 108 Guidelines for Refining a Costing System 159
Job-Costing and Process-Costing Systems 109 Activity-Based Costing Systems 160
Job Costing: Evaluation and Implementation 110 Plastim’s ABC System 160
Time Period Used to Compute Indirect-Cost Cost Hierarchies 162
Rates 111 Implementing Activity-Based Costing 164
Normal Costing 113 Implementing ABC at Plastim 164
General Approach to Job Costing Using Normal Comparing Alternative Costing Systems 169
Costing 113 Considerations In Implementing Activity-Based Costing
Concepts in Action: The Job-Costing “Game Plan” Systems 170
at AT&T Stadium Benefits and Costs of Activity-Based Costing
The Role of Technology 118 Systems 170
Actual Costing 118 Behavioral Issues in Implementing Activity-Based
A Normal Job-Costing System in Manufacturing 120 Costing Systems 171
General Ledger 121 Activity-Based Management 172
Explanations of Transactions 121 Pricing and Product-Mix Decisions 172
Subsidiary Ledgers 124 Cost Reduction and Process Improvement
Materials Records by Type of Material 124 Decisions 172
Labor Records by Employee 125 Design Decisions 173
Manufacturing Department Overhead Records by Planning and Managing Activities 174
Month 126 Activity-Based Costing and Department Costing
Work-in-Process Inventory Records by Jobs 126 Systems 174
Finished Goods Inventory Records by ABC in Service and Merchandising
Jobs 127 Companies 175
Other Subsidiary Records 127 Concepts in Action: Mayo Clinic Uses Time-driven
Nonmanufacturing Costs and Job Costing 127 Activity-Based Costing to Reduce Costs and
Budgeted Indirect Costs and End-of-Accounting-Year Improve Care
Adjustments 128
Underallocated and Overallocated Indirect Problem for Self-Study 176 | Decision Points 179 |
Costs 128 Terms to Learn 180 | Assignment Material 180 |
Adjusted Allocation-Rate Approach 129 Questions 180 | Multiple-Choice Questions 181 |
Proration Approach 129 Exercises 181 | Problems 188
vi Contents
6 Master Budget and Responsibility Price Variances and Efficiency Variances for Direct-Cost
Inputs 258
Accounting 197 Price Variances 259
“Scrimping” at the Ritz: Master Budgets Efficiency Variance 259
Budgets and The Budgeting Cycle 198 Journal Entries Using Standard Costs 262
Strategic Plans and Operating Plans 198 Implementing Standard Costing 264
Budgeting Cycle and Master Budget 199 Management’s Use of Variances 264
Advantages and Challenges of Implementing Multiple Causes of Variances 264
Budgets 200 Concepts in Action: Can Chipotle Wrap Up Its
Promoting Coordination and Communication 200 Materials-Cost Variance Increases?
Providing a Framework for Judging Performance When to Investigate Variances 265
and Facilitating Learning 200 Using Variances for Performance Measurement 266
Motivating Managers and Other Employees 201 Organization Learning 266
Challenges in Administering Budgets 201 Continuous Improvement 267
Developing an Operating Budget 202 Financial and Nonfinancial Performance
Time Coverage of Budgets 202 Measures 267
Steps in Preparing an Operating Budget 202 Benchmarking and Variance Analysis 267
Financial Planning Models and Sensitivity
Analysis 215 Problem for Self-Study 269 | Decision Points 270
Concepts in Action: 24 Hour Fitness and APPendIx: Mix and Yield Variances for Substitutable
Internet-Based Budgeting Inputs 271
Budgeting and Responsibility Accounting 217
Organization Structure and Responsibility 217 Terms to Learn 275 | Assignment Material 275 |
Feedback 218 Questions 275 | Multiple-Choice Questions 275 |
Responsibility and Controllability 219 Exercises 276 | Problems 280
Human Aspects of Budgeting 220
Budgetary Slack 220 8 Flexible Budgets, Overhead Cost
Stretch Targets 221 Variances, and Management
Kaizen Budgeting 222
Budgeting for Reducing Carbon
Control 288
Emissions 223 Tesla Motors Gigafactory
Budgeting in Multinational Companies 223 Planning of Variable and Fixed Overhead Costs 289
Planning Variable Overhead Costs 289
Problem for Self-Study 224 | Decision Points 225 Planning Fixed Overhead Costs 289
Standard Costing at Webb Company 290
APPendIx: The Cash Budget 226
Developing Budgeted Variable Overhead Rates 290
Terms to Learn 232 | Assignment Material 232 | Developing Budgeted Fixed Overhead Rates 291
Questions 232 | Multiple-Choice Questions 233 | Variable Overhead Cost Variances 292
Exercises 233 | Problems 238 Flexible-Budget Analysis 292
Variable Overhead Efficiency Variance 293
7 Flexible Budgets, Direct-Cost Variable Overhead Spending Variance 294
Journal Entries for Variable Overhead Costs and
Variances, and Management Variances 296
Control 249 Fixed Overhead Cost Variances 297
Dell Goes Green to Reduce Standard Costs for Production-Volume Variance 298
Packaging Interpreting the Production-Volume Variance 299
Static Budgets and Variances 250 Journal Entries for Fixed Overhead Costs and
The Use of Variances 250 Variances 300
Static Budgets and Static-Budget Variances 251 Concepts in Action: Variance Analysis and Standard
Flexible Budgets 253 Costing Help Sandoz Manage Its Overhead
Flexible-Budget Variances and Sales-Volume Costs
Variances 254 Integrated Analysis of Overhead Cost Variances 303
Sales-Volume Variances 254 4-Variance Analysis 303
Flexible-Budget Variances 255 Combined Variance Analysis 303
Standard Costs for Variance Analysis 256 Production-Volume Variance and Sales-Volume
Obtaining Budgeted Input Prices and Budgeted Input Variance 305
Quantities 257 Variance Analysis and Activity-Based Costing 307
Contents vii
Flexible Budget and Variance Analysis for Direct Nonmanufacturing Costs 353
Materials-Handling Labor Costs 308 Activity-Based Costing 354
Flexible Budget and Variance Analysis for Fixed Setup
Problem for Self-Study 354 | Decision Points 356
Overhead Costs 310
Overhead Variances in Nonmanufacturing APPendIx: Breakeven Points in Variable Costing and
Settings 312 Absorption Costing 357
Financial and Nonfinancial Performance
Measures 313 Terms to Learn 359 | Assignment Material 359 |
Questions 359 | Multiple-Choice Questions 359 |
Problem for Self-Study 314 | Decision Points 316 | Exercises 361 | Problems 365
Terms to Learn 317 | Assignment Material 317 |
Exercises 319 | Problems 323
10 Determining How Costs Behave 372
UPS Uses “Big Data” to Understand Its Costs While
Helping the Environment
9 Inventory Costing and Capacity Basic Assumptions and Examples of Cost
Analysis 329 Functions 373
Lean Manufacturing Helps Boeing Work Through Its Basic Assumptions 373
Backlog Linear Cost Functions 373
Variable and Absorption Costing 330 Review of Cost Classification 375
Variable Costing 330 Identifying Cost Drivers 376
Absorption Costing 330 The Cause-and-Effect Criterion 376
Comparing Variable and Absorption Costing 330 Cost Drivers and the Decision-Making Process 377
Variable vs. Absorption Costing: Operating Income and Cost Estimation Methods 377
Income Statements 332 Industrial Engineering Method 378
Comparing Income Statements for One Year 332 Conference Method 378
Comparing Income Statements for Multiple Years 334 Account Analysis Method 378
Variable Costing and the Effect of Sales and Production Quantitative Analysis Method 379
on Operating Income 337 Estimating a Cost Function Using Quantitative
Absorption Costing and Performance Analysis 380
Measurement 338 High-Low Method 382
Undesirable Buildup of Inventories 339 Regression Analysis Method 384
Proposals for Revising Performance Evaluation 340 Evaluating and Choosing Cost Drivers 385
Comparing Inventory Costing Methods 341 Cost Drivers and Activity-Based Costing 388
Throughput Costing 341 Nonlinear Cost Functions 389
A Comparison of Alternative Inventory-Costing Learning Curves 390
Methods 342 Cumulative Average-Time Learning Model 391
Denominator-Level Capacity Concepts and Fixed-Cost Incremental Unit-Time Learning Model 392
Capacity Analysis 343 Incorporating Learning-Curve Effects into Prices and
Absorption Costing and Alternative Denominator-Level Standards 393
Capacity Concepts 344 Concepts in Action: does Joint Strike Fighter Production
Effect on Budgeted Fixed Manufacturing Cost Have a Learning Curve?
Rate 345 Data Collection and Adjustment Issues 395
Choosing a Capacity Level 346 Problem for Self-Study 397 | Decision Points 399
Product Costing and Capacity Management 346
Pricing Decisions and the Downward Demand APPendIx: Regression Analysis 400
Spiral 347
Concepts in Action: Can eSPn Avoid the Questions 409 | Multiple-Choice Questions 410 |
Cord-Cutting “death Spiral”?
Performance Evaluation 349
Financial Reporting 349
Tax Requirements 352
11 Decision Making and Relevant
Planning and Control of Capacity Costs 352 Information 426
Difficulties in Forecasting Chosen Denominator-Level Relevant Costs and Broadway Shows
Concept 352 Information and the Decision Process 427
Difficulties in Forecasting Fixed Manufacturing The Concept of Relevance 427
Costs 353 Relevant Costs and Relevant Revenues 427
viii Contents
Qualitative and Quantitative Relevant Strategic Analysis of Operating Income 495

Information 429 Growth Component of Change in Operating
One-Time-Only Special Orders 430 Income 497
Potential Problems in Relevant-Cost Analysis 433 Price-Recovery Component of Change in Operating
Short-Run Pricing Decisions 433 Income 498
Insourcing-Versus-Outsourcing and Make-or-Buy Productivity Component of Change in Operating
Decisions 434 Income 499
Outsourcing and Idle Facilities 434 Further Analysis of Growth, Price-Recovery, and
Strategic and Qualitative Factors 436 Productivity Components 501
International Outsourcing 436 Concepts in Action: Operating Income Analysis
The Total Alternatives Approach 437 Reveals Strategic Challenges at Best Buy
Concepts in Action: Starbucks Brews Up domestic Applying the Five-Step Decision-Making Framework to
Production Strategy 504
The Opportunity-Cost Approach 438 Downsizing and the Management of Processing
Carrying Costs of Inventory 441 Capacity 504
Product-Mix Decisions with Capacity Engineered and Discretionary Costs 504
Constraints 442 Identifying Unused Capacity for Engineered and
Bottlenecks, Theory of Constraints, and Throughput- Discretionary Overhead Costs 505
Margin Analysis 444 Managing Unused Capacity 505
Customer Profitability and Relevant Costs 447
Problem for Self-Study 506 | Decision Points 510
Relevant-Revenue and Relevant-Cost Analysis of
Dropping a Customer 448 APPendIx: Productivity Measurement 511
Relevant-Revenue and Relevant-Cost Analysis of
Adding a Customer 450 Terms to Learn 514 | Assignment Material 514 |
Relevant-Revenue and Relevant-Cost Analysis of Questions 514 | Multiple-Choice Questions 514 |
Closing or Adding Branch Offices or Business Exercises 515 | Problems 517
Divisions 450
Irrelevance of Past Costs and Equipment-Replacement 13 Pricing Decisions and Cost
Decisions 451 Management 524
Decisions and Performance Evaluation 453
Extreme Pricing and Cost Management at IKEA
Problem for Self-Study 455 | Decision Points 457 Major Factors that Affect Pricing Decisions 525
Customers 525
APPendIx: Linear Programming 458 Competitors 525
Terms to Learn 461 | Assignment Material 461 | Costs 525
Weighing Customers, Competitors, and Costs 525
Costing and Pricing for the Long Run 526
Calculating Product Costs for Long-Run Pricing
Decisions 527
12 Strategy, Balanced Scorecard, and Alternative Long-Run Pricing Approaches 528
Strategic Profitability Analysis 477 Market-Based Approach: Target Costing for Target
Barclays Turns to the Balanced Scorecard Pricing 530
What Is Strategy? 478 Understanding Customers’ Perceived Value 530
Building Internal Capabilities: Quality Improvement and Competitor Analysis 531
Reengineering at Chipset 480 Concepts in Action: H&M Uses Target Pricing to
Strategy Implementation and The Balanced Bring Fast Fashion to Stores Worldwide
Scorecard 481 Implementing Target Pricing and Target
The Balanced Scorecard 481 Costing 531
Strategy Maps and the Balanced Scorecard 482 Value Engineering, Cost Incurrence, and Locked-in
Implementing a Balanced Scorecard 488 Costs 533
Different Strategies Lead to Different Value-Chain Analysis and Cross-Functional
Scorecards 489 Teams 533
Environmental and Social Performance and the Balanced Achieving the Target Cost per Unit for
Scorecard 489 Provalue 534
Features of a Good Balanced Scorecard 493 Cost-Plus Pricing 537
Pitfalls in Implementing a Balanced Scorecard 494 Cost-Plus Target Rate of Return on Investment 537
Evaluating the Success of Strategy and Alternative Cost-Plus Methods 538
Implementation 494 Cost-Plus Pricing and Target Pricing 539
Contents ix
Life-Cycle Product Budgeting and Costing 540

Life-Cycle Budgeting and Pricing
15 Allocation of Support-Department
Decisions 540 Costs, Common Costs, and
Managing Environmental and Sustainability Revenues 601
Costs 542 Cost Allocation and “Smart Grid” Energy
Customer Life-Cycle Costing 542 Infrastructure
Non-Cost Factors in Pricing Decisions 543 Allocating Support Department Costs Using the
Price Discrimination 543 Single-Rate and Dual-Rate Methods 602
Peak-Load Pricing 543 Single-Rate and Dual-Rate Methods 602
International Pricing 543 Allocation Based on the Demand for (or Usage of)
Antitrust Laws and Pricing Decisions 544 Materials-Handling Services 603
The Supreme Court has not specified the “appropriate Allocation Based on the Supply of Capacity 604
measure of costs.” 544 Advantages and Disadvantages of Single-Rate
Problem for Self-Study 545 | Decision Points 547 | Method 606
Advantages and Disadvantages of Dual-Rate
Method 606
Budgeted Versus Actual Costs and the Choice of
Exercises 549 | Problems 553 Allocation Base 607
Budgeted Versus Actual Rates 607
14 Cost Allocation, Customer- Budgeted Versus Actual Usage 608
Profitability Analysis, and Sales- Fixed-Cost Allocation Based on Budgeted Rates and
Variance Analysis 559 Budgeted Usage 608
Fixed-Cost Allocation Based on Budgeted Rates and
Delta Flies from Frequent Flyers to Big Spenders
Actual Usage 608
Customer-Profitability Analysis 560
Allocating Budgeted Fixed Costs Based on Actual
Customer-Revenue Analysis 560
Usage 609
Customer-Cost Analysis 561
Allocating Costs of Multiple Support
Customer-Level Costs 562
Departments 610
Customer-Profitability Profiles 565
Direct Method 613
Presenting Profitability Analysis 566
Step-Down Method 614
Concepts in Action: Amazon Prime and Customer Reciprocal Method 615
Profitability Overview of Methods 619
Using the Five-Step Decision-Making Process to Calculating the Cost of Job WPP 298 619
Manage Customer Profitability 568 Allocating Common Costs 621
Cost-Hierarchy-Based Operating Income Stand-Alone Cost-Allocation Method 621
Statement 569 Incremental Cost-Allocation Method 622
Criteria to Guide Cost Allocations 571 Cost Allocations and Contract Disputes 623
Fully Allocated Customer Profitability 573 Bundled Products and Revenue Allocation
Implementing Corporate and Division Cost Methods 624
Allocations 574 Bundling and Revenue Allocation 624
Issues in Allocating Corporate Costs to Divisions Concepts in Action: Contract disputes over
and Customers 577 Reimbursable Costs with the U.S.
Using Fully Allocated Costs for Decision Government
Making 578 Stand-Alone Revenue-Allocation Method 626
Sales Variances 579 Incremental Revenue-Allocation Method 627
Static-Budget Variance 580
Flexible-Budget Variance and Sales-Volume Problem for Self-Study 629 | Decision Points 632 |
Variance 580 Terms to Learn 633 | Assignment Material 633 |
Sales-Mix Variance 581 Questions 633 | Exercises 633 | Problems 637
Sales-Quantity Variance 582
Market-Share and Market-Size Variances 583
Market-Share Variance 583
16 Cost Allocation: Joint Products and
Market-Size Variance 583
Byproducts 643
Joint-Cost Allocation and the Wounded Warrior
Problem for Self-Study 585 | Decision Points 587 | Project
Terms to Learn 588 | Assignment Material 588 | Joint-Cost Basics 644
Questions 588 | Multiple-Choice Questions 589 | Allocating Joint Costs 645
Exercises 589 | Problems 594 Approaches to Allocating Joint Costs 646
x Contents
Concepts in Action: U.S.-South Africa Trade dispute APPendIx: Standard-Costing Method of Process
Over Joint-Cost Allocation Costing 704
Sales Value at Splitoff Method 648
Physical-Measure Method 648
Net Realizable Value Method 650
Constant Gross-Margin Percentage NRV Exercises 710 | Problems 713
Method 651
Choosing an Allocation Method 654 18 Spoilage, Rework, and Scrap 718
Not Allocating Joint Costs 655 Airbag Rework Sinks Honda’s Record Year
Why Joint Costs Are Irrelevant for Decision Defining Spoilage, Rework, and Scrap 719
Making 655 Two Types of Spoilage 719
Sell-or-Process-Further Decisions 655 Normal Spoilage 720
Decision Making and Performance Abnormal Spoilage 720
Evaluation 656 Spoilage in Process Costing Using Weighted-Average
Pricing Decisions 656 and FIFO 720
Accounting for Byproducts 657 Count All Spoilage 721
Production Method: Byproducts Recognized at Time Five-Step Procedure for Process Costing with
Production Is Completed 658 Spoilage 722
Sales Method: Byproducts Recognized at Time of Weighted-Average Method and Spoilage 723
Sale 659 FIFO Method and Spoilage 726
Problem for Self-Study 660 | Decision Points 663 | Journal Entries 727
Terms to Learn 663 | Assignment Material 663 | Inspection Points and Allocating Costs of Normal
Questions 663 | Multiple-Choice Questions 664 | Spoilage 727
Job Costing and Spoilage 730
Job Costing and Rework 731
Accounting for Scrap 733
17 Process Costing 675 Recognizing Scrap at the Time of Its Sale 733
Haynes Suffers as Nickel Prices Drop Recognizing Scrap at the Time of Its
Illustrating Process Costing 676 Production 734
Case 1: Process Costing with no Beginning or Ending Concepts in Action: nestlé’s Journey to Zero Waste for
Work-in-Process Inventory 677 disposal
Case 2: Process Costing with Zero Beginning and Some Problem for Self-Study 736 | Decision Points 736
Ending Work-in-Process Inventory 678
Summarizing the Physical Units and Equivalent Units APPendIx: Standard-Costing Method and
(Steps 1 and 2) 679 Spoilage 737
Calculating Product Costs (Steps 3, 4, and 5) 681 Terms to Learn 739 | Assignment Material 739 |
Journal Entries 682
Case 3: Process Costing with Some Beginning and Some
Ending Work-in-Process Inventory 684
Weighted-Average Method 684
First-In, First-Out Method 687 19 Balanced Scorecard: Quality
Comparing the Weighted-Average and FIFO and Time 748
Methods 691
Toyota Plans Changes After Millions of Defective Cars
Transferred-In Costs in Process Costing 692
Are Recalled
Transferred-In Costs and the Weighted-Average
Quality as a Competitive Tool 749
Method 693
The Financial Perspective: The Costs of
Transferred-In Costs and the FIFO Method 695
Quality 750
Points to Remember About Transferred-In
Using Nonfinancial Measures to Evaluate and Improve
Costs 697
Quality 753
Hybrid Costing Systems 697
The Customer Perspective: Nonfinancial Measures of
Overview of Operation-Costing Systems 697
Customer Satisfaction 753
Concepts in Action: Hybrid Costing for Under Armour 3d
The Internal-Business-Process Perspective:
Printed Shoes
Analyzing Quality Problems and Improving
Illustrating an Operation-Costing System 699
Quality 754
Journal Entries 700
The Learning-and-Growth Perspective: Quality
Problem for Self-Study 701 | Decision Points 703 Improvements 757
Contents xi
Weighing the Costs and Benefits of Improving Special Considerations in Backflush Costing 802
Quality 757 Lean Accounting 804
Evaluating a Company’s Quality Performance 759
Problems for Self-Study 807 | Decision Points 808 |
Time as a Competitive Tool 760
Customer-Response Time and On-Time Terms to Learn 809 | Assignment Material 809 |
Performance 760 Questions 809 | Multiple-Choice Questions 810 |
Bottlenecks and Time Drivers 761 Exercises 810 | Problems 813
Concepts in Action: netflix Works to Overcome
Internet Bottlenecks 21 Capital Budgeting and Cost
Relevant Revenues and Costs of Delays 764 Analysis 818
Balanced Scorecard and Time-Based Measures 766 Changing NPV Calculations Shake Up Solar Financing
Problem for Self-Study 767 | Decision Points 768 | Stages of Capital Budgeting 819
Terms to Learn 769 | Assignment Material 769 | Concepts in Action: Capital Budgeting for
Questions 769 | Multiple-Choice Questions 769 | Sustainability at Johnson & Johnson
Discounted Cash Flow 822
Net Present Value Method 823
Internal Rate-of-Return Method 824
20 Inventory Management, Just-in-Time, Comparing the Net Present Value and Internal
and Simplified Costing Methods 778 Rate-of-Return Methods 826
Walmart Uses Big Data to Better Manage Its Sensitivity Analysis 826
Payback Method 827
Inventory
Uniform Cash Flows 827
Inventory Management in Retail Organizations 779
Nonuniform Cash Flows 828
Costs Associated with Goods for Sale 779
Accrual Accounting Rate-of-Return Method 830
The Economic-Order-Quantity Decision
Relevant Cash Flows in Discounted Cash Flow
Model 780
Analysis 831
When to Order, Assuming Certainty 782
Relevant After-Tax Flows 832
Safety Stock 783
Categories of Cash Flows 833
Estimating Inventory-Related Relevant Costs and
Project Management and Performance Evaluation 837
Their Effects 785
Post-Investment Audits 837
Cost of a Prediction Error 785
Performance Evaluation 838
Conflicts Between the EOQ Decision Model and
Strategic Considerations in Capital Budgeting 838
Managers’ Performance Evaluation 786
Investment in Research and Development 838
Just-in-Time Purchasing 787
Customer Value and Capital Budgeting 839
JIT Purchasing and EOQ Model Parameters 787
Relevant Costs of JIT Purchasing 787 Problem for Self-Study 839 | Decision Points 842
Supplier Evaluation and Relevant Costs of Quality
and Timely Deliveries 789 APPendIx: Capital Budgeting and Inflation 843
JIT Purchasing, Planning and Control, and Supply- Terms to Learn 845 | Assignment Material 846 |
Chain Analysis 791 Questions 846 | Multiple-Choice Questions 846 |
Inventory Management, MRP, and JIT
Exercises 847 | Problems 851 | Answers to Exercises in
Production 792
Compound Interest (Exercise 21-21) 855
Materials Requirements Planning 792
Just-in-Time (JIT) Production 792
Features of JIT Production Systems 792 22 Management Control Systems,
Costs and Benefits of JIT Production 793 Transfer Pricing, and Multinational
Concepts in Action: Just-in-Time Live-Concert Considerations 856
Recordings Google’s U.K. Tax Settlement
JIT in Service Industries 794 Management Control Systems 857
Enterprise Resource Planning (ERP) Formal and Informal Systems 857
Systems 794 Effective Management Control 858
Performance Measures and Control in JIT Decentralization 858
Production 795 Benefits of Decentralization 859
Effect of JIT Systems on Product Costing 795 Costs of Decentralization 859
Backflush Costing 796 Comparing Benefits and Costs 860
Simplified Normal or Standard-Costing Decentralization in Multinational Companies 861
Systems 796 Choices About Responsibility Centers 861
xii Contents
Transfer Pricing 862 Target Levels of Performance and Feedback 903

Criteria for Evaluating Transfer Prices 862 Choosing Target Levels of Performance 903
Calculating Transfer Prices 863 Choosing the Timing of Feedback 904
An Illustration of Transfer Pricing 863 Performance Measurement in Multinational
Market-Based Transfer Prices 866 Companies 904
Perfectly-Competitive-Market Case 866 Calculating a Foreign Division’s ROI in the Foreign
Distress Prices 866 Currency 905
Imperfect Competition 867 Calculating the Foreign Division’s ROI in U.S.
Cost-Based Transfer Prices 867 Dollars 906
Full-Cost Bases 867 Distinguishing the Performance of Managers from the
Variable-Cost Bases 869 Performance of Their Subunits 907
Hybrid Transfer Prices 870 The Basic Tradeoff: Creating Incentives Versus
Prorating the Difference Between Maximum and Imposing Risk 907
Minimum Transfer Prices 870 Intensity of Incentives and Financial and
Negotiated Pricing 871 Nonfinancial Measurements 908
Dual Pricing 871 Concepts in Action: Performance Measurement at
A General Guideline for Transfer-Pricing Unilever
Situations 872 Benchmarks and Relative Performance
How Multinationals Use Transfer Pricing to Minimize Evaluation 909
Their Taxes 874 Performance Measures at the Individual Activity
Concepts in Action: e.U. Accuses Starbucks and Level 909
netherlands of Unfair Tax deal Executive Performance Measures and
Transfer Prices Designed for Multiple Compensation 910
Objectives 877 Strategy and Levers of Control 911
Boundary Systems 912
Belief Systems 913
Interactive Control Systems 913
Questions 881 | Exercises 881 | Problems 885
23 Performance Measurement, Terms to Learn 916 | Assignment Material 916 |
Compensation, and Multinational Questions 916 | Multiple-Choice Questions 916 |
Considerations 891 Exercises 917 | Problems 921
Executive Compensation at Viacom
Appendix A: Notes on Compound Interest and Interest
Financial and Nonfinancial Performance
Tables 927
Measures 892
Accounting-Based Measures for Business Appendix B: Recommended Readings—available
Units 893 online www.pearsonhighered.com/
Return on Investment 894 horngren
Residual Income 895
Appendix C: Cost Accounting in Professional
Economic Value Added 897
Examination—available online
Return on Sales 898
www.pearsonhighered.com/horngren
Comparing Performance Measures 899
Choosing the Details of the Performance Glossary 935
Measures 899
Index 946
Alternative Time Horizons 899
Alternative Definitions of Investment 900
Alternative Asset Measurements 900
About the Authors
Srikant M. Datar is the Arthur Lowes Dickinson Professor of Business Administration at the
Harvard Business School, Faculty Chair of the Harvard University Innovation Labs, and Se-
nior Associate Dean for University Affairs. A graduate with distinction from the University of
Bombay, he received gold medals upon graduation from the Indian Institute of Management,
Ahmedabad, and the Institute of Cost and Works Accountants of India. A chartered accoun-
tant, he holds two master’s degrees and a PhD from Stanford University.
Datar has published his research in leading accounting, marketing, and operations man-
agement journals, including The Accounting Review, Contemporary Accounting Research,
Journal of Accounting, Auditing and Finance, Journal of Accounting and Economics, Journal
of Accounting Research, and Management Science. He has served as an associate editor and
on the editorial board of several journals and has presented his research to corporate execu-
tives and academic audiences in North America, South America, Asia, Africa, Australia, and
Europe. He is a coauthor of two other books: Managerial Accounting: Making Decisions and
Motivating Performance and Rethinking the MBA: Business Education at a Crossroads.
Cited by his students as a dedicated and innovative teacher, Datar received the George
Leland Bach Award for Excellence in the Classroom at Carnegie Mellon University and the
Distinguished Teaching Award at Stanford University.
Datar is a member of the board of directors of Novartis A.G., ICF International, T-Mobile
US, and Stryker Corporation and Senior Strategic Advisor to HCL Technologies. He has worked
with many organizations, including Apple Computer, Boeing, DuPont, Ford, General Motors,
Morgan Stanley, PepsiCo, Visa, and the World Bank. He is a member of the American Account-
ing Association and the Institute of Management Accountants.
Madhav V. Rajan is the Robert K. Jaedicke Professor of Accounting at Stanford University’s

Graduate School of Business. He is also Professor of Law (by courtesy) at Stanford Law School.
From 2010 to 2016, he was Senior Associate Dean for Academic Affairs and head of the MBA
program at Stanford GSB. In 2017, he will receive the Davis Award for Lifetime Achievement
and Service to Stanford GSB.
Rajan received his undergraduate degree in commerce from the University of Madras, In-
dia, and his MS in accounting, MBA, and PhD degrees from Carnegie Mellon University. In
1990, his dissertation won the Alexander Henderson Award for Excellence in Economic Theory.
Rajan’s research focuses on the economics-based analysis of management accounting is-
sues, especially as they relate to internal control, capital budgeting, supply-chain, and perfor-
mance systems. He has published his research in a variety of leading journals, including The
Accounting Review, Journal of Accounting and Economics, Journal of Accounting Research,
Management Science, and Review of Financial Studies. In 2004, he received the Notable Contri-
bution to Management Accounting Literature award. He is a coauthor of Managerial Account-
ing: Making Decisions and Motivating Performance.
Rajan has served as the Departmental Editor for Accounting at Management Science as
well as associate editor for both the accounting and operations areas. From 2002 to 2008, Rajan
served as an editor of The Accounting Review. Rajan has twice been a plenary speaker at the
AAA Management Accounting Conference.
Rajan has received several teaching honors at Wharton and Stanford, including the David W.
Hauck Award, the highest undergraduate teaching award at Wharton. He teaches in the flagship
Stanford Executive Program and is co-director of Finance and Accounting for the Nonfinancial
Executive. He has participated in custom programs for many companies, including Genentech,
Hewlett-Packard, and nVidia, and is faculty director for the Infosys Global Leadership Program.
Rajan is a director of Cavium, Inc. and iShares, Inc., a trustee of the iShares Trust, and a
member of the C.M. Capital Investment Advisory Board.
xiii
Preface
Studying cost accounting is one of the best business investments a student can make.
Why? Because success in any organization—from the smallest corner store to the largest mul-
tinational corporation—requires the use of cost accounting concepts and practices. Cost
accounting provides key data to managers for planning and controlling, as well as costing
products, services, and even customers. This book focuses on how cost accounting helps man-
agers make better decisions, as cost accountants are increasingly becoming integral members
of their company’s decision-making teams. In order to emphasize this prominence in decision
making, we use the “different costs for different purposes” theme throughout this book. By
focusing on basic concepts, analyses, uses, and procedures instead of procedures alone, we
recognize cost accounting as a managerial tool for business strategy and implementation.
We also prepare students for the rewards and challenges they face in the professional cost
accounting world of today and tomorrow. For example, we emphasize both the development of
analytical skills such as Excel to leverage available information technology and the values and
behaviors that make cost accountants effective in the workplace.
New to This Edition

Deeper Consideration of Global Issues
Businesses today have no choice but to integrate into an increasingly global ecosystem. Virtu-
ally all aspects, including supply chains, product markets, and the market for managerial talent,
have become more international in their outlook. To illustrate this, we incorporate global con-
siderations into many of the chapters. For example, Chapter 6 describes the special challenges
of budgeting in multinational companies while Chapter 23 discusses the challenges of evaluat-
ing the performance of divisions located in different countries. Chapter 22 examines the impor-
tance of transfer pricing in minimizing the tax burden faced by multinational companies. The
Concepts in Action for Chapter 16 explains the importance of joint-cost allocation in creating
a trade war between poultry farms in the United States and South Africa. Several new examples
of management accounting applications in companies are drawn from international settings.
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 mer-
chandising and service sector examples, with corresponding de-emphasis of traditional manu-
facturing settings. For example, Chapter 10 illustrates linear cost functions in the context of
payments for cloud computing services. Chapter 20 highlights inventory management in retail
organizations and uses an example based on a seller of sunglasses. Chapter 21 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 Trader Joe’s (Chapter 1), using activity-based costing to reduce
the costs of health care delivery at the Mayo Clinic (Chapter 5), reducing fixed costs at Twitter
(Chapter 2), and analyzing operating income performance at Best Buy (Chapter 12) and web-
based budgeting at 24 Hour Fitness (Chapter 6).
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 im-
plementation of strategies to achieve long-term financial, social, and environmental perfor-
mance as key imperatives. We highlight this in Chapter 1 and return to the theme in several
xiv
PrefaCe xv
subsequent chapters. Chapter 12 discusses the benefits to companies from measuring social
and environmental performance and how such measures can be incorporated in a balanced
scorecard. Chapter 23 provides several examples of companies that mandate disclosures and
evaluate managers on environmental and social metrics. A variety of chapters, including
Chapters 2, 4, 6, 10, 13, 15, and 21, contain material that stress themes of recognizing and
accounting for environmental costs, energy independence and the smart grid, 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 innova-
tion 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 11 presents the importance of nonfinancial mea-
sures when making decisions about innovation. Chapter 13 stresses that innovation starts
with understanding customer needs while Chapter 19 discusses process innovations for im-
proving quality.
New Cutting-Edge Topics

The pace of change in organizations continues to be rapid. The sixteenth edition of Cost Ac-
counting reflects changes occurring in the role of cost accounting in organizations.
• 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 to be placed on per-
formance measures in a balanced scorecard. We have also added a new section on meth-
ods to evaluate strategy maps such as the strength of links, differentiators, focal points,
and trigger points.
• We have provided details on the transfer pricing strategies used by multinational technol-
ogy 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.
• We have added new material around recent trends in big data and data analytics in pre-
dicting costs and when making demand forecasts.
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 surf wear company Quiksilver
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 General Motors to evaluate its sup-
pliers. Chapter 9 highlights the use of lean manufacturing by Boeing to work through its
backlog of orders and reduce its inventory costs. Chapter 14 shows how Delta made changes
to its frequent flyer program to reward its most profitable customers, who drive a dispropor-
tionate share of Delta’s revenues. Chapter 18 shows the impact on Honda of the rework costs
associated with recalling millions of cars with defective airbags. Chapter 23 describes the
misalignment between performance measurement and pay at Viacom, whose CEO has since
been forced to step down.
xvi PrefaCe
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–Volume–Profit Analysis Makes Subway’s $5 Foot-Long Sandwiches a Success but
Innovation Challenges Loom (Chapter 3)
• Can Chipotle Wrap Up Its Materials-Cost Variance Increases? (Chapter 7)
• H&M Uses Target Pricing to Bring Fast Fashion to Stores Worldwide (Chapter 13)
• Amazon Prime and Customer Profitability (Chapter 14)
• Hybrid Costing for Under Armour 3D Printed Shoes (Chapter 17)
• Netflix Works to Overcome Internet Bottlenecks (Chapter 19)
Streamlined Presentation
We continue to try to simplify and streamline our presentation of various topics to make it as
easy as possible for students to learn the concepts, tools, and frameworks introduced in dif-
ferent chapters. We received positive feedback for the reorganization of Chapters 12 through
16 in the fifteenth edition and have maintained that order in the sixteenth edition. Chapter 13
is the first of four chapters on cost allocation. We introduce the purposes of cost allocation in
Chapter 13 and discuss cost allocation for long-run product costing and pricing. Continuing
the same example, Chapter 14 discusses cost allocation for customer costing. Chapter 15 builds
on the Chapter 4 example to discuss cost allocation for support departments. Chapter 16
discusses joint cost allocation.
Other examples of streamlined presentations can be found in:
• Chapter 2 on the discussion of fundamental cost concepts and the managerial framework
for decision making.
• Chapter 6, where the appendix ties the cash budget to the chapter example.
• Chapter 8, which has a comprehensive chart that lays out all of the variances described in
Chapters 7 and 8.
• Chapter 9, which uses a single two-period example to illustrate the impact of various
inventory-costing methods and denominator level choices.
Try It! Examples

Found throughout the chapter, Try It! interactive questions give students the opportunity to
apply the concept they just learned. Linking in the eText will allow students to practice in My-
AccountingLab© without interrupting their interaction with the eText.
Becker Multiple-Choice Questions

Sample problems, assignable in MyAccountingLab, provide an introduction to the CPA Exam
format and an opportunity for early practice with CPA exam style questions.
Selected Chapter-by-Chapter Content Changes

Thank you for your continued support of Cost Accounting. In every new edition, we strive to
update this text thoroughly. To ease your transition from the fifteenth edition, here are selected
highlights of chapter changes for the sixteenth edition.
Chapter 1 has been rewritten to include greater discussion of sustainability and innova-
tion and why these issues have become increasingly critical for managers. We discuss the chal-
lenges of planning and control for innovation and sustainability and how companies use these
systems to manage these activities. We continue to emphasize the importance of ethics, values,
and behaviors in improving the quality of financial reporting.
Chapter 2 has been updated and revised to make it easier for students to understand core
cost concepts and to provide a framework for how cost accounting and cost management help
PrefaCe xvii
managers make decisions. We have added more material on environmental costs to explain
how and why these costs may be missed in costing systems even though they are a part of
product costs. We discuss the challenges of accounting for R&D costs and the implications
for innovation.
Chapter 3 now includes greater managerial content, using examples from real companies
to illustrate the value of cost–volume–profit analysis in managerial decision making. We have
rewritten the section on CVP analysis in service and not-for-profit companies using the context
of a management consulting firm. Chapter 4 has been revised to discuss the creation of cost
pools, the level of fixed costs in a seasonal business, and the need to adjust normal costs to
actual costs using end-of-accounting-year adjustments. The chapter also develops the criteria
for allocating costs and relates them to real examples to highlight why managers need allocated
cost information to make decisions.
Chapter 5 adds more discussion of product undercosting and overcosting and refining a
costing system. The chapter example has been changed to add new material on time-driven
activity-based costing (TDABC) compared to driver-rate activity-based costing. We integrate
the discussion of behavioral considerations in implementing activity-based costing with the
technical material in the chapter.
Chapter 6 presents material on the mismatch between costs incurred for breakthrough
innovations in the annual budget and the revenues earned in that year. The chapter describes
ways to delink innovation from current year operational performance by developing measures
to monitor the success of innovation efforts. The chapter discusses how stretch targets motivate
greater carbon reductions. We also elaborate on tradeoffs managers must make when choosing
different organization structures.
In Chapter 7, the appendix on mix and yield variances, which used a one-off example, has
now been recast using the same running example that winds its way through both Chapters 7
and 8. Chapter 8 provides a revised comprehensive summary of the variances in both Chapters
7 and 8 via an innovative exhibit.
Chapter 9 retains the simplified two-period integrated example of capacity choice. There
is greater emphasis now on linking the impact of the choice of capacity concept to recent
changes in financial reporting and tax requirements.
Chapter 10 provides an expanded description of big data and the reasons behind the ex-
plosion in data availability and analytics today. It also incorporates several examples of how
companies are gathering and using large quantities of data to make better decisions.
Chapter 11 has been revised to emphasize nonfinancial factors in decisions, particularly
in environmental and innovation decisions. The chapter explicitly considers how relevant
cost analysis is distinct from the absorption costing method of preparing financial state-
ments under Generally Accepted Accounting Principles (GAAP). The focus is on identifying
and understanding why relevant costs and relevant revenues are important when making
decisions.
Chapter 12 introduces a completely new section around evaluating strategy maps by iden-
tifying strong and weak links, differentiators, focal points, and trigger points. There is a new
exhibit to present these concepts. The chapter also ties the Chipset strategy decision to the
general discussion of strategy.
The new Chapter 13 makes significant revisions to the sections on target pricing and target
costing, cost-plus pricing, and life-cycle budgeting. The chapter presents new material on car-
bon tax, cap-and-trade auctions, and the Sustainability Accounting Standards Board (SASB).
New examples have been added when discussing predatory pricing, dumping, and collusive
pricing.
Chapter 14 was completely rewritten in the fifteenth edition. The current revision makes
a number of changes to improve the clarity of the writing and to motivate different concepts.
The section on cost-hierarchy-based operating income has been rewritten and the section on
fully allocated customer profitability has been streamlined.
Chapter 15 was also heavily revised in the fifteenth edition. The current revision makes
several significant changes to clarify concepts and improve exposition. The sections on single-
rate and dual-rate methods, budgeted versus actual costs, and the choice of allocation bases
have all been substantially rewritten. The Concepts in Action box uses updated federal cases on
contract disputes centered around cost allocation.
xviii PrefaCe
Chapter 16 provides a discussion of the rationale for joint-cost allocation and the merits
and demerits of various joint-cost allocation methods. It includes a new opening vignette and a
new real-world example to highlight the controversies that can result from using inappropriate
methods of joint-cost allocation.
Chapters 17 and 18 provide a managerial lens on the estimation of equivalent units and the
choice between the FIFO and weighted-average costing methods, both in the chapter content
and in the new vignettes and real-world examples. The exhibits have been reformatted to make
clear how various components are added to get the total costs. Chapter 18 emphasizes, with
illustrative examples, the theme of striving for zero waste and a sustainable environment.
Chapter 19 focuses on quality and time. The sections on control charts, weighing the costs
and benefits of improving quality, and evaluating a company’s quality performance have been
rewritten. This revision also makes major changes to and reorganizes the section on bottlenecks
and time drivers.
Chapter 20 emphasizes the importance of choosing the correct products to sell, deeply
understanding customers, and pricing smartly as ways to manage inventory. It discusses the
role of big data and better demand forecasts in reducing demand uncertainty and safety stocks
and in implementing materials requirements planning (MRP) systems. The section on the cost
of a prediction error has been revised to link to Exhibit 20-1. The section on lean accounting
has been rewritten and simplified.
Chapter 21 focuses on the role of capital budgeting in supporting the choice of sustain-
able long-term projects. The new opening vignette looks at the financing of residential solar
panels, the integrated example deals with the purchase of a new hybrid-engine bus, and various
examples throughout the chapter and in the new Concepts in Action illustrate how companies
incorporate sustainability in their capital budgeting decisions.
Chapter 22 has been revised to reflect the most recent developments in the controversial use
of transfer prices for tax minimization by multinational corporations, with several real-world
examples. The revision also highlights the changing regulatory environment across the world
and provides updated information on the use of tools such as advance pricing agreements.
Chapter 23 describes the use of environmental, social, and ethical objectives by companies
as part of top management’s pay structures, with new examples of companies that embed
sustainability targets into compensation systems. It discusses the latest SEC regulations on
disclosure of executive compensation and the impact of Dodd-Frank “say on pay” rules.
Hallmark Features of Cost Accounting

• Exceptionally strong emphasis on managerial uses of cost information
• Clarity and understandability of the text
• Excellent balance in integrating modern topics with traditional coverage
• Emphasis on human behavior aspects
• Extensive use of real-world examples
• Ability to teach chapters in different sequences
• Excellent quantity, quality, and range of assignment material
The first thirteen chapters provide the essence of a one-term (quarter or semester) course.
There is ample text and assignment material in the book’s twenty-three chapters for a two-term
course. This book can be used immediately after the student has had an introductory course in
financial accounting. Alternatively, this book can build on an introductory course in manage-
rial accounting.
Deciding on the sequence of chapters in a textbook is a challenge. Because every instructor
has a unique way of organizing his or her course, we utilize a modular, flexible organization
that permits a course to be custom tailored. This organization facilitates diverse approaches to
teaching and learning.
As an example of the book’s flexibility, consider our treatment of process costing. Pro-
cess costing is described in Chapters 17 and 18. Instructors interested in filling out a student’s
PrefaCe xix
perspective of costing systems can move directly from job-order costing described in Chapter 4
to Chapter 17 without interruption in the flow of material. Other instructors may want their
students to delve into activity-based costing and budgeting and more decision-oriented topics
early in the course. These instructors may prefer to postpone discussion of process costing.
Resources
In addition to this textbook and MyAccountingLab, a companion website is available for stu-
dents at www.pearsonhighered.com/horngren.
The following resources are available for instructors in MyAccountingLab and on the
Instructors Resource Center at www.pearsonhighered.com/horngren.
• Solutions Manual
• Test Bank in Word and TestGen, including algorithmic questions
• Instructors Manual
• PowerPoint Presentations
• Image Library
Acknowledgments
We are indebted to many people for their ideas and assistance. Our primary thanks go to the
many academics and practitioners who have advanced our knowledge of cost accounting. The
package of teaching materials we present is the work of skillful and valued team members de-
veloping some excellent end-of-chapter assignment material. Tommy Goodwin provided out-
standing research assistance on technical issues and current developments. We would also like
to thank the dedicated and hard-working supplement author team and Integra. The book is
much better because of the efforts of these colleagues.
In shaping this edition and past editions we would like to thank all the reviewers and col-
leagues who have worked closely with us and the editorial team.
We also would like to thank our colleagues who helped us greatly by accuracy checking
the text and supplements, including Molly Brown, Barbara Durham, Anna Jensen, and Sandra
Cereola.
We thank the people at Pearson for their hard work and dedication, including Donna
Battista, Ellen Geary, Christine Donovan, Elizabeth Geary, and Martha LaChance. We extend
special thanks to Claire Hunter, the development editor on this edition, who took charge of
this project and directed it across the finish line. This book would not have been possible with-
out their dedication and skill. Sue Nodine at Integra expertly managed the production aspects
of the manuscript’s preparation with superb skill and tremendous dedication. We are deeply
appreciative of their good spirits, loyalty, and ability to stay calm in the most hectic of times.
Appreciation also goes to the American Institute of Certified Public Accountants, the In-
stitute of Management Accountants, the Society of Management Accountants of Canada, the
Certified General Accountants Association of Canada, the Financial Executive Institute of
America, and many other publishers and companies for their generous permission to quote
from their publications. Problems from the Uniform CPA examinations are designated (CPA);
problems from the Certified Management Accountant examination are designated (CMA);
problems from the Canadian examinations administered by the Society of Management Ac-
countants are designated (SMA); and problems from the Certified General Accountants As-
sociation are designated (CGA). Many of these problems are adapted to highlight particular
points. We are grateful to the professors who contributed assignment material for this edition.
Their names are indicated in parentheses at the start of their specific problems. Comments
from users are welcome.
Srikant M. Datar
Madhav V. Rajan
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
Stanford University
To Our Families
Swati, Radhika, Gayatri, Sidharth (SD)
Gayathri, Sanjana, Anupama (MVR)
The Manager and
Management Accounting 1
All businesses are concerned about revenues and costs. Learning Objectives
Managers at companies small and large must understand how revenues and costs
behave or risk losing control of the performance of their firms. Managers use cost 1 Distinguish financial accounting from
management accounting
accounting information to make decisions about research and development, produc-
tion planning, budgeting, pricing, and the products or services to offer customers. 2 Understand how management
accountants help firms make
Sometimes these decisions involve tradeoffs. The following article shows how under- strategic decisions
standing costs and pricing helps companies like Coca-Cola increase profits even as
the quantity of products sold decreases. 3 Describe the set of business
functions in the value chain
and identify the dimensions of
performance that customers are
For CoCa-Cola, Smaller SizeS mean expecting of companies
Bigger ProFitS 4 Explain the five-step decision-

making process and its role in
Can selling less of something be more profitable than selling more of it? As consumers management accounting
become more health conscious, they are buying less soda. “Don’t want to drink too
5 Describe three guidelines
management accountants follow
much?” Get a smaller can. “Don’t want so many calories?” Buy a smaller can. “Don’t
in supporting managers
want so much sugar?” Just drink a smaller can. In 2015, while overall sales of soda in
the United States declined in terms of volume, industry revenue was higher. How, you 6 Understand how management
accounting fits into an
ask? Soda companies are charging more for less! organization’s structure
Coca-Cola has been the market leader in selling smaller sizes of soda to con-
sumers. Sales of smaller packages of Coca-Cola—including 8-packs of 12-ounce
7 Understand what professional
ethics mean to management
bottles and 7.5-ounce cans—rose 15% in 2015. Meanwhile, accountants
sales of larger bottles and cans fell. The price per ounce of Coke
sold in smaller cans is higher than the price per ounce of Coke
sold in bulk. The resulting higher profits from the sales of smaller
sizes of soda made up for the decrease in total volume of soda
sold. If these trends toward buying smaller cans continue, Coca-
Cola will be selling less soda, but making more money, for years
to come.
By studying cost accounting, you will learn how success-
ful managers and accountants run their businesses and prepare
yourself for leadership roles in the firms you work for. Many large
companies, including Nike and the Pittsburgh Steelers, have se-
nior executives with accounting backgrounds.
Sources: Mike Esterl, “Smaller Sizes Add Pop to Soda Sales,” The Wall Street
Journal, January 27, 2016 (http://www.wsj.com/articles/smaller-sizes-add-pop-to-
soda-sales-1453890601); Trefis, “How Coke Is Making the Most Out of Falling Soda
Volumes,” January 5, 2016 (http://www.trefis.com/stock/ko/articles/327882/how-coke-is-
making-the-most-out-of-falling-soda-volumes/2016-01-05). urbanbuzz/Alamy Stock Photo
1
2 Chapter 1 the Manager and ManageMent aCCounting
Financial Accounting, Management

Accounting, and Cost Accounting
Learning
1
As many of you have already learned in your financial accounting class, accounting systems
Objective are used to record economic events and transactions, such as sales and materials purchases,
and process the data into information helpful to managers, sales representatives, production
Distinguish financial
accounting
supervisors, and others. Processing any economic transaction means collecting, categorizing,
summarizing, and analyzing. For example, costs are collected by category, such as materials, la-
. . . reporting on past bor, and shipping. These costs are then summarized to determine a firm’s total costs by month,
performance to external
users
quarter, or year. Accountants analyze the results and together with managers evaluate, say, how
costs have changed relative to revenues from one period to the next. Accounting systems also
from management provide the information found in a firm’s income statement, balance sheet, statement of cash
accounting
flow, and performance reports, such as the cost of serving customers or running an advertising
. . . helping managers campaign. Managers use this information to make decisions about the activities, businesses,
make decisions or functional areas they oversee. For example, a report that shows an increase in sales of lap-
tops and iPads at an Apple store may prompt Apple to hire more salespeople at that location.
Understanding accounting information is essential for managers to do their jobs.
Individual managers often require the information in an accounting system to be pre-
sented or reported differently. Consider, for example, sales order information. A sales
manager at Porsche may be interested in the total dollar amount of sales to determine the
commissions paid to salespeople. A distribution manager at Porsche may be interested in the
sales order quantities by geographic region and by customer-requested delivery dates to en-
sure vehicles get delivered to customers on time. A manufacturing manager at Porsche may be
interested in the quantities of various products and their desired delivery dates so that he or
she can develop an effective production schedule.
To simultaneously serve the needs of all three managers, Porsche creates a database,
sometimes called a data warehouse or infobarn, consisting of small, detailed bits of informa-
tion that can be used for multiple purposes. For instance, the sales order database will contain
detailed information about a product, its selling price, quantity ordered, and delivery details
(place and date) for each sales order. The database stores information in a way that allows
different managers to access the information they need. Many companies are building their
own enterprise resource planning (ERP) systems. An ERP system is a single database that col-
lects data and feeds them into applications that support a company’s business activities, such
as purchasing, production, distribution, and sales.
Financial accounting and management accounting have different goals. As you know,
financial accounting focuses on reporting financial information to external parties such as in-
vestors, government agencies, banks, and suppliers based on Generally Accepted Accounting
Principles (GAAP). The most important way financial accounting information affects manag-
ers’ decisions and actions is through compensation, which is often, in part, based on numbers
in financial statements.
Management accounting is the process of measuring, analyzing, and reporting financial
and nonfinancial information that helps managers make decisions to fulfill the goals of an
organization. Managers use management accounting information to:
1. develop, communicate, and implement strategies,
2. coordinate product design, production, and marketing decisions and evaluate a company’s
performance.
Management accounting information and reports do not have to follow set principles or
rules. The key questions are always (1) how will this information help managers do their jobs
better, and (2) do the benefits of producing this information exceed the costs?
Exhibit 1-1 summarizes the major differences between management accounting and fi-
nancial accounting. Note, however, that reports such as balance sheets, income statements,
and statements of cash flows are common to both management accounting and financial
accounting.
Cost accounting provides information for both management accounting and financial
accounting professionals. Cost accounting is the process of measuring, analyzing, and
reporting financial and nonfinancial information related to the costs of acquiring or using
StrategiC deCiSionS and the ManageMent aCCountant 3
exhiBit 1-1 Major Differences Between Management and Financial Accounting
Management Accounting Financial Accounting

Purpose of information Help managers make decisions Communicate an organization’s financial
to fulfill an organization’s goals position to investors, banks, regulators,
and other outside parties
Primary users Managers of the organization External users such as investors, banks,
regulators, and suppliers
Focus and emphasis Future-oriented (budget for Past-oriented (reports on 2016

2017 prepared in 2016) performance prepared in 2017)
Rules of measurement Internal measures and reports Financial statements must be prepared
and reporting do not have to follow GAAP but in accordance with GAAP and be
are based on cost-benefit analyses certified by external, independent auditors
Time span and type of Varies from hourly information Annual and quarterly financial reports,
reports to 15 to 20 years, with financial primarily on the company as a whole
and nonfinancial reports on
products, departments, territories,
and strategies
Behavioral implications Designed to influence the behavior Primarily reports economic events
of managers and other employees but also influences behavior because
manager’s compensation is often based
on reported financial results
resources in an organization. For example, calculating the cost of a product is a cost account-
ing function that meets both the financial accountant’s inventory-valuation needs and the
management accountant’s decision-making needs (such as deciding how to price products
and choosing which products to promote). However, today most accounting professionals
take the perspective that cost information is part of the management accounting informa-
tion collected to make management decisions. Thus, the distinction between management
accounting and cost accounting is not so clear-cut, and we often use these terms interchange-
ably in the book.
Businesspeople frequently use the term cost management. Unfortunately, the term does
not have an exact definition. In this book we use cost management to describe the activities DecisiOn
managers undertake to use resources in a way that increases a product’s value to customers Point
and achieves an organization’s goals. In other words, cost management is not only about re- How is financial
ducing costs. Cost management also includes making decisions to incur additional costs—for accounting different from
example, to improve customer satisfaction and quality and to develop new products—with management accounting?
the goal of enhancing revenues and profits. Whether or not to enter new markets, implement
new organizational processes, and change product designs are also cost management deci-
sions. Information from accounting systems helps managers to manage costs, but the infor-
mation and the accounting systems themselves are not cost management.
Strategic Decisions and the Management

Learning
Objective 2
Understand how man-
Accountant agement accountants
help firms make strategic
A company’s strategy specifies how the organization matches its own capabilities with decisions
the opportunities in the marketplace. In other words, strategy describes how an orga- . . . they provide information
nization creates value for its customers while distinguishing itself from its competitors. about the sources of com-
Businesses follow one of two broad strategies. Some companies, such as Southwest petitive advantage
Airlines and Vanguard (the mutual fund company), follow a cost leadership strategy.
They profit and grow by providing quality products or services at low prices and by ju-
diciously managing their costs. Other companies such as Apple and the pharmaceutical
giant Johnson & Johnson follow a product differentiation strategy. They generate profits
and growth by offering differentiated or unique products or services that appeal to their
customers and are often priced higher than the less-popular products or services of their
competitors.
Deciding between these strategies is a critical part of what managers do. Management
accountants work closely with managers in various departments to formulate strategies
by providing information about the sources of competitive advantage, such as (1) the
company’s cost, productivity, or efficiency advantage relative to competitors or (2) the
premium prices a company can charge over its costs from distinctive product or service
features. Strategic cost management describes cost management that specifically focuses
on strategic issues.
Management accounting information helps managers formulate strategy by answering
questions such as the following:
■ Who are our most important customers, and what critical capability do we have to
be competitive and deliver value to our customers? After Amazon.com’s success sell-
ing books online, management accountants at Barnes & Noble outlined the costs and
benefits of several alternative approaches for enhancing the company’s information
technology infrastructure and developing the capability to sell books online. A similar
cost–benefit analysis led Toyota to build flexible computer-integrated manufacturing
plants that enable it to use the same equipment efficiently to produce a variety of cars in
response to changing customer tastes.
■ What is the bargaining power of our customers? Kellogg Company, for example, uses the
reputation of its brand to reduce the bargaining power of its customers and charge higher
prices for its cereals.
■ What is the bargaining power of our suppliers? Management accountants at Dell
Computers consider the significant bargaining power of Intel, its supplier of micropro-
cessors, and Microsoft, its supplier of operating system software, when considering how
much it must pay to acquire these products.
■ What substitute products exist in the marketplace, and how do they differ from our prod-
uct in terms of features, price, cost, and quality? Hewlett-Packard, for example, designs,
costs, and prices new printers after comparing the functionality and quality of its printers
to other printers available in the marketplace.
DecisiOn ■ Will adequate cash be available to fund the strategy, or will additional funds need to be
Point raised? Procter & Gamble, for example, issued new debt and equity to fund its strategic
How do management acquisition of Gillette, a maker of shaving products.
accountants support
strategic decisions? The best-designed strategies and the best-developed capabilities are useless unless they are
effectively executed. In the next section, we describe how management accountants help man-
agers take actions that create value for their customers.
Learning
Objective 3
Describe the set of busi- Value-Chain and Supply-Chain Analysis
ness functions in the
value chain and identify
and Key Success Factors
the dimensions of perfor- Customers demand much more than just a fair price; they expect quality products (goods or
mance that customers are
expecting of companies
services) delivered in a timely way. The entire customer experience determines the value a cus-
tomer derives from a product. In this section, we explore how a company goes about creating
. . . R&D, design, produc- this value.
tion, marketing, distribu-
tion, and customer service
supported by administra- Value-Chain Analysis
tion to achieve cost and
efficiency, quality, time, The value chain is the sequence of business functions by which a product is made progres-
and innovation sively more useful to customers. Exhibit 1-2 shows six primary business functions: research
Value-Chain and Supply-Chain analySiS and Key SuCCeSS FaCtorS 5
exhiBit 1-2 Different Parts of the Value Chain
Administration
Research Design of
Customer
and Products and Production Marketing Distribution
Service
Development Processes
and development (R&D), design of products and processes, production, marketing, distribu-
tion, and customer service. We illustrate these business functions with Sony Corporation’s
television division.
1. Research and development (R&D)—generating and experimenting with ideas related to
new products, services, or processes. At Sony, this function includes research on alterna-
tive television signal transmission and on the picture quality of different shapes and thick-
nesses of television screens.
2. Design of products and processes—detailed planning, engineering, and testing of
products and processes. Design at Sony includes deciding on the component parts in a
television set and determining the effect alternative product designs will have on the set’s
quality and manufacturing costs. Some representations of the value chain collectively refer
to the first two steps as technology development.1
3. Production—procuring, transporting, and storing (“inbound logistics”) and coordinating
and assembling (“operations”) resources to produce a product or deliver a service. The
production of a Sony television set includes the procurement and assembly of the elec-
tronic parts, the screen and the packaging used for shipping.
4. Marketing (including sales)—promoting and selling products or services to customers or
prospective customers. Sony markets its televisions at tradeshows, via advertisements in
newspapers and magazines, on the Internet, and through its sales force.
5. Distribution—processing orders and shipping products or services to customers (“out-
bound logistics”). Distribution for Sony includes shipping to retail outlets, catalog ven-
dors, direct sales via the Internet, and other channels through which customers purchase
new televisions.
6. Customer service—providing after-sales service to customers. Sony provides customer ser-
vice on its televisions in the form of customer-help telephone lines, support on the Internet,
and warranty repair work.
In addition to the six primary business functions, Exhibit 1-2 shows an administra-
tion function, which includes accounting and finance, human resource management, and
information technology and supports the six primary business functions. When discuss-
ing the value chain in subsequent chapters of the book, we include the administration
function within the primary functions. For example, included in the marketing function
is the function of analyzing, reporting, and accounting for resources spent in differ-
ent marketing channels, whereas the production function includes the human resource
management function of training frontline workers. Each of these business functions is
essential to companies satisfying their customers and keeping them satisfied (and loyal)
over time.
To implement their corporate strategies, companies such as Sony and Procter & Gamble
use customer relationship management (CRM), a strategy that integrates people and tech-
nology in all business functions to deepen relationships with customers, partners, and dis-
tributors. CRM initiatives use technology to coordinate all customer-facing activities (such
1
M. Porter, Competitive Advantage (New York: Free Press, 1998).
as marketing, sales calls, distribution, and after-sales support) and the design and production
activities necessary to get products to customers.
Different companies create value in different ways. Lowe’s (the home-improvement re-
tailer) does so by focusing on cost and efficiency. Toyota Motor Company does so by focus-
ing on quality. Fast response times at eBay create quality experiences for the online auction
giant’s customers, whereas innovation is primarily what creates value for the customers of the
biotech company Roche. The Italian apparel company Gucci creates value for its customers
through the prestige of its brand. As a result, at different times and in different industries, one
or more of the value-chain functions are more critical than others. For example, a company
such as Roche emphasizes R&D and the design of products and processes. In contrast, a
company such as Gucci focuses on marketing, distribution, and customer service to build its
brand.
Exhibit 1-2 depicts the usual order in which different business-function activities
physically occur. Do not, however, interpret Exhibit 1-2 to mean that managers should
proceed sequentially through the value chain when planning and managing their activi-
ties. Companies gain (in terms of cost, quality, and the speed with which new products
are developed) if two or more of the individual business functions of the value chain work
concurrently as a team. For example, a company’s production, marketing, distribution,
and customer service personnel can often reduce a company’s total costs by providing
input for design decisions.
Managers track costs incurred in each value-chain category. Their goal is to reduce
costs to improve efficiency or to spend more money to generate even greater revenues.
Management accounting information helps managers make cost–benefit tradeoffs. For ex-
ample, is it cheaper to buy products from a vendor or produce them in-house? How does
investing resources in design and manufacturing increase revenues or reduce costs of market-
ing and customer service?
Supply-Chain Analysis
The parts of the value chain associated with producing and delivering a product or service—
production and distribution—are referred to as the supply chain. The supply chain de-
scribes the flow of goods, services, and information from the initial sources of materials and
services to the delivery of products to consumers, regardless of whether those activities oc-
cur in one organization or in multiple organizations. Consider Coke and Pepsi: Many com-
panies play a role in bringing these products to consumers as the supply chain in Exhibit 1-3
shows. Part of cost management emphasizes integrating and coordinating activities across
all companies in the supply chain to improve performance and reduce costs. For example, to
reduce materials-handling costs, both the Coca-Cola Company and Pepsi Bottling Group
require their suppliers (such as plastic and aluminum companies and sugar refiners) to fre-
quently deliver small quantities of materials directly to their production floors. Similarly,
to reduce inventory levels in the supply chain, Walmart requires its suppliers, such as Coca-
Cola, to directly manage its inventory of products to ensure the right amount of them are in
its stores at all times.
exhiBit 1-3 Supply Chain for a Cola Bottling Company
Suppliers of
Manufacturer Bottling Distribution Retail Final
Cola-Concentrate
of Concentrate Company Company Company Consumer
Ingredients
Suppliers of
Non-Concentrate
Materials/Services
Value-Chain and Supply-Chain analySiS and Key SuCCeSS FaCtorS 7
Key Success Factors

Customers want companies to use the value chain and supply chain to deliver ever-improving
levels of performance when it comes to several (or even all) of the following:
■ Cost and efficiency—Companies face continuous pressure to reduce the cost of the
products they sell. To calculate and manage the cost of products, managers must first
understand the activities (such as setting up machines or distributing products) that
cause costs to arise as well as monitor the marketplace to determine the prices custom-
ers are willing to pay for the products. Management accounting information helps
managers calculate a target cost for a product by subtracting from the “target price”
the operating income per unit of product that the company wants to earn. To achieve
the target cost, managers eliminate some activities (such as rework) and reduce the
costs of performing other activities in all value-chain functions—from initial R&D to
customer service (see Concepts in Action: Trader Joe’s Recipe for Cost Leadership).
Many U.S. companies have cut costs by outsourcing some of their business functions.
Nike, for example, has moved its manufacturing operations to China and Mexico,
and Microsoft and IBM are increasingly doing their software development in Spain,
Eastern Europe, and India.
■ Quality—Customers expect high levels of quality. Total quality management (TQM) is
an integrative philosophy of management for continuously improving the quality of prod-
ucts and processes. Managers who implement TQM believe that every person in the value
chain is responsible for delivering products and services that exceed customers’ expecta-
tions. Using TQM, companies design products or services to meet customer needs and
wants, to make these products with zero (or very few) defects and waste, and to minimize
inventories. Managers use management accounting information to evaluate the costs and
revenue benefits of TQM initiatives.
■ Time—Time has many dimensions. Two of the most important dimensions are new-
product development time and customer-response time. New-product development time
is the time it takes for companies to create new products and bring them to market. The
increasing pace of technological innovation has led to shorter product life cycles and more
rapid introduction of new products. To make new-product development decisions, man-
agers need to understand the costs and benefits of a product over its life cycle, including
the time and cost of developing new products.
Customer-response time describes the speed at which an organization responds to
customer requests. To increase the satisfaction of their customers, organizations need
to meet their promised delivery dates as well as reduce their delivery times. Bottlenecks
are the primary cause of delays. For example, a bottleneck can occur when the work
to be performed on a machine exceeds its available capacity. To deliver the product on
time, managers need to increase the capacity of the machine to produce more output.
Management accounting information can help managers quantify the costs and ben-
efits of doing so.
■ Innovation—A constant flow of innovative products or services is the basis for the ongo-
ing success of a company. Many companies innovate in their strategies, business models,
the services they provide, and the way they market, sell, and distribute their products.
Managers rely on management accounting information to evaluate alternative R&D and
investment decisions and the costs and benefits of implementing innovative business mod-
els, services, and marketing plans.
■ Sustainability—Companies are increasingly applying the key success factors of cost and
efficiency, quality, time, and innovation to promote sustainability—the development and
implementation of strategies to achieve long-term financial, social, and environmental
goals. The sustainability efforts of the Japanese copier company Ricoh include energy
conservation, resource conservation, product recycling, and pollution prevention. By de-
signing products that can be easily recycled, Ricoh simultaneously improves sustainability
and the cost and quality of its products.
cOncepts Trader Joe’s Recipe

in actiOn for Cost Leadership
Trader Joe’s has a special recipe for cost leadership: delivering unique
products at reasonable prices. The grocery store chain stocks its shelves
with low-cost, high-end staples (cage-free eggs and sustainably harvested
seafood) and affordable luxuries (Speculoos cookie butter and Sriracha
and roasted garlic BBQ sauce) that are distinct from what traditional su-
permarkets offer. Trader Joe’s can offer these items at everyday low prices
by judiciously managing its costs.
At Trader Joe’s, customers swap selection for value. The company
has relatively small stores with a carefully selected, constantly changing
mix of items. While typical grocery stores carry 50,000 items, Trader Joe’s
BirchTree/Alamy Stock Photo sells only about 4,000 items. In recent years, it removed nonsustainable
items from its shelves, including genetically modified items. About 80% of
the stock bears the Trader Joe’s brand, and management seeks to minimize costs of these items. The company purchases
directly from manufacturers, which ship their items straight to Trader Joe’s warehouses to avoid third-party distribution
costs. With small stores and limited storage space, Trader Joe’s trucks leave the warehouse centers daily. This encourages
precise, just-in-time ordering and a relentless focus on frequent merchandise turnover.
This winning combination of quality products and low prices has turned Trader Joe’s into one of the hottest retail-
ers in the United States. Its stores sell an estimated $13 billion annually, or $1,734 in merchandise per square foot, which is
nearly double Whole Foods, its top competitor.
Sources: Beth Kowitt, “Inside the Secret World of Trader Joe’s,” Fortune, August 23, 2010 (http://archive.fortune.com/2010/08/20/news/companies/
inside_trader_joes_full_version.fortune/index.htm); Christopher Palmeri, “Trader Joe’s Recipe for Success,” Bloomberg Businessweek, February
21, 2008 (http://www.bloomberg.com/bw/stories/2008-02-20/trader-joes-recipe-for-success); Allessandra Ran, “Teach Us, Trader Joe: Demanding
Socially Responsible Food,” The Atlantic, August 7, 2012 (http://www.theatlantic.com/health/archive/2012/08/teach-us-trader-joe-demanding-socially-
responsible-food/260786/); Aaron Ahlburn and Keisha McDonnough, “Retail ShopTopic,” Retail Research, September 2014, Jones Lang LaSalle, Inc.
(http://www.us.jll.com/united-states/en-us/Research/JLL-ShopTopic-Grocery-share.pdf); “Trader Joe’s Customer Choice Award Winners,” Trader Joe’s
Co. press release, Monrovia, CA: January 4, 2016 (http://www.traderjoes.com/digin/post/trader-joes-customer-choice-award-winners).
The interest in sustainability appears to be intensifying among companies. General

Electric, Poland Springs (a bottled-water manufacturer), and Hewlett-Packard are among the
many companies incorporating sustainability into their decision making. Sustainability is im-
portant to these companies for several reasons:
■ More and more investors care about sustainability. These investors make investment deci-
sions based on a company’s financial, social, and environmental performance and raise
questions about sustainability at shareholder meetings.
■ Companies that emphasize sustainability find that sustainability goals attract and inspire
employees.
■ Customers prefer the products of companies with good sustainability records and boycott
companies with poor sustainability records.
■ Society and activist nongovernmental organizations, in particular, monitor the sustain-
ability performance of firms and take legal action against those that violate environ-
mental laws. Countries with fast-growing economies, such as China and India, are now
DecisiOn either requiring or encouraging companies to develop and report on their sustainability
Point initiatives.
How do companies Management accountants help managers track the key success factors of their firms as
add value, and what
well as those of their competitors. Competitive information serves as a benchmark managers
are the dimensions
of performance that use to continuously improve their operations. Examples of continuous improvement include
customers are expecting Southwest Airlines’ efforts to increase the number of its flights that arrive on time, eBay’s
of companies? efforts to improve the access its customers have to online auctions, and Lowe’s efforts to
deCiSion MaKing, planning, and Control: the FiVe-Step deCiSion-MaKing proCeSS 9
continuously reduce the cost of its home-improvement products. Sometimes, more funda-
mental changes and innovations in operations, such as redesigning a manufacturing process
to reduce costs, may be necessary. To successfully implement their strategies, firms have to do
more than analyze their value chains and supply chains and execute key success factors. They
also have to have good decision-making processes.
Decision Making, Planning, and Control:

The Five-Step Decision-Making Process
Learning
4
We illustrate a five-step decision-making process using the example of the Daily News, a
newspaper in Boulder, Colorado. Subsequent chapters of the book describe how managers use Objective
this five-step decision-making process to make many different types of decisions.
Explain the five-step
The Daily News differentiates itself from its competitors by using (1) highly respected decision-making process
journalists who write well-researched news articles, (2) color to enhance attractiveness to read-
ers and advertisers, and (3) a Web site that delivers up-to-the-minute news, interviews, and . . . identify the problem and
uncertainties; obtain infor-
analyses. The newspaper has the following resources to deliver on this strategy: an automated, mation; make predictions
computer-integrated, state-of-the-art printing facility; a Web-based information technology about the future; make deci-
infrastructure; and a distribution network that is one of the best in the newspaper industry. sions by choosing among
To keep up with steadily increasing production costs, Naomi Crawford, manager of alternatives; implement the
the Daily News, needs to increase the company’s revenues in 2017. As she ponders what she decision, evaluate perfor-
mance, and learn
should do in early 2017, Naomi works through the five-step decision-making process.
and its role in management
1. Identify the problem and uncertainties. Naomi has two main choices: accounting
a. increase the selling price of the newspaper or . . . planning and control of
b. increase the rate per page charged to advertisers. operations and activities
The key uncertainty is the effect any increase in prices or rates will have on demand. A
decrease in demand could offset the price or rate increases and lead to lower rather than
higher revenues. These decisions would take effect in March 2017.
2. Obtain information. Gathering information before making a decision helps managers
gain a better understanding of uncertainties. Naomi asks her marketing manager to talk
to some representative readers to gauge their reaction to an increase in the newspaper’s
selling price. She asks her advertising sales manager to talk to current and potential ad-
vertisers to assess demand for advertising. She also reviews the effect that past increases in
the price of the newspaper had on readership. Ramon Sandoval, management accountant
at the Daily News, presents information about the effect of past increases or decreases in
advertising rates on advertising revenues. He also collects and analyzes information on
advertising rates competing newspapers and other media outlets charge.
3. Make predictions about the future. Based on this information, Naomi makes predic-
tions about the future. She concludes that increasing prices would upset readers and
decrease readership. She has a different view about advertising rates. She expects a mar-
ketwide increase in advertising rates and believes that increasing rates will have little effect
on the number of advertising pages sold.
Naomi recognizes that making predictions requires judgment. She looks for biases
in her thinking. Has she correctly judged reader sentiment or is the negative publicity of
a price increase overly influencing her decision making? How sure is she that competitors
will increase their advertising rates? Is her thinking in this respect biased by how competi-
tors have responded in the past? Have circumstances changed? How confident is she that
her sales representatives can convince advertisers to pay higher rates? After retesting her
assumptions and reviewing her thinking, Naomi feels comfortable with her predictions
and judgments.
4. Make decisions by choosing among alternatives. When making decisions, a com-
pany’s strategy serves as a vital guidepost for the many individuals in different parts
of the organization making decisions at different times. Consistent strategies provide
a common purpose for these disparate decisions. Only if these decisions can be aligned
with its strategy will an organization achieve its goals. Without this alignment, the
company’s decisions will be uncoordinated, pull the organization in different directions,

and produce inconsistent results.
Consistent with a product differentiation strategy, Naomi decides to increase adver-
tising rates by 4% to $5,200 per page in March 2017, but not increase the selling price of
the newspaper. She is confident that the Daily News’s distinctive style and Web presence
will increase readership, creating value for advertisers. She communicates the new ad-
vertising rate schedule to the sales department. Ramon estimates advertising revenues of
$4,160,000 ($5,200 per page * 800 pages predicted to be sold in March 2017).
Steps 1 through 4 are collectively referred to as planning. Planning consists of selecting
an organization’s goals and strategies, predicting results under various alternative ways of
achieving those goals, deciding how to attain the desired goals, and communicating the goals
and how to achieve them to the entire organization. Management accountants serve as busi-
ness partners in these planning activities because they understand the key success factors and
what creates value.
The most important planning tool when implementing strategy is a budget. A budget is the
quantitative expression of a proposed plan of action by management and is an aid to coordinating
what needs to be done to execute that plan. For March 2017, the budgeted advertising revenue of
the Daily News equals $4,160,000. The full budget for March 2017 includes budgeted circulation
revenue and the production, distribution, and customer-service costs to achieve the company’s
sales goals; the anticipated cash flows; and the potential financing needs. Because multiple de-
partments help prepare the budget, personnel throughout the organization have to coordinate
and communicate with one another as well as with the company’s suppliers and customers.
5. Implement the decision, evaluate performance, and learn. Managers at the Daily News
take action to implement and achieve the March 2017 budget. The firm’s management ac-
countants then collect information on how the company’s actual performance compares to
planned or budgeted performance (also referred to as scorekeeping). The information on the
actual results is different from the predecision planning information Naomi and her staff
collected in Step 2, which enabled her to better understand uncertainties, to make predic-
tions, and to make a decision. Allowing managers to compare actual performance to bud-
geted performance is the control or postdecision role of information. Control comprises
taking actions that implement the planning decisions, evaluating past performance, and
providing feedback and learning to help future decision making.
Measuring actual performance informs managers how well they and their sub-
units are doing. Linking rewards to performance helps motivate managers. These
rewards are both intrinsic (recognition for a job well done) and extrinsic (salary, bo-
nuses, and promotions linked to performance). We discuss this in more detail in a later
chapter (Chapter 23). A budget serves as much as a control tool as a planning tool. Why?
Because a budget is a benchmark against which actual performance can be compared.
Consider performance evaluation at the Daily News. During March 2017, the newspaper sold
advertising, issued invoices, and received payments. The accounting system recorded these
invoices and receipts. Exhibit 1-4 shows the Daily News’s advertising revenues for March
2017. This performance report indicates that 760 pages of advertising (40 pages fewer than
exhiBit 1-4 Performance Report of Advertising Revenues at the Daily News

for March 2017
Difference: Difference as a
Actual Budgeted (Actual Result 2 Percentage of
Result Amount Budgeted Amount) Budgeted Amount
(1) (2) (3) 5 (1) 2 (2) (4) 5 (3) 4 (2)
Advertising pages sold 760 pages 800 pages 40 pages Unfavorable 5.0% Unfavorable
Average rate per page $5,080 $5,200 $120 Unfavorable 2.3% Unfavorable
Advertising revenues $3,860,800 $4,160,000 $299,200 Unfavorable 7.2% Unfavorable
deCiSion MaKing, planning, and Control: the FiVe-Step deCiSion-MaKing proCeSS 11
the budgeted 800 pages) were sold. The average rate per page was $5,080, compared with the
budgeted $5,200 rate, yielding actual advertising revenues of $3,860,800. The actual advertis-
ing revenues were $299,200 less than the budgeted $4,160,000. Observe how managers use both
financial and nonfinancial information, such as pages of advertising, to evaluate performance.
The performance report in Exhibit 1-4 spurs investigation and learning, which involves
examining past performance (the control function) and systematically exploring alternative
ways to make better-informed decisions and plans in the future. Learning can lead to changes
in goals, strategies, the ways decision alternatives are identified, and the range of information
collected when making predictions and sometimes can lead to changes in managers.
The performance report in Exhibit 1-4 would prompt the management accountant to
raise several questions directing the attention of managers to problems and opportunities. Is
the strategy of differentiating the Daily News from other newspapers attracting more readers?
Did the marketing and sales department make sufficient efforts to convince advertisers that,
even at the higher rate of $5,200 per page, advertising in the Daily News was a good buy?
Why was the actual average rate per page ($5,080) less than the budgeted rate ($5,200)? Did
some sales representatives offer discounted rates? Did economic conditions cause the decline
in advertising revenues? Are revenues falling because editorial and production standards have
declined? Are more readers getting their news online?
Answers to these questions could prompt the newspaper’s publisher to take subsequent
actions, including, for example, adding more sales personnel, making changes in editorial
policy, putting more resources into expanding its presence online and on mobile devices, get-
ting readers to pay for online content, and selling digital advertising. Good implementation
requires the marketing, editorial, and production departments to work together and coordi-
nate their actions.
The management accountant could go further by identifying the specific advertisers that
cut back or stopped advertising after the rate increase went into effect. Managers could then
decide when and how sales representatives should follow up with these advertisers.
Planning and control activities must be flexible enough so that managers can seize oppor-
tunities unforeseen at the time the plan was formulated. In no case should control mean that
managers cling to a plan when unfolding events (such as a sensational news story) indicate DecisiOn
that actions not encompassed by that plan (such as spending more money to cover the story) Point
would offer better results for the company (from higher newspaper sales). How do managers make
The left side of Exhibit 1-5 provides an overview of the decision-making processes at the decisions to implement
Daily News. The right side of the exhibit highlights how the management accounting system strategy?
aids in decision making.
Planning and control activities get more challenging when monitoring and managing inno-
vation and sustainability. Consider the problem of how the Daily News must innovate as more
of its readers migrate to the Web to get their news. Now follow the five-step process we de-
scribed earlier. In Step 1, the uncertainties are much greater. Will there be demand for a news-
paper? Will customers look to the Daily News to get their information or to other sources? In
Step 2, obtaining information is more difficult because there is little history that managers can
comfortably rely on. Instead, managers will have to make connections across disparate data,
run experiments, engage with diverse experts, and speculate to understand how the world
might evolve. In Step 3, making predictions about the future will require developing different
scenarios and models. In Step 4, managers will need to make decisions knowing that conditions
might change in unanticipated ways that will require them to be flexible and correct course
midstream. In Step 5, the learning component is critical. How have the uncertainties evolved
and what do managers need to do to respond to these changing circumstances?
Planning and control for sustainability is equally challenging. What should the Daily
News do about energy consumption in its printing presses, recycling of newsprint, and pollu-
tion prevention? Among the uncertainties managers face is whether customers will reward the
Daily News for these actions by being more loyal and whether investors will react favorably
to managers spending resources on sustainability. Information to gauge customer and inves-
tor sentiment is not easy to obtain. Predicting how sustainability efforts might pay off in the
long run is far from certain. Even as managers make decisions, the sustainability landscape
will doubtlessly change with respect to environmental regulations and societal expectations,
requiring managers to learn and adapt.
exhiBit 1-5 Example of Management

Management Decision Making Accounting
How Accounting Aids at Daily News System
Decision Making,
PLANNING Budgets
Planning, and Control Financial
• Identify the Problem and Uncertainties • Expected advertising representation
at the Daily News How to increase revenues pages sold, rate per of plans
• Obtain Information page, and revenue
• Make Predictons About the Future
• Make Decisions by Choosing Among
Alternatives
Increase advertising rates by 4%
CONTROL Accounting System Recording

• Source documents transactions
Implement the (invoices to advertisers and
Decision indicating pages sold, classifying
• Implement a 4% rate per page, and them in
Learning
increase in payments received) accounting

advertising rates records
• Recording in general
and subsidiary ledgers
Evaluate
Performance
and Learn Performance Reports
Reports
• Advertising revenues • Comparing actual
comparing
7.2% lower than advertising pages sold,
actual results
budgeted average rate per page, and
to budgets
revenue to budgeted
amounts
Do these challenges of implementing planning and control systems for innovation and
sustainability mean that these systems should not be used for these initiatives? No. Many
companies find value in using these systems to manage innovation and sustainability. But,
in keeping with the challenges described earlier, companies such as Johnson & Johnson use
these systems in a different way to obtain information around key strategic uncertainties, to
implement plans while being mindful that circumstances might change, and to evaluate per-
formance in order to learn. We will return to the themes of innovation and sustainability at
various points in the book.
Key Management Accounting Guidelines

Learning
5
Three guidelines help management accountants provide the most value to the strategic and
Objective operational decision making of their companies: (1) employ a cost–benefit approach, (2) give
full recognition to behavioral and technical considerations, and (3) use different costs for dif-
Describe three guidelines
management accoun-
ferent purposes.
tants follow in supporting
managers Cost–Benefit Approach
. . . employing a cost– Managers continually face resource-allocation decisions, such as whether to purchase a new
benefit approach, rec-
ognizing behavioral as
software package or hire a new employee. They use a cost–benefit approach when making
well as technical consid- these decisions. Managers should spend resources if the expected benefits to the company
erations, and calculating exceed the expected costs. Managers rely on management accounting information to quantify
different costs for different expected benefits and expected costs (although all benefits and costs are not easy to quantify).
purposes Consider the installation of a consulting company’s first budgeting system. Previously,
the company used historical recordkeeping and little formal planning. A major benefit of
installing a budgeting system is that it compels managers to plan ahead, compare actual to
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DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI
Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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Horngren’s Cost Accounting – Ebook

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Some consolation was afforded me by a brassfounder, whom I

SMOOTHING WITH MAIZE-COB

CUTTING THE EDGE

LAST SMOOTHING BEFORE

FIRING THE BRUSH-PILE

TURNING THE RED-HOT VESSEL

NYASA WOMAN MAKING POTS AT MASASI

DRAWING THE BARK OFF THE LOG

REMOVING THE OUTER BARK

WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

MANUFACTURE OF BARK-CLOTH AT NEWALA

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