SOLUTION MANUAL FOR
Management Accounting
by Leslie G. Eldenburg,Albie Brooks
th
5 Edition
1-1
,Chapter 1: The Role Of Accounting Information In
Management Decision Making
Questions
1.1 Explain The Value Chain And List Ways That Value Chain
Analysis Benefits Organisations.
(LO4)
A Value Chain Can Be Described As The Key Activities Engaged In By
The Organisation Or Industry. We Can View The Value Chain On Two
Levels: At The Industry Level, And At The (More Common)
Organisational Level. Refer To Figure 1.5 For A Sample Industry Value
Chain And To Figure 1.6 For A Sample Internal Value Chain. Value
Chain Analysis May Benefit An Organisation In A Number Of Ways
Including:
• Focuses On Activities. The Central Feature Of The Value Chain Is
Its Focus On Activities And Processes Rather Than Functions Or
Departments. This Makes Identification Of Improvements Across
Segments More Likely.
• Encourages A Broader Organisational View. This Is Particularly So
For Management Accounting Staff And Business Unit Managers.
Management Accounting Staff Are More Likely To Take A Broader
Perspective If Using A Value Chain Framework When Considering The
Consequences Of Decisions.
• Breaks Down More Traditional Representations Of Organisational
Activity. A Value Chain Framework Encourages Higher Levels Of
Cross-Fertilisation And Communication Between Business Segments,
So That Decisions Are Not Confined By The Traditional Boundaries
Of Functional Areas.
• Externalises Thinking By Incorporating Suppliers And Customers.
An Organisation‘S Value Chain Encompasses Not Only Customers And
Suppliers, But In Some Cases Extends To The Customers‘ Customers
And The Suppliers‘ Suppliers. Analysis Of The Value Chain Leads
To Improved Relationships Between The Organisation And Others In
The Value Chain, Creating An Extended Organisation That Can
Respond Flexibly To Dynamic And Competitive Environments. In
Other Words, Value Chains Explicitly Recognise That No
Organisation Operates In Isolation From Suppliers And Customers.
• Reinforces Other Initiatives Such As Activity-Based Costing
(ABC). With The Focus On Activities, A Value Chain Framework
Provides A Sound Foundation For Exploring Activity-Based Costing
(Which Is Covered In Chapter 4). ABC Uses Activities As The
, Foundation Of Product And Service Costing. Moreover, A Value
Chain Framework Complements Other Recent Initiatives Like
Strategic Cost Management, Which Refers To The Simultaneous Focus
On Reducing Costs And Strengthening An Organisation‘S Strategic
Position. This Commonly Involves Taking A Longer-Term View Of
Cost Management And Decision-Making.
• Provides A Foundation For Outsourcing And Strategic Alliance
Decisions. A Value Chain Framework Serves As The Foundation For
Considering Decisions Such As Outsourcing Of Particular Parts
Of The Value Chain And For Considering The
1-3
, Formation Of Strategic Alliances With Say A Distributor. In This
Way, The Value Chain Serves As A Strategic Tool.
• Supports Initiatives Like Supply Chain Analysis. As Organisations
Work To Increase Profitability, Improving Their Relationships
With Suppliers Becomes A Priority. Improvements Can Be Identified
Through Supply Chain Analysis. The Supply Chain Is The Flow Of
Resources From The Initial Suppliers Through The Delivery Of
Goods And Services To Customers And Clients. The Initial
Suppliers May Be Inside Or Outside The Organisation. Negotiating
Lower Costs With Suppliers Is A Straightforward Way To Reduce
Costs. Suppliers May Be Willing To Reduce Prices, Particularly
For Organisations Willing To Sign Long-Term Purchase Commitments.
Occasionally, Organisations Work With Suppliers To Help Them
Reduce Their Costs So That The Savings Can Be Passed Along.
• Categorises Activities As Value-Added And Non-Value-Added. Value
Chain Analysis Involves Studying Each Step In The Business
Process To Determine Whether Some Activities Can Be Eliminated
Because They Do Not Add Value. This Analysis Extends To Suppliers
And Customers, And Includes Shared Planning, Inventory, Human
Resources, Information Technology Systems, And Even Corporate
Cultures. Eventually, The Analysis Leads To Business Decisions
For Improving Value.
1.2 Why Do Managers Need To Measure, Monitor, And Motivate
Performance? (LO1, 2 And 3)
Once Operating Plans Are In Place, Organisations Need To Know Whether
The Plans Are Being Met Or Need To Be Changed To Take Advantage Of
New Opportunities. To Do This, Actual Performance Needs To Be
Measured And Compared To The Plans (Monitored). To Help Managers Move
Toward The Organisational Goals, Incentives Such As Performance-
Based Bonuses Are Offered (Motivating).
1.3 List Three Types Of Internal Reports And Explain How Each Is
Used. List Three Types Of External Reports And Explain How Each
Is Used.
(LO2)
See Figure 1.2 For A List Of Possible Internal And External Reports.
Students May Have Thought Of Other Reports As Well. Following Are
Examples Of Internal Reports. Capital Budgets Support Organisational
Strategies, The Master Budget Supports Operating Plans, And Variance
Reports (Actual Versus Planned Performance) Help Organisations
Monitor And Motivate Performance If They Are Tied To Compensation
Contracts.
Management Accounting
by Leslie G. Eldenburg,Albie Brooks
th
5 Edition
1-1
,Chapter 1: The Role Of Accounting Information In
Management Decision Making
Questions
1.1 Explain The Value Chain And List Ways That Value Chain
Analysis Benefits Organisations.
(LO4)
A Value Chain Can Be Described As The Key Activities Engaged In By
The Organisation Or Industry. We Can View The Value Chain On Two
Levels: At The Industry Level, And At The (More Common)
Organisational Level. Refer To Figure 1.5 For A Sample Industry Value
Chain And To Figure 1.6 For A Sample Internal Value Chain. Value
Chain Analysis May Benefit An Organisation In A Number Of Ways
Including:
• Focuses On Activities. The Central Feature Of The Value Chain Is
Its Focus On Activities And Processes Rather Than Functions Or
Departments. This Makes Identification Of Improvements Across
Segments More Likely.
• Encourages A Broader Organisational View. This Is Particularly So
For Management Accounting Staff And Business Unit Managers.
Management Accounting Staff Are More Likely To Take A Broader
Perspective If Using A Value Chain Framework When Considering The
Consequences Of Decisions.
• Breaks Down More Traditional Representations Of Organisational
Activity. A Value Chain Framework Encourages Higher Levels Of
Cross-Fertilisation And Communication Between Business Segments,
So That Decisions Are Not Confined By The Traditional Boundaries
Of Functional Areas.
• Externalises Thinking By Incorporating Suppliers And Customers.
An Organisation‘S Value Chain Encompasses Not Only Customers And
Suppliers, But In Some Cases Extends To The Customers‘ Customers
And The Suppliers‘ Suppliers. Analysis Of The Value Chain Leads
To Improved Relationships Between The Organisation And Others In
The Value Chain, Creating An Extended Organisation That Can
Respond Flexibly To Dynamic And Competitive Environments. In
Other Words, Value Chains Explicitly Recognise That No
Organisation Operates In Isolation From Suppliers And Customers.
• Reinforces Other Initiatives Such As Activity-Based Costing
(ABC). With The Focus On Activities, A Value Chain Framework
Provides A Sound Foundation For Exploring Activity-Based Costing
(Which Is Covered In Chapter 4). ABC Uses Activities As The
, Foundation Of Product And Service Costing. Moreover, A Value
Chain Framework Complements Other Recent Initiatives Like
Strategic Cost Management, Which Refers To The Simultaneous Focus
On Reducing Costs And Strengthening An Organisation‘S Strategic
Position. This Commonly Involves Taking A Longer-Term View Of
Cost Management And Decision-Making.
• Provides A Foundation For Outsourcing And Strategic Alliance
Decisions. A Value Chain Framework Serves As The Foundation For
Considering Decisions Such As Outsourcing Of Particular Parts
Of The Value Chain And For Considering The
1-3
, Formation Of Strategic Alliances With Say A Distributor. In This
Way, The Value Chain Serves As A Strategic Tool.
• Supports Initiatives Like Supply Chain Analysis. As Organisations
Work To Increase Profitability, Improving Their Relationships
With Suppliers Becomes A Priority. Improvements Can Be Identified
Through Supply Chain Analysis. The Supply Chain Is The Flow Of
Resources From The Initial Suppliers Through The Delivery Of
Goods And Services To Customers And Clients. The Initial
Suppliers May Be Inside Or Outside The Organisation. Negotiating
Lower Costs With Suppliers Is A Straightforward Way To Reduce
Costs. Suppliers May Be Willing To Reduce Prices, Particularly
For Organisations Willing To Sign Long-Term Purchase Commitments.
Occasionally, Organisations Work With Suppliers To Help Them
Reduce Their Costs So That The Savings Can Be Passed Along.
• Categorises Activities As Value-Added And Non-Value-Added. Value
Chain Analysis Involves Studying Each Step In The Business
Process To Determine Whether Some Activities Can Be Eliminated
Because They Do Not Add Value. This Analysis Extends To Suppliers
And Customers, And Includes Shared Planning, Inventory, Human
Resources, Information Technology Systems, And Even Corporate
Cultures. Eventually, The Analysis Leads To Business Decisions
For Improving Value.
1.2 Why Do Managers Need To Measure, Monitor, And Motivate
Performance? (LO1, 2 And 3)
Once Operating Plans Are In Place, Organisations Need To Know Whether
The Plans Are Being Met Or Need To Be Changed To Take Advantage Of
New Opportunities. To Do This, Actual Performance Needs To Be
Measured And Compared To The Plans (Monitored). To Help Managers Move
Toward The Organisational Goals, Incentives Such As Performance-
Based Bonuses Are Offered (Motivating).
1.3 List Three Types Of Internal Reports And Explain How Each Is
Used. List Three Types Of External Reports And Explain How Each
Is Used.
(LO2)
See Figure 1.2 For A List Of Possible Internal And External Reports.
Students May Have Thought Of Other Reports As Well. Following Are
Examples Of Internal Reports. Capital Budgets Support Organisational
Strategies, The Master Budget Supports Operating Plans, And Variance
Reports (Actual Versus Planned Performance) Help Organisations
Monitor And Motivate Performance If They Are Tied To Compensation
Contracts.
