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New to this Edition
I. New Additions to Each Chapter Management, Business Sustainability, Quality Cost Management,
Lean Accounting, International Issues in Management Accounting,
A number of meaningful features were added to each chapter in and the Role of Cost and Managerial Accounting in Fraud and
this edition, including: Forensic Accounting.
✳ Here’s How It’s Used: Several Here’s How It’s Used boxes
in each chapter tell students how managerial concepts are used
in a variety of businesses and in their own lives. This exciting III. Restructuring of Chapter Content and
new feature makes the material more relatable and meaningful. Organization
Here’s How It’s Used features include:
A restructuring of the text tightened and aligned topics in a natural
• In Your Life sequence. In this edition:
• Data Analytics
• Reduction in chapters. The total number of chapters was
• Sustainability reduced from 16 to 15. By streamlining, eliminating, and realigning
topics, the number of chapters was reduced, but the number of
• At Kicker
topics available to cover was actually increased.
• At Real Companies
• Chapter elimination. The chapter on variable and absorp-
✳ Here’s Why It’s Important: Brief explanations of why the tion costing and inventory management was eliminated and the
concepts are important are highlighted in the text to motivate basic material on absorption costing and variable costing was
students in their study. added to Chapter 3 on Cost Behavior and Forecasting. Locating
✳ New A and B sets of Brief Exercises: These new sets of these topics in this chapter provides a good foundation for the
brief exercises give instructors more options for using illustrative costing chapters that follow. It also allows students the oppor-
exercises in class and then assigning very similar material to get tunity to see an immediate application of cost behavior. The
students started with homework. inventory management topic was eliminated and its coverage
deferred to a higher level course.
✳ Animated Concept Clip: All new brief animated video
clips help students understand concepts and see them in a visual • Chapter elimination. The chapter on flexible budgeting and
way. overhead analysis was eliminated and its topics moved to other
chapters. The flexible budgeting material was added to Chapter
✳ Check Point questions at the conclusion of each 9 on Profit Planning to give students an overview of both static
learning objective section: Check Point questions and flexible budgets in the same chapter. The overhead analysis
help students perform quick self-checks while reading chapter material was added to the standard costing chapter (Chapter 10)
material. to give students a complete picture of a standard costing system.
✳ Key Term Definitions: To facilitate study and review, defi- • Chapters relocated. Cost-Volume-Profit Analysis has been
nitions for each key term are now found at the end of each chap- moved to Chapter 7 to allow instructors to explain the basics of
ter (in addition to the glossary at the end of the text). job-order, activity-based (moved to follow job order costing),
and process costing. This relocation enables students to develop
a richer understanding of costs used in CVP.
II. Creation of a New Chapter
• Chapter relocated. The Tactical Decision Making and
The growing importance of managerial accounting in several criti- Relevant Analysis chapter is positioned immediately after CVP and
cal areas led to the creation of a completely new chapter, Emerging now includes material on segmented income statements to pro-
Topics in Managerial Accounting, that provides students with vide students with a more logical and impactful understanding
exciting insights and cutting-edge perspectives on Enterprise Risk of how to prepare and interpret Keep-or-Drop decisions.
xi
xii New to this Edition
• Topic depth increased and new chapter added. Our strong belief is that these additions and changes maintain
The basic introduction to quality costing and environmental issues all of the positive aspects of our previous editions that current
was removed from the chapter on activity based costing and man- users enjoy and appreciate, while significantly improving the
agement. A much deeper treatment of these topics, as well as managerial accounting experience for students and instructors
Enterprise Risk Management, Business Sustainability, Issues in alike. This new edition helps students to learn firsthand that
International Managerial Accounting, and the Role of Cost and managerial accounting is timely, meaningful, fun, and relatable
Managerial Accounting in Fraud and Forensic Accounting, is to their everyday lives!
now found in the new chapter, Emerging Topics in Managerial
Accounting (Chapter 13).
Acknowledgments and Thanks
Thank you to the following instructors who contributed to the development of the 7th edition of Managerial Accounting: The Cornerstone
of Business Decision Making. By reviewing, verifying, or participating in focus groups, you allowed us to create a text that will benefit all of
our students and instructors that use this text.
Janice Akao, Butler Community College Dixon Cooper, Henderson State University
Michael Alles, Rutgers Business School Sandra Copa, North Hennepin Community College
Cornelia Alsheimer, Santa Barbara City College Karen Crisonino, County College of Morris
Linda Amann, University of Wisconsin–Whitewater Anthony Daly-Leonard, Delaware County Community College
Julie Armstrong, St. Clair County Community College David Dearman, University of Arkansas–Little Rock
Elise Bartley, Westminster College Charlene Deno, SUNY Oneonta
Nancy Batch, Texas A&M–San Antonio Harry DeWolf, Mt. Hood Community College
Robert Beatty, Anne Arundel Community College Patricia A. Doherty, Boston University
Connie Belden, Butler Community College David Doyon, Southern NH University
Pamela S. Benner, Stark State College Barbara Durham, University of Central Florida
Debbie Benson, Kennesaw State University Howard Eskew, San Diego Mesa College
Dr. Timothy B. Biggart, Berry College Diane Eure, Texas State University
Eric Blazer, Millersville University Jade Fang, Marist College
Cindy Bleasdale, Hilbert College Christopher Ferro, College of DuPage
Marie Blouin, Ithaca College Clayton Forester, University of Minnesota
Maryann Bolton, Central Community College–Hastings Campus Robert Foster, California State University, Northridge
Marian W. Boscia, King’s College Shari Fowler, Briar Cliff University
Anna Boulware, St. Charles Community College Sheri Geddes, Hope College
Amy Bourne, Oregon State University Joe Gerard, University of Wisconsin–Whitewater
Thomas J. Bradley, Ashford University Daniel J. Gibbons, Waubonsee Community College
Rachel Brassine, East Carolina University Paul Goodchild, University of Central Missouri
Jerold K. Braun, Daytona State College Julie Goodin, Immaculata University
Jeff Brennan, Austin Community College Andrea Gouldman, Weber State University
Ann K. Brooks, University of New Mexico Bob Gutschick, College of Southern Nevada
Patti Brown, The University of Texas at Austin Joohyung Ha, University of San Francisco
Richard Buchanan, Oklahoma State University Wilbert Harri, Pima Community College
Esther Bunn, Stephen F Austin State University Bob Hartung, Metro Community College
Kelley Butler, Ivy Tech Community College Haihong He, California State University, Los Angeles
Marci Butterfield, University of Utah Candice Heino, Anoka Ramsey Community College
Edward Bysiek, St. Bonaventure Youngwon Her, California State University, Northridge
Leonor M. Cabrera, Canada College Dave Hinrichs, Lehigh
Don Campodonico, Notre Dame de Namur University Jan Hlavaty, Lakeland Community College
Tongyu Cao, University College Cork, Ireland Dr. Louann Hofheins, The University of Findlay
Rodney Carmack, Arkansas State University Steve Horan, University of Sioux Falls
Sandra Cereola, James Madison University Melvin Houston, Wayne State University
Richard Chen, Eastern Kentucky University Wayne Ingalls, University of Maine
Bea Chiang, The College of New Jersey Marianne James, California State University, Los Angeles
Linda Christiansen, Indiana University Southeast Steve Johnson, Minnesota State University, Mankato
Lisa Church, Rhode Island College Jeffrey Jones, The College of Southern Nevada
Jay Cohen, Oakton Community College Stani Kantcheva, Cincinnati State Technical and Community
Kelley Colston, University of Toledo College
Margaret Combs, University of the Cumberlands Kathryn W. Kapka, The University of Texas at Tyler
Stephanie Comer, Cornerstone University Ben Kaplan, Johnson & Wales University
Rita Kingery Cook, University of Delaware Howard Keller, IUPUI
xiii
xiv Acknowledgments and Thanks
Marie Kelly, Stephen F Austin State University Rama Ramamurthy, Georgetown University
Dr. Bhagwan Khanna, Ball State University Paulette Ratliff-Miller, Grand Valley State University
Garry Kirk, Southwest Wisconsin Technical College Barbara Reider, University of Montana
Christine Kloezeman, Glendale Community College Barbara Rice, Gateway Community and Technical College
Barbara Kren, Marquette University Vernon Richardson, University of Arkansas
Marco Lam, Western Carolina University Constance Rodriguez, SUNY Brockport
Meg Costello Lambert, Oakland Community College–Auburn Hills Paulette Rodriguez, The University of Texas at El Paso
Donna Larner, Cornerstone University Molly Rogers, University of Cincinnati
John Lauck, Louisiana Tech University Katrina Rowe, Schenectady County Community College
Dr. Mark Lawrence, University of North Alabama Paul San Miguel, Western Michigan University
Rose Layton, University of Southern California Christine Schalow, University of Wisconsin–Stevens Point
Brian R. Lazarus, Baltimore City Community College Erica Scheidecker, University of Dubuque
Chuohsuan Lee, SUNY Plattsburgh Lee Schiffel, Valparaiso University
Michael Lee, Boise State University Pamela Schwer, St. Xavier University
Cedric Lewis, UNF Randy Serrett, University of Houston–Downtown
Ping Lin, California State University, Long Beach Carlo Silvesti, Gwynedd Mercy University
Danny Litt, UCLA James Sinclair, Georgetown University
Harold Little, Western Kentucky University Ercan Sinmaz, Houston Community College
William Lloyd, Lock Haven University Harshini Siriwardane, University of Cincinnati
John Logsdon, Webber International University Jennifer Smith, Chattahoochee Technical College
Dennis M. Lopez, University of Texas at San Antonio Stephan Smith, Nicholls State University
Suzanne Lowensohn, Colorado State University Mohsen Souissi, Fayetteville State University
Claudia A. Lubaski, Lorain County Community College Vicki Splawn, Mid-America Christian University
Susan Lynn, University of Baltimore Jason Stanfield, Purdue
Ajay Maindiratta, NYU–Stern George Starbuck, McMurry University
Diane Marker, University of Toledo Dr. J. William Stinde, Glendale Community College
Maureen McBeth, College of DuPage James Sundberg, Eastern Michigan University
Dawn McKinley, Harper College Kenton Swift, University of Montana
Roger McMillian, Mineral Area College Karen Tabak, Maryville University
Tammy Metzke, Milwaukee Area Technical College Diane Tanner, University of North Florida
Michael Meyer, University of Notre Dame Glade Tew, BYU–Idaho
Linda Miller, Northeast Community College Todd Thornock, Iowa State University
Stephanie Morris, Mercer University Sarah Thorrick, Loyola University New Orleans
Kenneth Mullins, University of Wisconsin–Stevens Point Donald Trippeer, SUNY Oneonta
Gerald F. Murphy, Capital Community College Hugh Van Seaton, Jacksonville University
Pam Neely, SUNY Brockport Glenn Walberg, University of Vermont
Mary Beth Nelson, North Shore Community College Joe Welker, College of Western Idaho
Mary Netzler, University of Maryland–University College Wendy Wilson, Texas Christian University
Richard Newmark, University of Northern Colorado Maef Woods, Heidelberg University
Joseph Malino Nicassio, Westmoreland County Community College Patricia Worsham, Norco College
Barbara A. Norris, Johnson & Wales University Gail Wright, Castleton University
Kalpana Pai, Notre Dame de Namur University Jennifer Yin, University of Texas at San Antonio
Angela Pannell, Mississippi State University Xiaoli Yuan, ECSU
Laurel Parrilli, Cornell University Benny Zachry, Tulane University
Richard Pettit, Mountain View College Syed Zaidi, California State University, Santa Monica
Kristen Quinn, Northern Essex Community College Ronald Zullo, Northeastern University
About the Authors
Dr. Maryanne M. Mowen is Associate Professor Emerita of Accounting at Oklahoma
State University. She currently teaches online classes in cost and management accounting for
Oklahoma State University. She received her Ph.D. from Arizona State University. She brings
an interdisciplinary perspective to teaching and writing in cost and management accounting,
with degrees in history and economics. She has taught classes in ethics and the impact of the
Sarbanes-Oxley Act on accountants. Her scholarly research is in the areas of management ac-
counting, behavioral decision theory, and compliance with the Sarbanes-Oxley Act. She has pub-
lished articles in journals such as Decision Science, The Journal of Economics and Psychology,
and The Journal of Management Accounting Research. Dr. Mowen has served as a consultant
to mid-sized and Fortune 100 companies and works with corporate controllers on management
accounting issues. She is a member of the Northern New Mexico chapter of SCORE and serves
as a counselor, assisting small and start-up businesses. Outside the classroom, she enjoys hiking,
traveling, reading mysteries, and working crossword puzzles.
Dr. Don R. Hansen is Professor Emeritus of Oklahoma State University. He received his
Ph.D. from the University of Arizona in 1977. He has an undergraduate degree in mathematics
from Brigham Young University. He has published articles in both accounting and engineering
journals including The Accounting Review, The Journal of Management Accounting Research,
Accounting Organizations and Society, Accounting Horizons, and IIE Transactions. He has
served on the editorial board of The Accounting Review. His outside interests include family,
church activities, reading, movies, and watching sports.
Dr. Dan L. Heitger is the Deloitte Professor of Accounting and Co-Director of the William
Isaac & Michael Oxley Center for Business Leadership at Miami University. He received
his Ph.D. from Michigan State University and his undergraduate degree in accounting from
Indiana University. He actively works with executives and students of all levels in developing
and teaching courses in managerial accounting, business sustainability, risk management, stake-
holder management, governance, and business reporting. He co-founded an organization that
provides executive education for large international organizations. His interactions with busi-
ness professionals, through executive education and the Center, allow him to bring a current and
real-world perspective to his writing. His published research focuses on managerial accounting
and risk management issues and has appeared in Harvard Business Review, Behavioral Research
in Accounting, Accounting Horizons, Issues in Accounting Education, Journal of Accountancy,
and Management Accounting Quarterly. His outside interests include hiking with his family in
the National Park system.
xv
Contents
CHAPTER 1 Exhibit 2.2 Product Costs Include Direct Materials, Direct
Introduction to Managerial Accounting 2 Labor, and Overhead 39
Example 2.1 How to Calculate Product Cost in Total
The Meaning of Managerial Accounting 4 and Per Unit 40
Information Needs of Managers and Other Users 5 Example 2.2 How to Calculate Prime Cost and Conversion
Planning 5 Cost in Total and Per Unit 41
Controlling 5 Exhibit 2.3 The Impact of Product versus Period Costs on the
Decision Making 6 Financial Statements 42
Financial Accounting and Managerial Accounting 7 Preparing Income Statements 44
Financial Accounting 7 Cost of Goods Manufactured 44
Managerial Accounting 7 Example 2.3 How to Calculate the Direct Materials Used
Comparison of Financial and Managerial Accounting 7 in Production 45
Exhibit 1.1 Comparison of Financial and Managerial Example 2.4 How to Calculate Cost of Goods Manufactured 45
Accounting 8 Cost of Goods Sold 46
Current Focus of Managerial Accounting 9 Example 2.5 How to Calculate Cost of Goods Sold 46
New Methods of Costing Products and Services 9 Exhibit 2.4 Relationship between the Flow of Costs,
Customer Orientation 9 Inventories, and Cost of Goods Sold 47
Exhibit 1.2 The Value Chain 10 Income Statement: Manufacturing Firm 47
Cross-Functional Perspective 11 Example 2.6 How to Prepare an Income Statement for a
Total Quality Management 11 Manufacturing Firm 48
Time as a Competitive Element 12 Example 2.7 How to Calculate the Percentage of Sales
Efficiency 13 Revenue for Each Line on the Income Statement 49
The Role of the Managerial Accountant 13 Income Statement: Service Firm 50
Exhibit 1.3 Kicker Inc. Organizational Chart 14 Example 2.8 How to Prepare an Income Statement for a
Managerial Accounting and Ethical Conduct 15 Service Organization 50
Ethical Behavior 16
Company Codes of Ethical Conduct 17 CHAPTER 3
Standards of Ethical Conduct for Managerial Accountants 18 Cost Behavior and Forecasting 78
Exhibit 1.4 Statement of Ethical Professional Practice 19
Basics of Cost Behavior 80
Certification 20
Measures of Output and the Relevant Range 81
The Certified Management Accountant 20
Fixed Costs 81
The Certified Public Accountant 21
Exhibit 3.1 Colley Computers Fixed Cost of Supervision 83
The Certified Internal Auditor 21
Variable Costs 84
Exhibit 3.2 Colley Computers Variable Cost of DVD-ROM
CHAPTER 2 Drives 86
Basic Managerial Accounting Concepts 30 More Advanced Cost Behavior: The Reasonableness of
Straight-Line Cost Relationships 86
The Meaning and Uses of Cost 32
Semi-Variable Costs 86
Cost 32 Exhibit 3.3 Semi-Variable Cost: Decreasing Rate 86
Cost Objects 33 Exhibit 3.4 Semi-Variable Cost: Increasing Rate 87
Accumulating and Assigning Costs 33 Mixed Costs and Step Costs 88
Assigning Costs to Cost Objects 33
Mixed Costs 88
Exhibit 2.1 Object Costing 35
Exhibit 3.5 Mixed Cost Behavior 89
Product and Service Costs 37
Step Cost Behavior 89
Providing Cost Information 38 Exhibit 3.6 Step Costs: Narrow Steps and Wide Steps 90
Determining Product Cost 38 Accounting Records and Need for Cost Separation 91
xvi
Contents xvii
Methods for Separating Mixed Costs into Fixed Exhibit 3.15 Spreadsheet Data for Anderson Company 111
and Variable Components 91 Exhibit 3.16 Regression Output for Anderson
Example 3.1 How to Create and Use a Cost Formula 92 Company 112
The High-Low Method 93 Goodness of Fit 112
Example 3.2 How to Use the High-Low Method to Calculate
Fixed Cost and the Variable Rate and to Construct a Cost CHAPTER 4
Formula 94
Example 3.3 How to Use the High-Low Method to Calculate Job-Order Costing and Overhead
Predicted Total Variable Cost and Total Cost for Budgeted Application 148
Output 95 Characteristics of the Job-Order Environment 150
Example 3.4 How to Use the High-Low Method to Calculate Job-Order Production and Costing 150
Predicted Total Variable Cost and Total Cost for a Time Process Production and Costing 151
Period That Differs from the Data Period 96 Exhibit 4.1 Comparison of Job-Order and Process
Scattergraph Method 97 Costing 151
Exhibit 3.7 Anderson Company’s Materials Handling Cost 97 Production Costs in Job-Order Costing 152
Exhibit 3.8 Scattergraphs with Nonlinear Cost 99 Normal Costing and Overhead Application 152
The Method of Least Squares 99 Actual Costing versus Normal Costing 152
Exhibit 3.9 Line Deviations 99 Importance of Unit Costs to Manufacturing Firms 153
Exhibit 3.10 A Portion of the Summary Output from Excel for Importance of Unit Costs to Service Firms 153
Anderson Company 100 Normal Costing and Estimating Overhead 154
Example 3.5 How to Use the Regression Method to Calculate Example 4.1 How to Calculate the Predetermined Overhead
Fixed Cost and the Variable Rate and to Construct a Cost Rate and Apply Overhead to Production 155
Formula and to Determine Budgeted Cost 101 Exhibit 4.2 Actual and Applied Overhead 156
Comparison of Methods 101 Example 4.2 How to Reconcile Actual Overhead with
Exhibit 3.11 Overview of Methods for Separating Mixed Costs Applied Overhead 157
into Fixed and Variable Components 102 Departmental Overhead Rates 157
Managerial Judgment 102 Example 4.3 How to Calculate Predetermined Departmental
Variable and Absorption Income Statements: Two Ways Overhead Rates and Apply Overhead to Production 158
of Measuring Income 105 Example 4.4 How to Convert Departmental Data to
Absorption Costing 105 Plantwide Data to Calculate the Overhead Rate and Apply
Variable Costing 105 Overhead to Production 159
Comparison of Variable and Absorption Costing Unit Costs in the Job-Order System 159
Methods 105 Keeping Track of Job Costs with Source Documents 161
Exhibit 3.12 Classification of Costs under Absorption and Job-Order Cost Sheet 161
Variable Costing as Product or Period Costs 105 Exhibit 4.3 Job-Order Cost Sheet 161
Inventory Valuation 106 Materials Requisitions 162
Example 3.6 How to Compute Inventory Cost under Exhibit 4.4 Materials Requisition Form 162
Absorption Costing 106 Time Tickets 162
Example 3.7 How to Compute Inventory Cost under Variable Exhibit 4.5 Time Ticket 163
Costing 107 The Flow of Costs through the Accounts 164
Exhibit 3.13 Product Cost under Absorption and Variable
Exhibit 4.6 Flow of Costs through the Accounts of a Job-Order
Costing 108
Costing Firm 164
Income Statements Using Variable and Absorption
Accounting for Materials 165
Costing 108
Exhibit 4.7 Summary of Materials Cost Flows 165
Example 3.8 How to Prepare an Absorption-Costing Income
Accounting for Direct Labor Cost 165
Statemen 108
Exhibit 4.8 Summary of Direct Labor Cost Flows 166
Example 3.9 How to Prepare a Variable-Costing Income
Accounting for Overhead 166
Statement 109
Accounting for Actual Overhead Costs 167
Production, Sales, and Income Relationships 109
Exhibit 4.9 Summary of Overhead Cost Flows 167
Exhibit 3.14 Production, Sales, and Income Relationships 109
Accounting for Finished Goods 167
Appendix 3A: Using the Regression Programs 110
xviii Contents
Exhibit 4.10 Summary of Cost Flows from Work in Process to Exhibit 5.7 Work Distribution Matrix for Hemingway Bank’s
Finished Goods 168 Credit Card Department 228
Accounting for Cost of Goods Sold 168 Example 5.4 How to Assign Resource Costs to Activities by
Exhibit 4.11 Schedule of Cost of Goods Manufactured 169 Using Direct Tracing and Resource Drivers 229
Exhibit 4.12 Statement of Cost of Goods Sold 169 Exhibit 5.8 Activity Costs for Hemingway Bank’s Credit Card
Example 4.5 How to Prepare Brief Job-Order Cost Department 229
Sheets 170 Assigning Costs to Products 229
Accounting for Nonmanufacturing Costs 172 Exhibit 5.9 Assigning Costs for Hemingway Bank’s Credit
Exhibit 4.13 Income Statement 172 Card Department 230
Appendix 4A: Journal Entries Associated With Job-Order Activity-Based Customer Costing and Activity-Based
Costing 173 Supplier Costing 231
Exhibit 4.14 Posting of Journal Entries to the Accounts 175 Exhibit 5.10 Whale Curve of Cumulative Customer
Appendix 4B: Support Department Profitability 232
Cost Allocation 176 Activity-Based Customer Costing 232
Types of Departments 176 Example 5.5 How to Calculate Activity-Based Customer
Exhibit 4.15 Steps for Determining Product Costs by Using Costs 233
Predetermined Departmental Overhead Rates 177 Activity-Based Supplier Costing 234
Methods of Support Department Cost Allocation 177 Example 5.6 How to Calculate Activity-Based Supplier Costs
Exhibit 4.16 Illustration of the Direct Method 178 235
Example 4.6 How to Assign Support Department Costs by Process-Value Analysis 236
Using the Direct Method 178 Exhibit 5.11 Process-Value Analysis Model 237
Exhibit 4.17 Illustration of the Sequential Method 180 Driver Analysis: The Search for Root Causes 237
Example 4.7 How to Assign Support Department Costs by Activity Analysis: Identifying and Assessing Value
Using the Sequential Method 181 Content 237
Example 5.7 How to Assess Nonvalue-Added Costs 241
CHAPTER 5 Activity Performance Measurement 241
Activity-Based Costing and Management 214 Example 5.8 How to Calculate Cycle Time and
Velocity 242
Limitations of Functional-Based Cost Accounting Systems
216
CHAPTER 6
Nonunit-Related Overhead Costs 216
Exhibit 5.1 ABC Hierarchy 217 Process Costing 276
Product Diversity 218 Characteristics of Process Manufacturing 278
Illustrating the Failure of Unit-Based Overhead Rates 218
Types of Processes 278
Exhibit 5.2 Product-Costing Data for Rio Novo’s Porto Behlo
Exhibit 6.1 Sequential Processing Illustrated 278
Plant 219
Exhibit 6.2 Parallel Processing Illustrated 279
Example 5.1 How to Calculate Consumption Ratios 220
How Costs Flow through the Accounts in Process
Example 5.2 How to Calculate Activity Rates 221
Costing 280
Example 5.3 How to Calculate Activity-Based Unit
Exhibit 6.3 Flow of Manufacturing Costs through the Accounts
Costs 222
of a Process-Costing Firm 280
Exhibit 5.3 Activity Rates and Activity-Based Unit Costs for
Example 6.1 How to Account for Cost Flows Without
Rio Novo’s Porto Behlo Plant 222
Work-in-Process Inventories 280
Illustrating Relationships: Product Diversity and Product-
Accumulating Costs in the Production Report 281
Costing Accuracy 223
Service and Manufacturing Firms 282
Exhibit 5.4 Diversity and Product-Costing Accuracy 225
The Impact of Work-In-Process Inventories on Process
Activity-Based Product Costing 225
Costing 283
Exhibit 5.5 Activity-Based Costing: Assigning Cost of
Equivalent Units of Production 283
Overhead 226
Example 6.2 How to Calculate Equivalent Units of
Identifying Activities and Their Attributes 226
Production with No Beginning Work in Process 284
Exhibit 5.6 Activity Dictionary for Hemingway Bank’s Credit
Example 6.3 How to Measure Output and Assign Costs: No
Card Department 228
Beginning Work in Process 285
Assigning Costs to Activities 228
Contents xix
Two Methods of Treating Beginning Work-in-Process Units and Sales Dollars Needed to Achieve a Target Income 343
Inventory 286 Units to Be Sold to Achieve a Target Income 343
Weighted Average Costing 286 Example 7.5 How to Calculate the Number of Units to Be
Overview of the Weighted Average Method 287 Sold to Earn a Target Operating Income 344
Example 6.4 How to Measure Output and Assign Costs: Sales Revenue to Achieve a Target Income 345
Weighted Average Method 287 Example 7.6 How to Calculate Sales Needed to Earn a Target
Five Steps in Preparing a Production Report 288 Operating Income 345
Example 6.5 How to Prepare a Physical Flow Graphs of Cost-Volume-Profit Relationships 346
Schedule 289 The Cost-Volume-Profit Graph 347
Production Report 291 Exhibit 7.3 Cost-Volume-Profit Graph 347
Example 6.6 How to Prepare a Production Report: Weighted Assumptions of Cost-Volume-Profit Analysis 348
Average Method 292 Illustrating Relationships Among CVP Variables 348
Evaluation of the Weighted Average Method 292 Exhibit 7.4 Cost-Volume-Profit Relationships 349
Multiple Inputs and Multiple Departments 293 Multiple-Product Analysis 351
Nonuniform Application of Manufacturing Inputs 293 Break-Even Point in Units 352
Example 6.7 How to Calculate Equivalent Units, Unit Costs, Example 7.7 How to Calculate the Break-Even Units for a
and Valuing Inventories with Nonuniform Inputs 294 Multiple-Product Firm 353
Multiple Departments 295 Break-Even Point in Sales Dollars 354
Exhibit 6.4 Production Report: Weighted Example 7.8 How to Calculate the Break-Even Sales Dollars
Average Method 296 for a Multiple-Product Firm 354
Example 6.8 How to Calculate the Physical Flow Schedule, Cost-Volume-Profit Analysis and Risk and Uncertainty
Equivalent Units, and Unit Costs with Transferred-In 356
Goods 296
Exhibit 7.5 Summary of the Effects of Alternative 1 357
Appendix 6A: Production Report—First-In, First-Out
Costing 298
Differences between the First-In, First-Out and Weighted Introducing Risk and Uncertainty 358
Average Methods 298 Exhibit 7.8 Margin of Safety 359
Example of the First-In, First-Out Method 298 Example 7.9 How to Calculate the Margin of Safety 360
Example 6.9 How to Calculate Output and Cost Example 7.10 How to Calculate the Degree of Operating
Assignments: First-In, First-Out Method 298 Leverage 361
Exhibit 6.5 Physical Flow Schedule 300 Example 7.11 How to Calculate the Impact of Increased
Example 6.10 How to Prepare a Production Report: First-In, Sales on Operating Income Using the Degree of Operating
First-Out Method 301 Leverage 362
Exhibit 7.9 Differences between a Manual and an Automated
CHAPTER 7 System 363
Cost-Volume-Profit Analysis 332 Sensitivity Analysis and Cost-Volume-Profit 363
MAKING THE CONNECTION: INTEGRATIVE
Break-Even Point in Units and in Sales Dollars 334
EXERCISE (CHAPTERS 2, 3, AND 7) 390
Using Operating Income in Cost-Volume-Profit Analysis 334
Exhibit 7.1 The Contribution Margin Income Statement 335 CHAPTER 8
Example 7.1 How to Prepare a Contribution Margin Income
Statement 336 Tactical Decision Making and Relevant
Exhibit 7.2 Contribution Margin and Fixed Cost at Break-Even Analysis 392
for Whittier Company 337 Short-Run Decision Making 394
Break-Even Point in Units 337 The Decision-Making Model 394
Example 7.2 How to Calculate the Break-Even Point in Step 1: Recognize and Define the Problem 395
Units 338 Step 2: Identify the Alternatives as Possible Solutions 395
Break-Even Point in Sales Dollars 338 Step 3: Identify the Costs and Benefits Associated with Each
Example 7.3 How to Calculate the Variable Cost Ratio and Feasible Alternative 396
the Contribution Margin Ratio 340 Step 4: Estimate the Relevant Costs and Benefits for Each
Example 7.4 How to Calculate the Break-Even Point in Feasible Alternative 396
Sales Dollars 341 Step 5: Assess Qualitative Factors 397
xx Contents
Step 6: Make the Decision 398 Example 9.3 How to Prepare a Direct Materials Purchases
Relevant Costs Defined 399 Budget 463
Cost Behavior and Relevant Costs 401 Direct Labor Budget 464
Some Common Relevant Cost Applications 402 Example 9.4 How to Prepare a Direct Labor Budget 464
Make-or-Buy Decisions 403 Overhead Budget 464
Exhibit 8.1 Make-or-Buy Decisions 403 Example 9.5 How to Prepare an Overhead Budget 464
Example 8.1 How to Structure a Make-or-Buy Problem 405 Ending Finished Goods Inventory Budget 465
Special-Order Decisions 406 Example 9.6 How to Prepare an Ending Finished Goods
Exhibit 8.2 Accept or Reject a Special Order 406 Inventory Budget 465
Example 8.2 How to Structure a Special-Order Cost of Goods Sold Budget 466
Problem 407 Example 9.7 How to Prepare a Cost of Goods Sold
Keep-or-Drop Decisions 408 Budget 466
Example 8.3 How to Prepare a Segmented Income Selling and Administrative Expenses Budget 466
Statement 410 Example 9.8 How to Prepare a Selling and Administrative
Exhibit 8.3 Comparison of Segmented Income Statement With Expenses Budget 467
and Without Allocated Common Fixed Expense 411 Budgeted Income Statement 467
Example 8.4 How to Structure a Keep-or-Drop Product-Line Example 9.9 How to Prepare a Budgeted Income
Problem 412 Statement 467
Example 8.5 How to Structure a Keep-or-Drop Product-Line Preparing the Financial Budget 469
Problem with Complementary Effects 414 Cash Budget 469
Further Processing of Joint Products 414 Exhibit 9.3 The Cash Budget 469
Exhibit 8.4 Further Processing of Joint Products 416 Example 9.10 How to Prepare a Schedule for Cash
Example 8.6 How to Structure the Sell-or-Process-Further Collections on Accounts Receivable 470
Decision 416 Example 9.11 How to Determine Cash Payments on
Product Mix Decisions 417 Accounts Payable 471
Example 8.7 How to Determine the Optimal Product Mix Example 9.12 How to Prepare a Cash Budget 472
with One Constrained Resource 418 Budgeted Balance Sheet 473
Example 8.8 How to Determine the Optimal Product Mix Exhibit 9.4 Budgeted Balance Sheet 474
with One Constrained Resource and a Sales Constraint Using Flexible Budgets for Planning and Performance
419 Reporting 475
Multiple Constrained Resources 420 Example 9.13 How to Prepare a Before-the-Fact Flexible
The Use of Costs in Pricing Decisions 420 Budget 476
Cost-Based Pricing 420 Exhibit 9.5 Performance Report Comparing Actual Costs to
Example 8.9 How to Calculate Price by Applying a Markup the Static Budget 477
Percentage to Cost 421 Example 9.14 How to Prepare a Performance Report Using a
Target Costing and Pricing 422 Flexible Budget 478
Example 8.10 How to Calculate a Target Cost 423 Using Budgets for Performance Evaluation 479
Frequent Feedback on Performance 480
CHAPTER 9 Monetary and Nonmonetary Incentives 480
Participative Budgeting 480
Profit Planning and Flexible Budgets 454
Exhibit 9.6 The Art of Standard Setting 481
Description of Budgeting 456 Realistic Standards 481
Budgeting and Planning and Control 456 Controllability of Costs 482
Exhibit 9.1 Planning, Control, and Budgets 456 Multiple Measures of Performance 482
Advantages of Budgeting 457
The Master Budget 457 CHAPTER 10
Exhibit 9.2 The Master Budget and Its Interrelationships 458
Preparing the Operating Budget 459 Standard Costing and Variance
Sales Budget 459
Analysis 520
Example 9.1 How to Prepare a Sales Budget 460 Unit Standards and Basic Concepts of Standard
Production Budget 461 Costing 522
Example 9.2 How to Prepare a Production Budget 461 How Standards Are Developed 523
Direct Materials Purchases Budget 462 Types of Standards 523
Contents xxi
Exhibit 10.1 Types of Standards 523 Example 10.11 How to Calculate Fixed Overhead Variances:
Why Standard Cost Systems Are Adopted 524 Columnar and Formula Approaches 549
Exhibit 10.2 Cost Assignment Approaches 525 Responsibility for the Fixed Overhead Spending Variance 550
Exhibit 10.3 Standard Cost Sheet for Analysis of the Fixed Overhead Spending Variance 550
Corn Chips 526 Responsibility for the Fixed Overhead Volume Variance 551
Example 10.1 How to Compute Standard Quantities Analysis of the Volume Variance 552
Allowed (SQ and SH) 527 Exhibit 10.5 Graphical Analysis of the Volume Variance 552
Variance Analysis: General Description 528 Appendix 10A: Accounting for Variances 552
Price and Usage Variances 528 Entries for Direct Materials Variances 553
Exhibit 10.4 Variance Analysis: Entries for Direct Labor Variances 553
General Description 529 Disposition of Materials and Labor Variances 554
The Decision to Investigate 529 MAKING THE CONNECTION: INTEGRATIVE
Example 10.2 How to Use Control Limits to Trigger a EXERCISE (CHAPTERS 5, 9, AND 10) 588
Variance Investigation 531
Variance Analysis: Materials And Labor 532
CHAPTER 11
Total Variance for Materials 532
Example 10.3 How to Calculate the Total Variance for Performance Evaluation and Decentralization 590
Materials 532 Decentralization and Responsibility Centers 592
Direct Materials Variances 533 Exhibit 11.1 Centralization and Decentralization 592
Example 10.4 How to Calculate Materials Variances: Reasons for Decentralization 592
Formula and Columnar Approaches 534 Divisions in the Decentralized Firm 593
Using Materials Variance Information 535 Types of Goods or Services 593
Total Variance Analysis: Direct Labor 536 Exhibit 11.2 Decentralized Divisions 594
Example 10.5 How to Calculate the Total Variance for Geographic Lines 594
Labor 537 Responsibility Centers 594
Direct Labor Variances 538 Exhibit 11.3 Types of Responsibility Centers and Accounting
Example 10.6 How to Calculate Labor Variances: Formula Information Used to Measure Performance 595
and Columnar Approaches 539 Measuring the Performance of Investment Centers by Using
Using Labor Variance Information 539 Return on Investment 596
Additional Cost Management Practices 541
Return on Investment 596
Overhead Analysis 543
Margin and Turnover 597
Total Variable Overhead Variance 543 Example 11.1 How to Calculate Average Operating Assets,
Example 10.7 How to Calculate the Total Variable Overhead Margin, Turnover, and Return on Investment 597
Variance 543 Exhibit 11.4 Comparison of Divisional Performance 598
Variable Overhead Variances 544 Advantages of Return on Investment 599
Example 10.8 How to Calculate Variable Overhead Disadvantages of the Return on Investment Measure 600
Spending and Efficiency Variances: Columnar and Formula Measuring the Performance of Investment Centers by Using
Approaches 544 Residual Income and Economic Value Added 602
Comparison of the Variable Overhead Spending Variance with
Residual Income 603
the Price Variances of Materials and Labor 545
Example 11.2 How to Calculate Residual Income 603
Responsibility for the Variable Overhead Spending
Economic Value Added (EVA) 604
Variance 546
Example 11.3 How to Calculate Economic Value Added 605
Responsibility for the Variable Overhead Efficiency
Transfer Pricing 607
Variance 546
A Performance Report for the Variable Overhead Spending and Impact of Transfer Pricing on Divisions and the Firm as a
Efficiency Variances 546 Whole 607
Example 10.9 How to Prepare a Performance Report for the Exhibit 11.5 Impact of Transfer Price on Transferring Divisions
Variable Overhead Variances 547 and the Company, ABC Inc., as a Whole 607
Fixed Overhead Analysis 547 Transfer Pricing Policies 608
Total Fixed Overhead Variance 548 Example 11.4 How to Calculate Transfer Price 609
Example 10.10 How to Calculate the Total Fixed Overhead Appendix 11A: The Balanced Scorecard—Basic
Variance 548 Concepts 611
Fixed Overhead Variances 549 Exhibit 11.6 Balanced Scorecard for Ashley Hotel* 612
Strategy Translation 612
xxii Contents
Exhibit 11.7 Testable Strategy Illustrated 614 Example 12.5 How to Calculate Net Present Value and
The Four Perspectives and Performance Measures 615 Internal Rate of Return for Mutually Exclusive
Exhibit 11.8 Summary of Objectives and Measures: Financial Projects 663
Perspective 616 Special Considerations for Advanced Manufacturing
Exhibit 11.9 Summary of Objectives and Measures: Customer Environment 664
Perspective 617 Exhibit 12.3 Investment Data; Direct, Intangible, and Indirect
Example 11.5 How to Compute Cycle Time and Velocity Benefits 665
618 Appendix 12A: Present Value Concepts 667
Example 11.6 How to Calculate Manufacturing Cycle Future Value 667
Efficiency 620 Present Value 667
Exhibit 11.10 Summary of Objectives and Measures: Internal Present Value of an Uneven Series of Cash Flows 668
Perspective 621 Exhibit 12A.1 Present Value of an Uneven Series of Cash Flows
Exhibit 11.11 Summary of Objectives and Measures: Learning 668
and Growth Perspective 622 Present Value of a Uniform Series of Cash Flows 669
Exhibit 12A.2 Present Value of an Annuity 669
CHAPTER 12 Appendix 12B: Present Value Tables 669
Capital Investment Decisions 644 Exhibit 12B.1 Present Value of a Single Amount 670
Exhibit 12B.2 Present Value of an Annuity 671
Types of Capital Investment Decisions 646
MAKING THE CONNECTION: INTEGRATIVE
Independent and Mutually Exclusive Projects 646 EXERCISE (CHAPTERS 3, 5, 8, AND 12) 697
Making Capital Investment Decisions 646
Nondiscounting Models: Payback Period and Accounting
Rate of Return 647 CHAPTER 13
Payback Period 648 Emerging Topics in Managerial Accounting 700
Example 12.1 How to Calculate Payback 648
Accounting Rate of Return 650 Enterprise Risk Management 702
Example 12.2 How to Calculate the Accounting Rate of Exhibit 13.1 Key Steps within the ERM Process 702
Return 651 Determining Risk Appetite 703
Discounting Models: The Net Present Value Method 652 Exhibit 13.2 Key Elements of a Portfolio Risk Management
Net Present Value Defined 652 Perspective 703
Net Present Value Illustrated 653 Identifying Top Risks 703
Example 12.3 How to Assess Cash Flows and Calculate Net Assessing Inherent Risks 703
Present Value 653 Responding to Risks Using a Portfolio Perspective 705
Illustrating Relationships: NPV, Discount Rates, and Cash Flows 654 Example 13.1 How to Use Net Benefit to Evaluate Risk
Exhibit 12.1 NPV, Discount Rates, and Cash Flow 655 Response Alternatives 707
Internal Rate of Return 656 Monitoring the ERM Process 708
Internal Rate of Return Defined 656 Business Sustainability 709
Internal Rate of Return Illustrated: Multiple-Period Setting Exhibit 13.3 The Role of Management Accounting in the
with Uniform Cash Flows 656 Business Sustainability Cycle 710
Example 12.4 How to Calculate Internal Rate of Return with Exhibit 13.4 Business Sustainability Issues throughout the Value
Uniform Cash Flows 657 Chain 711
Internal Rate of Return Illustrated: Multiple-Period Setting Exhibit 13.5 The Relationship Between Stakeholders and
with Uneven Cash Flows 657 Strategy 712
Postaudit of Capital Projects 659 Exhibit 13.6 Stakeholder Engagement Activities at Eli Lilly 713
Postaudit Illustrated 659 Exhibit 13.7 The Relationship between Stakeholder Concerns
Postaudit Benefits 660 and Business Success at UPS 714
Postaudit Limitations 661 Exhibit 13.8 Rapid Growth in Corporate Sustainability
Mutually Exclusive Projects 661 Reporting Since Its Inception 716
Exhibit 13.9 Widespread Adoption of Corporate Sustainability
Net Present Value Compared with Internal Rate of
Reporting across Industries 716
Return 661
Exhibit 13.10 The Global Phenomenon of Corporate
Exhibit 12.2 Net Present Value Compared with Internal Rate of
Sustainability Reporting 717
Return 662
Exhibit 13.11 Growth in Independent Assurance of Corporate
NPV Analysis for Mutually Exclusive Projects Illustrated 662
Sustainability Information 718
Contents xxiii
Quality Cost Management 719 Methods for Calculating Operating Cash Flows 793
Costs of Quality 720 Example 14.1 How to Classify Activities and Identify Them
Exhibit 13.12 Examples of Quality Costs by Category 721 as Sources or Uses of Cash 793
Reporting Quality Costs 721 Noncash Exchanges 794
Example 13.2 How to Prepare a Quality Cost Report 721 Preparation of the Statement: Indirect Method 795
Exhibit 13.13 Quality Cost Categories: Relative Contribution Exhibit 14.2 Balance Sheets: Lemmons Company 795
by Category 723 Step 1: Compute the Change in Cash 796
Controlling Quality Costs 724 Example 14.2 How to Compute the Change in Cash 796
Example 13.3 How to Prepare an Interim Quality Step 2: Compute Operating Cash Flows 796
Performance Report 724 Example 14.3 How to Calculate Operating Cash Flows Using
Example 13.4 How to Prepare Multiple-Period Quality the Indirect Method 796
Trend Reports 726 Step 3: Compute Investing Cash Flows 798
Exhibit 13.14 Multiple-Period Trend Graph: Total Quality Example 14.4 How to Compute Investing Cash Flows 798
Costs 726 Step 4: Compute Financing Cash Flows 799
Exhibit 13.15 Multiple-Period Trend Graph: Individual Example 14.5 How to Compute Financing Cash Flows 799
Quality Cost Categories 727 Step 5: Prepare the Statement of Cash Flows 800
Lean Manufacturing and Lean Accounting 727 Example 14.6 How to Prepare the Statement of Cash Flows
Lean Manufacturing 727 800
Exhibit 13.16 Order Fulfillment Value Stream 728 The Direct Method: An Alternative Approach 801
Exhibit 13.17 Traditional Batch Production Process 729 Example 14.7 How to Calculate Operating Cash Flows Using
Exhibit 13.18 Proposed Manufacturing Cell 730 the Direct Method 802
Example 13.5 How to Calculate Production Time for Worksheet Approach to the Statement of Cash Flows 803
Traditional and Cellular Manufacturing 730 Exhibit 14.3 Balance Sheets: Portermart Company 804
Lean Accounting 731 Example 14.8 How to Prepare a Statement of Cash Flows
Exhibit 13.19 Value-Stream Cost Assignments 732 Using a Worksheet Approach 804
Exhibit 13.20 Value-Stream Costs and Production Hours: Analysis of Transactions 806
Models X12 and Y35 735 The Final Step 807
Example 13.6 How to Calculate Value-Stream Product Costs Exhibit 14.4 Worksheet-Derived Statement of Cash Flows for
735 Portermart Company 808
Value-Stream Operational Control 736
Exhibit 13.21 Holland Company Value-Stream Box Scorecard CHAPTER 15
736
International Issues in Management Accounting 738 Financial Statement Analysis 836
Types of Involvement in the International Economy 738 Common-Size Analysis 838
Foreign Currency Exchange 740 Exhibit 15.1 Common-Size Analysis 839
Example 13.7 How to Calculate the Value of an Exchange in Horizontal Analysis 839
Another Currency 741 Example 15.1 How to Prepare Common-Size Income
Transfer Pricing and the Multinational Firm 743 Statements Using Base Period Horizontal Analysis 839
Exhibit 13.22 Use of Transfer Pricing to Affect Taxes Paid 743 Vertical Analysis 840
The Role of Cost and Managerial Accounting in Fraud And Example 15.2 How to Prepare Income Statements Using Net
Forensic Accounting 745 Sales as the Base: Vertical Analysis 840
Fraud and Management Accounting 745 Percentages and Size Effects 841
Forensic Accounting in Management Accounting 747 Ratio Analysis 842
Exhibit 13.23 Applying Different Types of Accounting Standards for Comparison 842
Knowledge to Forensic Accounting 748 Exhibit 15.2 Ratio Analysis 843
Classification of Ratios 844
CHAPTER 14 Exhibit 15.3 Income Statement and Statement
Statement of Cash Flows 790 of Retained Earnings for Payne Company for Year 2 844
Exhibit 15.4 Comparative Balance Sheets for Payne Company
Overview of the Statement of Cash Flows 792 for Years 1 and 2 845
Cash Defined 792 Liquidity Ratios 846
Sources and Uses of Cash 792 Current Ratio 846
Exhibit 14.1 Sources and Uses of Cash 792 Quick or Acid-Test Ratio 848
xxiv Contents
Example 15.3 How to Calculate the Current Ratio and the Example 15.9 How to Calculate the Average Total Assets and
Quick (or Acid-Test) Ratio 848 the Return on Assets 857
Accounts Receivable Turnover Ratio 848 Return on Common Stockholders’ Equity 857
Example 15.4 How to Calculate the Average Accounts Example 15.10 How to Calculate the Average Common
Receivable, the Accounts Receivable Turnover Ratio, and Stockholders’ Equity and the Return on Stockholders’
the Accounts Receivable Turnover in Days 849 Equity 858
Inventory Turnover Ratio 850 Earnings per Share 859
Example 15.5 How to Calculate the Average Inventory, the Example 15.11 How to Compute Earnings per Share
Inventory Turnover Ratio, and the Inventory Turnover in 859
Days 851 Price-Earnings Ratio 859
Impact of the Just-in-Time Manufacturing Environment 852 Example 15.12 How to Compute the Price-Earnings Ratio
Leverage Ratios 853 860
Times-Interest-Earned Ratio 853 Dividend Yield and Payout Ratios 860
Example 15.6 How to Calculate the Times-Interest-Earned Example 15.13 How to Compute the Dividend Yield and the
Ratio 853 Dividend Payout Ratio 861
Debt Ratio 854 The Importance of Profitability Ratios to External Users of the
Example 15.7 How to Calculate the Debt Ratio and the Financial Statements 861
Debt-to-Equity Ratio 855
Profitability Ratios 856 Glossary 891
Return on Sales 856 Check Figures 899
Example 15.8 How to Calculate the Return on Sales 856
Index 903
Return on Total Assets 856
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Forestry
Forest products except rubber have received little attention,

although the export of tagua, vegetable ivory, has greatly increased
within the last ten years. The palm grows wild in the montaña. The
nuts are picked up by the Indians and carried to Iquitos, thence sent
to Europe. They are also used in the forest for curing rubber, the only
industry of much importance in this section.
Rubber for years has been exported in considerable quantities, at
first collected from districts on the tributaries of the Marañon, later
from those of the Ucayali. Earlier the rubber gatherers called
caucheros cut down the caucho trees, a hole in the ground having
been previously prepared to receive the milk, which was then
coagulated by a solution of soap with the juice of a native plant
called vetilla. This method of cutting down the trees, which still has
some vogue in other countries, is now forbidden in Peru. The caucho
here averages 100 pounds to a tree. It was exported in planks or
cakes weighing 80 to 100 pounds each. The jebe, rubber of the
finest quality passing for the best Pará fine, comes from the hevea
brasiliensis or other species of hevea. These trees are found lower
down than the castilloa elastica (from which comes the caucho) at an
altitude of about 300 feet, where it grows to a height of 60 to 70 feet.
By tapping the hevea, about 20 pounds yearly of rubber is obtained.
Peru’s rubber export 1908-12 averaged 4¹⁄₂-5¹⁄₂ million pounds worth
20 to 30 million dollars; but the lowering of price due to the Ceylon
plantations, and perhaps the discovery of atrocities practiced upon
the Indians in some quarters greatly diminished the export for some
years. It seems to be reviving. In 1916 $3,400,000 worth was
exported. Better regulations have been made and the possibility of
arranging a system of plantations is discussed. Nearly all the rubber
is exported from Iquitos; but some from the Madre de Dios section,
the Inambari, and the Urubamba goes out by way of Mollendo. The
export duty of Peru, 8 per cent, has been much less than that of
Brazil.
Other forest products, which now receive little attention, include all
kinds of valuable timbers, medicinal plants, dye woods, etc., usual in
a tropical forest.
Stock Raising
Cattle. The cattle industry is one of large importance, pasturage

beginning in the foot-hills of the coast, and going up to 13,000 feet or
more. The large ranches are in the sierra, some having 20,000 cattle
and 500,000 sheep. Cattle are raised in Cajamarca, Junín,
Ayacucho, Cuzco, and Puno. The beef is apt to be tough, badly cut,
and is better boiled than roasted. Cross breeding with Argentine or
other stock would improve it greatly, and attention is being paid to
the matter. The pasture lands are called excellent. Hides are quite
largely exported and cattle are imported from Argentina and Chile,
chiefly for slaughter, a few for stock. Mutton is largely eaten in the
sierra.
Wool is an important export, likely to increase, for the plateau
affords ample space, with good wild grasses. The native sheep have
rather long legs and a rough scanty fleece; crossed with merinos
they give more wool. Good stock was brought from Punta Arenas
some years ago with an experienced manager, and near Lake Junín
a big ranch has been developing on 130 square miles. There is no
finer country for sheep raising than the high valleys of the plateau.
Alpacas, vicuñas and llamas also afford wool, the first two of much
greater value. The vicuña wool is the finest, but there are so few of
the animals that the export is small. That of alpaca, however, is
greater than that of wool, at least in value. The larger part of the
world’s supply of the genuine article comes from the Peruvian and
Bolivian plateau. The llama, the great burden bearer, has a heavy
but coarse fleece, yet some of it is exported. There are more of
these three animals in Bolivia. The Indians are expert in their care.
The guanaco is a larger animal, somewhat similar, which has never
been domesticated, and is hunted by the Indians for food. The
chinchilla, and the viscacha, the Peruvian hare, are hunted for their
skins. Many pigs are raised and lard is exported.
Horses. The horses are rather small, but are very fine saddle
animals. Some have five distinct gaits. I found them more sure-
footed than mules, going up and down veritable rock stairways with
ease. They are to some extent originally of Arabian stock.
Fish of the finest quality of 40 or more varieties and in great
abundance are found off the coast; large lobsters, scallops, the
corbina, cod, sole, smelt, mackerel, and many others are caught.
Guano. There are seals on the islands and an enormous number
of sea-birds, which have made the great deposits of guano on the
islands. As there was no rain the deposits have been preserved for
centuries without loss of the nitrogen of which there is 14 per cent.
The islands occur singly or in groups along the coast, some far out
beyond the track of the steamers. All are barren and uninhabited.
The Chincha Islands had enormous deposits now exhausted. There
has been much waste, and deposits have been removed so
ruthlessly as to disturb the birds; but now there are careful
regulations. Agreement was made some years ago with the Peruvian
Corporation (British) by which they were allotted 2,000,000 tons of
the guano; of this they have had more than half; operations have
recently been restricted and few shipments made.
Mining
The mine fields of Peru, once famous for their production of gold
and silver, never wholly neglected, were for a time less vigorously
worked. In the days of the Spanish colonists gold and silver were the
chief objects of acquisition, but lately these metals have seemed less
fashionable than copper. The variety in Peru’s wealth in minerals is
shown to some extent by a list of her production in 1917 in millions of
pounds in round numbers: copper, 84; copper matte, 4.4; copper ore,
16.5; vanadium, 7; lead ore, 7.5; antimony ore, 3.75; silver ore, 1.76;
tungsten, 1. Smaller quantities of other ores were produced: gold,
2000 pounds; sulphur, 120,000; metallic silver, 8000; silver
concentrates, 700,000; precipitated silver, 10,000; lead bullion,
250,000; lead concentrates, 650,000; zinc ores, 640,000; lead slag,
177,000; copper cement, 145,000; molybdenum, 12,000; gold ores,
30,500. Many other minerals exist, not exported in large enough
quantities to have been given in this list.
Copper. Americans were slow to become interested in mining
investments in South America as in commercial trade, but when
assured of the success of the pioneer enterprise inaugurated at
Cerro de Pasco by New York capitalists about 1900, others followed,
and large sums have now been invested in several Republics. Silver
was discovered at Cerro de Pasco in 1630 and $200,000,000 were
produced in one century. Four hundred and fifty million ounces were
obtained by hand labor, the ore being carried by llamas to primitive
smelters. Little interest was taken in copper; only ore with 25-50 per
cent of the metal was formerly exported. Here at Cerro, where is
located, some say, the richest copper deposit in the world, the titanic
forces of nature cast upward a wonderful mass of material, gold,
silver, copper, etc. Here are great open pits several hundred feet
deep, worked for centuries for silver.
The Cerro de Pasco Company has spent about $30,000,000 in
acquiring properties here and at Morococha, in constructing
smelters, railways, buildings for employees, and in developing the
properties, from which handsome returns are now obtained. The
property of the Cerro de Pasco Mining Company consists of 730
mining claims and 108 coal mining claims. The reserves exceed
3,000,000 tons of copper ore, one estimate is 75,000,000. Nearly
every claim carries ore with gold, silver, copper, lead, zinc, and
cobalt. High silver values exist to 100 feet deep, sometimes running
to thousands of ounces a ton, deeper are silver copper ores, and
lower still little silver and more copper. The old open mines are 100-
300 feet deep. The mines are very wet, especially below 400 feet. A
drainage canal begun by Meiggs in 1877 was completed in 1907.
The new workings include five shafts and two tunnels of two miles
each. The shafts have openings at four levels, the bottom 410 feet.
Waste is used for filling, as timber is dear. The smelter has five blast
furnaces, each running 300 tons daily. A converter is in another
building. A hydro-electric plant completed in 1913 cost $1,000,000.
There is a 10 mile ditch and pipe line with one 750 foot fall and a
second of 200 feet. The transmission line, 70 miles, serves
Morococha and Pasco. There is a coke plant near the smelter and a
brick plant of great value. The coal mines are at Goyllarisquisga and
Quishuarcancha, 21 and 11 miles respectively. The coal is not very
good, averaging 35 per cent carbon, but answers the purpose.
The Corporation owns 12 mines at Morococha and rents others.
The deepest shaft is 750 feet. Several drainage tunnels are required.
The production, 12,000 tons a month, was expected to be increased
to 16,000. The ore of the several mines runs 5, 14, 15, and in one
mine 20 per cent copper continuously, the 14 per cent with 14-70
ounces of silver per ton. The ore averages 7 per cent copper and 10
ounces silver. The mines have produced 20,000,000 pounds of
copper a year, one third of the de Pasco Company’s output.
Morococha is ten miles from Ticlio, the highest point on the main line
of the Central Railway; the ore is sent to a smelter at Casapalca,
altitude 13,600 feet, ten miles farther down.
The property at Casapalca also is controlled by the Cerro de
Pasco Company. In one mine there, a 5000 foot adit cuts the vein
2500 feet below the outcrop; other adits are higher. The ore is sent
to the smelter by an aerial tram. The output is 2500 tons a month,
two per cent copper, and 40 ounces silver. The Casapalca smelter
has three blast furnaces and four barrel type converters. The flue
dust is briquetted and returned. It does custom work for independent
miners, and in 1916 treated 175,000 dry tons, producing nearly
20,000,000 pounds of fine copper, 3,000,000 ounces of silver, and
3587 of gold; the capacity is now increased 50 per cent. A new
smelter has been erected at Yauli by the Company. The Cerro de
Pasco property is said to be the most costly ever developed; the
ores are refractory. With the cost production eight cents a pound on
an output of over 70,000,000 tons a year, $4.20 a share is earned on
14 cent copper, double on 20 cent copper. The Corporation’s income
in 1916 was $3,676,000, about 12 per cent on the investment; about
8 per cent was paid in dividends, not an undue amount on what was
considered by many a very large risk.
Another great copper property, also owned by Americans, is at
Yauricocha, about 50 miles south of Yauli, and west of the Oroya-
Huancayo Railway. Four hundred and fifty thousand tons averaging
16 per cent copper and 2¹⁄₂ ounces of silver per ton, five per cent of
the probable ore in sight, are now ready for stoping. The smelter and
blast furnace have an output of 15-18 tons of blister copper daily.
Native labor of fair quality may be obtained at one fifth of the cost in
the United States, while the ore is said to be six times as rich as
most of that in the West. Considerable water power is available. An
automobile road has been constructed from the station Pachacayo
60 miles to the mine.
There are other rich copper deposits in Peru, in Huancavelica,
Cuzco, Arequipa, Ica, Apurimac, Junín, Ancash, Cajamarca; but as
yet none of them is in full production. Ferrobamba in the Department
of Cuzco, 45 miles west of the city, at an altitude of 13,000 feet, is
one of the largest properties, with 207 claims over 225 acres. The
concession includes water rights; 120,000 horse power is available.
The ore can be worked by steam shovels. One field is estimated to
contain 12,000,000 tons of ore, 6 per cent copper, 3 ounces silver
and 9 grams gold. Its inaccessibility has so far prevented extensive
operations. The Anaconda Copper Company owns a copper
property in the Department of Arequipa. Copper matte is exported
from Queruvilca, Otuzco, Santiago de Chuco, and Cajabamba.
Coal, contrary to earlier supposition, is now known to be
widespread in Peru. The astonishing figures of 6¹⁄₄ billion tons have
recently been given as the estimated supply, over 4 billion of these in
Tumbes, a quantity hitherto unsuspected, perhaps unverified.
However, coal deposits are certainly scattered along the great Andes
Range and in the foothills, mainly in the central and northern
sections. Within 100 miles of the coast are millions of tons of
anthracite coal near Cupisnique and Huayday; millions more back of
Chimbote and along the Huailas Valley, anthracite, semi-anthracite,
and bituminous with many veins 4¹⁄₂-13 feet thick. Higher in the
plateau region are deposits of soft coal near Oyón, Cerro de Pasco,
and at Jatunhuasi. The de Pasco coal, 35 per cent carbon, must be
washed before coking in the smelter. Forty per cent of the material is
rejected. The best coal is used on the Railway. It costs $2.92 at the
mine. The Company has no more than is needed for their smelters
and railway. Better coal is found at Jatunhuasi 30 miles from
Pachacayo, on the road to the copper mines at Yauricocha, the
same company owning both. This coal, 45 per cent carbon, makes
better coke which now sells at $25 a ton at Pachacayo, previously at
$40. This deposit, estimated at 40,000,000 tons, is said to be the
largest known in Peru of high grade coking coal, and the only one
capable of large scale mining without pumping.
At Paracas in the Department of Ica are veins near the sea.
Capital for working the coal mines has not hitherto been available;
and land transport a few miles by llamas has been more expensive
than carriage by sea a few thousand. The need is imperative; and
foreign capitalists should and no doubt soon will aid in the
development of these rich resources. The annual production is now
estimated as 400,000 tons.
Gold and silver are always interesting, and there is still plenty in
Peru. In 1916 about $1,200,000 worth of gold was mined, though
accurate statistics are impossible, on account of the difficulty of
estimating the quantity got out by the Indians. A Peruvian engineer
estimates the product from the Inambari River through their primitive
methods as $100,000 yearly. They build a floor in the river, and the
next season wash out the gold sand in the crevices. There are
auriferous deposits in Puno and Cuzco; both veins and placers at
Sandia and Carabaya, and at Quispicanchis and Paucartambo. Gold
coinage in 1918 amounted to nearly $3,000,000. The Aporama
Goldfields property near the Hauri Hauri River at Sandia, Puno, has
placer deposits covering 1277 acres. It was just reaching production
stage when the War opened and interfered. The New Chuquitambo
Company has 142 acres in the Cerro de Pasco Province. The Inca
Mining Company, American, has the Santo Domingo Mines on the
Inambari River, now in the Madre de Dios Department. From
Tirapata on the Juliaca-Cuzco Railway, there is a wagon road for
some miles, then a mule trail over the Aricoma Pass, 16,500 feet,
and down to an altitude of 7000 feet. Even with the difficulties
attending the transportation of machinery and supplies $8,000,000
have been produced without exhausting the deposit. The
Cochasayhuas mine in Cotabambas yields $20,000 a month.
Seventy per cent of the gold production is said to come from Puno.
Silver. Of silver mines the most important is reported to be that of
the Anglo-French Company near the port of Huarmey. Dividends
have averaged from 20 to 25 per cent per annum. Possibly rivalling
this, are mines farther south at an altitude up to 16,500 feet, the
reduction works at 15,200 feet in the Cerro Quespesisa, 120 miles
back of Pisco. Less favorably located, but one of the most productive
districts in Peru, in the last 50 years it has yielded 6,000,000 ounces
of silver with crude processes and a loss of over 25 per cent. The
fuel used is taquia (llama dung) of which 1500 tons a year are
burned. The temperature in the middle of the day is 45°. At that
altitude there is no great difference in the seasons in the torrid zone.
Supplies are brought from Pisco, a four and a half days’ journey.
The Morococha mines produced in 1916 (estimated) 1,500,000
ounces. The selected ore sent from Colquipocro to a Liverpool
smelter averaged for some years $200 a ton, while the thousands of
tons on the dump run $80 a ton. Silver is usually found with either
copper or lead, in Peru oftener with the latter, while gold is in veins of
ferruginous quartz, generally with other metals as silver and copper,
as well as in sand, alluvial deposits, and in nuggets. Other silver
mines operated are in Cajamarca, Ancash, at Yauli near Oroya, at
Cailloma in Arequipa 100 miles north of Sumbay, and elsewhere.
Vanadium is found near Cerro de Pasco, the property of
Americans. From 70 to 80 per cent of the world’s supply is believed
to be in Peru, the second largest stock in Colorado. It is of great
value for certain purposes in steel construction. The Peruvian ore,
roasted before shipping, contains 25 per cent of vanadium. Three
thousand five hundred tons were exported in 1918.
Quicksilver. In the old mines of Huancavelica there is resumption
of work through the activity of Señor Fernandini, a prominent
Peruvian mine owner who has a smelter near that of Cerro de
Pasco. He has been clearing out old tunnels, and driving new ones
across, to cut the ores 700 feet below the old surface workings. A
hydro-electric plant is on trial for the furnaces. The mines are high on
the mountain above the town Huancavelica. The ore is a bright red
cinnabar, mercury sulphide, impregnating clean sandstone uniformly,
or along planes or fractures.
Other minerals exported are tungsten, in 1917 1500 tons with a
60 per cent basis; a deposit at Yauli gives 14 per cent zinc with
silver; a large borax lake near the city of Arequipa is likely soon to be
developed; salt, a government monopoly, is found in many places
but mainly worked in the salinas of Huacho near Lima. Bismuth,
molybdenum, and antimony are found.
Petroleum is a very important product of Peru, the total area of oil
territory being 5000 square miles, not all proved but with possibilities.
The chief field is in Tumbes and Piura in the north, the Titicaca so far
having made slight production. The latter field is 300 miles from the
sea and eight from Lake Titicaca, near the Bolivian frontier and
extending toward Cuzco. Deposits have been found in several
provinces but the chief work was not far from the Juliaca station
where 10 wells were sunk, in 1912 producing an average of 50
barrels a day, the oil with the paraffin base. At last accounts the work
had been discontinued. In 1915 there were 524 wells in the country.
The field at the north extends 180 miles south from the town of
Tumbes to some distance beyond Paita, running east to the
mountains and perhaps including the Islands of Lobos. The field is
30 miles wide, though some believe it may extend 150 miles. Here is
practically no rain, no vegetation, and no water, except that of the
sea which is used for all purposes. The temperature is called ideal.
The wells range from 250 to over 3000 feet deep. At the north there
is a slight plateau 160-500 feet high, running down towards the
south.
The Zorritos field farthest north and the oldest in Peru is 24 miles
south of Tumbes, with wells four miles along the coast, drilled mostly
at the water’s edge and some in the ocean. The deepest is 3000 feet
but most are 600-2000 feet. Some wells produce 500-600 barrels a
day, but one third of those dug were failures.
The Lobitos field in Piura, 60 miles north of Paita, with a proved
area of 725 square miles the second largest in Peru, has all its wells
over 2000 feet deep. One sunk to 3435 feet was a failure. A well
around 3000 feet deep costs $10 per foot average, against $1.50 or
$2.00 for wells under 1500 feet. The shallower wells here are short
lived. In 1915 a new pool was opened 12 miles north.
The Negritos field is the richest, 40 miles north of Paita, with an
area of 650 square miles. The average depth of the wells is 2500-
3000 feet and the most important oil deposits are below 1500 feet.
Eleven miles east is an asphalt seepage called La Brea. The oil from
Negritos is piped 16 miles north to Talara, the port where the refinery
and the wharves are situated. Besides the 6-inch pipe line there is a
narrow gauge railway. The modern refinery has a capacity of 6000
barrels a day. With pressure stills employed the oil will give 75 per
cent benzine. The Talara port permits vessels of 28-foot draught to
approach the wharves. The International Petroleum Company, said
to be controlled by Standard Oil interests, now operates this property
and has taken over the smaller property of the Lagunitos Oil
Company 11 miles from Talara. The amount of oil production in Peru
has in ten years increased from 756,226 barrels of 42 gallons to
2,550,000 barrels in 1916, two thirds of the last amount coming from
Negritos and Lagunitos.
Industries
While Peru does not support large manufacturing industries she

has more than some other South American countries and ample
means for increase. Scattered along the coast are more than 50
streams which, though small, falling 10,000 feet, are capable of
providing an immense amount of electric power. The use of
electricity is already widespread, electric lights and telephones are
found in many towns, in several, electric cars; the development of
this source of power is progressing.
Of factories, sugar mills take the lead, 50 haciendas near the
coast having their own mills. In some of these 75 per cent of the
sucrose is extracted with the use of the best machinery. Alcohol and
aguardiente are made from both sugar cane and grapes, as well as
wine from the latter. There are rice mills, and factories for making
soap, tallow, lard, matches, chocolate, paper, and other ordinary
articles; tobacco, cigar and cigarette factories, flour mills, etc.
Panamá hats, though made by hand, must not be forgotten.
Of great importance is the manufacture of textiles, in which the
Indians were so proficient in Inca days that their work is said never to
have been surpassed. Now there are seven cotton factories, five of
these at Lima, making 24,000,000 yards of cloth for the home
market. Three thousand operatives are employed. Also there are five
woolen factories, at Lima, Cuzco, and Arequipa. Although the
Indians are illiterate and lacking in initiative they have a taste for
mechanics as well as for agriculture and pastoral pursuits. They still
weave and spin, making excellent ponchos and blankets. Education
will be a developer. The Indian’s patience and skill should be utilized,
his ambition roused, so that he may desire to live more comfortably.
Higher wages and more varied wants for these people will produce
more business and prosperity in all lines.
Investments
Peru obviously offers very favorable opportunities in many lines:

railway construction and varied works of engineering, irrigation,
sanitation, development of electric power; agriculture, especially the
raising of sugar and cotton along the coast, and of a variety of
additional products in the montaña; mining of all kinds, especially
coal; stock raising; all of these in many sections with a very desirable
climate. Of stock, the raising of sheep for the export of wool would
doubtless be most profitable. The grasses of the table-land are
excellent fodder; the climate is cold enough to ensure heavy fleece
but not so extreme as to be injurious in snow storms or in fair
weather. By importing a few rams an expert in the business would be
able to conduct it with large profit.
The farmer may purchase land in the montaña at $1.00 an acre
and up, according to location, or secure it on other terms arranged
for immigrants. Rubber and timber lands are leased under special
regulations. Fruit raising and poultry might be profitable in some
places. There is an excellent chance for small factories, perhaps for
large ones. In many cities of the North and West Coasts American
hotels or boarding houses, if properly conducted, would have great
success.
CHAPTER XXIV
BOLIVIA: AREA, HISTORY, GOVERNMENT, POPULATION, ETC.
One of the two inland Republics of South America, Bolivia has an

enormous area, a section of which is still unexplored in detail. Its chief towns
situated on the lofty Andean plateau or a little over its eastern edge, it seems
wonderful indeed that here in the 16th century, prior to the existence of New
York or Boston, were populous, wealthy cities, hundreds of miles from the
coast and from the seat of the Viceroy at Lima. In the present day, such a
horseback ride across country as was then and till within a half century
common, would by most persons be considered quite a feat, while a similar
descent to the Atlantic port of Buenos Aires, then not unusual, is an
expedition that would commend itself to few; though this crossing were to the
Paraguay River only, where a steamboat would be available for the
remainder of the journey.
Area, Population, Boundary
Area. Bolivia, with an area variously given as 515,000 to 708,000 square

miles, is generally counted third in size of the Republics. Pending the
settlement of the boundary dispute with Paraguay and more accurate
surveys, probably at least 600,000 may be conceded, a larger territory than
the entire Atlantic slope of the United States. Once possessing a small coast
line which included the port of Antofagasta, Bolivia was deprived of this in
1883 at the close of the war with Chile.
Population. The number of inhabitants, mainly an estimate, has been
recently given as nearly 3,000,000. With about four persons to a square mile,
it is the most sparsely peopled of American Republics.
Boundary. At the north and east the country borders on Brazil. Paraguay
is at the southeast, Argentina directly south, and Chile and Peru west.
History
Known by the name of Alto Peru, the country was ruled for nearly three
centuries by the Viceroy at Lima, and by a Royal Audience of four men at
Chuquisaca, now Sucre, the nominal capital of the Republic. La Paz is noted
as the seat of the earliest effort (July, 1809) in South America for democratic
government. Though abortive, it was the inspiration of later struggles. The
battle of Ayacucho in 1824, which ended Spanish dominion over the
continent, was followed by the entrance into La Paz of General Sucre with his
victorious army, February 7, 1825. The Act of Independence is dated August
6, 1825. The Republic was named for Bolívar, who was elected President,
while Chuquisaca was made the capital with the name of Sucre. General
Bolívar, inaugurated in November, resigned in January, 1826, and was
succeeded by General Sucre, the first President who really served. More or
less troublous times followed until a war with Chile broke out in 1879 over the
export nitrate tax. At the conclusion of peace Bolivia lost the small coast
section of nitrate land, Antofagasta, which she previously possessed. Since
that time several revolutions have occurred, one in 1920, but none affecting
her credit, her foreign contracts, or the lives of the people generally.
Government
Bolivia is in form a centralized republic and has the usual three branches.
The President, who with two Vice Presidents is elected for four years, and is
ineligible for a consecutive term, exercises almost absolute authority,
although Congress meets annually on the sixth of August. The President’s
Cabinet is composed of six Ministers: of Foreign Relations and Worship,
Interior and Justice, Treasury, Promotion (Internal Improvements), Public
Instruction and Agriculture, and War and Colonization.
The Senate has 16 members, the Chamber of Deputies 72. The
administrators of the Departments and of the 63 Provinces, the Prefects and
the Sub-prefects respectively, are appointed by the President. Municipal
Councils regulate the local affairs of the cities. Suffrage is enjoyed by male
citizens over 21 (not domestics) who can read and write, who have a fixed
income of 200 bolivians, and whose names are registered. The Supreme
Court alone of the three branches of government is located at the nominal
capital Sucre. The Judiciary has a Supreme Court with seven Judges, a
Superior Court in each Department, and Provincial and Parochial Courts.
The Republic comprises eight Departments and three Territories as follows:
Departments Area, Population Capitals Population Altitude,
in in feet
square
miles
La Paz 73,000 734,000 La Paz 107,000 12,005
Oruro 27,000 137,000 Oruro 31,000 12,178
Potosí 57,000 515,000 Potosí 30,000 13,251
Cochabamba 36,000 512,600 Cochabamba 35,000 8,387
Chuquisaca 37,000 320,000 Sucre 30,000 9,328
Tarija 31,000 160,000 Tarija 11,600 6,248
Santa Cruz 140,000 327,000 Santa Cruz 25,000 1,450
El Beni 95,000 50,000 Trinidad 6,000 774
Territories
Colonias del 81,000 50,000 Riberalta 3,200
Noroeste
Colonias del 60,000 23,000 Villa Montes 970
Gran Chaco
Delegación Puerto
Nacional en el Suarez
Oriente
Population
The population of Bolivia, about 2,800,000, as in Peru is in three classes:

the whites, numbering possibly 500,000, Indians and mestizos most of the
rest, the Indians largely in the majority, though there are more than half a
million mestizos. A few thousand are negroes. Since the coming of the
Spaniards centuries ago, there has been no real immigration, the mass of the
people thus continuing Indian. The whites, many of whom have some
admixture of Indian blood, are of course the ruling class. An aristocratic
society exists, the members of which follow French fashions and customs
and in considerable number have visited Europe. A few persons have
inherited or acquired by mining or otherwise very large fortunes. Some
persons of obviously mixed race or mainly of Indian blood become educated,
and acquiring wealth take part in politics, hold office, and obtain social
position; more such than in Peru. There is a really cultured society in all
towns of moderate size.
The plateau Indians are chiefly Aymarás or Quichuas, the former living
around Lake Titicaca and throughout the northern part of the plateau; while
the Quichuas, strange to say, are at the south, farther from their kindred in
Peru. The Aymarás are less prepossessing than the Quichuas, more
churlish, rather darker, similar in mode of life, though a trifle more backward.
They till the soil to some extent, act as herdsmen, work in mines, and
perform heavy labor of any kind, carrying loads of 60-80 pounds, 20, 30,
even 50 miles a day. The women are said to be stronger than the men; both
do spinning and weaving. The men are inveterate chewers of coca, and men
and women both are much given to drunkenness. Of melancholy aspect, they
seem devoid of ambition. Generally submissive, if aroused they are
revengeful and murderous. Having received little attention from the
Government they are probably in poorer case than when ruled by the Incas;
they are believed to be diminishing in numbers. Plans have been formed for
improving their condition.
The mestizos, also called cholos, feminine cholas, are the industrial class
of the nation, artisans, shopkeepers to some extent, etc. The men dress in
second class European style; the cholas, one might say, half and half. As a
rule the cholos treat the Indians more harshly than do the real whites, while
to the latter they are rather servile. Some cholos have distinguished
themselves as writers and statesmen. Two thirds of the population are said to
live at or above 12,000 feet. Several mining camps are at 15,000 to 16,000
feet.
Education
Education is public, official, free, or private. Primary education is called free

and compulsory. The provision, formerly inadequate, has recently been
improved in accordance with a well planned programme. There are about
900 primary schools with 53,000 pupils, including private and kindergarten.
Fourteen colegios nacionales provide for secondary education besides
private schools under government supervision; in La Paz and Cochabamba,
two under Methodist auspices have accomplished excellent work. Teachers
are trained in four normal schools, while professional or higher education is
afforded by Universities in La Paz, Sucre, and Cochabamba, Law Schools at
Oruro, Potosí, Santa Cruz, and Tarija, a School of Theology at Santa Cruz.
There are further a Mining School, Institutes of Agronomy, Commerce,
Modern Languages, and Music; and four Schools of Arts and Trades, the one
at Cochabamba giving excellent results from instruction in weaving wool, and
in the use of native dyes. With a view to extending and modernizing the
education of women coeducation is practised in most institutions and there
are two liceos for girls. Students of especial ability are sometimes sent
abroad for study, and foreign instructors are engaged.
Press, Religion, Etc.
Press. The press, while important, is said to have less influence than in the
neighboring Republics, and it contains less news of the world.
Religion. The religion of the State is Roman Catholic, but freedom is now
granted to other forms of worship. Civil marriage alone is legal, but is
frequently neglected by the Indians.
Telegraphic Communication. The Capital is in telegraphic communication
with the rest of the world and with the capitals of all the Departments. The
country has over 200 offices, and 4350 miles of wire. A powerful wireless
station at Viacha, on the plateau 15 miles from La Paz, communicates with
the Pacific Coast and with passing ships. Other stations are at Villa Bella,
Cobija, Trinidad, Santa Cruz, Ballivián, D’Orbigny, Esteros, Riberalta, Puerto
Suarez, and Yacuiba. Telephone service exists in La Paz and Oruro.
Money. The unit of Bolivian money is the boliviano, equal to about 40 cents
(.389) of our money. English and Peruvian gold pounds are legal tender,
equal to 12.50 bolivianos. The latter are divided into 100 centavos. Silver
coins are of 20 and 50 centavos. Bank bills of one and five bolivianos and of
higher denominations are in general use.
Weights and Measures are of the metric system, but in the interior the old
Castilian system is chiefly employed.
Physical Characteristics
The topography of Bolivia in general is similar to that of Peru save for the
absence of a coast section. The Sierra or plateau region and the Trans-
Andine continue those at the north, though the latter differs from the Peruvian
in that its rivers reach the Atlantic Ocean, some by way of the Amazon,
others by the Paraná and La Plata, while the montaña of Peru is wholly in the
Amazon Basin.
The Plateau Region of Bolivia, 90 miles from the Pacific, extends from
northwest to southeast about 460 miles, with an average width of 100 miles
and an altitude of 12,500 feet. It is bordered on the west by the Cordillera
Occidental, containing snowclad peaks, several of which are volcanoes,
many dormant or extinct, and on the east by the Cordillera Oriental, the
northern part of which is the Real or Royal, a name eminently deserved. The
two ranges come together at the Knot of Cuzco or Vilcanota. Northeast of
Lake Titicaca is another confused mass or knot, the Nudo of Apolobamba,
where are said to be some of the highest peaks of the Andes. The central
plateau, once an inland sea, and now including Lake Titicaca, slopes slightly
from the north, where it has a height above 13,000 feet. It is broken in places
by ridges and peaks, one over 17,000 feet high, and is cut by a few cañons.
In the West Cordillera a number of peaks reach an elevation of 19,000,
20,000, or 21,000 feet; on the east the Cordillera Real contains several
above 21,000. Farther south in the lower ranges are some peaks of volcanic
character. A transverse ridge, the Serranía de Lipez, terminates the Bolivian
Plateau.
East of the southern part of the Cordillera Oriental is a mountainous
section of which the Sierra de Cochabamba on the northeast and the Sierra
de Misiones on the east form the limit. Considerably farther east in the region
of the lowlands is the Sierra de Chiquitos between the Mamoré and Guaporé
Rivers, mere hills in comparison, with one almost attaining 4000 feet. The
highland or plateau section, the only part visited by ordinary tourists or
commercial men, occupies hardly two fifths of the territory, the less known
lowlands three fifths.
The Lowlands, extending farther north than the Bolivian plateau, comprise
low alluvial plains, swamps, and lands often flooded, including great forests
and llanos. The great forests are at the north in the Amazon Basin, the open
plains in that of the Plata.
Rivers. The only rivers of consequence are those which flow towards the
Atlantic, with the exception of the Desaguadero, about 200 miles long, the
outlet of Lake Titicaca. This river flows into Lake Pampa Aullagas or Poopo,
which has no outlet unless it be by an underground stream to the Pacific, of
which there are some indications. The principal rivers of the Plata system,
the Pilcomayo and the Bermejo, flow southeast into the Paraguay River.
More numerous and important are the streams flowing northeast belonging to
the Amazon Basin, the chief of these, the Beni, and the Mamoré, which form
the Madera River. They have many tributaries, the Beni having the Madre de
Dios, the Madidi, the Cochabamba, and others; the Mamoré receiving the
great boundary river, the Guaporé or Itenez, and many more.
Climate
Bolivia, still within the tropics, has the same variety of climate as the
countries previously described, the difference in altitude causing the
variation. The portion of the table-land where the altitude is 12,000 to 13,000
feet, called the puna by the natives, has two seasons which resemble
autumn and winter, the summer is so short and cool. The summer, the
season of snows, is from October or November to May; the winter usually
has slight precipitation. Little will grow here except potatoes, barley, and
quinua. The higher land up to the snow line, perhaps 17,000 feet, called the
puna brava, is still colder, supporting grass only, where herders alone are
found with native flocks and rare mining settlements. Higher still is eternal
snow with almost Arctic temperature, -20° I found it at night on a glacier on
Mt. Sorata. A professor once told me that at 16,000 feet he was unable to
keep warm at night however much clothing and blankets he used, but the
Indians, moderately clad and with bare feet, endure the cold with apparent
indifference.
The valleys as high as 12,000 feet, as in the case of La Paz, are
comparatively comfortable, being shielded from the bleak winds of the
plateau. From 9500 feet to 11,000 the climate is sufficiently temperate for the
raising of vegetables and cereals. In what is called the Valley Zone, 5,000 to
9,000 feet, there is slight variation throughout the year, perpetual summer
and subtropical vegetation. Below are the yungas, deep valleys with
semitropical climate, and further the tropical lowlands. Except for the last
section the country as a whole may be called healthful, diseases arising from
bad habits, poverty, ignorance, and unsanitary conditions, rather than as a
necessary result of the climate. In the lowlands, however, tropical fevers and
malaria are likely to exist, while many persons are more or less affected by
soroche on ascending to the plateau from the sea. In La Paz the weather in
winter is cool, with a temperature occasionally below freezing and ranging
from 40° to 50° in the house. Snow though not uncommon soon vanishes in
the sun, and flowers like geraniums blossom all the year in the open. In
summer, with much more precipitation, it usually rains in the valley, with snow
often on the puna and always on the mountains above.
CHAPTER XXV
BOLIVIA: CAPITAL, DEPARTMENTS, CHIEF CITIES
The Capital
La Paz, the de facto capital, population 107,000, is by far the

largest and most important city commercially. It is the highest capital
and large city in the world, also one of the most picturesque, both on
account of its location at the bottom of a cañon, 1000 feet deep, and
of its street scenes with the strangely garbed Indians and cholos,
and the droves of llamas. The city has better sanitary arrangements
than Quito, the narrow streets are remarkably clean, but some
conveniences are lacking. There are electric lights and cars, but a
meagre water supply, and too few opportunities for a bath. Good
hotels are needed, the new “Paris” and some older houses being
wholly inadequate for present necessities. The business of the city is
largely in the hands of foreigners, i.e., the best shops, and some of
the banks and importing houses. La Paz is the chief centre of trade
of the country, the Custom House here transacting by far the most
business, but supplemented by several others at the east and south.
Departments
La Paz is the most northern Department of the plateau region, the

third largest, the first in population and importance. It has Colonias
north, El Beni and Cochabamba east, Oruro south, and Chile and
Peru west. La Paz has an extremely varied landscape with a range
in altitude from 640 to 21,750 feet at the top of Mt. Sorata, though
some Bolivians give the altitude of this mountain as 24,000 feet.
Besides the Cordillera Real the Department includes Lake Titicaca,
or as much of it as does not belong to Peru. The lake is remarkable
as being the highest in the world on which steamers regularly ply,
12,500 feet is an accepted figure; 12,545 is also given. The lake has
an area of 3200 square miles; it is about 120 miles long, 34-44 wide,
and 330 feet deep, in places nearly 1000. Other figures are 145

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The Cornerstone of Business

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Forest products except rubber have received little attention,

Cattle. The cattle industry is one of large importance, pasturage

While Peru does not support large manufacturing industries she

Peru obviously offers very favorable opportunities in many lines:

One of the two inland Republics of South America, Bolivia has an

Area, Population, Boundary

Area. Bolivia, with an area variously given as 515,000 to 708,000 square

The population of Bolivia, about 2,800,000, as in Peru is in three classes:

Education is public, official, free, or private. Primary education is called free

Press, Religion, Etc.

La Paz, the de facto capital, population 107,000, is by far the

La Paz is the most northern Department of the plateau region, the

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