Chapter 1
Cost Accounting: Information for Decision
Making
Solutions to Review Questions
1-1.
Financial accounting is designed to provide information about the firm to external users.
External users include investors, creditors, government authorities, regulators,
customers, competitors, suppliers, labor unions, and so on. Cost accounting systems
are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial
accounting systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial accounting systems do not require rules. Each
firm is free to develop managerial accounting systems that best serve the needs of the
decision makers (managers).
1-2.
B Providing cost information for financial reporting
A Identifying the best store in a chain
C Determining which plant to use for production
1-3.
The value chain is the set of activities that transforms raw resources into the goods and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods and services from the firm.
1-4.
The customers of cost accounting are managers, from plant managers to the CEO.
1-5.
Value-added activities are activities that customers perceive as adding utility to the
goods or services they purchase. Nonvalue-added activities do not add value to the
,goods or services. By classifying costs this way, the cost accounting system can help
the manager identify areas (processes) that can be improved, lowering costs and
adding value to the organization.
,1-6.
Answers will vary, but should include some of the following:
Title Major Responsibilities and Major Duties
Chief financial officer (CFO) ............... • Manages entire finance and accounting function
Treasurer................................................... • Manages liquid assets
• Conducts business with banks and other financial
institutions
• Oversees public issues of stock and debt
Controller .................................................. • Plans and designs information and incentive
systems
Internal auditor ...................................... • Ensures compliance with laws, regulations, and
company policies and procedures
• Provides consulting and auditing services within
the firm
Cost accountant ...................................... • Records, measures, estimates, and analyzes costs
• Works with financial and operational manager to
provide relevant information for decisions
1-7.
No. Sarbanes-Oxley is a law and violations of it are legal issues. Codes of ethics are
necessary to help accountants and managers identify situations that might develop into
ethical conflicts, understand what they could do in these situations, and to learn what to
do when they believe that an ethical violation has occurred.
,
Cost Accounting: Information for Decision
Making
Solutions to Review Questions
1-1.
Financial accounting is designed to provide information about the firm to external users.
External users include investors, creditors, government authorities, regulators,
customers, competitors, suppliers, labor unions, and so on. Cost accounting systems
are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial
accounting systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial accounting systems do not require rules. Each
firm is free to develop managerial accounting systems that best serve the needs of the
decision makers (managers).
1-2.
B Providing cost information for financial reporting
A Identifying the best store in a chain
C Determining which plant to use for production
1-3.
The value chain is the set of activities that transforms raw resources into the goods and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods and services from the firm.
1-4.
The customers of cost accounting are managers, from plant managers to the CEO.
1-5.
Value-added activities are activities that customers perceive as adding utility to the
goods or services they purchase. Nonvalue-added activities do not add value to the
,goods or services. By classifying costs this way, the cost accounting system can help
the manager identify areas (processes) that can be improved, lowering costs and
adding value to the organization.
,1-6.
Answers will vary, but should include some of the following:
Title Major Responsibilities and Major Duties
Chief financial officer (CFO) ............... • Manages entire finance and accounting function
Treasurer................................................... • Manages liquid assets
• Conducts business with banks and other financial
institutions
• Oversees public issues of stock and debt
Controller .................................................. • Plans and designs information and incentive
systems
Internal auditor ...................................... • Ensures compliance with laws, regulations, and
company policies and procedures
• Provides consulting and auditing services within
the firm
Cost accountant ...................................... • Records, measures, estimates, and analyzes costs
• Works with financial and operational manager to
provide relevant information for decisions
1-7.
No. Sarbanes-Oxley is a law and violations of it are legal issues. Codes of ethics are
necessary to help accountants and managers identify situations that might develop into
ethical conflicts, understand what they could do in these situations, and to learn what to
do when they believe that an ethical violation has occurred.
,
