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Managerial

Accounting

Creating Value in a Dynamic

Business Environment

Twelfth Edition

Ronald W. Hilton

Cornell University

David E. Platt

University of Texas at Austin

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MANAGERIAL ACCOUNTING: CREATING VALUE IN A DYNAMIC BUSINESS ENVIRONMENT,

12TH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2020 by McGraw-Hill

Education. All rights reserved. Printed in the United States of America. Previous editions © 2017, 2014, and 2011.

No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or

retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any

network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside

the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 LWI 21 20 19

ISBN 978-1-259-96951-5

MHID 1-259-96951-7

Portfolio Manager: Elizabeth Eisenhart

Product Developers: Erin Quinones and Allie Kukla

Marketing Manager: Katherine Wheeler

Content Project Managers: Pat Frederickson and Brian Nacik

Buyer: Sandy Ludovissy

Design: Matt Diamond

Content Licensing Specialist: Ann Marie Jannette

Cover Image: ©IM_Photo/Shutterstock

Compositor: SPi Global

We are grateful to the American Institute of Certified Public Accountants for allowing the use of adapted material from the Uniform CPA Examination (1978–1984, 1987, 1990 –1991) as well as to the Institute of Management

Accountants for allowing the use of adapted material from the Certificate in Management Accounting Examinations

(1977–1984, 1987, 1990–2000).

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Hilton, Ronald W., author. | Platt, David E., author.

Title: Managerial accounting : creating value in a dynamic business

   environment / Ronald W. Hilton, Cornell University, David E. Platt,

   University of Texas at Austin.

Description: Twelfth Edition. | Dubuque : McGraw-Hill Education, [2019] |

   Revised edition of the authors’ Managerial accounting, [2017]

Identifiers: LCCN 2019022188 | ISBN 9781259969515 (alk. paper)

Subjects: LCSH: Managerial accounting.

Classification: LCC HF5657.4 .H55 2019 | DDC 658.15/11—dc23

LC record available at https://lccn.loc.gov/2019022188

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not

indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee

the accuracy of the information presented at these sites.

mheducation.com/highered

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Ronald W. Hilton:

To Meg, Brad, Molly, Tim, Kerry, and Liliana.

David E. Platt:

To Nancy, for her love and patience.

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iv

Praise for MANAGERIAL ACCOUNTING

Hilton is a comprehensive managerial accounting text that incorporates a wide variety of applications and examples.

You are certain to find the examples and problems to fit your style. The emphasis of management of the firm and

depth of coverage makes this text worthy of consideration.”

—Todd Jensen, Sierra College

The Hilton 11e text is a fantastic resource for an Introductory Managerial Accounting course. It covers all of the necessary topics in a logical order and with an appropriate level of rigor.”

—Laura Zellers, Wichita State University

“Extremely comprehensive, easy to read managerial accounting textbook that provides well-designed integrated

examples along with coverage of service-based companies.”

—Angela Sandberg, Jacksonville State University

“I am loving the book, and I see the students learning the concepts a lot quicker than my previous experience.”

—Patti Brown, The University of Texas at Austin

“I would describe it as the Cadillac of core management accounting textbooks.”

—Bill Wempe, Texas Christian University

“This is an excellent text—well balanced, well organized, and up to date with current topics, including service

industries and state-of-the-art manufacturing environments. I highly recommend it also for the excellent examples

and illustrations through focus companies and contrasting companies.”

—John C. Anderson, San Diego State University

“I’ve been using this text since its second edition, and it gets better each year with continuous improvement.”

—Steve G. Green, United States Air Force Academy

“Well written with good explanations of the ‘why’ and ‘how’.”

—Christa Morgan, Georgia Perimeter College

“Major strength is how it relates managerial accounting to the general management function and reveals the

managerial accountant as an important member of the management team.”

—Linda C. Bowen, University of North Carolina–Chapel Hill

“The book goes beyond covering the basics and organizes and integrates contemporary topics nicely.”

—Harrison McCraw, State University of West Georgia

“Well written, well organized and excellent end of chapter problems.”

—Kathleen Sevigny, Boston College

“The technology supplements and instructor resources are top-notch and very appropriate for our students.”

—Marilyn Okleshen, Minnesota State University–Mankato

“The book is very thorough, well written, and still remains student-friendly. The supplements are outstanding.”

—Ben Baker, Davidson College

“A solid, well-written, user-friendly book; can’t go wrong with it!”

—Rochelle Greenberg, Florida State University

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Preface V

Hilton & Platt Managerial Accounting: After

12 editions, one of the most enduring and respected

managerial accounting books on the market.

Keeping pace with the speed of modern business, the authors combine their experience and expertise to make

sure Managerial Accounting is the most relevant, accurate, and up-to-date textbook in the field. Managerial

Accounting continues to focus and update content to bridge accounting and management practices.

Preface

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VI Preface

About the Authors

Ronald W. Hilton is a Professor Emeritus of Accounting at Cornell

University. With bachelor’s and master’s degrees in accounting from The

Pennsylvania State University, he received his PhD from The Ohio State University. A Cornell faculty member since 1977, Professor Hilton also has taught

accounting at Ohio State and the University of Florida, where he held the

position of Walter J. Matherly Professor of Accounting. Prior to pursuing his

doctoral studies, Hilton worked for Peat, Marwick, Mitchell and Company and

served as an officer in the United States Air Force.

Professor Hilton is a member of the Institute of Management Accountants

and has been active in the American Accounting Association. He has served

as associate editor of The Accounting Review and as a member of its editorial board. Hilton also has served on the editorial board of the Journal of

Management Accounting Research. He has been a member of the resident

faculties of both the Doctoral Consortium and the New Faculty Consortium

sponsored by the American Accounting Association. With wide-ranging research interests, Hilton has published

articles in many journals, including the Journal of Accounting Research, The Accounting Review, Management

Science, Decision Sciences, the Journal of Economic Behavior and Organization, Contemporary Accounting

Research, and the Journal of Mathematical Psychology. He also has published a monograph in the AAA Studies

in Accounting Research series, and he is a co-author of Cost Management: Strategies for Business Decisions,

Budgeting: Profit Planning and Control, and Cost Accounting: Concepts and Managerial Applications. Professor

Hilton’s current research interests focus on contemporary cost management systems and international issues in

managerial accounting. In recent years, he has toured manufacturing facilities and consulted with practicing managerial accountants in North America, Europe, Asia, and Australia.

David E. Platt is a member of the Accounting faculty and the Associate Dean for Undergraduate Programs at the McCombs School of Business,

University of Texas at Austin. He earned a BS Econ from the Wharton School

at the University of Pennsylvania, an MBA in Marketing from Syracuse University, and a PhD from Cornell University. After earning his CPA while working for Pricewaterhouse Coopers, he spent several years doing financial and

product management at a supply chain systems integrator. Dr. Platt currently

teaches a variety of managerial accounting courses at UT, including the

sophomore-level Fundamentals of Managerial Accounting, and has received

teaching awards at both the undergraduate and graduate levels. He directed

UT–Austin’s Center for International Business Education and Research

(CIBER) and has served as a chair of the Partnership in International Management, a consortium of leading graduate business schools worldwide. He has

been a visiting lecturer at the Sorbonne Graduate Business School in Paris,

and has delivered training for companies in the United States, Europe, Latin

America, and China.

©Jon Reis Photography

Courtesy of University of Texas

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What’s New in the 12th Edition?

New and Enhanced Themes

In the 12th edition of Hilton & Platt Managerial

Accounting, the authors have significantly

increased their coverage of data analytics and socalled big data in the context of managerial

accounting. The topic is first introduced in Chapter 1,

where it is discussed in the context of the Whole

Foods Market contrast company. It then gets

deeper coverage in Chapter 6, which includes an

illustration of data visualization using both Excel

and Tableau. And discussions of big data and its

impact in managerial decision making are sprinkled throughout the book, such as the new

Management Accounting Practice (MAP) inset

“Big Data ‘Use Cases’ in Managing Costs and

Profits” in Chapter 3, other new MAPs in Chapters

5, 9, and 10, and in general discussion.

Hilton & Platt Managerial

Accounting has long been a

leader in integrating discussion of business ethics into

the managerial accounting context through the

use of the Institute of Management Accountants’

Statement of Ethical Professional Practice and the

Focus on Ethics feature that appears at the end of

most chapters. In the 12th edition, the authors take

a major step forward in business ethics coverage by updating a number of the Focus on Ethics

scenarios and linking all of them to the thoughtful

and entertaining ethics concepts videos produced

by the business educators at Ethics Unwrapped.

Indicated by the logo that appears at the front of

this paragraph, the videos offer instructors the

opportunity to expand the discussion of ethical

concepts in business while providing students

some conceptual underpinnings for the ethical

dilemmas presented and their solutions.

New and Updated Content and Examples

Chapter 1 introduces managerial accounting to

students and motivates them by demonstrating its relevance in managing different types

of organizations. Based on user feedback, the

authors now focus less on managerial accountants per se and more on managerial accounting as a widely applicable toolset used by all

managers. Consistent with this change in focus,

the authors have streamlined the presentation

of where managerial accountants are found in

organizations. As mentioned above, they also

add an introductory discussion of data analytics and big data, while updating thumbnail views

of a few other key topics in management, such

as the value chain, capacity, and the balanced

scorecard. In addition, the discussions involving

the contrast company Whole Foods Market have

been updated to reflect the revised context of the

company’s acquisition by Amazon.

Chapter 2 sees the introduction of a new

contrast company, Gold’s Gym. Continuing their

commitment to including plentiful service industry examples, the authors build their discussion

of costs in the service industry around a fitness

business, a context that will be familiar to many

students, making the discussion more relevant to

them and therefore more memorable.

After adding time-driven ABC (TDABC) in a

health-care setting to Chapter 5 in the last edition,

the 12th edition further revises the presentation

of traditional activity-based costing (ABC) in that

chapter by introducing a new focus company,

Dronze, Inc. This company produces recreational

drones and, while staying close to the pedagogical approach to teaching ABC used in previous

editions, the update continues the authors’ commitment to keeping the example companies fresh

and relevant for students.

Chapter 6, which covers cost behavior and

cost estimation, continues the authors’ thematic

development of data analytics and big data in the

12th edition with a separate section addressing

these topics. The challenges and opportunities of

big data, though in large part beyond the scope of

this text, are developed here to provide students

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with a greater perspective on the origins and analysis of the data that is used in decision making,

and to alert them to the relevance of a topic they

likely will encounter in subsequent courses.

Data analytics, the process of examining data

sets in order to draw conclusions about the information they contain, is increasingly important in

managing many organizations. Data visualization,

which is the presentation of data in a graphical or

pictorial format to help managers discern patterns,

trends, and complex scenarios embedded in the

data, goes hand in hand with data analytics. To

cover these emerging topics, the authors extend

their discussion of the Chapter 6 focus company,

Donut Desire (a chain of five donut shops in

Toronto). The example analyzes a data set consisting of ten years of monthly data about the utility

costs and activity levels in the company’s various

shops. To augment the discussion of data visualization in the Donut Desire example, traditional

Excel visualizations are supplemented by outputs

from Tableau, which is a rapidly growing data

visualization software package now used in many

businesses.

Chapter 7, which covers cost-volume-profit

analysis, addresses the role of income taxes in

the chapter’s appendix. In this edition, the authors

have updated this coverage to reflect the lower

overall U.S. corporate tax rate resulting from the

Tax Cuts and Jobs Act (TCJA) that became effective in 2018.

During 2018, when the authors were beginning work on the 12th edition, there was increased

focus on corporate social responsibility and conversations about the role of companies in society,

exemplified by the “Letter to CEOs” published in

January by Blackrock CEO Larry Fink. Believing

that managerial accounting needs to be responsive to such concerns, the authors have rewritten

and expanded the section of Chapter 8 previously

called “Costs of Environmental Sustainability”

to broaden its coverage into corporate social

responsibility generally, often characterized

currently as “Environmental, Social, and

Governance (ESG) Initiatives.” The chapter provides a discussion of ways in which managerial

accounting measurement concepts apply to the

ESG initiatives undertaken by companies and the

ways in which ESG investors might use such data.

Chapter 12 has been formally split into two

sections that can be covered independently:

Responsibility Accounting and the Balanced

Scorecard. While the responsibility accounting

section is largely unchanged from the prior edition, based on user input the authors have significantly expanded the text’s balanced scorecard

coverage. In addition to expanding the discussion

of the balanced scorecard technique, they have

created a new contrast company example that

places the balanced scorecard discussion in the

context of a high-tech startup that is attempting

to target Millennials and Gen Z consumers. This

new example company will be more relevant and

memorable for students, most of whom will fall

into these generations, enhancing their understanding of this important performance management technique. They have also included a

number of startup performance metrics in the

example that students will find interesting (e.g.,

cash burn rate and runway) and added an exercise that reinforces these metrics. (Operational

performance measures have been moved to a

new appendix to Chapter 12.)

Chapter 15, on target costing and pricing

decisions, has an updated discussion of dynamic

pricing on the Internet by e-tailers, as well as a

new Focus on Ethics inset.

Chapter 16, which covers capital expenditure

decisions, addresses the role of income taxes in

discounted-cash-flow analysis in Section 2 of the

chapter. For the 12th edition, the authors have

updated this coverage to reflect the lower overall U.S. corporate tax rate resulting from the Tax

Cuts and Jobs Act (TCJA) that became effective

in 2018. Also, while recognizing that this is not a

tax textbook, they provide a brief discussion of

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the depreciation rules (including the Modified

Accelerated Cost Recovery System, or MACRS)

under the TCJA. Moreover, the lower tax rates

under the TCJA extend to Chapter 16’s end-ofchapter assignment material.

Updated Pedagogy

In addition to the specific examples above, many

chapters include streamlined and condensed

explanations, and the addition of more current

examples and references from the popular business press.

Service Industry Examples

The service industry continues to play a

dominant role in the U.S. economy, despite

continuing emphasis on the importance of manufacturing. The authors have continued their track

record of finding and integrating examples from

service industry organizations, while making

service industry examples featured in focus and

contrast companies increasingly relevant for

students. Widely acknowledged as having the

most service industry focus of any managerial

accounting text, the 12th edition widens the margin even further.

In Their Own Words

The authors continually work to update many of

the quotations in this popular feature, keeping

them fresh and relevant for today’s students.

Many of the quotations are new in this edition.

These quotes from practicing managers and

managerial accountants portray the important role

managerial accounting plays in today’s dynamic

business environment.

Management Accounting Practice (MAPs)

Many of these real-world examples have been

revised and updated to make them more current,

and several new examples have been added.

While some of the MAPs are completely new,

to address the data analytics theme mentioned

above, many of the existing MAPs have been

updated as well to keep them relevant and accurate. For example, in the Chapter 1 MAP “Using

Managerial Accounting to Monetize the Internet,”

the authors have added a discussion of various

efforts to return journalism to profitability. And

in Chapter 2, the MAP “Managing Health Care

Costs Through Cost Behavior” has been updated

for the current state of the debate over the

Affordable Care Act.

Your feedback is crucial in improving each

new edition of Managerial Accounting and has

been the motivation for many changes in this 12th

edition, including new themes, revised coverage

of key topical areas, and new pedagogy for the

most challenging topics.

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